Why Every Doctor Needs Passive Income ( And How To Get It)

In this episode of Paging Financial Freedom, Dr. Daniel Shin, a surgeon and real estate investor, and Lila Kaplan, a former Wall Street professional and certified financial planner, discuss various ways to invest in real estate and how these strategies can lead to financial freedom. They dive into the nuances of real estate investing, focusing on traditional buy and hold, house flipping, short-term rentals, and land investing. The conversation also covers passive investment strategies like real estate syndications and REITs.

Key Takeaways:

• 00:00 – Introduction to the podcast and the various ways doctors can invest in real estate.
• 01:11 – Traditional buy and hold strategy: pros, cons, and the challenges of property management.
• 06:20 – Lila’s experience with house flipping and its risks.
• 11:17 – Short-term rentals: benefits and challenges, especially in an unstable economy.
• 16:24 – Land investing: Lila and Dr. Shin discuss the pros and cons of land ownership.
• 21:12 – Passive investment strategies: syndications and REITs, and the benefits of pooling resources for larger deals.

Links Mentioned in the Episode:

• Paging Financial Freedom Podcast on Spotify
• Paging Financial Freedom Podcast on Apple Podcasts
• Learn more about Dr. Daniel Shin’s Real Estate Fund: CereusRealEstate.com
• Learn more about Lila Kaplan’s Real Estate Investment Management Company

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Transcript

00:01
Welcome to Paging Financial Freedom, a podcast about doctors and spouses and the journey to financial freedom through real estate and tax savings.  I'm Dr. Daniel Shin, a surgeon and real estate investor.  might know me on social media as the Doreenian Doctor or the founder of Sirius Real Estate.  And I'm Lila Kaplan, former Wall Street professional, certified financial planner,  and the person on a mission to retire my orthopedic surgeon husband in the next five years. I specialize in apartment investing.

00:29
helping doctors and their families build true financial freedom beyond their  W-2 incomes.  If you're interested in achieving tax-efficient financial freedom through real estate, you're in the right place.  Let's get started.

00:44
Hey everyone, welcome back to Paging Financial Freedom.  And I'm Dr. Daniel Shin, surgeon real estate investor and founder of Surerous Real Estate. And as always, I'm joined today by Lila Kaplan. Hi everyone, welcome back. This is Lila Kaplan, as Daniel said,  real estate investor, but also a spouse  of an orthopedic surgeon. All right.  And  today we've got a

01:11
Great episode. wanted to go through the various ways that you can invest into real estate. We talk a lot about real estate investing on the show, obviously that's the main theme, but there's also sort of some nuances about the various ways that you can invest into it. But before we do that, Myla, what's going on? What's going on in your life? Oh my God. What's not going on in my life. Um, been very, very busy. Um,  you know, I have my residential sales business in Colorado, but just recently.

01:41
Um,  as you know, I am focused on multifamily purchase  in,  um,  uh, Dallas  and we just found a property that we're buying for 33 % discount.  Uh, so we're really excited. We're in the process of going to Dallas to do due diligence and then hopefully sign the contract. What about you?  That is super exciting.  Um, yeah, I, I can't wait to hear more about that because.

02:10
a % discount. That's something I would expect in Nordstrom's, not in real estate, right? Yeah, absolutely. Yeah, everything's going great. I'm flying to Los Angeles tomorrow to  basically prep one of my rental properties there for sale,  which I'm looking forward to. And then  in terms of the  serious real estate, I've been  basically formalizing it as a customizable real estate fund.  And that is

02:38
Almost done just kind of the last finishing touches. So that's been really exciting as well. So  what's first on the list here traditional buy and hold. So Lida, do you want to, do you want to spend a couple of minutes and just kind of discuss about what, what is traditional buy and hold? What does that even mean? Yeah, absolutely. So traditional buy and hold is basically buying a property, um, potentially renovating it and then holding onto it to fill it with a tenant.

