[Editor's Note: In today's post, Peter Kim from Passive Income, MD. explains various ways to invest in real estate. I'm not sure I'd call all the investments below “side hustles” but certainly flipping homes and other methods of direct real estate investing will involve some hustling!]
As you likely know, I believe that investing in real estate is one of the best ways to generate passive income and, ultimately, reach financial independence.
There are many, many ways to invest in real estate, and the decision of how exactly to invest is based on many factors. Some people, for example, make real estate a full-time job and dedicate many hours a day. Others work a handful of hours every quarter and still bring in a decent chunk of monthly income.
If you’ve been interested in real estate investing but haven’t known where to start, one great way to test the waters is by using real estate as a side hustle to supplement the income of your “day job”.
And if you haven’t yet considered a side hustle in the first place, don’t worry; we’ll discuss that as well.
So, is real estate investing the perfect side hustle for physicians? Let’s take a look at why it may or may not work for you.
Why Have a Side Hustle?
Before we delve into all the options for establishing a real estate side hustle, let’s look at why you might consider a side hustle in the first place.
The modern medical field is in a state of constant fluctuation. Debt is rising, regulations seem to change almost weekly, and it’s an understatement to say that job security isn’t what it used to be.
As a result, many physicians are turning to additional ways to not only supplement their income but to achieve a level of financial security that their day job simply doesn’t offer.
Even if you’re in a stable position, a side hustle can be a great way to keep your mind engaged outside of work, and to produce extra income doing something you’re passionate about.
Lastly, if complete financial independence is your goal, a side hustle can fast-track your journey by providing streams of passive income. One day, you may wake up to see what was once considered a hobby can cover all your monthly expenses, making your day job completely optional.
If any of these reasons resonate with you, then let’s examine the different ways that people use real estate as additional sources of income.
Crowdfunding
Way back in the day (2014), I made my first real estate investment using a crowdfunding platform. Despite experiencing the fear that every first-time investor likely goes through, I took the leap with just $5,000 and never looked back.
In case you aren’t familiar, here’s a quick summary of what crowdfunding is: many investors come together and invest in a property (single-family, multi-family, commercial, etc.) by combining their capital. This is all facilitated by a third-party, online platform. Essentially, you are the bank offering a loan; you agree to certain terms and receive a monthly distribution.
Crowdfunding is great for someone looking to start small and see what all the buzz is about because it usually has a low barrier of entry ($5,000, for example), carries somewhat less risk, and produces great average returns.
Of course, there is still risk, and, as with any investment, it’s important to perform thorough due diligence. Fortunately, many platforms make this slightly easier by painstakingly vetting their deals and offering comprehensive risk assessments.
The only other potential downside is that some of these platforms do require that you be accredited.
For a detailed list of crowdfunding sites that I recommend, be sure to check out this list.
REITs
If real estate investing exists on a spectrum (and it does), with managing your own property at one end (very active), Real Estate Investment Trusts (REITs) are at the far opposite end (completely passive).
REITs are essentially a fund that includes many diverse real estate assets. The barrier of entry is extremely low at around 12 basis points, the investment is very liquid, and the returns can be better than investing in the stock market.
However, most REITs do have some correlation with the stock market, and so returns can fluctuate quite a bit. Still, they’re a great option for someone who wants to add a certain level of diversity to their investments while remaining 100% passive.
Fix-and-Flip
If you’ve ever turned on HGTV, you’re familiar with the concept of flipping homes. It has a certain allure, after all—finding a fixer-upper, improving it by expending some time and creative energy, and then selling it for a tidy profit.
It’s great, in theory, and it works well for many people. The downside is that this method is extremely hands-on, and, though the returns can be sizeable, it can be very risky.
Running a successful fix-and-flip operation takes knowledge and skills that can take years to master. It also requires a large amount of capital to purchase the home and cover all the necessary renovations.
Though this option comes dangerously close to falling outside the “side hustle” category, there are people who manage to do it (and why it’s on this list).
If you think you might have a passion for it, this could be a great way to rid yourself of some elbow grease. Still, it is important to make sure you know what you’re getting into.
Owning a Rental Property (or Ten)
Direct ownership is one of my favorite ways to invest in real estate. Don't get me wrong, there are still plenty of risks and potential headaches when you own your own properties, but I’ve found that the returns make it well worth it, and many people are surprised to find out that, if you play your cards right, the cash flow can be very passive.
This method does require quite a bit of upfront work. Due diligence can truly make or break this type of investment. Unlike with other types of real estate investing, the vetting and research are 100% up to you. But as long as you have a system that works for you, this isn’t nearly as bad as it sounds.
