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Christopher H. Loo, MD-PhD: Welcome, everybody to this week's podcast episode for the Financial Freedom for Physicians podcast. I'm your host, Dr. Christopher Loo. And I talk about four pillars of freedom: time, financial, location, and emotional freedom. And the podcast has grown since 2020, initially we had physicians that are guests in the audience, and now it's grown and expanded. So now, hopefully both the audience and the guests can learn from each other.
So in that light, I have Dr. Cherry Chen. She's the host and founder of the Real Estate Physician. And she's in the niche of real estate syndicates. I know it's a very popular field for physicians. So we're gonna talk all about real estate investing and passive investing. So Cherry, welcome.
Dr. Cherry Chen, MD: Hey, Chris. Thanks for having me on. I definitely resonate with those four pillars and values you mentioned, and it's the same exact ones I think about when investing. So, really glad we aligned on that. Hopefully, we can have just a really great conversation today.
Christopher H. Loo, MD-PhD: Yeah, you do the Real Estate Physician; it's a newsletter, a blog, a lot of information and education for physicians interested in real estate investing. And what's interesting is, you're on the passive investing side. So we'll get more into that. But tell us more about your background, your bio, and how you got started.
Dr. Cherry Chen, MD: Yeah, so I'm an internal medicine hospitalist. So it's been about seven years in, it feels a lot longer sometimes. But I started basically investing, or looking into investing, my first year as an attending. And it's really self taught, self guided, because I'm sure you and our listeners understand, we weren't taught.
So everything with medicine has been so straightforward. You know, spoon fed to you, of course, we had to study but it was a very set path. But that didn't involve anything about finance or investing besides the 401(k), which is what I was investing in. It really started with being a curious person. And I was just wondering, Hey, is there anything else besides my 401(k) I can invest into? I was getting paid as an attending, and I was like, Okay, this is extra cash. Well, what can I do with it after putting into my 401(k), so it really honestly started with that.
And then understanding just real estate intuitively, I had never invested before. And so, having lived in apartments through med school and residency, it was like, I think we can all understand it, but I really didn't know anything beyond getting a rental and putting it on Airbnb. And that's kind of where I just started learning and devouring everything on the internet, basically.
Christopher H. Loo, MD-PhD: Real estate, especially real estate investing and syndications, are very popular for physicians. Physicians are a very unique cohort because they're high income earners. Tell us, what are the specific advantages of real estate investing over a 401(k) or the equities?
Dr. Cherry Chen, MD: Yeah, and honestly, I didn't know any of that before I started investing even into real estate, into my first syndication. I would definitely say it's rather than look at hey, what are the specific returns, really understanding the asset as a whole, but also understanding yourself right. So why I personally enjoy investing into syndication is I like to remain passive. I am working as a hospitalist. I don't want to dig into every market and have to dig through all this data or underwrite these deals, talk to brokers 24/7 to find that one property. That might take hundreds if not thousands of hours, and that's just the beginning. And then next, after you get a property under contract, is the management, you can have a third party, but it doesn't relieve you of all of your responsibilities. And so I wanted to be as passive as possible.
And that's why syndications make a lot of sense for physicians, because you have the capital, you want exposure to real estate or to diversify from stocks, but you don't want the liability or to spend all the limited amount of free time you have into hunting for real estate deals. Some people might love it, and that's great, but I wasn't that type. Or I learned I wasn't that type. And then just the investment itself. Most of my investments are larger apartment buildings. And so you give yourself, in my opinion, less risk when you have 200 units versus a one unit by one occupant. So we can definitely dig into the details. But just from a broad level view, I wanted to be as passive as possible and understand the ways to decrease the risk of my investment, basically.
Christopher H. Loo, MD-PhD: Yeah, that's a really fantastic introduction. There's always been a debate in the physician community between which produces the greatest returns, the stock market or real estate. So, we'll get into the specifics of why. What are the advantages of real estate over the equity markets?
Dr. Cherry Chen, MD: Yeah, and I think, especially, I feel like, as I've invested many years now, when I'm looking at returns, certainly most investors, and me personally, when I first started out were like, Okay, what is my percent return? Right, or whatever cash on cash, or my annualized return.
But also, think of it more broadly: as a physician, what is the return on my time, of my effort? But just broadly speaking, I am not a stock market or equities expert, and you can definitely correct me. But it is just comparing some of the main generalized principles; the stock market is much more liquid. So some people say it's more volatile or unpredictable. I can wake up tomorrow and be up 10%, 20, 30. Or it could go the other way. Versus real estate, just by nature, you cannot sell it the next morning. So it is more illiquid. But also, the same flip side of the coin is it is more stable or predictable, depending on your business model. So that's one way.
