Helping Healthcare Scale
Imagine you're friends with multiple CEO's of billion dollar organizations. You can call them anytime you like and ask them all that they've learned about real estate and investing, including some of their biggest mistakes.
That's the mission of this podcast, to teach the insider strategies used by the big guys to everyday healthcare operators in order to get access to the best strategies and real estate at the best prices.
If you need help finding the perfect location or you're ready to invest in commercial real estate, email us at podcast@leadersre.com.
Helping Healthcare Scale
Real Estate vs. Public Markets: Finding Your Investment Balance
Ever been told that real estate is truly passive income? Think again. In this eye-opening discussion with David Phelps, founder of Freedom Founders, we pull back the curtain on the myths surrounding "passive" investing and explore why traditional approaches like the 60-40 portfolio may no longer serve investors in today's economic landscape.
David shares why business owners and entrepreneurs who build successful companies should apply that same hands-on approach to their investments. We explore how real estate provides stability that public markets can't match, thanks to its inefficient marketplace that doesn't swing wildly based on algorithms and sentiment. While public equities offer greater liquidity, solid real estate backed by proven tenants in strong demographics rarely plummets to zero or fails to generate income, even during recessions.
The conversation takes a fascinating turn as we discuss the spectrum of investment activity - from truly passive vehicles like ETFs to more involved approaches that require due diligence but potentially offer greater returns and control. David shares a remarkable story of purchasing an elementary school for just $16,000 and selling it three years later for approximately $350,000, illustrating how building the right network can lead to extraordinary off-market opportunities.
We also tackle current economic realities, including concerns about government spending and money printing potentially leading to corrections. However, rather than advocating sitting on the sidelines out of fear, we discuss the importance of mitigating downside risk while maintaining some dry powder for future opportunities. David reveals his approach to helping investors through Freedom Founders - not by "feeding them fish" but by "teaching them how to fish" through education, community, and collaborative due diligence.
Whether you're an experienced investor looking to diversify or someone just beginning to explore alternatives to traditional investments, this conversation provides valuable insights on finding your personal balance between active and passive strategies. Discover how to protect what you've built while positioning yourself for continued growth in changing economic times.
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When it comes to real estate, there's a lot of gurus who have dubbed it as passive investing, and the thing is, once you get your hands dirty, you know that's not the case. I'm sure it operates on a spectrum. It's more passive to own a long-term rental than to operate a dental clinic, but you got to do stuff. The only thing that's truly passive is if you invest into a public ETF like S&P or Nasdaq, or you invest into a syndicator right as a limited partner or a fund, and so it's not not that anything's good, or it's not that passive income is not like you need it. It's great because it frees up your time, but maybe you want to go do deals, and so I think the thing is for us is like just educating people around what the real trade-offs are, because it's really easy to just think oh yeah, I'll invest in this thing, just buy a property.
Speaker 1:It's passive income. Right, I'm buying a real estate. It's passive income? No, it's not, unless you're partnering with the right person. The goal of this show is to help healthcare organizations scale by leveraging real estate strategies and interviewing high-level healthcare executives in order to pull out lessons learned along the way. If you'd like a free site selection analysis from our team visit us at wwwreuniversityorg and drop us a line.
Speaker 1:Hello everybody, welcome back to another episode of Helping Healthcare Scale, and I'm really happy to have David Phelps on the line again. This is the second time gracing our show. He's the founder of Freedom Founders. It's a community that helps doctors and business owners diversify their investments and buy back their time, and so there's a lot of stuff that we can talk about today. So, david, thanks for hopping on.
Speaker 3:Awesome, it's always a pleasure. Thanks for having me.
Speaker 1:So let's get straight into it. I think that recently people have really had to become macroeconomists, meaning there was a time when it worked to just put money in your 401k, to put money in a mutual fund, and you just sit back and it just went slowly up into the right and then we don't have to worry about it. But it's since the great financial crisis and there's been a lot of inflation, so really you could say the S&P is more likely to underperform now, if you really calculate the real cost of inflation, how do you think things have changed and what do you think that people should do that are trying to protect what they've built?
