Real estate investing for physicians [PODCAST]

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“Many physicians are looking for alternative sources of income and are looking for ways to diversify their investment portfolio from the volatility of the stock market. Some have heard of real estate syndications, but what exactly is a syndication? For those who have not heard of it, real estate syndications can be an attractive investment vehicle for busy professionals who do not have the time or experience to actively manage real estate. As an investor in a syndication, you can put your capital to work for you, leveraging the benefits of investing in real estate that can provide passive income independent of your time.”

Cherry Chen is an internal medicine physician and founder, The Real Estate Physician.

She shares her story and discusses her KevinMD article, “Real estate syndication 101: a physician’s guide.”

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Hosted by Kevin Pho, MD, The Podcast by KevinMD shares the stories of the many who intersect with our health care system but are rarely heard from.

Transcript

Kevin Pho: Hi, and welcome to the show, where we share the stories of the many who intersect with our health care system but are rarely heard from. My name is Kevin Pho, founder and editor of KevinMD. Today on the show, we have Cherry Chen. She’s an internal medicine physician. She’s a hospitalist. She’s also the founder of The Real Estate Physician. She wrote the KevinMD articles “The benefits of passive over active investing for busy professionals” and “Real estate syndication 101: a physician’s guide.” Cherry, welcome to the show.

Cherry Chen: Hi, Kevin. Thanks a lot for having me. I look forward to sharing with your audience.

Kevin Pho: So we’ll get into your articles in a little bit, but first off, tell me your story and your journey to where you are today.

Cherry Chen: Yeah, I would say I’m probably like most of our audience, physicians, so a pretty linear path: premed, go to med school, go to residency. All of it is kind of laid out for you. And so I’m now six years out of training. I’m a full-time internal medicine hospitalist. And really, I got into my side gig, or The Real Estate Physician, basically out of my own curiosity and discovering what there was to do with my money outside of 401(k), the traditional stuff we’re taught. It was just personal self-discovery and curiosity which led me down that path, and further discovery of how real estate was a great vehicle. That’s basically how it started.

So like most of us, we don’t take time to explore because we’re so busy with our clinical lives. But there’s a lot of other ways for physicians to put your money to work outside of traditional Wall Street.

Kevin Pho: Now, when you started The Real Estate Physician, did you have any outside training, or did you have any background in real estate?

Cherry Chen: Not at all. And so, no training, no classes, no financial education besides what I saw my parents do. They were entrepreneurs. But otherwise, the great thing about today, and I just feel like I have no excuse not to learn, right, is podcasts like this, blogs, forums. There’s so much you can learn out there.

And so basically, when I’m not working, I learned about all this, to try to synthesize it and try to make sense of what that means for me. Because what I learned is that everyone’s financial situation is so different. And so you have to kind of take what everyone else is and try to see how it fits into your own situation, basically.

Kevin Pho: Well, let’s get into your KevinMD articles: “The benefits of passive over active investing for busy professionals.” So can you explain to my audience what passive investing is and why physicians should care about that?

Cherry Chen: Yeah. I mean, you’ll hear things like nothing really is passive in life. Even the act of breathing, right? It’s not a passive movement, even. But passive investing, or passive income, for most people means that your money is working for you independent of your time or effort. And I think now, as physicians, whether we are burned out or we want fewer clinical hours to spend time with family or other interests, there’s been a lot of interest in how you can obtain more passive income so you have more independence of your time.

So that’s what it was for me. Starting out four years ago, that wasn’t my goal, but I did not want to be an active manager of properties. I wanted my money to go to work for me. That’s where I learned to delineate time freedom, and how active or how passive I want to be. And what I look at and tell our investors now is the opportunity costs of not only your capital, when you’re investing into real estate or the stock market, but also the opportunity costs of your time, of your efforts.

And just like in medicine we leverage a whole team, it’s the same thing in real estate. And so that was the point of the article: to help people see that when you’re investing in real estate, there’s the loans you have to sign on, there’s property management, managing tenants, and how all of that interplays into not just your capital but your time and your effort.

Kevin Pho: So I’ve read a lot about passive investing on the various physician forums on Facebook, and I know that people can have passive income from social media, from starting podcasts, from speaking, and of course, in real estate. So there are different types of real estate investments, as I understand. I was wondering if you could share with my audience the different ways that physicians can obtain passive income from real estate.

