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Home Well-BeingFinancial Well-BeingPersonal Investing How You Can Profit From the Greatest Wealth Transfer of Our Lifetime

How You Can Profit From the Greatest Wealth Transfer of Our Lifetime

by David Phelps

The traditional paradigm of investment and financial planning, that is, earning and saving one’s way to retirement, putting one’s full faith and future in the hands of Wall Street (stock market or municipal bonds) are no longer valid… if they ever were.

Like it or not, we live in uncharted waters today, with political and economic dynamics that have, to date, never been experienced. We’ve already witnessed so-called “Wall Street and bank bailouts” to the tune of trillions of dollars of our taxpayer money. Our political culture is rapidly changing from a capitalist entrepreneurial society to one of entitlements and redistribution of wealth. Government and politicians are on a spending spree like nothing we have seen in history. Crony capitalism is alive and well. Your hard-earned money is being confiscated at an alarming rate, most of it going into the hands of those who know “how to play the game” and have connections to Wall Street and other political insiders.

What does this mean to you? It means that you will have to work much longer and harder to even try to maintain the lifestyle to which you have become accustomed, not only while you are actively working, but for your retirement years after you are no longer in practice. Taxes are going up at a significant rate and high inflation is likely just around the corner with the Federal Reserve pumping $85 billion dollars into our bond market every month.

The public exchange, stock market and bond trading, is a very “open and efficient” market – everybody has access to pretty much the same information, the products trade easily and quickly and with minimal “friction” from trading costs, and there is enough volume that buyers and sellers are generally available. While this makes for very “efficient” trading or investing, in such a market, it’s pretty hard to find a “bargain.” In an efficient marketplace it is, over the long run, nearly impossible to “beat the market” and the investor is better off to simply “buy the market” and attempt to ride the average.

The problem is that Wall Street has not been a very good custodian of the retail investor’s capital over the years. While insider trading and manipulation is supposedly taboo, there is no doubt that the individual investor is “the mark” for the big players. In short, it’s a fool’s game unless you have access to Wall Street insiders.

Statistically, as a profession, dentists are highly educated with a strong work ethic and a “take charge” attitude. We are problemsolvers with creative minds. We love to figure things out.

Then why are fewer than 5% in our profession able to retire or even slow down by age 60 or 65 without being dependent on third-party assistance and/or significantly downsizing their retirement lifestyle? More and more dentists are finding it necessary to continue to work another 5 to 7 years into their 70’s!

Why is the net worth of the average dentist at age 56 only $225,000 after 30 years of practice and over $15 million dollars of gross revenue passing through his or her hands?

Is your plan on track? Do you have a plan? Is the vision that you had during your last year of dental school the vision that you are living today? Or is that vision a fuzzy blur that has faded into the past?

What happened? How can this be? The most common reasons that I hear today why dentists are unsure about their ability to retire include:

• I don’t make enough money to save for retirement

• I started saving for retirement too late

• I lost most of my retirement savings in the financial crisis

• I don’t trust the economy and government enough to stop working for a steady income

There is a better way… a faster way, to reach that freedom point and provide options. Isn’t that what freedom is about? Having options?

Our practice “nest egg” is being in large part, commoditized in its value by the Affordable Healthcare Act, insurance dictates, and now the growth of corporate dentistry. With a lower practice value, combined with higher taxes on its sale, plus a lack of viable investment strategies (CD’s and money markets returning 1% or less), how do you fund the remainder of your life without severe lifestyle compromises?

Let’s cut to the chase. Your traditional options as a professional practice owner have been severely limited to a strategy not unlike gambling in Las Vegas. It’s hope and pray.

While in my first year of dental school in 1980, my father and I purchased my first residential rental property on a joint venture formula (a formula that I teach to dentists and other busy professionals) that produced a nice cash flow during my dental school years and a little over $50,000 capital gain profit that my dad and I split after graduation… a lot more money than I made waiting tables for four years at nights and on the weekends. Fast forward fifteen years, and my rental real estate had completely replaced my dental labor-produced income (what I refer to as “trading time for dollars”).

