Why doctors are such bad investors and how real estate can help [PODCAST]

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“How do we combat all these beliefs that can make doctors into bad investors? I have a few thoughts.

First of all, don’t panic. Most of us are indeed starting behind the eight-ball when it comes to wealth accumulation. But even with a shorter runway, physicians make enough money to make up for lost time. With a well-constructed financial plan, you can hit your goals, whatever they might be.

Second of all, be humble. Recognize that vast scientific knowledge doesn’t always translate into financial wizardry. Take the time to educate yourself in any area where you plan to invest. For example, I only started to accelerate my real estate investment after I took a formal real estate investing course.

Finally, take ownership. Realize that your financial future is your responsibility. Don’t offload all the details to an advisor without having a basic understanding of what is happening to your money.

Daniel Shin is a urologist who blogs at The Darwinian Doctor.

He shares his story and discusses his KevinMD article, “Why doctors are such bad investors.”

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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 Daniel Shin. He is a urologist, and he wrote the KevinMD article “Why doctors are such bad investors.” Daniel, welcome to the show.

Daniel Shin: Hi, Kevin, and thanks for having me. I’m pleased to be here.

Kevin Pho: So we’ll get into your article a little bit, but first off, can you share your story and journey to where you are today?

Daniel Shin: I’m an early-career surgeon. I’m a real estate investor and blogger at The Darwinian Doctor. Basically, I live in Los Angeles, but my roots are from the East Coast. I had a very idyllic childhood early on, a very traditional sort of family structure. My dad worked, my mom stayed at home, and things were great in the early period. But I would say midway through elementary school, things took a very, very quick turn for the worse. We went, sort of naturally, we were going through a recession. My dad, essentially, his income dried up, and all of a sudden things went from very stable to very financially unstable. So we lost our house, we moved across town very suddenly, and the next decade really was characterized by that financial instability.

I saw medicine and good grades as my way of securing a good, stable financial future for myself, and that’s essentially what I did. I went to undergrad at Yale University, then went to medical school at the University of Pittsburgh, and then I matched into a urology program out here in Los Angeles at USC.

A couple of years into my attending career, I had sort of checked all the boxes. I had achieved what I had hoped to achieve, but I started feeling sort of burnt out, goalless. I was working too hard. I had an hour commute each way on top of a 50-hour to 60-hour schedule, and I started looking for new meaning, new goals. For me, that really came in the form of learning about personal finance and financial independence. I decided to create a blog as a creative outlet and to really gain a voice for myself. So that’s what I’ve been doing for the last few years, and I’ve found it immensely rewarding.

Kevin Pho: So tell me about that intersection between what you’re doing outside of clinical medicine. You mentioned real estate, of course, you mentioned The Darwinian Doctor, your platform, and personal finance. Now, how does that influence your professional career today?

Daniel Shin: They’re actually fairly separate. I have a very rewarding professional career as a surgeon. I feel that I’m a good surgeon. I’m liked by my patients, I do a great job at work, I’m chief of my division in the hospital, and I find that immensely rewarding. It’s a sort of stressful time to be a physician, I would say, and that has been challenging on its own.

The way that intersects with my financial life and real estate is that they’re fairly separate, but I’m very grateful for the financial stability that my physician income affords me. As we’ll talk about a little bit later, I funnel the financial stability that I get from my job into investments in real estate, and I really hope to use that to gain financial freedom and more ownership over the choices I make in my professional career.

Kevin Pho: One of the stereotypes that we have, especially, I’ve talked to a lot of doctors on the show, is that physicians aren’t the most financially literate people. Now, where did you learn about personal finance and real estate? Did you have a background in it, or is it something that you’ve just learned from self-interest?

Daniel Shin: It’s really self-taught. I think that the commute really is a double-edged sword. I live in Los Angeles, I work in Orange County, and in the worst of the traffic, prior to the pandemic changing things here, I was driving about an hour each way, so about 10 hours a week I was stuck in my car. Initially, I found it very frustrating, but as I was searching for new meaning and new goals, I started listening to podcasts. Really, podcasts were this gateway into an incredibly rich community of financial independence and, you know, financially illiterate physicians. I listened to many different voices, and that was really the start.

