#113 Choose Your Real Estate Side Hustle

Foreign. Welcome to the Passive Income MD podcast where we talk about creating your ideal life through multiple streams of income. I'm your host, Peter Kim. If you enjoy hearing about this stuff, make sure to hit subscribe so I can bring it to you every week. Now let's get on with the show. Hey everyone, hope you've had another great week. This week we're going to talk about the real estate side hustle. Now, some of you might know that term, the side hustle, and some of you might have either positive or negative connotations when it comes to side hustle. But whatever it is, the whole point of a side hustle is to have something that generates income outside of your day job. And as doctors, I know we're all looking for source of income, I mean, as many as possible. I mean, it's good to have one that's significant. But what if something changes? What if you need something else? What if your life changes, your priorities change? Wouldn't it be nice to have another side hustle? Wouldn't it be nice if your contract isn't renewed, if reimbursements drop that you know, you have income coming in outside of medicine so that you can decide how much you want to work at your day job? Now, we're all very, very lucky with our current day jobs to have situation where yes, we get compensated well, but it is dependent on the amount of time and we are captive to exactly what somebody else decides our time is worth. So because of that lack of control, and that's something I figured out early on because of a tough situation I was in at my own job, I started looking for that outside income. I started looking for those side hustles, whatever you might want to call it, so that again, I wouldn't be dependent on one income source. The question is, where do you get started? And if you believe that real estate investing is a great place for high net worth individuals, high income professionals, physicians, doctors, dentists, whatever you might call them, somebody who is making a good income but wants to create more income, that real estate is a viable way to do that. The question always becomes again, people say, where do I start and how do I get started? What path do I go down? Well, if that's you, I wanted to just briefly talk about some of the different ways you can get involved. This is kind of more of an overview that might give you a chance or an opportunity to learn about something different and then for you to figure out whether that might fit for you and go deeper down one path or not. All right. The first thing I want to talk about is real estate crowdfunding. Now, back in the day, people used to always say that investing in real estate, or at least finding about some of these deals was kind of like a what's called a country club deal or a country club opportunity, meaning that you had to find people behind closed doors, that these opportunities were not really widely marketed. And to find out about it, you need to know someone. And so it would be a situation of, yes, the rich get richer. The people who have the in share it with other people and they were the ones that were benefiting from it. Well, something was passed in 2012 called the Jobs act, which allowed a lot of these private deals, private opportunities, not just real estate, but other opportunities to be marketed online to a larger group and a larger audience. So I heard about this thing called crowdfunding back in 2014. I mean, I was finding out about real estate, I was finding out about different side hustles and I was scared to make my first investment. I don't know about you. It's, you know, we all know how to make money. I'd say we know how to put our time in. But the thought of losing money, especially when I worked hard for it, was, was just a scary thing. And so for a first or early time investor, I can absolutely understand how you feel about that. So my very first investment, I took the leap with $5,000. Now, I found one of those deals on a crowdfunding site. I don't know if they still exist. I don't spend as much time on them, but I would say usually the minimums have gone up a little bit more. But in case you aren't familiar with this concept, here's a quick summary of what crowdfunding is. Many investors come together and they pool their capital and they invest in a property, whether it's like a single family, multifamily, commercial, whatever it is, by combining all their money and they go buy it. Now there's an online platform that helps facilitate a lot of these things. Either they connect you directly to a sponsor or an operator who is aggregate, you know, wants that aggregated capital, or oftentimes they are the sponsor themselves and they put together the fund or whatever it might be and they put that money together and they put that to use you as the investor, you go in there as a limited partner and you invest and through the platform, wherever it might be, and they get compensated for that connection, or whether they're putting the deal together and you win because you get to see those opportunities easily laid out on a platform called a crowdfunding platform. So I know that a lot of investors have loved this because again, it's very easy to find these deals. You go online and sign up for one of these. We have a list of our favorite crowdfunding sites on passive income docs. Usually there's a low barrier to entry, mean there's a low amount that you can invest in. Worst case, if you lose it, you know you'll be okay and everything is laid out nicely for you. The thing is, there's still risk. Just so you know, these platforms, you have to understand what their incentives are. Their incentives are to get people into deals. Now that's