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Dolphins Who Get High on Puffer Fish Venom, a Real Estate Podcast – Episode 239


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For you, real estate might seem like a mind-altering high. Or is it more like deadly venom? 

Because it’s quite possibly the most emotional asset one can own, a discussion on real estate seems to always draw a crowd. So gather round this episode of the Dentist Money™ Show and hear what Reese and Ryan have to say about the pros and cons of residential, rental, and office space real estate

Real estate investments work for some people, but they’re a hassle for others. Reese and Ryan offer their advice on what type of person can make a real estate deal work in their favor—and who should probably steer clear.


 

 

Podcast Transcript

Ryan Isaac:
Hey, Dentist Money Show listeners, thanks for joining us today on another episode. Today Reese and I are talking about how dolphins get high on puffer fish venom and what this has to do with your decisions about buying real estate. Thanks for tuning in today. If you have any questions, go to dentistadvisors.com, click on the book free consultation button and schedule a chat with one of our friendly advisors today. Thanks for joining us. Thanks for tuning in. We really appreciate and love the support. Enjoy the show.

Announcer:
Consult an advisor or conduct your own due diligence when making financial decisions. General principles discussed during this program do not constitute personal advice. This program is furnished by Dentist Advisors, a registered investment advisor. This is Dentist Money. Now, here’s your host, Reese Harper.

Reese Harper:
Welcome to the Dentist Money Show where we help dentists make smart financial decisions. I’m your host, Reese Harper, here with my trusty old cohost, Sir Ryan Issac, the man in the desert.

Ryan Isaac:
The man in the desert with the name that I didn’t pick that has stuck.

Reese Harper:
Everyone loves you. I was telling you earlier, I was on the phone with somebody today and they were like, “I love you guys’ website. Man, I get so much good information on there. I’m always consuming, I’ve got videos and e-guides. And Sir Ryan Issac is always on his game. And Sir Ryan Issac has always got a good angle on everything. Sir Ryan Issac tells the right stories.” I’m like, do you ever call him Ryan?” No.

Ryan Isaac:
It’s just Sir.

Reese Harper:
That’s not his name.

Ryan Isaac:
It’s all right. Well I appreciate it. We appreciate it. And that’s a great plug for the website. There is great content by me and other people.

Reese Harper:
Yeah, last night you literally put on a great show last night about real estate on the website for everyone.

Ryan Isaac:
Yeah, it was cool. We’re going to get into that today again, actually.

Reese Harper:
Really?

Ryan Isaac:
Podcast style. Yeah, but yeah, that’s a great plug, dentistadvisers.com under the events section and actually under the education library there’s a webinar section. Once a month, we hold a webinar on the element or the topic that we’re focusing on for clients and we take a deep dive into it and pretty cool.

Reese Harper:
People love it. It’s true.

Ryan Isaac:
Real estate is a hot topic.

Reese Harper:
Hot.

Ryan Isaac:
I’m going to start with a story. Start with a story about one of my favorite places in the world, which is the ocean, as you know, I’m an ocean person.

Reese Harper:
You more of a Pacific guy though, not in Atlantic Ocean kind of guy.

Ryan Isaac:
It’s got to be a warm ocean. It’s got to be a warm ocean. And even then I still might have a wetsuit.

Reese Harper:
Just wanted to clarify that.

Ryan Isaac:
Let’s be clear.

Reese Harper:
Multiple oceans that would not work for you.

Ryan Isaac:
Most of them probably. Yeah, very small parts of the ocean that do work for my temperature.

Reese Harper:
We’re not talking a deep sea fishermen kind of guy here. That’s looking to get out with his pole and catch the old blue Marlin.

Ryan Isaac:
Maybe chest deep in 80 degree weather and sunshine outside and white beach. That’s what I’m looking for. Parts of Florida, some parts of California and Hawaii. Anyway.

Reese Harper:
I just maybe think that there’s a huge show that I thought of you watching about the ocean. It’s called Wicked Tuna. You already heard about it.

Ryan Isaac:
No.

Reese Harper:
It’s about really, it’s super popular.

Ryan Isaac:
Wicked Tuna?

Reese Harper:
I can’t believe how popular it is. Yeah. And it’s people are tuna fishing and they’re these dangerous tuna fishermen that like are putting their lives at risk all the time to catch the fifty whatever.

Ryan Isaac:
Like deadliest catch, but it’s Wicked Tuna.