Speaker 3:Yeah, I think for the audience that you and I have the privilege of working with, which are business operators, business owners, capitalists, entrepreneurs, who are used to having their hands on building a business, building equity network through business operations. That's what we all love to do and what I found over the years and you have too is that those very specialized business owners who create great businesses and create concomitant nice incomes, is typically the default mode is, as you stated, to go into passive investing, because Wall Street has great marketing arms and over many years, decades it's always been hey, just give us your money, put it in the 401k, put it in the brokerage accounts and somebody will take care of it for you. Keep your fingers crossed, but it's all going to be good. And, as you said, we go through market cycles. We have bull run market cycles that go up At some point. There's always some level of correction. You mentioned the last big one was 2008. We had somewhat of a steep one, but short-lived, in 2020 with the COVID pandemic. But you can go back before that. We had the dot-com in 2000 and we can go back in time. There's always a correction at some point in the markets and it affects it can affect all asset classes, it can affect businesses, it can affect the entire economy, recession wise.
Speaker 3:So my point is, as business owners and entrepreneurs who love to have their hands on things and make decisions and build something great, why don't we do the same thing with our money? I don't mean we go out and actively do a whole nother business, but why don't we want to be more in charge and orchestrate through other people which is fine, having other people to place our money where we're in closer proximity to it? And my bias which I think you have a lot of bias too, because you're involved in real estate obviously is I like tangible assets. Go back to business. When you're an active operator, your hands have to be on it, in it, until you decide to sell it With outside investments, your hands don't have to be in it, but you can be closer to it because you can know who's the operator.
Speaker 3:What actually is this asset? If it's some kind of real estate, you can dig into it and learning that is. You don't have to have a PhD. It's not rocket science, there's data and we you and I talk about data all the time. And if you don't know how to do that, guess what there's people who do. I just like the feeling that being more in charge of one's money is as important as learning how to make the money in the first part. How do you keep it? Tax is a big part of it, but how do you keep it and how do you preserve it against, as you said, the inflationary effects that we're seeing more over that we haven't seen in 40 years. That's here to stay. I don't care who's in office. We're going to see inflation and we've got to keep up with that. So I believe passive investing is for our kind of people passe For the broad marketplace. I think that's okay because people got to do something, so I hope that puts it in context.
Speaker 1:Yeah, I think that what you're talking about, with not being in control of it, makes a lot of sense when it comes to the public markets and the public equities and personally I'm invested in those pretty heavily. I'm bullish on them, but I'm also really invested in real estate too. I just like both. I have crypto. I don't like to necessarily pick and choose, so I think that when you compare and contrast the two, like just to point out why you would want both and like in my case, I look at the public markets and I see the ability to take risk. If you want to do options and stuff like that, if you want to invest in the ETFs, like that's great, but it's the volatility right, like it can just be so volatile. And so the reason that I'm really drawn to real estate is because of the stability of it. When you have a long-term tenant in there, specifically when it comes to healthcare and retail and I know you do deals like all different types of asset classes within real estate but you put a tenant in there, you sign a lease and that's going to be consistent, like you've got consistent value of the building and especially if the credit of the tenant is really good and they're corporate backed, then there's a low likelihood of default and so you can expect those same returns consistently month over month.
Speaker 1:And yeah, I think it's good. They have said the 60-40 portfolio is dead right 60% equities, 40% bonds. Real estate is actually considered an alternative asset class, which I think is funny because it seems like it's such a staple. But I think now what they're saying is 40-30-20 or something right, and 20% bonds means that their allocation got cut in half 40, 30, 20 or something right, and 20% bonds means that their allocation got cut in half 40% to public equities, which means it went down 50%, and then 20% to I think my math is right there or sorry 30% to the alternative assets like real estate.
