Listener Q&R #6 – Passive Income; Own or Lease? – Episode #476

How should I invest $250,000 in extra funds? Is it possible to generate passive income by owning a dental office that doesn’t have my active involvement? Should I sell my building, lease it back and use the money I make to invest? On this listener Q&R (Question and Response) episode of the Dentist Money Show, Ryan and Matt answer financial questions from our loyal listeners.

 

 

 

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Podcast Transcript

Ryan Isaac:
And there, hello, and that’s it. And then we were, and then here we were on a Friday afternoon, and now we’re here. And it’s amazing to be here. Matt, we’ve got Qs, and do you have any Rs? I’ve got Qs, you got Rs?

Matt Mulcock:
And here we are, Q&Rs.

Ryan Isaac:
We were there and now we’re here.

Matt Mulcock:
I always have Rs, I don’t always have As.

Ryan Isaac:
Ooh, okay. Yeah, that’s why we changed it. That’s why we changed it.

Matt Mulcock:
Yep. I always have ours. I there’s, you never can usually get me to stop talking. I’ve realized, but it doesn’t mean it’s valuable or good, but I will have something to say for sure. Always an R doesn’t mean it’s an A.

Ryan Isaac:
Always an R. Do you feel like in life, generally, you have more Qs than Rs as you age? Just generally?

Matt Mulcock:
Uh, yes. Yeah. I have less heavy. I have less strong opinions on things, just life. And at the older you get, I think I just realized I don’t like, you just realize like, man, I don’t, I don’t know anything. Like I have a lot. Yeah. A lot more questions for sure.

Ryan Isaac:
Everything. I don’t know anything. Way more questions and I think I’ve done most things wrong so far. And here’s to the second half of life. All right. Well, let’s give a little shout out to our Facebook community first because a lot of our questions today came from the Facebook community. So how do they find that, Matt? How do they get there? How do they reach it?

Matt Mulcock:
Oh yeah. Totally. Yeah. If you go to denisadvisors.com slash group.

Ryan Isaac:
Oh my, that’s still live, that link? You’re gonna go? You’re gonna go check it live?

Matt Mulcock:
I believe now you’ve got me questioning. We’re going to figure this out. Now you’ve got me questioning dennisadvisors.com slash.

Ryan Isaac:
We used to announce that used to be one of the ads on the on the show like a long time ago on the podcast That used to be one of the ads Dennis revider comm slash group join it. Okay, so slash group go there

Matt Mulcock:
Group. Boom, boom, still works. Right now it says Dennis money. Like we’re changing this actually back. So it says Dennis money, Facebook group. We are now changing it back sometime soon to Dennis advisors, Facebook group, discussion group. So we just, you know, give us a little bit of grace. We’re just figuring things out as we go. Names don’t matter.

Ryan Isaac:
Discussion group? Yeah, okay. It doesn’t matter. Names don’t matter. Names don’t matter. But go there. That’s what matters is go there and put a question, pop a question in there. And the group’s cool because it’s not spammy. It’s just dentists and then us. And it’s just very like user friendly.

Matt Mulcock:
Let me, let me correct one thing on that. We have curated just because I want to make sure we’re being open about this. Uh, this is a new initiative. So Ryan, as you know, our purpose week, we answered the question of like, what’s the purpose of our business last year, right? Like we got it from Gina Wickman traction. Many dentists out there might follow this. Uh, but one of the main parts of that is as a business kind of naming

Ryan Isaac:
Good, yeah. Yes.

Matt Mulcock:
Or answering the question, why do you exist as a business, right? Kind of your purpose statement. And our purpose statement we came up with was our, our purpose as a company is to connect, educate and empower dentists to make good decisions. And so the reason I bring all this up is one of the initiatives as part of that is, is the connect part, the, again, the connect aspect of that purpose is to connect you with curated partners that we think are valuable for you. So they, that was a long winded preamble.

Ryan Isaac:
Partners, yes. Yeah, good, yes. They’re there too. Yes.

Matt Mulcock:
To say they will be some partners in that group as well, not in a spammy way, not in a spammy way as a valuable asset.

Ryan Isaac:
Vetted people, no, very, yeah. Yes, yeah, I would include them. Yes, I think that’s a good distinction, clarification to make. It’s all dentists, it’s us. When I say us, I kind of feel like our partners too, because they’re like people we respect, they’re people we’re confident referring to, we use them, yeah, so.

Matt Mulcock:
Yes, we use like, yeah, we’re trying to educate ourselves through them with them. So yeah, they’ll be in there as well.

Ryan Isaac:
Totally. Yeah. Good partners. Shout out to the partners. Yeah. And actually one of the responses I’m going to read today with one of the Q’s came from a partner, valued partner, value trustee partner. So great. You knew this great segue, dude. You knew what, see how this works every single time. So go there, pop in a question. We’ll answer it. Usually, I mean, we’ll answer it on there, but we like using this stuff on the show. So, um, just as a quick, like overview, we’re going to hit someone had extra question about extra cash on hand, like what to do with it.

Matt Mulcock:
Oh, perfect. There you go.  See? I know what I’m doing. Sometimes.

Ryan Isaac:
There’s a question about passive versus active income. I think this is a really interesting discussion like this take on this question. And then there’s another question about selling a building to get a little bit more liquid and free up some liquidity in your situation. So those are the topics today. I’ll read the number one. Number one question, the first Q, if you will, Matt, which actually Q, were you a James Bond fan ever? You like a James Bond watcher? Video games, yeah.

Matt Mulcock:
Cool. Love it. Yeah. I mean, golden eyes, one of my favorite old games of all time. Yeah.

Ryan Isaac:
I used to really love the old James Bond movies, but Q, wasn’t Q the guy who would make his weapons?

Matt Mulcock:
Yeah. Well, yes, I believe Q was. And then also, when you say Q, I think of the old days of the podcast when we had Justin sitting in the room with you guys. And this is when I first got to Dennis Advisors, Justin would sit on a chair in the podcast studio. You called him Q because he was the one who would read the questions, I think. Yeah. He’d also would write you guys’ scripts.

