Real Estate Investing Mistakes Doctors Make
Learn from the Mistakes of Others so You Don't Repeat Them
Doctors have a great opportunity to build wealth in the long run, being higher earning professionals with a high demand on their skillset. Unfortunately, their demanding schedules and high stress work environment can lead to poor investment decisions, particularly when it comes to real estate investing.
Today we’ll go through a few common real estate investing mistakes that doctors tend to make more frequently than other high earning professionals.
Before we get into it, let’s set the record straight and discuss why I wrote this post. This post comes from a place of appreciation, not criticism. I believe doctors deserve financial security, and unfortunately I’ve seen many doctor friends make real estate investing mistakes over and over again. I share this information in hopes that you can learn from others’ experiences and not make the same mistakes.
Now that we’re on the same page, let’s dig in.
1) Not Getting Personal Finances in Order First
Real Estate Investing is one of the best wealth creation strategies that exists. Unfortunately it can’t make up for poor spending habits.
We all know the doctor who drives a new luxury car and lives in an enormous house, but who is secretly living well beyond their means. They may not be able to withstand missing one paycheck! That’s bad news.
Real estate investing can’t fix poor financial planning and budgeting. Get that squared away first. That may mean moving to a more modest house, switching from a luxury car to a Toyota, or dialing back on shopping. Whatever it is, real estate investing isn’t the fix for bad financial habits
You Need A Budget is a great online program which can help you get your finances in order. They’re offering a free trial to our readers, check it out today!
2) Trusting Other Doctors Too Much
People love to do business with people they can relate to. In the case of doctors, there is a tendency to seek out other doctors to do business with. That can be fine, but it can also be a big mistake.
There are many former MDs who have transitioned from a life in medicine to investing, and they should be commended for following their passions.
Just bear in mind that being a former doctor doesn’t necessarily qualify one as a great real estate investor. Do your due diligence with that fact in mind. Don’t let their medical experience cloud your mind.
3) Impulse Buying Rather Than Investing
Doctors work long, hard hours and often find themselves daydreaming about what they’d like to buy.
Rather than seeking good investments by the numbers, the temptation is great to buy vanity projects – money losing restaurants, coffee shops, and vacation ‘rentals’ which are more like second homes… the list goes on.
Don't Buy a Vacation Thinking It's an Investment
Take the time to learn the difference between impulse buys, speculation, and real investments. True investing, practiced over the long run, is what will set you free. Not speculation on some money losing venture.
4) Undervaluing your Time/Trying to do it all
Time is our most scarce and most valuable asset. Unfortunately most of us think money is more scarce than our time, which is not true.
This leads to misallocating our precious time, doing things like cutting the grass at our rentals, collecting rent, doing repairs during turns, and on and on. So what’s the fix?
The fix is to understand the value of your time in dollar terms.
Let’s say you’re earning $350,000 per year and working 50 hour weeks, 50 weeks a year. That’s 2,500 hours per year, so you have valued your time at $140/hr.
You’ve valued your time that way because that’s what you’re already selling it for.
You can always get more money. You can never get more time.
Now, shift your mindset and remember that your time (all of your time) is worth at least $140/hr.
Instead of taking 5 of your non working hours per week to manage your rentals, think about whether you can hire someone to handle those tasks, but pay them less than $140/hr. By gaining that time back you’ve regained some of your most precious asset.
5) Letting the Tax Tail Wag the Dog
As a high earner, you’re paying a higher percentage of your income in taxes than anyone else in the country. Tax strategy should help you save on your tax bill, but tax savings shouldn’t be the #1 focus of your investing.
Focusing only on taxes is a recipe for losing money.
Good investments which are consistent with your overall tax & asset allocation planning should be the focus.
6) Only looking at On-Market Deals. Go off market!
On-market refers to properties that are listed on the Multiple Listing Service (MLS). Unfortunately, the best deals rarely ever make it to the MLS. When a good deal winds up on the MLS it’s quickly snatched up by cash buyers with a presence in the market.
So what’s the solution?
Go off market! That means building deal flow that is not accessible by the general public. Off market deals will often times need renovations & non-conventional financing, but that’s where you can create massive value.
Where to find off market deals:
- Brokers’ pocket listings (broker relationships)
- Wholesalers
- Direct mail
- Through your network
Conclusion
Real Estate Investing is a tried and true way for doctors to build wealth in the long term. There are several common mistakes & missteps doctors tend to make when investing in real estate.
I’ve highlighted a few common real estate investing mistakes which I’ve seen doctor friends make many times in the hopes you can avoid making them as well.