03:07
The objective most of the time for traditional buy and hold is really to gain that monthly cash flow. What's great about traditional buy and hold strategy is obviously the appreciation of the property. You do get certain tax benefits if you're doing a cost segregation study and overall stability. It's a little less active depending on the strategy, long-term, mid-term, short-term.

03:34
um is the ability to uh fill the tenants who are living  long-term would be about a year or more, midterm would be anywhere 30 days or more, and then short-term strategy would be 30 days or less. The downside of a traditional buy and hold, of course, is having to deal with tenants and being a landlord yourself.

03:58
Don't be surprised if you're getting that call at 2 a.m. because they have a leaky faucet or  their toilet blew up. And also dealing with property managers. So you think you can just pass the property to a property manager to help you manage?  No. Listen, a lot of property managers are not  as privy to managing a property as you think. So before you buy a traditional buy and hold, make sure you do your research.

04:27
All right. So  yeah, I would say that this has been the majority of my investment strategy.  And, you know, when I was uh a couple of years into  my attending career at Kaiser, I basically just started buying rental properties in the Midwest and then started with like a single family home and then duplexes. And yeah, my, my,  strategy was going to be just to buy it, hold it for the longterm, enjoy cashflow.  And  really, I think what I've learned over the years is that.

04:56
Exactly like you were saying, even though you have property management on it, it is not hands off. know, there is a lot  of things that a property manager will push up to you uh for opinions. You know, in terms of any repair over $600 with my portfolio, the property manager is contacting me and saying, this is what's going on. Do you agree? You know, and I have to kind of push back and have a conversation about, you know, is this a reasonable expense?  I have two.

05:25
HVAC units right now that are going out  and I'm trying to figure out is it, should we replace them? Should we just repair them? You know, the, upside of having property management is that the tenant is very upset, uh, obviously not having air conditioning and those calls are going to the property manager, but I still have to figure out sort of on a managerial aspect, what to do with that. So what about you? Do you have long-term rentals as well? think you do, right?

05:50
Yes. So I feel like most real estate investors have started their real estate journey through a traditional buy and hold strategy.  do have,  you know, I started with actually, and it's a topic that we're going to discuss next.  I started with  a fix and flip first and then realized I really hated it. ah And then went to buy traditional, you know, single family properties and then moved up to a duplex and then a fourplex.

06:20
and eventually into larger assets like the multifamilies. You know, it was a great learning experience, but definitely, you know, it's not for the faint of hearts and a lot of problems, especially having to deal with tenants and contractors. It's very active strategy versus something that's passive where you're just giving your money to somebody to do the active management of the property.

06:48
So yeah, I mean, it's a great start and most people will buy single family  as the first investment, but just be aware that you're going to probably face some real problems when you're buying it. It's not as easy as buying a property and then just let it run itself. And then what I'm also seeing right now, especially in the Colorado market and  in  other  certain markets around the country right now is

07:17
buying a traditional buy and hold does not give you as much cashflow at the moment just because of the high interest rate and the property value continues to go up. And so what I'm seeing in Colorado right now is you would be lucky to get a cashflow of about 5 % in any traditional buy and hold right now. So Daniel, what are you seeing?

07:43
Yeah, I think that's really the issue. And it's one of the reasons why it turned to larger multifamily, uh, because I think you can get these kind of. Unexpected discounts like you're, you're seeing right now. Um, yeah, I think we could fill up an entire episode about sort of a traditional buy and hold strategy versus passive, but I guess what I think I was hoping we could provide in this episode is sort of like a 3000 or 30,000 foot view of.

08:11
of a few different strategies. maybe we can, why don't we go now to house flipping? So you said that you started out  as a house flipper. um What's the general concept? What are you, what are you trying to do when you're thinking about flipping a house? Yeah. So flipping a house, I'm sure a lot of people have watched HGTV. So house flipping is basically buying a property  at below market.