Ryan Isaac:
The queue. What if we stay? Yeah. We call them Q. Why? I don’t remember why. Okay. Yeah, that was so fun. We need to bring someone sitting there and staring us back. Okay. Queue number one. Hi, if I had $250,000 in cash, what would you invest in right now? If you had, say, okay, here’s this question. If you had $250,000 in cash, what would you invest in right now? The goals for me would be long-term investment, like retirement, and I’m considering either real estate or mutual funds or stocks.

Matt Mulcock:
But yeah, you call them Q, yeah. Hello.

Ryan Isaac:
That’s the question. So this is a person with $250,000 sitting around, which is a huge amount of money. So first congratulations on being a human being with quarter million dollars, just sitting around that you need to find a home for that’s awesome. You have many multiples of that. Yeah. Matt puts his 250 into stacks, into separate buckets. That would be amazing.

Matt Mulcock:
Yeah, that’s amazing. Let me just say, I feel your pain. I feel your pain. It’s rough. It’s really hard. Yeah, it’s really hard to know what to do with all this cash. Yeah, no, I just walk around with a briefcase sometimes with a, with a strap to my arm, you know, handcuffed to my arm.

Ryan Isaac:
Yeah, so, golden, like golden handcuffs too, would be really cool. Or you have like the pink fuzzy ones. So if you had 250,000, here, let’s break down a few pieces of this question. First of all, there’s the amount of cash. The second thing in this is this person is saying, this is long-term for me. And then they throw out, I’m considering, and this is just what they mentioned, real estate versus mutual funds or stocks. That’s what they mentioned. What are some questions you would ask this person?

Matt Mulcock:
Ton. Yeah. I want to know a lot about the situation. So I’d want to know what is your current liquidity outside of this, outside of this 250 you’re saying that you want to invest, what other possible investments or projects you have at the practice or on the personal side, what’s your cashflow look like? What are your goals with the practice? What are your goals for life in general? I could keep going, but there’s going to be a ton of questions. What’s your experience?

Ryan Isaac:
Uh, first, yeah, a lot. Yes.

Matt Mulcock:
With any of these things that you’re mentioning specifically real estate, you know, I’d want to know a lot around, around that kind of stuff, what’s your debt situation look like? There’s a ton of questions around all those items.

Ryan Isaac:
Yeah, I think I’m just pulling up my investment calculator too, because I want to just like ask myself this question really fast. But one of the first things I would want to know too is what’s up with the business? That’s what I would want to know first and foremost. Is it okay? Is it liquid? Are you growing? Do you need to move in the next couple of years? I mean, 250 will evaporate in a move if you have to like get a building or something. So for sure business, yeah.

Matt Mulcock:
Also, when you say long term, this person says it’s for long term, what does that mean to you? Like, I want to get specific on that timeframe. When you say long term, a year out for some people is long, I can’t imagine their meaning that. But you say retirement long term, okay, does that mean 20 years from now? Does that mean 30 years from now? Does that mean five years from now? I’d want to know more about that timeframe.

Ryan Isaac:
Yeah, what is long term?  I was just curious what $250,000 turns into after 30 years. I know, I know well, and I’m judging this person based on their Facebook picture in a good way. I’m making an assumption that they’re young. Yeah, they look good. You look good. Gosh, this is getting bad. Yes, they looked young. So my assumption is if you say long-term and you look young,

Matt Mulcock:
Meaning they look good. They’re young looking, looking like a spring chicken.

Ryan Isaac:
I’m gonna give it 30 years, you know? Like we’re just gonna, like what would happen if you parked a quarter million dollars for 30 years and I gave it an 8% rate of return? My assumption there is that, and I’m in a investment account, right, in stocks. And my assumption there is based on long-term market index data of double digit returns. So I’m going like multiple points below that 8%. It turns into two and a half million dollars.

Matt Mulcock:
Yep.

Ryan Isaac:
Um, that is a, that’s an enormous pile of money. That’s, that’s literally, um, you remember the episode we did where we asked the question, I think it came from that article where we asked the question, like is $5 million enough? Is that, is that, do you remember that? That was kind of like the, yeah. And we kind of arrived around that number as a pretty standard amount that dentists can save many do end up around that net worth.

Matt Mulcock:
It’s not bad. Nah, it’s not bad. Yes. Yeah. It’s like, what’s it, what’s enough for retirement? Yeah.

Ryan Isaac:
area when they retire and what that kicks off perpetually and how that can very well be enough for a lot of people. You think about this question, this person is sitting on an amount of money that turns into half of what they’ll need down the road. That’s a big deal. That’s a giant head start. But that’s skipping ahead though, because the question starts to… The question…

Matt Mulcock:
Pretty good head start for you for sure.

Ryan Isaac:
that they were asking is like, well, where do I put it? Real estate, mutual funds, or stocks? One thing I’ll say really fast is when they’re asking mutual funds or stocks, there’s probably, what were you gonna say about that? Yeah.

Matt Mulcock:
I was just gonna say this, yeah. I would know. I mean, you, I don’t want to cut you off. Yeah.

Ryan Isaac:
No, some education. I would want to know why they think those two things are different because maybe there’s some basic education. Maybe they’re thinking of those things as different, but they really would define them the same. Or maybe they really mean like, should I go on Reddit and find a few stocks and pump quarter million dollars into a few stocks from Reddit? Maybe they mean that. I don’t know.

Matt Mulcock:
Maybe they do. Yeah. That’s a part I picked up on too, when they said mutual funds or stocks, I was thinking, well, what do you mean by that? Because, and I think this happens all the time. I’ll like, I’ll even have people sometimes be like, do I invest in like my IRA or like a mutual fund? And I think there just needs to be education around that. And that conversation of saying, you know, of kind of laying out what the difference is there and the fact that like, you know, you invest in a mutual fund within your IRA or you invest in stocks.

Ryan Isaac:
Yeah. Uh-huh.

Matt Mulcock:
Either the way you can do that is either through a mutual fund, through an ETF, or owning individual stocks yourself. But it’s all the same thing in the sense of getting exposure to that asset class. I think sometimes people think like a mutual fund is a separate asset class than stocks are. It’s just a vehicle in which you can invest in stocks. I think that’s the education piece you’re talking about.