Cherry Chen: Yeah. And so, I mean, I think real estate is so broad. Like, when I started, I thought, “Oh, I’ll get a single-family rental, I’ll Airbnb.” I got all excited. But there’s so much to real estate. You’ll hear people who do fix and flip, people who do wholesaling, but those are more active roles. You’re always looking for a deal, you’re always closing, always selling, and people say that’s basically another job.

But you can do real estate as a passive income, meaning you are leveraging somebody else’s time and efforts, right, the people. Like, for instance, we do syndications, and so you have a 100-unit apartment complex. And how is that passive? Well, you are a passive investor. You don’t have to hunt for the deal, you don’t have to sign on the loan, you don’t have to manage the property, you don’t have to take any calls, you don’t have any liability. So that’s what makes it passive, as far as you putting your money in, and then it’s working for you, and somebody else’s efforts are helping you generate the returns.

Kevin Pho: And a lot of physicians who may be listening to podcasts may think to themselves, “This sounds pretty good.” Now, what are some ways they can get started with real estate syndications, and how can they educate themselves in terms of who’s a good syndicator?

Cherry Chen: Yeah, no, great question, because I think when it comes to investing, it’s trust: Like, what’s a good deal, or who’s operating? And so the great thing, like I said, there’s podcasts. That’s how I learned. There are free podcasts, blogs, conferences you can go to to meet these operators. And it just depends: Well, how much time do you want to put into that?

And basically, when I started The Real Estate Physician about three and a half years ago, or two years ago now, there was not really something that I think was curated toward my needs as a physician with limited time but with the capital to invest, right? So basically, that’s why I started the group, understanding, well, what my needs were as far as trust, having a vetted process.

And so what a lot of people do is, you have free education out there. I think, as with anything else in life, just like we have mentors in medicine, there’s always somebody out there who’s done it before you or does what you want to do. So the great thing is you can reach out to me, or you, with starting podcasts, whatever you want to do. There’s somebody who’s done it and can help guide you along. And that’s basically the point of The Real Estate Physician group.

Kevin Pho: So just to give some frame of reference, what kind of returns are we talking about compared to, say, a total stock market fund? What kind of risk are we dealing with, and what kind of returns are we expecting when we talk about real estate versus a traditional stock market index fund?

Cherry Chen: Right. So, yeah, we’ll start with risk, because that’s probably on most people’s minds. When you’re investing into a syndication investment, for instance, the average minimum is 50,000. That’s a good chunk of money when you’re putting it into an apartment complex and pooling investors together to purchase, like, a $10 million property. The biggest risk is that you lose your investment, the 50,000 you put in. So that is always the risk.

Ideally, and most times, that does not happen, because you are buying a property that people live in, people are already paying rent, you have operators, there’s a track record you can vet, and it’s a tangible property, right? It’s not a piece of paper that can vanish or decrease 30 percent in value overnight. So the biggest risk is losing your money.

The difference between that and, say, a single-family is, I think, when you get a single-family rental, you are not only at risk for losing your initial investment, but the ongoing cost if you don’t rent it out, all the liabilities of keeping up a property, finding a tenant, or damages. You’re at risk for losing much more than your initial investment per se, and then you’re also liable. So those are kind of some big differences.

As far as typical returns we’re seeing, I would say what the main goals are, though: We are trying to double investors’ money in about a five- to seven-year time period. Those are what we see as achievable and realistic goals based on the investment that we do. And so those are pretty attractive versus what you can find elsewhere. Of course, the risk being you could lose your whole investment if it’s a terrible project or something like that.

Kevin Pho: If you do choose to invest in a real estate syndication, how liquid is your money during that investment, and how long is a typical time frame?

Cherry Chen: Yeah, so typical time frame, we say about five to seven years. There’s ranges from three to 10. The money, we say, is pretty illiquid. It’s real estate; it’s not like you can sell it tomorrow morning if you wanted to, right, especially with lots of investors. So the money you put into these, foreseeably, is money you do not have plans for for the next five to seven years. If you’re going to get married or purchase a house, you don’t want to put that money in here. So it’s considered illiquid. There are provisions usually in the contract for if you had to take it out; we can make considerations. But we tell investors you would not put in the money you would want to use in that time frame. Pretty illiquid.

