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When it Makes Sense to Buy Your Practice Location – Episode 278


When it Makes Sense to Buy Your Practice Location

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Owning your practice location is a good investment only if it helps maximize your business.

On this episode of the Dentist Money™ Show, Ryan and Matt look into one of the biggest financial decisions you’ll make in your career: should you own your practice location?

It’s not easy to make the distinction between your practice and the office that houses it, but this is a business decision first and foremost. Ryan and Matt review the reasons why you should study your options carefully—there are times ownership is the right choice and other times it may be a costly blunder.

 


 

Podcast Transcript

Ryan Isaac:
Hey, everybody. Welcome to another episode of The Dentist Money Show sponsored by Dentist Advisors, a no commission, fiduciary comprehensive financial advisor just for dentists all over the country. Check us out, dentistadvisors.com. Today, Matt and I talk about one of the most major and consequential and sometimes difficult financial decisions a dentist will ever make in their entire career, which is buying the building you practice in. Huge decision, huge consequences. Great discussion today. Thanks for tuning in. If you have any questions for us, go to dentistadvisors.com. Click the book free consultation button and have a chat with one of our friendly dental specific advisors today. Don’t wait, don’t delay. Do it now. We’d love to hear from you. Thanks for tuning in. 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, Ryan Isaac.

Ryan Isaac:
Welcome to The dentist Money Show where we help dentists make smart financial decisions and avoid the bad ones along the way as well. I’m your host, Ryan Isaac, here with the guy, the myth, the legend, all of the things that you know is Matt, the Hollywood mountain bullcock, the longest i [crosstalk 00:01:22]-

Matt Mulcock:
The myth?

Ryan Isaac:
Yeah. You’re [inaudible 00:01:22] myth. What’s up, dude? How you doing?

Matt Mulcock:
Hey, how are you, Ryan? I got to say I’m a little bummed right now.

Ryan Isaac:
Why?

Matt Mulcock:
I was down in your … as you know, I was a little down in your neck of the woods, as they say.

Ryan Isaac:
Yes. As they do. They do say that.

Matt Mulcock:
The weather was incredible. It was perfect weather. And I got back this week and I-

Ryan Isaac:
And you were sad.

Matt Mulcock:
Today … walk out. I mean, I was sad. I was closer to you physically, first of all. And the weather was perfect. And then today in Utah, it is just dumping snow.

Ryan Isaac:
Oh, it is?

Matt Mulcock:
Yes.

Ryan Isaac:
But as a skier, you’re not sad if that was the case?

Matt Mulcock:
Yeah, no, I am a skier and I’d love to ski, but …

Ryan Isaac:
It’s still a love, hate-

Matt Mulcock:
… I haven’t been skiing much.

Ryan Isaac:
It’s tough.

Matt Mulcock:
It’s tough. It’s tough to live in it. Especially in March. It’s just like I’m done with it. I’m ready to go to spring.

Ryan Isaac:
Yeah, it’s over. I feel for my skiers because I’m not … I mean, full disclosure … this probably doesn’t need a disclosure. It’s like me saying, hey, full disclosure, I’m not a golfer. That doesn’t need to be said. Like I’m bad at top golf. But I’m not a skier. I’ve been. But I feel for my skiers because you just long for huge dumps of snow, but then you have to live with it. They’re like, “Oh, it’s cold and a shovel and the roads are icy and it’s gray and it’s gloomy.” And I’m like, “Oh, there was wet and cold and … ” And then –

Matt Mulcock:
Not to mention, it’s been crazy this year at the resorts. We don’t need to go into it, but I will. I’ll start a rant on this.

Ryan Isaac:
Do it. Get mad. I need your emotions for this one. We’re talking about real estate today.

Matt Mulcock:
I’m going to get pumped. I’m getting jacked up on this one.

Ryan Isaac:
So we need emotions. Okay. All right.

Matt Mulcock:
The level of crowds right now in Utah with skiing is just-

Ryan Isaac:
Bonkers?

Matt Mulcock:
… out of control. We’re basically doing our best efforts to be … our best impression of Colorado-

Ryan Isaac:
Crazy.

Matt Mulcock:
… where it takes two hours to get to the resort and two hours to get back because the resort is just so busy.

Ryan Isaac:
But you live 15 minutes away?

Matt Mulcock:
But it literally … I live … with no traffic, I live 20 minutes from … 20, 25 minutes tops from my door to the chair to like six resorts.

Ryan Isaac:
Which is killer for mountain biking in the summer when it’s not crowded.

