Investing in real estate as a practicing dentist is like a football game: You need smart plays and good coaching to score in different situations—especially in today’s market.
BY JARRON TAWZER, DMD
WAS 12 WHEN I asked my grandfather, a successful business and real estate owner, how to someday generate the level of income he did. Without missing a beat, he replied, “You have to make money while you sleep.”
I took that advice to heart and put it to work, buying my first four-plex just a year out from graduating dental school. Ballsy? Maybe, but I reduced my risk with a clear plan and smart strategy. Since then, I’ve aggressively bought all types of real estate (commercial, residential, group), boosting the amount of passive income I earn with each new deal.
Let’s start with some basics. Many business-minded people talk about passive income, but only a small percentage actually make it work. Dentists are not only better situated for real estate investment by virtue of our profession, but we also have more raw motivation to be successful at it. After all, dentistry can provide a great income, but it’s taxing and takes a physical toll. One way to hedge against physical and mental burnout is to adopt the business model in which you hire more and more associates to work for you. That’s fine, and
it should enable you eventually to do less dentistry as the years go on, but it also means you’ll be investing more time actively managing. You’ll never make money while you sleep.
But is now the right time to invest in real estate? Interest rates are high. Construction costs are up, and the labor shortage continues. There’s a lack of inventory. Should you sit on the sidelines or go for it?
My answer is always the same: It depends. For the purposes of this article, we’ll focus on building or buying a commercial building for your practice, and save other real estate opportunities (such as apartments, homes and land development) for future columns. Here are three common scenarios. Let’s examine them and whether they “pencil out.”
Scenario 1: Picture a three- to four-operatory practice that’s bursting at the seams. Solution? A new building with six to nine operatories. The result? Increased production and collections can potentially offset higher interest rates, construction costs and a bigger mortgage payment.
Scenario 2: You have a three- to four-operatory practice, but one or two chairs are routinely vacant. If we apply the same solution as above, optimistically expecting growth, the result will most likely be stagnant or slight increases in production and collections. That won’t offset higher interest rates and other costs.
Scenario 3: Your three- to four-op practice is busy but not in immediate need of more operatories. However, you come across land or a building that’s priced below market value. Too good to pass up? Maybe. Lower acquisition costs and stagnant or slightly increased production and collections can offset your financial obligations.
Similar scenarios are endless, and that’s the point. There’s never a perfect situation. The only scenario that always ends in disaster is No. 2 (and all its variations). For everything else, we need to look at additional factors to decide whether to invest.
Down payment. Many banks require 20 percent down of the total build or acquisition cost.
Interest rates. A couple percentage points’ difference could increase your payments by thousands of dollars a month.
Purchase price. A high price can cause the deal to not pencil out.
High construction costs. These can cause a budget to balloon and require a greater down payment and larger loan.
There’s no shortcut to developing good instincts and a successful real estate playbook. On the other hand, it’s not rocket science. Knowledge and savvy come from countless resources: books, podcasts, articles like this one, plus advice and mentoring from successful people . . . like my grandfather did for me. Stay tuned—I’ll cover more aspects of real estate investment in upcoming issues.
JARRON TAWZER, DMD graduated at the top of his class clinically from Oregon Health and Science University. A member of Incisal Edge’s 40 Under 40 in 2022, he practices cosmetic and implant dentistry in Logan, Utah, while indulging his entrepreneurial side. He writes and advises
on real estate investment; contact him at firstname.lastname@example.org.