Dr. David Phelps on Creating Freedom with Real Estate Investing – EP 38

Dr. David Phelps on Creating Freedom with Real Estate Investing

From a very young age, we’re taught that in order to earn money, there has to be an exchange of time. To make more, you have to work more. The problem is, there’s only 24hrs in a day, so the earned income model completely limits how much money you can make.   

Sure, you can level up by making a higher hourly wage or working more hours, but beyond that, you’re stuck. 

As a result, people will settle for mediocrity. They end up building a lifestyle around what they get paid, rather than building their pay around the lifestyle that they truly want.

It’s a trap! One that most people don’t know how to escape. Which leads me to today’s episode of the podcast… 

I’m speaking with Dr. David Phelps. David worked on the dental practice hamster wheel for over 20 years before being punched in the gut by his daughter’s life-threatening battle with leukemia, epilepsy, and a liver transplant — all before the age of 12. 

Fortunately, he had a Plan B! While still in dental school, David began investing in real estate by joint-venturing with his father on their first rental property. Three years later, they sold the property and David took his $25,000 capital gain share and leveraged it into 31 properties that produced $15,000 monthly net cash flow.

Today, he’s a nationally recognized speaker on creating freedom, building businesses and investing in real estate. And his journey to create passive income and live for what matters most has inspired audiences across the nation. 

In our conversation, he makes it very clear why he believes the conventional idea of earned income and the “working to live” mindset is completely broken. You’ll hear us talk about all things real estate; how to buy properties that cash-flow on day one, the secret to getting seller financing, how to structure a deal on YOUR terms, and much more! 

You’ll also learn why the nest egg approach to investing is incredibly flawed, and what you can do to avoid the trap of earned income!

Key Takeaways with Dr. David Phelps

  • David shares the story of how he first got into real estate.
  • How to safely structure real estate deals on YOUR terms.
  • How to buy properties that cash-flow on day one — and why anyone can do it.
  • The power of collaboration and leveraging the skills of others to structure deals. 
  • The secret to getting seller financing on your next property.
  • Why negotiations don’t need to be adversarial—and how this shift in mindset can lead to more deal flow. 
  • Why conventional investing is a recipe for a mediocre life.
  • Why the nest egg approach to investing is incredibly flawed. 
  • Avoiding the trap of earned income.

The Alternate Path to Financial Freedom with David Phelps

David Phelps Tweetable

“In real life, you get to find other people who have experiences, knowledge, expertise, and complementary skill sets that maybe you don't have and you can find ways to work with each other.” - @DavidPhelps Click To Tweet “The snowball effect of compounding equity wealth in assets has so much more benefit, and it's a force multiplier that your active income can never keep pace with.” - @DavidPhelps Click To Tweet


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Read the Full Transcript with Dr. David Phelps

Justin Donald: All right. David, I’m excited to spend some time here together, and more than anything, I mean, we really have a very similar philosophy on investing in life. And I’m excited for you to share your story and your philosophies and how you’ve gotten to where you have today. So, thanks for being on the show. 


Dr. David Phelps: Justin, it’s a pleasure. I love visiting with you and talking about shared stories and experiences. It’s a lot of fun. 


Justin Donald: And it’s always fun when you get recommended to people by friends that you know really well and then when you meet, we get a chance to connect prior to this. And I was on your podcast. I love that you can be on my podcast. But we have several mutual friends and it’s just an incredible community of people. And I just love when you connect with someone at such a level and the foundation is so strong and so similar where you just feel like you’re walking arm-in-arm and step-in-step and I really feel that way about you, David. So, I think you’re doing great things in the world and great things for the dental profession and knows that you have influence with. I’m just excited to have you here to share your story today. 


Dr. David Phelps: Well, it is not by coincidence that we got kind of put together and even though we came from different backgrounds, as you said, the thing it’s like we’ve been long-lost friends. Twenty years ago, we were in school together. I’m just making this up, of course, and then like we just connected last week and it’s like we just pick up where we left off. Well, we’re just picking up because our stories and our philosophy of life is so similar. So, I think that’s exactly what you’re saying. It’s just like it’s fun. It’s easy. 


Justin Donald: Yeah. Well, you have figured out this hack, the hack of living the life that you want. And you’re one of the few that have been able to do it and you’ve got an incredible life. You don’t have to work. You get to work. You have the privilege of working and the opportunity to impact and influence people. But you don’t have to. You’ve got passive income that more than covers anything and everything that you want to do. So, I’d love to hear how you got there and like, why did you go against the norm of what conventional wisdom and conventional investing tells you to do? 


Dr. David Phelps: Well, I got tricked a few times so it wasn’t that I was totally able to go against the norm because I got sucked in like we all do a few times but you’re right. I’ve always been a little bit of an outlier in my peer group, whatever that might be. And as you know but I’ll tell the rest of your audience is that I went to school to become a dentist. Well, why a dentist? When my father was a surgeon, I deviate a little bit to stay in healthcare but I didn’t want the lifestyle I knew he had, which was a good lifestyle for his family but he was hard working and was gone a lot because he was taking care of trauma and that kind of thing. I thought, “Well, dentistry, there’s not like a whole lot of trauma there, right? I mean, you have a lot more work hours.” So,  I went down that road. But like you and probably everybody who’s listening to your podcast today, is that I always had a curiosity about other things and other things that were different. So,  it kind of goes back to even when we were kids, right, and I’m sure your childhood was the same. I’m always trying to figure out how to make money because my parents, fortunately, didn’t give it to us kids. I mean, they gave us a paltry allowance and that was to do all the massive chores, which was slave labor back in the day but I appreciate it. I appreciate what we had to do. And so, I wanted some upgrades, Justin. 


