The Best Real Estate Investment For Today’s Physicians – Part 1

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Transcription PNC Podcast Episode 412

The Best Real Estate Investment For Today's Physicians

Part 1 with Dr. Alex Schloe

John: Today's guest is very busy working as a family physician for the US Air Force, co-hosting two podcasts dedicated to real estate investing. And he's the co-founder of a membership program for those entrepreneurs interested in investing in a particular type of real estate, which we'll learn about today. So Dr. Alex Schloe, welcome to the PNC podcast.

Dr. Alex Schloe: John, thank you so much for having me on the podcast. Really appreciate it.

John: Yeah, I think I feel like I already know you because I mean, I've watched some of your videos. I've listened to some of your podcast episodes and I've gotten interested in a particular type of real estate as a result, which we'll talk about today. So it is good to get you on the podcast. Cause I think we're gonna have a lot to learn from you today.

Dr. Alex Schloe: Thank you. I hope so.

John: All right, so give us a quick rundown on your background, your clinical work, and then we'll get into the real estate thing after that.

Dr. Alex Schloe: Sure, I'd love to. Well, most importantly, I'm a Christian, I'm a husband, I'm a father to two wild boys. One is four and a half and one is one just starting to walk. So that's really fun. I am a family medicine physician in the United States Air Force, actually for three more days. I separate on the 29th. I'm on terminal leave right now, which is why I have the beard, and looking forward to keeping that for a bit. But family medicine and the Air Force got into the Air Force through the health promotion scholarship program. I went to medical school at the Medical College of Virginia, or now VCU School of Medicine. And they did my residency in Florida at Eglin Air Force Base Family Medicine Residency.

That's where I really got started investing in real estate. I bought my first investment property while I was in residency using a physician loan, paid $58 out of pocket for it, because it was a no money down loan, but they couldn't cover some closing cost fee. And I remember being terrified about paying $58, because money was not something that I had a lot of, and my family did not either when we were growing up. And so I always had this kind of scarcity of money mentality. So buying a house for $58, it wasn't necessarily that I'm buying this huge investment that was scary, it was the $58. And luckily that paid out well and has been an incredible investment. That's how we got started. We did kind of a live in flip light there.

Then I met my partner, Charlie Cameron, who you know, and we started buying short term rentals. We exited some of those and then pivoted into residential assisted living, which we'll talk a lot about here. We have eight residential assisted living homes. We're working on two new developments right now. And then I've done a bunch of other deals as a general partner in a boutique hotel, a mobile home park, into independent living new developments. So little bit of shiny object syndrome, but it's been fun.

John: Oh man, you know, it's kind of a remarkable story. I mean, to most of us, because some of us are like, okay, we're so focused on getting that degree, going to residency, you know, starting our practice, eventually it dawns on us like, you know, maybe we should try to diversify our income. Because even though it's a pretty good income and it's pretty well set, I mean, I've heard horror stories where people don't like what they're doing or they have to quit, they get disabled. It could be a lot of reasons. Why on earth did you decide early, even I think in your residency or even before that, that this was something you wanted to pursue?

Dr. Alex Schloe: Yeah, I think for me, a lot of it comes back to kind of fear around money. Like I mentioned, when we were growing up, my family didn't have much money and my dad really instilled a really strong work ethic in me. But he also showed how to be present. He would go to work at like... He would wake up like four in the morning, get to work, get there so he could get off at two so he could catch our baseball game or a wrestling match, whatever. And I never remember my dad missing anything. And so then I was thinking through like my future. I always wanted to be a family medicine physician. I love being a family medicine physician, but I wanted to be a really present father and husband.

And I realized the only way I was going to be able to accomplish all the above was going to be to have some degree of passive income come again and some degree of financial freedom. If I may, I think a lot of times folks hear financial freedom and they think about like, well, I'm not gonna just burn the boats, quit my W-2 as a doc, you know? And I don't think that's necessarily the right way to do it. I think having some degree of passive income can be really helpful and can almost be protective, right? Like if you have a few hundred, few thousand dollars a month coming in, maybe that lets you take Fridays off so you can spend more time with your family or maybe that lets you see less patients or do a couple less surgeries. And so I think that gives you a buffer space to kind of combat burnout, which a lot of us have suffered with.

John: Yeah, that makes sense. And there's not really a whole lot of other options for "passive income". It's not like you're going to take a million dollars and put it in an annuity or something.

Dr. Alex Schloe: Yeah.