Historically, more wealth has been created via real estate than any other investment class. The majority of business owners who are financially free have a significant portion of their assets invested in real estate.

Last year, Warren Buffet stated, “If it were practical to load up on single-family homes, I would.” Today, Warren Buffet is systematically buying up real estate brokerages throughout the nation, providing him access to all of the single-family properties that he desires.

I know what you’re saying… “But David, we’ve already admitted we don’t have time for a second career or to handle tenants and toilets as a rental property landlord.” Got it… and I completely agree. Don’t do it the way most try to do it! Instead, use my proprietary joint venture formula, and you don’t ever have to meet or talk to a tenant or a contractor, and you can still be invested in good solid single-family real estate, well-secured (no pooling of your money) with returns 6-8 X bank returns plus an inflation hedge (the latter is very important!).

Real estate, unlike the public exchanges, it not an “efficient market.” There exists a great deal of inefficiency and a lot of “asymmetric access to information” where opportunities and bargains abound. The problem is how does a busy dentist avail him or herself of the best opportunities of a lifetime without becoming an expert in a new field or spending time dealing with tenants, contractors and toilets?

Are you concerned about government confiscation? With a $17 trillion dollar national debt and no end in sight, from where and from whom do you think the money will come to fund socialist America? From YOU! And if your assets are conveniently tied to financial accounts, and account numbers tied to your social security number, it will be very easy for our government to “take your investment assets and put them under protective custody to dole out to you and others on a fairness and need basis.” It’s what I call the “Law of Low Hanging Fruit.” If your investments are easy to find and take, it will be the first to go. Real estate… not so easy.

Inflation. Real estate has historically kept pace with inflation as well or better than any other hard or tangible asset. Property values and rents (cash flow) rise during inflationary markets, protecting your purchasing power.

What about illiquidity and market volatility in real estate? Yes, there are cycles in the real estate markets… anytime that you have a government that interferes in the free markets, cycles will occur. Those who lost money and assets in the last housing cycle were either speculators with no discernment for cash flow and/or they used institutional financing for leverage. Investing is not speculating. That’s for gamblers. There are too many good deals available today that are acquired and held based on solid cash flow economics… appreciation is the icing on the cake… not the reason to invest. Bank financing should only be used for your own home and to some degree, for your practice or business financing.

Real estate is the perfect vehicle for a private lender joint venture which removes the risk and allows an investor to build real relationships with real people… not banks that change their name every couple of years. The ability to customize real transactions with real people, with secured documentation that does not involve partnerships and does not involve funds or pooling of money, allows the busy dentist to build wealth and cash flow in a way that no other investment class can do.

Real estate is what set me free nine years ago when my only child, my daughter, Jenna, was faced with a life-saving liver transplant at age 12. It was then that I made the decision that I would not wait for "someday" to live my life… because some day might never come. My real estate investments provided me the platform to leave my “scheduled life” and the ability to be with my daughter. This is what freedom is about… having options, or a “Plan B.”

Then what are the options for the individual investor, who is busy and focused on running and maintaining a viable business or professional practice, yet doesn’t want to lose control over his investments by handing them over to Wall Street or pooling investment capital with syndications or private placements?

Let’s deal with some of the myths of single-family real estate investment before discussing the benefits and how best to be an efficient and prudent passive investor.

Common objections or barriers for the novice single-family real estate investor are:

1) Inefficient market….it’s not easy! (the stock market being an “efficient” market).

2) Limited access to opportunities (where and how does one find "good deals?”).

3) No centralized management (the investor’s nightmare).

4) Lack of liquidity (takes time to liquidate real estate equity).

These very objections to single-family investment are what make this asset class a prime opportunity for those who wish to build wealth in today’s economy. We are experiencing a massive transfer of wealth (redistribution) today with trillion dollar bailouts of the big banks and Wall Street and the concurrent collapse of the housing bubble in 2007-2008.

Those who have access and an understanding of local markets are taking advantage of acquiring these assets at well-below replacement cost and with cash flow returns well into double digits. Strict credit financing and underwriting regulation has reduced the percentage of available homeowners who can qualify for financing which in turn causes rents (cash flow) to increase.