So, I’ve always played tennis since I was young. Well, my parents wouldn’t give me – I wanted back in the day it was like in the 70s it was a Stan Smith. Some people may not know who Stan Smith is but he won Wimbledon back then. I wanted those Adidas Stan Smith shoes. Well, they were pricey shoes. I wanted some gut strings in my racket, not just the nylon stuff. I wanted the upgrades. I wanted the better Schwinn bike. I wanted a small back in the day black and white rotary dial portable TV for my bedroom so I did not have to be in the family room and watch their stuff. So, I had to go earn that. So, similar to your story, I had to learn how to sell early. I sold greeting cards door-to-door. I mean, I took them on consignment and I went door-to-door trying to offload these greeting cards and sympathy cards to people and I learned very quickly that people often said no. I mean, they said nicely no. They didn’t like slam the door on me but I still had to learn about some rejection. Just keep going. Keep going. You know, it’s a numbers game to get the stuff I wanted. But anyway, I went to dental school while I was in college so I started reading books about finance. Now, unlike you, I took no economics, no finance, not even an accounting class. Back in the day, I was all science because, well, that’s what I had to do. But I still had this curiosity about, well, kind of like I wanted to know how money worked. 


And again, I didn’t come from a place of need or scarcity in my life but I still want to know how does money work because I saw my dad work really hard and I knew that he didn’t have any like real investment protocol. You know, he had the typical Wall Street financial guy in town who was like the guy. But listening to my parents talk as I was growing up, getting out there, there were financial worries but I just remember talking about the orange grove in Florida like it froze. I mean, that’s something he invested in or just different disparate things and that’s kind of a hodgepodge of Wall Street. And just in the back of my mind, I think I said, “I want to learn how to do that better.” So, I started reading books in college. I read books about Wall Street, mutual funds, and I grabbed some books on real estate, and the books on real estate just made sense. It’s tangible asset and I can exert whatever control I wanted over it and it’s all the aspects that I know about alternative investments. It was all there in front of me. So, long story short, I convinced my dad to invest in our first joint venture property when I was in my first year in dental school, knowing I’d have at least four years and then we’d figure out what to do. 


And I found out after waiting tables, which is what I did to put myself through school, I waited tables on the side and I made good money. I mean, back in the day, it was flexible hours. I made good tips, relatively high-end restaurant back in the day. But when I calculated what I made in tips working for four years and the capital gain profit that I split with my dad which is about $25,000, this is back in 1983 so we’re going almost 40 years back, that was a chunk of money for a kid coming out of school that I still had some student loans and, yeah, I took that money and I parlayed it into more properties. But the big take away from me, Justin, and I’ll take a breath because I know you like to ask some questions, the big epiphany for me was when I looked at that $25,000, which was a capital gain profit, we both know that’s different than ordinary income, and I realized how much time did I exert primarily on the front end of locating, negotiating, acquiring, arranging some upgrades to the property, and then I became the manager. Well, it’s even a dumb, well, not a dumb kid but an inexperienced kid, you know, I figured out how to manage and put a family in and have an attorney put together a lease contract. 


And then the rest was pretty much a free ride and yet every day, not every day, but four days out of the week I put my stuff, I go work at the restaurant and I made about 10X in the capital gain profit over three-and-a-half, four years over what I made working in the restaurant. And that was to me it’s like that’s the game-changer. And just like you talk about, it was the asset that produced the really, for the most part, passive annuity income. Once the deal was set, that gave me this chunk of money because I couldn’t save that kind of money from waiting tables. I mean, it was all spent. It was spent on stuff, right, because that’s usually what happens with income. It gets spent on lifestyle, college lifestyle, whatever it might be. All right. So, I’ll stop there because that’s what you want to hear. 


Justin Donald: Oh, that’s such a great intro. And I love your story. Again, there are so many similarities to just the way you and I grew up and the way that we had to kind of find our own income. You know, my parents told me early on, I remember in seventh grade, I had to get my first job because my mom said, “We’re not your bank. If you want money then you need to go get a job,” and so I did. And I loved having that freedom and that autonomy. I got into selling newspaper subscriptions door-to-door. You know, my buddies had paper routes. I actually wanted to be able to make more than that, that I’d be responsible for income-based on sales. And same for you, where you went door-to-door and you got tons of rejection just like I got tons of rejection. And what a better foundation than that to just know what it’s like in the real world, to appreciate a sale, to learn how to communicate effectively. I mean, that’s powerful. And then like you, I also very much got my next layer of education and I would call it my primary education via books and learning about real estate. I love that you had this discovery early on where you said, “You know what, I traded time for dollars and that return was fine but I 4X that return with no time.” And I had a similar moment to you in that and mine might have been a little bit later on. I mean, I had read books and I knew kind of how I wanted to transition from earned income or time spent earning income to passive income or asset income. 


