I love hearing from readers at all stages of their medical careers – from fresh attendings to those getting closer to retirement.
Every once in a while, someone will be turned on to the idea of diversifying their investments outside of their traditional 401k and Roth IRA a little later in life. So I've gotten this question quite a bit:
“Is it too late for me to start investing in real estate?”
What is “Too Late?”
I always start by asking them what they mean by “too late.”
The response usually has something to do with the following three things:
- The learning curve is too long and steep
- It takes too much time for real estate to start paying off
- The market might not be optimal for investment
Before starting to address some of these things I think it's important to look at the bigger picture. Just how long do you plan to spend in retirement?
If you are in your mid-50's, you're looking at possibly 30 or more years of needing income. You are still in some prime income-producing years but it'd still be nice to have the option to work as much or little as you'd like.
So you're still going to want to figure out ways to bring in additional income, hopefully passive in nature to prepare for the days when you're not able to produce income from your day job. Hopefully that income that will carry you and your loved ones for the next 30 years and beyond.
The Learning Curve
We fear what we don't know. We've spent so many years in school to learn our craft that it feels like to learn anything new, it must take a similar amount of time. Who wants to re-spend that much time learning something else?
The truth is, yes, there is a learning curve. But it's not overly complicated and you'd be surprised how quickly you can pick it up, especially when you're trying to learn about rental properties. The concept, at least for residential properties (single family homes to apartments) is something we can easily wrap our minds around. I would guess that all of us have been a renter at some point in our lives.
The numbers don't require complex calculus. In fact, I've said before that it's as easy as calculating I's and O's. You just have to learn it and see the math performed a few times and it starts to make sense.
There is an “art” component to investing in real estate, whether it's owning your own properties or investing more passively through syndications and funds. However, I've found physicians are able to grasp it pretty quickly once they get started.
Now that is the major hurdle, getting started. We're often considered a risk-averse bunch, but as I've mentioned before, we should fear most the consequences of inaction or playing it safe. To me, that's putting way too much faith in things that are out of our control.
You will learn quickly as you go. You’ve been through the extreme rigors of medical school, surely you can handle this with enough motivation and effort. I can guarantee you, investing in real estate won’t be anywhere near as hard as what you endured to get where you are.
It Takes Too Much Time to Reap the Benefits
Sure, real estate, just like any other investment, takes time to mature. I'm sure you've heard quite a bit about compound interest and how it's so powerful in terms of creating exponential returns. But one of the key components is time. Look at any compound interest chart, it often takes 3-4 cycles of “doubling” to see that exponential growth.
It does also take time to reap the benefits of real estate investing – unless you fix and flip and that's just not something I'm interested in. This waiting period is normal if you’re just sitting on your property, relying on appreciation (which means prices tend to go up over time).
However, real estate is different from stocks in that you have the potential to force appreciation. You can rehab a property, bring rents to market values, and again, create that increased value. I've been able to do this with some of my properties in less than a few years.
Just owning real estate can have tremendous tax benefits that you can use to your advantage immediately.
I just find it doesn't take as long as people think to make an impact. Just look what might happen if you bought one property a year.
When it comes down to it, the benefits can take effect sooner than you think and it will last a lifetime, regardless of when you start your investment.
It's a Bad Time in the Market
We’re in a real estate bull market, just like stocks, and the ride surely has to end.
However, real estate is considered an inefficient market compared to stocks. Good luck trying to get a competitive advantage in picking stocks. It's all about information, but unfortunately you're competing against buildings full of analysts as well as supercomputers.
However in real estate, you’ve got the mom-and-pop operation who is tired of self-managing a property that they’ve had for 30-40 years and would like to cash out and move to a retirement state.
You have the children who were passed down the property as part of an estate who don’t want to co-own properties. This means that properties get sold with their value just waiting to be unlocked through smart management.
Yes, the market overall is high, especially for those trying to buy their primary homes. However, there are still deals to be had when it comes to investing in real estate. Sometimes you'll find them and sometimes other professionals will, and you'll have the opportunity to invest with them.
Trying to time the market is impossible. The key is at all times to be smart and perform due diligence, while considering how your investment would perform in a downturn. The problem with waiting for any sort of crash or recession to invest, you need to be ready for those opportunities with experience, wisdom, and some cash in hand.
If you don't gain experience now, you won't be ready to jump when the perfect opportunity comes. You won't even know what to look for.
My Father Jumped in Late in the Game
My father retired from a long-standing practice as a surgeon a little less than two years ago. When we were taking a good look at his plans for retirement, he only had money in his solo 401k and a retirement account from the hospital he worked at the last 3-4 years before retirement. He wanted to wait to take social security for as long as possible and we also didn’t want him to touch his retirement accounts if it could be avoided.
He had some money from the sale of our childhood home and we decided to diversify his investments. I helped him purchase some cash-flowing rental properties which he could use to support himself (and my mother).
At the ripe age of 69, he became a rental property owner for the first time. He was fortunate to have a son with experience, but it was a departure from anything that he had previously done.
He had worries about what it meant to be a landlord, what properties to purchase and where, what about lawsuits, and what about phone calls?
So I helped him find good property management, and to be honest, I set myself up to be the first line of defense in dealing with his property management. I would be the point of contact and only alert my folks for an extremely serious matter. I simply want my folks to enjoy a nice retirement.
Fast forward 18 months, now that his rental properties are well stabilized, I’d say that I don’t spend more than an hour in a month on those properties, and it’s mostly through email communication.
The time investment is so little on my behalf, but yet the properties are still able to provide steady cash flow for him to the point where they could live almost solely on that amount. Now that my parents are receiving social security and he's taking his minimum required draws from his 401k, they have a good steady flow of cash to live off of.
He started late, but the benefits of real estate investing kicked in immediately. I'm also confident they'll last for a lifetime. To top it all off, they know that their investments are a legacy that they’ll pass on to their children and add to the financial stability of future for generations to come!
So, no, it's never too late to start investing in real estate. It's like the old ancient Chinese proverb says:
“The best time to plant a tree was 20 years ago. The second best time is now.”
Have you felt like it was too late for you? Please be sure to stop by Passive Income Docs, see what others are doing, and give us your feedback on any value you gained from this post or others!