Matt Mulcock:
Amazing for that. Exactly. Yeah. But with traffic and everything that’s going on with the crowds, it’s … no, you got to get up at like 6:30.

Ryan Isaac:
It’s tough.

Matt Mulcock:
Like tomorrow … it dumped snow today so tomorrow morning you got to get up at like 6:30 to get up there.

Ryan Isaac:
To get up there. And now that you’re passionate and you’re pumped, you’re a little pissed, you’re a little mad.

Matt Mulcock:
I’m feeling like my blood’s boiling right now.

Ryan Isaac:
Good. This is what we need. Because today’s topic is real estate and there’s nothing except for Bitcoin that gets people pumped like real estate.

Matt Mulcock:
Are they equivalent? Real estate and Bitcoin?

Ryan Isaac:
No, but I’m saying the amount of people we can offend with an off handed Bitcoin comment will be similar to the amount of people you can offend by saying something about real estate that might not be favorable.

Matt Mulcock:
Its so true. You even bring up Bitcoin, people like perk up, like, what are you going to say?

Ryan Isaac:
Like, wait, are we going to fight?

Matt Mulcock:
Are we going to fight about this?

Ryan Isaac:
It’s almost the new politics.

Matt Mulcock:
That’s so true.

Ryan Isaac:
Bitcoin is almost the new politics. It’s very edgy, very on edge.

Matt Mulcock:
It is so true.

Ryan Isaac:
Things are running very hot right now.

Matt Mulcock:
Very hot.

Ryan Isaac:
Here’s the situation today. And it is probably one of the biggest financial decisions a dentist will ever make in their career ever. And it can go, well, it can go medium, or it can go really bad.

Matt Mulcock:
Poorly.

Ryan Isaac:
Very poorly. And I’m always reminded … I think sometimes we get a little conditioned and kind of used to the stuff we deal with on a daily basis as advisors. It’s kind of like a dentist. Like if I see a bloody mouth, I might pass out. It’s probably a 79% chance of passing out for me. But a dentist sees a bloody mouth, they’re just like, yeah, that’s like 40 of those a day. We hear questions, big, giant decisions. We watch dentists spend money and do all kinds of things with their money every day. And so I think we get a little bit like … you just don’t notice it as much. You get a little callous.

Matt Mulcock:
You get a little immune to it.

Ryan Isaac:
A little numb.

Matt Mulcock:
Yeah.

Ryan Isaac:
And I’m reminded sometimes, especially when I talk to people who aren’t my clients, like people who are calling us for the first time or they’re just some friends or someone on social media asking a question. And that’s usually when it takes me, when someone tells me about a really big, giant real estate decision or transaction they’ve made in relation to the business, like the building you practice in. And then I’m kind of taken back and reminded about how big of a decision it is, number one. And number two, how easy it is to get that wrong for a handful of reasons. And then the consequences of it have really bled people out financially in some cases. So that’s what we’re going to talk about today. And I guess the main question we’re going to start with is how do you make a real estate decision for your practice?

Ryan Isaac:
That’s the big question first of all. So here’s what I’m going to lead off with, let’s start with number one. What is the reason … I mean, it’s like the answer seems obvious, but really what is the reason your practice needs space? What are the reasons? And so this is not a rhetorical question. Let’s discuss this, Matt. And if you’re at home-

Matt Mulcock:
Let’s actually give an answer.

Ryan Isaac:
Let’s give an answer. If you’re listening to this, think of it in your head. Like what are the actual, practical reasons you need space for? So Matt, we’ll just kind of go back and forth here. Obviously I’m going to say number one is you need a certain amount of chairs for people to sit in so you can do [dentally 00:06:31] things on their mouth and their gums.

Matt Mulcock:
You’d need a place for patients to come to work on.

Ryan Isaac:
You need places to sit, you need chairs, you need a waiting room. You need maybe some consult rooms. Maybe you need a break room, an office room. I mean, you need physical space to accommodate people. But the deeper question in there though is, what is your career capacity you’re trying to get at? That’s probably the between the lines question. Like you need space to physically handle people because you’re in the business of having people physically show up to your business. But do you know your career well enough? Do you know your trajectory well enough? Do you know where you’re headed to say like I’m a four chair doc for life or I’m a six chair, I’m an eight chair? There’s a possibility I might be a 20 chair doc. I don’t know.

Ryan Isaac:
So number one in my mind is like the reason you need space is because you have to accommodate somehow like what is the vision you’re trying to implement for your practice? That’s the one thing that comes to my mind. But what are some reasons for you, Matt? Like what do we need space for?