But it really was eye-opening to me when I looked at my very first flip that I did and most of the real estate that I bought was buy and hold. It’s always kind of how I heard to do it. And I did this flip of a mobile home park in a year and a day, and that significance of the year and a day is so that it was long-term capital gains instead of short-term capital gains, should I not be able to do a 1031. I wanted that peace of mind. And so, this property, I ended up making a $500,000 profit in a year and a day. And I said to myself, this is the easiest like income that I ever made. I almost called it a job. It’s not a job. This is like I bought an asset. I bought that asset undervalue, I improved it, and then I was able to sell it at an improved value and increased value, and that took the least amount of time of any dollars I have ever made in my entire life. And then I looked at what I was making for my job, and by the way, I’m very thankful for the job that I had. I’m very thankful for working with Cutco and everything that that was able to provide for me. But even being a high-income earner there, it was very obvious that the trade-off was extreme for the amount of time I was putting in when I could make incredible amounts of capital just on assets, just on buying right and selling or buying and holding. And so, that just opened up my world and it sounds like that happened with you. So, I’d love to know the next step. So, now you know. So, we both had this epiphany of, wow, what am I doing spending so much time earning money for? What’s your next chapter? What did you do with that valuable insight? 


Dr. David Phelps: So, I took my capital gain. Long-term, we have capital gain profit from the sale of that property my father and I joint ventured. I was graduating school so I graduated dental school. I go into practice now. I wisely and I still say to this day, I didn’t go out and try to start up a practice, buy a practice because there were a lot of things I need to learn about business. You know, I’ve talked about that. Plus, my clinical skills need to elevate. So, I associated with another doctor where I could learn. I don’t have to have the issues of the business and learning how to do all that. So, it gave me a little more time. And I was married but I didn’t have a child yet so I had that time. My wife was also a professional in the accounting world so I had time to go out and take this curiosity that now is enhanced by the first deal that we did and say, “How could I multiply that?” Well, you and I both know we talk about the use of properly used leverage. Well, I had to leverage and that’s one of the key multipliers of assets is you can acquire control bigger chunks or more of the assets by utilizing leverage, and banks or even private capital are very willing to lend. So, I took mine and I parlayed it out. Now, I use maximum leverage. I did not use banks back in the day, probably because I couldn’t because I didn’t have enough financial creds behind me. I’m like a new grad and I don’t even own a business. So, I don’t think I could have even gone and gotten loans, I’m pretty sure, but I had some great mentors, Justin. 


During those years, I was reading and you follow the trail. Back then it was books. We didn’t have online forums. There was no Internet back then. So, it was books but through the book authors, you could find the people who were doing seminars and they had newsletters. And so, like you, I’m reading and then I’m going to the seminars and finding who are the right people. Who are the people that are not just selling me some pipe dream, but actually do what they say? You can ferret those people out. It takes a little bit of time but it’s worthwhile to find the right people as you do then you learn how to structure your asset-building the right way because there are right ways to do it and wrong ways, right? You can get yourself down a bad rabbit hole if you don’t know the principles. So, to understand those principles, I learned how to use safe leverage with making sure I structured the capital stack on whether I was getting the seller to carry back terms on some of the equity. I took over a lot of his existing loan subject to. So, I injected little bits of money, I mean, because I had to make this money last, right? But I made sure overall that I always had a decent cash flow margin above all expenses, which I learned pretty quickly what those would be in owning these properties. And I was doing the managing in those properties so it was my time trade and the debt service. I learned very quickly how to structure the debt service, and I could do so because I could, not always, it’s a negotiation. 


It’s a little bit of a numbers game but with the right seller, with the right motivation and, of course, building trust and still documenting the deal so it’s secured but I could get sellers to carry their financing and kind of what people say, “That’s crazy terms.” I mean, I did some where there’s like no interest, no payments because I showed the seller I was taking away a problem. They trust me because I’m a professional. I got a day job but I still showed them. If I’ve taken over your loan and the payments are X and the property expenses are going to be X and the rent is going to be X, then I said, if I pay you like back in the day it was like 8%, 9% interest, not what we have today. “If I pay you that on the terms you want,” I said, “then I’m negative.” And I said, “You don’t want me to take on a project where I’m going to be in the hole,” and they, “You know, that’s right. We don’t.” So, I structure their equity on different terms. Now, again, they had to be in a financial position to do that. It’s not like you walk up to everybody every day and they’re going to do it. But like you, I learned to accept rejection because I learned early on that every place I went to sell a greeting card box, there weren’t takers. I had to keep going, keep going, but eventually if I would make offers, make offers, make offers, bingo. You finally hit one and now you can structure the deal on your terms as long as you’re solving their main problem, which was usually unloading a property that they no longer live in, they’re moving out of state, whatever. 


So, that’s how I got going and I leveraged up and I did all through single-family at first like you. I got into a mobile home park within not too many years down the road. I love mobile home parks and mobile homes on land. I got into the financing side of real estate but in the secondary market with owner-financed notes. I learned how to take properties like you and sometimes I wouldn’t say flip them for cash. I flip them on terms. I take the spread on terms. So, again, structuring deals, learning how to put these things together, things, Justin, that I never learned in school, but the self-education was so much better because I was learning real-time from people who really did it. And that was the fast track for me. 


