1 00:00:02.203 [music] Welcome to the Double Your Production podcast with the Team Training Institute, the one place designed for dentists and their staff who want to grow their practices by following in the footsteps of those that have done it, who are in the trenches, who know exactly what you’re going through. And now your leaders, the stars of the podcast, Dr. John Meis and Wendy Briggs.
S2 00:00:26.414 Hey, everybody. Welcome to this episode of the Double Your Production Podcast. I am Dr. John Meis and I am delighted to be with you here today. And I’ve got a very interesting guest with us today, a guy that I have followed for some time and we finally have caught up with each other and had a chance to talk. And with me today is Dr. David Phelps.
S3 00:00:46.660 John, I’m doing great. Great to be with you today.
S2 00:00:49.138 So, you know I’ve kinda called you Mr. Plan B, Dr. B, because of your past and how you came to be so successful and really have brought a whole new understanding and a whole way of looking at building wealth to dentistry. So, do you want to give me some of your story, kind of? Where’d you come from?
S3 00:01:10.553 Yeah, John. Sure, glad to. When I was back in college getting ready to go to dental school, and it was probably my third or fourth year of college and getting ready to take the DAT and the exams we had to take to get into school, I started thinking ahead. Just like you and some of the other people we know, I was always wanting to learn more about, in this case, about finances. I had plenty of anatomy and physiology and biochemistry and all that, so I started reading books on wealth management, wealth production, and I read books on the stock market. I read some books on real estate, and between the two, real estate just made a lot of sense to me. And so, I didn’t have any money back then. I had student loans, so student loan debt, like most people do. But when I graduated from college and started my first year in dental school in Dallas, Texas at Baylor College of Dentistry, I looked at my dad – who was not in real estate, he was actually a physician – but I said, “Dad, you know, I’m going to be here for four years. Rather than paying rent for an apartment, why don’t we,” – and the key word here was we – “Why don’t we buy a property together?” right.
S3 00:02:17.679 And so he became my joint venture partner. I didn’t know what a joint venture was back then, but I realized that I didn’t have the credit or the financing ability. But I did have the desire, and I had read enough books to realize that in real estate, the first key is, it’s location, location, location. Or, truly, was to find the worst house in the best neighborhood, and that’s really what he and I focused on. He flew down from Colorado, where I grew up, and we spent a couple weekends with a realtor, took us around the area, and we came across a nice street block in a part of Dallas that was very well known. But it was an estate sale, right, so it was a property that was owned by a widow lady who had lived there for many years by herself. She finally passed and now the heirs had the property and they just wanted to unload it. So that’s kind of a motivated seller type situation, which is what people look for. So Dad financed the property. I was the managing partner, if you will, and I’d gotten some of my buddies from dental school – cheap labor, you know, really cheap labor – over to the house, and we painted–
S2 00:03:24.760 Six-packs.
S3 00:03:26.341 Yeah, a lot of six-packs. Well, one guy even tried to put a claim in for workers’ comp but I never let him get through on that. I just– He said his back is always hurting him all his career, so he brings that up from time to time. But yeah, fast forward. I learned how to manage a property. I had a couple different tenants in that property over the four years, learned a lot about the legal side of ownership and management, which was all good, because no business training in school so these were things I– like you, I’m a learner. This was fun for me to learn how this works. But here’s the key thing I figured out, John, is that “managing” that property, other than the initial rehab, which that’s the front end work that we did, but once the property was rehabbed and I had tenants there didn’t take me a whole lot of work to “manage” the property. During the same time, while I was in school, I was waiting tables nights and weekends, like a lot of us did, just to make the extra money so we could have some spending money or not have so much student loan debt. And at the end of my time at Baylor when I graduated, Dad and I decided, well it’s time to sell the property because I was going to move on. And so we sold it, and we split about $50,000 in capital gain profit.
