How We Met Our Goals as Real Estate Investors
By WCI Columnist Dr. Margaret Curtis
For years, my husband and I have been real estate curious. For all the usual reasons, we enjoyed investing in real estate: the tax benefits, the possibility of more passive income, and the investment diversification. I've written about how we were accidental landlords, and in 2023, we bought the office building that houses my husband's practice. REITS are included in our portfolio, but they actually act more like stocks than real estate, and we do not benefit from direct real estate ownership's tax advantages. Until this year, we had never owned an actual residential investment property—meaning a property that we bought with the sole intent of renting out.
We finally discovered a property that actually met all of our expectations in April 2025. In June, we closed, and now we are official landlords. I'll go over how we learned about real estate and how we evaluated this property, but first, I want to talk about all the ways we don't make investments in real estate.
How We Don't Invest in Real Estate
Remotely
A highly regarded method of investing is to purchase real estate using an agent in another city or across the country, perhaps even while you're not there. The REI websites, podcasts, and discussion forums hype this up with headlines like, "Don't miss out on the next top cash-flowing markets"! I don't believe this kind of real estate hype as much as I do "this stock is the next big thing"! because 1) if it's really that great, people in the know are busy investing and not writing about it, 2) no one really knows for sure, and 3) I need to really know and understand a market (or a company) before I invest.
Real estate is both regional and sometimes global. Two blocks can be the difference between a profitable investment and a money pit. Because of the high prices in comparison to the Midwest and the South, where I live (Vermont) is not typically preferred by big-time investors. But I know the state and the neighborhoods. Additionally, I have a local attorney, a lender, and a repairman. His name is Kyle. There are certainly Kyles in Ohio. I just don't know how to find them.
Passively
There is even more talk about passive real estate investing. You can put money into funds or syndications that build, flip, or rent apartment buildings, houses, mobile home parks, or short-term rentals in any part of the US or the world. These investments typically promise high returns with little risk and effort.
I don't trust these either. There is little regulation in private real estate funds. If the fund's "sponsor" (the general partner, or the person running the show) doesn't know what they are doing or gets caught by a change in market conditions, you may get a capital call asking for more money. Or you could just lose your entire investment.
I have looked into a handful of these, and some of the fund sponsors have only been doing this for a few years and have never weathered a downturn. Additionally, they are all scattered throughout the nation (see above).
If you are starting to think I am fundamentally untrusting and curmudgeonly, you are right.
In Short-Term Rentals
STRs are wildly popular because they can be very profitable, even if the early days of sky-high returns are probably a thing of the past as markets get saturated and regulated. You can also own a STR with fewer hours than you can with long-term rentals (100 hours of participation per year as opposed to 750). The downside of STRs is that you are basically running a hospitality business or paying someone else to run it for you. I'm not interested in starting a hospitality company. Again, the hotspots for these rentals are generally in the South and West. (Why wouldn't you want to travel to Vermont?) You can ski, eat ice cream, and have a picnic with golden retriever puppies.)
For Only Appreciation
In expensive real estate markets, it can be very hard to find rental properties that actually produce income. In other words, the rent income doesn't cover the mortgage and taxes. People who want to invest can go one of two routes: buy in other markets or stay local and hope the property appreciates enough to sell at a profit in the long term.
For two reasons, this approach doesn't appeal to me. First, I don't want a cash drain. Second, I'm not entirely convinced that any market will keep rising forever. I have benefited from real estate appreciation in my own family's properties, but I don't want to count on it. Hope is not a plan of action for investing. So, I only considered properties that would cash-flow from the start.
You might choose a completely different strategy. You may be highly proficient in running short-term rentals in another state, and more power to you. We came up with our own criteria because none of these made any sense to us.
More information here:
How to Begin Investing in Real Estate
Do's and Don'ts for Docs: Real Estate by the Decade
How We Decided to Make Real Estate Investments
Between 2 and 4 Units
Anything greater than four units would require a commercial mortgage to be considered a commercial property. These typically have a five-year fixed rate and then a balloon payment, at which point the owner can either pay off the loan or refinance. This approach is fine, but for my first visit to REI, I wanted something more recognizable. Staying at four units max kept us in residential loan territory. As it turned out, because the terms were better than those of earlier residential mortgages (thanks, local lender Jason), the teaching point is still in place.