Ryan Isaac:
Yeah, then stopped. Yeah. Yep. Totally. And the real estate question is just a whole separate thing. We talk about this all the time. It’s just, you’re just gonna have a different experience investing in real estate versus building a net worth in mutual funds and stocks. Your experience is going to be different. And I would want to really understand what that person thinks about the path of either one. You know, what do they think that’s gonna be like? Oftentimes when people say real estate, they’ll think about chucking a chunk of money that they’re sitting on at like a property, right? Like maybe I’ll grab a rental, maybe a condo or a townhome or something, or if you live in a city that real estate’s actually like affordable, maybe an actual single family home, you know, but these days it’s like, that’s not easy to do. Or a building, you know, or a commercial real estate. But I’d be interested to know, do you envision your future with real estate as like, you threw some money at one property and you’ve got this like straggler?

Matt Mulcock:
Yeah, yep.

Ryan Isaac:
on the balance sheet, you know, where you kind of just drag this like town home along for 20 years? Do you envision it like you, you own the building you work in or you own a different piece of commercial real estate and you’re a tenant? Or do you envision like this is the first of many because really if you’re going to build a future in real estate, it can’t be one, right? It can’t be one thing. Um, you’ve got to have many, especially if it’s residential, like you’ve got to have quite a few to like, you know,

Matt Mulcock:
Yeah.

Ryan Isaac:
produce that much income later down the road. So I would just be, have a lot of curiosity around what they envision or just maybe they never thought about it before. Maybe they never asked these questions before. And that’s a good thing to explore. Like I’ve had conversations with people around this exact subject where I say like, okay, well, you take your 250, what are you gonna buy? And they’ll be like, well, there’s like a $600,000 house I’ll buy.

I’m going to buy down that mortgage credit. Okay, cool. What’s the rent and what’s the mortgage payment? You’re going to net X amount of dollars. That’s fine. You’ll have to keep a good chunk of that aside for repairs and maintenance and stuff that you’ll have to do as a landlord anyway. And then how long is it going to take you to do the next 250 investment? Or are you going to pay that mortgage down? Or how many of these do you think you can do before the bank’s like, I can’t give you more mortgages until you pay all these off or you buy the next one in cash? And oftentimes, people haven’t really thought that far along, which is why I think people do real estate sometimes and they end up with a straggler. They’ve got like that townhouse or condo that just like follows them along on the balance sheet until they’re finally fed up and they sell it. But I’m projecting, cause that’s what I did. You know, this is my experience.

Matt Mulcock:
Yeah, as I say, it sounds awfully personal. Yeah. No, but to your point, I think that’s the something that stood out to me about this question as well is when it says, I’m thinking about real estate, mutual funds or stocks and like you list these things. I’m sitting there exactly what you’re saying, Ryan, is like, when you say you’re thinking about getting into real estate, my first response always to that is, okay, what does that mean? What does that mean? There’s so many different ways you can take

Ryan Isaac:
Yeah. Exactly.

Matt Mulcock:
real estate. And if you’re telling me, I’ve seen, we’ve, Ryan, I mean, how many times have we seen this with a client or just Dennis, we talked to at events or whatever, they say, Oh, I want to go buy, I’m going to go get into commercial. Let’s even say you’re more specific. I want to get into commercial real estate. It’s like, great. That’s a whole other profession. Like that is an entirely different profession. When you talk about, I’m just going to go start buying buildings. Right. It is, this isn’t monopoly. And so.

Ryan Isaac:
Yeah, yeah. Uh-huh.  Yeah, this isn’t Monopoly.

Matt Mulcock:
This is again, where we say we’re not anti real estate, we’re pro thoughtful decision making. Like we want you to be thoughtful when you say I want to get into real estate, just you’ve got to articulate what that means. And because real estate is very, very different than the stock market on many levels, but on one level in particular, which is it is so hard to diversify in real estate, especially when you don’t have enough money to do it.

Ryan Isaac:
Mm-hmm. Yeah.

Matt Mulcock:
A lot of money, but that is not enough money to truly diversify, especially in a commercial real estate. So you might go, maybe, exactly. So it’s really, really hard to diversify or spread your risk around even with that level of money, which is when you compare that to the stock market, let’s say, the barrier to entry is so much lower. The diversification, the ability to diversify in …

Ryan Isaac:
No, like in real estate. No, not even close. Yeah. That’s like maybe a down payment in one place. Yeah. Uh huh. That’s it. Barrier to entry.

Matt Mulcock:
With that amount of money. So that those are, again, that, that would be a conversation I’d want to have with this person and go much deeper when they talk about real estate and like what that means to them.

Ryan Isaac:
Yeah, you just, I like that. What did you say? We’re pro thoughtful decision making. I think, and the same thing goes for stocks too. Like if this person’s like, I’m gonna own a few funds and see how they do for, you know, one to two years. And then if I don’t like it, I’ll sell it. I’d be like, oh, well, we’re not gonna do that. That’s not gonna work either, you know? Which one of these can you do for 30 plus years?

Matt Mulcock:
That’s the thing. It’s like any asset class you invest in, there’s two secrets here. And it’s, it, I don’t want it to sound too simplistic, but truly when you break it down, you know, you can go into the details and we could, we could talk all day long, we could bring Robbie on, talk about the details of how we manage money. And we will do that. Actually, we’re talking about doing that. But if you really just think about it in any asset class, there’s two things that you need to be successful. You need to be well diversified and you need time. That’s what you need.

Ryan Isaac:
The most annoying thing is time. Yeah.

Matt Mulcock:
No one wants to hear it, but that’s what you need. So again, I liked what you said earlier, Ryan, when it’s like, what is like, we were a little bit, our ears perk up, I think a little bit when people say real estate because of our experience of this misinterpretation of dentists who think, oh, I’m going to get into real estate and this is my fast pass to financial freedom. It’s like, oh no, it’s absolutely not your fast pass to financial freedom. It can kick off cash flows

Ryan Isaac:
Yeah. Yeah, it’s not. Yeah, it’s not.

Matt Mulcock:
And it can be a great asset class, but just like the stock market, it is going to take you multiple decades. Or your practice, exactly.

Ryan Isaac:
or your practice. It’s the same thing. It’s just years and years and years of putting money into it and paying it off and dealing with all the problems that are gonna come along and just sticking with it for a long time. Yeah.