Matt Mulcock:
Yeah. Well, I have to hit this point before I forget because you were just saying the changing of a career trajectory and you have no idea, right? I think of the Michelle Jorgensen interview you just did, which was fantastic, by the way.

Ryan Isaac:
Oh, gracias. It was all her.

Matt Mulcock:
But she said something … what?

Ryan Isaac:
It was all her. Yeah, it was all her.

Matt Mulcock:
Yeah, no, I mean, she … it was a great interview. She was so insightful. I mean, your questions were so insightful as well.

Ryan Isaac:
Spot on.

Matt Mulcock:
Just, yeah, spot on.

Ryan Isaac:
Spot on.

Matt Mulcock:
But no, so she alluded to that and I thought that was a key point that you just made that she talked about. Like think about her career that she talked about and the different directions it took that she had no clue what it would have turned into when she first started. Like how would she have ever known that 10 or 12 years in, she was going to get mercury poisoning and completely change the trajectory of her career and what was happening and you know where she is today? And I think she said something along those lines, like what made me happy back then doesn’t make me happy anymore type of thing. So I just wanted to hit that point-

Ryan Isaac:
Yeah, you don’t know.

Matt Mulcock:
[crosstalk 00:08:35] a good reminder of that interview you just did that she makes, like right there, like case in point, this person who’s been in it for 20 years. You just never know where your career is going to go.

Ryan Isaac:
That was episode 274 called Learn How One Dentist Found her Lucrative Niche with Dr. Michelle Jorgensen. Cool story. Yeah, a lot of those things that she talked about. But yeah, thanks for bringing up that. I think that’s really important to re-mention. We don’t know where our careers are headed. I guess the point of me asking this question, maybe it is a little rhetorical, but it’s like, I just want people to remember that the leading reason that you’re out there looking for space for your practice is because your business needs it. This isn’t about your portfolio. This isn’t about your returns. Like those are sub-categories of consequences of what’s going to happen with the real estate decisions you make. But the number one decision-maker here is because your business needs the ideal spot and everything else is secondary to that. Your desire to be a real estate investor, maybe your desire to keep up appearances with peer groups, your desire to grow a net worth, or have a certain kind of return or diversification, whatever, those are secondary to your business needs it, which means you’ve got to know a lot about your business and make that the priority as opposed to anything else.

Matt Mulcock:
Yeah, absolutely. I think you’re alluding to what I was thinking about when we started talking about this topic that we talk about all the time, is this, like you just said, this separation of your business and the real estate in which it’s housed, right?

Ryan Isaac:
Yeah.

Matt Mulcock:
Well, those are two different things. One thing I was going to say, though … this is whether you own it or whether you lease or whatever, I think the building or the place in which you practice is a … can or is … I wouldn’t say can be, is a reflection of your business and the message you’re trying to put across to your patients-

Ryan Isaac:
Yes, totally.

Matt Mulcock:
… the type of business you’re trying … or the type of practice you’re trying to run.

Ryan Isaac:
Yeah. Where it’s headed, what you want to accommodate, and all the things that go along with it, like the flow of it inside, or the capacity to grow. You might be like, well, I have no idea where my career is going. Well, keep that in mind when you’re getting a building. If you have any inkling that you might want another producer in the practice, or you might want several, just kind of keep that in mind. And so, yeah, I love, I think that’s a really great point, man. But it’s like signage, visibility, parking, marketing. Like who is it next to? Is it in the parking lot of something busy or a school or …

Matt Mulcock:
Is it a far commute?

Ryan Isaac:
Is a long commute for you to drive to?

Matt Mulcock:
Of the most underrated aspects of any career choice is the commute, in my opinion.

Ryan Isaac:
Commute. That’s actually in the top lists of job dissatisfaction. That’s always in like the top three, is commute, of job dissatisfaction. Yeah. So I think that’s where we want to lead with is your building that you’re in, it’s about your practice and it’s about your business. And what I mean by that is, your sole responsibility as a practice owner is you need to maximize and grow your practice to whatever your maximum potential is. If you’re 20 location DSO or like four ops, one doc, one location, whatever, it has to help you achieve the maximum of that vision. So produce as much as you possibly can that you want to, as part of your business goals, and be as efficient as possible, as profitable as possible. I mean, we could have you talk to people that have gone their entire careers leasing buildings, because it was the best thing for their practice and they ended up just fine. So anything else you want to say about the main reason that should drive the real estate decision in a practice?