Reese Harper:
Yes, but it’s Wicked Tuna. It’s like all over Disney Plus.

Ryan Isaac:
Really?

Reese Harper:
My kids are always turned on. I’m like, what are you watching here?

Ryan Isaac:
I think I can get with that.

Reese Harper:
Anyway, that’s a good little segue into the top one.

Ryan Isaac:
Well, it is actually because I have a story I’ve been wanting to tell this story for so long because I think it’s awesome. And it relates to real estate and how we’re going to talk about real estate today, but it’s about pufferfish. Do you know what I’m talking about? The pufferfish.

Reese Harper:
Oh yeah,, I actually, you wouldn’t know, but I actually do have a pufferfish from 2000, no 1996.

Ryan Isaac:
What do you mean you have it.

Reese Harper:
That I bought in the Fijian Islands.

Ryan Isaac:
It’s alive in your tank?

Reese Harper:
No, they blow them up.

Ryan Isaac:
Sell them.

Reese Harper:
No, they make them, what do you call it? When a person takes an animal?

Ryan Isaac:
It’s like taxidermy?

Reese Harper:
Taxidermy fish. Yeah. It’s this big, it’s like a fish. I thought it was so cool and I bought it and I put it in this box.

Ryan Isaac:
Just been storing it forever.

Reese Harper:
In the box.

Ryan Isaac:
The pufferfish, what their defense mechanism, what they do to defend themselves is they release a toxin when they puff out that impairs their attacker. And if it’s a small enough fish or other sea creature, seafaring creature, it’ll kill it. But a lot of times it kind of just paralyzes it. It’s this toxin, that’s what a pufferfish does. But in dolphins it doesn’t work the same way. In dolphins that actually gets them high. And so there’s this, this went around on Twitter a while ago. There’s this video. It was the first time that it ever got captured, dolphins passing around a puffer fish to each other and getting high on the pufferfish And then just like enjoying their day in the ocean high on pufferfish drugs. High on puffer fish.

Reese Harper:
Interesting, this is a really interesting story.

Ryan Isaac:
I love, this story was hilarious to me. And there’s this guy who tweeted it out.

Reese Harper:
How do you know a dolphin is happy? Because to me, I generally see a dolphin as a happy creature. They jump out of the water and that’s when you know they’re happy?

Ryan Isaac:
Yeah. They surf, I don’t know. I think they smile. I think they smile a little bit. Their little lips curl up on the edges.

Reese Harper:
I was hooked on the story until I thought, how do I objectively measure the happiness of a dolphin?

Ryan Isaac:
No, you’ve got to stop there. You just got to.

Reese Harper:
Let it go? Let it be Twitter. It lives on Twitter. Don’t analyze it, bro.

Ryan Isaac:
No. It was a video from the Smithsonian and they said, “Check out these dolphins, passing around a pufferfish. It’s making them high and they’re really stoked right now. They’re really happy.” I’ve been waiting for a topic that is kind of like a pufferfish. To some people, this topic can be toxic. It can be a problem. It can trip them up or cause issues. It can be just, it can be a problem for them. And then for other people it’s pretty awesome. For some people they’re the dolphin and other people they’re the little fish and and the pufferfish is this thing. And so I was last night, we did our webinar on real estate and real estate is such a hot, it’s just a hot item. It’s hot off the press every time.

Ryan Isaac:
It’s the most emotional thing you can put money into. Maybe a business. But I swear real estate just trumps that. It’s the most emotional asset you can buy. And it’s just a really hot button item for people to talk about. Some people really, they struggle with it. They get in over their heads. We were just talking about housing costs and dream houses and people do dream buildings. Last night’s podcast, we really focused on this. We had almost a 100 people. Or the webinar, a 100 people there, really great Q and A talking about some of the myths around real estate. We’re going to get in that today. How to determine what’s the right amount a dentist should have on their balance sheet. What really works. And then just some anecdotal things that we’ve seen in a few categories, like things people dealt with their buildings or their primary residence or the whole idea of passive income around real estate.

Ryan Isaac:
We’re going to talk about that today, but I’ve been waiting for something to tell my pufferfish story. Even if it doesn’t.

Reese Harper:
I like it. No, I do like it.

Ryan Isaac:
Real estate feels like a pufferfish. Sometimes it stuns people and sometimes just makes them super happy. And it seems to be polarizing. Any comments.

Reese Harper:
It is.

Ryan Isaac:
You like that?

Reese Harper:
I like that.