Matt Mulcock:
Yep. And not freaking out when things go wrong. Cause they will let’s, you know, stay in your seat no matter what.

Ryan Isaac:
Yeah, that’s why real estate is sticky though, because there’s no cell button. And so it’s just like, eh, it went down. It’s now negative value. Oh well, I’m living in it. All right.

 

Matt Mulcock:
Yeah, it’s it. Yeah, we, we can, we can move on. We could talk about this for the next. Multiple hours.

Ryan Isaac:
Sorry, I think those are thoughtful questions. Moral of the story, there’s a lot of questions to ask there, which I think is the value of someone bringing this to an objective third party before they make decisions. Yeah, yeah, yeah.

Matt Mulcock:
Yeah. So our last thing I will say on this, another, another question I’d have for this person and any dentist out there who’s saying maybe in a similar situation. I’d want to know also what, what real estate do you already own? Cause a lot of times we’re going to look at your balance sheet and we’re going to look at your total allocation to these different asset classes. And if you own, let’s say you already own your home and then you own your building and maybe you have a vacation home and, and you look at your total net worth. Chances are.

Ryan Isaac:
Yeah.

Matt Mulcock:
We see this all the time, especially early on in the dentist’s career. It’s like, Oh, you’re like 80% in real estate right now. We actually need to go the opposite way. Let’s diversify this away from real estate.

Ryan Isaac:
Yeah. I’m glad you’re saying that because my favorite thing on the dashboard where our clients log in, they can see their net worth and all this stuff. My favorite chart on there is actually at the top of the dashboard. I think it’s at the top now. It’s the pie chart of the assets. So it takes all the asset categories and puts them in a pie chart. And what you’re saying happens every single time. Someone feels like they’re really light on real estate and that’s like the way they’re gonna make their wealth and what they wanna do.

Matt Mulcock:
Yeah. Yep.

Ryan Isaac:
And then we go like, well, let’s look at the pie chart. Like, what is the data telling us? And yeah, like 80% of your net worth is already sitting in your house, in your building. And then the other whatever is like your practice. And then we’ve got like 3% liquidity. Like you can spend the next 20 years of your career just saving in mutual funds and barely even all that out by the time you’re done. Barely, barely, yeah. Cause you’ve literally got multiple seven figures of assets in a privately held company.

Matt Mulcock:
And barely evening this out. Exactly.

Ryan Isaac:
private equity so you can feel fancy if you want and real estate in your house and building. Yeah, I’m glad you brought that up. That’s my favorite chart that is on our dashboard actually, the pie chart, I like that. All right, question number two. What’s your favorite kind of pie though, real fast? Favorite pie? Oh crap, okay. All right, I was gonna say pumpkin, but chocolate satin just sounds like pretty awesome. Marie Callender’s. Wasn’t there like, yeah, if you grew up in Utah,

Matt Mulcock:
Yeah, I agree. I also love pie. I also love pie, so. Chocolate satin from Marie Callender’s. It’s so good. Yeah. It’s pretty dang good. Yeah. It’s like grow back from childhood.

Ryan Isaac:
I don’t know if that’s a Utah business, but didn’t they have those old commercials, especially around like Christmas time on the radio, Marie calendar pies?

Matt Mulcock:
Oh yeah, they did. I don’t know. Maybe it’s a Utah company. I don’t know if it, I think it’s national, but I don’t know.

Ryan Isaac:
It’s like if you’re from Utah and you hear the Shane company ad, your Shane company, you just, you can repeat it. All right. Question number two. Uh, I, oh, I like this one. This could probably end the whole podcast right here is a long discussion. Oh, it might be.

Matt Mulcock:
Yeah, exactly. You just know exactly. Is this a boom mic drop?

Ryan Isaac:
Oh, reference like 15 podcasts ago for that one. Oh my gosh, okay. I have a question relative to passive versus active income. Can I make passive income by owning another dental practice that I do not work in? That’s the whole question. I have a response here from, like you mentioned, one of our partners, trusted, loved, valued partners in the soon to be dentist advisors discussion group on Facebook.

Matt Mulcock:
Back to the… You know… I don’t know. Now we’re going back.

Ryan Isaac:
funny we used to say that so many years ago the dentist advisors discussion group on Facebook. Brian Hanks. He had a response here but let’s I’m gonna read that question again. I have a question relative to passive versus active income. Can I make passive income by owning another dental practice that I do not work in? What are your initial thoughts? Like where do you go when you hear that first?

Matt Mulcock:
Oh, we love Brian. The term passive income is the most overused and misunderstood. It’s not a trigger. Honestly, it doesn’t like it truly doesn’t make you mad or anything. It just whenever I hear it, it’s just it I stand by this. It is the most misunderstood concept in finance in money. It gets its marketing. It gets thrown around by salesmen. So that’s the first thing I think of is can I make passive income from a.

Ryan Isaac:
Trigger word. Yeah, it’s marketing.

Matt Mulcock:
Practice that I don’t work in that I just own. My first response is it depends on what you mean with passive income, what that truly means. And we can talk about that more, but to the essence or like the spirit of their question, yes, we’ve seen this, absolutely you can. And by the way, I’d actually rather you do this most likely than real estate. Yeah.

Ryan Isaac:
Yeah. Oh yeah. It’s a- That’s a- Yes, yes, please. Yeah, I think there’s a few connotations of this question. I hear it from, I don’t know if they were asking it like this, I hear it from like a tax perspective. Do they, are they implying that maybe they get taxed differently if they build a practice where they don’t actually go produce? I hear it from just the normal connotation passive, like I don’t have to do anything for this money and it just comes in.

The first thing I would think is just go ask anyone who’s built a second location and eventually got it to the point or any location besides their first one and got it to the point where other people were fully running it, not just clinical, but like all the support team, all the front office, back office and management fully where you were not working. I mean, we have a ton of clients who have many offices and when you get to that point,

It’s associates, it’s other people, it’s managers, like other people are running it, but I can’t think of a single person in that situation that isn’t still heavily working on their other locations. And I can think of a client example right now from a conversation a few weeks ago. She owns three very successful practices in a huge city. Two of them she literally does not step foot in ever, but she burns so many hours and so much mental energy managing those other locations where she doesn’t even step foot in. It’s crazy. The prof, the profits good. It kicks off like literally like 20% profit or she doesn’t even go in there. High producing, very successful. And they’re like weighing on her.