not necessarily a bad thing, it's just that their incentive might be slightly different from yours. So that when they put these deals out, and they have to at least put out a good number of deals to create income, to do well for themselves, they may not all fit your goals, your level of risk, your risk adjusted return that you're looking for. And sometimes they make it so easy with just a click of a button. So I actually believe that when it comes to crowdfunding sites, they're great places to kind of learn to see some opportunities out there. But I also think it's absolutely important for you to understand how to do the proper due diligence yourself, that when they're marketed online, there are going to be some great sponsors out there. There are going to be some not so great sponsors out there. And so it's really important for you to be able to understand and recognize those as you look through these platforms. You just have to do a little bit more digging to find the right places and the right opportunities. Next, let's talk about real estate investment trusts, otherwise known as REITs. R E I T small S those are a little bit different from your crowdfunding and syndications. We're going to talk a little bit about these. You might have heard of REITs, because a lot of them that you're going to find are what's called public REITs. So you'll find them on the market, meaning on the public stock market, for example, so you can go on your platform, whatever it might be, to buy stocks, whether it's Fidelity, Ameritrade or even Robinhood, whatever it might be. You can go on there and look up these REITs and go ahead and just buy and trade and sell them as you would any other stock. In case you don't know what those are. It's basically you're investing in a company you own the stock and buy the stock of a company that goes out and purchases real estate. Now, that real estate might be focused on commercial, might be focused on some other type of large, multifamily, sometimes maybe it's industrial. Whatever it is, these REITs have their own focuses, and so you're buying a share of the company, and they own and operate and manage these properties. Those are called public REITs. But there's also these things called private REITs, where these companies, a lot of you'll find on crowdfunding companies and sites where they'll go and they'll do the same thing. They'll go and buy a whole bunch of different types of properties, manage it under one umbrella, and they'll call it a private REIT. Now, the nice thing about these public REITs, it's that these things are public. So there is some of the same transparency that you get with some of the stocks. In terms of the reporting, it's very liquid, meaning that you can go online and click some buttons and go ahead and sell these type of things. And so that's some of the nice benefits that the downside is that they're often known to correlate quite a bit with stocks. When people invest in real estate, oftentimes they're looking for that diversification, especially with what's going on in the market right now. If stock market goes down, they'd love to have some real estate in their portfolio as diversification hedge so that it doesn't drop as much. Whereas REITs, though, the value of them, oftentimes goes in line with the stock market because it's sold on the very same platforms. It's liquid, just like it is with stock markets. The stock market is. So a lot of the things that happen psychologically with the stock market, people selling and, you know, when things are falling, the same thing happens with REITs as well. People go in there, they start liquidating things, they start liquidating their REITs as well. So that's why you get that correlation with the stock market. So returns could fluctuate quite a bit. Now, I will tell you, if you're looking for a basic diversification into real estate, that is an easy way to get in. That is a way to start thinking about it, start looking at it, see how real estate might fit into your portfolio. And so REITs might not be a bad option. So the ones that are private through different companies, those are a little different because again, they're a little bit more illiquid, meaning that you can't just buy and sell these things. Quite often some of the same transparency issues might not be there. But again, these are privately held companies and privately held trusts, and so you're not going to get the same correlation with the stock market. So for a lot of people that are trying to invest in these things and you're not what's called an accredited investor, meaning that again, you don't qualify under the SEC, that you have over $200,000 of income per year, or $300,000 as a joint couple, or you don't have a million dollars of net worth excluding your primary home, you don't qualify as an accredited investor, which might close you off to some of these other investments. You're probably still able to invest in these REITs, both publicly and with the private ones as well. So that is a nice option for people trying to diversify into real estate, but again, may not be a credit investor yet. All right, how about this side Hustle the fix and flip? You ever looked at hgtv, whatever it is, Property Brothers? I love that show. You know, you talk about fix or flop, whatever it might be. You probably understood the concept of flipping homes. You know, obviously, obviously with all the reality TV stuff, it seems pretty easy, or they make it seem easy that you go in, you buy these properties at a certain price, you go fix it up, and you sell for a higher price. I mean, it's great in theory and it works for some people. The downside is this is definitely a second job. So it is a side