The other more attractive way is just some of the tax benefits you can have by just being a real estate investor. That applies to most real estate investors in different fashions, not just if you're in a syndication. Versus your stock portfolio is not as tax efficient. And those are just the general tax benefits the government has for people who invest into real estate. So you're not special if you're in a syndication, but we can dig into that as well. But I would say those are the two most common things, without talking about, okay, what is the time it will take me as a physician, if I wanted to be active in real estate or do it on my own. And that, for me, is much more important, especially as I invest more, or as we get older I have a family. What is the return on time? And how, what is like my headache, my sanity when I'm in an investment. I hope it definitely enhances my life rather than takes away from my life. So those are just some of the other things I consider.
Christopher H. Loo, MD-PhD: I've been talking a lot with my physician colleagues recently, and with the market volatility, companies can go under. Especially during this time, hard assets like real estate, gold, all of these things are very nice to hold because they're physical and tangible, and you control it
You can do something active, which is essentially being a landlord, which a lot of physicians shy away from, because is that a really good return on your time or capital? So for example, if you want to invest in syndications, which is a passive way, what's the difference from REITs? Because they're both passive, right? So tell us about that.
Dr. Cherry Chen, MD: Yeah. I've actually never invested in a REIT [real estate investment trust]. But you can buy the stock. Hopefully, I'm saying it correctly, because I just don't do that. And then inside of it, the company might hold shares of apartments, right? So, when you look at it as an investor, I think you see, I'm investing into apartments or self storage. But because of the way the investment vehicle is created, you have different benefits that pass down or do not pass down to you. And so, whenever you invest into a REIT, you purchase it, it is more liquid because you can sell it tomorrow if you wanted to, you don't have to hold it long term like real estate. But then you don't really see the tax benefits as if you were actually an equity owner or holding the real estate yourself. You're holding paper shares of a company that then goes and purchases the shares, so you don't get any of the tax benefits.
Verses when you invest into a real estate syndication or go purchase your own properties, you actually hold equity. Therefore, you receive the tax benefits that do get passed down to you as an equity owner. And when you invest into a syndication as a passive investor, all of those benefits do get passed on to you. So that's a nice benefit, right? So that's one of the main differences short of understanding the liquidity and illiquidity of REITs being on the stock market.
Christopher H. Loo, MD-PhD: Yeah, I think the number one depreciation is phantom income. So it's almost like you're making money. You can hold a lot of real estate and on paper, you look poor, because of all of the depreciation and the tax benefits.
Dr. Cherry Chen, MD: Especially when I first heard it for the first time, I was like, I don't know what that means. But it’s why people invest in real estate and why many people hold it outside of stocks or whatnot is, just think, well, if I make an investment, if I actually get to keep more of my money, as we understand as doctors, I actually got to keep what my W2 salary was, you'd have more money. And so those tax benefits you get as a real estate investor basically just allows you to hold on to more of that money that was coming back to you, rather than it being taxed away.
Christopher H. Loo, MD-PhD: Yeah. So there’s a question between direct, active and passive. I started out with direct active real estate investing, and that really taught me a lot of business skills. But it took a lot of time. Can physicians just go directly towards the passive side, or do you think it's better to own one or two properties just to get a good feel of it, and then move into passive? What are your thoughts on that?
Dr. Cherry Chen, MD: Yeah, I think it's definitely personality specific, depending on what your goals are. I actually think, personally, it's the other way around, where I think it's easier to go into maybe one or two passive deals, see how you like it, see how generally real estate works, and in that process, educate yourself. And then if you're like, hey I love reading these reports of financials, I love reading what the property management is doing, I want to go do this on my own. So I think it's the other way around.
But it really just depends because, I see several physicians who go out and purchase several rentals within a year and I think we're blessed in that way. We have the capital, you can get the loan, you're not saving up three, four or five years possibly to get a loan. And so I think in that way, we have a much lower obstacle to go purchase. But I think then you need to really understand that you’re not only purchasing, but knowing you're actually buying the right kind of property. It's different to buy a property versus the cash flow, the management, the operations.
And when you are a passive investor, like I mentioned, it's usually these 200 unit apartment buildings where the property itself can support a third party, professional management company. You have a leasing agent, you have maintenance, you have marketing, the property can support that because it is just a much larger scale. And so, I think that's easier because then you can learn from all of that as a passive investor, ask as many questions as you want. Rather than jumping in, for most of these syndications the minimum is 50,000, which might be less than what you would be putting down on a rental, for example.
Christopher H. Loo, MD-PhD: Yeah, those are all good pearls and tidbits. For someone who's listening to this and interested in syndications, what are some resources, books, blogs or YouTube channels that really helped you?