Ryan Isaac:
Is it decent.

Reese Harper:
That’s a good segue. I agree with that philosophically now.

Ryan Isaac:
Well, let’s pause here.

Reese Harper:
My argument had nothing to do with your argument. I was just analyzing how would you objectively measure?

Ryan Isaac:
The happiness of a dolphin.

Reese Harper:
When a dolphin gets high.

Ryan Isaac:
We’ll cover that in another episode. We’ll bring in scientists.

Reese Harper:
It spins like a tornado. A tornado torpedo through the water and then it doesn’t smile.

Ryan Isaac:
It doesn’t smile.

Reese Harper:
I can see that someone’s seen it.

Ryan Isaac:
Yeah. They don’t high five their little fins together. That’s how you know. We’ll find someone. We’ll find an expert. Let’s take a break and we’ll come back and the first thing I want to hit is some of the, maybe the myths around real estate that we hear. We’ll hit that right when we come back.

Ryan Isaac:
We know there are listeners who want to know what Dentist Advisers can do for them, but they’re a little reluctant to reach out. Stop hesitating. Let’s just chat. Our consultations are completely free. You can just call 833 DDS-PLAN or go to dentistadvisers.com and click book free consultation. We’ll see you soon.

Ryan Isaac:
Before we dive into what’s the right amount? How does it look on someone’s balance sheet for a typical dentist? I kind of just want to maybe clear the air a little bit about this idea that there’s the right way to grow your wealth. Or there’s the right thing to invest in. And for example, Matt and I were talking about this, you’ve probably heard this before, someone will start a text or a call or a conversation with you. And they’ll say, “Reese, as you know, every wealthy American has built their wealth in real estate.” Or, “Reese, as you know, real estate is the fastest way to build your wealth.”

Reese Harper:
And what you mean by that is I think what I’m understanding from you sir, is you’re saying they think I agree with them already. And so they’re saying, kind of you know this.

Ryan Isaac:
We’re on the same page. When people start doing that, I’m like, “Oh, tell me more about that because I actually feel a little bit differently.” And then it’s just like, whoa. Then I feel like the conversation can open up. But anyway.

Reese Harper:
How do you approach that when people do that?

Ryan Isaac:
Well, I was going to throw out one other thing on the opposite side. Sometimes you’ll hear, “Hey Reese, I know you’re anti real estate. I know you guys are anti real estate.” Or, “I know you guys don’t love real estate investing, but I got a question or I kind of want to do something.”

Reese Harper:
And to be fair, this isn’t just about real estate. This is about every topic that we talk to about people. It’s, I know you don’t think this, or I know you think that. I just wonder why that happens so much.

Ryan Isaac:
Exactly.

Reese Harper:
I would just love people to say, “What do you think about this?” Or, “Hey, I heard this, what do you think about it?” As opposed to, I know you already think this I just.

Ryan Isaac:
It’s a conversation starter. It seems like a cordial way to bridge a gap in starting a conversation.

Reese Harper:
I’m scaring people, they’re not even going to want to talk to us now. They’re going to be, Dude, every time I don’t want to talk to these guys.

Ryan Isaac:
Ah, I’m saying it wrong. I’m not going to ask you any more questions.

Reese Harper:
Say it wrong, I’m just going to text it now.

Ryan Isaac:
Jerks, so mean. Let’s start with being that’s the case, there’s a lot of misconceptions about real estate. A lot of people love it, a lot of people don’t like it at all. Let’s just talk about that for a minute. Some misconceptions you hear from clients or assumptions that start out like that that can be harmful.

Reese Harper:
Number one misconception, you might already have these in your list. This is mine. I’ll say one. Then you say one.

Ryan Isaac:
Okay.

Reese Harper:
Here he goes. First one is, real estate is the best investment ever. That is usually told to me as an assumption, no investment is better than real estate. And that is something that is not true objectively. If by best you mean the funnest? Then yes. The most fun? Yeah. Real estate is the most fun investment because.

Ryan Isaac:
It’s tangible.

Reese Harper:
In many cases, It’s not an investment and it’s more like a toy. That’s why it’s so fun. Your house isn’t an investment it’s for many of you, we all have the, I happen to live in finally in my toy house now. But I haven’t always lived in a toy house. Sometimes I’ve been living in house that felt more like an old station wagon from the seventies.

Ryan Isaac:
That nobody would choose in their right mind.