hustle, but it's a very time intensive side hustle. The returns can be sizable if you find the right types of properties. But again, it's just like running a business. Running a successful fix and flip operation takes knowledge and skills that honestly take years to master. And you have to have this right network. It requires also a significant amount of capital probably to purchase the home and cover all the necessary renovations. Now, you can obviously get debt on it in terms of debt and you borrow money for it. But. But some of these properties honestly are in such bad condition that they're typically not lendable in terms of bank standards. So what they do oftentimes is go borrow that money at high interest rates, buy something's called either hard money loans, or sometimes they go to these crowdfunding companies and borrow money there. Now, oftentimes don't really call this a side hustle. I just call it a second job. And it also kind of depends on the market. Yes, you can buy a property at a good price, put renovate, you know, Renovate it and that sort of thing. But you're, especially on some of these smaller properties, you're at the mercy sometimes of the market and whatever's going on right now, with interest rates, the prices kind of either stagnating or maybe even dropping a bit, you're actually setting yourself up for a pretty bad situation, something that you might get too deep into that you can't climb out of, at least for a while. So make sure that if this is something that you're interested in, make sure you do it with somebody in terms of, I would say find a mentor who does it, maybe work with them on a few projects and then understand where your different exits are. What I mean by that is not just that you can just sell the property now. Maybe you have a hold period where you can hold onto the property for a while, you can rent it out, maybe there's a different option of who you sell it to. Either way, you have to understand how to get out of this property if you sunk a lot of money into it and hopefully you won't take a loss on it if things don't go right in terms of the market. I typically don't recommend this for a lot of high income professionals because in a lot of ways you can probably make better money by spending that time and picking up an extra shift without all the headache, the liability. But for some people, especially when they do this on a larger scale, you can get quite good at it and do well. But again, you have to get to that certain scale for this to actually pay off more than your day job does. All right, the next side hustle is just owning a rental property yourself, or maybe 1 to 10, whatever it might be. It's called direct ownership. And this is one of my favorite ways to obviously invest in real estate. There are some risks there, there's some potential headaches when you own your properties. But yes, the returns can make it well worth it if you're willing to put in the time to learn how to do this. Well, now this is also kind of starts to fit into the second job territory and it is a side hustle, meaning that you are going to hustle to get the right property to put the right team in place to create nice profits. But the returns can be worth it. And this does fit into passive income territory. I mean, passive income is on a spectrum, meaning that there can be passive income that is completely passive or pretty close to it, meaning that you invest and you just collect obviously deposits or checks at the end of the day. But there's ones where you have to put a little bit more work into it to get that check at the end of the day. But that check can continue to grow in size even if you put in the same amount of time or less over time. And so I think owning rental property fits in that latter category mean that probably up front, you're probably not going to get the returns that you thought you were going to get, meaning that it's smaller at first and probably you're thinking, I could have been, you know, working as a doctor, making more than that is true. But eventually, later on, as this portfolio grows, as a property increases in value, as you get your systems in place, it can start to be a little bit more efficient in terms of the income that it produces for you. This is definitely for someone who loves doing the diy, loves to learn to get in there, get their hands dirty, maybe wants to spend a little bit less time in medicine, wants to go after that thing that they've called real estate professional status we talked about in previous podcasts. This will be a good way to get that done. Now, if you can find good property management, and I would say that would be the key for this, is to have good property management to go in there, take care of the major issues. So you just get called on some of the bigger stuff and that's something, you know, it's a group that you can trust to do well on your behalf and you can just manage them. That would be the key to making this all happen. And I know some people have said, all right, I'd like to just self manage because I don't want to pay the management fee, whatever that might be. I would highly caution you against that because I know the amount of time that it takes to manage these properties. And a phone call from a tenant or dealing with one issue that can be handled by a property management group, I would say it's well worth your time to hire them. It's not worth your time to deal with it, especially on a monthly basis. And lastly, this is actually kind of similar to crowdfunding, but this is called the world of syndication, the world of passive real estate. And that also includes funds as well as just like crowdfunding, it's the pooling of capital to invest in