Interview with Dr. Pranay Parikh
In today's episode, Dr. Pranay Parikh explains how to integrate real estate into your overall investment plan.
Pranay is a practicing nocturnist. In addition to his medical background, he recently completed a Master's Degree in Medical Management from Carnegie Mellon University. He is the host of the From MD to Entrepreneur Podcast and the co-founder of Ascent Equity Group, founded by physicians to help other physicians diversify their investments using real estate.
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Ways to Integrate Real Estate Into Your Investment Plan
Pranay explains the different types of real estate investments and the pros and cons of each. He also discusses how the real estate investing landscape has been affected by economic conditions, bank failures, and rising interest rates.
And he clarifies for us how achieving real estate professional status can optimize the benefits of real estate investing for those who can meet the strict requirements.
Ascent Equity Group
Pranay described why he helped found Ascent Equity Group, and its philosophy concerning real estate investing. The firm strives to buy cash-flow-positive, tax-efficient alternatives. That allows investors to develop and maintain their capital outside of the stock market.
With years of expertise specializing in single-family, multi-family, and mixed-use properties, the company can optimize capital appreciation, rental income, and tax benefits for its investors.
Dr. Pranay Parikh's Advice
It doesn't have to be perfect… Just realize that no matter what you do, you're going to have some success that you're going to be able to carry over into the future. So just start something.
Summary
Pranay is a good example of a physician who has been able to cut back on his clinical activities while starting and growing a nonclinical business. He shares his expertise and promotes his business with his podcast. And since he can integrate real estate into his plans, he diversifies his investments while creating passive income.
NOTE: Look below for a transcript of today's episode.
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Links for Today's Episode:
- Ascent Equity Group
- Join Dr. Pranay Parik's Mailing list
- Dr. Pranay Parikh's LinkedIn Page
- How to Use Real Estate Investing to Go from Burnout to Financial Freedom – 229
- How to Build a Thriving Real Estate Passion Project Without Being a Landlord – 193
- How to Boost Your Income With Short Term Rentals – 167
- Why Should I Invest in a Passive Private Real Estate Deal? – 154
- NewScr!pt
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Transcription PNC Podcast Episode 295
How to Integrate Real Estate into Your Investing or Career Pivot
- Interview with Dr. Pranay Parikh
John: Today I'm very excited to welcome a physician colleague, a fellow podcaster and real estate expert. We'll learn how he built his real estate investing business and how he balanced his clinical and nonclinical work. Dr. Pranay Parikh, welcome to the show.
Dr. Pranay Parikh: Hey, John, I'm super excited to be here.
John: I've been looking forward to this. I love to hear about real estate. I have not invested a lot in real estate, although I own two homes. I guess that counts for something. But as I'm getting into retirement, I'm thinking maybe I need to diversify a little more into real estate. I just want to see what you have to say today. I'm really glad you're here.
Well, let's start like we always do. You tell us a little bit about your education and your clinical background and then if you want, you can segue right into what you're doing now and that whole transition, because I know it's a pretty interesting story.
Dr. Pranay Parikh: Yeah. Everyone knows, your listeners know that when you go into medicine, they want you to be nice and well-rounded. And somehow medical school residency, they shave off all the edges. All the things that made us interesting. I kept some of those. I kept some of those edges. It actually hurt me I didn't match at the top place that I wanted in residency. I ended up not getting a fellowship because they looked at my application and they're like, “It doesn't look like critical care medicine is the only thing you want to do in life.” Yeah, that's true. I like all these other things. I like spending time with my wife and all this other stuff.
I came out of residency. I was a hospitalist. I was doing well. But I was expecting a much larger salary after I had done critical care. I looked around, I was like, “Okay now I could do the traditional doctor route, save 20%, put it into the stock market, and maybe 30 years, 35 years in the future, I'd be able to enjoy that money.” It didn't seem very appealing to me. So I looked around to see what can I do? I didn't have a business at the time. I wasn't good at stocks. I didn't really understand it. I thought real estate, that's something I could probably figure out. My sister-in-law was a real estate agent. I trusted her implicitly, and she was my unfair advantage. Because people didn't know that we were basically family members.
I bought my first property and I went to the final inspection. I was like “I have zero idea what am I supposed to do? What is all this stuff?” I was like “Is this normal?” Fortunately my sister-in-law had warned me about the inspection report because it was bad. There were like a hundred things on there if anyone's ever bought a house. It was like foundation cracking, roof leaking. I was like “What am I buying with this property?” She's like, “Okay, be prepared. It's going to look bad.” I was like, “This is horrible. It's going to fall apart.” And fortunately after the inspector who's like, “Eh, this place looks pretty good.” I was like “That's not what this thing says.”
John: How old was the house?
Dr. Pranay Parikh: It was old. It was like in the 1920s.
John: Okay. There you go.
Dr. Pranay Parikh: But most of it was brand new, new roofs, new plumbing and all that stuff. But the reason for that, now I know, is that we got a discount. Paint it as a bad picture. So we got a discount. And so after that, I'm flying high. I'm like, “I got this discount. I'm the best. I'm going to own a real estate empire.” And I realized that I just had gotten lucky. I got a home run. And after that I spent hundreds of hours trying to find my next property. And as physicians know, that's tens of thousands of dollars of opportunity cost. That's when I looked around, I was like, “Is there anything else for me to do?” And that's when I found syndications.