After about a year of traditional financial independence education, which is mainly, as you probably know, focused on traditional stocks and bonds and these sorts of investment vehicles, I found the subset of investors who are focusing more on real estate, and they seem to be reaching their goals much faster than everyone else. I approached it cautiously, with trepidation, but as I learned more and started investing in real estate myself, I became a convert. So that’s where I am now.

Kevin Pho: Let’s talk about your KevinMD article that you wrote. This was back in April. It’s simply titled “Why doctors are such bad investors.” Now, for those who didn’t get a chance to read the article, can you just walk my audience through it and share the story of why you decided to write it?

Daniel Shin: It was a little provocatively titled, I would say, because certainly there are fantastic investors who are physicians. I would say that a lot of this reflects my own journey into financial literacy and what I was feeling in the initial parts of my attending career.

Medical training in the U.S. is characterized by a number of things that make it tough to get a financial foothold. It takes an incredibly long time, so our earning career is very shortened as physicians. This gives a sense of urgency to it. Additionally, most of us rack up a ton of student debt, and I was in that crowd as well. When I graduated residency, I had about $300,000 of student debt, and for people coming out of training now, that’s pretty typical. There’s also this sense of keeping up with the Joneses when you’re a physician. Once you become a physician, you’re expected to look a certain way, you’re expected to drive a certain car, live in a certain neighborhood, and all of these put a lot of pressure on physicians as they’re trying to get their financial foothold.

So in the article, I went over these challenging factors, and I also outlined a few specific thoughts that may go through your head as you’re trying to start your investing career that may be challenging, that might make you a bad investor. So I outlined a few things. The lost time and urgency of it can make you make hasty decisions.

One more fallacy that I feel is common with physicians is that you may feel that you’re smarter than everyone else. And certainly, if everyone took an MCAT, you’d probably do the best, but when it comes to financial investing, that mindset can be damaging. I think it can lead to a certain sense of overconfidence and bravado that can lead us astray.

And then finally, there’s also a sense that we’re too busy as physicians to focus on our financial lives, and there’s a sense that you want to just abdicate responsibility for your finances to someone else. While there are a lot of great financial advisors out there who will certainly lead you in the right direction, I think there are also some people who might not have your best interests at heart. So that mindset can also be damaging. These reasons are why I feel that some physicians might not be the best investors.

Kevin Pho: Now, tell me some of the specific mistakes that you see physicians make when it comes to personal finance or investing.

Daniel Shin: A specific mistake that is very fundamental is allowing the lifestyle to balloon up without regard for having the fundamentals down. I speak of this very personally, and I’m guilty of this as well. My residency training was six years long, and during that time, we were essentially supported by my wife, who financially supported us. She hasn’t been in the medical field, and she’s been working all along, so she really supported us. But as soon as that first attending paycheck came in, there was this sudden sense of, “Wow, so we’ve got financial means all of a sudden. Let’s do it.” So I upgraded my car, and we moved into a typical doctor’s house.

When I was driving that commute, when I was working too long, I felt handcuffed. I felt that my lifestyle costs were high and I couldn’t stop working. Even though I was on the brink of burnout and having this very long commute, I couldn’t stop. I had to keep going because we had our bills. So that’s, I think, a very, very common mistake among physicians, and a common theme in physician financial advisors, writers, bloggers, and thought leaders, that basically you want to have the foundations of your financial lives in order before expanding your lifestyle. That can give you so many more options as your finances grow.

Kevin Pho: When you say the foundations have to be set first, now, what exactly do you mean by that?