Reese Harper:
But the house it’s not an investment in many cases. Your primary residence is not, it’s more like something that you save up for and are excited about and stoked for because it’s the place you get a pool. Ryan has a pool. He likes his pool. It’s a toy. It’s not an investment. Your pool is not an investment, dude.

Ryan Isaac:
No it is not.

Reese Harper:
Your pool is a toy and I don’t have a pool and I want a pool. I can’t justify that pool as an investment though in my house. That’s just another toy. And so primary residences are tricky because we need them. And I love toys and I think toys are what we should buy with some of our money. And I love that that’s part of why I save up for a Onewheel so I can ride around my neighborhood in style.

Ryan Isaac:
Yes, float life.

Reese Harper:
Or a mountain bike. Similar to that, a house. The bricks and the wood and the roof and the furniture, it just all goes down in value over time. The land that you bought kind of goes up in value over time, but physical property, it is a depreciating asset. The land is not, but the real estate always is. And there’s a reason they only give you a 30 year mortgage because after about 30 years, you may as well tear that thing down, unless you’ve really remodeled it. And remodeling usually for those of you who have done it after 30 years, you know that 30 to 40 years later, there isn’t much you can keep even. The drywall’s nasty. I think it’s just important for people to actually realize that the house and the structure is not the best investment, but land over time does have a surprisingly resilient appreciation rate. And depending on the market that you’re in, it could range anywhere from 3% and higher. This is not a 10% a year appreciation thing. And especially not the physical structure. I just, that’s a long story, but thank you for indulging me.

Ryan Isaac:
No, it’s good. Let’s just stay on that subject. I was going to hit this a little later, but this is perfect. I guess two things, when you say one of the myths is that real estate is the best investment, people are often just talking mathematically, numbers. That’s the assumption, mathematically it’s the best investment and historically that’s not true. Just the appreciation on real estate is not. That’s not the truth. Out of all investments in history, or let’s say there’s three different investment asset classes. You could do a private business like your practice, you could invest in public markets like stocks or buy real estate. And out of all of those, mathematically that’s not the best investment mathematically.

Reese Harper:
Yeah. Since 1940, probably that’s the time when maybe we are actually starting to track median home values with any kind of accuracy, there wasn’t most people still living in tents prior to that. Just kidding.

Ryan Isaac:
In 1939 we were in tents.

Reese Harper:
This is like, most people were not, this is not, we didn’t have a lot of good data at this point. Most stock market data goes back to 1926. Most housing data goes back to 1940 accurately. If you look at the stock market, you’re going to see a rate of return that ranges somewhere between nine and 10% a year. Real estate prices meanwhile, they tend to outpace inflation, but not very much. Since 1940, the median home value in the US has gone up by a little over 5%, depending on the date and month that you measure from. But from 1940 till, I would say last year, probably the end of the year, that’s probably where we’re at.

Reese Harper:
If you look at the stock market, like I said, nine to 10 and depending, if you adjust for home size, it gets a little bit worse the bigger the house gets. Median, it’s better to have a house that’s closer to the median. And if you compare this to stock returns, you have to say, let’s say inflation is 3%. The average house is going up one to one and a half to 2% more than.

Ryan Isaac:
Inflation.

Reese Harper:
Inflation and stocks are going up almost 7% more than inflation. That’s just data.

Ryan Isaac:
That’s the math. That’s the history. That’s the data.

Reese Harper:
But that is residential real estate.

Ryan Isaac:
And that’s appreciation. That’s not rental income returns

Reese Harper:
No. I just think it’s important to clarify. To not convolute these two things, because buying a house that you live in is more like a toy.

Ryan Isaac:
It’s funny. You hear like the best investment you’ll ever make is the house you live in is your house.

Reese Harper:
That was Millionaire Next Door when interest rates were 13%. And if you didn’t own a house, like you could never get ahead. Because times have changed slightly.

Ryan Isaac:
But mathematically.

Reese Harper:
But it’s never been like the good.

Ryan Isaac:
The S&P fund in your 401(k) at work is better than the house you live in, mathematically just from the numbers. That’s one and I think that’s a great clarification. Here’s another perspective is real estate as an investment, rental property investment, which ends up, a lot of commercial ends up being that way or residential investments. When you add revenue from rental incomes on top of that, that does increase your return. I think I was going to add, one of my misconceptions is about this concept that a lot of people do the math on the returns of rental real estate as if like it’s paid off. The returns on this are killer when the loan’s gone, but you don’t realize that you got to go a couple decades of having a mortgage on that thing where there’s not a lot of clearance in cashflow, not a lot of profit. And then the returns are really good.