Syndications means you buy a little piece of a big company, big real estate, but you get all the benefits tax and all that stuff. But at the time, there wasn't a ton of education. I know you've had some great real estate physicians on your podcast before, but at the time there wasn't any of that. Peter Kim, the Passive Income MD, him and I created a course. We've taught thousands of doctors how to find deals, vet them and invest.
But over time, after we had people go through, they're like, “Hey, we're busy doctors. We know how to do this. We want to just invest with you. Maybe we can all come together, invest together, get better deals, better terms.” That's kind of what we did in the starting. We were a very small piece of a much larger deal, but over time, we've been able to come together and have enough doctors that now we can buy the whole deal ourselves.
John: Nice. Nice. Why don't you explain a minute about what the syndication is and how it might be different from other things? And then I might circle back after that to your background. Go ahead and just tell us that because you used that term.
Dr. Pranay Parikh: Yeah. When you think of buying a house, think of your primary house. You buy it, you're the landlord, your name is on the lease. Anything breaks down, you have to be the one that does that. That's often called active real estate. You're the person in charge. Now say you buy a rental property, and you have a property manager. The buck still comes to you. You have the liability. You have the property manager. Even though they're going to handle the phone calls, something goes wrong, all it needs to be fixed, something needs to happen, they are going to call you.
On the other side, now, instead of the phone calls going to you, there's a team. They manage everything. They find a property, they renovate it, they handle all that stuff, and they sell it. And they're the experts. They also hold all the liability. And you as an investor, just like I'm investing in Apple, I'm trusting the Apple executives, Tim Cook, to manage the company. Here you trust the experts to run the real estate business. And normally you buy big apartment complexes, which is nice because say there's 2, 5, 10 vacancies, there's 300 units, you have a lot of economics of scale. But that comes at a cost. You pay a little bit more in fees to those people to run it, but it's usually pretty minimal. And all the benefits of owning real estate, the returns you get being tax deferred, being able to do something called a 1031, which means you're deferring your taxes potentially forever on that specific property. So, it's nice and it's a lot more accessible since the laws changed in 2012, which actually wasn't that long ago.
John: Okay. Yeah. I went to the website, which let's see if I've got it right. ascentequitygroup.com/start for our listeners purposes. Is that right?
Dr. Pranay Parikh: Yeah, yeah. Exactly. ascentequitygroup.com is our website. You'll see me and my wife right at the top with our son and the rest of our families. But at ascentequitygroup.com/start, that's how you join our mailing list, and that's how you can get more information. We really pride ourselves in not just having the best investments, but making sure that our investors sleep well at night knowing that they understand what they're investing in.
John: I kind of brought it up because I was just looking at it earlier. And you have a team there. I know you mentioned your wife, but it looked like there were four or five people. You've got everyone monitoring these things, looking for new things. Syndication, it sounds like just like you said, a group of people investing. So there must be syndications or syndicates that are various sizes, like the number of units or the number of investors. Tell me where you are on that spectrum and what's happening with that.
Dr. Pranay Parikh: We are very fortunate. There are three parts of the business, we think. One is finding the good deal called acquisitions. Two is running the deal and enacting the business plan called asset management. And three is raising the money for it called capital raising. Most companies are good at acquisitions and asset management. And then there's other companies that do the raising the money. We are in a very unique position that we do asset management. We really trust and verify, make sure that plan is being enacted, and we raise the money. Because we do that, a lot of people bring deals to us instead of us having to go out and handle acquisitions ourselves. The type of deals that we do, anywhere from 200, 300 units, we're actually looking at right now in early 2023 a 500 unit in Texas.
John: Okay. I've read a little bit about syndication and owning a large building like that. So, you go in there, you might do a little bit of upgrades, you've got time on your side. You can raise the rents. And hopefully anything doesn't crash in a tornado or something. Of course, you have insurance to cover that thing. So, that's kind of how it works, right?
Dr. Pranay Parikh: Yeah. And what you mentioned is called value add. We go in and we make the place better. You pay a little bit, maybe $50, $80 extra a month, but you get a brand new unit. So, it's not just a win for us, but it's a win for our tenants. And we look at things, and we do this a lot differently because all of us, Peter and I are all doctors.
So, let me give you a quick example of a deal that makes us a little bit different. Someone brought us a deal, it was in Portland, Oregon. It was an affordable housing place. The owners got decrease in their taxes because they had this affordable housing, but their tax refund or tax abatement, it's called, their decrease in taxes was running out. So they planned to sell. This person that came to us, they were like, “Hey, we're going to buy this property. We're going to kick out all the affordable housing people. We're going to raise rent $600 and we're going to make a fortune.”
And on paper, the business plan itself looked great in terms of making money, but it's something that just didn't sit well with us and wasn't according to our values. We skipped it. It's a deal that we passed on. We tell people that we do real estate a little bit different.
John: Okay. Now this is the part where I want to circle back. I know that you have been practicing in the past. I don't know if you're still practicing and I wanted to just hear how you talked about getting invest interested and moving into it. You must have started working full-time with your clinical and then segued, but how did that work?
Dr. Pranay Parikh: John, you have to sacrifice somewhere.
John: Yeah.
Dr. Pranay Parikh: I wish I could say I bought that house, I flipped it, and then I was financially free in a couple years, but I wasn't. First, I had to pay off my loans which were six figures. Low six figures, but still six figures at 7%. I had to then raise a down payment for the property, which was in the low six figures as well. And I did both of those in about 14 months. The only way I did it is I worked like a resident. You hear a lot to live like a resident, but I thought I used to do 26 shifts a month. Every month for three years.