John: The other part that I want to go back to, because I think it's instructive also. So you didn't have any loans when you completed medical school because you were in the military and you had to convey. So tell us kind of how that worked, briefly and yeah, so you came out definitely and you then because you were working for the military I think and you're doing your education you actually being paid so explain that quickly.

Dr. Alex Schloe: Yeah, yeah, absolutely. So I did get the health promotion scholarship program with the Air Force. Basically for folks who don't know how that works you apply when you find out you get accepted into medical school. So you're still in college. I knew I always wanted to do it. Originally wanted to be an army doc. Long story short, made the right decision to join the Air Force and they will, you get accepted to that scholarship program once you get accepted into a medical school. And if you get accepted, then they'll pay for all of your medical school. At the time I got a $20,000 signing bonus, which you would have thought that was a million bucks. I couldn't believe it. And then you get a small stipend, which is just enough money to live. But I was able to live under my means, even with that stipend and pay off the student loans I had from college while I was in med school. And then I graduated medical school completely debt free. So it was awesome to be able to do that and to not have that kind of weight of student debt around me going forward.

I think a lot of times physicians kind of struggle with that, especially if their passion is primary care, for example, where they may not be compensated as much, they really feel that burden of the student loan debt. You know, I know some friends who pick specialty specifically based off income potential because of that reason. And it's just really sad because they may have been an amazing pediatrician or an amazing family med doc. And they chose to do a profession that maybe they don't love as much because of that. And so that was another reason for me why I wanted to go down the military route.

John: Dave Ramsey would be so proud of you, right?

Dr. Alex Schloe: Yes.

John: Get out of med school with no debt.

Dr. Alex Schloe: Yeah.

John: Okay. So that's cool. So, and so just so I know, in case someone asks me, so you get admitted to your medical school of choice and then you apply for this scholarship. It's probably not a guaranteed thing, obviously, but at least you can get in the and possibly have that opportunity.

Dr. Alex Schloe: Actually, John, you just have to get accepted to any medical school. So it doesn't have to be your dream choice. Whatever one you get into first, then you can apply for it. And then, you know, open kimono, the Air Force is struggling to keep and retain physicians. And so it's pretty much a guarantee if you apply and you have a pulse and you're relatively healthy, you can get the HPSP scholarship.

John: I was going to say it's free money, but no, there isn't. It's not completely free. There are a lot of strings attached.

Dr. Alex Schloe: Yeah, you do, you pay for it. You make way less as an attending in the military. You know, frankly, my salary is about half of what it would have been in private practice, especially for the amount of work that you do. And then of course you have the deployment risk, a lot more training, a lot more training that's not at your home. And so time away from family, all sorts of things as well. But it was an honor to serve. I do miss, you know, it's only been about a month. I haven't been wearing the uniform and I do miss wearing it. I miss the camaraderie. I miss the feeling of serving something greater than yourself. And so it was a good experience as a whole, but it was just time to move on.

John: All right. Well, let's move on in this interview then and say, okay, so you mentioned like numerous types of real estate that at this point you've been exposed to or involved with. Obviously we're going to focus on one, but of the first one or two, you know, how did you go about it? I think, like you said, it was a small thing in terms of the money that was required. And so let's just go into that a little bit about how that worked out for you.

Dr. Alex Schloe: Yeah, absolutely. That first home that I bought again, physician loan, which is available to any physician, even when you're going into residency, because they're servicing that loan based off future income potential. So they look at like, hey, well, this guy's going to go be a doc. He's going to make good money. Let's get him in the bank. And here's a great way to do that. That is a great option for folks. I often tell physicians on my podcast, great way to get started is do exactly what I did. Buy a home, no money down, maybe it costs you 58 bucks out of pocket, and then rent that out to other folks who you're in residency with, right? Like you're never gonna be home anyways, so you might as well rent those rooms out and go from there.

I was about to get married, my wife wasn't thrilled with that. So I decided to buy kind of more of a live in flip light. So we renovated the house a bit while we were in the home. And then now we still rent that out as a long-term rental. I cashflow is about $1,100 a month. It's almost doubled in appreciation. Part of that was just lucky market timing. And then part of that was kind of strategy. And so that's been great. And then, you know, thinking about other ways to get involved, even as a new attending or a med student, we house hack our house here in Colorado Springs. We turned the basement into a separate apartment. We've rent that out and that typically covers our mortgage taxes and insurance. So we live pretty much for free in Colorado Springs, which is awesome. And so there's a lot of different ways you can get started with either less capital or minimal risk.