Speaker 3:Yeah, I think we have. Yeah, you're right. I think the reason why we look at real estate as being less volatile and more stable is what you said. It's an inefficient marketplace, and inefficient marketplaces don't move on a dime like the financial markets where everything's based on computer algorithms. It just things move quickly. It's based on a lot of sentiment, how people feel. The mood since the election has been pretty euphoric and I get that right. But is that sitting on fundamentals? Real estate is going to be more based on actual fundamentals and it doesn't move as quickly. Yes, it does move. It can move up, it can move down, as we know it in value. But the thing I like about it is again, if you have solid real estate backed by proven tenant and a proven demographic, the likelihood of having that plummet to zero or not having income from it is very low. I've replaced tenants over the years, even during recessions.
Speaker 3:People don't just abdicate or businesses don't just say we're done. Not all do. Some will during a recession, but not all. You go for very strong, credit-backed corporate businesses in your business and, yeah, especially like in healthcare or just other demographic companies that are very strong. Your chances of having that do a lot of this is not there. So yeah, public markets, you've got more liquidity. Liquidity, that's important. I think we have to look too at where are we in the marketplace. Real estate, commercial in some sectors has come down Multifamily.
Speaker 1:Yeah, multifamily and office.
Speaker 3:Yeah, it's come down. So it has come down in value. But also you have to look and say where are we in the public markets? What's been driving the public markets? It's been heavily into tech. I've seen this happen before, go back to 2000,. Heavy in tech it doesn't run forever, is my point. So I'm not against having money in different places. I think that's smart. I think we just have to say where are the different markets? Where's real estate, sitting Office, multifamily, different sectors, how high is it? Is it prone to come down if certain things happen, whether it's interest rates or some changes in policy or regulations, things like that? There's a lot of dynamics there. But that's what kind of makes it fun, I think, to look at these things.
Speaker 1:Yeah, no, I agree a hundred percent. So what do you guys? Maybe talk a little more about Freedom Founders. Is it a roundtable? Are you discussing macroeconomics? Maybe a little peek behind the curtains.
Speaker 3:Well, we're very big on education and I tell everybody who is in Freedom Founders is, we don't feed you fish, we teach you how to fish. Now you don't have to go out and find your own fish. But what I'm saying is we're heavily based on education. I do want people to have a general understanding of the economy and certainly a general understanding of some of the breakdowns and the underwriting, if you will, a little bit of the math on what we look at, because my job is I want people to be able to come in and gain some levels of sophistication around their money and, to the extent they want to do that in real estate, that's what we do really well and at some point they got it and we built and build relationships, we curate the best of the best and do a lot of unrighteous due diligence, but I still want them to be doing it too. So we do it as a community. So you could say it's like a roundtable, where we're doing this together, we use outside expertise, you bring analytics to the table I've got people that bring analytics to the table where that's really their forte and then we all dig in together and we break things down and decide where we want to invest and we build long-term relationships like we could with you, right? And so we have an operator that brings a certain sector and it's like we have a run rate with them as the marketplace continues to build out. Is this still a good sector to go with? Do we really like that? Maybe nothing to do with the operator, but we might want to switch gears or maybe we go stronger with that operator.
Speaker 3:But we've got choices. We've got the ability to compare and contrast in one place and not just have to go. Do I go out into that Facebook group and just take the syndication of the day? I don't know. You don't have a lot of places to look.
Speaker 3:So we try to bring all that under one roof and give people a chance to really have a look at everything and have other people that are running with them, like-minded, doing it with them, and so it's not a done for you, it's not a do it yourself, it's a done with you. We do it to really give people a lot of clarity about what are their actual goals. And a big part of, I think, investing whether it's in your business or outside, and other investments, any kind of investment is how are you building milestones to measure how you can give yourself permission to buy back some time, not just when you quote retire, because that may be too late. But people are giving up a lot of their their opportunities to spend time with their families because they feel like I got to grind. I got to grind, I got to make money while the sun's shining right, and it's like, yeah, but how much is enough?
Speaker 3:No one ever knows how much is enough, so we kind of build those formulas in so people can say, okay, I can breathe a little bit, take a little stress off, right, and I can breathe, still, have my practice, enjoy.