You get a golden weekend, you get two grades and a black. That's the internal medicine residency life. So I thought, if I can work maybe 20 to 24, I'm doubling my vacations. But I'm going to just set myself up for success. And that's kind of what I did for my first year and a half or so. And I paid off my loans, I bought my property, and slowly I've been able to decrease my time. Now I'm down to about part-time and I'll probably get down to a certain number and then just stay there just because I enjoy it, not because I have to.
John: Yeah. That's really the goal, right? To get to the point where working is optional, but if you like it, you want to keep doing it. We all love to take care of patients generally, and that's why we went into medicine in the first place. And then you have that balance. I've seen a lot of my guests who they're doing two or three different things. They seem to have hit a spot where they're just happy. Because each one just brings different things to their life and they enjoy it rather than saying, “Oh, I'm just going to work 50 hours a week in this job and then not do anything else.” You're getting close to that, if not at that balance right now, you're balancing it out.
Dr. Pranay Parikh: My wife says I try too many things. Because the problem is, the way we get paid for ascent is that we give out a preferred return. That means every dollar that comes out of the property goes first to the investors. And then we say after you've got let's say 8% to 10% of return per year for that property. So if it's a $100,000 investment, four years, that means you've got $8,000 a year. And then we say, okay, after that, you get all your money back. So you'll get $100,000 back.
John: Nice.
Dr. Pranay Parikh: And then we'll say, okay, maybe we'll do 70/30 or 80/20 meaning that you get 70% or 80% of the returns, and we'll get 20% or 30% of the returns. Our compensation is really on the back end. And we believe that's fair because as an investor, you're taking the risks because you don't have control like we do in the deal. And we believe so much in our deals that we're like, “Okay, we'll sit back and wait to be the very last person that gets money.” That goes all to say, we're still waiting for it to make our returns for ascent. And it's just a different way. Some people don't give a preferred return, they'll just do a straight split. But we think that we know because we're doctors, we're stable, we don't have to work at the real estate company to pay rent, that we can really, really be investor focused.
John: Okay. Well, I was going to ask you two scenarios about different people, what they want to do, physicians, I'm thinking of, of course, because my audience is either looking for a side gig or they're looking to diversify their income or they're looking at retirement.
So, if you were looking at let's say someone who just wants to diversify. I think you've already answered the question because syndication would be a great thing. Someone who really doesn't want to deal with it, they've got a chunk of money. Like for example, myself. My wife owns a business and she's going to sell her business. I own a business. I'm going to sell my business. We're going to have some cash. It's not going to be in an IRA or anything. And then we're going to be like, “Okay, what do we invest that in?” Are there other things other than syndications or you feel like this is probably one of the top one or two for that situation?
Dr. Pranay Parikh: I think diversification is important. And obviously I'm a little biased, but even within syndications you can do self-storage. Public storage, you've heard about. I would stay away from hotels, I would stay away from office. But you could do multi-family. Apartment complexes like I do. You could do mobile home parks. There's a lot of diversification.
And I think especially in 2023, we've seen that the 60/40 portfolio has not been great. You really have to have some diversification outside it. And our real estate portfolio's been doing pretty well. So it's nice to have it. It gives you cash flow. Its tax deferred because you have depreciation, the government says, “Hey, these buildings are going to depreciate over time even on paper even though it actually appreciates.” They're able to take a “loss” against the returns you're getting. Basically, the government is giving you a tax free loan for however long you own that property.
I think it's a big plus especially because you don't necessarily need to wait till you're 65 to take the money out like you do in your retirement accounts. So, I definitely think everyone should have a little exposure, but at the latter stage, it makes a ton of sense. Especially if you don't want to spend time to do real estate yourself.
John: Okay. Then let's look at another scenario. Let's say they've already figured out, they're going to cut back on their first career, whether it's medicine or something else, and they decide, “Okay, I want to become an active investor.” Now, of course, you're chest deep in it, but if you were looking at someone that just because you have a good knowledge of real estate that wants to get actively investing, what would you kind of steer them towards? Well, I'm not even going to mention anything. I'm just going to leave it to you to tell me.
Dr. Pranay Parikh: There is something called real estate professional status. That means that you are able to take the negative losses and depreciation that I talked about earlier against your active income. Most people aren't able to do that, but these people who are “real estate professionals” are able to do that. There's a couple different rules. One, you have to spend 750 hours doing the real estate. Two, you can't spend more than 750 hours doing anything else. So, this has to be your main job. Three, you have to spend 150 hours at least materially participating. So, you got to go to the property. You can't just be managing everything from home. And then the fourth most important thing, it doesn't have to be you, it could be your spouse.
We recommend if you're really gung ho, you want to do it, do enough active real estate, buy your own real estate till you meet that criteria of 750 hours, all that other stuff, and then just do all passive because that depreciation is the same. It doesn't matter if you own it or if you do passive, it's the same.
So what is really powerful is when someone has a good salary, like a doctor's job, maybe their spouse, either husband or wife, no judging, wants to stay at home, work part-time, and they are the real estate professional. And now you have this big depreciation, this big paper loss you can take against your W2 salary. So, if you're making, let's say $600,000 as a surgeon paying $200,000 in taxes, if you can get rid of that $200,000, that's very powerful.