Minimal Renovation (If Any) Needed
I don't have the bandwidth, so buying a fixer-upper is a legitimate strategy. I'm too busy frolicking with golden retriever puppies, which is what we do up here in Vermont.
Cash-Flowing
This is the area where people find me most agitated. How do you know if a property will make money each month? The 1% or 2% rule sets are there, but these are just a place to start. You can buy access to a rental calculator that will take local rents into account, or you can do what I did and use a free online spreadsheet. You can use the current rents (if there are tenants) or the average local rent. If you are not sure what local averages are, do an online search or just check out similar rentals in the area. This is where local products are simple to purchase. We wanted at least a 7% cap rate (for explanation of cap rates, see below).
More information here:
How the IRS Views Your Investment in Real Estate
The 60+ Worst Mistakes You Can Make in Real Estate Investing
Our search for real estate
Once we settled on our criteria, we started looking for properties—right around the time interest rates went up and created a seller's market. In retrospect, I'm glad that none of the dozens of properties I looked at over the past five years turned out as intended because I received a great education during that time. I read blogs and websites, listened to podcasts, and perused listings (you could also take WCI's real estate course). I ran a few searches on realtor.com, and I now receive emails each day with new listings. Most of these I skipped, some I looked at, and maybe 10% I actually ran the numbers on. I looked at fewer than 10 properties out of all of them. This is considered normal in the real estate investing world, if my podcasts are to be believed. The "deal funnel" is even known as the "deal funnel," which simply means that you should start by looking at numerous properties before choosing just one.
When we finally found a property that worked, we moved quickly and confidently. The night before closing, I still experienced some intense agitation, but that's just me. Here's how the numbers looked.
You'll start to notice that the residents are responsible for all of their own utilities. This helps the bottom line a lot.
The spreadsheet outputs these metrics as follows.
Capitalization Rate: 8%
In stock investing, the capitalization rate (or cap rate) is the same as yield. Cap rate is the Net Operating Income (income minus expenses, but not mortgage payment and interest) divided by the purchase price. To get a percentage, multiply this by 100. The cap rate is the return you would get if you paid all cash for a property (no mortgage). Because each investor will have different sources of financing, this is a reliable indicator of profitability. This is nice to know, but since most of us buy property using a mortgage or other leverage, we need to factor financing in our calculations. That brings us to ...
Cash on Cash: 4.34%
The cash-on-cash return (COC) is the result of the down payment plus initial expenses divided by the annual cash flow (income minus expenses, this time including mortgage payments and interest). COC accounts for financing in both the mortgage payment (higher payment + interest = lower COC) and the down payment (lower down payment = higher COC).
Cash Flow: $5, 964 per year
This is just how much you pocket at the end of the year.
Return on Equity: 26.64%
Return on Equity (ROE) is the total return of the property (cash flow + tax reduction + debt reduction + appreciation) divided by the equity you have put in (down payment + capital improvements). This accounts for both actual profit (in the form of reduced taxes and cash flow), as well as paper gains (paydown of debt and appreciation), which you don't realize until you sell. If you are buying for appreciation rather than cash flow, this is the key metric.
You might consider these figures to be impressive for a 4% return on your annual cash investment. And you would not be wrong exactly, but this is where the other metrics, like cap rate and return on equity, come into play. Stock market investing is much simpler. That's why investing in real estate is optional. Additionally, it is slow. The power of real estate investing is in the growth over time, both in rents and in one's investment portfolio. When you own more than one property, there are also economies of scale that start to show.
That's how, on June 18, we became actual real estate investors by buying a cute duplex in a sleepy cul-de-sac. One of our tenants was detained on June 20th during a massive drug and firearms raid by federal agents. We added another local lawyer (Marc) to the team. In my upcoming column, How We Became Actual Landlords, you can find updates.
Real Estate  , Partners  , and Featured  
Would you rather be a direct real estate investor or utilize more passive activities like syndications or funds? Have you ever purchased a home just to make it rentable? What was your experience? How did you get the numbers to function?
The post How We Became Actual Real Estate Investors appeared first on The White Coat Investor - Investing &, Personal Finance for Doctors.