The other factor to consider is control. And it’s, I think, a double-sided coin, where people say, “Well, you don’t have control as a passive investor. You don’t get to call the shots,” like how much does this unit rent for, do I want to use this contractor, etc. But I see that as a benefit, and that’s why I invest in these syndications, because I don’t want that control. I don’t want to have to make those decisions. So for people who want that control, who don’t want to let it go to somebody else who I think has more experience and knowledge than me, then syndications are probably not a good fit either.

Kevin Pho: So whenever I scroll on my Facebook feed, I’m getting a lot of ads for real estate crowdfunding sites. How are those different from what you’re talking about with syndications?

Cherry Chen: Yeah, so crowdfunding has been great as far as helping people raise funds for projects that otherwise the everyday investor would not have had the opportunity to do. The pros and cons: So crowdfunding is like a platform, right? It’s just like you go, you want to buy a stock. Or I look at a hundred projects, and they kind of all look the same to me. I’ve never invested through crowdfunding, but I explore those options.

One, it’s a platform, so you always look at how people get paid, right? So they get a fee from the sponsors who do these projects to advertise their projects, and sometimes they take a fee from investors for managing, I think, the projects or their portfolio. But they don’t have skin in the game. They’re not invested into the project. They do some research, and some do a better job than others, but you’re not really directly talking to the sponsor of the project. And, for instance, CrowdStreet, they’re not directly investing into the project. They’re just a platform for people to have access.

What we do is called private syndication. I’m invested in these deals. These are true partners, where we do due diligence. We understand how they actually got those returns, because on crowdfunding sites, you’ll see, “Oh, 10 percent returns,” or “20 percent IRR,” and they all start looking the same. And we say anybody can project, right? We’re all making projections. But it’s: What are the assumptions? How do they get those numbers? What is the process? That’s what’s important for investors to see, who is behind the project, rather than some projected number five years into the future that a lot of people can put that in Excel, but to truly understand how they got there.

Kevin Pho: Now, for those in the audience who may be interested in going forward, what’s your number one tip for clinicians who are interested in dipping their toes into real estate investing?

Cherry Chen: I would say, of course, education. You have to be an informed investor, and that’s what we try to do through the platform. But it’s understanding, I think, your philosophy. Just because syndication is a great fit for me, I love it, I love the passive nature of putting my money to work, it might not be a great fit for you, right, because you have different goals. Like, I’m trying to build a passive income so I can maybe take a couple days off a month from my clinical practice, right?

So the most important, I think, is not to just say, as for a lot of people, where you’re like, “Oh, those sound like great returns, let me jump in,” right? Because it might not be a good fit for you. So one is just to truly understand: What are your goals? What is your risk tolerance? And what exactly are you trying to achieve with this investment? Because it’s just the vehicle. Real estate is one way of many, and even within real estate, there are so many ways for different kinds of returns, right? So it’s just being informed, and really, I think, exposure, which I think is great with podcasts, books: Well, what are other people doing, and what are the pros and cons? Does that fit me?

Kevin Pho: And is there something that you know now that you wish you knew back before you started investing in real estate?

Cherry Chen: I don’t know. I think the most important, because even when I jumped into my first syndication, there’s things I definitely did not know when I invested, right? And so you don’t know until you jump in and you actually have money and skin in the game, right? Because a lot of us can analyze forever. But really, I think it’s just, I would say, the best is just exposure and learning, whether that’s through your own experience or somebody else’s experience and mistakes, so you can learn to avoid those.

Kevin Pho: So we’re talking to Cherry Chen. She’s an internal medicine physician, and she’s also founder of The Real Estate Physician. Cherry, what is your take-home message for the KevinMD audience?

Cherry Chen: My take-home message is to really just understand your goals and your philosophy, and how investments are supposed to enhance your life, and to really be clear, have focus and clarity on what it is you want your money to do for you.

Kevin Pho: And how can people reach you?

Cherry Chen: Therealestatephysician.com is the website, so that’s the best way, and I love connecting with individual physicians. That’s basically what I do. So hop on a call. Happy to share my own experiences, mistakes, and what I know from the last, I guess, four years invested.

Kevin Pho: All right. Thank you so much for your insight, and thank you for joining me on the show.

Cherry Chen: Thanks for having me, Kevin.

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