Dr. Cherry Chen, MD: Yeah, so I'm an internist as well. So I like to learn every little detail. But I basically just read everything I could get my hands on. I love podcasts, so that was a great way for me to learn. And there was something really specific for physicians, maybe one or two resources. So that's kind of what I built the Real Estate Physician platform off of. But I would say, most people would say BiggerPockets. It's just a great resource because it's very community friendly, education friendly. And it covers just such a broad range, not only syndications. And so I would definitely say start there. If you're brand new into real estate, I think that's a great resource.
Christopher H. Loo, MD-PhD: Yeah. And there's so much I mean, podcasts and YouTube.
Dr. Cherry Chen, MD: Yeah, it's overwhelming. It's definitely overwhelming. And I think that's why it's nice to have your podcast. It's directed towards physicians, the Real Estate Physician platform is directed. I basically created what I would have wanted. And helping physicians answer questions in 30 minutes, rather than you coming home, you're busy and you put it off for another year. And so it's just to make it easier for people who are in the same space as you.
Christopher H. Loo, MD-PhD: Yeah. What's interesting is you created a platform, the Real Estate Physician. I know you've done syndicates in the past. If people are interested in learning more about you, following you, visiting you, how can they do that?
Dr. Cherry Chen, MD: The easiest way is just therealestatephysician.com. And whenever you sign up, there's definitely more information there. I wrote a 72 page guide for physicians. So if you're looking for the first time, the whole point is not to convince you that syndications are the best thing or to hear other people talk about it and say you have to do it. The main point is, this serves as a primer, and you should definitely be able to finish it within two hours.
And then after you finish it, it's supposed to be Hey, okay, it makes sense, I think it makes sense for me, let me learn a little bit more. Or to figure out, hey, this does not make sense for me, then you don't jump into investments that you don't understand or just are not a good fit for you. And then, I connect with all of our investors on the phone, because I really want to get to know everybody. And so that's a great way to reach me if you're interested.
Christopher H. Loo, MD-PhD: Yeah. And for all the guests and audience listening, Dr. Chen's resources and links will be in the show notes. One final question I had for you. Especially during these times, the number one question I get from clients and people is, what are your thoughts on the housing market? And especially with this economic uncertainty, recession. What are your thoughts?
Dr. Cherry Chen, MD: Yeah, that's a hard question. I would say real estate is local, if not hyperlocal. So, to really sift through the data in an educated way. Because there's clickbaits across all platforms, and in all the areas. And so you see, real estate, recession, but what state? What market? The US is so big. So definitely read everything with a grain of salt, but also talk to people who are actually doing it, rather than a clickbait headline.
For example, we have a lot of properties in Texas. And so, for example, whether it's recession coming up, or we are in a recession, or when COVID hit, and everybody thought it would be a disaster. In fact, all of the housing fundamentals actually improved and strengthened, for example, in Texas. through COVID. Because there were trends such as people moving, jobs moving, headquarters moving, that happened before COVID and in fact, strengthened more through COVID. So we saw rents go up, in fact, in Texas, when people thought it would plummet.
So one is, especially real estate, which I would say, is hyper local, and two, really differentiate between what you're reading between the data and how it's presented. And if you're confused or don't know, like most of us, because we're busy, ask somebody who's actually doing it. Or go on BiggerPockets. Then if you see the whole forum, people refuting the data or saying something different than it's definitely worth another look. And then, nobody agrees. So I would say, talk to somebody who probably has more experience than you.
Christopher H. Loo, MD-PhD: Yeah, those are really good pieces of wisdom. So, Cherry, it's been a great discussion. I really enjoyed talking to you. And I know a lot of people will visit your website to hear about all of your offerings. So, thanks so much for sharing your knowledge and all of your expertise.
Dr. Cherry Chen, MD: Yeah, thanks for having me, Chris. Definitely reach out. Whether you're a first timer or have invested before, I'm always available to answer questions.
Christopher H. Loo, MD-PhD: Many thanks again for being here. If you’re new, you can find me online at Christopher H. Loo, MD-PhD, where I have links to other episodes or links to online resources that will support you on your financial literacy journey. I’ll see you there in on next week’s show. While I bring you thoroughly vetted information on this show regarding a variety of financial topics, I cannot promise you a one size fits all solution. This is why I caution you to continue to learn. Educate yourself and seek professional advice unique to your situation. If you want to talk to me, I welcome it. Please reach out via my website or email at Chris@drchrisloomdphd.com. I read and personally respond to all of my emails. Talk soon!
Editor's note: This transcript has been edited for brevity and clarity.