Doctor Turned Real Estate Investor Explains Passive Income, Taxes & Market Cycles

Tom Burns (00:00)
Absolutely that income coming in without your effort you can do with it what you want You can put it in and you put it in an account that grows and grows and so you can invest more money Or you can you can use that that mental model that you just mentioned that you know, hey I don’t have to work it can buy back some time. I don’t have to work quite as hard or maybe I can take some time off That’s what I did. So as I mentioned I was a physician So a bit in control of my schedule at that time when I started bringing in a little bit of passive income I took Friday afternoons off

because I was young and working hard and in the emergency room on Fridays and you know, my wife never saw me because you know, as soon as I finished office at five o’clock on Fridays, I had to go operate, you know, because that was what I did because I was the young guy. Well, it was okay for a while, but once I took that afternoon off, I was done by noon on Fridays. I felt like, you know, Bill Gates. I felt like the richest guy in town because now I had a two and a half day weekend. That was a big deal to me.

Cody Crabb (00:28)
wow.

you

Welcome back to the Real Estate Pros podcast by Investor Fuel. I’m your host, Cody Crabb. And today I’ve got Tom Burns with Rich Doctor, a Texas based investor focused on multifamily, commercial assets and distressed capital stacks. We’re going to talk about market cycles, lessons these learned and what passive investors really need to know before you trust someone with a lot of money. So thank you so much, Tom, for giving us some time today. I really appreciate it.

Tom Burns (02:51)
Hey Cody, you happy to be here man? I appreciate you having me on.

Cody Crabb (02:54)
Of course. Well, to start out, I’d love you to kind of introduce yourself a little bit. How did you get into real estate? Because as I always say, it’s not exactly one that you see on the, you know, on the kindergarten job, you know, doctor, ⁓ astronaut. Well, it’s funny that I say doctor, we’ll get into that, but ⁓ doctor, firefighter, astronaut, and then like real estate investor. Like that’s not usually, that’s not really something you see. So I’d love to hear how you got into the industry and then ⁓ kind of what you’ve been up to up until now.

Tom Burns (03:06)
You

Yeah, you betcha. you know, yeah, everybody ought to have a little bit of real estate in there just, just for education. But, ⁓ no, started out, I tell people I started out as, an athlete. You know, I was just playing sports when I was a kid and, got to where I knew I wouldn’t make any money at it. So I decided I’d be a doctor. I was pretty good at school. So I was, I became a doctor. Went through that program and during my doctor training, just to keep the story short, I didn’t like what I saw. You know, the people that train us are.

are people that are ahead of us by 10, 20, 30 years. They were doctors. They were making a lot of money. They weren’t very happy. So I decided I needed some way to create some money that was not correlated with medicine. I landed on real estate because it moves slow. You don’t have to be first in. You can do it part-time, full-time. You can do it with partners. You can do it by yourself. So that’s what happened. I slowly started, quote, doing real estate. I waited till I…

Got back to Austin, Texas after my training. Because I didn’t have two nickels to rub together, so I had to wait till I actually had a little bit of money. And so got back to Austin, started. You know, I started like a lot of people. I bought something really small and little and learned my lessons and was scared to death to buy that piece of property and was just a little less scared the second time and moved on from there and it organically grew. And over time, I developed partners. The properties got larger.

We formed companies and now here we are today. So I mean, I’m sure we’ll get into the story, but done a little bit more than just buy those small little properties since then.

Cody Crabb (04:44)
Wow. Yeah, I think I’m always really interested to hear people kind of with this much experience and kind of how they got into things because I either hear the same story or it’s just a wildly different story. You have a pretty different story, I would say, ⁓ because usually this is like a lifelong. The fact that you kind of just pivoted, you’re like, yeah, we’re going to just change lanes here. I find that really interesting. ⁓ So let’s fast forward to today. So tell me about what you do. ⁓

day to day now and what you help people with.

Tom Burns (06:01)
And I’ll preface with, know, so it was a pivot. wasn’t necessarily a pivot, it was more of a bolt on. So I continued to do what I did for a living. I was a doctor for 30 years. It’s just that I was also an investor slash real estate investor during that time doing both together and you can do that. That’s one of the beauties of real estate. But what happened is probably, gosh, I’ve lost track. Maybe 15 years ago, 15 plus years ago, things were moving on, had reasonable…

Cody Crabb (06:09)
Yeah.

Yeah.

Tom Burns (06:29)
personal portfolio, was doing larger projects, partners started coming on. Anyway, I connected up with a guy and we started a company and ended up doing primarily ground up development of multifamily. It just seemed like a good thing to do. Our first one was right in the middle of the great financial crisis. So, you know, we started in 2008 and by 2009, our lender called us up and left us and said, forget it, we’re not going to lend you money.