We did go from the long-term rental side of things to short-term rentals and did well there, but we realized that was quite operationally intensive. We were operating that, it was me and a couple of partners and we were operating those together. We actually have our last short-term rental on the market right now. But that was really fun. There's great cashflow there. It was awesome to get to host, but we just realized like, this isn't where we want to head in our real estate investing portfolio.

And then through a separate mastermind called the war room, which is for military members. I met Charlie and Luke, my current partners, both in open range capital, where we buy assisted living, and then the row room assisted living mastermind. And we just started buying assisted living homes. We got started with the lease operator model. And so we were purchasing homes that were either previously licensed or former assisted living homes that needed operators placed in. And we would lease that out on a commercial lease to an operator, actually in Arizona, where you are now, John. And we purchased five of those. And then we partnered with another operator to purchase three more up in Wisconsin. He does the operation side of things there. And then we started the mastermind and then interspersed throughout that I had some cool opportunities to partner with folks on some different deal opportunities like boutique hotels, mobile home parks, independent living developments. So that's kind of the journey.

I think personally, you know, we hear a lot about the silver tsunami, right? And I think senior living is the best opportunity in real estate now and for decades to come. Even if you're just looking at simple supply demand mismatch, we're anywhere from 600,000 to a million units are bed short right now. And the baby boomers aren't even really aging into these homes just yet. And so there's incredible opportunity. There's 77 million baby boomers in America. Seven out of 10 of them are gonna need long-term care, which is 59 million boomers. So there is just a huge opportunity now and going forward. I get excited about this stuff. I'll go ahead and pause there.

John: I don't know, when people mention the baby boomers, I usually mention, I was born right in the middle of the baby boomers. I was born in 55 and in my head it started in 46 and ended in 64. I don't know if those numbers are actually true or not. But yeah, so I'm living all the things that, you know, a lot of people have been following with the baby boomers, what we bought, where we lived, all these kinds of things. And it is inevitable that we're all going to get old and need help. So whoever's doing any of those things that provide that kind of help are going to be well positioned. But I don't think... I mean, honestly, I've never heard any of my friends, savvy as they may be, ever mention this residential assisted living. I don't know why I have trouble with that. We're all familiar with "assisted living", which are usually the big corporate big boxes, which we tend to hate. We don't like nursing home as physicians. I mean, we just don't, you walk in there, it smells like urine, blah, blah. So tell us about this particular, I guess would be kind of a niche within the assisted living, you know, geography or whatever in the country.

Dr. Alex Schloe: Yeah, I would love to. I think a lot of times everyone thinks of when they hear assisted living, they think that big box facility that you mentioned, you know, smells like urine. There's one caregiver taking care of 20 or 30 residents. They're running around like their hair is on fire. Grandma and grandpa is not happy with their care. That's what we all typically think of. Residential assisted living is not that in any way. I want you to picture a large single story home that has numerous bedrooms and bathrooms. It's been renovated to provide personalized care and a strong community environment for those seniors. And so it's a completely different environment. In fact, the seniors do way better. They actually have improved mortality in a residential assisted living setting.

And from a community aspect, they're intertwined in their community. Sometimes folks are going right from their home that they don't want to leave, but they realize, hey, I need help with activities of daily living, which is what assisted living helps with. Then they can go right from their home in their neighborhood to a home in the neighborhood that is residential assisted living and get that next level of care that they need. There is even more kind of niches within a niche or niche within a niche, depending on how you say that word, I still don't know. Like memory care, ventilator homes, you know, those sorts of things. There's some other options there too, but strictly assisted living, residential assisted living is more help with activities of daily living, less medical care. There's medication administration and some basic medical care that happens, but less medically intensive than a nursing home, for example.

John: Very interesting. And I guess this is a good place to pause because I'm going to tell you listeners that if you want to figure this out and learn about it, go to Alex's podcast, him and his partners, he and his partner have a podcast, which is called what?

Dr. Alex Schloe: It's called the Row Room Assisted Living Podcast. So I co-host that with my partner, Charlie. We interview experts, we share some insights, we do like a Row Room roundup, which is really fun for us to do where we're sharing different articles that we found in the assisted living space and some wins amongst the Row Room assisted living mastermind community too. So go ahead and check out the Row Room podcast. Thank you, John.