Ryan Isaac:
When you have a house that is paid off and you have rental income from it, that’s a good return. Your expenses are low and your revenue’s high. But if you kind of drag that return back over the whole entire holding period during the time when you had a mortgage on it, it becomes a more average return. Good rental real estate held long enough does start to resemble a higher return than just the appreciation on it.

Reese Harper:
For sure. It wouldn’t be unusual for somebody to say I’ve made seven to 8% returns on my rental property.

Ryan Isaac:
Totally.

Reese Harper:
Over 25 years. But it still mathematically does not compete with the overall stock market in that same period of time, just period. Even with rental income, you have to, when people, like you said, maybe my point was real estate is the best investment. You’re saying you gave me the math on that. We kind of clarified objectively it’s a good investment, but it’s not the best investment. And especially if it’s your primary residence, because dude, if something’s appreciating at 4% a year, you’re spending 2% a year just to maintain that thing. I guarantee it.

Ryan Isaac:
You do guarantee it.

Reese Harper:
That is a guarantee. I don’t know, hardly anyone over a 20 year period who didn’t spend at least one and a half percent on maintenance. hat is someone who spends one and a half, I’m talking about new furniture that’s going to be wasted. I’m talking about the roof. I’m talking about the yard, the landscaping.

Ryan Isaac:
Fixing the stupid pool that broke.

Reese Harper:
The property taxes.

Ryan Isaac:
Pumps.

Reese Harper:
The pools. Most of you will spend two to two and a half percent of your appraised value on maintenance of your primary residence, not one to one and a half once we take into property taxes. If you live in California, it’s going be even way more than that because Mello-Roos tax alone is going to push you to that full point.

Ryan Isaac:
What’s that, Orange County?

Reese Harper:
And shout out to all of our friends down there who are living for that beach.

Ryan Isaac:
Shut up.

Reese Harper:
And just enjoying your life.

Ryan Isaac:
Get it.

Reese Harper:
You deserve, it’s a good life.

Ryan Isaac:
I get it.

Reese Harper:
We all wish that we could afford to live there too.

Ryan Isaac:
Every time we visit.

Reese Harper:
I’m sure there are days when you’re down there, living there going, I wish I could afford to leave, but I’m stuck.

Ryan Isaac:
It is where we’re landed.

Reese Harper:
It’s tough.

Ryan Isaac:
Just going to deal with it.

Reese Harper:
It’s where you’re landed. Anyway.

Ryan Isaac:
One more thing on the primary residence, since we’re on the subject, we talked about this last night is the purpose of equity in your primary residence, on your balance sheet, is part of your net worth and how it should or can be used in the future as part of your retirement. And there’s a lot of variables on this. Maybe we could speak to this for a minute. Nobody plans on, really plans on using their home equity as part of their retirement. It’s not a thing people want to plan on. It’s almost this thing people just assume is going to just be stuck there until they die and passed to their heirs.

Ryan Isaac:
But there’s some cases where people don’t save enough money and it’s going to be required. Or there’s cases where you just happen to live and work in a city that’s so expensive, your house is so expensive that there’s not going to be a way around having to get at your home equity one day later. It won’t be the first thing you’ll want to do. And you’ll definitely want to try to put it off as long as possible, but you want to speak to that a minute about, what’s the role of home equity in a retirement plan and someone’s balance sheet and net worth down the road?

Reese Harper:
That’s why we always talk about like the importance of trying to get your income up slightly higher than the average for your career. Sir Ryan Issac doesn’t have the student loan debt.

Ryan Isaac:
I do not.

Reese Harper:
That a normal dentist had coming out of private school.

Ryan Isaac:
I also don’t have the knowledge in my brain that a dentist also has.

Reese Harper:
But Sir Ryan Issac is the top of his field and he’s above the median income for his industry, which means he’s going to have more discretionary income and be able to be in a above average spot at retirement. But if you’re in the median income for your industry, if you’re at the 50th percentile, that’s going to be a challenge. And so the goal is to not tie up as much money in this primary residence, because until your income is higher, you need to use any discretionary money you have to try to raise your income, try to get more education, try to specialize more, try to be willing to put in the time that you need to put in like old Sir Ryan Issac here has to learn dentists. You’re really, you think about it nine to 10 years of developing a very highly specialized skill.