Justin Donald: Yeah. That’s incredible. I love your story. I love the experience that you’re getting. I mean, David, it’s so cool what you learned at such a young age and I feel like sometimes people hear this and they’re like, “Oh yeah, I wish I would have learned it that young.” But the reality is any time you learn it, that’s when the magic happens and that’s when it changes the trajectory of your life. And so, one of the big takeaways I got from your story is that it’s a numbers game that you have to try hard enough times to get a seller finance deal or to find a piece of property or whatever it is. You just have to make enough attempts. And if you do that, you’re bound to find someone that’s going to work with you. And that’s a beautiful thing about real estate is that you do have so many seller finance opportunities. And so, I want to break this down for our audience, for our listeners, and those watching, because a lot of the time, people think that when you buy real estate like how do you buy it? It’s so expensive. How do you make it work? And you mentioned things like debt service, which is what you owe on a mortgage or on a loan and you mentioned something else. Well, when you think about it, you mentioned a down payment and a seller finance where they carry the note. But something that I want our listeners and those watching to recognize and understand is you can buy properties that cash flow day one right out of the gates, that you’re not buying it for appreciation, which is a lot riskier, that you can buy it today. And if you’re wondering how that happens, there’s something called amortization and you mentioned this, David, but that basically is like your monthly payment. 


So, let’s say that you borrow money and you have a 10-year amortization but you have another deal where you borrow the same amount of money and you have a 20-year amortization. Well, you’re going to owe less of a debt service payment or monthly note payment or mortgage payment because of having more years that it amortizes over. And so, the way I look at amortization is I look at it as if that were the length of years of the note or of the mortgage. So, you might only have a 10-year note or a five-year note but if it’s amortized over 25 years, which is my goal, then you’re going to have a really small payment to cover that debt and it makes it really easy to cash flow. And so, I want everyone to understand that what David has done, what I have done, you can also do and it’s just about playing the numbers game, getting out there. You can do this on a seller finance, which I think is the best but if you can’t, there are banks that will amortize it. I got a bank that consistently amortizes at 15. I’m sorry. They just did a 15% down payment for me on this last deal that I did and they amortized it 25 years. So, I love what you’re doing and I also love that you’re bringing this information into a community like you have influence in a very large dental community, a dental network. People look up to you because you’ve done something they haven’t yet done. And I’d love to hear more about that and I guess why you are so passionate to serve that community. 


Dr. David Phelps: Well, because I’m one of them. I mean as dentists and I can make fun of dentists because I am one. And so, we’re typically very analytic. We’re fact-finders big time on the Kolbe so that means we got to analyze, analyze, analyze, analyze, whoops, better step back and analyze one more time, which is great when you’re working on the human body. No question. That’s the person you want doing surgery or dentistry on you. You want someone who’s like really detailed and they’re going to check, check, check, check and measure five times and all those things. But outside of that, it doesn’t work. And so, I had to learn to have like two separate identities or psyches. I guess it’s the way it was. And I tell people, I laugh and I say today, “I was a dentist by day, but nights and weekends I was the entrepreneur.” So, flip that dentist hat off and now I’m putting on this other hat that says not to be cavalier about taking risks. No. You and I both know that but there are ways to mitigate the risk and a big part of it just comes from the communication skills. So, you learn that through Cutco. I learned through selling greeting cards and then I waited tables for eight years, college and dental school, so again same thing. I’m learning how to deal with different kinds of people. I’m an introvert. Unless I’m talking to someone like you about stuff we love, I’m very much an introvert. I’m not the guy who’s going to come out and I don’t have all the charisma but you don’t have to. You don’t have to. 


And so, dentists like me because I’m one of them. They see me as, yes, he’s one of us and I laugh and say, “Look, if I can figure this stuff out because I got no special skills, I have a curiosity.” I have a deep curiosity about different things and I did what you and I both know to level up and that was to early on in life, and again it’s never too late, to find the right people. So much of what we learn in life, Justin, is in school there’s no collaboration. I mean, you don’t take tests with your buddies. I mean, when I was at dental school, we had like lab practicals like gross anatomy lab practicals and you don’t get to talk to your buddy about, “Hey, what do you think that is there like let’s look at it.” No. But in life, you get to do that. In real life, you get to find other people who have experiences, knowledge, expertise, complementary skill sets maybe you don’t have and you can find ways to complement each other. That’s what you and I do. We don’t try to go out and find the deal, put the deal together, put all the wheels in motion like a new business. It’s like, no, I’ll bring a piece of whatever I bring to the deal. Maybe I bring some expertise in this particular deal, maybe not. Maybe I just have the access to capital credit. That’s good enough, whatever you bring, and then you can learn how to take slices. And I know that’s what you do. You take parts of the revenue and profit-sharing on the revenue and sometimes equity stakes. 


But the whole fun part for us, Justin, is the skill set, learning how to put together win-win structures. When someone has a problem, which maybe it’s more like a challenge like there’s this opportunity and someone found an opportunity it’s like, okay, they’re really good at maybe running the operations because they understand the industry or whatever it is or the real estate but they don’t have the other pieces like they don’t quite know how to structure it and the access to maybe the private capital or the institutional capital, not quite sure how to structure it. And if you’ve got experience doing that, then you bring that in, inject that into the deal, structure it so it’s a win-win for everybody. You’re all on the same page, so no one’s like sucking, greeding, really taking more than they should, you’ve got to let the market go in and deals will work out different over time. But knowing how to structure and mitigate your risk, it doesn’t leave a whole lot of risk out there. Not that every deal is going to work out exactly to what our expectations, but they don’t have to because we know how to over secure, over collateralize the potential risk we make. So, if somebody needs from me like we lend money a lot, right, Justin? So, operators, I’ll lend money and take different kinds of profit shares and cash flows and equity pieces to make it fit for them. But let’s say somebody needs more loan-to-value in a deal that I’m comfortable with. Okay. My question is, what else you got? What else you got? I’m happy to give you 80% of what you need for the acquisition rehab but I need something else to make sure I feel comfortable. Otherwise, I’m going to back you down. So, there are so many ways to structure that allow you to put deals together and you just create the synergy where the sum of the parts are greater than the singular person trying to do all on their own. 