Daniel Shin: First of all, we have to understand that we are very lucky as physicians. We train hard, and we have lots of sacrifices early on, but once you become a physician, you’re blessed with a higher income than most of your peers. But with that income comes a responsibility to use it wisely. So it involves knowing where your money’s going. It involves setting aside some of your income every month, every paycheck, to go towards savings, investments, and retirement funds, which are very important, especially more important because we get into the saving part of our careers much later than everyone else, about a decade later than most earners.

So I would say having a budget, knowing where your money’s going, and setting aside a set percentage of your paycheck every month for retirement is very important and fundamental. It’s when you do that first, and then you have the space and money left over, that you can start thinking about interesting investments that can accelerate your journey.

Kevin Pho: Let’s say you have the fundamentals in place and you want to start thinking about investing, whether it’s your 401(k) or IRA. So what’s the approach that’s typically recommended?

Daniel Shin: Up till now, I’ve really had a hybrid investing approach. I max out every single retirement fund and tax-advantaged account that I can, and I’m lucky to be able to do so. With the extra capital that I have, I invest in real estate. I’m a real estate investor. I have a portfolio of buy-and-hold, long-term investment properties, out of state, actually. So about a year and a half ago, two years ago now, I started buying rental properties, and that’s what I do.

Based on what I’ve learned about the space and my own experience, I think it has an opportunity and a potential to vastly accelerate the journey to financial freedom for those who are inclined to do it. I won’t say that it’s not extra work and stress, but I think the rewards are great.

Kevin Pho: For the average physician investor, the typical advice is index mutual funds. I guess the question then becomes, how much more return are you talking about when you start talking about investments outside of index funds?

Daniel Shin: I think most would agree that the compound investment return that you’ll get from stocks and bonds is going to be somewhere along 8 to 10 percent, and more if you’re more stock-heavy, less if you’re more bond-heavy. When it comes to investment in rental real estate, I think that when you account for all of the gains that you’re getting from holding real estate, you should be expecting greater than 20 percent, and sometimes much greater than 20 percent, return on your money, from personal experience.

It depends on what type of real estate you’re buying, how active you are in it, and how much of the workload you’re taking on yourself. But using a strategy called the BRRRR strategy, which is an acronym for buy, renovate, rent, refinance, and repeat, I buy property that’s a little bit distressed, I fix it up, I use a property manager to rent it to long-term tenants, and then I refinance it. I usually take out a significant portion of what I invested and roll it into the next investment. I’ve seen returns, a strict cash-on-cash return, of anywhere from 20 to 60 percent, and that’s not accounting for all these other benefits that you get from holding real estate, like tax advantages, appreciation, and some benefits that you get from holding long-term mortgages, it being a great inflation hedge.

Kevin Pho: For those physicians who are interested in alternative assets like real estate, in general, what proportion of their portfolio should they allocate to real estate?

Daniel Shin: I think it really depends. I think most would say that when you’re talking about investments that are considered alternative, and it’s anything from real estate to, say, cryptocurrency and all these things, I do agree that when you’re first getting into it, you should only put a small portion of your capital into it. I don’t own any cryptocurrency, but to anyone who talks to me about it, I say, “Don’t put more than 1 percent of your capital into it unless you’re very, very educated and absolutely know what you’re doing.”

I think initially you may need a bit of capital to get into real estate. I would say 10 percent is a good rule of thumb and upper limit for most people. For me, I’m a couple years in. We’ve got 20 units of rental property now. I know how to do it well, and I plan on probably putting more and more of my net worth into it just because I’m seeing the gains that I’m getting. But I think that comes from experience, and it comes from being educated in the field. Just like anything else, if you know what you’re doing, you can be more confident in it.

Kevin Pho: We’re talking to Daniel Shin. He is a urologist, and he wrote the KevinMD article “Why doctors are such bad investors.” Daniel, what kind of resources did you use to educate yourself when it comes to real estate? You mentioned you have 20 properties, some of which are out of state. How much time did you spend educating yourself before you went out and did it?

Daniel Shin: It was a long process. If we tally up the amount of information I’ve absorbed just by passive listening, it’s probably hundreds of hours. I don’t think you necessarily need to put that in to get started in real estate, even by passively learning about real estate through reading books and listening to podcasts, and that’s more of a passive sort of education.