Matt Mulcock:
Yeah, no, I mean, I think you hit it perfectly. I just … again, to reiterate the idea of separating in your mind the true … you know how people always call their businesses like their baby?

Ryan Isaac:
Yeah.

Matt Mulcock:
It’s like, “This is my baby.”

Ryan Isaac:
It’s my baby.

Matt Mulcock:
Like your baby that you’re trying to raise and grow into a upstanding citizen and a contributing member of society is your practice, right? The building is separate from that. Maybe that could be another baby if you want.

Ryan Isaac:
It could be another baby.

Matt Mulcock:
You could have multiple babies. [crosstalk 00:12:52] have a baby on the way.

Ryan Isaac:
You could have a lot of babies. Yeah, congrats to you [crosstalk 00:12:55]-

Matt Mulcock:
Shout out to my son coming soon.

Ryan Isaac:
To a theater near you.

Matt Mulcock:
But I do think that’s … yeah. I do think that’s the key point here is just … where I think what you’re alluding to, Ryan, and what we see all the time is this … people mix those two things up. And I think they take it for granted. I think they just … I just had a conversation with a client just recently or … a newer client. They were just coming on board and they were buying into a practice and it almost is always like, “Well, I’m going to buy the building too.”

Ryan Isaac:
Yeah, like it’s a given.

Matt Mulcock:
Without even asking any questions.

Ryan Isaac:
Right, Yeah. Maybe it’s just [crosstalk 00:13:27] building, buy the building.

Matt Mulcock:
Yeah. I just buy the practice and the building. It’s like, well, okay, let’s talk about that.

Ryan Isaac:
Why?

Matt Mulcock:
And last thing I’ll say on this, I want to clear the air somewhat upfront. And we’re still … we’re not like in the heart of this podcast, but I’m going to clear the air at some point and I’d rather do it now.

Ryan Isaac:
Do it.

Matt Mulcock:
We are not anti [crosstalk 00:13:43]-

Ryan Isaac:
Not anti-real estate bros.

Matt Mulcock:
We’re not anti-real estate people.

Ryan Isaac:
No. We’re not.

Matt Mulcock:
So I just wanted to say that real quick.

Ryan Isaac:
We love real estate with big hearts.

Matt Mulcock:
We’re pro thoughtful money decisions. We’re not anti-real estate.

Ryan Isaac:
We are pro good process decision-making.

Matt Mulcock:
Yes.

Ryan Isaac:
We are anti no process decision-making.

Matt Mulcock:
Yeah.

Ryan Isaac:
Right?

Matt Mulcock:
Yeah.

Ryan Isaac:
[crosstalk 00:14:05] way to put it. I like that you said that though. It’s a separate thing and that’s all we’re saying. It’s a separate thing. And so here’s … okay. So step two. Here’s what I want to talk about next is kind of just generally a little bit, some of the numbers and the math to the assumptions people are making. Because here’s the common assumption, and I don’t blame anyone for this. This makes sense to anybody. Like if I buy that building, it will be worth more in the future than what I paid for it now and that will be a good investment. Period.

Matt Mulcock:
Sure.

Ryan Isaac:
Right? That’s the statement, that’s the assumption, and real estate’s probably the oldest investment in the world. And so it just makes sense. It just feels good in our bones and it just makes sense. But what you said in the beginning, I think is the key here, just they have to be separate. And sometimes the building that you practice in happens to be the best location and the best signage and the best referral and distance and commute and the best parking-

Matt Mulcock:
Best demographics.

Ryan Isaac:
Best demographics. And the best amount of space and flow and age and condition of the building and you also are able to buy it. And that’s cool.

Matt Mulcock:
Oh, and then that little tidbit, it’s also available to purchase.

Ryan Isaac:
It’s also available and at a decent price and no one’s trying to gouge you. So sometimes those line up and that’s awesome. Here’s what I want to express to people about the math of the buildings you work in, is that if you occupy … if you’re the only tenant in the building … so let’s just set up a scenario. You’re a dentist, you buy the condo space in a strip mall, or it’s a standalone building, but either way you are the tenant. And your LLC buys it and your S Corp pays your LLC and whatever. The way that the math and returns of real estate work out … okay, when people like real estate are great returns, they’re great returns when you have a tenant in the property that has good cashflow, which usually means that the note on the property is either gone or very low in comparison to the rent coming in. That’s when the returns of real estate are great. They are. They’re good.

