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How to Start Investing in Rental Properties

How to Start Investing in Rental Properties

Summary: This is our step-by-step guide for getting started in rental property investing. In this guide, we cover the steps for starting out on the right foot and explain why these steps are so important. These are our recommended first steps for building a portfolio of cashflowing rental properties that will help you achieve financial freedom.


[Author’s Note: This post was inspired by a friend of ours who recently developed a serious illness. After recovering from her illness, she decided to focus on developing a source of passive income from real estate so she could spend more time with her family. As she took her first steps, she quickly became overwhelmed and didn’t know how to move forward. This post is dedicated to those who are asking themselves, “how do I get started?”]

[Disclaimer: We are not accountants, lawyers or financial advisors, so please consult your own team of professionals about the topics covered in this article.]


This post contains affiliate links, which means that if you choose to make a purchase, we will earn a commission at no additional cost to you. Please do not spend any money on these products unless you feel you need them or that they will help you achieve your goals


Step 1: Establish your reason for investing

Your reason for investing should be compelling and personal. It should go a level deeper than financial freedom. Why is financial freedom important to you? What will you do once you’ve achieved financial freedom? Try to visualize the life you want to achieve as clearly as possible.

For Leti and I, it’s about maximizing time with family and friends. We see time as our most valuable commodity. It isn’t renewable, and you can’t get more of it. And in some cases, due to illness or other uncontrollable events, there may be less time than you think.

It is so compelling for us that it motivates and pushes us to achieve our goals as quickly as possible.

The other reason it’s important to lay out your reason for investing so clearly is that you’ll inevitably hit a bump in the road at some point in this journey. It’s the “why” that gets you back on your feet and keeps you moving forward.


Step 2: Set a clear goal for your investments

Now that you’ve established your “why” for investing, the next step before you start is to set a clear goal. This should be a target level of income that you want to achieve yearly from your investments.

Let’s say you want to be able to cut back from full-time to half-time. If your annual salary is $300,000, then you’ll need to generate $150,000 from your investments.

Another way to establish your goal is to figure out your annual expenses. When you make enough money from your investments to cover your expenses, you are financially free.

Once you’ve established a number, decide how quickly you’d like to get there. This shouldn’t be your retirement age – if that were the case, you might as well just keep working and put your money in a 401(k). You should aim to get your passive income to your goal in an amount of time that would still make a difference for you. For example, if you have young kids, maybe it’s getting there in the next 6-8 years before they enter middle school.

Once you establish your goal, write it down and look at it regularly. Even better, share it with friends and family so you have people to whom you are accountable. Consider sharing it with one of our Semi-Retired MD Facebook communities (Semi-Retired Physicians for MD/DOs and Semi-Retired Professionals for other high-income professionals). When you write it down and share it, it becomes real and will propel you towards reaching your goal.


Step 3: Start your education

The next step before you start investing is to start educating yourself on the basics of real estate investing.

We recommend starting with three books. The first is Rich Dad, Poor Dad. If you’ve already read it, consider re-reading it. This book isn’t about teaching you how to invest in real estate. Instead, it’s about getting you in the right mindset and giving you a simple framework for achieving financial freedom. The second is The Millionaire Real Estate Investor. This book will give you the basics of real estate investing and will teach you enough to get started. The third is The Book on Tax Strategies for the Savvy Real Estate Investor. One of the main reasons to go into real estate investing is for the tax benefits. According to the book, the average person spends the first five months of the year working for the government. Using the strategies outlined in this book, we’ve decreased that number in less than two months.

There are countless other books out there and hours and hours of some really amazing podcasts. However, this step isn’t about learning everything you can know about real estate investing. You just want to learn enough to get started, that’s why we recommend starting with these three books.


Step 4: Figure out how much you have to invest

Having money available for a down payment is a prerequisite for investing in real estate. The amount of money you have to invest largely determines how long it will take to achieve your goals.

Think about all of your sources of money, not just what you have in the bank. Maybe you have considerable equity in your house. Would you consider selling your house and renting instead? Perhaps you could get a home equity line of credit or do a cash-out refinance? Maybe you have an asset (e.g., father’s stamp collection, valuable artwork) that you are holding onto for sentimental reasons. Would it be worth selling that asset to achieve financial freedom quicker? Maybe you are thinking about rewarding yourself by buying a new car. Would it be worth deferring that decision and using that money for investing instead?