John: That sounds awesome. What was it? Real estate professional?
Dr. Pranay Parikh: Real estate professional status. Yeah.
John: Yeah. You have to have that professional status. I'll throw another ringer at you. I think we both know people that have done short term rentals, basically Airbnbs, but they have really nice ones. Where do you stand on that? That takes a lot of management if you have two or three of those.
Dr. Pranay Parikh: There is something called a short-term rental loophole. You can get real estate professional status for spending way less hours. Don't quote me on this. I think it's like 150 hours or really 100 hours instead of the 750. So, what in the ideal world would happen is that you would buy it at the end of the year, get your 100 hours in, you would qualify for real estate professional status. And then because it's at the end of the year, when you do your rolls around, you have someone professionally manage it. And you could do it again and you could do it again. I don't know how long that loophole is going to be around, but that's why you see a lot of people who are in medicine try to get into it because that loophole is great. You can do that pretty easily because 750 hours is a lot of time, right?
John: Yeah. Almost halftime really.
Dr. Pranay Parikh: Yeah. And the 150 hours of material participation, that's like you walking the property, you have to almost do a pretty large renovation. But this loophole is just so much easier. But the tides seem to be changing in terms of short-term rentals. People are starting to realize that it's not as big of a money maker as it always is. So you got to be careful and don't just jump into it.
John: My wife and I own a property in Scottsdale and we get flyers every week. I don't even think I can do a short-term rental. I'm in an HOA and I think they don't even allow it, but I just see these things keep coming like nonstop.
Dr. Pranay Parikh: Yeah, yeah, yeah, yeah. Well, because the management companies, which is probably who you're getting a flyer from, they charge up to 30%.
John: Oh yeah. Okay. They make some good money there, don't they? They're motivated. All right. Well, we'll end here pretty soon. Any other things we haven't really covered from your perspective, especially for physicians who are trying to sort through how to build real estate into their whole approach to financial planning? And then I'll have one more question for you after that.
Dr. Pranay Parikh: If you're like most doctors trying to get into something, you're probably going to go buy a couple books, buy a course.
John: That's right.
Dr. Pranay Parikh: Maybe think about “Do I need to get a master's degree or take a course on this?” The answer is no. What you need to do, if you don't know anything about real estate, go on Amazon, figure out what the top two books are, whatever they have the best ratings for real estate. Buy them, read them. And that's 80% of the way there. And then the rest is just buy the real estate and learn on the job because the chance of your real estate investment going to zero is very low. It still has a lot of value. Maybe you'll lose 20% or 30%, but that's the cost of education. How much did we pay for med school?
John: Yeah. A ton.
Dr. Pranay Parikh: Yeah. I have a master's degree. I don't know if I'm ever going to use it.
John: That didn't help with your real estate?
Dr. Pranay Parikh: No. It's in medical management. We are so used to paying for stuff, but we get very stuck. We're very risk-averse, but the people that are killing it are the ones that got started. A lot of people compliment me on how nice my background is for podcasting. That's because instead of starting my podcast, I did a lot of research. I was like does this plant look nice? Should I buy another plat? What microphone should I buy? And I could have been a year and a half further along but I didn't because I was stuck. I would say just get started, get a book, read it, and then start doing.
John: Yeah. That's good advice. I remember being in practice for three or four years and I realized that my two partners and I, we had no pension. We had nothing to put away. And it's like, I have no idea what to put, but I must have read 50 books and watched every video I could find. A year later I was kind of a semi expert. We can all do that as physicians. We can learn anything if we put our mind to it.
Okay. My last question. Well, first of all, let's talk about where we want to find you. On the podcast, it's from MD to Entrepreneur podcast. You're up at about 50, 60 episodes now, I think. You might have more, right?
Dr. Pranay Parikh: Yeah. Totally. Yeah, yeah.
John: All right. They're great. They're weekly, right?
Dr. Pranay Parikh: Yeah, they’re weekly.
John: Yeah. That's good. And then again, the website we should go to, to just check out this whole real estate thing, the syndications.
Dr. Pranay Parikh: ascentequitygroup.com/start.
John: Okay. Well, for sure, I'll put that in the show notes. I'll mention the podcast and some other things, anything else we referenced today.
My last question is let's go back to another physician who might be like you were 10 years ago, or whenever it was. Medicine's great. I like it, but I just want to diversify. I want to do something else. I'm just getting really burnt out and I just don't know what to do. Let's say it's even way before deciding on real estate. Any advice for that kind of physician who just doesn't know where to start.
Dr. Pranay Parikh: It can be overwhelming when you're burnt out. I call it burnt to a crisp where you're thinking, “Hey, I'm so busy. I can't do anything.” But it's almost like when you're depressed, you feel like nothing is going to work. It's opening yourself up to something, to anything and letting the universe speak. I had a blog before I started my podcast, and it sucked. Every week, like Tuesday night, I'd post on Wednesday. I'd be like, “Ah, shoot. I need to come up with a blog post.” It was like scratchy nails on a chalkboard.
But I skipped that. And then I did podcasts, and now it's just so much easier. It feels nice. But I had to go through that experimentation. Actually, when I was doing my master's, I realized I had forgotten to submit one of my essays, and I was like shoot. I was like oh, yeah I forgot to do that. I'll have it to you shortly. Let me just find it. An hour later, I was able to bust out a five page essay, which may not sound like much for other people, but it used to take me like two weeks to write that.