Matt Mulcock:
I was gonna say, would she say that they’re passive if you asked her?

Ryan Isaac:
I asked her that question. I said, would you, I said, if another, if a younger dentist saw you and saw that you got multiple six figures out of that, you know, location that you don’t even go to ever, how like passive would you describe that? And she just laughed. She’s like, that honestly is stressing me out more than I can, she like wants to get rid of it. You know? So I do think that maybe there’s a discussion around.

I mean, this is what you just said though. It’s just the biggest marketing term in the financial industry because anything that kicks off any significant money required so much work for such a long time that I don’t know how you call anything passive. I don’t know how anything is actually considered passive whatsoever. I don’t get it. You know, it’s not like a real thing at some point.

Matt Mulcock:
It’s like when anyone says this person was a self-made billionaire, self-made millionaire, that does not exist. There is no such thing as a self-made anything. So it’s kind of fits that same category. Exactly. Uh, the, the fact we’ve talked about this, I think before in another episode, when it comes to this passive topic, this passive income topic, there are three things that you need for something to become passive in the sense that people

Ryan Isaac:
You’re like self. Yeah, no help, no luck, no. Yeah.

Matt Mulcock:
use that term, which I think they’re saying I, the kind of the rabbit Kawasaki, I sleep at night, my money’s growing as I sleep at night or I’m making money as I sleep at night is kind of the passive.

Ryan Isaac:
Sorry, did I just vomit in my mouth? I’m sorry. Did I just vomit at a Rich Dad reference? Sorry. That’s my bias. Don’t hate me for it.

Matt Mulcock:
Oh, Robert Kawasaki. Is that what it was? Yeah. But I mean, he’s gone off as he’s off the rocker now, uh, but there, there are three things you need that everyone needs. There is no way you generate passive income without these three things. A ton of capital, a ton of time, or a ton of effort.

Ryan Isaac:
Yeah. Yes.

Matt Mulcock:
Those three things, some combination or all three, precede anything becoming passive. So if you all of a sudden were handed $10 million today, okay, you can go, you win the lottery.

Ryan Isaac:
Yeah. Uh-huh. That’s gotta be the only way. You know what, I guess yes, there is a way to be passive, completely, purely, by definition, passive. You have to inherit or win money or be gifted money that you immediately purchase an asset that is then free and clear, requires zero time ever, and then just kicks you off money. There you, okay.

Matt Mulcock:
Sure. That’s basically the way, but even let’s say it’s inherited, right? Let’s say it’s inherited money. That money that you just inherited that you were able to inherit was preceded by a ton of time, a ton of effort, right? So it wasn’t, it was passive to you, but that the fact remains, nothing becomes passive without those three things or some combination of the three. So that’s where we get.

Ryan Isaac:
Yeah, both. Yeah. Decades of work.

Matt Mulcock:
whatever you want to call it triggered or frustrated when people talk about passive income, it’s like, okay, you’re thinking about standing at the finish line of a marathon and watching the people cross the finish line. You’re not thinking about the 26.1 miles before that point one you watched. You’re thinking, yeah, it’s like, oh, that again, of course you want that. You saw the point one. That’s what you want. You see that older dentist that has the quote unquote passive income. That’s what you want.

Ryan Isaac:
Yeah. 26 oh you the point one the point one got it. Yeah. Yeah, you saw the point one. Uh-huh Yeah

Matt Mulcock:
And so when you say, I want to go get into real estate or you see that, Hey, you might see the dentist who owns 10 buildings and you think I want to be that dentist. Great. That probably took that dentist 20 years or more to generate that, or they inherited a bunch of money.

Ryan Isaac:
Decades. Yeah. And then, but you’re right at the end of all of that, what were the three things? Time, energy, and money. At the end of the investment of all of those things for many, many years, yes, you will own assets that kick off money. And that could be a practice. It could be real estate. It can be a giant portfolio of stocks and bonds, mutual funds. Then it’s passive, but it, the journey was let’s read Brian Hanks. This is why, I’m so glad you said the thing about the partners. Brian Hanks entered the chat.

Matt Mulcock:
Hello, Brian. He’s awesome, dude. He’s so smart. He’s great.

Ryan Isaac:
Brian Hanks enters the chat. He is. What’s his book called? Do you know off the top of your head, how to buy a gentleman? Yeah, that’s awesome. That should be in our book club one of these times. Okay. He says, in theory, sure, in reality, it rarely happens. The reason is that whatever associate you hire will simply not care about the operations and financial results of the practice as much as you as the owner.

Matt Mulcock:
How to buy dental practice, I think. Yeah.

Ryan Isaac:
And you’ll have to manage the office on some level. He says 10 to 15 hours a week per office on non-clinical time is typical, according to my clients with multiple offices, which makes it not passive. So Brian Hanks said it. Yeah. It’s not passive, man. It like took so much to build and it’s, it just, it takes so much. So I think if you were talking to this person to not make this sound like

Matt Mulcock:
Just like your client, just like your client, right?

Ryan Isaac:
That’s a terrible question or they’re thinking about it wrong or they shouldn’t do this. Like that’s all, not at all. I think the discussion I would want, if this was a client, I would just be very interested in how they want the balance and flow of their life and career to be and what feels worth it to them when they’re at work putting in their how many hours a day per week. What do they want to be spending time on?

Matt Mulcock:
No, not at all.

Ryan Isaac:
Because as a dentist they can build one great location that’s highly, high production and high profit, high income, or you can build multiple and be more of a manager, but they’re all gonna take time, money, and energy. Yeah, how do you, like what pains are you not willing to feel, I think is the question. Like what are you not willing to deal with? So.

Matt Mulcock:
Energy always. Yeah, I, to that point, I think the con and I, I love that you said this. This is, this is a great question. We don’t want this person to think this is a, this is a great question. Yes.

Ryan Isaac:
Yeah, super good question. This is a good like thought provoking, what do I want in my career and life question for sure. Totally.