S3 00:04:33.607 And so I took my $25,000 and I thought, you know, “I waited tables for four years. I don’t know that I’ve made much more than that waiting tables,” you know, nights and weekends, with a lot of hours spent doing that, and the money was pretty good waiting tables at the restaurant I worked at. But I spent a lot of hours doing that, and I thought, you know, here I was a 50% partner, if you will, a joint venture partner, in a property that I had no money in it. I was just a manager, and this asset paid for itself, paid my dad back for his investment, and I didn’t take any cash flow out of it, so he got all the cash to return on his investment. But at the end of the deal, my participation, which was just to be there, boots on the ground– 25 grand, that was a big deal for a kid coming out of school, at that point, and I thought, “There’s something to this real estate. It really does make sense.” And so that was the epiphany for me that I need to continue to do something with that, although yes, I was getting ready to start in practice with all that entails, as well. Plus getting married, so I had a few different things going on at the time, as you can imagine.
S2 00:05:31.410 Yeah, yeah. Well, you look back on those times when everything kind of piles up on you at once, and it’s pretty exciting. Those are the times, often, that you’re most proud of. All right, so you came out, you got into practice, you had a little taste of real estate development, you got 25 grand in your pocket, and this is where it gets interesting, I think. So tell us what happens at this point.
S3 00:05:54.029 Well, I start out as an associate, because I was really not prepared to own a practice. I just didn’t have the clinical speed. I didn’t have any real business acumen, so I figured the right thing for me to do, which in retrospect was the right thing, was an associate. So I got to work on my clinical skills not worrying about a business, had a paycheck based on productivity but it gave me the time to continue on my real estate hunt, if you will. The way I did it back then is not how I would tell busy practitioners to do it today, but yeah, I was boots on the ground myself. I would find motivated sellers. Back then there was no internet, so– I’m really dating myself here, but it was newspaper. Matter of fact, I even ran an ad in the newspaper looking for motivated sellers, you know. I’ll buy your house, was my ad. I got to be relatively well known in the community that I was practicing with other professionals in the real estate industry, so realtors, bankers, attorneys, CPAs. I made myself known, that not only was I a dentist, but I’ll buy property. And so I got a lot of referrals that way, and I had to learn how to be creative because, yeah I took the $25,000 and paid down some school loan debt and some other costs of getting started, you know, in life and practice and a young marriage, but I took some of it and just had that money that I could put into just tying up a property. So, tying up a property would mean, back in those days, was a couple thousand, maybe as much as $5,000 and I would take over loans on properties.
S3 00:07:24.054 Single-family houses, I’m talking about. I’m talking about simple, basic, stuff, John. But I would find motivated sellers who, back then, I could take over these loans. They call them assumptions, but actually I took them subject to, so I had no personal liability. But I was racking up houses and managing them, and these were houses that did not need a lot of heavy rehabbing or remodeling that would be too much me involved in. But what I did is that I acquired these houses with leverage, then I used the discretionary extra income that my practice or that work in the practice provided, and I did what I call today, snowball down those loans. So I had close to 100% financing and I would snowball down those loans – pay them down more quickly, right, pay extra against the loans with that money – so that as I acquired houses, I was knocking him down relatively quickly. I mean, it still took some years right, but instead of thirty years, I was paying them off in eight, ten, twelve years. And so fifteen years down the road, I had quite a few free and clear properties and still some leveraged properties, but I started seeing that my cash flow – and I’m not going to call it quote passive cash flow, because if you’re managing your stuff it’s not totally passive, let’s be real about it – but it still was cash flow that was coming in from an asset, a tangible asset, a hard asset called real estate, that did not require me to get up and go work every day. And as I saw that cash flow building up, I thought, “There really, really is something to this.”
S3 00:08:46.316 My first foray into real estate was, you know, the capital gain profit. We bought a property, held it, and then sold it and took that money out. But now I’m saying, well why would I sell a good asset if it’s just producing cash flow? Unless the asset goes bad, meaning the demographics would change in an area, you could see a declining neighborhood. That might be a time to move the asset, which you can do in real estate. But I decided I’m not a flipper, I’m not a buy sell, I didn’t I didn’t need the cash flow income. I was building equity that I could convert into cash flow, and that became what I call today, a plan B.
S2 00:09:18.273 Yeah. So that is a great story, and now, so your systems over time evolved, didn’t they? So those single-family homes, that was kind of your start, but that’s not where you stayed. I don’t think it is, anyway. So tell me about how you made the shift into more the systems that you’re maybe using today.
