Dental CEO Podcast Episode 42 – Navigating Dental Real Estate with Colin Carr

So, dentists, doing a startup, we gotta sign a lease or buy a property potentially, or we're buying a practice. There's an existing lease, there's an existing property, or we already own a practice. We, we have to do. We re. Do we re up the lease. Do we. Should we go buy a property? You know, there's a lot going on here and there's actually millions of dollars at stake. There's a strategy to do every single one of these things. There's a way to own with a lower cost, with a better tax benefit, with a massive liquidity event at the end. There's a way to rent to lower our risks. There's a way to negotiate things so that if we do sell, we can pass the rent on to other people. This goes deep. It impacts us in a big way. And shockingly, our profession hasn't been talking much about real estate. The wealth we build or the money we lose, the risks, how to offset those risks and how the real estate Strategy should definitely impact how we look at practice, ownership, timing, retirement, taxes, so forth. This is a huge conversation with a ton of money at stake. And I have been fortunate enough to bring on the CEO of what is likely the most experienced real estate brokerage firm for health care professionals in all of the US CAR is the name of the company. They do health care realty. And the CEO is Colin Carr, the man himself. And we are going to dive in to as much information as possible deep into real estate on this episode of the Dental CEO Podcast. If you like what you're hearing on the Dental CEO Podcast, please take a few moments to leave us a review on your favorite podcast platform. All right, Colin, again, thank you so much for joining us. And of course, I just gave kind of that introduction to you, but I would love for you, in your own words, to tell us a little history who you are, what CARR is and and where your expertise lies. I'd love to hear from you. Yeah, thanks, Scott. So, commercial real estate. We exclusively represent healthcare providers. We're coast to coast. We're licensed in all 50 states. As we record this, we have over 6,000 practices that we're doing real estate for right now. Lease, renewals, purchases, startups, people buying land, anything with real estate for your practice, we focus on. And the mission's really simple. We're just trying to help healthcare providers level the playing field when they're going up against professional landlords and sellers. Most doctors, most dentists, very intelligent, spend a lot of time going to school, great clinically, but just never received the training that they needed for a lot of the practice management things. What makes you guys so special? Teaching that we do exclusively real estate, exclusively health care, exclusively for tenants, buyers. And we try to save doctors a couple hundred thousand per transaction, find the best location, you know, maximize their profitability through real estate. I learned about you guys because I had to go up against you guys for a particular property and we lost to you guys. And that's when I learned about you. This was a long time ago. And then we started doing a lot more research on what you guys do and represent and how unlike a typical just kind of real estate agent or broker, they'll do a deal and it's just a transaction and it's done because you've chosen healthcare. You have to build a reputation of quality and doing good because you're not serving one deal, you're serving the entire sector all year, every year. And you guys understood at a very high level what is important to dentists, specifically when negotiating These. And also, of course, the value that a dental finish out and a dental lease brings to the landlord and the concessions you could almost demand from that. It's like we're playing poker with the landlord. But you know what the cards are that the landlord holds, right? You know what they've paid ti monies for other tenants because they own several other properties, or you know what the market is paying, or you know how valuable your dentist client is to that landlord and you're able to help us play poker and we get to know all their cards and it makes a huge difference. You said hundreds of thousands of dollars. That is exactly what we experience as well. This is a big deal. I don't know why a lot of us think in dentistry profit comes from just growing more of new patients like, or we think about, like big purchases, but we're not educated on how important managing the real estate side is, whether it's a purchase or a lease. So I'd like to dive in to as many details as possible in this episode. And this will impact the dentist that owns property. This will impact the dentist that's currently leasing. This will impact the dentist that in the next five years is thinking about buying a practice or starting a practice. So this is basically for almost everyone. Why don't we start with the shit, the problems, the mistakes, the things that you see that should be avoided or kind of pressure cooker situations the underrepresented dentists can get themselves into. Yeah, that's great. And I mean, you literally just hit four or five significant keys. Let me start with this. There's a strategy and a posture in every negotiation, and I think this will set the table for it. Most people's understanding of negotiating is basically what I'd call bartering or bluffing. No matter what offer is given to you, if it's a lease rate, you just come down lower and you say, well, would you do this? And you come lower. If it's a concession, you ask for more. And if that's not anchored to facts or you having other options. Landlords are very intelligent. They own properties that are worth millions or tens of millions of dollars. They know when a dentist shows up without representation as an example, the odds of them being a savvy commercial real estate expert are slim to none. I'll start there. The first mistake that health care providers make is they just call landlords directly. And again, it doesn't matter. I don't care what your IQ is, I don't care what your net worth is. Just the image or the Aesthetics of a dentist calling a landlord. They're going to assume they don't have a clue what they're doing. If Charles Schwab has a deal coming up, or Chipotle or Starbucks or any Fortune 500 company, it's not just some random person that works there. It's a real estate expert that lives and breathes real estate, commercial real estate 24 7. So the very first mistake that people make is they won't hire representation. They'll just say, I can make a phone call. I can drive around, I can search online. And it sets the tone from the very beginning. Even if you don't negotiate, even if you think it was just an innocent phone call, you started the negotiation because you've started with a lack of posture in your very first phone call. It triggers the landlord to think a specific way. Yeah, they again, it doesn't matter who that doctor is. They hear, this is doctor so and so calling you about your property or calling a listing broker. And instantly the mindset is, I've got a target that has more money than most, who has a very high success rate, low failure rate. And they're going it alone. This is a deal that I want to pursue. And so we can stop. I'll pause there and give you a chance. But that alone is the number one mistake doctors make, is they just. They call by themselves. It gets even worse on lease renewals. We can go deep on that one. But the DIY approach is fraught with huge pitfalls. Well, so let's just put some numbers to this. So let's assume I've got a dentist that wants to sign a lease for a new location. That could be