We had to find new lenders, we had to scrape things together, literally really did use credit cards to lock in some things on this 240 unit apartment complex, multimillion dollar thing. But we learned, you know, so that was our first project. It did very well. And, you know, we moved on and created, you know, created a lot of apartment units, some built to rent units and things like that. We were probably at 3,500 units at our height.

You know, slowly since then we’ve been paring them down, trying to, you know, trying to kind of realize our profits if there is any and selling things and getting things stabilized. So that’s what we do now and I will tell you the last three years we’ve worked really hard because things have changed in the real estate world.

Cody Crabb (07:37)
Yeah, I’d love to hear kind of what your perspective is on, you know, when people hear the market, that can mean so many different things. So I’m curious to kind of hear your perspective.

Tom Burns (07:47)
Yeah, so that’s a really nice way of saying it’s been painful. It’s been like, you know, pulling teeth. ⁓ But that’s an honest answer. things were easy from 15 to 21 or so, you know, you could throw a dart, you hit a multifamily complex, you’re going to make money. Find a piece of dirt, you build it, you’re going to sell it for a lot of money. That’s just the way markets move. Sometimes they’re up, sometimes they’re down. It was up for a long time. ⁓ Projects that were started in 21, 22,

Cody Crabb (07:55)
Yeah.

Yeah.

Tom Burns (08:15)
You know, they take a couple of years to build a ⁓ project, to build a multifamily project. You have certain projections. Well, I don’t know if, you your listeners, I’m sure they know a lot of things changed. First, we had COVID, which slowed down a lot of supply chains and prices rose. So, you know, what was supposed to take two years now took three years. Well, you know, if you’ve…

If you’ve saved enough interest for two years, it’s kind of a problem when you have to have enough interest for three years for your construction. costs rise exactly. Exactly. it increases, know, the timelines increase, the costs, know, gypsum and concrete and lumber, they all went up. So we dealt with all that. We got these things full. Then interest rates changed rapidly, historically rose from 3 % to

Cody Crabb (08:44)
You kind of bank on the timeline sometimes and depending on how tight that margin is, yeah, there may not be a lot of wiggle room.

Tom Burns (09:05)
you know, 7, 8%. That’s really painful. That’s more than a 2X cost of capital. And that kind of increase wasn’t baked into the numbers. The reason I tell your audience all this stuff is that that’s what’s happened over the last three years. We have fought and fought to fill up our apartment complexes and then not just fill them up, but then get the net operating income to a point where it’s reasonable to sell them so that the investors will make some money or get their money back.

or get some of their money back? And that’s an honest answer. There are a lot of honest developers and sponsors out there who are working hard, working for free, because by this time, if properly structured, there should be no money left for the general partners because the investors are the ones that need to make the money first. There’s a lot of people out there working hard for the investors, but it is a difficult market. It’s a difficult market. So that’s what I mean by tough market.

Cody Crabb (09:49)
Mm.

Yeah.

Tom Burns (10:01)
They’re fighting for our investors trying to get these things to a level where they’re sellable. We get the investors their money back.

Cody Crabb (10:41)
For sure. ⁓ So I think ⁓ one thing that I’d be curious to ask you about is ⁓ when I hear people talk about like being in a tough market, ⁓ one thing that I always wonder is, you have, ⁓ let’s say you start a project to get started, you sign onto a project, there’s just a new project in your life. ⁓ How do you know, at what point do you know, ⁓ this is just because the market is difficult?

versus like, this is because this is not a good deal, we need to kind of move away from this. Do you know what I mean? Like, at what point do you kind of attribute it to the market versus the actual project?

Tom Burns (11:21)
⁓ you mean as a sponsor or as an investor?

Cody Crabb (11:23)
I mean, either way, I’d love both perspectives, honestly.

Tom Burns (11:27)
Yeah, it’s tough. you know, hopefully you’ve, you’ve, you know, you go back and look at your assumptions and hopefully you’ve, you’ve made reasonable assumptions and, know, hindsight is so, so clear and it will reveal your mistakes and, you know, we all make them. So hopefully we learn not to make those mistakes in the future. So it’s, it’s usually, you know, it’s usually when the project is fairly deep into its operation and you can’t just get out anyway, you know? And so.

Cody Crabb (11:51)
Yeah.

Tom Burns (11:52)
whether it was quote a bad project or the mark, you know, the cause of it being a difficult project could be the market, could be your choices, ⁓ could be location. It almost doesn’t matter. So I’m not sure. I’m not sure that distinction makes a whole lot of difference because you still got to pull your way out.