The inefficiencies in the market, the lack of ability for real estate values to be traded on an exchange, is what allows for the real opportunities for the astute investor. It is because of these inefficiencies that real estate cannot be manipulated by high-speed computer or insider trading and keeps professional or sophisticated traders or investors out of the market.

Finding "good deals" is an art and requires both a local presence or network and the ability to lead generate through various media sources. The passive investor must rely on a co-venture partner who is a "boots-on-the-ground" active investor to gain access to the best opportunities. It’s all about the connection, or “who you know” (see joint ventures below).

Almost everyone knows someone or has direct experience with a landlord/tenant horror story. But it is this very management skill that creates real opportunities for those who know how to either systematize or outsource the management component. Real estate investment is not for the accidental landlord; someone must set up management systems and processes.

The fast track for the "passive investor" for finding the best local opportunities and handling the management issue is through purposely-structured joint ventures with an active co-venture partner. A joint venture is not a partnership. Joint ventures provide for severable (separate) interests in real estate that are documented, secured and do not require the future division of interests through litigation (the messy downside to traditional partnerships).

The most successful people in the world are those who learned early that almost any endeavor can be achieved more efficiently by collaborating with others who bring complementary assets, skills or resources to the project or investment. This is what I call “Relationship Capital.” There is no asset more important than the people with whom you associate. Jim Rohn said it best, “You become the average of the five people with whom you most associate.” Going solo limits the efficiency and ability to achieve and produce more.

Real estate values have always been dependent on the availability of financing. When interest rates are low and banks and mortgage institutions are providing relatively easy credit financing, real estate is more liquid and values increase (the driving force in the housing bubble which peaked in 2006). During times of limited access to credit financing, housing values decrease and real estate is less liquid (the cause of the housing bubble collapse in 2007).

Novice investors consider traditional bank institutions as the main source for investment financing. This limits the investor to the bank’s lending criteria and requires placing all of one’s personal assets at risk (personal). Experienced investors have long avoided bank financing for acquisition and holding periods and instead utilize both private lenders and seller financing for leveraged acquisitions.

When one has developed access to private funds, no longer are real estate investments illiquid and leverage financing carries much less risk. Additionally, private funds can be used in both equity and debt financing (the former being the most risk averse form of financing).

In conclusion, the current economic chaos and turbulence has also created great opportunity. The singlefamily real estate market is one place where the individual investor can play on an even playing field with other investors, where the market cannot be manipulated and values do not plunge 30-40% in one day. The fast way into this market is through other people, other individuals who already have a network and access to local market deals. The joint venture model is the game changer that allows a busy professional to lay his claim to the largest wealth transfer of our lifetime. Which end of the transfer will you be on? The receiving or the giving end? It’s your choice.

Dr. David Phelps owned and operated his own private dental practice from 1983 until 2004 when his only child, his daughter, Jenna, faced a life-saving liver transplant and the arduous road to recovery. At that time, David left his practice, creating systems and operations that would allow him to continue to own the practice remotely for another six years, at which time he sold it to one of his dentist associates.

Today, David lives a life of freedom. He maintains his dental license so that he may practice if he chooses. He operates an active real estate investment business, speaks internationally, and holds mastermind meetings at various times during the year in Dallas, Texas, for professionals who seek a Freedom Blueprint, to create the freedom lifestyle that was once a clear and sharp vision.

You may reach David at David@FreedomFounders.com, 888-5485855, DavidPhelpsInternational.com orFreedomFounders.com.

David Phelps

David Phelps

A former practicing dentist, today David Phelps is a nationally recognized speaker on creating freedom, building real businesses and investing in real estate. He authors a monthly newsletter, “Path to Freedom” and hosts “The Dentist Freedom Blueprint” podcast. Freedom Founders provides the pathway to freedom for many professional practice owners.

Website: www.FreedomFounders.com
Email: DrPhelps@FreedomFounders.com
Phone (call or text): (972) 203-6960

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