a startup, it could be moving to practice, whatever it is, and they could handle on their own. And maybe the result would be certain terms, certain tenant improvement allowance range, certain rent range, free rent range. Right. Or they're being professionally represented by experts in this. And that could result in a different result. Right. And different range of monies. And for those of you that don't know what I just said, 10 improvement allowance. That's what the landlord pays to the dentist to offset the cost of building a dental practice, which can be a significant amount of money. And it's one of the things that are negotiated. It's not just negotiating, obviously, just rent and the rent rate, but it's also negotiating how much money the landlord's going to put into the deal, cash out of their pocket, and how many months we're going to get in free rent, where we get to see Patients, but we're not paying rent yet and of course, all kinds of other little things that we can negotiate. So let's just say we have the doctor uninformed, gets what kind of result and the doctor that's represented, what does that result look like? Yeah, so the most obvious ones are going to be lease rates. So most likely, if you're properly represented, you're going to capture more competitive lease rates. If you're paying an extra $2, $3 a square foot on, let's say 2500 or 3000 square feet, you're going to overpay by 60, 70, $80,000 over a 10 year period. If you're getting a 3 and a half percent annual increase and you could have negotiated 2 and a half or 3%, you're going to overpay by another 25,000. If you capture a certain build out period that's free, a certain free rent package. Once you open up and start seeing patients or once you relocate and you miss a couple of months of free rent, you can throw another 15, 20, 30,000 in free rent. And so all these economic negotiations, they just compound. Are they going to put you out of business if you miss them? Probably not. Are they going to cost you a couple hundred thousand over a ten year period? Absolutely. And so you look at that like what does that look like if you do that four or five times wrong. Like let's say you do a lease every five, seven or 10 years over a 25, 30 year career. If every time you do a lease you miss out on a quarter million dollars of concessions, like fast forward that into when you're ready to retire, there's going to be a couple million dollar difference left over for you, believe it or not. So you know, it's like a lot of things that are incremental, independently or by themselves, make or break. No, but they add up to significant amounts of money. And I don't know about you, I don't want to lose 50,000, let alone $250,000. If I can do better with what I have, it's worth my time and attention to figure out how to capitalize well. I mean, I'd much rather have that money for my kids than blow it because I did it myself, you know, so. And there's also this other cost of like deals can fall through, right. When we don't handle the negotiations properly, we don't understand like the unspoken rules and the expectations of just the communication and just kind of how that deal works. It's very possible that an Unrepresented dentist could be mishandling it and the landlord could just push the deal to someone else that was also at the table. They deem it more reasonable and easier. Or I might say, maybe it's not lost at that stage. But if you go unrepresented and you don't have a lot of those kind of terms and expectations laid out before the contractual negotiation, sometimes your lawyer has to step in harder and try to protect you and try to, like, move the needle. And that can kill the deal. Have you seen those types of things happen? Absolutely. A lot of doctors that don't hire a real estate agent will oftentimes hire the wrong type of real estate attorney as well. It's no different than the title doctor. You could be a chiropractor or you could be an oral surgeon. A big difference. You know, people think of attorneys and they think, oh, they're qualified. You could have family law, you could have estate and trust, you could have real estate. And so when you get attorneys that don't properly understand commercial real estate, they'll push on items they shouldn't be pushing on. And that wastes time. It costs you a lot more money. It also discredits you when a sophisticated landlord gets these comments back from an attorney that's asking for things to be changed that never are changed, they lose credibility. And a lot of times you'll hear the adage, well, it never hurts to ask. I can give you a number of scenarios where if you ask, you lose credibility. If you ask or push too hard, they'll feel disrespected. There's a lot of times where if you over negotiate, if you push too hard, an unreasonable offer will get an unreasonable response. And so, for instance, let's say that the landlord's willing to come down on lease rate, let's say $2 a square foot. But if you ask them to come off at $6 a square foot, they'll come back and give you nothing. So if you would have asked for two or two fifty a square foot, they might have come down a dollar fifty or two. Or after maybe two or three rounds, you might have got them down to that full $2. You ask for $6 a square foot off, they're going to come back and give you nothing or give you 50 cents. And so if you ask for too much, whether it's in a real estate negotiation or with an attorney, you'll actually end up capturing less in the long run. It's not one of those things where you can just keep pushing people and eventually get to their best you can. There's a lot of soft skills that are, that are incorporated when someone asks for too much. You can feel insulted, you can feel frustrated, you can get annoyed with people. And that typically results in landlords not giving you the terms that you could have accomplished if you had approached it, you know, with a strategic game plan. So we see landlords kill deals where landlords just walk away. We see doctors over negotiate, we see people come to terms on agreed upon letters of intent and then the legal document comes and the attorneys try to retrade deal points that have already been agreed upon. And you'll hear attorneys say, well, you know, you don't know if you don't ask. But let me paint a picture. If you and I agree on something, let's say I say, hey Scott, I'm going to buy your car for $100,000 and I'm going to come to your house and pay you 100,000. And I get there and after we've already agreed, I say, well, would you take 80,000 after we've already negotiated and agreed like you're not interested in working with me. And so we see people that kill deals all times because they try to retrade or they over negotiate. And we see with attorneys all the time too. So if you're in a competitive market and let's say there's two or three people chasing the same space, which happens a lot of times too, somebody who's over negotiating or unrepresented, they will get kicked out of that negotiation faster than someone who's doing it professionally. Just a couple of questions. What are you commonly seeing is like the top limit of how much ti monies a dentist can get from the landlord to build a startup practice in a shell space? Yeah, that's a great question. It's going to depend on the market. So you know, if we're in like, let's say we're in Tulsa, Oklahoma versus like downtown Denver, there's going to be a difference based upon certain types of markets. But I would tell you it's all going to be somewhat related to what the, what the overall lease rate is. And a lot of times what we do when we're negotiating deals, we're looking at the total concession