Cody Crabb (12:10)
Yeah, yeah, that’s a good way to put it. That’s a good way to put it because either kind of doesn’t really matter what the reason is, does it? You’re just if you have a problem to solve, the source is maybe not necessarily the thing you need to worry about. ⁓

Tom Burns (12:25)
Yeah, except as I said, if the source, if the reason is you and you made wrong assumptions, you weren’t conservative enough, et cetera, et then it does matter that at least you learn that lesson for the next time. Because you don’t want to make the same decision twice, same mistake twice.

Cody Crabb (12:39)
Yeah.

Yeah. Another question I have for you is ⁓ when people hear the term passive income, I feel like a certain image comes to mind. What do think people often get wrong about passive income?

Tom Burns (12:49)
Yep.

You know, sometimes I think it’s out of reach. You know, you’ve got to be a big time investor. You got to have lots of money to create passive income. And it’s really, it’s just income that comes in, whether you’re working, sleeping, playing with your kids, taking vacation, or just, you know, eating Cheetos on the couch, right? It’s income that comes in no matter what you do. So that can come from stuff that’s as simple as dividend producing stocks.

I’m not a big stock guy, but certainly in favor now of the broader market and dividends, things that, that is passive income. And then it can be in real estate, it’s distributions from real estate, from excess cash flow over expenses. Typically people will get that, get that sent to them. If you’re an investor, it’s really passive. You give somebody a block of money and things work out. It’s a good market. It’s a nice, honest sponsor over time. Eventually there’s distributions that come every month or every quarter.

That’s passive income. So you don’t have to be the smartest guy in the room. You don’t have to have big time money, but you still need to ⁓ be careful and have intent when you’re investing that money, meaning pick the right person to invest with or pick the right deal to invest in.

Cody Crabb (14:07)
Yeah, I think, ⁓ you know, when for someone starting small, what’s the first kind of realistic version of passive income? Maybe not completely replacing their their full time W-2 income. But what was the kind of first sign that, you know, the passive income starting to come in? Obviously, like, you know, you get rent coming in and things like that. But I would be curious, like, what what’s the first peak that you’re kind of on the right track?

Tom Burns (14:33)
⁓ And you mentioned something there pretty good. One of the things people think of is that you’ve got to have enough money to replace your income. That is nice, that’s wonderful, that is certainly the ultimate goal because when you do that, you’re free to do whatever you want. But it’s like eating an elephant, right? If you think…

Cody Crabb (14:46)
Yeah.

The eating Cheetos in the couch sounded

pretty good, honestly. That sounds… If you’re talking about… Yeah. Yeah.

Tom Burns (14:52)
Yeah, absolutely, you can do whatever you want.

But you know, if you think it’s going to take this huge amount of time, this huge amount of income that you have to replace your income, sometimes you won’t start. It’s the old eating an elephant thing, right? You got to do it in one bite, you won’t even try. But small bites at a time. So you can, absolutely you can have passive income that just replaces a certain portion of your income. That’ll make you, I used to tell people, that’ll make you smile.

When I was doing it, I had everything on a little Quicken software program and I joke, not joke, this was the real thing. I would see what my utility bill was for the year because Quicken does that for you, Well, I would tell my wife, our passive income paid our utility bill. And maybe the next year paid utility plus something else, a mortgage or whatever. So it can be a game step by step, then all of sudden it pays for everything. So ⁓ I’ve rambled so much now.

Cody Crabb (15:19)
Yeah.

Yeah.

That’s a great way to look at it because

well, no, no, I think that’s that’s such a good point because like I was saying, I think people, people, like you said, want to replace their whole income eventually, maybe eventually. Yeah, that’s that’s a possibility. But any amount that is passive is passive. Like it’s coming to you not for free, but like it’s coming to you because without you doing anything specific. like you said, I think it’s really good to even frame it as like even if it’s just a little bit.

Tom Burns (15:48)
Forgot.

Cody Crabb (16:12)
What is it actually allowing you to do? Is it covering a small bill you have? Is it covering a large bill you have? mean, that’s life-changing for some people. And people listening to this could even think, like, if one of your bills was just gone, like, how life-changing that could

Tom Burns (17:09)
Absolutely that income coming in without your effort you can do with it what you want You can put it in and you put it in an account that grows and grows and so you can invest more money Or you can you can use that that mental model that you just mentioned that you know, hey I don’t have to work it can buy back some time. I don’t have to work quite as hard or maybe I can take some time off That’s what I did. So as I mentioned I was a physician So a bit in control of my schedule at that time when I started bringing in a little bit of passive income I took Friday afternoons off

because I was young and working hard and in the emergency room on Fridays and you know, my wife never saw me because you know, as soon as I finished office at five o’clock on Fridays, I had to go operate, you know, because that was what I did because I was the young guy. Well, it was okay for a while, but once I took that afternoon off, I was done by noon on Fridays. I felt like, you know, Bill Gates. I felt like the richest guy in town because now I had a two and a half day weekend. That was a big deal to me.