Reese Harper:
There isn’t a college degree to where you can go around saying, “I’m an orthodontist,” but you do get to go around saying, “No one knows more about dentists than I do. And I’m really specialized. I’ve done a lot of work.” You’ve invested a lot in your training. You’ve reinvested a lot in time. That kind of stuff is where people need to go to get their income up higher. Once their income is up higher, now you have the luxury of saying, “Well, maybe I can have a nicer house and maybe I can have the luxury of.”

Ryan Isaac:
And build a net worth around the equity that I don’t have to use it. But do you have a message for anyone that might be in a spot where for whatever the situation, maybe they just didn’t build their net worth high enough or the house just because of the city they live in was it was just too big of a piece of their net worth just naturally. Are you okay with a client getting after that late in retirement?

Reese Harper:
By getting after it, you mean borrow against it and getting money out?

Ryan Isaac:
Yeah, using their home equity later to just sustain themselves.

Reese Harper:
I’m like not, yeah, totally.

Ryan Isaac:
Because I am. I’m not that doesn’t bother me.

Reese Harper:
It’s a toy, like I said, it’s a toy. Just switch toys, get a smaller toy. Go from the Onewheel XR to the Onewheel Pint.

Ryan Isaac:
I guess, you got to be a little smaller than me to pull that off.

Reese Harper:
If you’re willing. And you need to be okay with that fact. If you have a significant amount of your wealth concentrated in a primary residence, it’s not, again this to me, having a paid off house means I pass a house along to my heirs or charity and it’s paid off. What’s the point in that? Unless I have plenty of money. If I have plenty of money than I would love to do that for my kids or my heirs or a charity. But if I’m trying to have retirement income, I want that cash.

Ryan Isaac:
I’ll take my equity back all day long.

Reese Harper:
You made a really important point a minute ago that I don’t want to lose. What you said was kind of your third main real estate point that you’ve made so far, which is Some people get money from rentals and they don’t account for the real rate of return in the rental and the real rate of return in the rental when it’s paid off is an opportunity cost on that equity. Let me give you my brutal math that I do in my own head. I have a paid off property worth $500,000. It’s paid off and I get rent from it. I make on a $500,000 property, let’s say I make 8% cap rate. I’m doing excellent. 40 grand of rent is what I get every year off this property. Now I have property management expenses, I have broken roof, I have.

Ryan Isaac:
Yeah, taxes.

Reese Harper:
Furniture.

Ryan Isaac:
HOA.

Reese Harper:
And I have, I’m not going to take taxes into account because I’ll have taxes in the other investment I’m going to recommend as well.

Ryan Isaac:
Tax neutral.

Reese Harper:
I have these expenses and I have a little bit of time and effort required. After my expenses and after my effort that I’m not going to even count, effort we’re not going to count. We’re just going to count expenses. I’m probably going to still net 6% or more. The challenge with that is I have all of this equity sitting there. I have $500,000 sitting there and there’s an opportunity cost on that 500,000. What’s my opportunity cost?

Ryan Isaac:
The difference in what you could. Yeah.

Reese Harper:
If the S&P 500 in the US stock market pays me between 10 and 10.1% on average, over since 1926. Let’s just say it’s nine. Let’s say it’s eight. Let’s say it’s the same. Why do I want to tie up money in something that requires my time? And why do I want to tie up money in something that requires I have to like actually write checks for it.

Ryan Isaac:
To maintain it.

Reese Harper:
Either out of the rent that I get or out of my other portfolio to maintain it. Now here’s why I would want to do that.

Ryan Isaac:
Yeah. I was going to say, what’s the counter? What would people, what would someone say?

Reese Harper:
Why I would want to do that and this is why a lot of people do it is because.

Ryan Isaac:
It’s the most fun investment you already see this.

Reese Harper:
Well, okay there’s two reasons. One, it is very understandable. It makes sense to me. And it is a consistent amount of income. It’s a fixed income. It’s a predictable income source. The stock market is an appreciating thing. It just goes up and it only pays two or 3% rent. And so it doesn’t pay 8% rent. You don’t get cash as quickly. You end up having to wait.

Ryan Isaac:
And you wait and sell a piece. And sell little pieces of it.