package and then we're asking the question, how long will it take that landlord to break even on a cash basis? So let's say the lease rates $25 a square foot. If we get a $50 per square foot build out allowance, that's two years worth of base rent before the landlord would break even on a cash basis. Now most lenders are going to finance that money to be part of a loan. So that's not how they look at it. But if you look at it from the standpoint of what's the break even point, cash on cash, that's a really good indicator. I would tell you in a new transaction, especially if it's a shell space, we definitely do not want to see less than two years on the TI allowance against the base lease rate. And it's not uncommon to see that get up to three years or even more so if the lease rate's 25 a square foot. And that'd be a fairly low lease rate if it was a brand new space. If we're at $50 a square foot, we've got two years worth of concessions in that one item. That's great. If we can push that to 60, 75 a square foot, I'm very happy with that. Other things that factor into what's the free build out period? You know, it takes only three months to build out a space, but it takes maybe six months to get the permits, get the construction documents, fully engineered drawings. So the entire process, that can take six, seven months depending on the jurisdiction. And then how much free rent can we capture once we open the doors? That's another big one. From a cash flow perspective, a lot of the loans are going to be staggered when you're getting started, lower payments at the beginning. If we can match that with free rent, we're going to improve that cash flow year one and put them in a stronger position. So the TI allowance, you know, two, three years worth of rent, that's a phenomenal target. The free build out period, the free rent upon opening, there's a couple other items that we package in there and it's kind of a, it's kind of a total concept. We're looking at all these things together and then, and then running that simple math, you know, base lease rate against the concessions and if you start getting up to where it's three, four years worth of worth of rent in concessions, you know, you're in pretty good shape. And then I guess like this, ultimately it's going to be contingent upon the market. Like here's the best way to gauge this. If I just go up with one landlord, I can assume or run ratios myself. But if I'm negotiating with four landlords simultaneously, and that sounds unusual for some people because they're used to residential real estate where you just go pick a house and submit a contract. But in commercial real estate we go to market, look at the top properties, pick the top three or four and then go three or four rounds of negotiations. I'm going to know real quickly what's market. If I've got one landlord offering $80 a square foot in TI and then two are offering 50 and one offering 30, I'm going to anchor towards that higher TI launch and try to bring those other ones up and use that top property as my leverage. But if you only pick one property, you're just kind of guessing, is this good deal or an average deal? We can run numbers and ratios, but the best way is to have the ratios but then also compare them to your top options. And that's why I guess we'll throw this one back in there. Second largest mistake doctors make is they don't negotiate with multiple landlords. When you do, you've got a really good picture of what's fair or what's aggressive. If you don't, you're just basing it on where you started with that landlord man. A lot of wisdom in that last minute. Basically there's a mathematical strategy that of course we've never been trained on that, but there's a mathematical strategy to understand what is reasonable, what's good. There's also of course the multi negotiation strategy to anchor one kind of good set of terms in and try to pull the other properties there. But what about if I'm having to renew a lease? So I got a lease, let's say I signed a 10 year lease or I bought a property, it had some years remaining on it, at what point, how many years away from the end of this lease do I need to start like this process? And what, what are some pitfalls? What, what are some strategies? How do we go about renewing a lease? It's a great topic. It's, it's one of my favorites by far. So let me say a couple of things. Statistically speaking, lease renewals are the number one transaction in commercial real estate by number or volume. Every time you see someone show up in a new space, I don't care if we're talking industrial, retail, healthcare, every time you see someone open a new location or move, for every one new office you see there's going to be 20, 25 lease renewals happening. Wow, right. You don't notice them because there's nothing new that indicates that. But just statistically speaking that's, that's the case. Lease renewals are also the number one transaction where landlords make More money per deal and on a ratio basis than any other transaction. It's the number one deal that landlords want. It's the number one place they take advantage of healthcare providers as well. So if you said to me, hey Colin, what's the number one type of deal or most vulnerable deal that a doctor finds themselves in? It's a lease renewal. So we'll start with that. The minimum timeframe is 12 months. Right. If you wait till you have three or four months left on a lease, you can still find another location. There might be a build out space, you could spaceshare, but landlords are going to, are just going to instantly think you've run out of time. Like you're too late to the game, you don't have time to move you and so they're going to feel like they're in full control. Yeah, well, let me kind of talk on that. So if we think about, okay, when we come to negotiation, we need leverage. We need to say like, hey, you can negotiate with me or I can walk and go over there, right. And so we need enough time to build plan B, leaving the space. And it can take six months of construction and planning at the bare minimum to build a space. It could take a year or longer sometimes if the building we want to go into wasn't even ready yet. And so yeah, I can totally see. So what you're saying is don't wait any longer than one year before the renewal's up to negotiate. And so would two years be okay then? Or like how, how soon can we negotiate that? Yeah, there's a balance there because if you call a landlord three years in advance, they're going to know that you're guaranteed to pay them rent for three years. So their motivation of talking to you is very minimal. Typically we say around 12 to 24 months. And the 24 month time frame is very important because if you have the desire to buy a piece of ground and build a brand new custom building, that process will take you 18 to 24 months. Again people, they instantly go towards like a residential transaction. Like they went into a master plan community, picked out a floor plan and then like seven months later they move in. It's not the case in commercial. There's so many more reviews and processes and votes that have to happen. So if you want to go buy a piece of ground and build your own custom dental office, the fastest I've ever seen that done is 15 months. And I've done it dozens of times. It's typically an 18 to 24 month process. So if that's even on the table, we've got to start at 24 months and that becomes our top leverage against the landlord. This is what we're going to do if you don't accommodate our requests. 