Matt Mulcock:
Totally. So that to your, what you were just saying, like what parts of the business do you like? Like maybe this person wants to just manage practices and not be chair side. I actually, we’ve talked to dentists a ton that talk about this. They love the business side of dentistry. They love the, the parts that they just like, here’s the thing. There are dentists out there that are just killer business people. They just happen to be dentists, but they don’t want to be the tech, the tactician, the technical part of the dentistry. They don’t like.

Ryan Isaac:
Yes. Yeah. Many. Yeah. Then it’s worked. Yeah, totally. Yeah, they’re builders. They’re dentists. Yeah.

Matt Mulcock:
Being chair side every day. So if that person says, I’m just a business person and I happen to be in dentistry, this is my skill set, I’d say, great, go build some businesses, go build a practice or two and manage them like the CEO and not be chair side, but to say that’s passive, no, it’s definitely not passive. Yeah.

Ryan Isaac:
Yeah. Yep, clinical, yep. It’s still a job. I like, okay, what did Brian say? I like this. I’m gonna reference this. I think he’s got, he has so much insight and experience. 10 to 15 hours a week per office of non-clinical management time is typical. That’s probably, that’s gotta be true. That’s gotta be true. My client, she has two that she is non-clinical and she is 10 to 15 hours a week easily in each one. If you think about, that’s 20 to…

Matt Mulcock:
Yeah. Oh, for sure. And you just said this from your client. This is what you’re. Yeah. Yeah. And probably stressful hours, by the way. Yeah.

Ryan Isaac:
It’s very stressful because okay, so what Brian just said too is the other part of the story from my client that she talked about which was like They so and so quit so and so is demanding more money So and so is holding me hostage because they got a different job offer and they want it’s people dude. It’s people Yeah, and then one clinician does quit you’re not non-clinical anymore. You’re jumping into fill and While you hire someone else, so It’s all work Yeah, yeah. Yeah

Matt Mulcock:
Oh, it’s people. It’s people. Yeah. You’re managing people. Yeah. Yep. Can I say one, can I say one thing about the passive thing? I’ve said this before, I think, but if not, we’re going to, we’re going to say it. If we, so the passive income thing, just to bring this home, the word income is the problem, right? Because if you think about this, if we change the word income to passive returns, you make it more broad or passive growth, right? Uh, if you, if you brought it into out a little bit and said passive returns or passive growth.

Ryan Isaac:
Oh, yeah. Yeah.

Matt Mulcock:
I’m going to say this and I might get in trouble for this, but if you really think about it here, this is the truth. This is the truth that no one wants to tell you. The stock market investing in stocks is far more passive than investing in real estate or private businesses. It’s like not even close. You could invest like, and again, if we’re talking and actually income as well, if you use the term income, it’s just not going to generally.

Ryan Isaac:
Okay. Yeah. Yeah. Yeah, it’s not. No.

Matt Mulcock:
the stock market generally doesn’t kick off fixed returns like a piece of real estate does. So people always are like, oh, it’s not passive income, but it absolutely can be. And if you broaden it out to just be again, passive returns, how does my money make money without me doing anything? The true definition of passive stocks are a hundred X more passive than real estate.

Ryan Isaac:
Yeah. I agree. I think that’s, uh, I hope you get in trouble for that because it’s true. If you get in trouble for the truth, then so be it.

Matt Mulcock:
I hope I do. What do they say? Don’t at me. No, I’m going to say at me, please come. Let’s talk about it.

Ryan Isaac:
At me. That was actually a famous quote from Paul Revere during the Revolutionary War. Shut up. Shut up. All right.

Matt Mulcock:
Yeah. Oh gosh. We can’t go on the episode without a dumb dad joke and I love it.

Ryan Isaac:
I live my brain, that’s all it is. All right, let’s go to number three. We got time for number three, do we?

Matt Mulcock:
Yeah, we do. Yeah.

Ryan Isaac:
All right, this is an interesting one. This person says, all right, hold on to your butts here, to quote Jurassic Park. Oh, that is a good quote. Take you back to the 90s. I was just gonna say so many interesting things just about nostalgia. All of a sudden, like I just got so many nostalgic things that were just like… I’m gonna hold on, I’m gonna say this. I’m gonna quote my teenager right now because this is…

Matt Mulcock:
Hold on. Hold on to your butts. That is a good quote. It’s a good movie. Jurassic Park is a top five nostalgic movie for me, for sure.

Ryan Isaac:
freaking hilarious. So my kids didn’t grow up seeing that. They, they weren’t born, you know, I had to show them Jurassic park. They do now, but I’ve showed them the original Jurassic park, especially the original, original when they’re in the cars broken down the 90th, which is crazy. And the T-Rex is stomping and they can hear it the other day, dude, this is savage, dude. My 16 year old were in the kitchen and she hears her mom who she had been arguing with and she was going to get some smoke.

Matt Mulcock:
They know the crisp Pratt Jurassic Park. Yeah. Like 94, yeah.

Ryan Isaac:
She was gonna get a little fire, some little heat for it. You can hear the steps upstairs of mom. And my 16 year old goes, this is like Jurassic Park when the T-Rex, you know it’s close and you know you’re gonna die, but you can only hear its footsteps.

Matt Mulcock:
That’s good. Okay, that’s good. I like that.

Ryan Isaac:
I was like, whoa, and I’m exiting while you get all the smoke, I’m outta here. So anyway, okay, all right. See, it’s hilarious. All right, this person said, I’m considering selling my building to get the equity out, pay down some debt and invest the rest. They gave some numbers. I have an offer, I have a seven figure offer and then leasing back, okay.

Matt Mulcock:
Yeah, dude, she’s so funny. She’s so funny.

Ryan Isaac:
The lease ends up being about a thousand dollars a month more than what they’re currently paying on their payment. And they have about, out of that seven figure offer, about half of its equity. So basically I can sell my building, I can get, I can sell my building for seven figures, half of that’s equity. And my lease goes up, my payment goes up a thousand bucks a month now. But now I get all of this money out, I can reduce some debt and then invest the rest for future growth.