Things really accelerated once I took a real estate investing course. There are physicians in this space who offer education, and I’m not one of them yet, maybe one day in the future, but I took a course by some real estate investors who are also physicians, and they spoke my language. They knew my background, they knew the challenges that we face as busy physicians, and they had a lot of processes and things in place that make it possible to invest in real estate even as a busy physician.

Afterwards, it was just learning by doing. I bought a single-family home in Birmingham, Alabama. I saw that process, and then I made the leap into buying a distressed property and building a team to renovate it and get it all financed and leased out. And I continue to learn. There are so many areas of real estate to invest in. I expect that it’ll be a continual learning process, but I think you can gain a lot of confidence and that initial knowledge by books, podcasts, and real estate investing courses. It’s very accessible now.

Kevin Pho: Tell me some of the character traits physicians should have if they’re considering going into real estate and adding it as part of their investment portfolio.

Daniel Shin: As I mentioned, there are a lot of ways that you can invest in real estate. There are real estate equivalent stocks like REITs that you can invest in very passively, and you can buy them the same way you buy a share of a Vanguard Total Stock Market Index Fund. There are also more passive real estate investments that you can make where you’re kind of a part owner of a project. It’s called a syndication, where you essentially put up $10,000 or $20,000 or whatever, and you’re trusting someone else to invest that for you and to show you financials. That’s a very popular way for physicians to invest.

I would say the more passive you are in real estate, the less return you can expect, and the more active you are, the more control you have over really accelerating that return, which can be quite powerful when it compounds over time. That’s what I chose to do, actively, when you’re actually buying and owning the property yourself. That’s where I think the magic is. But if you don’t want to do that, and you don’t have that inclination or personality, there are many other passive ways that you can get into real estate.

Kevin Pho: And what kind of resources do you recommend? You mentioned podcasts and books, but what specific ones do you recommend for those physicians who are interested in perhaps dipping their toes in real estate?

Daniel Shin: I would say the ones that I utilized early on, sort of the gateway into all this, are The White Coat Investor. I think that it’s a wonderful resource just to get that financial basic background that you need before you can have that space and extra capital to invest in real estate. Over the years, actually, he’s gravitated towards more of a real estate-heavy allocation in his own portfolio, and it’s interesting to see that transformation over time.

I write about my journey in excruciating detail on my own blog, and that’s what I feel is the worth of it, where you can see my journey from initially just investing in stocks and bonds and then the mental calculations I made to make that leap. So I share a lot of that on my own blog.

I have some partners in crime where we started a little network of bloggers called the Physician Real Estate Investor Network: Jordan Frey at The Prudent Plastic Surgeon and Ian Cook at Carpe Diem MD. We share information and resources, and we each have a little bit of a different take on investing in real estate. Ian is more of a short-term rental investor, Airbnb and Vrbo. And Jordan, he’s even more hands-on than I am. He not only buys and renovates, he also manages himself, so his experience is really interesting. He’s a bit more early on than I am in his real estate investing, so it’s very interesting to see their journeys as well.

But there are a ton of resources out there. For non-physicians, there are things like Afford Anything and Paula Pant, who I love, and in The White Coat Investor network, there are great voices as well. Peter Kim with Passive Income MD is a favorite as well. So if you just look, you’ll go down the rabbit hole, and there’s just so much out there.

Kevin Pho: And my final question: What’s your take-home message that you want to leave with the KevinMD audience?

Daniel Shin: I would say the take-home message is take command of your future. You may feel handcuffed to your job. You may have a sense of hopelessness and directionlessness in your career, but it all starts with having a good financial understanding of where you are and then taking intentional steps to improving that and gaining financial independence. You can do it.

Kevin Pho: Well, thank you so much for sharing your time and insight, and thanks again for being on the show.

Daniel Shin: Thank you so much, Kevin.

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