12 months though, that's, that's kind of the safe number. That gives us enough time to do what we need to do behind the scenes. And actually if we are going to move, it also is short enough for the landlord to where they realize if they don't accommodate, they're going to have a vacant space here within a year. And so that's kind of the sweet spot is that 12 month time frame. What are we trying to negotiate in the release from. No, you said it's the most vulnerable spot for the health care provider. The landlords can make a ton of money, take advantage. What does that look like? What does that mean? Why is it vulnerable and how do we avoid it? Okay, so I'm going to tell you a story. This was my trigger point for why I started our company car back in 2009. I'm working for the largest medical landlord in the world. It's the largest medical rate in the world. And I've got these two class A properties in Highlands Ranch, Colorado. It's a Denver suburb. I'm the landlord agent at the time and I'm talking to the asset manager whose name was Scott, he's out of Arizona. And he says to me, colin, have you met with. And we went through three different doctors who had leases coming up and we went to one specifically plastic surgeon. He says, have you met with Dr. So and so? And I said yes, I did. And he asked me three questions. He said, does he have a broker? My first answer was no. Second question, does he know the market? No. Third question, is he willing to move? And I said no, he was paying like 20, like 28, $29 a square foot. And the asset manager goes, great, go back to him at 31 a square foot. Now we're marketing space in the building at 24 square foot. Oh my God. This guy literally just went online and like looked at the property, did some research. He would have already seen he was over market by like 25% on top of that, I don't get too detailed, but he had a base year with an expense stop from like 10 years ago because of the office building. The landlord was pushing through like another three or four dollars a square foot of like bogus operating expense reconciliations. So this guy's way above market. But the asset manager goes Great. Like we're not going to hit like a single or dumbbell. Like we're, we're hitting a grand slam on this deal. And so I, I pushed back a little bit and I was like, on my, that would put him like four or five dollars a foot above everyone else in the building. Like, we are already hammering a couple tenants pretty high. And the landlord's like, yeah, this would be the best lease renewal we've ever done, this building. And I pushed back just a little bit. I'm like, ah. Like that feels a little like a little predatory. Like I get, I get the idea of getting a good deal. And he, he hits me back. And this again is just etched in my mind. He says, colin, the definition of a market lease rate is the most someone's willing to pay. If he's willing to pay it. That's the new market. That's the new. As far as the wave comes in, that's the new high water mark. Whatever happens in the situation, no one's forcing him to sign. If he decides to do it, it must be worth it. And so he literally, we went back and forth and he actually hung up on me. He goes, he goes, get it done or I'll find someone who will. And so anyways, I go meet with the doctor. A few days later, I bring the lease amendment. He looks at it, he's like, well, I have no choice. I don't have time to move, I can't move, I don't have money to move. He signs off on it. Yeah. And so that and a couple other like, similar scenarios happened for me. And that's when I decided, hey, somebody needs to help these guys. There was a lineup of like 30 brokers in the wings. Second I was gone, they had no problem finding another listing broker. Yet for whatever reason, the last like 20 some deals I had done on the landlord side, the doctors only had representation on like two of them. Yeah. And so that picture of like the landlord's thinking, what's the most I can charge them? What's the least I can give them? And then the landlord is going to assume the doctor doesn't have time to move. And that's why it's so detrimental. If a doctor calls a landlord directly, especially in a lease renewal, the landlord's going to assume this guy is not serious. If he was, I'd be getting a call from the broker, not from him. If they were serious, I'd be getting a call 12 or 14 months in advance, not three months in advance. Right. And so that's the negative side of it. The positive side is simply this. The landlord cares more about you moving out or is more concerned you're going to move out than you're concerned you have to move because the landlord, if you move out, it's going to cost them more to do a new deal than a renewal by far. And so if they'd give a new tenant free rent, you should get free rent. If they'd give a new tenant a market lease rate, you should get a market lease rate. If they'd give a new tenant a large bill out allowance, you should get a bill of allowance. And so from my perspective, it's the greatest opportunity we have to capture concessions most people miss on the landlord side, they're going to try to give you as little as possible. And so it's a really interesting deal. Yeah. And you know, the, the downside for the dentist is that, you know, once we build a dental practice, because it's so expensive, right? To build a dental practice, it's not like a yoga studio where it's a big room with some lighting and, you know, some mats on the floor. No, I mean there's sinks, there's walls, there's electrical, there's all kinds of stuff. Once we build that facility, if we were to ever leave for any reason, there will be a line of dentists at some point that would love to come into that facility if they could save the construction costs. Right. So it does add strength to the landlord that while the landlord doesn't want us to leave, if another dentist were to come in there, they wouldn't necessarily have to give $80 a square foot ti monies. Right. Because it's already been built for a dental practice. But there would have to be some sort of amount renovate or update the facility. So it's a very interesting dynamic that you talk about. There's also a tax consideration, right. So if I've got a lease that needs to be renewed and I'm thinking like two and a half years out, and I want to know, well, you know, someday I thought maybe I'd own my own building and land and God, what does it look like to build that? And I wonder, I wonder if it makes sense, am I better off owning my own property instead of paying rent to this other place? And part of that is a tax consideration, especially with the, the new laws with bonus depreciation, you know, 100% on assets. What is your thought about or how do you, do you help dentists navigate this question? Yeah, all the time. So here's what we're going to do on almost every lease renewal. Even if they said they want to move or they wanted to go buy, we're going to negotiate a lease renewal with the current landlord. Even if they say there's a 95% chance I'm going to move, even if they say there's a 5% chance I want to move, 95% chance I want to stay, we're still going to go negotiate with three or four outside landlords so that we have maximum leverage and we understand fully what's available. So no matter whether you say I want to go retail or office, we're going to negotiate on both types of properties. If you want a lease or purchase, we're going to negotiate on both types of properties. You want to stay or relocate, we're going to look at both. The reason why is because you're going to be fully informed that you didn't miss seeing a better option. You didn't miss the opportunity of a lifetime because you weren't thinking about it. And then you're also going to have peace of mind that you're not going to wonder, did I get the