Ryan Isaac:
But if you are the sole tenant … so you’re 40 years old, you buy your building and you move in there and you’ve got a note on it. You’re the only tenant and you pay yourself your rent. Maybe you pay yourself a little bit more, you just kick yourself a little bit more, [crosstalk 00:16:26] take a little distribution from the real estate LLC, whatever. And we’re not talking about depreciation or like, yeah, you can write stuff off. We’re not talking about that. We’re just talking about the core math of this thing here. All right?

Ryan Isaac:
You’re 40, you buy the building. Fast forward to the future. I know what everyone says they’re going to do with real estate. Well, I’m going to sell my practice and then the building will be paid off and I’m just going to hold this and keep the rent. I know that everyone says that. And also I would say that the math supports that decision. That would be the best mathematical conclusion, for you to pay off the note while you’re the only tenant for 20 years, retire, sell your practice but hold the building with … the note’s gone and another tenant besides you is in there paying rent to you. Even net of expenses, that’s probably going to be a pretty good percentage return. The math on that is going to be pretty good. And if you hold it long enough like that, meaning like post retirement, 15, 20 years, then the entire period that you held it becomes an overall average, pretty decent return.

Ryan Isaac:
However, the thing … everyone says-

Matt Mulcock:
I know there was a but.

Ryan Isaac:
But!

Matt Mulcock:
I knew there was a but.

Ryan Isaac:
A big old but coming in right here. But by the time most people get to the point where they have been in the trenches of practice ownership for multiple decades and they get the chance to sell it and walk away and they finally ink the deal and the transaction is done and the keys get handed over, as soon as they have the opportunity to offload that building, most people do. Even if the math does not support that being a good investment because … well, we’ll get into it. They’re just still … like the mentality of like, I am done with this thing.

Matt Mulcock:
I’m Done.

Ryan Isaac:
I’m done. I am done with this thing and I’m tired and I don’t want to be tied to it. And the new owner kind of wants it anyway. And it sweetened the deal or whatever. A lot of people still walk. So here’s what I’m trying to say is, mathematically just the pure appreciation of a typical dental building or condo space while you are the only tenant paying yourself rent and while there’s a loan on it, the appreciation on that might not even outpace all of the interest and costs and taxes and repairs and fees and upgrades that you’re going to do along the way. It’s possible it’s a negative rate of return. That is possible. If you added inflation, it’s highly possible. Okay? It’s just because what we’re saying is the base just pure appreciation on that unit, that real estate, isn’t super high, just the appreciation alone.

Ryan Isaac:
And so now what might happen is you might say, well, I’m at least going to get some money back. And that’s true. So you might buy the building and mathematically maybe it’s not a great super high return because you were the only tenant, it didn’t appreciate a ton, and after you subtracted your actual costs of owning that investment, maybe you didn’t even make any money, but you got a chunk back when you were done. And it’s kind of like getting your rent back at the end a little bit. Maybe you get … a high percentage of your rent gets returned to you.

Matt Mulcock:
It’s like getting a tax return.

Ryan Isaac:
You get a return of your capital. And is that better than not getting your money back? Yes. That’s better than not getting your money back.

Matt Mulcock:
Sure. Until you factor in opportunity cost.

Ryan Isaac:
Opportunity cost. And it’s not better than picking the wrong place simply because you could buy it and the other place that would have been better for the business was a lease and you just wanted to buy the place. That’s not better. But anyway, so that’s a possible scenario that a lot of people get into. And so when people are like, “Yeah, but it doesn’t help my net worth? Isn’t this a great investment?” Number one, it’s only a good investment if it makes your business a good investment. That’s it.

Matt Mulcock:
Exactly. That’s it.

Ryan Isaac:
If it does not improve your business as an investment, it’s not a good investment for you. Matt, it’s time.

Matt Mulcock:
Time for what, Ryan?

Ryan Isaac:
It’s time to book a free consultation at dentistadvisors.com. Just click on the big book free consultation button on the homepage and talk to one of our friendly advisers today.

Ryan Isaac:
So the scenario we were talking about before, though. You’re the only tenant in that location and you retire. If you want a good mathematical return from that point forward, and especially if you want it from the whole entire period that you held the building, then you’ve got to hold on to it and the note’s got to be paid off and you’ve got to get a tenant in there and you got to charge good market rate rent and you got to hold that rent and that tenant for a long period of time in order for the entire holding period return to be good on your investment. That’s just the math though.