But I had learned those skills because I would always be blogging at the last minute. And I didn't realize I had built up that skill, even though it was a failed project of my blog. And you could see that at pranayparikh.com if you want to look at my failed blog. But I gained all these skills. It doesn't have to be perfect, it doesn't have to be a top 1% podcast. Just realize that no matter what you do, you're going to have some success that you're going to be able to carry it over into the future. So just start something.
John: Yeah. It's so true. If you want to be a better writer, write. If you want to be a better podcaster, podcast. We all start out as not great. And hopefully it gets a little better over time. And that applies to everything in life.
Excellent. Well, I guess that's all I have for you today. I'm really happy we were able to get together and I could pick your brain. Boy, that's a lot. A lot of advice I got from you today. I'm going to have to go back and listen to that myself after I'm done editing it and see what I want to do with my future real estate efforts. Thanks a lot for being here today, Pranay.
Dr. Pranay Parikh: Thank you for the opportunity. I appreciate it.
John: All right. You're welcome. Bye-Bye.
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Transcription PNC Podcast Episode 295
How to Integrate Real Estate into Your Investing or Career Pivot
- Interview with Dr. Pranay Parikh
John: Today I'm very excited to welcome a physician colleague, a fellow podcaster and real estate expert. We'll learn how he built his real estate investing business and how he balanced his clinical and nonclinical work. Dr. Pranay Parikh, welcome to the show.
Dr. Pranay Parikh: Hey, John, I'm super excited to be here.
John: I've been looking forward to this. I love to hear about real estate. I have not invested a lot in real estate, although I own two homes. I guess that counts for something. But as I'm getting into retirement, I'm thinking maybe I need to diversify a little more into real estate. I just want to see what you have to say today. I'm really glad you're here.
Well, let's start like we always do. You tell us a little bit about your education and your clinical background and then if you want, you can segue right into what you're doing now and that whole transition, because I know it's a pretty interesting story.
Dr. Pranay Parikh: Yeah. Everyone knows, your listeners know that when you go into medicine, they want you to be nice and well-rounded. And somehow medical school residency, they shave off all the edges. All the things that made us interesting. I kept some of those. I kept some of those edges. It actually hurt me I didn't match at the top place that I wanted in residency. I ended up not getting a fellowship because they looked at my application and they're like, “It doesn't look like critical care medicine is the only thing you want to do in life.” Yeah, that's true. I like all these other things. I like spending time with my wife and all this other stuff.
I came out of residency. I was a hospitalist. I was doing well. But I was expecting a much larger salary after I had done critical care. I looked around, I was like, “Okay now I could do the traditional doctor route, save 20%, put it into the stock market, and maybe 30 years, 35 years in the future, I'd be able to enjoy that money.” It didn't seem very appealing to me. So I looked around to see what can I do? I didn't have a business at the time. I wasn't good at stocks. I didn't really understand it. I thought real estate, that's something I could probably figure out. My sister-in-law was a real estate agent. I trusted her implicitly, and she was my unfair advantage. Because people didn't know that we were basically family members.
I bought my first property and I went to the final inspection. I was like “I have zero idea what am I supposed to do? What is all this stuff?” I was like “Is this normal?” Fortunately my sister-in-law had warned me about the inspection report because it was bad. There were like a hundred things on there if anyone's ever bought a house. It was like foundation cracking, roof leaking. I was like “What am I buying with this property?” She's like, “Okay, be prepared. It's going to look bad.” I was like, “This is horrible. It's going to fall apart.” And fortunately after the inspector who's like, “Eh, this place looks pretty good.” I was like “That's not what this thing says.”
John: How old was the house?
Dr. Pranay Parikh: It was old. It was like in the 1920s.
John: Okay. There you go.
Dr. Pranay Parikh: But most of it was brand new, new roofs, new plumbing and all that stuff. But the reason for that, now I know, is that we got a discount. Paint it as a bad picture. So we got a discount. And so after that, I'm flying high. I'm like, “I got this discount. I'm the best. I'm going to own a real estate empire.” And I realized that I just had gotten lucky. I got a home run. And after that I spent hundreds of hours trying to find my next property. And as physicians know, that's tens of thousands of dollars of opportunity cost. That's when I looked around, I was like, “Is there anything else for me to do?” And that's when I found syndications.
Syndications means you buy a little piece of a big company, big real estate, but you get all the benefits tax and all that stuff. But at the time, there wasn't a ton of education. I know you've had some great real estate physicians on your podcast before, but at the time there wasn't any of that. Peter Kim, the Passive Income MD, him and I created a course. We've taught thousands of doctors how to find deals, vet them and invest.
But over time, after we had people go through, they're like, “Hey, we're busy doctors. We know how to do this. We want to just invest with you. Maybe we can all come together, invest together, get better deals, better terms.” That's kind of what we did in the starting. We were a very small piece of a much larger deal, but over time, we've been able to come together and have enough doctors that now we can buy the whole deal ourselves.
John: Nice. Nice. Why don't you explain a minute about what the syndication is and how it might be different from other things? And then I might circle back after that to your background. Go ahead and just tell us that because you used that term.
Dr. Pranay Parikh: Yeah. When you think of buying a house, think of your primary house. You buy it, you're the landlord, your name is on the lease. Anything breaks down, you have to be the one that does that. That's often called active real estate. You're the person in charge. Now say you buy a rental property, and you have a property manager. The buck still comes to you. You have the liability. You have the property manager. Even though they're going to handle the phone calls, something goes wrong, all it needs to be fixed, something needs to happen, they are going to call you.