Reese Harper:
Me, I don’t mind that because it’s more tax efficient. Again, as the stock market appreciates, I only have to pay capital gains tax when I sell things. If I get rental income, I have to pay ordinary income tax on something. The reason people like it is it’s more predictable. It’s more of an income stream. That’s why they like dividend paying stocks too. As people age, they like dividends. They like to know. They like CDs, they like bonds, they like things to give them fixed amounts of income. They don’t want the volatility and the risk of the stock market. The stock market generally has slightly more volatility than real estate. Meaning it will go up and down more on average, it changes price daily and tells you about it. And so it’s quite scary to watch the price of it move.

Ryan Isaac:
Tells you about it. That’s the problem.

Reese Harper:
Yeah. And you and me made a joke before on the podcast where you say, if your house, when you came home, had a price on the front door, in red or green numbers and if it went down that day, it went red and showed you, this went down $5,000 and it went up 9,000. That’s the stock market’s moving up and down faster, but the house is moving up and down in a very similar way. It just isn’t telling you about it. People like it because it’s more predictable.

Reese Harper:
The second reason people like it and in many cases, this is the main reason that I would say it still could make sense, is with Airbnb and VRBO and the way that rentals are changing, you can own a house that you wanted anyway, that was a toy in a place that you wanted to go and have fun in and you could still rent it out and it can help offset some of the costs so it’s not quite as expensive of a toy. But don’t confuse that with an investment, which is different.

Ryan Isaac:
Sometime the toy kicks off a little money.

Reese Harper:
People say, “You’re not a big fan of real estate.” I’m saying, I’m not anti real estate. I’ve owned a commercial building in my life. I’ve owned residential rental property. I’ve owned a primary residence. I’ve rented a house and I now own a small cabin up in the middle of nowhere that has rats in it that I’m remodeling. It’s that bad.

Ryan Isaac:
You got the station wagon of cabins.

Reese Harper:
Yeah. And I don’t own it all by myself because even the rat infested cabin.

Ryan Isaac:
Share the cost.

Reese Harper:
I can barely get myself to buy that toy. But I don’t like a lot of the real estate experiences I’ve had because they take my time, they cost a lot. In order for me to make a return on them, I have to put labor and effort and I have to get scale. Meaning I have to get a lot of them. The people that do real estate well, they do lots of property. The people that don’t do it well, they have one commercial property or a couple of rentals. You just don’t get scale. Meaning, it’d be like a dentist that starts a practice and he has one part time hygienist that is working 10 hours a week. It’s not big enough yet to have been worth all the student loan debt that you took out and the practice acquisition debt.

Ryan Isaac:
And it’s not going to kick off enough to replace income.

Reese Harper:
Combi debt. It’s not enough scale. You just aren’t big enough yet. And so the cost of your time gets better and the cost of your property management and maintenance and the kind of overhead of managing real estate, it gets better the more property you get. But it’s just more conservative. It’s not a better return. It’s just more conservative. It’s more predictable. And it’s more like a small business. The money in real estate, you always make on the buy. You make it when you buy it, you don’t make it over time.

Ryan Isaac:
In appreciation, you mean?

Reese Harper:
That is the advantage. In the stock market, it’s hard to know to buy a stock that’s a good deal or not. It’s just difficult because there’s everyone has all the information available every day and everyone has all that data. Brings us to our final point on how do you really make money in real estate? You only make it when you buy it. That’s it. And you make it when you sell it. If you buy a piece of property for someone that’s in a bind, who’s you’re taking advantage of and they know it, then you really can make a lot of money.

Ryan Isaac:
It’s true. Small market.

Reese Harper:
Because the person selling is like, “You know what? I’m in a pinch. I’m going to give you this.” And they might even be wrong. They might be giving you it at a steal, but the market’s about to crash anyway. This is like someone giving you a piece of property on February 10th of this year, right before COVID really caused the market to decline. And you’re like, this is a deal. And then the market declines and you realize it wasn’t quite as good of a deal, but at least it was still a better deal then it was.

Ryan Isaac:
Then it was. Yeah.

Reese Harper:
And you make your money right then. That’s when you make it. You don’t make it over time. If you turn around and flip it, right then you make the money. It’s this active involvement in shopping and finding and looking and perusing. People that do well in real estate, the MLS is on their phone 24/7, they’ve got five agents running for them. They love everything about this. This is their business. This becomes their interest.

Ryan Isaac:
And talk about that. I think that’s a good point.