S3 00:09:44.474 Yeah, John. Well the systems, and really leveling up to another level, didn’t happen until I left practice, and I’ll give a little bit of insight into when and why that happened. So in 2004 my daughter, who was 12 at the time, underwent a liver transplant. It was because she was in end-stage liver failure. She had been a high-risk leukemia survivor, she had gone through a period of years in her life where she had breakthrough epileptic seizures, so lots of medication, lots of chemo, and all that was very toxic to her liver. So she had to have a liver transplant to save her life at 12, and it was during the time that she was in the hospital recovering from that surgery, which, it’s not, you know, go in one day and come out three days later and you’re done. She had a lot of complications. So it gave me a lot of time out of the practice, where I could think, and really look hard at my life model at that point, which had been good. I mean, I had a practice at that point in time in my life, and it was a good practice. I always had associates with me, but I realized that really my focus needed to be more with my family. She was our only child, because she got sick so early, so we didn’t have additional children. So that was it, and I realized, you know, that God was maybe not gonna grant me a whole lot more time with her, possibly, and I need to take advantage of that time.
S3 00:11:08.773 So how could I shift or transform my model? And for me it meant, you know what, I need to leave clinical practice because, like everything we do in life, we do it full-out. And I knew I couldn’t continue to devote time to the practice like I needed to, as the owner and still do the real estate I was doing, and spend time with my daughter. Something had to go, and I realized that the practice, even though it provided me the basis for life, lifestyle, provided me the basis to have the cash flow to put in a real estate– it was that core engine, and it has to be, but I decided that I needed to let that go. Some people say, “Was that was that hard, David?” I’ll say in some ways it was, but also when it was about my daughter, then it was easy. Does that make sense?
S2 00:11:57.147 Yeah. for sure.
S3 00:11:57.846 I’m not saying it would be easy for someone to toss away and change paths when you spent so much time in education and building up a practice of business and serving your patients. That’s a lot of work, it’s something to be proud of, but I had a reason why to leave, so I did. So I left and sold the practice. That’s another story. I sold it, had a boomerang sale. John, do you teach that? You probably don’t teach that your programs. That’s that’s a novel idea.
S2 00:12:25.241 Yeah, yeah. We try to avoid those.
S3 00:12:28.088 Well, I thought, I just got try it. I want to try it because I want to talk about it, you know. So I had a sale that I took back because I carried paper, but you know what? Like everything in life, John, it taught me a lot of things about practice, that I didn’t have to be the primary producer in that practice. I always thought I did, but I didn’t have to be, because if I pull back and I create the right culture in the team, things you and I talk about all the time, that I could actually be the owner of that practice without being 100% the producer. And so I did that for a few years, not going back in 100% producer, and then I sold it a few years later outright, with bank financing. But that gave me the time to go back to the real estate side, outside of spending time with my daughter, which was the key reason I made those changes, so I could spend time with her now, without any guilt, without having to shuffle patients around, all that stuff that tears your team up. Because, oh there he goes. Dr. Phelps has got to take time out again because his daughter is sick. Sure, they granted me that, but still it’s not great for everybody to have–
S3 00:13:27.744 So anyway, it was a good decision. That’s when I really started saying, well, the way I’ve done real estate to this point has worked, but it’s been part-time and it hasn’t been real systematized. It’s been, a lot of it, me just doing the work and putting things together. I had other doctors ask me, “Well, how did you do this?” and as I started to kind of pull the IP out and figure out, well what were the models I used and how could I build models that would work today for a busy practitioner. And so that’s really where it came to scaling it up, and really it’s through other people. So what I tell doctors today is, real estate works well if you are not going to be the hands-on, because hands-on is what tears you up. You know, I could do it when I was younger because I had more time, but when you’ve got a family and all these other things, you do not need to be dealing with rental property tenants, contractors, but you also need to have access to the right people. So just like you, John, in my life, getting to where I could get through those downturns in life, those deep holes you get into sometimes, it wasn’t my hard work ethic, it wasn’t my brainpower. It was the people that I surrounded myself with that gave me the directionality, because just like you did with building your models, it wasn’t you solely figuring it all out. We figured it out from other people, were the key. So I’ve built a lot of strategic alliances with really good people in real estate, and I thought, well why can’t I share that, create a network that allowed other doctors who wanted to be a part of that, where I had done some of the initial curation, the due diligence on the people, and then the asset classes, and bring that to a community.
