I've recently been actively investigating the idea of investing in multi-family real estate, devouring every book, having coffee with every knowledgeable friend, and binge-reading every blog I can get my hands on.
One of the most fascinating aspects of lifting up this particular rock is how many people who have opted not to do so are convinced it is teeming with distasteful varmints that should dissuade me. The people most strongly opposed tend to have the least firsthand knowledge.
I find new challenges have a great deal to do with how you frame them. Mindset, as in most endeavors, makes or breaks you. Here, then, is my reply to the naysayers of my blossoming real estate interest...expressed as haiku.
Fear Of Touching Unpleasant Substances, Debunked
But midnight toilets!
Decades of midnight rectals...
I fear no plunger
It Could Be Worse; It Could Be Medicine
It will ruin your sleep!
Like night shifts in the ER?
Yes, but way less meth
Hassle Is In The Eye Of The Beholder
You don't want hassle!
Med school, kids, aging parents...
Why the change of heart?
Comments 5
There is a spectrum of real estate investment possibilities from the absolute hands off/high liquidity side (REITs) to syndications (relatively hands off/illiquid) to direct ownership (hands on, illiquid).
The more hands on you are the more control you have in the investment and the less cut you give to middle men. However it can be more of a hassle.
Everything is a compromise and you have to feel out where you fit in the spectrum (syndication for me)
Author
I do enjoy keeping an eye on how you are doing in the syndication world. Maybe we can grab a coffee or meal at the next FinCon and you can let me know how you vet your syndication deals? I’ve learned a lot from reading Millionaire Doc’s posts on the subject, and would love to know your approach if you are comfortable sharing, Xrayvsn.
I believe the ole adage rings true.
Risk is usually the investor, not the investment.
Real estate can be a wonderful way to invest if done strategically.
Just look at Cory. Nuff said.
South FL rental houses, uninhabitable, used as Meth labs. Not only a total loss but require hazmat grade destruction.
Tenents who don’t pay and don’t leave and when they do leave punch holes in a dozen walls with hammers for good measure.
Seen that in your real estate handbooks?
I bought some beach front condos on St Pete Beach in the 90’s. 3 units, 1 to live in at retirement, 2 to sell after all were paid off by rentals through a management company. The management company decided to acquire the condos at a steal and turn the property into a condo hotel on the beach. The place was closed for “renovation” by the management. No income was produced just renovation bills. The other owners, dentists from Akron, a Surgeon here, a small business man there, an anesthesiologist were left sucking wind. After 1.5 years of renovation the management offered to buy us out at 50 cents on the dollar. Basically the dentists et al were being used to increase building equity, pay for renovation and loose 50% of their dough to boot. One by one the “deed” was done and the dentists sold. I didn’t sell since I had no kids and could manage the cash flow. I stood between total ownership and the old covenants. So I was bought out at market value.
My Dad had a couple houses in a college town. Rented to students. 2 br 1 ba places became flop houses for 6 and the places were trashed.
I lived in a rental when I moved to Orlando. 3 br house maybe 2500 ft^2 newer home. Place caught on fire Dec 24th 1989 and burned up everything I owned including both my cars. Fortunately my wife and I escaped with only slightly singed hair. 15 more seconds could have been a different story. That threw a monkey wrench into my plans and bet it threw a monkey wrench into the rental owner’s plans of becoming a real estate guru
I read an article recently by the Financial Samurai discussing his FIRE failure. He came to the understanding that narrative is merely narrative and he needed to go back to work. He tried to fool himself for as long as he could but he was honest enough to relent before it was too late. One thing that happened is he had another baby. Parenthood will mess with your delusion.
Narratives are swell. Nobody pens a book or writes a blog except to turn a buck. Everybody loves being an expert and excel in telling fish stories. The rubber meets the road when you search out failures and there are many failures, only they don’t come packaged in nice bow tied narrative. When you fail you don’t look so menschy so you don’t admit your defeat. You just slink away to lick your wounds. Personally I think Financial Samurai is the mensch. He’s someone who is honest in his narrative.
I’ve read a few stories by honest men who completely blew up in real estate in 2008. 2008 was fueled by a debt crisis and mis-priced collateral due to easy money. When it comes to mis-priced collateral and debt 2020 or when ever the conflagration hits, will be far worse than 2008. Money is so easy now, inflation adjusted we are running slightly negative. The stock market is a mirage of stock buybacks purchased using triple B paper. There has never been this much debt in 5000 years of recorded history. What could possibly go wrong? The model is buy low, sell high, not buy high, blow up, get stuck with a huge wad of debt go bankrupt. Kind of Donald Trump’s story. Bet none of your books talk about the macro economy do they. It’s all 12% – 18% return all the time isn’t it? I own some real estate exposure right now and it’s making me some money, but its owned in a way that I can go flat in 5 minutes and I won’t incur any tax consequence if I sell. At the first sign of recession I will be selling after making a nice profit and looking for another opportunity. Rule #1 of investing is understanding the exit plan before you even look at the deal. In my beach front property deal I didn’t have an exit plan. It worked out but I was lucky. Lucky is no way to run a portfolio.
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The hazards are there, without a doubt. Your Orlando story is a telling cautionary tale (glad you managed to get out whole).
I tend to seek books that are less sunshine and rainbows than slow and steady wins the long game. The books I read are citing 5-7% multifamily cap rates in LA, on top of landlord hostile laws – certainly not 12-18% returns.
Where it might get very interesting is adding in the tax shelter component, which is a potentially big win if you can claim Real Estate Professional status – something that could work for a part-time doc in a dual-earner household, but will not work for a full-time doc.
I like the idea of transitioning to a new area of learning that I can continue to develop mastery in over years, and that will likely keep my brain engaged for the next several decades after I exit medicine. I also won’t deny that if you look at time invested in learning, hour for hour and once you have the capital to invest, real estate is likely to be among the more remunerative paths available.
Exit plan is important, and I need to devote more time considering what that would look like – that’s a point well taken.
I sincerely appreciate the feedback, Gasem, and I’m grateful you’ll keep me honest by holding my feet to the fire if I start to resemble a toxic ingestion of real estate Kool-Aid.
CD