Reese Harper:
You can make good money in that because on the buy side, the acquisition of the right property in the right location at the right price, that’s where you make the money. That’s where the money over time comes from. It’s not the annual appreciation and it’s not the fair market rent. It’s the transaction upfront. And if you’re willing to spend hundreds of hours, thousands of hours doing that, you can make a lot of money doing that, but not as a hobbyist, not as buying a fair deal and getting fair rent and fair appreciation. That’s just not better than putting your money in the dental practice and going whole hog after it.

Ryan Isaac:
Whole hog, you heard it here first.

Reese Harper:
I’m not trying to discourage people from owning real estate here. But I am saying don’t be confused about how to make money in real estate.

Ryan Isaac:
Okay. And I think that’s such a good point to wrap that around is, it’s like when people ask, what’s the right way to have a dental practice? Is it one location or is it a DSO? And it’s not really about the right way to do it. It’s about, well, what do you even, what’s going to hold your attention? What can you commit to for the next 20 years? What pain are you willing to deal with? Because those are different pains. Those are different costs. And it’s like, yeah, people they build tremendous wealth in real estate, but they don’t do it accidentally. They don’t do it part time. They don’t do it on the side. And it’s not a tiptoe thing. It’s not done by one rental or a building, it’s done through a pretty intentional career of being active in real estate from someone who loves it. They just prefer that. And you and I both know dentists who prefer it over dentistry, but you have to, it’s got to be treated like a business to turn out like a good stream of income, like a business.

Ryan Isaac:
The last thing I want to touch on really quick is kind of your thoughts on the building as an investment or how do you feel about a dentist buying the building they work in? We’ll just start with that question.

Reese Harper:
If I think location should trump everything. If you can lease in a better location, you’re going to make more money through the increased new traffic flow.

Ryan Isaac:
Business.

Reese Harper:
In new patients. If buying the building means you collect 1.1 and leasing means you’re at 1.8 and you’re just talking about a sole practice here, one producer, maybe a part time associate and that’s your kind of objective. I would definitely say I would lease because I’m in a clear hundreds of thousands of dollars and more net income. And I don’t care about my real estate equity in what, over a 10 year or sorry, over a 25 year career, the average dentist is going to, like I said, earn anywhere from five to 10 million plus dollars. A specialist could earn pushing 20 million plus, depending on how big and how effective and how integrated you become into your commitment around your practice. The building equity is just not a big enough percentage of all of that equation to really determine my location. I wouldn’t determine my location, but all things being equal, of course I would own over leasing. Definitely own.

Ryan Isaac:
If it’s a good space, good location, good parking, it’s a good deal. You’re going to be there for a while anyway.

Reese Harper:
It’s like lower overhead. It’s not an investment. It’s just a way to cut my rent. It’s just a way to have cheaper cars.

Ryan Isaac:
Recoup your costs one day when you sell it. Recoup some of your costs.

Reese Harper:
It’s great. I just wanted to clarify that’s how I would view it. I wouldn’t let it trump location.

Ryan Isaac:
Yeah. I would say the same thing. As a matter of convenience and it’s a good deal, you’ll be there for a long time, that’s fine. But practice, the viability of the practice growth and scale should be the primary driver of the building you own for sure.

Reese Harper:
Best money in real estate that you ever get is the money that comes from rent when you don’t have any carrying costs anymore. And it’s at the latter stage of your ownership in a piece of property. If you didn’t buy it, which is the best way to make money in real estate and you’re just holding it and kind of operating in it then, if you can think about this kind of a crazy example, but if you could get someone to give you money as the building was kind of deteriorating in termite infested swamp waters and you could still get someone to hand you a rental check, that is the best ROI you’re ever going to get.

Ryan Isaac:
Mathematically.

Reese Harper:
Because the thing’s worthless, but someone’s still paying you rent for it.

Ryan Isaac:
Man, I love that. Okay, we’ll end that. Thank goodness for toys. Thank goodness for everyone joining us and listening to the toy real estate pufferfish dolphin high episode. We really appreciate it. If you have any questions for us, couple ways you can get in touch and get some answers to your questions. One easy way is to go to dentistadvisor.com and book a consultation with one of our very kind and professional and knowledgeable dental specific advisers. Do that on the website or hit up the Facebook group, Dental Advisors Facebook group, Dentist Advisors Facebook group. You can find it at dentistadvisors.com/group. Post a question, we’ll go in there and answer. There’s lots of smart, nice people that will do the same. Thanks for joining us. Appreciate you for being here and supporting us and we’ll catch you next time.

Reese Harper:
Carry on.

Real Estate

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