S3 00:15:01.210 So today, that’s what Freedom Founders is. It really started organically about six years ago. I didn’t have any clue where it would go. It just became, really, a model for me to remain relevant, to serve other people, to take what I learned and fast track people so they wouldn’t take you take a slip off the track in alternative investments, which is what real estate is.
S2 00:15:24.758 You know, you and I were at an event last week together, and it gave us a chance to kind of pull back the covers and see what’s under each others’ businesses. It was really, really, very fascinating to me, very interesting, and one of the things that I could see that many people when they think of– so we’re both in the wealth building business for dentists, right, and so the way I do it is different than the way you do. But what I really got a great appreciation of, seeing how the interconnectivity of what you bring to dentists, it’s like, wow, this is this is pretty cool. Because so many people who had experience in investing in real estate, unless it’s their own office – and even then, there’s occasionally some horror stories – but a lot of people have really found themselves up to their necks in quicksand in the real estate business, and one of the great things I really appreciate of what you’ve put together is it really helps people stay out of the quicksand. And if there is a little quicksand, you’ve got a team of people that can help you get out of it quickly. So do you want to talk a little bit about that?
S3 00:16:41.071 Yeah, sure. It’s like it like everything life, you can do it yourself and that can be done, but it takes more time and there is going to be some setbacks. So for people who don’t want to make real estate their full-time business or profession, which professional practice owners don’t want to do, typically, or don’t need to do, then it really is about the people. And so what we find, in you know the roots were part of, John, your speed to goal, speed to implementation, is following a path that others have already blazed ahead, and are willing to, with integrity, show what that path looks like or allow you into a network or access quickly, so you can move up to speed. And in real estate– because real estate is a very inefficient market, as opposed to the efficiencies that are in, say, the Wall Street Market, where you can buy and sell with the click of a mouse, where information is there real-time, just right there every second. In real estate, that’s not the case. Real estate is an inefficient market. There’s different geographies, different locales, every market is different, and insider information is okay in real estate. It’s not in the securities industry. It’s okay in real estate. Who you know is really more important than really what it is.
S3 00:17:57.231 Now, yeah, you want to invest in the right asset class. You need to have some understanding about what you’re investing in, and it comes down to control, liquidity, a lot of things we talk about with our doctors. But yes, keeping yourself out of the quicksand by the novel thinking that, you know, “I got through school, I’m a high achiever, I know I can do this.” And I’m just talking like a dentist would talk, you know. “I can do this because I’m smart enough and I can work hard enough,” but that’s not always the best way to do things in life. You know, you and I have talked about joint ventures and strategic alliances and partnerships. To me, that’s the best way to go and life, to take participations, to take a piece of something. It could be a business, it could be a piece of real estate, which can be demarcated by the instruments, the deeds of conveyance, the lien or encumbrances like banks have. You can split real estate up very nicely without me actually being in partnerships, and each person can take a different piece.
S3 00:18:56.114 I typically like to be more passive partner today in things because I’ve done all the operational stuff. You know, I don’t particularly need to go back and learn how to manage property, but there’s people that are really good at that, right? So if people that are really good at that, they thrive on that, they built teams around that, now it’s just a matter of identifying who those people are and establishing relationships. So that’s what I do. That’s how I fast-track those who want to get involved in real estate, so they don’t have to go out and bang around and get beat up by not knowing what they don’t know.
S2 00:19:26.267 Sure. You know, as I was understanding what you had put together, it reminded me of kind of a money machine. You put X in and then there’s a dribble of X out, and there may be an exit at some point, where you get a chunk out, but if you have the right team around you, it’s no skin off your back while this money machine is printing the money. And on my side, on the dental side, it can be very much the same thing, but the requirements of the team are much higher. You really have to have a super solid team. And so, I really found it fascinating. So if someone were going to begin to think about real estate investing, what would be some of the key things that you would suggest that they be cautious of?
