[Editor's Note: I liked the concept behind this post, but I didn't necessarily agree with all of its specific recommendations. So, as I have done many times in the past, I have decided to treat it as a bit of a Pro/Con post, giving my take on what a real estate interested doc should focus on during each of the decades of life. Hope you enjoy the different perspectives.] 


By Daniel Croce, Professional Real Estate Investor at Birgo Capital, Guest Writer

Hello there, White Coat Investor readers! I’m Daniel Croce, and I am definitely not a doctor or high-earning medical professional. I am not nearly smart enough or brave enough to do what all of you do. I am, however, passionate about helping people get a fair shake on Wall Street. I’m a professional real estate investor and personal finance enthusiast, and have found tremendous value in WCI content and resources. I drive a 2007 Honda Odyssey in large part because of the inspiration of Jim Dahle, and I count it a tremendous honor to connect with you here today!

Several years ago, I started building a real estate portfolio to generate passive income to help eventually escape my traditional corporate job as a Big 4 public accountant. As my income grew in my early professional years, I adopted the “live like a resident” framework, and continuously scraped together every penny to acquire my next investment property. Today, I’m co-owner of a firm with over 2,000 residential units under management.

Along the way, I became passionate about offering others the same opportunity to generate passive cash flow through real estate, and our business does just that. I love what I do: I love the connections I’ve made, and have actually had the opportunity to help many doctors over the years. They are some of my favorite people to work with—love the deeply analytical way they think, and… I’m not pandering here… they’re generally just really good people to work with.

Through my varied experiences of helping physicians analyze real estate investment products, I’ve developed a vantage point for how high-earning medical professionals should think about investing in real estate. In this piece, I’ll offer my two cents on how WCI readers might approach real estate investing in distinct phases of their financial lives.


The 20s

The 20s can be a painful decade for financially cognizant medical professionals. You’re almost certainly accumulating debt. Finishing undergrad, then med school, then residency, and maybe a fellowship. For the average doctor, your net worth might be roughly zero when you start your 20s, and it might bottom out around negative $250,000. Negative two hundred and fifty thousand dollars. Sheesh. For the average doc who finishes undergraduate school with $50,000 in college loans and then accumulates an additional $200,000 in med school debt, it’s perfectly realistic to be sitting with a negative net worth of a quarter of a million dollars at the ripe old age of 26.

Let’s assume you start earning a modest income during residency and/or a fellowship. Most doctors aren’t really able to start making serious strides towards building assets until their very late 20s. So how should you be thinking about real estate in your 20s?

My primary recommendation: if you know where you are going to reside at least somewhat permanently in your 20s, purchase a starter home. This is the easiest way to put some serious points on the board on the asset side of your net worth equation. Over the long run, home prices move up and to the right. They just do. Even if you’re buying at an expensive point in an economic cycle, buying a primary residence is generally a safe financial move and one that will, eventually, result in a positive net worth growth. Residential real estate appreciates because it is a scarce resource that meets a basic human need; therefore, it’s wise to be on team home ownership as soon as possible. Many high earners are focused on eliminating inexpensive debt as a primary objective, but the positive compounding impact of acquiring appreciating assets sooner rather than later can’t be overstated.

Do: Acquire an asset.
Do not: Get antsy about student loans and pay down low-cost debt too quickly.

The WCI Take: Long-term readers won't be surprised to see me recommend against physician home ownership in your 20s, despite having done it myself (and having lost money on it). Doctors in their 20s are in college, medical school, and residency. Most of them have no idea whatsoever where they'll be living a few years from now. They don't reside anywhere “somewhat permanently” in their 20s. Since on average it takes about 5 years for home appreciation to make up for transaction costs (about 15% of the home value round trip), buying a house in college, medical school, or even residency really doesn't make a lot of sense unless there was some way to magically ensure you were going to do them all in the same place. You certainly won't want to live in a home that you could afford as a student or resident for very long as an attending.

It is also a tricky time to invest in real estate since you have little to no income, tons of debt, and very little time. I would argue your time is much better spent learning to be a good doc during residency than trying to get started a little earlier on your real estate empire. Occasionally I see someone do some “house-hacking” during school or residency. Examples include buying a house and renting out the rooms to fellow residents or students or buying a duplex and living in half of it. Can it work out? Absolutely. Is it worth the time, hassle, and risk of it not working out? Not in my opinion. 

I would also push back on this idea that making money in real estate is “easy” or that it is anywhere near guaranteed, especially when bought anywhere near a peak. Consider my second home, purchased in 2006. It was sold 9 years later at a loss. A residency classmate purchased in Las Vegas at the same time and lost 75% of the value of the home (and 4-5X his downpayment) within a year or two. I'm a fan of owning your home and of real estate investing, but there is a time and a season. The 20s really aren't for real estate owning or investing if you are a doctor. 