best terms possible when it comes to purchasing real estate, if you own a dental practice and then you own real estate, the real estate will be worth more than the dental practice 90% of the time. So we could fast forward for 20 years and we're looking to value that real estate versus the practice. Again, it's not every time, but nine out of 10 times that real estate will be worth more. And so when we go to market and we're looking at options, lease or purchase, we're looking at them from a number of different, like, indicators. Number one, can you qualify for financing? The beauty of dentistry is we can get almost anyone qualified unless there's some really, like, significant skeletons in the closet. We're pretty good at that because the industry is so robust and it has such a low default rate. So can you qualify for financing? Yes. What's the down payment to get into the real estate? Do you have it? There are some banks that will do 100% financing, as you know. But can you qualify and then do you have the down payment? Then we're looking at it from a cash flow standpoint. What does it cost to rent per month? Just upfront face rate. What does it cost to own per month? That's a very important number. Oftentimes the cost of ownership will be more than leasing, but it doesn't stop there because there's a lot of things like tax Deductions, bonus depreciation. So we've got to go to the next category. After tax deductions and after depreciation, what's the effective cost of leasing versus owning? Leasing, you write the entire payment off. Owning, you can write off just the interest, etc. Not the principal paid on, but you can bonus depreciate it as well. You know, we go buy $1 million property and then whatever money you put in there, if it's in five year, we can write that off. But of that million dollar real estate we just bought, it's not uncommon for us to be able to get 500, $600,000 allocated towards five year property and get a $600,000 tax deduction. So when we own real estate, there's land, there's the exterior kind of building structure, and then all the interior stuff we build like walls and then the interior stuff we put in there like equipment and furniture. And those categories of things all have a different amount of tax write off. We can make some of them, you just write off just a tiny fraction every year for the next whatever 27 years. And some of it you can write off sooner than. And the laws have recently changed to take most of those costs and write em off in one year. When I say most, it's not the land, it's not the exterior structure of the building, but it's basically everything else. And so let's say we spent a million. And of that million, 600,000 of it was for the stuff. So the 400 grand was for the land. And maybe the exterior of the building, 600 grand was for all the stuff we put in it. We can take that $600,000 cost and write it off against $600,000 of income and not owe any taxes. Or if we didn't even have $600,000 of income, it'll carry forward to the next year, right? So it will offset all that income. This is an interesting strategy because I mean some of you guys are faced with like a, whatever, a $300,000 tax bill every year. What if instead of giving the 300,000 to the IRS, you could put the 300,000 on a down payment with a loan to buy a property that at least breaks even. And now you own a property, you're still out 300 cash, but this way you've got an asset that appreciates and could potentially of course earn money. Did I say that correctly or did I screw any of that up? No, it's great. I mean that's exactly it. And so people will Then say, well, how do I do that? The quick answer is there's companies that specialize in cost segregation studies for bonus depreciation. Typically it's going to be an engineering firm or a CPA firm. Next question is, what does that cost? You can find it as low as $3,000 of property, 4 or 5,000. It shouldn't go much higher than that. Some people will charge you a percentage. I'm not trying to speak against people's model. That's great if you can get it, I guess. But I don't think as a dentist you need to pay that. If you're buying a million dollar property, I'd say plan on spending, you know, four or five thousand for that. The beauty of that is you can take it all in one lump sum like you said, or there's other ways to divvy it up against income, against rental income. Because when you own real estate, you own it in an LLC and then the practice will pay rent to it. And then that way if the practice sells in the future, you're still the landlord. You don't have to deal with this messy dividing of assets. The entity is already in place, the legal structure is there. And then you can sell the real estate to the person that buys your practice. You can write a 10, 12, 15 year lease and just ride that thing till it's fully paid off. You could flip it to an investment company and capitalize and monetize that lease value. There's a lot you can do with it. But the bonus depreciation is a tremendous play. And that, that comes in as like Tier 2 of the evaluation on purchase versus lease. So the real estate is in one entity and of course you got to practice another entity. And of course there's this law that says if you're going to depreciate real estate and get a tax write off, the only way you could depreciate that against your normal personal income is if you qualify as a real estate professional, which means you're working 20 hours a week or more doing real estate activities. And obviously most dentists are not doing that, although your spouse could do it and then you'd qualify. Right? But most dentists aren't doing that. So what you do to kind of write against the income of your practices is make sure that you're paying enough rent to yourself. Right? So your rent payment goes from your income creating asset to dental practice into the asset that has all the depreciation, the real estate entity. And so you can basically through rent structure, you can offset what would have been practice income against depreciable assets in that other, in that other entity? Did I say that one correctly? You did, yeah. Okay. Okay. Now to carry that forward, what is a really lucrative opportunity for dentists that are approaching retirement is to sign a new lease with your real estate company. So you're signing a lease to yourself, but you're signing that lease to be very favorable to maximize the value of the property. And of course there's limits to that. Right. The more rent a practice has to pay, the lower the practice might be worth. But there are some very big sophisticated REITs, investors that value medical real estate tremendously. And if you write that lease with a long term, with the proper, you know, rent rates and so forth, that property can be very valuable. You know, you would sell your practice first and then you would sell the property next and that can create a tremendous amount of increase in your net worth. Do you have any thoughts on that or did I say something incorrectly there as well? Because you're the expert. But let's talk about that. This is one expert speaking to another expert right now. So it's a great strategy and I mean, I'm not exaggerating. We help hundreds of doctors do this. So if you decide to go the ownership route, let's just say that you look at options of lease or purchase, the purchase makes the most sense. It could be that the effective cost of owning versus leasing, it could actually be less by the time you factor in principal, pay down, depreciation, etc. There's times when owning costs you less than leasing. That is a no brainer if it's an equal property or, or better, like all day long. There's other