Speaker 1:Yeah, I think that when it comes to real estate, there's a lot of gurus who have dubbed it as passive investing, and the thing is, once you get your hands dirty, you know that's not the case. I'm sure it operates on a spectrum. It's more passive to own a long-term rental than to operate a dental clinic, but you got to do stuff. The only thing that's truly passive is if you invest into a public ETF like S&P or Nasdaq, or you invest into a syndicator right as a limited partner or a fund, and so it's not that anything's good. It's not that passive income is not like you need it. It's great because it frees up your time, but maybe you want to go do deals, and so I think the thing is for us is like just educating people around what the real trade-offs are, because it's really easy to just think oh yeah, I'll invest in this thing, just buy a property.
Speaker 1:It's passive income. Right, I'm buying a real estate. It's passive income? No, it's not, unless you're partnering with the right person. And so I think you just have to decide what is like. What's your time worth, and is it worth it to go down this avenue, like for me personally, I was doing other things no-transcript, and it starts with something as simple as calling a plumber to fix a toilet and it goes to something as complex as launching a fund and creating a brand around raising capital and having your landing pages and your virtual assistants and finding deals and shining your legal documents and working with lawyers in the SEC right. That's the spectrum that you operate within and it's definitely not passive.
Speaker 3:Yeah, I tell people, austin, that there's always an invoice to be paid. It's just. Which invoice do you want to pay? And again, it's not a judgment, you choose. But you're right, if you want to be completely passive, then that's a choice and that may work for people. It may work to a certain point and at some point they might want to become a little bit more involved, which, as you said, could be investing in a fund or syndication. But there I say, still, you need to do some work.
Speaker 3:The work would, in this case, not be dealing with contractors, developers and construction. It'd be doing your work to understand who the operator is and the constructs of what's inside the box, and learning more about that is what's going to make you. Maybe it's semi-active right Now. Once the money is invested in something that you like. Yes, it's going to be passive because you're not going to call the shots. You get your money out as the platform is set up to dole your money out distributions, capital advance, whatever it's going to be You're all on for the ride. But you've got to do some work on the front end before you decide to step onto the ride. That's what I'm saying. So if you don't do that then, and you just say I'm just going to make it really easy, just there's my money. That may work, but it may not.
Speaker 1:That's again, that's an invoice you're going to when I was 19. And then I read a four hour work week and then I read the E-myth and it's okay sweet, like I know everything now, like I'm going to just invest the money that I have and I'm never going to have to work and I'm going to be this great investor, because that's what all these books had to do. And yeah, like two things right in a row, which it was like five. It was like two I want to say two $5,000 slugs, which was like all my money back then. And it was like one of them was this guy was going to double my money by investing in these previews bust. It was totally a scam.
Speaker 1:The other one was people that I knew from wakeboarding. We had done a commercial together. They they wanted to do a movie and they were raising money Again. They promised these really high ROIs, but the movie just never came to fruition and they weren't necessarily scammers, it was just a bad deal. And so I just realized early on like doing due diligence is just so important and in hindsight I am thankful for it because it taught me like the importance of really doing due diligence behind all the curtains, because it's really easy to lose this money. On that note, I'm just curious, like what's the best deal and what's the worst deal that you've ever done?
Speaker 3:Oh, best deal, worst deal, worst deal. There's. Like you, I have a number of those, and most of those happened when I was younger and, as you said, it didn't matter what the dollar amount was. When you're younger, it's a lot right?
Speaker 3:Yeah, it's always a lot and it was yeah, it was out of the gate. I say out of the gate. I was out of dental school a couple of years and I had been acquiring. I had a handful of properties, a handful at that time. I've been buying and I had a chance to buy 11 properties in one transaction from an older couple really nice couple, I'm saying really nice. They were scammers too, and so, long story short, I ended up with 11 properties. I had to work my way through some bad financing they put on the properties. I was not liable for it, but if I wanted to keep any of the properties or maintain any equity positions, I had to work my way back through. It was an interesting story. It all worked out but, to your point, you learn a lot of lessons that way. One of the best deals I did was probably 10 years ago.