The 30s

FINALLY. For docs, the 30s are the beautiful inflection point where your net worth starts to move in the right direction. You’ve got positive cash flow. If you’re still living like a resident, you should start to make some serious progress towards financial independence—hopefully by building up an asset base. As has been discussed at great length by the WCI community, this is true even in relatively low-paying specialties or in high cost of living geographies. Since a significant portion of your earnings are now being directed towards building net worth, how should you think of that in terms of real estate exposure?

This is where I might start to differ a bit from the conventional wisdom held by readers of this blog. I think that leveraged residential investment real estate with as few middlemen as possible is likely to generate the best risk-adjusted returns of any asset class over the long run. Doctors should pursue access to this asset profile as early as possible. If it’s not entirely unpalatable to your personality and there is a reasonable property management company that can be utilized to facilitate access to investment returns, I actually do recommend directly purchasing properties. In my opinion, equity is the most significant component of residential real estate returns that warrants aggressive pursuit. The upside that comes from equity is generally what generates outsized returns for this asset class, so I recommend pursuing a solution that will allow you to keep all of that upside.

Here is the specific recommendation: using fixed-rate mortgages to finance a material portion of the purchase price, buy single-family homes in good, stable areas where a property management company can take care of headaches. Direct your efforts towards buying quality assets instead of chasing yield.

A word to the wise: such investments are not actually primarily about cash flow! So many would-be real estate investors are laser-focused on the cash flow that real estate generates. I caution against such focus, as historically this is just not where the returns come from in investment real estate. By majoring on the fundamentals of quality and affordability in stable locations, modest appreciation creates outsized returns when leverage is properly utilized.

Do: Get access to residential investment real estate with as few middlemen as possible.
Do not: Forsake risk management in the name of chasing cash flow.

The WCI Take: Your 30s are a great time to buy a home. Once you know your personal and professional life are stable, buy a home. It's okay to use a physician mortgage if you have a better use for your money. 

I also agree that your 30s are the time to really focus down on building wealth. Most docs come out of training between age 30 and 35, so the 2-5 year “live like a resident” period should be complete and you should be into your doctor home by the end of your 30s. You should also get those student loans paid off and be starting to accumulate some wealth in this decade. You will, of course, need a written investing plan that discusses your investing goals, the investing accounts you will use to reach them, your asset allocation, and the individual investments within that asset allocation. For many doctors, real estate makes up a portion of that asset allocation. In my case, it's 20%. For somebody who is confident that real estate will provide “the best risk-adjusted returns of any asset class over the long run”, that might be 80%. Either is reasonable. 

Once you decide how much to invest in real estate, you'll have to decide how you wish to do it. There is a spectrum that ranges from the super-liquid, super-diversified, know-nothing Vanguard REIT Index Fund on one side, to purchasing and managing individual properties directly on the other side. 



In my opinion, the secret to finding the right place on this spectrum for you is to know yourself. Don't let anyone tell you that you can't make money or it is too risky to select your own properties and build a local empire from the ground up. But also don't let anyone tell you that any other method is stupid. Most of us do not have the time, the interest, the disposition, or the expertise to be landlords. Don't kid yourself that this is easy. It isn't, and there are countless anecdotes of doctors who had a lousy outcome from investing directly. It wasn't because they were dumb or got scammed. It was simply a bad fit for them. There's a reason every real estate seminar, book, and online course has a “rah-rah”, cheerleader element to rival that of multi-level-marketing companies. It really is hard work and you really do need some motivation to get started. Direct real estate investing has some elements of a second job. Yes, you can outsource some tasks, but you still have to manage the managers. If you do not thoroughly enjoy the process like Daniel (and to be fair, many docs), don't go down this route. You can still become a financially independent multi-millionaire in your 40s or 50s without ever buying a property directly. I wouldn't necessarily limit yourself to single-family homes (SFH) either. Many physician real estate investors prefer multi-family properties such as duplexes, quadplexes, and entire apartment complexes. Mobile homes, senior housing, student housing, retail, industrial, and other niches can also provide solid returns. There are a lot of efficiencies to be gained as you move from a SFH to an apartment complex.

Be smart about leverage, too. Yes, appreciation (especially leveraged appreciation) can make up a significant portion of the long-term return from your real estate investments. But cash flow matters. You don't want to be “feeding the beast” using your clinical income when you have multiple properties whose income does not cover their expenses. At a minimum, put enough money down to make sure the property is going to be cash flow positive. That usually means putting 25-35% down unless you see a hidden value-add that will rapidly allow you to increase rent or get a real deal on the property.