times where owning costs a lot more and you just have to decide is this worth an additional investment. Like life insurance costs money. Putting money into a 401k, putting money into a brokerage account. Right. All those cost money, but they're very valuable assets, they're very valuable investments for your future. So if ownership does make sense and we go that route, you're going to do exactly. You're going to write a long term lease and you're going to look at how much loan term you have left. And I'll use a quick point here. Most commercial real estate loans are 15 to 20 year loans. You can do a 25 year loan. It's typically going to be an SBA loan. Doesn't have to be. That's typical. Again, people always go residential, 30 year mortgage. Most commercial loans are 15, 20 years. The beauty of that is you're paying down so much more principal. Like if you run an amortization schedule at 15 years versus 30, the principal pay down is tremendous. So you're going to have this building paid off within 15, 20 years. And so you look at this idea, whether you own the real estate for three years before you sell the practice or whether you have it paid off, we're looking at how long do you want to cash flow that for? What's your exit strategy? And then the second you have a long term lease, 7, 10, 12 years in place with a larger dental group or even an individual dental owner, it's going to be exceptionally valuable, exceptionally marketable. And then you can sell that on a capitalization rate and you can monetize that at a very, very high level. So you can sell it to the person that buys the practice, you can hold it, you can cash flow it for a very long time, or you can flip it on the investment market. You're going to have a number of exit strategies, but a lot of doctors do that. And it is a, it's a tremendous way to get a two for one, sometimes a three for one, because that practice is obviously valuable. But if the real estate is as valuable or more valuable and you hold that thing, cash flow it for, let's say 10, 15 years and then you sell it for significantly more than you paid for because of that lease value. It's not uncommon to get three or four times out of that real estate what you put into it. I want to switch gears a bit. What we haven't talked about is the dentist. It's buying a practice and the practice they're buying has a lease. Right. What are some of the strategies or potential pitfalls in that kind of scenario? The first thing I tell you when you're buying a practice is you have to realize that the person you're talking to typically represents the seller. It's very rarely do buyers go in there with representation. They just don't. They just, they call practice brokers, they're asking six practice brokers send them listings, they get information the practice broker is accommodating because they want to sell it, but they have a legal fiduciary to the seller practice, not to you. So you have to realize there's a difference between somebody accommodating or facilitating a deal and, and someone who has a legal fiduciary to advocate in your behalf. What that means is you're talking to a practice broker and they're going to tell you things like this is A fair leash rate? Well, they're saying that because they represent the seller, not you, they're going to tell you it's locked in place, we can't touch it or whatever it might be. And so you have to realize who you're talking to. Again, most are smart enough to be respectful, but you have to understand, it's like if somebody sued you, like you would realize the person suing me is not going to give me legal advice. If the IRS audits me, I'm not going to ask the IRS agent for thoughts. I'm going to go to my own attorney or my own cpa. So in a situation when you're buying a practice who's telling you it's a fair lease rate, the best thing you can do is have an expert real estate agent look at it and then give you evaluation and say, look, it's a, it's a good lease, it's an average lease, is a bad lease, it could be a bad lease, but you still buy the practice because you want the practice. You just go in there knowing I'm paying more for the real estate because I want the practice. It could be if it's a third party landlord and it could be you're going to overpay for that real estate, but there's a huge opportunity to renegotiate it in the next two or three years or what have you to where. If the numbers make sense now, they're really going to make sense in the future when you can renegotiate that and you can change the cash flow. So point one would be know if it's a good average or bad lease. And you don't do that by listening to the practice broker. You do that by getting your own representation. Number two, we're looking at when can we renegotiate it? If there's 10 years left on it, you're going to be locked in there for 10 years. If there's 12 to 24 months left, we can probably renegotiate it. If the numbers made sense ahead of time, they're probably going to really make sense once we're done, the next thing I tell you is if it is negotiable and we can go after it, we should be looking at things like market leash rates, pre rent packages, TI allowances, etc. But in order to get those, you have to have a strategy. You can't go in there and just ask for things. You can't go in there and just send an email off to the landlord and hope you're Going to get it. You have to have a specific strategy. And then I'll give you one more thing. Sorry to get lengthy, but there's just so many variables. You also just have to be aware who the landlord is. If the landlord is the doctor that owns the practice, it's going to change the dynamic because they control both sets of negotiations. If it's a third party landlord, that's our preference in the vast majority of scenarios because it removes the seller, the practice, from one of those two. And we're going to have a lot more success pushing a third party professional landlord than the person that owns both assets. So all those variables will impact how we address it. But look at the lease. Understand what you're getting into. Find out if it's negotiable, when is it negotiable, and if so, and then how much can we capture when it is time to negotiate? Yeah, I don't think dentists know that when they're going to buy a practice, they need a lawyer on their team. They definitely need an accountant on their team to help create pro forma financials. Understand what happened. They now know they need someone to represent them for the real estate side of this. Maybe people didn't know that until this episode. I would also add, you're gonna want some sort of coach or practice management consultant to guide you during the transition of taking over practice. Those are important people on the team. I do have another question for you, though. How often is it that, like, let's say I'm a dentist, I want to buy a practice, but the lease doesn't give the seller the ability to kind of turn the lease over to me. Right. The landlord has to approve and the landlord could potentially say, no. I don't like Scott Luna. You know, he. He's not, whatever. He's not worth enough or whatever. I don't want him to be my tenant. So I am not going to approve transferring the lease over to him. Does that kill the deal or how do we get around that? Can the landlord really kill my deal of trying to buy a practice because they refuse to let me be the tenant? Yeah, and they kill them all the time. And so let's give a pro tip right here. When you are signing a new lease, whether it's a startup or you're on your 10th location, whether you've been practicing a day or 20 years, you have to have an assignability clause and you have to have a proper