08:36
renovating it and hoping that you can sell at market value or higher. um What's great about house flipping is the fact that you can produce  short-term returns. And, you know, if you love to do renovation and see a project, you know, at the end and see how beautiful the house is, it's a great way to start your investing. But the biggest downside of

09:04
House flipping is a tremendous risky strategy. First of all, you have to buy right. You have to buy well below market value. You have to make sure that your renovation budget stays on budget, which most of the time it doesn't. You have to make sure that your project stays on time.

09:28
Because the whole objective of house flipping is being able to flip it within a three to six months period. And if you increase that timeframe, you have a lot of additional holding costs that you may have to incur during that time.  And then it's just finding, you know, the right people, the right team to work with, especially contractors. Contractors in the house flipping business will either make your business or break your business.

09:58
And I've had great contractors, but I also had horrible contractors who didn't show up, took my money and took shortcuts  and didn't get permits. I mean, I can go on and on, Daniel. So anyway, that's kind of what house flipping is and some of my experiences with it.

10:23
All right. So we'll have to write that down as another episode.  Lila's nightmare house flicking. Oh my gosh. I have so many stories. So yeah, I totally agree that, you know, this is, this is a short term sort of very time intensive way to make money. And you know, the, things that really differentiate in my mind and why I never tried it is that number one, it's, it's short term income. So it's not long term. So

10:49
Any of the gain that you're getting is taxed  as regular income and you're really exposing yourself to market risk. So say that the house flip, you're hoping to get it done in three months, but it ends up taking nine to 12 months. If the housing market declines during that time, all of a sudden, all your projections  are totally off  and  you you might lose a substantial amount of money. So that's, that's why I, I sort of haven't focused on that.

11:17
You know, but a lot of people do well, you know, if they have good strategies and systems and teams in place, but it's just nothing that really appealed to me.  absolutely. Daniel, what about, let's talk about short-term rentals  as investment strategy number three here. I know you have a couple of short-term rentals. Tell us the pros and cons. Sure. So  I think that short-term rentals, the reason why I have two of them right now  and

11:45
You know, one is in Palm Springs, one is in Broken Bow, Oklahoma.  And the reason why I really went into it, there were two reasons I would say. So Palm Springs, for example, was just two hours from where I lived in Los Angeles. And ah during the pandemic, I bought this  four bedroom property  and we turned it into a five bedroom and we added all these amenities and every weekend actually for

12:12
The better part of a year or so, my family would drive out there and we would paint and do renovations. And it was during the pandemic. So it was this really actually nice time. was, it was a lot of work. Don't get me wrong, but it created a lot of memories. And then once we had it, it was this awesome place that we could go with friends and things like that. Um, additionally,  Palm Springs is a very  reliable short-term rental market. And we thought that we were going to be able to make a good profit on it as well.

12:41
That was a second reason, obviously. And then finally, the third reason that we went into short-term rental is that for  employed professionals, it's one of the ways that you could use what's called a short-term rental loophole to incur a pretty significant amount of tax savings, which probably we should save for its own episode because it's a really hot topic. But it was for all those reasons. ah The problems that I've experienced since then.

13:09
Is that number one, we've moved. So we live in Memphis now, so we can't just go and enjoy this awesome property that we have.  And whenever, what I've learned is that whenever there's economic sort of instability in the country, short-term rental markets are, are the most fragile out there. So people stop going away. They stop spending money on Airbnb's  and  you know, they're the first to go down and become less profitable. And they're probably the last to sort of recover.  So.

13:37
Right now, the short-term rentals that I have really aren't making much money, if at all. So, you know, that's been my experience.  Do you have any short-term rental? I think you do, Laila, right? I do. So I have three short-term rentals also, you know, purchased around the pandemic. I did have short-term rental even prior to that, but I sold those. What's great about them, like you said, Daniel, is having the ability to go...

14:04
and on vacation with your family and build memories with these vacation homes. But it's definitely a lot of work. um I've been self-managing short-term rentals since 2019, where I bought a duplex  out of Hershey, Pennsylvania. And what's great about Hershey is you do have a lot of tourism because of Hershey Park.