Cody Crabb (17:37)
wow.

you

Tom Burns (18:04)
You can use small little victories like that. any amount of passive income is a victory. And then you just hope to lather, rinse, repeat, you know, do that again the next year. Add to it.

Cody Crabb (18:14)
Yes.

So ⁓ if someone that is in one of these, I mean, this is something you mentioned as well, your company is called Rich Doctor, but it’s not necessarily geared just toward doctors. Something I brought up was I often talk to people that are in software engineering, like these guys that work on Amazon’s code and the big high paid guys like that.

Tom Burns (18:27)
Yeah.

Cody Crabb (18:43)
those people, there’s lots of reasons for them to invest as well. mean, we talked about building wealth, but ⁓ taxes, tax savings can be just absolutely massive at that scale. You’re talking about hundreds of thousands of dollars of tax taxes. mean, that can really move the needle. So ⁓ are there other, what kind of other situations do you see where someone can really take advantage of real estate? mean, you did also say, anyone, everyone should do that. ⁓ But I’m curious,

because doctors have kind of some similar fields out there. Lawyer comes to mind, high paid, kind of in control of your schedule, you know, that kind of thing.

Tom Burns (19:22)
So, you know, it’s not, and there’s plenty of other ways to do stuff, you know, but it’s, know, once you start having some investments, owning a little property, doing more than bringing in money with the W-2 or 1099. ⁓ Actually, with 1099, there’s a little option to write off some more stuff, but I’m not a CPA, but there’s a point where a tax strategist will help you. In real estate,

It gives you lot of things. It gives you appreciation. It gives you cash flow. gives you tax deductions. And it gives you growth of that capital. So it’s not perfect. It’s not wonderful. It doesn’t always work. ⁓ But over time, it tends to work pretty well. So the way it worked for me was that I was making doctor income, paying doctor taxes. And I’d buy some real estate. Well, that real estate would eventually start making some money.

and immediately had write-offs. Well, you can’t use those real estate write-offs necessarily against the doctor income, but over time as you start making real estate income, what I tell people is that basically my blended tax rate went down. What I mean is I had my W-2 tax rate, then I had the tax rate on the real estate that I owned. early on I had lots of deductions and some income, my tax rate was close to zero, so that…

That tax rate just kind of started coming down, blending it together, started getting lower and lower. So over time I was paying less tax. It’s one of the beauties of real estate. There are times you can make plenty of money and pay zero taxes. And that’s a reality. That’s not just fantasy and it’s not marketing words. You can actually pay zero taxes and make a lot of money that year through real estate.

Cody Crabb (20:40)
Mm.

Yeah, and I think, ⁓ like you said, I think the big picture is a good, is a really good thing to keep in mind for people in this situation. So Rich Doctor seems like, you know, let’s talk to somebody that has kind of maybe an income stream right now. They want to add something onto it and use that to kind of lift both of them up. ⁓ So that’s, I think that’s a really good way to look at this cumulative thing, because like you said, your combined tax bill is what went down and that’s the way to look at it.

Tom Burns (21:23)
Yeah. And people always, you know, they always hang on lower my taxes. Well, if you’re just W2, there’s only, there’s only a few, few things you can do quite honestly, you know, CPA will tell you that, but it’s not a lot. but you know, over time, if you own some assets, you, you know, we create or own a business, create or own some real estate. There’s things you can start adding onto. And it’s really, you know, I kind of looked at it as a game. It’s kind of fun. I just did what my CPA told me, but it worked out.

Cody Crabb (21:47)
I like that. So let’s say, well, I have two questions in a row for you here. But first of all, why did you go toward real estate instead of some kind of other investments? You mentioned you’re not a stocks guy. I’d be curious to hear kind of why that, why real estate caught your eye specifically.

Tom Burns (22:05)
You bet. you know, I wrote this book and I wasn’t very nice to the stock market. And I’ve kind of changed my mind, which we’re allowed to do. you know, so I wasn’t a big stock guy. I had the mutual funds. I did what everybody said. I had it. And watched my, you know, in 2001, I watched my stock portfolio get cut in half, that sort of stuff. And eventually got out around 2008 before the GFC pounded it. But now we’re back in a little bit. So why real estate?

