In the doctor’s waiting room, real estate investing has long been a popular subject. Real estate is a tangible asset more understandable than stock certificates and other market instruments. Therefore, it makes sense. It sounds sexier to boast about owning 50 doors (commercial real estate slang for 50 units) than to claim your mid-cap index fund increased by 4 percent. Even the younger doctors I know tend to be interested in real estate income, even though they may have a student loan debt of at least $250,000.

The convenience of investing has the freedom to act whenever you choose. Just be careful not to be burned. Here are the top five things that novice real estate investors should know.

You must be disciplined and driven.

With any project, you need to be driven to succeed and disciplined enough to stick with it until the end. The learning curve is significant if you are just starting real estate investing. Even with crowdfunding or syndications, you still need to carve out time if your primary job requires you to work 55 hours per week to figure out real estate investments. Never let anyone convince you that money will just magically appear in your bank account. You will pay a high price if you don’t put in the effort.

You’ll incur expenses.

Making money requires capital. When making a real estate investment, this is undoubtedly true. Just that investing in real estate enables you to use your money as leverage to maybe earn a multiple. But there are expenses in real estate that are frequently overlooked. Your tax situation will undoubtedly be more difficult than if you only received revenue from one W2 in the past. Taxes, depreciation schedules, and investment expenses all need to be managed when dealing with out-of-state investments. All of this is straightforward, but you must either hire an accountant to handle it or set aside the time to complete it yourself. Any real estate income is taxed at your marginal rate, which for high earners like doctors might be above 50%. As your tax return gets more complicated, your audit risk will most likely increase.

Your investment is deferred for a predetermined period.

Your principal investments are locked up for a specific period, just like many types of investing. One benefit of real estate is that, while most of your initial investment is still tethered, there is frequently cash flow in the form of rent that hits your bank account and can be used for living needs. Syndications may occasionally allow you to refinance the transaction and withdraw some cash, although this usually happens five years into the arrangement. If you are a property’s single owner, you should anticipate that your initial investment will be restricted until you sell.

Perhaps the actual winners from your efforts will be your children.

Investing of any kind has a time horizon. When you invest in real estate, you anticipate that its value will improve in the future. When you cash your profits, the taxman will still demand his cut. This includes every tax break you have benefited from over the years of depreciation. If you are fortunate enough to time a 1031 exchange, you can postpone some of the payback, but this still leaves you playing the real estate game. Your daughter, who will inherit your real estate business, is the winner. If your daughter deserves it, that’s fantastic; otherwise.

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Real investment risk exists.

During the housing scarcity in 2021, there were normal residential residences in the Bay Area that sold for a $1 million profit. You were mostly fortunate if you benefited from this. Most real estate transactions aren’t quick-money schemes. Many won’t even increase in value by that much, especially if the local economy is struggling. Investors can only make informed decisions about the possibility of success because they cannot forecast the future. This implies that you can have a sizable mortgage payment but insufficient renters to pay the bills. After accounting for inflation, you might be able to sell your property for less than you paid for it decades later.

Conclusion

Real estate has the potential to make you very wealthy. There are several doctors whose real estate investments are so lucrative that they outweigh their “day” jobs in importance. However, it’s also possible to fail miserably. Make sure you understand what you are getting into if you are just starting the game so you don’t go over your head.