There is a big misconception about real estate investing that is picking up steam. It is the idea that if you want to invest in real estate, you have to deal with all the aspects of managing the property. If the toilet is plugged, you have to fix it. If the roof leaks, you have to repair it. If a tenant moves, you have to find a new tenant. As a busy professional, you don’t want the headache of your rentals being a second job. Fortunately, that is not the way it works. If you are a real estate investor and you are doing all the work to run it yourself, then I can show you a better way.
The misconception of the time it takes to be a real estate investor is keeping busy professionals from investing in real estate on their own. This results in missing out on what I feel is the best investment there is, and is one of the reasons I wrote my new book, The Doctors Guide to Real Estate Investing for Busy Professionals (who don’t think real estate is for them). My wife and I spent two months this year hiking 450 miles across Spain with our cell phones on airplane mode. If I can do that and own 55 rental units, it should be very clear that owning real estate investments is definitely passive income and not a second job. As we travel the world, the checks just keep coming in effortlessly. Real estate investments are passive, with the option to get more involved if you want.
The great thing about real estate investing is you can do anything you want with it, because it belongs to you. If you like fixing toilets, you can. If you don’t, then don’t. The first year we owned our apartment complex, we did everything, by choice. We wanted to learn the business from the ground up.
Today we do almost nothing. We have a management company who takes care of our 55 units so we can travel the world. It is true that someone will have to take care of the real estate, whether it is a syndication or something you own yourself, they both work the same.
If you are the sole owner of a piece of investment real estate and don’t want to be involved in the day to day operations, you simply pay for someone to take care of those issues. If you own a REIT, you will be paying for someone to take care of the day to day operations of the investment. If you are a partner in a syndication, you will still be paying for someone to take care of the day to day operations. Don’t kid yourself into thinking those costs don’t occur unless you own it yourself. Management costs work the same with all investment real estate.
As the actual owner of real estate, I can determine how the big things happen, such as when the property gets sold. This is not something you can control in any other form of real estate investing. When you are not the person in charge, those in charge of the property can decide to sell this year, whether you want to or not, but it is you who will be dealing with the capital gains. You will then no longer have an investment and will be forced to look into where to reinvesting your money without much warning.
It is a bummer to need to reinvest your money upon someone else’s decision. You spent hours choosing a “passive” real estate investment and vetting the group only to suddenly be out. Now you have to do it again. I prefer to make an investment that will last my lifetime and not have to keep going through the vetting process every time they decide to sell.
My rental real estate investment will likely be passed down to my kids at a stepped up basis without any taxes on the capital gains. All along the way I benefit from the cash flow, which I now live on. I will never have to go through the process of choosing an investment again. I own it and it is there to stay.
Now that I have purchased the property and hired a property management company, the only demands my rental property require are cashing the checks and paying the taxes. The property management company takes care of everything else. That sounds pretty passive to me. Some people will say “but you can’t find good property management.” If you believe that is true, then you should never buy anything claiming to be a real estate investment because they are all run by property managers. The difference is I can change management companies if I don’t like how things are being run.
When I retired from medicine, I wanted to do a lot of traveling. Being out of town half of the time doesn’t lend itself well for me to manage my properties. I now let the management company run everything so I can travel. The management company doesn’t always handle situations the same way that I would, but not needing to be present for the day to day operations has allowed me total freedom.
Another issue to be aware of is the concept of “accredited investors.” I have been involved in several investments that required me to prove I am an “accredited investor.” It should make you pause when you have to prove that you can afford to lose your entire investment and that you know the risks involved before they will let you invest with them. If you then lose it all, they can say “I told you this was a risky investment.” You won’t go through this when you buy your own property. Anyone is allowed to buy their own apartment complex without any justification.
Owning your own real estate investment also doesn’t come with a bunch of rules. You can buy and sell real estate when you want, spend the proceeds how you want, and keep the investment until you die if you want. You cannot do that with your 401(k) which puts limits on how you can access your money.
If you have been wanting to invest in real estate but were afraid you didn’t have the time, think again. It won’t take much time if you do it right. By following the instructions laid out in my real estate book the business will practically run itself. Or if you prefer to get involved, you can run it with very little of your time. When I was a fulltime surgeon, I managed 64 apartment units for nearly 13 years on 10-15 hours a month. After hiring a property management company, I now spend almost zero hours a month on my real estate investments.
Don’t be scared off by thinking real estate will eat up all your free time. Building your own real estate empire will let you call the shots, make all the profits and take all the deductions. It is not hard to do, and it is not as “active” as some will have you believe.
I have some relatives who are in their late 80’s who own several commercial properties. They do nothing but cash checks. You can be just like them. Watch for my real estate book coming out on Amazon October 11th, get your copy, and start your own empire. You can do it. Then you can choose to be as active or as passive as you want to be with your new passive investment.
My real estate investments are paying me more money today than following the 4% rule with my retirement plans, and it requires about the same amount of my time. So why not invest in the one that will make you the most money over your lifetime, real estate. I encourage those who are interested in owning passive investments to invest in rental real estate directly. It truly is a passive source of income.