On the other side, now, instead of the phone calls going to you, there's a team. They manage everything. They find a property, they renovate it, they handle all that stuff, and they sell it. And they're the experts. They also hold all the liability. And you as an investor, just like I'm investing in Apple, I'm trusting the Apple executives, Tim Cook, to manage the company. Here you trust the experts to run the real estate business. And normally you buy big apartment complexes, which is nice because say there's 2, 5, 10 vacancies, there's 300 units, you have a lot of economics of scale. But that comes at a cost. You pay a little bit more in fees to those people to run it, but it's usually pretty minimal. And all the benefits of owning real estate, the returns you get being tax deferred, being able to do something called a 1031, which means you're deferring your taxes potentially forever on that specific property. So, it's nice and it's a lot more accessible since the laws changed in 2012, which actually wasn't that long ago.
John: Okay. Yeah. I went to the website, which let's see if I've got it right. ascentequitygroup.com/start for our listeners purposes. Is that right?
Dr. Pranay Parikh: Yeah, yeah. Exactly. ascentequitygroup.com is our website. You'll see me and my wife right at the top with our son and the rest of our families. But at ascentequitygroup.com/start, that's how you join our mailing list, and that's how you can get more information. We really pride ourselves in not just having the best investments, but making sure that our investors sleep well at night knowing that they understand what they're investing in.
John: I kind of brought it up because I was just looking at it earlier. And you have a team there. I know you mentioned your wife, but it looked like there were four or five people. You've got everyone monitoring these things, looking for new things. Syndication, it sounds like just like you said, a group of people investing. So there must be syndications or syndicates that are various sizes, like the number of units or the number of investors. Tell me where you are on that spectrum and what's happening with that.
Dr. Pranay Parikh: We are very fortunate. There are three parts of the business, we think. One is finding the good deal called acquisitions. Two is running the deal and enacting the business plan called asset management. And three is raising the money for it called capital raising. Most companies are good at acquisitions and asset management. And then there's other companies that do the raising the money. We are in a very unique position that we do asset management. We really trust and verify, make sure that plan is being enacted, and we raise the money. Because we do that, a lot of people bring deals to us instead of us having to go out and handle acquisitions ourselves. The type of deals that we do, anywhere from 200, 300 units, we're actually looking at right now in early 2023 a 500 unit in Texas.
John: Okay. I've read a little bit about syndication and owning a large building like that. So, you go in there, you might do a little bit of upgrades, you've got time on your side. You can raise the rents. And hopefully anything doesn't crash in a tornado or something. Of course, you have insurance to cover that thing. So, that's kind of how it works, right?
Dr. Pranay Parikh: Yeah. And what you mentioned is called value add. We go in and we make the place better. You pay a little bit, maybe $50, $80 extra a month, but you get a brand new unit. So, it's not just a win for us, but it's a win for our tenants. And we look at things, and we do this a lot differently because all of us, Peter and I are all doctors.
So, let me give you a quick example of a deal that makes us a little bit different. Someone brought us a deal, it was in Portland, Oregon. It was an affordable housing place. The owners got decrease in their taxes because they had this affordable housing, but their tax refund or tax abatement, it's called, their decrease in taxes was running out. So they planned to sell. This person that came to us, they were like, “Hey, we're going to buy this property. We're going to kick out all the affordable housing people. We're going to raise rent $600 and we're going to make a fortune.”
And on paper, the business plan itself looked great in terms of making money, but it's something that just didn't sit well with us and wasn't according to our values. We skipped it. It's a deal that we passed on. We tell people that we do real estate a little bit different.
John: Okay. Now this is the part where I want to circle back. I know that you have been practicing in the past. I don't know if you're still practicing and I wanted to just hear how you talked about getting invest interested and moving into it. You must have started working full-time with your clinical and then segued, but how did that work?
Dr. Pranay Parikh: John, you have to sacrifice somewhere.
John: Yeah.
Dr. Pranay Parikh: I wish I could say I bought that house, I flipped it, and then I was financially free in a couple years, but I wasn't. First, I had to pay off my loans which were six figures. Low six figures, but still six figures at 7%. I had to then raise a down payment for the property, which was in the low six figures as well. And I did both of those in about 14 months. The only way I did it is I worked like a resident. You hear a lot to live like a resident, but I thought I used to do 26 shifts a month. Every month for three years.
You get a golden weekend, you get two grades and a black. That's the internal medicine residency life. So I thought, if I can work maybe 20 to 24, I'm doubling my vacations. But I'm going to just set myself up for success. And that's kind of what I did for my first year and a half or so. And I paid off my loans, I bought my property, and slowly I've been able to decrease my time. Now I'm down to about part-time and I'll probably get down to a certain number and then just stay there just because I enjoy it, not because I have to.
John: Yeah. That's really the goal, right? To get to the point where working is optional, but if you like it, you want to keep doing it. We all love to take care of patients generally, and that's why we went into medicine in the first place. And then you have that balance. I've seen a lot of my guests who they're doing two or three different things. They seem to have hit a spot where they're just happy. Because each one just brings different things to their life and they enjoy it rather than saying, “Oh, I'm just going to work 50 hours a week in this job and then not do anything else.” You're getting close to that, if not at that balance right now, you're balancing it out.