Matt Mulcock:
And we have seen this, what you just said, so many times where initially … we’re dealing with clients now that are now 20 years in, they’re on the back end of their career, they’re getting ready to transition out. They’ve owned the building for 20 years. I again, just had this conversation pretty … like last month with a client, who’s getting ready to transition out, owns his building. We were talking about it. And he goes, “Man …” He said this exact thing. I’m not kidding. He was like, “I thought I was going to hold this building longterm. now I’m getting ready to sell this thing or sell the practice. I just don’t even know if I wanted it. I just kind of want to be done.”

Ryan Isaac:
Just want to be done. Wash your hands.

Matt Mulcock:
Yeah. So I think the key there is just, you don’t know where your mind … this is for all financial planning, all financial decisions. You have no clue. I always say like going beyond a year, you’re just guessing. In life, period, you’re just guessing. So I think keeping that in mind of like, you don’t know what’s going to happen in 10, 20 years. That should be … this whole idea of like, I’m just going to hold this after I sell it in 20 years from now, and it’s going to be a great investment, I don’t know if that should be the driver of your decision. The last thing I’ll say too on this round, you made a fantastic point that I want to come back to. You said … you kind of gave a scenario there. You said, if it comes down to buying a building because it’s available versus leasing a building that’s in a better location, I mean that right there pretty much sums this up. We’re not anti-real estate. We’re saying [crosstalk 00:22:13]-

Ryan Isaac:
We’re pro-business.

Matt Mulcock:
We’re pro business, exactly.

Ryan Isaac:
[crosstalk 00:22:17] that’s what we are.

Matt Mulcock:
We are pro you making the decision that’s better for your business, which should be the … which is the driver of your wealth creation over the course of your career and your life, is the business, not the real estate. So I think that right there, that choice of if you’re faced with a decision of buying a practice because the building’s available, even though it could be in a crappy part of town with horrible demographics and no visibility versus leasing a building or [crosstalk 00:22:44] buying a practice and leasing that building because it’s in a better spot and it’s better for your business, that’s the route you should.

Ryan Isaac:
That’s it. I love that. We are not anti-real estate. We are pro business.

Matt Mulcock:
Boom.

Ryan Isaac:
And, man, you said it too. The real driver of your financial planning, of your investments, of your savings rate, of your wealth, of your net worth is your income. I mean, you’re in the highest earning income profession in the entire country, arguably. Number two, statistically but I think it’s number one [crosstalk 00:23:11], pretty arguably.

Matt Mulcock:
Bold. That’s bold.

Ryan Isaac:
Yeah it is.

Matt Mulcock:
You’re number one.

Ryan Isaac:
So we are a pro you making as much money as humanly possible from your dental practice. Totally independent of whether you’re in a lease building or a purchase building. And some people are listening to this like, “I practice in Manhattan. We don’t buy buildings here.” Get over it stupid.

Matt Mulcock:
[crosstalk 00:23:31] This is stupid. This is dumb [inaudible 00:23:32]. Anyway.

Ryan Isaac:
There’s some people in some pretty expensive coastal cities that are like, “We don’t buy buildings.”

Matt Mulcock:
That’s another key point here that is a hard to obviously look at the nuance of this. But real estate obviously is very regional. So when we talk about real estate, we can look at the general numbers over the last 30 years of like on average real estate being this return or that. Obviously we know people are probably yelling at us right now in their cars being like, “Look at Salt Lake City.” I mean, Salt Lake is blowing up. Like look at these different regions of the country that are blowing up over the last 10, 15 years. Yes, if you owned a building during that time period, yes [crosstalk 00:24:11]-

Ryan Isaac:
Well, there’s always a story. There’s always a story.

Matt Mulcock:
There’s always … yes.

Ryan Isaac:
Like I know a dentist who made more money on his building than he did his career. I always hear that.

Matt Mulcock:
Of course, yeah.

Ryan Isaac:
And the first thing I think is, well, he probably didn’t have a good career.

Matt Mulcock:
Probably wasn’t a great dentist.

Ryan Isaac:
I don’t think he ran a good business then if that’s the case. Or yeah, I mean, if you bought a building in Seattle or Austin or some places that just happened to explode one day, and like you didn’t know. Again, you just bought a building and just got lucky, that happens. It totally happens, but it’s not a strategy. Luck is not a strategy. And so we’re pro-business, we’re pro you making the most possible money from your dental practice and optimizing its space, its location, its visibility, advertising everything, parking, waiting rooms. Maximize that first, real estate decision second.

Ryan Isaac:
So what are some caveats? All right, some caveats are you buy an entire building with multiple tenants. Well, assuming that’s still the best place for your business, and not that that was just the only place that you could buy or build a giant building to be a landlord, assuming you still did it because it was the best for your business, then there are some other … now we’re talking about actually evaluating a commercial real estate investment that has immediate cashflow from other tenants besides you as the sole occupant, right?