These are highly personal decisions. However, realize that your choices determine how quickly you get to your goal. If you decide not to free up money for investments, then it’ll probably take you longer to reach financial freedom.

Now it’s important to point out that there are some “no money down” options like the BRRRR strategy. However, these strategies require considerable knowledge and network to pull off. If you’re committed to pursuing one of these strategies, your next steps after taking these initial steps will be to gain the knowledge specific to the BRRRR strategy, find a mentor who has done it and build your network.


Step 5: Start thinking of real estate investing as your business

The next step before you start investing is to get into a mindset of treating your rentals as a business. This will allow you to extract full value from your investments.

As an example, let’s consider how my parents started their business. They purchased several rental properties when I was young that are now generating good cash flow. However, while I was growing up (and even now), they didn’t pay much attention to the rentals and thus missed out on maximizing their return. My guess is that if they had “minded their own business,” they would have arrived at financial freedom in less than half the time and would have struggled far less along the way.

How could they have done it differently?

Once my parents bought a property, they forgot about it. They didn’t look for hidden value. They didn’t make improvements to increase the cashflow from their properties. In some cases, they didn’t even do basic maintenance, and they didn’t take advantage of Real Estate Professional Status. So, ultimately, they did profit from their assets, but not to the full extent that they could have.

[Want to learn more about REPS? Check out our free guide]


Download the Quick Guide to Real Estate Professional Status


In contrast, once we buy a property, we get to work. This entails constantly looking for ways to improve income and lower the expenses on our properties. We also always keep an eye on the returns from our portfolio so we recognize opportunities to sell rapidly appreciating properties or properties that don’t meet our 10% cash-on-cash return (using a 1031 exchange in either case).

This doesn’t mean that real estate investing is an all-consuming endeavor. Far from it. What we love about real estate is that it doesn’t require your attention 24/7. Being an owner of real estate isn’t a 9 to 5 desk job. Without any forethought, you could easily take a break from it any day of the week or even go on a month-long vacation with a little planning. Unlike medicine, it’s not life or death if you don’t respond to an issue immediately.

Another way to think about real estate is to think about each unit you are renting as your product. As a consumer, would you tolerate a computer that doesn’t work properly or a bicycle that has a defect and causes injury? Similarly, you want to ensure that you provide a safe, clean, and properly maintained property for your customers (your renters) and that you do so while maximizing your return.


Step 6: Know what you are getting into

Before you start investing, you need to be prepared to deal with the people and situations that you may not be accustomed to dealing with on a daily basis.


Some lovely and free community artwork!

As physicians, we’ve come to expect that when we order a test or an intervention, it gets done immediately and correctly. We have high standards because anything less might lead to patient morbidity or mortality. The problem arises when you apply that same standard to your real estate business.

Ultimately, you have to manage your expectations in terms of the people you work with. None will have the same level of education or training as you, so why would you expect them to troubleshoot an issue or anticipate problems before they happen? None of this is life or death, so why should you expect an immediate response? Ultimately, you must realize that no one will mind your business the way you do.


A slight mishap in the driveway

The same goes for your tenants. It’s important to understand that the best opportunities to invest in real estate are usually in “up and coming” areas. These are what people call “B-class” or “C-class” neighborhoods. Your tenants may be struggling to pay their monthly rent. They may lose their jobs. Unanticipated things will happen.

Here are some examples of situations that we’ve dealt with in just the last six months with our rentals:

  • Someone spray-painted graffiti on the fence for a second time (after we just had it painted)
  • Someone kicked in the door of a tenant’s home, damaging not only the door, but the door frame as well (which made the repair considerably more expensive)
  • Someone rammed into one of the supporting beams of a carport and almost took the whole carport down

In all of these situations, the tenants didn’t take responsibility so we had to pay for these repairs out of pocket. It’s easy to get frustrated or angry when these things happen, but you can’t let these things deter you. This is why Step 1 is so important. If you have a compelling “why” before you start investing, it makes it easier to brush these things off and move on.