And I do know a little bit about this person from conversations and this person could very, okay, so I’ll give you some more context that I know, could really use the liquidity injection, could really use it. I would say later career person has invested a lot of money into real estate, primary residence, expensive building and practice, and could really use the liquidity

Matt Mulcock:
Yeah, yeah.

Ryan Isaac:
the balance sheet, put the balance in the balance sheet, if you will. Oh my gosh. And, uh, and, um, I, and it would act, it would, it would, it would put a lot of balance back in the net worth. So that’s some more context from that person. When you hear these things, uh, and now, okay, let me give you some more. This person is probably within 10 years of being done of selling the practice and retiring it. If that’s financially possible, I know that would be something they’d like to do.

Matt Mulcock:
Yeah.

Ryan Isaac:
or at least severely start slowing down. So I’ll pause there. When you hear this, sell the building you’re still working in, lease it back, what do you think about this?

Matt Mulcock:
Yeah. I think, I mean, you, you gave the context that was where my brain was going initially was what is the liquidity situation look like, right? Do they, do they need that liquidity or does that help? Like you said, balance out their balance sheet. Uh, I would want to know more on the technical side, like what is this impact, what’s the impact of their taxes? Cause generally with real estate, right? You’re paying it down, uh, you’re, you’re taking deductions, right? That’s one of the reasons people love real estate and it’s

Ryan Isaac:
Yeah.

Matt Mulcock:
Totally, totally makes sense. You’re getting the depreciation right on the asset. And a lot of cases, uh, if you’re, if you own the building, you’re right, you can do like a, what’s called a cost segregation study and all this stuff. Right. But, but what people don’t often think about is what’s called recapture. Yes. So this is something that people, again, if they don’t necessarily think, oh, I mean, they, they think I want real estate for the depreciation. Great. You’re going to get that during your working years, but then in the situation, you go to sell it.

Ryan Isaac:
Recapture. Yep.

Matt Mulcock:
there is recapture and all that means is the government says, cool. You got all that tax benefits. We want to incentivize you to own real estate, but that depreciation is going to be captured back. So you pay down that your basis is now nothing. So you go to sell that and it’s taxable to you. You recapture that. So.

Ryan Isaac:
At ordinary income rates. Yeah.

Matt Mulcock:
Exactly. So I’d want to know, I’d want to know the tax situation to this. Like they’re saying they can pay off because you said they do have a debt balance on the building.

Ryan Isaac:
There’s some debt on the building whose other debt they’d like to clean up and liquidity that they would really love to have.

Matt Mulcock:
Okay. And so my question on this then, okay, so they clean up the, so they said their payment goes up a thousand bucks, but if they’re cleaning up this debt, they’re cleaning up the balance sheet with some debt. What does that do to their cashflow net?

Ryan Isaac:
Okay, okay. What does that free up? Yeah.

Matt Mulcock:
What does that free up on the net? Like on the actual cashflow, does that help them achieve their goals faster or just make maybe reduce some stress? Uh, and then again, to your point, the liquidity side, you know, is this simply like, they just need more cash in the bank, like they’re struggling with some liquidity or they just have a light, they like a small brokerage account. They want to bolster. Like I’d want to know more about that, but. Taxes, cashflow liquidity situation would be the things I’m thinking about.

Ryan Isaac:
Sure. Yeah. Man, those are such good questions. My brain’s going to a handful of people I know in the space that’s, it’s becoming more common in dentistry, but it’s the space where, it’s basically like private equity roll-ups in real estate. So they’re going to all these commercial real estate owners and they’re saying, hey, you’re still gonna keep working there. Your business is gonna keep existing there, but we’re gonna buy you out at a premium, like above market rate premium.

You’re going to rent back from us. We’re going to cash you out. And, uh, it’s actually a growing a ton. It’s, you know, it’s, that’s a really fast growing segment of that. Um, of the real estate market. So I think, uh, there’s probably demand there. There’s probably a lot of people that would choose to get cash out of a building after owning it for a while. I think all your questions are like really spot on and would drive a lot of the decision. I also think about the, just anecdotally, like the common habits of dentists with their building.

In order to get like juice the most return out of the real estate that you own, especially if you’ve been in the tenant in there the whole time and you don’t have other tenants that have been like paying down the note for you or giving you cashflow along the way. So the way that you’re going to get the actual return from that asset is when you retire and you’re done and you keep the building and another dentist comes in, you keep the building, you pay it off finally, and then you’re getting this like rent every month and most dentists don’t do that.

Most dentists, they buy the building somewhere in mid-career. They carry a note on it almost the whole time that they’re the tenant. And then they just like want to be done with all of it. And then they sell it.

Matt Mulcock:
Isn’t that funny? I’m only smiling and kind of laughing at myself because I just had this conversation yesterday with the client considering building, building a building. And we have this all the time where clients want to buy a building or build or something and what do they use, what they usually go to in some part of that conversation is this very point where they’ll say, well, you know, I’ll sell my practice eventually, but at least I’ll have this asset, this real estate asset that will be kicking off cashflow to me.

Ryan Isaac:
You did? Okay. Yeah. In theory, yes. Yes, uh-huh. Yep.

Matt Mulcock:
In theory, and sometimes it does happen for sure. And so you need to be fair to that. However, we have found in more cases than not, when they go to sell their practice and in that conversation, the building comes up most of the time in our experience, dentists go, you know what? I want to be done with all of it. I just want to be done with all of it. I want to sell my building. I want to sell my practice. I want to be done and cash out everything.

Ryan Isaac:
Oh yeah. I’m done. I’m done, man. Yeah.

Matt Mulcock:
Again, we’re not saying that’s right or wrong. We’re just saying that’s usually what we see. So it’s kind of funny that the reason you got into real estate or buying that building, or one of the reasons is because you said, I’m going to have this asset when I retire and most of the time when you get to retirement, it doesn’t go that way.

Ryan Isaac:
Yeah, unless you happen to buy the building in a city where there was unusual appreciation of real estate over a sustained period of time, not like a few years or something, unless that’s the case, if you did the math, I’d be willing to bet, if you did the math from like, you bought the building in your 40s, you were the tenant the whole time, you paid your mortgage down, you sell it at 60, 65, the note’s finally gone, I would be very leery that there’s much of a positive rate of return at all.