14:30
But then you do have the Hershey Medical Center very close by as well. So um the revenue was great um through  basically all year round. um And then we decided that we wanted to buy a couple more properties in the Great Smokies because we used to go there all the time.  Since the purchase, you know, we've definitely had some challenges filling the occupancy of the property.

14:57
Self-managing from a distance is not impossible, but it's very hard. And the biggest thing is really to build out a trust, you know, a trusted team and a reliable team who can clean and do the maintenance and be your eyes and ears and nose and basically boots on the ground for you. You know, it's been pretty challenging and now I've passed on.

15:24
the responsibility to  an actual property manager who um actually live around the area. And  since then,  the occupancy rate have done pretty well as  well. So,  but like I said, there's so much to go into short-term rentals. know a lot of people would love to buy a vacation house and be able to use it and rent it out.  But there are just so many nuances, the pros and the cons. And I just feel like a lot of investors don't really do enough research.

15:54
before they purchase their first  real estate property. Yeah, we'll definitely have to do a full episode on it because you know, know a lot of people do great with a full short-term rental portfolio, but you really have to treat it like a business.  There are some awesome tax benefits too that we should go into. All right. So we'll have to tuck that away for another full episode.  All right. So what's on the list here? Land investing. ah I have, I have one unit of lands in my portfolio and I

16:24
I know you just, I think sold one, right? So do you want to talk about that? Yeah, I just sold one. So, you know, we ended up buying  a piece of land  out of uh Crested Butte, Colorado. It's a beautiful place. um we, you know, my husband loves Crested Butte. You can go there during the winter for skiing, snowboarding. And then during summertime, they have beautiful flower festivals, you know, around the mountains.

16:52
So we go there at least twice a year and wanted to build a property there.  Bought the land actually below the market value. We were lucky enough to find something very affordable. And our expectation was really to develop this piece of land  and,  you know, build out a 5,000 square foot house. But after  purchasing this land, we realized, oh my God.

17:18
The build cost had gone up from $550 per square foot to about $800 to $1,000 per square foot. it's also hard to find a lender where you can get appropriate construction loan without breaking the bank. So we ended up selling it. We love the land because it was low maintenance. We definitely saw...

17:46
because we bought it under the market value that we were able to sell it at a higher valuation. But unfortunately, keeping the land was not conducive to our strategy. We wanted cash flowing, income producing properties. And so we ended up selling this property this year after holding onto it for a year and a half. The good thing is we did make 33 % of

18:15
or 30 % of profit out of this one that we're 1031 exchange into another property. The downside is we're not going to have our vacation home that my husband longed for. Yeah, there's a saying about land that it eats 24 seven. And I think that's really just saying that it doesn't generate income and cashflow in the way that rental property does.

18:42
while you're holding it, you still have to pay for property taxes, insurance on it. You know, if someone walks onto your land and breaks their ankle, you may have some maintenance costs with it. And there's the opportunity cost of that cash and equity that you have locked up in that property. But it sounds like you've unlocked that by 1031 again. Yeah.

19:02
I mean, you know, there are some people who  buy land and are very experienced at buying land and selling it. I would say, you know, if you have no experience buying a piece of land as your first investment property could, can be very risky, um, just based on what we just talked about.

19:21
But also land,  you know, the days on market for land can be extremely long. So you can list your land and not be able to sell it for a year, a year and a half. Luckily, you know, we were able to sell our dirt because,  you know, the location of the land was a ski in, ski out lot. And we had this beautiful, gorgeous mountain view and we already had.

19:49
properties around us that were uh being built up and so somebody really loved our lot and ended up buying and getting it under contract in seven days So it went very quick for us But other than that, I mean I personally think that land is a little bit more risky if you have no experience Yeah, I mean I've got this one Technically this one plot of land in my portfolio that is next to a seven unit property I  own in Indianapolis and it's actually in a great

20:18
part of the city and I get calls all the time of people trying to buy it.  And I've been holding onto it just because the tenants and the seven unit really like to have this grassy field next to them that they walk their dogs on. And theoretically I could build a rental property on it. The problem is every time I run the numbers, especially now with build costs going crazy, it does not make sense. I would have to go for a flip strategy essentially to build something and sell it.