The 40s

Now we’re really picking up some steam. If you’re in your 40s, and you’re an avid WCI reader, you are almost certainly seeing some serious progress in your financial picture. Perhaps it’s a bit presumptive on my part, but… congratulations on your success! When doctors and other high-earning medical professionals are in this life stage, lifestyle creep tends to make its way into the real estate portion of an asset allocation. Now is the time to be vigilant with directing as much of the real estate portion of your net worth towards generating investment returns. If you can avoid it, don’t trip up too much on vacation homes or upsizing your primary residence.

Throughout your 40s, your income is likely accelerating, and taxes start to be a critical component of your financial picture. I strongly recommend investing in tax-efficient real estate. There are a myriad of ways to be tax efficient with your real estate investments, and your 40s is the time to richly educate yourself on this. Depending on the objective of a particular real estate investment, you should ensure that you are either obtaining access to pass-through depreciation or buying REIT products that will minimize taxes on your passive income and ensure you only pay capital gains tax rates on appreciation. I also recommend doctors investigate the benefits of cost segregation studies. Many doctors own the buildings in which they practice medicine, although I don’t recommend this. If that does happen to be you, though, consider having a cost segregation study performed on your building. Cost segregation studies allow you to accelerate depreciation and take large tax write-offs, ultimately keeping more of your hard-earned money in your pocket in both the short and long term. These studies are a powerful tool with which high-earning professionals should familiarize themselves.

Do: Think critically about tax efficiency with your real estate investments. Specifically, ask your tax advisor how you can utilize real estate investments to decrease your taxable income.
Do not: Give in to lifestyle creep and/or buy vacation homes that eat up your otherwise investable capital.

The WCI Take: I certainly agree that you should learn how the tax code works. Hopefully, you did that back in your 20s or 30s as you became financially literate. I am continually amazed at how little many real estate investors know about the tax code. I even see investors pulling money out of their 401(k)s, and paying penalties and taxes at very high marginal rates in order to get started investing in direct real estate just a little earlier. Self-directed IRAs and 401(k)s are easily used to invest in real estate (and can make debt real estate dramatically more tax-efficient) and at a minimum, retirement accounts and HSAs can be used for the stock, bond, and publicly traded REIT portions of your portfolio with the taxable portion invested in equity real estate where depreciation can shelter some of the income and 1031 exchanges can be used to defer (perhaps indefinitely) the realization of capital gains and the recapture of depreciation.

However, in my opinion, the main benefit of your 40s as a doctor interested in real estate investing is that you simply have more money to invest. If you did a nice job of taking care of business in your 30s, you no longer have student loans, you have an easily affordable mortgage (or perhaps even paid it off early), have made partner in your group, and are in your peak earnings years. So long as you can live on a generous budget, you should have plenty of money to direct toward your investments, whether real estate or otherwise. Now buying a property or two every year becomes possible if you are interested in direct real estate. Now the $100-250K minimums of private syndications or funds become more manageable if you prefer passive real estate. Compound interest really starts to take hold and your credit score and debt-to-income ratio allows you to acquire leverage relatively easily at reasonable rates. The 40s can be a great decade, although some doctors are still playing catch-up and should treat their 40s as discussed in the section above about their 30s.

I'm a big fan of ownership, as well. That includes your job, your house, the investments in your portfolio, and yes, even the building that houses your practice. Many doctors have told me the best investment they ever made was the building their practice was in. They weren't able to sell the practice for much at retirement, but that building was worth a lot! If nothing else, it provides an additional element of control over your work life. You can make the changes to your workspace that you want or need, you don't have to worry about the building being sold out from under you and devastating your practice, and you're completely in control of the price of rent. 


The 50s

This is the decade where doctors often start to take their foot off the gas pedal. This I know to be true: White Coat Investor loyalists will have margin in their financial lives in their 50s. You’re probably starting to win the game—crossing over into the green pastures of financial independence. What does that mean for how you should think about real estate?

Well, we actually think this is a time where you can afford to take some risk. I generally don’t recommend very risky real estate investments to investors who are trying to climb the mountain of financial independence, because real estate risk/reward tends to be more binary than the stock market. If you invest in all Fortune 500 growth stocks (a relatively risky equity investment strategy), you might experience some volatility, but your investment will almost certainly grow in value over time. But if you invest in a risky real estate deal with development risk or high leverage, you can actually lose principal. It happens all the time. You can’t afford to lose a single dollar while you’re on the trail up the mountain.

Once you reach the top, however, I think it’s ok to take a bit of risk—and this often happens in your 50s. I get it—you’re supposed to take less risk when you get older, but I’m of the opinion that real estate is different in this regard. As an asset manager, I’m generally more comfortable allocating investor dollars into riskier projects from older, wealthier investors. They can afford to take the gamble. If you’re interested in real estate investment and are looking for a way to juice the returns in your portfolio, I think now is probably the time to explore more aggressive real estate investing. This could take the form of investing in private placements that focus on redevelopment projects, new construction, or heavier value-add strategies, diversifying into riskier real estate asset classes such as retail or hospitality, or even buying raw land to sell to a developer.