a real estate opportunity. And again, these things are usually open only to accredited investors. And I mentioned that before. The syndication is run by somebody called either syndicator, a sponsor or an operator. What they do is they create the deal. Now, there's so many steps that they do they find the deal, they find the opportunity, they go put that property under contract, they raise capital, they get money from investors, they put together this whole package, they create the business plan, then they go ahead and once they purchase the property, they put the business plan in place, they make sure the property is renovated, the tenants are in there, they're managing the property management. Sometimes they are the property management as well. And ultimately they're collecting the income and making sure that that property is doing well for the investors. And at some point the decision is likely made to go ahead and sell that property. The cash flow has been good for the investors, but usually they want a nice payout at the end along with the investors as well. So they go ahead and figure out how to get this property sold for all their investors. Now, when it comes to syndications, you can invest in all sorts of asset classes, from even single family homes, the large apartment buildings, the warehouses, self storage, multiple mobile home parks, whatever it might be, there are syndications, they're created for it. Because there are a lot of people who don't want to do it themselves. They don't have the time, but they have the capital to put to work and they'd like to really make this type of investment really, really passive. And to be honest with you, this is the closest that I can think of in terms of true passive income when it comes to any sort of real estate investment. Yes, there is work done up front. When you do the due diligence, you got to put in your time to find the sponsors and syndicators, and then you've got to also figure out how to trust them and look at a deal. But these are things that can be taught, these things can be learned. As we found out in our, you know, our course past Real Estate Academy, we've taken several thousand people through it. This thing can be taught in a short period of time and it just takes practice looking at more of these deals, but it's something you can learn to do and start to learn to vet these deals in a very short period of time. And then once you invest and that's it, you just wait for whatever it is, quarterly distributions, monthly distributions, and just get those nice deposits and hopefully build a nice income stream for yourself. So thinking about all these side hustles with real estate, I'm just wondering if there is something that really resonates with you a little more. And it kind of depends on how much time you want to put in, how much capital you have, how much risk you're willing to take on how much you're willing to get your hands dirty. Now, I can't tell you what that is. Now, some people say it's better for this camp or for this camp. I think it really matters on the it really matters who the individual is and what your personal preference is like. Having all these options is amazing. The problem is that with a lot of options, people don't know where to get started. So what I recommend for people is starting small. Start with something that you feel you can put in place in the next three months, six months. The problem is you won't know if it's for you until you try it. So might as well make a step, right? Take a step in one direction and if it doesn't work course correct, try something else and pivot. Now I found personally for myself there have been times where I've been really into active and then all of a sudden it started taking up too much time. So I switch a lot of things to passive. And that's kind of personally where I am right now. I spent a lot more of my investment dollars on the passive side just because time is limited and I kind of want to free up a lot more of that time to spend with my family and that sort of thing. And the returns are there for me and I've been able to really generate a lot of those great returns over time and finding the right people. But I also have some active portfolio as well. I've talked about my short term rental that I really love. I've got some other apartment buildings that I've kept and they've really been put on almost autopilot at this point. I do talk to the property management companies and it does take some time for me when there's some transition or there's some things that happen at the apartment building, but you know, I've learned to manage those. But I would say from now on, in terms of how I invest, I mean really I'm just pouring everything into passive as much as possible. But again, it's different for everybody. The key is ultimately get started on something, figure out what works for you, and then once you've started down the path, I will tell you, as everyone always tends to say, I wish I had started earlier. And so if you're hearing this, this is something you're interested in. My recommendation is just get started, whatever it might be. Let me know how that works out for you and let's talk again soon. Thanks. Enjoy the show. Let me know by dropping a review in the podcast app you're listening to us at. And if you haven't already, make sure to hit subscribe. Are you part of our community yet? Join thousands of physicians who are also on this journey to creating their ideal lives through multiple streams of income. You can join us on our Facebook group Passive Income Docs, and you can always learn more at our website passiveincomemd.com thanks again for allowing me to be a part of your journey. See you next time.