20:46
to probably a retail investor or retail buyer.  And that's not really, it doesn't fit my strategy. So  I'm still holding onto it, just trying to figure out what to do with it. And those are pretty much the four strategies  on the active investing in real estate. So traditional buy and hold, house flipping, short-term rentals and land investing. Daniel, should we talk about the passive investment strategies now?

21:12
Yeah, let's do it. mean, both of us, would say  are focusing a lot  in the type of asset where people traditionally use passive strategies. So yeah, why don't we talk about it? So the first one would be real estate syndications. um So I'll just summarize  what it means. Basically, it's kind of like a group investment. um That's really, it's a fancy term for group investment. So basically a lot of different people will pool their assets.

21:41
pool their resources and their cash and then purchase something larger  that they probably couldn't do individually. So  they'll buy a large apartment complex  or a large mobile home park or something like that or self storage.  And then there's this breakdown between sort of general partners and limited partners. Do you want to go into that Laila?

22:01
Yeah, absolutely. So the general partners are basically the active managers. So they go out, they look for the deal, they acquire the deal, and they manage the deals. The limited partners would be the investors who, alongside the general partners,  would invest into this property, whether it's apartments, cell storage, mobile home, any asset class. uh

22:27
You know, that's what syndication is, is having the breakdown between a general partner and limited partner. So what is great about a syndication is it's truly passive besides, you having to do a little bit research on the property or the deal itself. It's very passive. There's no active decision-making on the investor side. If you're a limited partner, you can.

22:54
participate in much larger deals and get much stronger returns  and  also have very strong tax advantages as well. The downside of course is, you know, there are certain risks to  a real estate syndication, including being illiquid. uh You cannot just sell an apartment building tomorrow like you would be able to sell a stock.

23:21
You also need to make sure that you vet the sponsors. So the sponsors are pretty much the general partners who acquires the deal, who presents the deals to you. And most of these deals are often for accredited investors. So accredited investors are defined as any individuals who's making an income of $200,000 or more, or $300,000 as a couple.

23:49
or that they have a net worth of a million dollars or more. So, Daniel, I know you  are very involved with real estate syndication. So can you tell us a little bit about your experience with them? Last year was the first year  of  existence for Sirius Real Estate. I started it, you know, last year and,  basically, I wanted to take advantage of all of these larger assets, but

24:16
I also wanted to extend an opportunity to invest to, uh, basically, you know, others as well. I, I formed serious real estate and, uh, over the course of the year identified a great deal in Des Moines and it was a 360 unit apartment complex. And it was something that obviously I could not just go out and buy because it was purchased for $24.75 million and the capital needed to buy it, renovate it, and really

24:45
add value to this property was going to be over $11 million.  So unfortunately, I can't just reach into my pocket and do that. So uh you don't have $24 million  in your bank account.  Not yet.  One day,  one day it'll happen. uh You know, but the way that I could be involved in this deal and take advantage  of the, the sponsor team who, you know, is really sharp and had a great plan for this property is that

25:14
I could pool together capital and bring it to the deal. that's what I did.  And myself and about two dozen other physicians pulled our capital and we bought uh a limited partnership stake of about 10 % in  this deal. So uh myself and  my partner investors own about 10 % of this deal now. And  we can now take advantage of all the economies of scale.

25:38
that you get in a 360 unit  apartment complex, like really professional property management,  really good economies of scale when it comes to renovations,  and  also  pretty amazing financing that you only get when you're utilizing these governmental agencies that specifically provide liquidity and financing for this type of asset. So  that's some of the benefits that you get access to when you're investing into this type of  asset.