Well, I looked at a lot of other things. Way back when, when I was training as a doctor and decided I needed some extra income, I looked for what to do. And I thought, well, I’ll go into administration in the medical world. Well, that was no good because I wasn’t very employable and that was pretty boring. But it looks cool to wear a suit and carry a briefcase, but that didn’t provide freedom. ⁓ I didn’t have the time or the money to, you know, I couldn’t do stock trading. I wasn’t going to start a business. I didn’t have the expertise to do that.

Cody Crabb (22:50)
Yeah.

Tom Burns (23:00)
Real estate you can do on your own. can, as I said, you can do it part-time, full-time with partners, without partners. It moved slow. I didn’t have to be the smartest guy in the world. And at the time I was in another state and Austin, Texas was on sale and I wasn’t even a real estate guy, but I could recognize it. know, things went up and down. If you buy something at a certain price, you’re to make money over time. So that’s why I chose real estate. I understood it. The math is really simple. It’s not calculus.

You buy something for X, you rent it out or sell it for X plus whatever, and you get to keep the plus. You get to keep.

Cody Crabb (23:30)
I love that.

Like it really is just that simple, isn’t it? Like some we over complicate it with all these there’s all these methods and financial things but truly at the end of the day it’s like is X bigger than Y if so, then that’s probably gonna be a good deal for you. So yeah

Tom Burns (23:34)
It’s math!

Exactly. It’s

just arithmetic. It’s not even trig.

Cody Crabb (23:52)
Yeah, and that I can get behind and I’d also think it’s funny you’re like, I’m not the smartest guy in the room says the doctor so just saying ⁓ But yeah, so this is in the the other kind of along these lines ⁓ I’d be curious to know you said, you know, you were the young guy kind of hustling you barely saw your wife because you were working super hard and making things move early on how Some someone is a doctor. I know some doctors personally and

what they, if I said, you you should, you should look into investing in real estate. They would laugh right in my face. Like how on earth could I possibly have time to do that? So I’d love to know what your response to that is. Cause obviously you faced that as well.

Tom Burns (24:35)
Yeah, and if you know, would lovingly say if you don’t have time for that, then how are you ever gonna get time for your family? ⁓ So, and that was a choice that I made a long time ago was to spend time with my family. That’s why I did the real estate thing. I didn’t want somebody telling me what to do, where to go, when to work. I wanted to be able to be with my family and read to the first graders in the middle of the day and take off office. And these are all true stories.

Cody Crabb (24:45)
Oof.

Tom Burns (25:02)
So that’s number one. And you can find time for anything if you prioritize it. And that may or may not be your priority. It may not be your priority to create passive income. It might be to become a better golfer, be an awesome mom or dad or spouse. those are great goals as well. But you can make the time for the stuff that’s important to you. And it doesn’t take all that much time. It’s a little bit of education. And there are ways you can invest passively where you don’t have to put any effort into it.

You just have to try to pick the right horse to ride.

Cody Crabb (25:32)
I love that. Well, thank you so much for all that you’ve shared with us today. If someone wants to, ⁓ if someone’s listening and they’re like, you are describing me, this is me, I am this person, how can they get in touch with you? Who should be getting in touch with you? And where can they find you online?

Tom Burns (25:47)
Sure, who should? That’s a good question. Who should? You know, I mean, I love to help people just understand that it’s just education. I got a website that has all kinds of free stuff on it, tons of free stuff on it. It’ll help you figure out a deal or get educated. So the website’s richdoctor.com. R-I-C-H-D-O-C-T-O-R. I know it’s a strange ⁓ website, but it’s got some good stuff. And if you want to get ahold of me, just…

Cody Crabb (26:12)
Well, I like it because it

really just sums it up doesn’t it like that’s what you’re going for. Yeah Yeah

Tom Burns (26:15)
Yeah, why not? know, lot

of free stuff on there. And then if you want to get in touch with me, just send an email to [email protected]. answer them all. And, you know, always happy to help somebody move along, kind of learn how to take care of themselves and create some passive income and, you know, improve the world a little bit.

Cody Crabb (26:31)
Love that. Well, thank you so much. mean, this has been super valuable to the people listening. ⁓ Definitely reach out, check out that free stuff. And thanks listeners for giving us some of your time too. If you found today’s episode interesting, go ahead and give us a like, subscribe, all the things so that you don’t miss another episode like this one. Tom, once again, it’s been a real pleasure. Thank you so much. This has been great.

Tom Burns (26:52)
pleasure as well, Cody. Thank you. Thanks.

Cody Crabb (26:54)
Yeah, have a good one.