Speaker 3:I bought a school, elementary school from a school district that I don't know why no one bid on it. I had a little bit of inside information, but it wasn't like people couldn't bid and I bid really low and I got a elementary school. There's no one at best. How much did you pay for it? If you don't mind, 16 grand. It was in a good location. It wasn't like a bad location. The industry they just outgrown it and they had quote moved. The school built a new one and they just didn't know what to do with it. I thought was ridiculous.
Speaker 3:If I be a taxpayer, I'd say red because it's wait a minute the school was older yeah but 16 grand of land was worked way over that, so you could raise the whole thing and put up a self-storage on it. It was crazy. So that was I. Just I fell into that. You know what you sell it for? Oh my gosh, I didn't develop it so I sold it. I think we sold it for about 350, about three years later.
Speaker 1:Yeah, roi, massive ROI.
Speaker 3:Yeah, killer, that's a deal I wasn't hunting for. Those kinds of deals come to you when you've got a network and you're out there and I was out there in my arena, kind of an active investor, for a couple of decades, so I had built a network and when you have a network, then that's where deals come. That's where you guys build networks. So you find deals, you get off-market deals. My deal was certainly an off-market deal. If they were putting signs and banners they would have sold it for a lot more than I paid 16 grand for it. It's ridiculous.
Speaker 3:It just didn't make no sense. It made no sense at all.
Speaker 1:Yeah, yeah, a hundred percent. So, yeah, I think right now we're in the cycle, because we're always at different places in the cycle, but I think it's gonna continue to be good for a while. One of the concerns that I have and listen, I'm all about government efficiency, like we have to do this, but a really good metaphor is when you're at the party and you're having drinks, you wanna keep drinking to keep the party going, and the longer you go, the more fun you'll have, but the worse the hangover. Right, and we've been printing money like a drunken sailor and the longer we go, the more fun we're going to have, but the reckoning becomes worse and worse, and so the issue is that 85% of GDP was government spending.
Speaker 1:That means we really only had 15% as much GDP growth as we thought we did, and so the sooner that these cuts start coming then, the more risk we have of having this correction like this hangover period. I don't know that's going to happen, but I think it's important to just keep tapping the brakes, essentially to keep you within range of the speed limit so you don't get too crazy, because there's just so many unknowns. That being said, I do believe it's something that we need. Elon mentioned something about continuing to pay the government employees that they fire for the next year or two, because like, yeah, you can't lay off thousands and just throw them out in the economy, yeah Right.
Speaker 1:That would yeah, they're not doing anything anyways. So it actually doesn't really make anything any more, like just pencil pushers. So I got a feeling it'll be okay. But that's got me.
Speaker 1:I think it'll be a great way to get out of this deficit and if we do, there's just really no reason why we're not going to continue to go up into the right when, especially like we've had a lot of money printed that sits on the sidelines, like you and I were talking about on your show, where is that money going to go? And so every year or every cycle, like they print more and more and so the asset prices just they have to go up. When you think about it through that lens, like if you look at real estate, how much it's gone up, it's actually not that much. More recently has been more, but historically it's not really that much more than the inflation rate. Even the S and P like it's a little bit more of the inflation and it depends which inflation rate, core inflation, cpce Are those conservative?
Speaker 1:I Are those conservative. I think they are Like real inflation probably has been closer to 7%. So if you invest in these things like especially unlevered, you're just keeping up with inflation and that's because the money supply is so crazy.
Speaker 1:So the way that I interpret it is number one. I want to take on leverage to buy real estate and in our case it's conservative, it's 65%, but I would probably do more if interest rates were lower, but it's still. You're putting down something right, Like you're putting down down payment to protect yourself from having too much leverage. And then there's these things called leverage ETFs that have a multiple of what the stock market is doing and you can buy. They're risky, so don't get me wrong. But if the trend is generally going up, you're capitalizing on it, more so than just relying on, like, your simple kind of ETFs.