Justin Donald: That’s exactly right. And I love that your framework is the same as mine where you want to win-win. Like the goal is that everyone walks away feeling good. You don’t want to be in a position where someone has like really taken advantage of the other side. And I can assure you, if that’s the way that you do business, you’re not going to get a lot of repeat business. The repeat business happens because people feel really good about the way that that relationship is set up. And so, one of the things I share in my book is that, to me, negotiations are not an adversarial thing. It’s not me against you. It’s more like, hey, I understand that you want X in sale price. I’m actually okay giving you X in sale price if we can make the terms really work where we can both feel good about them. And so, the goal here is let’s collaborate and find a way that everyone wins and we feel really good. And every time I say win-win, it cracks me up. I always think of Michael Scott from The Office and his win-win-win scenario but, really, I love that. I mean, it’s hysterical, makes me laugh, but that’s what I want. I want everyone to win. And I just think that that’s so great. 


Dr. David Phelps: Well, repeat business is the whole key in life. I mean, if you can start working, collaborating with somebody or some group or whatever you put together and you do one deal successfully, well, guess what? There’s going to be more. Well, how about if we do that again on the next deal and maybe it’s a little bit different structure but we all have the opportunity to work together. And when you’re dealing with real people, I was going to say, again, I have nothing against the use of institutional financing, especially nonrecourse, I mean, it definitely juices the deal and interest rates are so low today. But when you can use private capital, whether it’s debt or equity structures, you’re dealing with real people and real people who get it, who want things to go through. If there’s market dynamics, Justin, that change the economics of the deal, no fault of the operator. It’s just the market. Well, we had COVID last year, did we not? We still have it but I mean last year. So, did they not change the dynamics at least on the short run for probably some businesses, some investments? Yes, it did. So, if I got the wrong mindset like I invested money with somebody and they had to put it like a little pause on capital distributions because you just want to make sure you’re covered, I’m not egregious, then I go in there like try to force their hand like, what’s that about? No. I want my money with people who I know know how to take care of it. I’m going to back up and say, “Sure. We’ll reconstruct the deal. We’ll change the prep on it.” And certainly, everything worked out. I mean, everything’s climbing back. Whatever it was a year ago during that correction we had, it was a good test case for a lot of people who had never been through any kind of corrections. It’s like, “Oh, this is what it might look like when we have the next one.” So, how do we all participate? And with people who understand how this game is played, that also mitigates a lot of the risk. 


Justin Donald: And I love hearing you already talking from the standpoint of splits and preferred return and equity and all these things that basically are leaning towards private investments. You and I have talked about this before, but I’d love to know your opinion on conventional investment wisdom and stock market investing. You and I are very similar in the fact that we don’t do much of that and that we see a lot of value in having more control and having greater upside and just really being able to find deals that otherwise wouldn’t exist in the public equities. But I’d love to hear you speak on that. 


Dr. David Phelps: So, I talk about degrees of separation from our money, the money that we make that we want to invest in something. And so, you think about one’s primary business, whatever that might be, doctor, dentist, butcher, baker, candlestick maker. You’ve got a business, right, so you’re that solo entrepreneur. So, in your business, however you run your business, invest money in the business, whether it’s expansion or more labor or technology or whatever, you have direct control. You are making decisions right there. You’ve got the most control of that money, good or bad, right there. Now, let’s stretch all the way out to Wall Street. That’s what I call two degrees of separation because I don’t get to sit in the boardrooms with GM or whoever I’m investing with on the market. I don’t get to sit there with them. I don’t get to get the insights. Yeah, I got reports but I don’t really get to see really what’s going on behind the scenes. So, investing in alternatives, private capital, I’m just one degree of separation because you and I both know with direct investments and alternatives, we actually get to spend time with the person, the people, the company, the culture. We can dig as deep as we want to and understanding what their track record is, how they think, what they’re looking ahead as far as market risk reduction in their model because I want to hear that. Yeah. Times are good right now, huge opportunity, whatever it is. It’s like great but we both know or we all know there’s going to be a correction. So, how are you going to mitigate? See, I can ask those questions. I don’t get to ask those questions on Wall Street. I just have to kind of take my financial advisors’ best guess. And does he or she have any more direct connection? They might be able to read reports better than I can but what do they really have that I don’t have? Really nothing. 


So, it’s degrees of separation of your money. If you want to be ultra-super passive and you just want to play, that abdicates your financial future, they make it easy, don’t they, Justin? I mean, save on taxes, put your money in the 401(k), the cash balance, defined benefit plan will save your money all day long and it’s all going to be good. And so, people start doing that on a disciplined basis and they think when they’re younger that it’s, “They got my back. They got my back.” And then it’s sad when I talk to the dentist colleagues who are in their late 50s, early 60s, and they’re not there. As a matter of fact, they’re not even close. And I think about the fact that they had literally the private practice dentist, just my example over let’s just say 25 years, 30 years of practice in their private practice, they probably ran an average over those years of about a million dollars a year gross. Okay. So, let’s call it $30 million and to see what little they have left. There’s a problem with that plan. It doesn’t work. So, I try to wake people up early in life and say, “Look, you can choose.” You can choose. You could take the model of the mainstream America that will always be there to tell you, “Yep, put your money over here. Save money on taxes. Defer, defer, defer,” or you could take the other path, which is going to take you a little bit of time in developing the access points, the people, the network. Yes. You’re going have to invest in yourself and buy your way into those groups, those people because that’s what you and I have done but that investment pays dividends over and over and over again for the rest of our lives. And there’s no better investment. 