assignability clause. Okay. So we deal with people all the time that the selling doctor never negotiated an assignability clause, which means the landlord doesn't have to transfer that lease. They might allow a sale, but they'll keep the selling doctor on that lease as a personal guarantor. It's a really bad place to be. The best equivalent I could tell you is if you sold your house to some random person and yet you had to guarantee the mortgage for the person that bought your house when you don't live there anymore and have nothing to do with it. That happens all the time. A lot of people go out there and they'll get an assignability clause, but it'll say at landlord sole discretion. Yeah. Or it'll say equal or greater net worth. Well, if you're selling to a DSO or a larger group, sure, you probably could check that box. But how many, how many 26 year old dentists have the same net worth as a 55 year old dentist? Like doesn't happen very often. So having an assignability clause is obviously the highest poll in the 10. But equally important is having a good assignability clause that allows you as the selling doctor to get off and the new buyer to get on. And there's a couple of things that we figured out over the years that allow that to happen in a much more reasonable manner. And that's very important. I've seen assignability clauses truthfully where the landlord will approve them and say I get 10% of the practice sale for approving it, or they'll say things like that, or it's super egregious, but they'll do it. And again, it's shame on you for not negotiating it properly. You had an attorney seven years ago, so there's a lot of things that can happen with that. But the key is you've got to get off the lease. If you're selling the practice, it's not reasonable to stay on. There's ways to do that, but. And then you need to get fully accepted as the buyer. That takes some strategy. Typically, yeah. I'm trying to think, you know, if we are stuck in the situation, let's say I'm the seller and I screwed up because I didn't have proper representation from Colin Carr when I renewed my lease and I don't have the ability to assign it to the new buyer, the young dentist that's buying my practice and, and because the landlord says no, I don't approve them, now I'm going to have to go renegotiate the sale of my practice to add protections to me. Like, okay, well now you're going to buy the practice, young dentist and all the terms we already agreed on. But now I'm going to have to add terms. I'm going to have to say, if you don't pay rent, I got to take over the practice or I'm going to have to give you, like, you're going to have to sign some personal guarantee to me in case I've got to meet rent requirements or, you know, all kinds of things start happening. And that can also, of course, leave a very bad taste in the mouth of the buyer. I've actually got a client right now that I coach and he walked away from the deal because of this particular issue. And so the seller was going to get the price they wanted and the buyer is a great buyer for the practice. And the literally just could not negotiate once. Once the lease came up, it was a big problem. First question, bunch of young dentists out there. If they hear me teach, if they hear me preach, I tell them, you need to be an owner earlier in your career than you think. And that is going to be one great way to build a ton of worth, net worth, and to control your career better. What are you seeing right now? What's the market like? I'm a dentist, I want to buy a practice or I'm a dentist, I want to do a startup. Is the market for me meaning landlords are really happy, they're giving great concessions because they really want dentists. Or is the market kind of hard for me meaning landlords aren't really valuing us for me? Your viewpoint, having a dentist as a client to do a startup, what's it like today compared to the past? Yeah, it's a very interesting question. Here's what I tell you. Interest rates don't determine whether you own practices or not. Like, everyone wants a 4%. If it's at 6, you transact based upon whatever the best rate is. Currently. You can't time the market, you can't predict the market, Nobody can. That's a fallacy. You can guess sometimes people are lucky. But if you're waiting for rates to go down to where it's a meaningful change, you might be in the silence for four or five years. You put four or five years extra on your practice ownership and then go into the future. You probably just lost a couple million dollars cumulatively by the time you get to the end of your career. Yeah, yeah. I'm going to actually interrupt. I'm so sorry. I spoke to the Ohio State Dental School today and I told them the biggest, the costliest mistake we can make is delaying being successful. It's not actually a mistake. Oops, I bought this thing I shouldn't have bought or oops, I didn't do that correctly and it cost me some money. The biggest amount of money we lose is delaying doing the right thing, delaying being an owner for five more years because you just don't feel like it's kind of the right time and you're not ready. That's the biggest cost. You know, I've got dentists that are taking home more than a million dollars every single year's take home pay. Every year they waited, they paid the universe a million dollars to procrastinate. You know, that's crazy. All right, so I'm sorry about that. Continue, continue. No, it's exactly right. So you don't not transact because of interest rates, and you don't not transact because of lease rates. I mean, here's the reality. Stock market goes up and down all the time. Like we've seen some crazy shifts and so forth. I don't know. Real estate that costs less today than it did five years ago, like, it's just the way it works. I mean, if I could go back in time five years, I would have bought 10 times more properties the last five years. And I bought. Real estate's a finite product, land's a finite product. And so this whole idea of like, well, I'm gonna wait for prices to get cheaper, you're probably never gonna do anything then. You do the best you can with what's available right now. You strategize you posture, you talk to a couple different lenders, you do the things that you need to do to make sure you're getting the best of what's available. It's a phenomenal time to transact. It's not gonna get better for you in two or three years. And even if the market goes down a little bit, like what's the opportunity cost that you just lost delaying it three years? When you get to the place where you are taking home a million dollars a year and then back that off the last five years of your ownership because you, and then back off on top of that. What could you have learned in that process? Like how much, how much more valuable would you be in the marketplace right now? What would you have done with that 5 million? How would you have leveraged that and put it into other investments and turn 5 million into another 2 million? I mean, whatever it might be, I mean, it's exponential the loss when you do that. So here's what I tell you, this is not just like you should transact to transact, but if you want to own, you're not going to get a better scenario outside of some crazy market correction which may or may not come. You transact based upon leash rates, you transact based upon interest rates. If rates go down, you refinance. It's not hard to figure out. The faster you get after it and the. The more you become a student of every aspect of practice ownership, you're going to find other ways to monetize and capitalize and go to the next level. So for me, right now, it's the best time to transact because it's the