Speaker 3:I think everybody where they are in their life and what their total capital base looks like, where they are still in active income mode or somebody retired out and no more active income. You have to look at your allocations as an individual or as a family unit and I think there's always got to be some amount of capital that you consider your moat right. You just don't put it in anything. You don't have FOMO. Put it in something really conservative, like treasuries, or maybe it's precious metals or something that is just going to stand the test of time and you just don't touch it. Now that's the amount of that mode, the percentage of that. It's gonna be different for different people.
Speaker 3:If you're younger and you've got active income for many years or decades, you can play ball a little bit more because you can always live to fight another day. But if you're on the other end of the spectrum and you don't have a desire to go back and turn on the active income again, you got to be a little more risk averse. So it's going to be different for everybody. That's the key point and everybody gets to decide. I think to your point. You have to have some understanding of what your beliefs are, understand what you're investing in to the extent you know because? Because otherwise, if you want to diversify massively, then just go to public ETFs and index funds. Again, I'm not saying that's bad, but if you want to really focus on some specific allocations, then do so with some study of those and don't try to know everything, because you can't know everything right.
Speaker 1:Yeah, when you just if you look at like online and YouTube and the Twitter memes stuff, people send me like fear cells and so there's always, even like mainstream media, that mainstream media is the worst right. They, the mainstream media, is the worst right. They're always trying to sell you if you're oh, we're in for the next big correction, and so it gets people scared. But I've been hearing that nonstop since 2016. And so if I would have paid attention to that sort of thing, I would have missed out on the eight-year bull run and it's, I guess, the same time in the market beats timing.
Speaker 1:The market, Like I think maybe we should be prepared theoretically for some pullbacks, because it could happen, whether it's real estate or the macro public markets or both. But you just can't sit on the sidelines, right? You got to keep going, you got to keep pushing forward, and so it's going to make you tougher. You got to be prepared to take it on the chin. But I guess that's how I look at it. You can't just sit out and let these things pass you by because you're scared of correction coming in all the time.
Speaker 3:Nope, I think you just have to mitigate downside risk, risk your different allocations. But yeah, you're right, I keep a certain amount of dry powder because I think there's opportunities coming too again. You just got to balance it to where you are and what your appetite is. It's gonna be different for everybody. So just, I think, just decide, have a reason how you decide to allocate and then go with it.
Speaker 1:I think that's really great advice and, as we come to our time here, is there anything that you want to talk about that we didn't get a chance to talk about? I?
Speaker 3:think we covered a lot of bases today. I'm not sure if I could add anything else to the color of. Like you said, no one has a crystal ball. I think, just being more. Decide to be more active in all of your pursuits to the extent you can Utilize other people. I'm a big fan of collaboration, finding the right people, because we can't know everything, but, again, that's where due diligence comes from. So, whether it's advisors to you or consultants or people that are operational, you want to invest with, work hard to find those people, because you can't do it all yourself, and that's how you buy back time, through the art of delegation or co-investing with other people, whether you're in your business, your practice or just outside investments. But the art of finding, the art and science of finding the right people, I think it's the key to everything, and it's not easy. You can get burned a few times, but the more you learn that, the better off you're going to be.
Speaker 1:I love it, man. What's a good resource for people to learn about what you guys are doing?
Speaker 3:Probably the website, dave, excuse me, that's the email. How about the website freedomfounderscom? I've got a podcast which is Freedom Founders. You can find it there. I put out some blog posts, video blogs, dr Phelps, so you can find me in different places. I got a few books on Amazon if people want to read a little bit more about my philosophy.
Speaker 1:I love it. This has been good. Sounds like we're aligned on a lot of things. Thanks for coming on and sharing your wisdom with everybody.
Speaker 3:Thank you.
Speaker 2:Austin. It's always a pleasure. If you need help finding the perfect location for your practice or you're ready to invest in commercial real estate, email us podcast at leadersreecom R-E as in realestatecom, or go to leadersreecom and fill out our form. See you next time.