I almost can’t stand it when people ask me, “Should I keep putting money in the 401(k)?” and can I go, “I mean, if that’s the only thing you’re going to do then, yes, by all means, do it.” But do you want a different life? Then you’ve got to shake that cage and stop going down that path that everybody says is the way to go. Because you do that, you’re going to live an average, mediocre life, and that’s not what you signed up for. 


Justin Donald: Yeah. It’s that whole idea of better than. If you’re only going to invest in a 401(k), that’s better than not investing. But if you really want to find something better than a 401{k}, there are endless options out there. And I think that you get into trouble when the advice is, “Oh, just defer.” Well, in this case, you’re deferring. If you’re going to be retiring soon, you’re deferring into a much higher tax rate and I actually think it’s going to continue to get higher as this new administration comes in, as the next new administration. Over time, as the deficit of our government grows, they’re going to need to find those dollars somewhere. So, I just think it’s going to be higher tax in the future. So, I don’t know if the best answer is to defer. And I also think that you’ve got to be careful in an industry where I don’t believe that there is alignment in outcomes. Any time that you can lose when other people win, I mean, Wall Street’s going to make money on your money whether you do or you don’t. Your financial planner is too. So, find someone that’s awesome if you’re going to go that route or choose the route of lower fees, choose the route of index funds, or choose the route of private investments and syndications. Choose the route of piggybacking on deals that your friends or people in your network who are successful that have a long track record in a certain area have done because the nest egg approach does not work like you think that it works. I can assure you of it. I’ve seen it so many times that if you are saving money for some end date, some retirement date in the future, where you’re hoping to have enough principal, that you can live off the interest, which is highly unlikely, therefore, you’re then eventually going to spend that money down to zero, there are better ways. 


There are better ways to wait until that date when you can buy assets that either infill by yourself or through syndications of other investors doing it where you’re a limited partner. There are opportunities where you can have equity today. You can have cash flow today and you don’t have to wait 20 years or 30 years or 50 years. And so, I’m curious your thoughts on the whole nest egg approach because you have to see that all the time. I feel like in the medical community, in the dental world, in corporate America, this is the thing. 


Dr. David Phelps: Well, that’s the problem. It’s the nest egg. It’s the accumulation. You know, stack it up to different Wall Street products, but get as much as you can, stack into those products in those various accounts, and then just hope that you have enough. Well, that’s the problem, Justin, is this uncertainty because through those models, the investor and certainly the platform, whatever, the stock-bond, mutual fund, 401(k) manager, whatever they’re using, it gets about accumulation. They’ve never shown the investor how to orchestrate what you just talked about, cash flow. That’s what it’s about. I mean, it’s about cash flow. Now, their model is stack it up. And then it’s ironic to me that what financial advisors say to people when they’re leaving their active income, career, job, business, selling out is they say, “Okay. Now,  it’s time to put you in conservative investments.” I’m thinking, “What have you been doing for the last 30 years?” “Well, we’ve been playing the roller coaster game because that’s the only game in town that we have. You know, you ride it up and then you ride it down and you ride it up.” And for most people, unfortunately, they find out after 30 years of playing that up and down game that all they have, if that is the contributions they made, they never got any growth and they certainly never got any cash flow. I mean, maybe a few dividend stocks, but I mean, not focused on what we look at. 


So, the problem with the nest egg approach is even if you think you have enough and I’ll tell you, most of the financial advisors that advise my dentist based on their reasonable, not super highly affluent, but reasonably solid, good lifestyle as they tell they’re going to need $6 million, $8 million, $10 million dollars in the nest egg. Well, I’m telling you, I mean, the healthcare industry is not producing that kind of returns on the income credit today, especially with taxes. I mean, if you’re not using a model that allows you to do what we’re talking about, you’ll never get there. But the good news is you don’t have to have that much. I have shown our docs in our group how for most of them, a couple of million dollars to start out with where you’re not depleting the nest egg, you’re actually growing nest egg and you’re also creating a cash flow out of the gate that you need that lets you know, “Hey, I actually can stop my active income instead of, well, my financial advisor tells me to – here’s the key thing, Justin, they tell them, the docs, “Well, you can just retire in practice.” That’s the key. You retire. I’m going, “What is that?” Well, it means you sell your practice to another doc so you harvest out the equity after tax and you give it back to the financial advisor. And then because they never know if you have enough, they go, “Well, you’re going to stay on and be an associate.” So, it’s like, “Well, you’re just still working.” I mean, to me, if that’s my exit, what have I been doing all these years? If that’s my financial advisor’s advice, I think I need a new one. 


