I think investing in real estate is great. But it’s important to be realistic about it. My biggest concern for potential future physician real estate investors is that they get sold an overly optimistic picture, whether this is on purpose or not. So, I’m going to be transparent here and clue you in on the five biggest downsides of active real estate investing.

Because there are downsides. Nothing is all upside. Anything worthwhile is challenging, especially in the learning phase. The ultimate goal is to eventually learn from these challenges and make them easier as you become more experienced.

1) It takes time.

This in my mind is the biggest of the real estate investing downsides.

Real estate investing (REI) definitely takes time. As someone with nine investment properties, I can fully attest to that. No way around it.

If you want to invest in real estate actively, it’s important to be aware of the time cost. Be prepared to spend roughly:

1. 2-3 months reading, taking courses etc. before you start
2. 4-6 hours a week during the initial and subsequent property searches to identify, analyze, and view potential properties to buy
3. 4-6 hours a week after you buy and get the property up and running
4. 2-3 hours a week after you get the property up and running for general management

How to overcome this:

Well, the flip side of this coin is that the gain you receive from investing in cash-flowing properties far outpaces the hours you put in.

That’s why direct real estate investing is a form of passive leveraged income! Your time-to-income ratio with REI is way less than 1. By comparison, your time-to-income ratio for your day job is exactly equal to 1.

Decoupling your time from your money is the most important step to achieving financial freedom. And real estate is one of the best ways to do that.

So, how do you overcome your concerns? My first recommendation is to work on your mindset. These hours seem a lot less scary when you remind yourself of what the gain is. Just like in your overall financial life, you should have a why for your real estate investing. When things seem annoying or like they are taking too much time, remember your why and that will pull you through!

2) It takes money.

REI also takes money. No way around this one.

You can buy a rental property using all cash or with a mortgage. With all cash, you need to have an amount of cash equal to the purchase price of the property. With a mortgage, you will need 25% of the purchase price in cash for a down payment. That’s not a small amount of money. Many people, including high income earners, will say that they do not have that and see it as a barrier to begin real estate investing.

How to overcome this:

This is maybe the easiest one to overcome. Remember, when you build your wealth, you also want to build an abundance and growth mindset around money.

If you need it, you can make it appear.

My wife Selenid and I bought our first rental property before I had even made my first attending paycheck. I never would have thought this was possible. But we reframed our thinking and found a way to make it work. Here’s how to do it too:

1. Survey your assets, including investment accounts. If one of your assets is not working as hard for you as it should be, perhaps it should be tapped for a real estate investment.
2. Invest your cash. Do you have cash lying around that you’re nervous to invest? Now may be the time to overcome those fears and invest in a manner that minimizes risk and does not require a crystal ball to be successful.
3. Take out a personal loan to cover the down payment needed. This is fine to do so long as the numbers in your cash-on-cash analysis of the property still work when including this loan.
4. Find a seller who is willing to consider seller financing. This is when the seller acts as the bank and you make a principal and interest payment on the property to him or her every month. A very viable option!
5. Save 25% of the amount needed for the down payment every month from your paycheck. This might require cutting back in some areas. But in a few months, you’ll have enough for the property.

Then comes the beautiful part. Once you have a cash flowing property, just save that cash flow to buy another property. And so on and so on.

3) It takes work.

You may be worried that you don’t know how to do the work required to manage real estate properties. Maybe you don’t consider yourself “handy” or know how to do things like electrical wiring or plumbing.

How to overcome this:

1. Mindset shift. Selenid and I had no idea how to fix property issues. But we told ourselves that we are pretty smart. And we’ve figured other stuff out in our lives that was tough and we knew nothing about. Chances are that we could do it again. So again we did it. I can’t tell you how many things we have pulled up on Youtube, learned, and then did.
2. Build a team. We still don’t know how to do everything. So we find people who can. If something needs fixing and we don’t know how or don’t want to deal with it, we call someone whose job it is to know.
3. Get a property manager. If you really just want to do 0% of the work, hire a property manager. We didn’t hire one because we realized most of what they do is just call other people to fix stuff. We could do that. And we don’t charge 10% of the monthly rent for the service. But, many times, property management can be the answer. As long as the cash flow numbers still work out in property analysis with a property manager, you should go for it!

4) The leaky toilet.

Give me an honest answer: How many times in your life has a leaky toilet in your home woken you up in the middle of the night?

If the answer is more than 0-1, then you have an issue! But for me personally, and for many other people, this has never happened. So why do we get so worried about it happening at our rental property?

The way I see it, the leaky toilet is like the mascot for people who say they don’t want to own a rental property.

And sure, the “leaky toilet” could be any annoying thing that happens in the property at an inopportune time. But still, in my opinion, this is way overblown.

How to overcome this:

1. Call someone to fix the problem when it arises. When you buy a property, have a few “fixers” that you know. If you don’t have a fixer ahead of time, just look up services that have emergency hours. Most electricians, plumbers, heating and cooling companies, etc. have these services. Call them and they will go fix the problem.
2. As discussed, hire a property manager. For a fee, this becomes the property manager's problem and not your problem.

5) Troublesome tenants.

I get this. Bad tenants are really annoying. They can cause property issues. Rent can be late. You may worry about lawsuits. These are real downsides and risks of real estate investing.

How to overcome this:

1. Select tenants yourself. Selenid and I like to screen and meet our prospective tenants ourselves. Nobody will care about our property and our money like us. So we take the time (yes, time) to show vacant units ourselves and screen tenants. Selenid especially is a really good judge of people and we have yet to select tenants who have been anything less than awesome.
2. Buy vacant properties. We learned this the hard way. It’s way easier to select great tenants than to change bad tenants that you inherit into good tenants. So we now prefer to look for vacant properties. Or we make it a prerequisite to us buying the property that the seller has to get rid of the tenants before we buy.
3. Cash for keys. If you really get stuck with bad tenants, offer them money to break their lease early and move out.
4. Form an LLC. I’m not going to get into the weeds here, but your investment properties should be under an LLC. This limits your liability and protects you from lawsuits resulting from any rental property you own (not that these are at all common, but it will help you sleep better at night).

In conclusion, yes, there are downsides to real estate investing. But the fact that these downsides exist should in no way deter you from becoming a real estate investor. Heck, becoming a doctor has risks … malpractice lawsuits, burnout, moral injury, bad patient outcomes, and more. But you still did it. And why? Because it is worth it.

And besides, it is possible to overcome and protect yourself from these real estate investing risks. Trust me, Selenid and I experienced all of these doubts and had all of these worries. But we didn’t let them stop us and now real estate is a big part of how we flipped our net worth from -$450K to +$400K in one year. I encourage you to follow our lead!

Have you tried real estate investing? Share your experience in the comments!

Jordan Frey, MD is a plastic surgeon in Buffalo, NY at Erie County Medical Center and the University of Buffalo. His clinical focus is on breast reconstruction and complex microsurgery. He is also the founder of The Prudent Plastic Surgeon, one of the fastest growing finance blogs. There, he shares his journey to financial well-being with a goal of helping all physicians reach financial freedom, practicing on their own terms.

Animation by Jennifer Bogartz