One common objection to owning a rental property has to do with ongoing maintenance. No one wants to get the “my toilet is broken” call at 3 AM—and with good reason.
Fortunately, despite owning several properties myself, I’ve never received a call like that. Good property management handles all the day-to-day stuff, and all I need to do is approve the occasional decision via email and cash the monthly checks.
Syndications
The world of syndications is complex, but, basically, a syndication is the pooling of capital to invest in a real estate opportunity (similar to crowdfunding). They are usually only open to accredited investors.
A syndication is facilitated by a “sponsor”, who vets a real estate deal, acquires funds from investors, and then purchases, manages, and operates the property. As an investor, you simply collect the payouts.
Note: If you’d like to learn more about syndications, be sure to check out this post.
This changes things just a bit, because you’re investing in the sponsor as much as you are a property. Due diligence, then, should be performed on both.
This method of investing also offers many different types of deals, from single-family to industrial. This allows for some excellent diversification.
Once you find a trustworthy sponsor and a solid deal, a syndication can provide fantastic cash flow and is completely passive.
Conclusion
The great thing about real estate investing as a side hustle is that there are so many options to choose from. No matter your availability of time or capital, there is an option for you.
The downside is that all these options make it somewhat difficult to choose one. Personally, I recommend beginning with something small, like crowdfunding. This will allow you to find out if it’s right for you, and how much it truly interests you.
The key is to get started as soon as you can. Once you’ve started down the real estate investing path, you’ll probably wonder why you didn’t do it sooner.
Which real estate side hustle has fast-tracked your trajectory towards financial independence the most? Comment below!
Featured Real Estate Partners
Great summary from PIMD!
I’m jumped into real estate investing with direct lender ship of cash flowing rental properties. It’s very true what Peter points out that there is work involved for sure. But this is leveraged work that eventually becomes much more passive. This strategy has helped me double my net worth within 6 months of graduating training (although I’m still in the negative!).
I imagine I’ll foray into the other types of REI in the future but plan to stick with direct investing for now!
You doubled your negative net worth? That doesn’t sound like a good thing. 🙂
What is direct lendership? How do you find these types of opportunities?
Not sure I recommend it, but you can buy notes from various crowdfunding platforms or even lend directly to local real estate investors you know or meet at real estate investor groups etc. I prefer a fund of loans.
Yes, all of the above please. Plus commercial real estate, plus funds.
Being all along the entire spectrum adds diversification. That isn’t required. You can start anywhere but I recommend owning all of these eventually.
Hi!
I’m a family doctor in Canada ( so by definition not an high income earner in your neck of the woods- but I’m totally burnt out and want to look at passive income streams. I like real estate and it’s a good invest where I live but have trouble accessing capital. Any thoughts???
What do you mean by access capital? You mean your money is in retirement accounts? Or that you can’t get a loan? Or that you have no money? Or what?
What real estate property management company do you use?
How much do they charge?
How do you deal with repair issues such as broken heater, door etc.?
Tenant Damage?
Who are you asking?
I thought I was asking you Jim 🙂
You know I didn’t write the article above, right? See the first paragraph.
So I don’t have a property management company because I don’t have any direct real estate investments. Mine are all passive syndications and funds. So I don’t deal with any of that stuff. No repairs, no tenant issues, no nothing. I just get deposits in my bank account.
Would you please tell me what syndications and funds have you invested in and how much percentage of your portfolio? and how do you get the money?
We were planning to buy 4 town houses worth approx. 400 k each with 20 % down,
rental income expected to be between 2800 to 3000 on each
Also with this Sanders 99.5 % law going to be passed which allows a couple to exempt 7 M of Estate to Heirs after which the Estate will be taxed at 45 to 50 %
Versus
current Trump Law which allows a couple to exempt 23.2 M tax free
What kind of Trust do you suggest to set up before this law goes into effect? (not that I have
23.2 M right now, but will have in 10 years or so)
Thx
Latest update here: https://www.whitecoatinvestor.com/spring-2021-real-estate-update/
You can also sign up for our real estate newsletter here:
https://www.whitecoatinvestor.com/free-monthly-newsletter/
My portfolio is 20% real estate, 5% publicly traded REITs, 5% debt real estate (all funds now) and 10% equity real estate (mostly funds but some syndications still).
I get the money from working. I earn more than I spend.
I wouldn’t expect anything proposed by Senator Sanders to ever pass. I certainly wouldn’t make changes in my estate plan until laws were actually in place. If you want to try, go see an estate planning attorney in your state. It’s not really a do it yourself project.