Because all of the positive rate of return in real estate comes from leveraging bank money and sticking someone else in there to pay it and then holding it long enough for them to not only pay off the note, but keep paying money when the note’s finally done. That’s where the double digit real estate returns come from. They don’t come from appreciation. I think there’s a huge misconception. Real estate does not, especially lately, because we’ve been in kind of some funny real estate markets, but real estate does not longterm appreciate double digits.

Matt Mulcock:
Yes, especially lately. Yes.

Ryan Isaac:
But you do get double digit returns when someone else is in there, paying the notes down and then still getting that revenue. Once the mortgage and the note is finally gone. But like you said, dentists don’t do this. They buy the building, they pay on it for 20 years until it’s finally debt free. And then they’re like, I’m done. And then they sell it. And if you did the math, it’d be like, they might’ve lost money. It might’ve, it might have been a negative rate of return. It’s possible.

Matt Mulcock:
Oh yeah, I would say if anyone just when it comes to mental health, you know, keeping your mental health at a high level, I would say most likely you would not want to go back and actually run the numbers to see what your actual return is on that building, because most likely it’s going to make you very depressed.

Ryan Isaac:
I did this, okay, so the only rental I’ve ever had was the first house we ever bought. I owned it for 12 years, very low interest rates, mind you. I mean, it started in the mid-2000s and I refinanced multiple times. The last four years of it, a tenant was in there the whole time, it cash flowed the whole time. I got a giant six figure check when we sold it and my first thought was like, sweet, I’ve made money on this house. And then I went back and I did the math as an investment.

Matt Mulcock:
Don’t do it, Ryan!

Ryan Isaac:
The feel good check was amazing. I did the math as an investment, the interest, the expense, the taxes, the insurance, the maintenance, it was a negative rate of return after 12 years. And it grew in value, like it grew in value a lot, a lot. And it was still a negative, I was like, man, it sucks.

Matt Mulcock:
Yes. This exact same thing happened to a very close friend of mine in a very expensive part of California. He bought a house years ago. He’s in Utah now, but he bought a house in a very expensive area, put a bunch of money into it, lived there for a few years. Life circumstances changed, moved back to Utah. But same thing, because he got the check when he sold it and he saw this massive check, and again, it felt great. And then our other friend who’s in real estate.

Ryan Isaac:
Yeah.

Matt Mulcock:
We got into a conversation and he kind of helped him calculate the actual numbers and then my friend got really intrigued. Well, he got really intrigued. He’s like, I really want to know this. So they, he went and dug a little bit and started figuring it out. And by the time he did, he texted all of us and he was like, holy cow. Like I actually lost money at the end of the day. Yeah. Or he was like, if he made, it was like basically breaking even. So that was a personal residence, obviously, but

Ryan Isaac:
Ugh, what a mean friend. You as a negative rate of return. Yeah.

Matt Mulcock:
It’s this, this happens all the time with real estate. And by the way, I guess let’s be fair to this. We’re not saying you can’t make money in real estate. I know people, I have, I have people in my life that are very close to me. That’s what they do. Exactly. You can absolutely make money in real estate and people do every single day. It’s just it again, it’s its own, it’s its own profession. It’s its own profession.

Ryan Isaac:
No, no, of course you can.  Well, it’s like the world’s oldest asset class that have made the most millionaires ever in history. So, of course, like, yeah. What was I about to say?

Ryan Isaac:
It’s not what you think. Yeah, uh-huh. Yeah, I like that. I like your line of questions. So the questions Matt asked are what I would ask. And just the typical habits of what dentists do with their buildings when they’re done working. So, okay.

Matt Mulcock:
So I guess to respond to wrap this up on this last question, I think it sounds like it could make sense for sure. It could absolutely make sense to do that to sell your building, to cash out the liquidity, pay off some debt, sounds like clean up a balance sheet. Again, I want to know more about what it’s doing to your cash flow after the transaction, what’s the tax situation and what are the alternatives of what you’re going to invest in. Again, there’s a huge difference of this person saying, I’m going to go –

Ryan Isaac:
Yeah.

Matt Mulcock:
throw down on crypto and meme stocks and see if I can hit a home run versus I’m going to take this, I’m going to clean up the balance sheet and with the extras, I’m going to go build out a diversified portfolio in stocks to like even out the balance sheet. I’d be like, awesome, that sounds good.

Ryan Isaac:
Yeah. Man, now that you’re saying that, here’s what I’m thinking too. This person is later career. And if this is maybe a little bit of a stress reaction to illiquidity, like I just got to sell something, I’ll sell my building, because that’s a huge chunk of liquidity I can get. Here’s the thing though, if they’re later career and they’re trying to put money into a diversified portfolio, but they don’t have enough time to let it do its thing, it might be better off to hold the building

Matt Mulcock:
Yes.

Ryan Isaac:
And receive an $8,000 check once it’s paid off into retirement, then because you just simply won’t have enough time for that chunk of money to compound in a portfolio. Man, that’s a really good thing you made me think about. So, okay.

Matt Mulcock:
Of the compounding. Yep. Great point. I mean, if rates come down this year, you know, there’s ways to get equity out of that building that are more tax efficient, by the way, that you wouldn’t have to sell it. So that might be something to consider too.

Ryan Isaac:
Yeah, good questions. I’m sorry, great questions and fantastic responses, Matt. Thank you for all of that.

Matt Mulcock:
Yeah, the responses were adequate, I feel like. They were responses.

Ryan Isaac:
They were responses. Go to denisadvisors.com slash group. Join the soon to be Dennis Advisors Discussion Group on Facebook. Formally known as the Dennis Money Facebook Group. Formally known, formally known as the Dennis Advisors Discussion Group on Facebook. We’re full circle. Matt, thank you. Thanks everyone for tuning in. Dennisadvisors.com, if you have any questions for us, we’re happy to chat with you. Have a great weekend, Matt. Thanks everybody. Bye bye.

Matt Mulcock:
And then watch now we won’t change it back. I’m just teasing it.

Ryan Isaac:
Only known as the dentist. And now back to the dentist advisor’s Facebook group. Yep.

Matt Mulcock:
Thank you, Ryan, you too.

Debt & Financing, Liquidity