While I encourage financially successful people to feel comfortable taking some investment risk during this decade, I also think the 50s is probably not the time to load up on direct leverage. If you want to passively invest in someone else’s project (that has leverage), that’s totally fine. But, if you’ve reached the top of the mountain, unnecessarily taking on direct borrowings is actually one of the moves that can derail your achievement. Losing some money on a passive investment isn’t likely to knock you off the peak, but taking on too much debt (e.g. becoming a guarantor on a real estate development project) actually can. It’s perfectly reasonable to try to boost the returns in your portfolio during this decade, but I recommend doing so without risking the farm.

Do: Take some investment risk if you’ve achieved financial independence.
Do not: Load up on direct borrowings or exposure to personal guarantees.

The WCI Take: The funny thing about risk is that as your ability to take it goes up, your need to take it often goes down! You should always invest according to your need, ability, and desire to take risk. Thus, some doctors in their 50s have already won the game. Maybe they should consider Bernstein's advice

“When you find you've won the game, stop playing.”

Many real estate investors are deleveraging in their 50s and improving the cash flow in preparation to live primarily off of that cash flow. This generally occurs naturally if you're not doing cash-out refinances as you go along. Leverage is one of the most significant risks of real estate investing, but my advice on the upper end of how much to take doesn't really change as you move from your 40s to your 50s—don't borrow so much that it doesn't cash flow.

The other nice thing about being in your 50s, especially if you started real estate investing in your 30s, is that you ought to be pretty good at it by now. You know what a good deal and a bad deal look like and you have a great network to help you solve new problems you may come upon.


The 60s and Beyond

You’ve won the game! No doubt about it: if you’re a reader and you’re in your 60s, you have achieved or are rapidly approaching financial independence. So, what role should real estate play in your financial life now?

Realistically, it should probably play a diminishing role because of its illiquidity. If you’re making new allocations to real estate investments in your 60s and beyond, think carefully about how you’re going to get out of them. If a new investment has a time horizon of 10 years or more with little or no ability to redeem your investment prior to that liquidation time frame, do you really want to make such a commitment? Also, active real estate investments tend to create more stress than passive ones. In this phase of life, do you really want to deal with the hassle of tenants or concerns about private real estate partnerships with little transparency? When you reach this stage, I encourage you to be slow to make new commitments.

However, there is a flip side to that perspective. You may be a person that now finds themselves with more time and more capital. Real estate can provide an outstanding intersection of investment and hobbyism later in life. My own parents are in this life stage, and they have enjoyed the challenge of flipping houses in their 60s. If you find yourself flipping endlessly through Zillow or Craigslist looking at opportunities to purchase investment properties, maybe this is actually the time for you to become a more active investor than you’ve ever been. I’ve seen this be the case for many physicians and other high-earning professionals, and it can be a tax-efficient way to grow wealth late in life.

Do: Scratch the itch for active, hobbyist investing, if you’ve got it.
Do not: Hastily jump into long-term commitments or partnerships.

The WCI Take: I agree with Daniel's concerns about liquidity. Your heirs would very much prefer to inherit a bunch of easily liquidated mutual funds instead of your real estate empire or a dozen different syndications and funds. The problem is that maximum tax-efficiency comes from the 

  1. Buy
  2. Depreciate
  3. Exchange
  4. Depreciate
  5. Exchange
  6. Depreciate
  7. Die

strategy. The exchanges, when combined with the step-up in basis, mean that depreciation is never recaptured. Now if you get to your 60s and sell all your properties and invest the proceeds into mutual funds, all that depreciation is recaptured and you'll pay a ton of capital gains taxes. It's quite a conundrum.

What I would do, however, is make sure you have put systems into place that allow you to travel and accomplish other retirement goals as well as gradually become less and less involved in the investments. Have a plan in place for your own senility! I would also pay your properties off to maximize the cash flow you get from them, since you probably won't want to sell the properties or take out new debt on them for living expenses. If you are in passive investments, favor those with short illiquid periods. Many private funds provide liquidity after just a few months or years. That probably matters a lot more in your 70s than in your 40s. 

It’s no secret that real estate is a proven wealth-building tool for high-income professionals. However, the way one goes about obtaining access to the wealth-building power of this asset class matters. Carefully calculating the real estate investment decisions you make in each decade of your financial life is essential. The additional care and attention can ensure that these decisions remain in the proper context of your broader financial picture. I hope this guide is a helpful resource for you as you think about your particular situation. If you’d ever like to talk shop, please don’t hesitate to reach out to me directly. Good luck to you as you continue your trek up the mountain!

What real estate investments have you made in the decades of your life? What would you do differently? Comment below! 

[Editor's Note: This article was submitted and approved according to our Guest Post Policy. We have no financial relationship.]