Dr. Pranay Parikh: My wife says I try too many things. Because the problem is, the way we get paid for ascent is that we give out a preferred return. That means every dollar that comes out of the property goes first to the investors. And then we say after you've got let's say 8% to 10% of return per year for that property. So if it's a $100,000 investment, four years, that means you've got $8,000 a year. And then we say, okay, after that, you get all your money back. So you'll get $100,000 back.
John: Nice.
Dr. Pranay Parikh: And then we'll say, okay, maybe we'll do 70/30 or 80/20 meaning that you get 70% or 80% of the returns, and we'll get 20% or 30% of the returns. Our compensation is really on the back end. And we believe that's fair because as an investor, you're taking the risks because you don't have control like we do in the deal. And we believe so much in our deals that we're like, “Okay, we'll sit back and wait to be the very last person that gets money.” That goes all to say, we're still waiting for it to make our returns for ascent. And it's just a different way. Some people don't give a preferred return, they'll just do a straight split. But we think that we know because we're doctors, we're stable, we don't have to work at the real estate company to pay rent, that we can really, really be investor focused.
John: Okay. Well, I was going to ask you two scenarios about different people, what they want to do, physicians, I'm thinking of, of course, because my audience is either looking for a side gig or they're looking to diversify their income or they're looking at retirement.
So, if you were looking at let's say someone who just wants to diversify. I think you've already answered the question because syndication would be a great thing. Someone who really doesn't want to deal with it, they've got a chunk of money. Like for example, myself. My wife owns a business and she's going to sell her business. I own a business. I'm going to sell my business. We're going to have some cash. It's not going to be in an IRA or anything. And then we're going to be like, “Okay, what do we invest that in?” Are there other things other than syndications or you feel like this is probably one of the top one or two for that situation?
Dr. Pranay Parikh: I think diversification is important. And obviously I'm a little biased, but even within syndications you can do self-storage. Public storage, you've heard about. I would stay away from hotels, I would stay away from office. But you could do multi-family. Apartment complexes like I do. You could do mobile home parks. There's a lot of diversification.
And I think especially in 2023, we've seen that the 60/40 portfolio has not been great. You really have to have some diversification outside it. And our real estate portfolio's been doing pretty well. So it's nice to have it. It gives you cash flow. Its tax deferred because you have depreciation, the government says, “Hey, these buildings are going to depreciate over time even on paper even though it actually appreciates.” They're able to take a “loss” against the returns you're getting. Basically, the government is giving you a tax free loan for however long you own that property.
I think it's a big plus especially because you don't necessarily need to wait till you're 65 to take the money out like you do in your retirement accounts. So, I definitely think everyone should have a little exposure, but at the latter stage, it makes a ton of sense. Especially if you don't want to spend time to do real estate yourself.
John: Okay. Then let's look at another scenario. Let's say they've already figured out, they're going to cut back on their first career, whether it's medicine or something else, and they decide, “Okay, I want to become an active investor.” Now, of course, you're chest deep in it, but if you were looking at someone that just because you have a good knowledge of real estate that wants to get actively investing, what would you kind of steer them towards? Well, I'm not even going to mention anything. I'm just going to leave it to you to tell me.
Dr. Pranay Parikh: There is something called real estate professional status. That means that you are able to take the negative losses and depreciation that I talked about earlier against your active income. Most people aren't able to do that, but these people who are “real estate professionals” are able to do that. There's a couple different rules. One, you have to spend 750 hours doing the real estate. Two, you can't spend more than 750 hours doing anything else. So, this has to be your main job. Three, you have to spend 150 hours at least materially participating. So, you got to go to the property. You can't just be managing everything from home. And then the fourth most important thing, it doesn't have to be you, it could be your spouse.
We recommend if you're really gung ho, you want to do it, do enough active real estate, buy your own real estate till you meet that criteria of 750 hours, all that other stuff, and then just do all passive because that depreciation is the same. It doesn't matter if you own it or if you do passive, it's the same.
So what is really powerful is when someone has a good salary, like a doctor's job, maybe their spouse, either husband or wife, no judging, wants to stay at home, work part-time, and they are the real estate professional. And now you have this big depreciation, this big paper loss you can take against your W2 salary. So, if you're making, let's say $600,000 as a surgeon paying $200,000 in taxes, if you can get rid of that $200,000, that's very powerful.
John: That sounds awesome. What was it? Real estate professional?
Dr. Pranay Parikh: Real estate professional status. Yeah.
John: Yeah. You have to have that professional status. I'll throw another ringer at you. I think we both know people that have done short term rentals, basically Airbnbs, but they have really nice ones. Where do you stand on that? That takes a lot of management if you have two or three of those.
Dr. Pranay Parikh: There is something called a short-term rental loophole. You can get real estate professional status for spending way less hours. Don't quote me on this. I think it's like 150 hours or really 100 hours instead of the 750. So, what in the ideal world would happen is that you would buy it at the end of the year, get your 100 hours in, you would qualify for real estate professional status. And then because it's at the end of the year, when you do your rolls around, you have someone professionally manage it. And you could do it again and you could do it again. I don't know how long that loophole is going to be around, but that's why you see a lot of people who are in medicine try to get into it because that loophole is great. You can do that pretty easily because 750 hours is a lot of time, right?
John: Yeah. Almost halftime really.