Matt Mulcock:
[crosstalk 00:25:28] diversifying [crosstalk 00:25:29] the risk in the building.

Ryan Isaac:
Totally. You buy or build a building with seven other tenants. Well, okay, now we’re talking about an actual commercial real estate investment that can be measured mathematically from the revenues it’s producing. And that’s a different story. That’s a totally different story. So I think moral of the story … I think we’ve covered it and we’ve apologized where we need to so no one’s mad. Just want to say your practice is the biggest driver of everything you’ll do in your whole life, more than the stock market, more than your real estate, more than your Bitcoin, everything. We’re going to get fights on that one, but it’s true.

Matt Mulcock:
We’re going to get beat up [crosstalk 00:26:03]-

Ryan Isaac:
Maximize your income as a dentist first above all things and then let everything else kind of flow into place where they fit and just acknowledge that it’s okay that maybe, maybe you ended up running a killer practice with a sweet income and a high savings rate and a big net worth and never own commercial real estate ever in your whole career. Maybe that’s the case. And we’re here to say it’s all right.

Matt Mulcock:
Yeah. That’s okay.

Ryan Isaac:
It’s okay.

Matt Mulcock:
It’s totally okay.

Ryan Isaac:
You’re going to be fine.

Matt Mulcock:
And on the other end of it, if you end up owning your building, like we have many, many clients that do … and here’s what I’ll say, this might sound weird, with the rant we just went on, but I will say, and Ryan, I would like to get your take on this, I will say all things being equal, owning it, like owning the building, is better than renting over a course of a career.

Ryan Isaac:
Sure, yeah, all things being equal. Yeah.

Matt Mulcock:
All things being equal, it is better to own a building than to rent.

Ryan Isaac:
Sure. Yeah.

Matt Mulcock:
For sure.

Ryan Isaac:
Well, and we were saying that earlier for the simple fact that even if it doesn’t end up being a high return, you’ll at least get your money back out of the rent.

Matt Mulcock:
Yes, exactly.

Ryan Isaac:
If nothing else. As long as you-

Matt Mulcock:
And I think that’s probably the number one thing that I hear is like, “Well, I’d rather own than rent because I don’t want to be throwing my money down the toilet.” I hear that a lot. And that statement generally, okay, yeah, I think that generally makes sense. I think what happens though, is people take that mindset a little bit too far and they don’t take a step back and think, “Okay, I want to own a building. So now let’s start there from that point and then start figuring out what’s the timing of this? What’s the process? Like is it the building my practice is currently in that I’m purchasing or is there another place that I should be going to buy a building?” Like if your goal is to buy a building, awesome. And I think that’s great. And again, all else being equal, that’s the right move. But just don’t rush it just because of this mindset of like, well I have to buy it because I’m throwing my money down the toilet. Like if you rent for two years to figure it out, you’re going to be okay.

Ryan Isaac:
Well, you didn’t throw money down the toilet. If you were in a killer space and you built a huge practice and you had a 45% profit margin and you made a ton of coin your whole … for like 30 years. Like you didn’t throw-

Matt Mulcock:
And that that building housed your business.

Ryan Isaac:
It housed the business. It was a tool. And it was a line item on a P&L that’s going to be there for any business anyway. So yeah, man, I mean-

Matt Mulcock:
Just like hot take alert coming in at ya. Renting a house is also not throwing your money down the toilet.

Ryan Isaac:
It’s okay. It’s a tool.

Matt Mulcock:
That’s a topic for another day.

Ryan Isaac:
It might help you make a better financial decision later on the road. And so I actually wanted to say one thing too, you were touching on this. At that end of that 20 year period after someone’s practicing there and even though they thought like, I’m going to hold this thing, so many people get to the end, they don’t want to hold it anymore. One of the other reasons for that though, is that new building that’s shiny and pretty right now, in 20 years is the old one that you pass by that you didn’t want to buy. It’s the old one. So a lot of people are in their sixties looking at an old building that needs a lot of stuff and they’re like, well, mathematically, I should fix this thing up and repour the parking lot and do a new roof and fix all the AC units and do [crosstalk 00:28:58]-

Matt Mulcock:
But they don’t want to.

Ryan Isaac:
I don’t want to because I’m 63 and I’m done.

Matt Mulcock:
Or I could sell that to this new 35 year old dentist coming in for … I can sell it for 2 million bucks.

Ryan Isaac:
Just get rid of it.

