I'm a landlord too

April 6, 2007

Feeling the financial jitters, the author embarked on a lucrative sideline in real estate.

Like almost every other physician facing de-clining reimbursements and rising costs, I've looked for ways to shore up my income. A while ago, I decided that one good way to do this is to start a nonpractice-related sideline. But which one?

I'd tried trading stocks, and, in fact, had some success. But if you're a small, part-time trader, as I found out, index funds are probably your best (and least stressful) long-term investment, and I was looking for a bigger and more immediate return than they could provide.

Then I attended a free half-day business seminar. Two of the presenter's introductory questions really caught my attention. First, he asked, what business will still make money for you even when you aren't actively pursuing it? And second, he queried, which business accounts for almost half of the nation's millionaires? The answer to both questions, it turned out, is real estate.

Certainly, the high-flying San Francisco real estate market bore this out, and so did the saga of two internists I knew of. Their offices were side by side, but, at the beginning of his career, one bought his office and an apartment building to boot. The other rented his office for 20 years, even declining an invitation from his landlord early on to buy the building. Today, he's still struggling to meet his financial obligations-practice overhead, family living expenses, children's tuition, and his retirement plan. The first internist, on the other hand, has been virtually worry free for many years-and now, in fact, really works for the fun of it.

To prepare for my new sideline, I read several books on real estate. I learned about how to make money on fixer-uppers, foreclosures, and flipped properties. But each of these methods, it seemed to me, would require more time and energy than I was willing to give.

Then I read a book entitled Investing in Real Estate, by Andrew James McLean and Gary W. Eldred. It gave me a helpful overview of the real estate business, along with specific advice on what the authors considered one of the best ways to get started in the business: buy a small apartment building.

That appealed to me, but where, in this competitive market, would I get enough money at a reasonable rate to put a down payment on a good building? I thought about borrowing from my own savings, but the idea of putting all my eggs in one venture scared me. Besides, I wasn't even sure that I had enough savings to put a down payment on the kind of building I really wanted.

There was another option, however. I decided to refinance my house-which, given the strong market, had appreciated considerably since I'd bought it. When I saw the building I wanted, I'd have the money I needed for a down payment.

Deciding to do my own legwork

What kind of building was I looking for? Well, to be honest, it wouldn't be one that I'd want to move my family into. In fact, one of the first things I'd learned from my research is that prospective buyers shouldn't get hung up on buying a building that meets their own personal living standards. On the contrary, if you don't have a huge amount of money to put down or you don't want to service a huge debt, you have to lower your standards and realize that this is a business purchase, not a personal one. As a lot of real estate investors caution, "It's just a street number-you needn't fall in love with it."