Justin Donald: Yeah. That’s so powerful and to just really be at a place where you can make different decisions. So, it’s really funny like you have critics in the conventional financial space where it’s like, well, why wouldn’t you give us your money? We’re professionals, but that doesn’t mean that they have a track record of success. And by the way, anyone in the last 12 years, 13 years can look good but we now are dealing with inflation at a rate that we never had before, with 50% more money in circulation in just this past year than the total amount of currency in circulation. So, think about half the money in circulation was just created in the last year. So, inflation is massive. So, any gains that you have, they’re going to be wiped away by inflation. So, at the end of the story, in this nest egg of that’s supposed to accumulate, it’s just not going to do it. It really is not going to do it. And you are going to owe taxes on a lot of those dollars in a lot of those qualified plans. So, it’s not all your money. A portion of that you’re going to pay taxes on at the higher tax bracket, in my opinion, but you’re losing the three greatest deductions that you have. So, you’re losing this great deduction of mortgage interest. You’re losing this group because you probably have your home paid off by then and you’re losing this great deduction of dependents. And then the biggest deduction of all will be business expenses. 


And so, I mean, I just don’t see any way that it shapes up like people think. But the irony of it all is you can actually buy cash-flowing assets and that asset itself, and as you buy more of those, the group of assets, they will continue to appreciate. And the more money is printed, the greater those will appreciate, and the better you do with them, the more they’ll appreciate. So, there are many avenues to having it appreciate while still having cash flow. So, the alternative is let’s invest in the stock market, hope that it ends well, and it’s a good season when you retire and you don’t get any cash flow on it. You have no utility on that money. And hopefully, it makes something. And this is a big hopefully. We don’t know what it’s going to look like. We don’t know what taxes are going to be. We don’t know what inflation is going to be. We don’t know if you’re going to retire at a time where the stock market tanks, which you can never make that money back.  Even if it returns to the mean, you lose money. So, it’s a losing game and I just really want to call people to action in this space. And then one other thing you and I have talked a lot about that kind of blends well with this is this whole idea of earned income. And that with earned income, you pay higher taxes and it takes more of your time and more of your energy than passive income. And what we see, you have said this about people in your network, I’ve certainly seen this in mine, is that a lot of people spend money to the lifestyle that they want based on the money that they earn. And so, as they earn more, they spend more. 


I’m curious your thoughts of this whole trap of earned income. I mean, you have been vocal about this before that the way that we’re conditioned, the way that society grooms us, the government grooms us, the financial institutions groom us, just the indoctrination that we get from universities and colleges for the way that we should work and how we should exchange time for money and kind of gearing us towards this world of earned income, I don’t believe that that’s what’s in people’s best interest. I’d love to hear you share some thoughts on it. 


Dr. David Phelps: Yeah. It is a trap, Justin. And you’re right. It’s what we’ve been told, what society, and what our respective industries have really indoctrinated our thinking. And so, I think about this way. People who go to school for a long time and they stack up a lot of debt and they kind of have to live like paupers going through school many times and even coming out of school, you’ve got all this debt and yet you put all this time and now you’ve got a degree. You’re an engineer, CPA, a doctor, dentist. So, there’s an expectation that now life is supposed to begin and it’s supposed to be now you deserve. You deserve to upgrade everything. You’ve been living in resident student housing or whatever you’ve been doing, driving an older car. But now because you got the license and you’re in business, you’re in practice, then the credit markets will say, “Hey, you deserve it. We’ve got you covered.” And so, because everybody else does it, you go, “You know, you’re right. I do deserve it.” And how can you look at your college you went to school with who are already going down this path and you’re trying to be more conservative and think, “You know what, it doesn’t feel good to me. It just doesn’t feel good but, man, I can’t go socialize with them and show up at the annual reunion and have me drive in the used car and they’re like they’re on the high flier,” because, again, well, you can afford it as long as you can afford it. 


Now, the problem is, again, people think in that mindset that it’s okay to elevate the lifestyle because why? Well, the financial advisors, they’re taking care of it. Yeah. I’ve set up that 401(k) plan. I feel so good about that and they’re saving me big chunks of taxes and I feel really good. Oh, by the way, what does that savings of taxes go, that deferral? Let’s say it goes back to the lifestyle. See, what they should be doing with that money is putting into assets, other investments, but it ends up going into the lifestyle column. So, you’re actually getting further behind because you save taxes today but as you said, you don’t pay taxes at a higher rate down the end. No question, that’s going to happen. It just it has to. It’s where we’re running. So, because they have this false sense of security that Wall Street’s taking care of them, then it’s just like, “Well, I don’t have to worry about it.” And no one’s ever helped them put pencil paper and show them the typical outcome. You and I have the advantage of working with a lot of people who have had that same mindset and seeing the results of the bad results, the results of the frustration, almost the cry for help. 


Kind of the mean age for me is like for somebody that’s like 59, the 59-year-old hardworking dentist who’s putting the time each year and unfortunately, oftentimes gone through a divorce, there’s all kinds of things that the calamities along the way but the bottom line is they’re still in debt and their bodies breaking down now because they’ve been doing it so long. I tell them, “I got no magic pill here. I mean, I just don’t. I’m so sorry. I want to help,” but they just got bad advice or they didn’t seek better advice. They didn’t step outside their comfort zone. They didn’t seek other people when they had the time to do it, the time, the compounding time to change that model. And there is a point where it’s too late for some. I hate to say it. And so, I love catching younger people. And if they’ll listen, if they’ll just listen, even if they can’t act on it yet and realize that the snowball effect of compounding equity wealth in assets has so much more benefit, and it’s a force multiplier that your active income can never keep pace with. 


