#130 Passive Income Through Passive Real Estate

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. This week we're going to be talking about creating passive income through real estate investing. It's my favorite topic and we're going to talk about it right now. In terms of the three keys that you need to know about, at least think about when it comes to creating that passive income through real estate investing. Now, real estate investing is a great vehicle for creating financial freedom. I'll be honest, I don't love real estate in the sense that it's, you know, my goal in life is to be a real estate investor and it's the homes and these kinds of things. I do love that and I do enjoy that. But. But what I love and enjoy more are the benefits that come from investing in real estate. It's that cash flow, it's that monthly cash flow that security those distributions which allow me to live life how I want. I can choose to work more on my day job, I can work less. And that's why I've really chosen real estate as my chosen vehicle to help me get there. Now the question is, is it truly passive income? I guess it really depends on your definition of passive income. Is it that you just sit back, put your hands back, and you lie in a chair and money is flowing your way? Well, some of it's like that. And it can be like that if you set it up correctly. It takes time to get there. There's some energy and effort that you need to put in on the front end, but eventually can help you get there. And the definition that I use in terms of passive income is that it's income that is not proportional to the time you put into acquiring it. What does that mean? Again, it just means that time does not exactly equal money. Now, when you're in your day job, most of us, we work on an hourly basis for the most part. If you look at it, maybe you get paid in different ways, but you can pretty much boil it down to the fact that you have to put in time to get money. Now, that can be a losing equation because in order to get more money, you need to put in more time. And if your time is worth less, which can absolutely happen, especially in the hospital, many of you have been told your time and your reimbursements are worth Less, then what happens is that to get the same amount of money, you got to put in more time. And so what I'm trying to do is when we talk about these type of investments, is that we're trying to break that link, break that chain between time and money. That's why passive income is income that is not proportional to the time you put into acquiring it. So maybe you put a little bit more time in the beginning, but the gains really come later. And that's what we're absolutely looking for. Now, many of you might like the idea of passive real estate investing. Let's talk a little bit about that in this episode. What I mean by passive real estate investing is that essentially you are investing in real estate without being a landlord. You don't have to deal with all of the things that come with owning the property yourself. Instead, you leverage other people, meaning that you leverage other people and companies, you invest in their deals, and you leverage all their experience, their team, their financial base, their time and in their energy, all of that, to get the benefits for yourself. So we're going to now talk about three rules for creating passive income through real estate investing. Number one is to diversify. Now, diversification is all about balancing risk and reward. Sure, you can be all in on one thing, have all your eggs in one basket. You can get the amazing benefits. What happens if something changes? Many of us who have been through multiple real estate and stock market cycles, you've seen things go boom and things go bust. So we all know, we all know it's important to diversify. Some people know that maybe I overdo it a little bit. I love to diversify like crazy. Meaning that even within real estate, I look for areas to invest in. I look for different asset classes. Asset classes are like apartments, industrial warehouses, office space, self storage. I like to invest across different asset classes because you never know when things go up and things go down. It's important overall to have, like, consistent returns. It's nice to have some things that might do well in certain parts of the cycle, things that might do worse. If you look at your own portfolio and you find you're super concentrated in one thing, again, there might be some amazing benefits of doing that. There might be some potential gain if that happens to hit and do extremely well. But as we all know, for those that are in stocks, typically, the better way to go is to diversify through these broadly based index funds to get a basket of investments which can really smooth out your returns over time. So how do you diversify within passive real Estate investing. Well, there are a couple ways to invest like this and invest in somebody else's deal. One, you might be investing in something called REITs, real estate investment Trust. Many of you might have heard of that before. That is where you invest in a company. You basically own stocks in a company that goes and invests in real estate. You might find that on the publicly traded market, like on, you might just go to Fidelity or whatever it is, and you might be able to invest and buy a REIT just like you would do any other stock. You might be able to do it privately. There are privately held REITs, but in any case, you are have direct ownership in some way of, of the company that owns this real estate. And they will provide not only distributions to you over time. The value of those stocks might go up over time. And so a lot of people like to invest in REITs. The downside to investing in REITs oftentimes is that it correlates a little bit stronger with the stock market because it is sold in a very similar way. People can just click on their computer, buy and sell according to emotion. And so when you're investing in real estate, often people like the diversification away from things like the stock market. They're looking for ways to buy unmoved, uncorrelated assets, what they call it. And also they want to maximize the tax benefits. So in that situation, a lot of people like to, instead of investing in REITs, they like to invest in private real estate opportunities like things called syndications and funds. Now, what syndications and funds do is they get money together from investors and then they go out and buy the properties themselves. So oftentimes you as an investor, when you're investing as something called a limited partner, you basically own a piece of each of those properties. So that's a little bit different from REITs in the fact that you actually own piece of the property, not just own the company, you own a piece of some of those buildings. And so you gain the benefits of having that ownership. You get the cash distributions from it. You get what's called appreciation when the value of those things go up. And that's another way that people like to invest in passive real estate. So when I invest in these syndications and funds, I make sure I diversify as well. Some that are for the shorter term, some that are for the longer term. Different types of properties, different sponsors, the people who are operating