Hi Jim
Is this the real estate component of your portfolio?
I would like to know your overall portfolio and how much percentage you have allocated and to which specific funds
Thx
https://www.whitecoatinvestor.com/the-new-wci-asset-allocation/
Jim, in your case, you don’t have any direct real estate properties? I hear so many people saying “you should buy a rental property” but my wife and I just haven’t been able to take the leap.
Not any more. You definitely need to want to do it. It’s not mandatory to reaching early FI or anything else.
https://abc7chicago.com/cardiologist-killed-doctor-matteson-man-fatally-shot-dr-srinivas-reddy/5679927/
I know this is rare, as for me after years of following WCI/Bogleheads and other investment ideas I like passive investment and don’t want to directly deal with any renters. Same applies for insurance sales person and financial advisors
Terrible story, I’m sorry to hear it.
I also don’t like dealing with renters, although that wasn’t really the reason why. The risk is probably higher of being shot at work.
Very Sad story
Urgent Question
Hi Jim,
Planning to buy 4 rental homes this year 2021,
I have money in my S Corp Account (medical income) but not in my LLC account (rental income)
Is it a good idea to loan money S Corp to LLC , so any future rental income earned by LLC can be negated by the amount to pay the loan to the S Corp ?
Does that make sense ?
Please advise .
Why not take a distribution from the S Corp and use that to buy the rental properties? Why a loan?
Pardon my ignorance, but a distribution means shareholder distribution from S Corp to my Personal account and then pay the lock in rates for the four homes from my personal accounts?
Yes, that’s what I would do.
Raj,
I did just that. I own about 20K sq feet in commercial real estate. Originally, the LLC took out the loan from a lender. Rather than paying back the lender slowly over a long term with LLC rental income I took profits from my S Corp practice and paid off the lender within 3 years. No more interest paid to the bank. Essentially my S Corp is now the lender and owed the funds by the LLC from a tax/accounting perspective. You can still depreciate the property the same for tax purposes as well.
If you take distributions and pay off the the property housed in the LLC with personal accounts, I believe from an accounting standpoint that you personally are now the lender to the LLC, technically.
You can set it up as a loan or you can simply add capital to the LLC. Maybe there are some asset protection, estate planning, or even tax benefits of doing one versus the other, but the simple way of doing it is probably getting rid of the loan at all.
DearJim and fellow colleagues, please help me and give advise
In approx. 3 to 4 months I will have 350 K to invest and was planning to use it to buy 4 townhouses worth 400 k each generating a rental income of 2800 per month before expenses.
After reading some of the articles must admit dont have a sustained attention span, I realized if I invest the same money in a REIT fund or crowdfunding Real Estate etc. I can be ahead without the management hassles.
My question is for example I put 350 k and hopefully get a 10% return per year and 5 years realize that this company for example Crowdfunding Real Estate, Fundrise etc is going bankrupt, how can I be secure that my investments will be safe?
Are these companies mandated by Govt to carry insurance if they fail completely?
Also how would you recommend putting this 350 k in which REIT fund, Crowdfunding, Fund Rise, Vanguard, Fidelity Etc.?
Please advise
Sincerely,
Define safe.
No guarantees nor insurance against poor performance. Best to do excellent due diligence and diversify.
We don’t make real estate recommendations, only introductions. We do have a list of financial advisors you can discuss it with though. Honestly, if you do not feel capable of evaluating private real estate investments on your own (i.e. be an accredited investor) I recommend against investing until you do, especially if $350K is a significant part of your financial life.
Dear Jim
I have two properties paid off worth approx 1.5 to 2 M dollars, one generating net income of 5000 per month
I have three other town house rentals making me 200 or 300 per month each after expenses
I was planning to buy 4 more town houses worth 400 k each
I was researching REITs, Crowdfunding real estate etc and average returns are 6 to 10 % or if you get lucky and locked in for 5 to 10 yrs may be 15 to 20 %
Would please disclose the websites you use to buy these properties?
Also, would you please disclose name of your financial advisor and CPA I need serious help organizing and managing my finances as I feel I wasted 20 yrs of working 100 hour weeks not saving well and spending etc.
Thx
Sincerely,
More info here on my investments and why it is hard to give specifics (mostly privacy agreements I signed when I invested):
https://www.whitecoatinvestor.com/spring-2021-real-estate-update/
Wjhat do you think about this site?
https://nria.net/
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It’s a private real estate firm’s website. I’m not going to do your due diligence for you. I suggest you do before you invest with them. I know nothing about them.