As a Physician you are no stranger to the importance of ethics. In fact, the Hippocratic Oath is considered an Oath of ethics (Click Here to read more). You practice Medicine to help other people to the best of your ability. Your driving force is not primarily financial, although, that is a very nice benefit of the care you provide.
When it comes to real estate investing the ethics you hold in Medicine may become difficult to apply. You may find yourself performing mental gymnastics to make Real Estate Investing fit your moral outlook…. Let me explain…
Lauren and I have always loved real estate but when we began looking at multifamily investing we began to experience a crisis of conscious. We learned through a physician community and through listening to Bigger Pockets the powerful opportunities that real estate investing offer.
The goal of passive income seems to be without a match.
Imagine traveling to Europe, Asia, Antartica without a care in the world as passive income from real estate investments cover all of your expenses.
Sounds amazing right?
Everyone of us has the mental ability to pull this off. So, we should just apply ourselves and make this happen, right?… Why not?
Let’s breakdown how to reach Financial Independence from passive income via Long-Term Rental Real Estate investing…
On paper, the math is simple. Find distressed properties at under market prices with tenants paying under market rents.
Look for opportunities to improve the properties, increase rents and “force appreciation”.
Then increase cashflow to increase your passive income or sell if you would like to buy larger properties and so forth.
This is the way (Mandalorin reference)
So where is the Ethical Dilemma?
The thing is, we are Physicians and for some of us that may not work out so well…
Why? Because the above paragraph leaves out all the human aspects of the process.
Ethical Dilemma # 1
Distress property: means someone who can’t make the payments or maintain the property… list a million reasons why. So someone else’s tragedy is your gain.
Ethical Dilemma # 2
Undermarket rents: means you will be increasing someone’s monthly expenses for your gain.
Ethical Dilemma # 3
Make improvements and increase cashflow: means EVICT the current tenants, renovate and increase rents.
Then repeat by displacing other people and increase rents further…
Now, to be fair that does not apply to all housing.
Sometimes, investors can find bank owned foreclosed, empty properties. You can be involved in new builds. There are commercial property options. All of these options can avoid the above ethical dilemmas. But the classic teachings out there on multifamily are not focused on empty properties. The majority involve the above process which includes a human aspect.
Lauren and I have struggled with this concept.
We tell ourselves that we are improving housing, improving a neighborhood and that we are better landlords than the previous owner…
But in the end, we are not sure if this is the path for us. We are experiencing some conflict. Maybe we need a money coach and shouldn’t feel bad because the means justify the ends…
However, I’m not sure that will end up working for us. We are not judging if you have found a way.
Short-Term Rentals offer an alternative to this ethical dilemma of displacement but it has some pitfalls too.
The location of your short-term rental matters…
Lauren and I purchase our Short-Term Rentals in vacation destinations and these properties have been rentals before.
Therefore, we are not displacing people.
Purchasing properties that meet this criteria aligns our Medical and real estate morals. The value that we see in properties involves improving poorly managed short-term rentals which is both good for us and our guests. We are providing a service.
We do not need to EVICT tenants to make this happen.
In addition, we help support an entire short-term rental industry of real estate agents, property managers and cleaning services, contractors, as well as tourism.
Now, Short-Term Rental properties are also open to ethical conflicts as well.
These conflicts are mainly influenced by location.
If your desired locations are year-round cities and in neighborhoods that are not accustomed to short-term rental or vacation residents then you may be negatively affecting these neighborhoods.
In addition, you may be denying housing to others by purchasing these properties for short-term rental investing.
However, if you purchase vacation homes in short-term rental markets, improve them and provide great guest experiences you can align your goals with your moral compass. You are not displacing people or requiring evictions.
We are not saying that you have to invest this way. You may be able to align your goals with multifamily or with commercial property. We are simply sharing the thoughts and experiences we have had when comparing our Multifamily and Short-Term rental portfolios.
Take some time this week to write down your financial goals and the path you are comfortable taking to reach your goals.
Do your long-term goals align with your moral compass?
Enjoy your Journey to Financial Freedom