right time to transact. And then you're going to figure out in the future when your lease comes up for renewal, you don't have the ability to say, well, I'm going to wait two years. You have to transact. Your lease comes up, you don't have an option. You need a space to practice in. So you have to move forward with something. You do the best you can with what you have. So some markets are a little softer, some are harder, all require representation, but it's all about just capitalizing on what's available. You know, if you're a dentist that doesn't own a practice and you're listening to this, if you make come to the realization that owning a practice will be the highest chance for you to be financially free. And of course, also just being able to pick your team, being able to pick your software, being your equipment, like your hours, like having control over your career. But if you make the determination that being an owner is gonna be the most lucrative thing I can do for my family, then you need to do it as quickly as possible. The right time to do the right thing is right now. And every moment you wait, you're accepting the wrong thing. And I think that the fear comes in because we've never done it before. It's hard to know when everything's aligned perfectly, like, okay, now it's safe. When's the right time to, to have a kid? I mean, I don't know. I've had five all throughout my, you know, and I don't rep. I don't regret any of them. You know, it never felt like the right time, but it was always the right time because having a kid was the right thing. And so I think to get more comfortable with this takes some education and it takes some options. So if we learn how to do a startup and we learn how to buy practice, we learn how to do practice management, we don't have to learn everything, we have to be a master of it. But gosh, we learn half of what we need to know. That's enough to bet on ourselves to learn the rest as we do it, right? Get some initial knowledge and that makes us feel comfortable with the demand of running it. Get some options, meaning go look at five properties, negotiate them, look at buying this and renting that and have those options in front of you. And suddenly this fear is peeled away because now we've got this foundation of fact and knowledge where we feel like, okay, I really can bet on myself. Instead of making someone else money on their staff with their software, with their schedule, with the dentistry they want me to do. No, no, I'm going to find passion in what I do. I'm going to have people I want to work with. I'm going to have an environment that represents the kind of career I want and I get to keep the money and the value I make because that is going to go to me and my family. I'm going to bet on me. It just takes knowledge to get past the point of fear. And of course some people, they're not scared of anything and some people are hyper scared of everything, right? But knowledge can cure this. So having the right representation, helping you see all the options and having the right training will get you past the fear of it. And if someone's listening to this right now, if I just nudged you to move forward, this was one of the most life changing moments for you because how your life looks like with another five or 10 years in associateship compared to what it'll look like, five or 10 years of being an owner will be dramatically different. This is an incredibly important thing to decide and it will never feel like the right time. Okay, well, Colin, before we wrap this up, I want to turn it back over to you for any last kind of comment or thought or anything we, you need to add to there. We didn't cover. And by the way, this was super valuable, at least in my experience. This has been the most valuable conversation in like a short podcast environment over this topic that I have ever had. And I hope the listeners all felt the same way and they learned something about it. And it really does speak to the expertise of you, your experience, your company. And it's so obvious that having representation from someone that serves our profession is much different than, oh, my brother in law's a real estate agent and he sells houses and he's going to represent me in transacting a dental Practice, lease or acquisition, it's so different. And I really appreciate what you guys do and of course I appreciate how open and honest you are on this podcast episode. So I'll turn over to you for any last kind of comments or things we didn't bring up. I appreciate Scott. It's been a lot of fun and it's a fun conversation, but it's a powerful one too. I mean, real estate's typically second highest expense behind payroll capital. Equipment every once in a while will eclipse that. But there's a couple hundred thousand dollars in the line in every deal that you can either, you know, you can either gain or forfeit. Here's the quick checklist for you have representation that specializes in healthcare that's not gonna have conflicts of interest. That's the first box. Number two, always go to market and look at all your options. Even if you know unequivocally, that's my favorite property or I don't wanna move, you still let your broker go to market because that's how you create leverage and that's how you gain peace of mind that you're getting the best terms possible. Number three, you always negotiate on multiple properties. Even if you know you don't want to move or even if you know that you're buying, you still go through the process. It's not your time, it's your broker's time. And then number four, you mentioned it and it's what you have, it's how you've helped so many people. Surround yourself with experts. Like the most successful people in any endeavor industry are just completely tremendous partnerships with the best attorney, cpa, practice management, real estate, whatever the category is. Just get really good people around you. They'll create guardrails, they'll educate you in the process, they'll make you a more valuable version of yourself because you'll be savvier than you were before. And so if you do those three or four things, that's how you approach real estate. You're going to win more times than not and you're going to find yourself worth a significantly, a higher amount of money from a net worth standpoint, you're going to have a practice that's worth more money, it's more valuable, and you're going to have a lot more confidence in your ability to make right choices or decisions in other areas. So that's kind of my short list, but I think that gets the job done. Well, that short list is a very, very valuable short list. Life changing list. This was a wonderful conversation. So Colin Carr, CEO of CARR focusing on healthcare, real estate so that we dentists have the best deal, we're protected the most, and we also have just a tremendous, valuable peace of mind in moving forward. Super awesome conversation with you. I want to thank you obviously again for joining us and doing this to all of our listeners. I hope someone listening to this this got you to the next step. Please, of course, subscribe to our podcast. We love the support and we've been honored by how, how high we've ranked in the podcasting world and what kind of engagement we have. If you've got questions, if you've got concerns, comment on it. We're looking at the comments to help us understand what to talk about next. And shoot, we could bring Colin back in the future and just walk through the entire process of buying something, for example. If that's valuable to you, let us know. Colin, thank you again. And everyone, this was the Dental CEO podcast. My name is Scott Leune. I'll see you next time. Thanks.