the companies in different areas of the country, I make sure I'm well diversified. And that's the beautiful thing about investing in these passive real estate investments, you can create a huge basket of investments pretty quickly because of the smaller amounts that you have to invest in them. So I make sure I create a nice, nicely diversified portfolio so that in times like now when you're watching this, where the markets might be changing, a lot of these properties are going to do just fine because they're in certain areas that aren't affected as much or their business plan calls for long term type holds. There's a term here called concentration risk where your risk is up, obviously multiplied. If it's all focused in one area. Imagine having all your properties in one town and a hurricane wipes out that town, for example. You want to be well diversified in multiple different areas. So that's rule number one. Number two, you do want to watch the market. You actually want to know a little bit about different markets or how, at least how to access that information. Meaning that you want to know which areas are areas of growth, which areas where jobs are moving to employment is very strong that have basically the winds at their back. So it's up to you to figure that out because you're going to find deals all over and they're going to constantly come your way. And it's important for you to understand how to do the basic due diligence to understand the market and understand whether that property or that investment is in a good area, even within a certain city or what they call an MSA or that's like the basically the surrounding metropolitan area. It's important to understand things down to the neighborhood or local market. How many of us own properties and know that a home on this side of the street might be worth more than that side of the street because of the way the school district is or whatever it might be, one area is more desirable than another. Well, the same thing happens with some of these bigger properties. You should know down to the street level why certain areas cost more or worth more or less. Now certain things will happen in the market that are out of our control. Things like the pandemic, things like what are happening right now with interest rates going up that might affect certain areas more than another. But when you're presented with a deal, you want to know whether again the, the winds are at your back or it's in a situation where you coming into a declining market. You know, as I've heard from savvy investors, I talked to many different investors with more experience than I do, they actually look for opportunities in times like this. They think actually in downturns there are certain Markets to be in, where if you're able to catch the ride, you're able to greatly benefit from, from having an investment in that area. You just have to be cognizant of where we are in the cycle, where each market is in the cycle, and how things will improve from here on out. Tip number three, if you're going to be successful in real estate investing and creating that passive income, it's really important for you to build a team, even if you're doing it passively. You want to seek professional help. Now, what do I mean by professional help? You want to find, obviously, sponsors and operators who know what they're doing. They have years of experience. They're the ones that are running the deal, running the business plan, putting the deals together. They're going to operate it, and you as an investor are going to go along for the ride. So who are the people that are going to ultimately help you get where you want to be? They're going to take your capital, be good stewards of it, make sure they run the business plan and do a great job with it. You want to find professionals who know exactly what they're doing, what to look for, and of course, have been through multiple cycles, perhaps understand how to mitigate risk and know how to do well in times like this. The other thing you want to do is assemble a professional help in terms of a team. You want to have an accountant, you want to have a CPA who understands real estate. Now, I don't know how many people I've talked to before who say that, you know, now that I'm investing in real estate, my CPA has no idea what they're doing or they don't know what to do with that, and so they're asking for help. Well, sometimes your needs can change over time. People stuck with the same CPA they had when they were residents, when not much was going on, but now maybe you're investing in real estate more, maybe you're focused more on that. It might be time for you to find and seek professional help who understands that area, knows how to maximize the tax benefits, help you navigate that market. Having a professional at your back be able to do so is an amazing thing. Many of you have financial advisors. Now, I know that there are good financial advisors, there are poor financial advisors. Ultimately, I think that having somebody in your corner who can look at your overall portfolio can help you determine how to get, you know, take what you have in terms of assets, in terms of the capital that you have to help get you where you want to be. That is not a bad thing. So if you have a financial advisor and that's the route you want to go, make sure you have one that understands your same goals, that understands the type of investments that you're making. My financial advisor has a ton of real estate experience, so he knows what I'm trying to do right now in terms of setting goals. He knows that I want the cash flow now so I can have that income replacement so I can live life how I want now, not 20, 30 years in the future when I retire someday. So don't be afraid to find good professional help. Not only again your cpa, the people that you're going to invest with, make sure you choose people that know what they're doing, that have that level of sophistication because that's where you want to be and those are the people that you want to get close to. So those are three great tips for successfully creating passive income through real estate investing. You know, and a little bonus tip, you got to take action mean that you've got to figure out either how to educate yourself and start nibbling at some of these investments if you haven't made already. The reason I'm saying that is that the opportunities are coming. Maybe some of them are here already. Prices are dropping, asset values are dropping, inflation has gone up. There's an opportunity for people who are knowledgeable, who are confident, who have the capital for them to take advantage of what's going on. Now we get a couple of these opportunities in our lifetime, and I believe that we're really coming up on one right now where there's that point of maximum financial opportunity that you might have seen on some of these curves. We're getting close to it. We're not quite there yet, but this is the opportunity and the time to learn to put yourself in community of people who are taking action and then find your way to success that way. So, hey, thanks so much. Have an amazing week. Let's talk again soon. Enjoy the show. Let me know by dropping a review in the podcast app you're listening to us in. 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.