Matt Mulcock:
Get my money back and go invest it or do something else with it.

Ryan Isaac:
Get my money back. So anyway, this is a cautionary tale of putting your practice first. That’s what we’re talking about here. Putting your practice first and maximizing its capabilities and its efficiency first and foremost and treating real estate investments as something totally separate and independent. And like you said, Matt, if that’s your goal in life, that’s cool. That’s great. You do you. But treat it separately. It’s possible you lease a building that you practice in and then you own a commercial building with five tenants that you don’t practice in to scratch the itch. Maybe that’s what you do. So anyway, any parting thoughts, Matt, or are we good? We covered the bases [crosstalk 00:29:45]. Were we nice enough? I mean, were we gentle?

Matt Mulcock:
I think we were pretty nice.

Ryan Isaac:
You were mad about the snow. We started. You were mad in the beginning.

Matt Mulcock:
I was.

Ryan Isaac:
And then-

Matt Mulcock:
I’m not mad. I was a little bit-

Ryan Isaac:
You were fired. I loved it.

Matt Mulcock:
I mean, I got fired. I got fired up.

Ryan Isaac:
You were mad.

Matt Mulcock:
You got me fired up. [crosstalk 00:29:58] I just wanted to say, I think two things you. You just said I wanted … the final point here is two-fold. I’m trying to think of which one to start with. Number one, business first. [crosstalk 00:30:11]. I like that.

Ryan Isaac:
Yeah, business first.

Matt Mulcock:
Let’s go there. That’s the … if you take away nothing from this, except for business first, all your decisions in your career should be driven by what’s best for the business, which really bleeds down to like … it leads into like what’s best for my family and for me.

Ryan Isaac:
Yeah, totally.

Matt Mulcock:
Obviously it all leads into everything else. Number two and final, we are not anti-real estate.

Ryan Isaac:
We love some real estate.

Matt Mulcock:
I just want that to be clear. I get a lot of flack for this.

Ryan Isaac:
You like real estate, personally.

Matt Mulcock:
I come from a real estate family.

Ryan Isaac:
You’re like real estate heir.

Matt Mulcock:
My dad and my brother, my brother-in-law, they’ve all built their careers on real estate.

Ryan Isaac:
It’s in your blood. I will say I don’t like it. My personal … that’s my preference. I’m not … it stresses me out. But you like it. And I think those are great points, man. Business first and not anti-real estate.

Matt Mulcock:
We’re not anti.

Ryan Isaac:
Just making the right decisions.

Matt Mulcock:
We’re pro business.

Ryan Isaac:
And here’s the thing, we’re going to … We’ll end with this here. I started listening to some new podcasts recently and it dawned on me as a new listener to these podcasts when I’d hear them repeat who they are, kind of their normal messages, I’d think, oh yeah, sometimes people are joining The Dentist Money Show for the first time on episode 280, not number one.

Matt Mulcock:
And if you are, welcome.

Ryan Isaac:
If you are ,first of all, welcome. Thank you. We hope you’re-

Matt Mulcock:
Welcome at the end of our podcast.

Ryan Isaac:
We hope you’re happy here. But I want to point out like, why are we on here talking about this stuff? It’s because almost 15 years ago, we started a company called Dentist Advisors and we are a no commission, fiduciary, comprehensive financial advisor for dentists. This is the stuff we’ve done for over a decade. This is the stuff we do every single day. And that’s why we’re talking about this. So if you’re joining us for the first time, that’s why we do this stuff. That’s why we’re teaching. That’s why we have insight to it because this is all we’ve done for more than a decade together. And that’s why we produce this content. So if you’re joining us for the first time, that’s who we are. And thanks. And welcome. Thanks for being here.

Ryan Isaac:
And so if you have any questions, there’s two ways you can reach out with questions. Number one, you can just go to the website, dentistadvisors.com, click on the book free consultation button. It’s green. It’s really pretty. You can’t miss it.

Matt Mulcock:
It’s so pretty. Number two, text Ryan at …

Ryan Isaac:
Number two, text me. Number two for real, go to the Dentist Advisors discussion group on Facebook. It’s a private group, very, very friendly professional people. And you post a question and we will post an answer. We’ll just do a little video in Facebook live and answer your question. So those are two ways to reach out and get in touch, Matt, thanks for your time-

Matt Mulcock:
Thanks, Ryan.

Ryan Isaac:
… your love, your expertise. As always, guys, thanks for joining us and we’ll catch you next time. Bye bye.

 

 

 

Real Estate

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