S3 00:20:19.287 Well, cautious, particularly in the market that we have today, which both on Wall Street real estate sector, everything’s up. Everything’s up today, right. We came up from the downturn in 2008, 2009, 2010, and since about 2012, both marketplaces have just been going up and up and up. That won’t happen forever. And what happens in markets like we have today, there’s a lot more speculation. In fact, even people who went through the downturn, I find, quickly forget that markets do cycle. And they start start moving away from the core fundamentals that every asset class should have. So I would say, the first thing is it’s never too late to get into any particular market, but just be careful and not be a speculator. Be an investor. To me, being an investor means I look for – especially in real estate – I look for cash flow, first and foremost. The property must cash flow relative to its valuation, the price point at which you acquired it, and also if you’re using leverage, which leverage I think is a great thing to use with real estate. But the property must cash flow. You cannot invest in something just with the idea that, “Oh yeah, I’ll just keep going up, so even if it doesn’t cash flow, even if it has negative cash flow, I’ll make it up when I sell it.” That’s really not what an investment is. Investment needs to provide, as you said, it’s got to be a money machine. It’s gotta provide the cash flow.
S3 00:21:42.466 The equity that you build up, either through amortization of debt – if you’re using debt to acquire – and or inflation/appreciation, that’s icing on the cake. I mean, that’s just keeping up the valuation of, the purchasing power of a dollar. That’s the way I look at it, things go up. So I’m looking for the cash flow, the consistent, predictable cash flow. So determining what asset provides that, what geographic area, who the managers are behind that, what level of control you have, and I don’t mean– control where you could you could take something back, if it wasn’t being managed according to what you wanted. Those are some of the keys. What it comes down to in real estate, John, is know the market, know the asset classes, have enough of the basics down that you can ask the right questions, and do the primary due diligence that’s required for any investor.
S2 00:22:32.769 So the real estate world is full of gurus, and anybody who travels a lot like I do, you won’t be long before you’re in a hotel and in the meeting room next to you is some real estate guru and they’ve got an audience full of people that are super unsophisticated. And there’s a lot of get rich type language in this, and I love that that’s not your approach at all. Your approach is to, you know, like you said, you’re really looking for the cash flow, that it cash flow. You’re not buying something cheap and selling it a day later for this big win. That’s not your game. Your game is like a real business, you know. It’s more Warren Buffett than Elon Musk, you know.
S3 00:23:27.411 Yeah. Yeah, exactly. Exactly. You know, you’re right, and anytime any market has risen for a number of years, that’s when you see all kinds of people come out that have become gurus in a space, and yeah, they’re taking advantage of the marketplace. They’re taking advantage of people’s hopes and dreams. And they’re not all bad, but again, I think the level, the expectation of what people are going to get out of it is not always where it should be. And so, yeah, we all have to be discerning. We all have to be discerning in every choice we make in life, the people we do business with, what we invest in. That’s part of life, and if you can be around other people who have a knowledge base in that particular environment, that you trust, I mean, that’s one of the first keys for all of us. Same thing you do, John, when you’re vetting out dental practices or people that you would do business with. You’ve got a process that you go through before you jump in and take the next step. And so, you find those people those people that have blazed that trail and have that knowledge base.
S2 00:24:28.288 Yep. Yep. Well, very good. I sure appreciate you sharing some of your wisdom with us. So, if someone wanted to work with your company, what would be the process that they would go through? How do they learn more about you? Tell us more about that.
S3 00:24:47.646 Yeah. Probably a couple easy ways, John. The primary website is freedomfounders.com, and then I do a podcast, which is the Dentist Freedom Blueprint Podcast, which I don’t always have real estate people on, but we do quite a bit in real estate and finance, and that’s a quick place just to kind of hear more about my philosophy and different people I connect with along the way. So, two good places to go.
S2 00:25:12.972 Yeah. All right, very good. All right, well I appreciate you taking some time with us today and kind of explaining a little bit about some of the pitfalls with real estate and how to avoid them. And I think one of the tools in a good investors tool belt is to understand how they can invest in real estate, and so I appreciate all the time that you spent with us today. So thanks very much, David.
S3 00:25:37.258 Yeah. Always a pleasure, sir. Always a pleasure to be around you, so thank you so much.
S2 00:25:41.122 You bet. Thank you.