Dr. Pranay Parikh: Yeah. And the 150 hours of material participation, that's like you walking the property, you have to almost do a pretty large renovation. But this loophole is just so much easier. But the tides seem to be changing in terms of short-term rentals. People are starting to realize that it's not as big of a money maker as it always is. So you got to be careful and don't just jump into it.
John: My wife and I own a property in Scottsdale and we get flyers every week. I don't even think I can do a short-term rental. I'm in an HOA and I think they don't even allow it, but I just see these things keep coming like nonstop.
Dr. Pranay Parikh: Yeah, yeah, yeah, yeah. Well, because the management companies, which is probably who you're getting a flyer from, they charge up to 30%.
John: Oh yeah. Okay. They make some good money there, don't they? They're motivated. All right. Well, we'll end here pretty soon. Any other things we haven't really covered from your perspective, especially for physicians who are trying to sort through how to build real estate into their whole approach to financial planning? And then I'll have one more question for you after that.
Dr. Pranay Parikh: If you're like most doctors trying to get into something, you're probably going to go buy a couple books, buy a course.
John: That's right.
Dr. Pranay Parikh: Maybe think about “Do I need to get a master's degree or take a course on this?” The answer is no. What you need to do, if you don't know anything about real estate, go on Amazon, figure out what the top two books are, whatever they have the best ratings for real estate. Buy them, read them. And that's 80% of the way there. And then the rest is just buy the real estate and learn on the job because the chance of your real estate investment going to zero is very low. It still has a lot of value. Maybe you'll lose 20% or 30%, but that's the cost of education. How much did we pay for med school?
John: Yeah. A ton.
Dr. Pranay Parikh: Yeah. I have a master's degree. I don't know if I'm ever going to use it.
John: That didn't help with your real estate?
Dr. Pranay Parikh: No. It's in medical management. We are so used to paying for stuff, but we get very stuck. We're very risk-averse, but the people that are killing it are the ones that got started. A lot of people compliment me on how nice my background is for podcasting. That's because instead of starting my podcast, I did a lot of research. I was like does this plant look nice? Should I buy another plat? What microphone should I buy? And I could have been a year and a half further along but I didn't because I was stuck. I would say just get started, get a book, read it, and then start doing.
John: Yeah. That's good advice. I remember being in practice for three or four years and I realized that my two partners and I, we had no pension. We had nothing to put away. And it's like, I have no idea what to put, but I must have read 50 books and watched every video I could find. A year later I was kind of a semi expert. We can all do that as physicians. We can learn anything if we put our mind to it.
Okay. My last question. Well, first of all, let's talk about where we want to find you. On the podcast, it's from MD to Entrepreneur podcast. You're up at about 50, 60 episodes now, I think. You might have more, right?
Dr. Pranay Parikh: Yeah. Totally. Yeah, yeah.
John: All right. They're great. They're weekly, right?
Dr. Pranay Parikh: Yeah, they’re weekly.
John: Yeah. That's good. And then again, the website we should go to, to just check out this whole real estate thing, the syndications.
Dr. Pranay Parikh: ascentequitygroup.com/start.
John: Okay. Well, for sure, I'll put that in the show notes. I'll mention the podcast and some other things, anything else we referenced today.
My last question is let's go back to another physician who might be like you were 10 years ago, or whenever it was. Medicine's great. I like it, but I just want to diversify. I want to do something else. I'm just getting really burnt out and I just don't know what to do. Let's say it's even way before deciding on real estate. Any advice for that kind of physician who just doesn't know where to start.
Dr. Pranay Parikh: It can be overwhelming when you're burnt out. I call it burnt to a crisp where you're thinking, “Hey, I'm so busy. I can't do anything.” But it's almost like when you're depressed, you feel like nothing is going to work. It's opening yourself up to something, to anything and letting the universe speak. I had a blog before I started my podcast, and it sucked. Every week, like Tuesday night, I'd post on Wednesday. I'd be like, “Ah, shoot. I need to come up with a blog post.” It was like scratchy nails on a chalkboard.
But I skipped that. And then I did podcasts, and now it's just so much easier. It feels nice. But I had to go through that experimentation. Actually, when I was doing my master's, I realized I had forgotten to submit one of my essays, and I was like shoot. I was like oh, yeah I forgot to do that. I'll have it to you shortly. Let me just find it. An hour later, I was able to bust out a five page essay, which may not sound like much for other people, but it used to take me like two weeks to write that.
But I had learned those skills because I would always be blogging at the last minute. And I didn't realize I had built up that skill, even though it was a failed project of my blog. And you could see that at pranayparikh.com if you want to look at my failed blog. But I gained all these skills. It doesn't have to be perfect, it doesn't have to be a top 1% podcast. Just realize that no matter what you do, you're going to have some success that you're going to be able to carry it over into the future. So just start something.
John: Yeah. It's so true. If you want to be a better writer, write. If you want to be a better podcaster, podcast. We all start out as not great. And hopefully it gets a little better over time. And that applies to everything in life.
Excellent. Well, I guess that's all I have for you today. I'm really happy we were able to get together and I could pick your brain. Boy, that's a lot. A lot of advice I got from you today. I'm going to have to go back and listen to that myself after I'm done editing it and see what I want to do with my future real estate efforts. Thanks a lot for being here today, Pranay.
Dr. Pranay Parikh: Thank you for the opportunity. I appreciate it.
John: All right. You're welcome. Bye-Bye.
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