Justin Donald: Yeah. That is so well said and so powerful. Such a powerful concept. And just this world today of the way that people earn money and the way that they spend money to me is backwards. It’s like, okay, I have a job that pays me X amount of dollars and then I’m going to spend that money inside of whatever dollar amount, and most people spend beyond it, right? That’s why most people are in debt. And then the moment you get an increase, then the lifestyle increases. But I think what we should be doing is the opposite of that. It’s getting clear on, “Hey, this is what I’d like my life to look like, and in order for it to look like that, here’s how much it would cost per month. So, why don’t I figure out how to earn that per month?” And by the way, it could be an earned income to start but what if a part of that was in passive income? And what if the goal was to be able to accomplish all of that in time and passive income? Maybe it just starts at first with your utilities are covered in passive income or your car payment or your mortgage or whatever it is, and it can continue to grow. But I just think if you get into the mindset of, “Hey, this is actually what I want life to look like, like this is what it cost me to live today, what would really be cool is to have this lifestyle and it would cost X amount more today. 


And then if I just were to buy these assets, it would produce this much income, and then I could have exactly what it is that I want, and I’m not sacrificing. I’m not taking my principal and spending it down on liabilities. I’m instead buying assets where they’re going to appreciate and I get cash flow from it.” And so, I know that you eat, breathe, and sleep that. I think it’s incredible. Hey, tell us about your book. I see it in the background there. I’d love to know a little bit more and I’d love to know where people can find your book because you preach and share and teach a message that everyone needs to hear. 


Dr. David Phelps: So, yeah, the book is entitled What’s Your Next? Creating Your Freedom Blueprint. And the reason I wrote this particular book is I’ve written the books that we both love and live by. It’s the basic financial acumen and how to use real estate or alternatives to build wealth and the models and stuff like that, which is cool. That’s the technical book. But I want to write a book that really spoke more to the bigger picture, like what are we really seeking to do? We talked about it earlier about are we just after the money? No. I mean, no, we’re after the freedom. We’re after the time trade. So, I want to write a book that spoke to people and particularly as couples, because in a marriage, each one of us, while we were growing our family, our goals in a form that we both agree on, for the most part, there are still individual needs that each of us have, right, in a marriage, in a partnership. And I want to speak to both sides because I’ve had the blessing to work with a lot of couples. So, the book is really, it has some of the basic constructs that we talked about today, not diving super deep in like wild math numbers because I think that wears some people out. I want to speak to the bigger picture of the ability, the permission, Justin, for people not to stay in a rut, a career path, a time trade that they start out with in life and they just got to live that thing because society or the industry said that’s what you do until you “retire” at 65. So, you should have the opportunity, the permission to evolve. 


Now, that doesn’t mean you have to sell your business per se but how could you evolve and be building the wealth within the business and outside the business. So, to your point, you’re letting your lifestyle elevate. I have no problem with that but why don’t you do it with assets? Make the assets pay for the elevation. Now, you don’t get behind the eight ball when you’re 65 years old and go, “What the heck happened?” Well, you’ve just been spinning on that hamster wheel all these years elevating your lifestyle. You’ve got nothing to show for it. Where’s the assets? There aren’t any. The asset’s been you. Well, eventually you burn out. So, if you instead you let your lifestyle elevate past that breakeven point you talked about a minute ago with the assets, now you’ve got a game plan. And if you and your wife are on the same page, you’re not going to get in trouble. Same thing. You have to put your kids through XYZ school in the future. Start doing it now. Start building the assets. Begin with the end in mind. “I think my kid’s education is going to cost X.” Add the inflation factor in. It’s a little bit of a guess, but nevertheless, say, “What assets should I be investing in now so when we get there, my kid gets to go to school or maybe I’m going to pay half of it,” whatever you’re going to do but the assets pay, not you spitting on a treadmill, trying to save the money up after you pay the higher tax rate at ordinary income earned tax rates. I mean, that model is so broken but again, there’s people live and die by that. And I hate it. 


Justin Donald: Yeah. Your book is so needed for this type of education and counsel. And so, I’m thankful that you wrote it. Where can we find out more about you online and your book for those that would like to pick one up? 


Dr. David Phelps: The books are available on Amazon and I’ve got a couple of other books there. Another book, again, it’s a fun book but it’s the apprentice model. It’s kind of like you and I growing up and how do we elevate from school to our next. So, that’s kind of for young people. Online I’m at FreedomFounders.com and I’ve got a podcast like you do. It’s the Dentist Freedom Blueprint Podcast. You don’t have to be a dentist to listen to it. I’ll give you an honorary degree if you subscribe and give me a five-star rating. Just kidding. I like to put out content. I like doing what we’re doing here today. So, I’ve got a YouTube channel, Dr. Phelps, whatever. You can find me there. But it’s just fun. It’s fun to have these conversations. I appreciate the time we got to spend today because I love the back and forth and so many great things come out of these conversations that just I think, hopefully, inspire other people to think, “You know, I could be living a different way too. I just need to get with the right people. I need to be with the right tribe that’ll show me the pathway. Kind of collapse time so I can get there faster.” That’s what it’s about. 




Justin Donald: Oh, I love it. Thank you so much for the time today and for sharing. You are a wealth of knowledge and you walk the talk. That’s the most important part is like what you are sharing is needed and you know it because you’ve experienced both sides of the equation. And I just appreciate you being here sharing your wisdom, and this is just a great episode. So, thank you very much. And to our listeners, I want to leave you today as I always leave you with a challenge, with a call to action, to take a step towards financial freedom and towards the life that you desire and dream about, one that is on your terms and by your design, not by default. So, take some form of action today. Thanks. And we’ll catch you next week.


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