26:08
Yeah, that's amazing. If you want to scale up, this is the way you scale from single to multi without putting too much money into the deal, but still getting very strong returns most of the time. What about the next passive strategy? REITs, so Real Estate Investment Trusts. Yeah, I would say I don't have a ton of experience with REITs just because whenever I've looked at them, it's pretty much like you're investing into the stock market.

26:37
You can buy and trade  these investments in the same way that you would when you're just buying an index fund.  But whenever I've looked at the returns, it's never been that attractive to me. And it also seems to follow the trends of the stock market fairly closely. it was almost like a very correlated asset. But do you have more experience with REITs?  I definitely have some diversification in REITs, especially in my

27:06
401k or retirement funds  or my other brokerage portfolio just because my financial advisor says that I need a little bit of real estate, even though I personally already invest in physical assets.  Yeah, I mean, like you said, it definitely trades  like the stocks.  It's easy to buy and sell. You can create some diversification  into your portfolio with some real estate  through REITs.

27:36
And, uh, and it's lower barrier to entry, right? Buying a large syndication is definitely very hard.  Um, and  it's, you know, it's demanding and there's a lot of work behind it, but buying REITs is a lot easier, um, for you to kind of do the research  and, um, and just go to a Charles Schwab or Fidelity to buy a REIT.

27:59
I would say for somebody who  is very risk averse, not willing to put their money into a fiscal asset, then REITs is probably the best way to go.  But you don't get all the benefits of high return and also tax efficiencies as well. Yeah, I don't think we've actually formally defined it, but essentially in my understanding, a real estate investment trust,  it's a commoditized portfolio of real estate. So someone

28:29
You know, like a um Charles Schwab or something like that. They have an arm of their corporation that basically invests in a large amount  of diversified real estate, like apartment complexes and self storage. And these are not sort of the same uh speculative types of investments that you might invest into with a syndication. They're stabilized. They're just chugging along,  giving out a return.

28:55
and they  buy into this or they buy the whole thing and then they'll  essentially commoditize it where they're going to sell pieces of it to  other investors and take a little bread. It's kind of like an index fund, but for real estate. Yeah, absolutely. Or  kind of like mutual funds as well.  You group all of these companies together. So you will have rates for office buildings or you can have rates for shopping malls, right? Westfield has a rate.

29:25
you can have a REIT for data centers. you know, depending on what's your strategy and how you want to diversify your portfolio, having a REIT in your stock portfolio probably will make sense. All right. So we've gone through  four active strategies,  traditional buy and hold, house flipping, short-term rentals, and land investing. And we've touched on two passive investment strategies,  real estate syndications  and real estate investment trusts or REITs.

29:55
So Lila, how do you decide as an investor, which way to go? Any, any thoughts about that? Oh yeah, absolutely. So, I mean, it's really looking at, you know, your time versus money. Um, how much time do you actually have to actively participate in the real estate industry? If you don't have a lot of time, you know, maybe going for a passive strategy is the best way.

30:24
If you do have some time and you want to materially participate in the real estate market, then maybe buying a physical asset and you managing it would be ideal. Um, and also having that control. So do you want to be a landlord? think, you know, I was just talking to another doctor recently and she, she said, you know, I just don't have the time.

30:48
You know, she's not married, she's single, she wants to get into the real estate market, but she does not want to be a landlord. So it's really looking at your life and seeing, you know, what do you want to do? How much control and convenience do you want to have?  And then how much time you have to actually invest into real estate. But we're here to help you, right? Daniel, we have some experience in pretty much all of these  different strategies.

31:16
And feel free to reach out to us and we're happy to kind of give you some of our experiences  in our real estate investing journey. Thanks for tuning into Paging Financial Freedom, where we help doctors and spouses like you take control of your finances, invest smarter, and build a life by design.  If you enjoyed today's episode, don't forget to subscribe,  leave us a five star review,  and share this with someone who needs to hear it.

31:45
And remember, financial freedom isn't just a dream, it's a decision. So let's get there together.