Step 7: Find a mentor and lean on them heavily

I think as doctors we are accustomed to working by ourselves so we often hesitate to ask for help. This is not a behavior that is unique to physicians, but in my experience, does seem more pronounced among us.

When I worked at McKinsey & Company, learning how to collaborate with one another was a skill that you worked on and developed over time. It was just part of the training. In medicine, things are different. During residency, there were well-run teams and poorly run teams, but in either case, none of the attendings I worked with seemed to care one way or another. There was no focus or effort put into building interdependence in the team, only independence. In fact, the prevailing attitude in most of medicine is that “asking for help is a sign of weakness.”

Given this, I’m not surprised when even our close friends don’t ask for help and instead stumble along with their investing, making avoidable mistake after avoidable mistake.

The point of this is: don’t make avoidable mistakes. Before you start investing, find a mentor or two and ask them to walk you through your first deal. If you can’t find a mentor, consider crowdsourcing answers to your question by posting it in one of our Facebook communities. One of the best ways to leverage the group is to share the details of a deal and have them analyze it for you and give you their opinions. This allows you to lower your risk of making a mistake that will derail your investing and could set you back years.

[Still need to build your team? Be sure to check out our Vendor Directory to find our vetted and recommended team members.] 


Step 8: Get moving now

A wise real estate investor once said, “don’t wait to buy real estate, buy real estate and wait.”

For me, this means three things.

First, don’t try to time the market. There is no perfect time to invest. Is it more difficult to find deals in the current overheated market? Yes. But it doesn’t mean that there aren’t any good deals out there.

Once you buy your first property, you’ll be able to gain some experience (and build your team) so you are better prepared to take full advantage of the deals that will be around after the downturn. Imagine how frustrating it will be to stumble through the basics of your first deal while everyone around you is snatching up the amazing deals that will be abundant during a downturn. This is the time to learn and to make connections so you are well positioned in the future.

Second, don’t wait until you have everything figured out before you make your first deal. Use your first deal as a learning opportunity. Especially if you have a mentor, he/she will help fill in your gaps of knowledge or experience and help you avoid mistakes. Think of buying your first deal like residency. Your mentor is your attending and your first purchase is your residency training.

Third, you cannot sit around waiting for the perfect deal. There is no such thing. In our experience, most deals start out good, and you make them great. You can do this at the time of purchase (by negotiating the price lower after inspection), after purchase (by taking advantage of hidden value or forcing appreciation) or even later down the road. This happened to us when we transitioned one of our properties to Supported Living a couple of years after buying it and increased our cash-on-cash return from 10% to 40%. I can’t think of anything sweeter than getting all of our investment dollars back in two and a half years.


Key Takeaways

So pick a market and look on Redfin or Zillow. Get out there and start finding deals! Be sure to also get an investor real estate agent and start working closely with him/her. Don’t get caught in analysis paralysis, the best time to start is the present, so get moving now! 

Do you want to learn more about Zero to Freedom? Our course is only offered twice a year, so join our waitlist to be the first to know when enrollment is open!

Do you want to learn how to creatively fund your real estate portfolio and achieve financial freedom? Join the conversation! Follow our Semi-Retired MD  Facebook page and join our Doctors or Professionals  group!

Semi-Retired M.D. and its owners, presenters, and employees are not in the business of providing personal, financial, tax, legal or investment advice and specifically disclaims any liability, loss or risk, which is incurred as a consequence, either directly or indirectly, by the use of any of the information contained in this blog. Semi-Retired M.D., its website, this blog and any online tools, if any, do NOT provide ANY legal, accounting, securities, investment, tax or other professional services advice and are not intended to be a substitute for meeting with professional advisors. If legal advice or other expert assistance is required, the services of competent, licensed and certified professionals should be sought. In addition, Semi-Retired M.D. does not endorse ANY specific investments, investment strategies, advisors, or financial service firms.


Hi, we’re Kenji and Leti

we provide coaching and mentorship for doctors and high-income earners

Several years ago, we were newlyweds working as full-time hospitalists. On paper, it looked like we had everything: the prestigious careers, the happy marriage, the luxurious rental home, the cars, etc.

But in reality? Despite having worked for several years, we had very little savings. Despite our high income, we had very little freedom in terms of time or money.

One thing was clear: we had to do something.

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