John: No, you got to do it because I've listened probably to 15 or 20 episodes so far, plus some other things. And so I'm just now really grasping what this thing is. You can go and tell us more details about maybe ask some specific questions. For example, you know, somebody has a quote. There's a physician in town where I live that has a quote in nursing home. When I learned about Arielle and then I looked into it, that's what he has. It's like, wait a second. He's only got like 14 beds. And it's touted to be more personal in all the things you mentioned. Now, I think he has a, actually he sold it and he didn't have the best reputation. This guy's like in his nineties and I don't know if he even knew what was happening there. So he had to let go of it. But tell us a little bit about the difference, because that's one of the things that struck me across the country. It's, I guess an Ariel in Illinois is not an Ariel in California and Colorado or whatever.

Dr. Alex Schloe: Yeah, there are some differences. I think the key features remained in the supply demand mismatch kind of remains across the country. There's certainly more states that are ahead of the curve when it comes to assisted living and residential assisted living and just understanding that that's typically going to be like California, Texas, Arizona, you know, where a lot of seniors are moving. Florida is actually a little bit behind, but they're starting to kind of understand that a little bit more. And like I mentioned before, just like physicians or anyone else who hears assisted living, even these cities, these towns, when they hear you want to open residential assisted living, they're also thinking, oh, this is going to be a big box facility. We don't want that. So explaining what you're doing is really important from a zoning perspective and getting a license, all sorts of things.

The beautiful thing, you know, we talked about the personalized care environment. Well, if you're going from a big box facility where that caregiver is taking care of 20 seniors, to a residential assisted living environment where they're taking care of one to five or one to eight in terms of the ratio, the care is just gonna be way better. I mean, it just is what it is. And so the other thing that a lot of folks don't realize is actually cheaper typically to be in a residential assisted living home than a big box facility because oftentimes big box facilities will have you buy in just to get on like their wait list if they have on or buy in to save your spot. And that can be six figures at some places and which is insane, or five figures, it just depends. And then you're paying monthly once you get in for just typically their basic package, which is like the room, right? And then oftentimes there's add-ons for whatever level of care you may be at and different activities and all those sorts of things. So it can really be quite expensive.

For residential assisted living, for the most part, by and large, it's all inclusive. You just pay your set monthly rate and that is what it is. The median average right now across America is about $5,000 per month for residents in assisted living, residential assisted living. In these big box facilities, it's closer to 6,000 or 6,200. And there's a wide spectrum, of course, in terms of what those costs are and the quality of the homes. But it's also a cheaper model and folks are living longer in a residential setting.

John: You know, it's interesting you say the cost and you explain that because my wife just sold her home helper's business, which she ran for 16 years. Yeah, it's a franchise. And I think I know that if they had to do 24 hour coverage with a single caregiver, it would cost more than paying for that facility.

Dr. Alex Schloe: Yeah, a single in-house or in-person caregiver is there 24-7, private. It's wild. I think it's like $90,000 a year is the average for that. And then you're looking at about, you know, about 70,000 for residential assisted living and probably about 84,000 for a big box facility. So it's still more cost effective. And you're getting more personalized care, although it's not private one-on-one, but one to five or one to eight is a lot better. So it's definitely a step in the right direction, but folks commonly think this is going to be so much more expensive because it's better, right? And it is better and it's cheaper, which is great.

John: Why do you think besides what you've already mentioned, why this would be the perfect thing for a physician to invest in? It was kind of a click bait when I put the title for this today, but anyway, that's the idea because we're talking to physicians. So why in particular would physicians find this interesting?

Dr. Alex Schloe: I think there's a few things that make it really interesting. You mentioned the nursing home experience that we all have. My experience working in nursing homes is no different in assisted living homes. Residents sitting in their urine and their feces and pressure ulcers that shouldn't exist and poor wound care and all those sorts of things. So I think from a medical perspective, we understand that this just has to be better. The care that we're providing to seniors has to be better and residential assisted living is a way better option for that. So I think from that side of things, that's really important to understand.

And then from an investment perspective, they're fantastic investments. I mean, we haven't really talked about the numbers. And before we do that, I would like to mention there's four different ways that you can invest. So if you're a physician, you're thinking about, hey, how could I invest in assisted living? There's four different ways that we commonly talk about. The first would be owning the real estate and owning the operation. So you own the house and you also own the operation business. That doesn't necessarily mean you're in there providing day-to-day care, which I would encourage any physician who's listening to that to not do that, to hire a manager who's running the day-to-day care and hiring the caregivers. So you have time to focus on being a physician and making hopefully a higher income and then can continue to invest. But you can own the real estate, own the operations. That's gonna cashflow the most. There's people cashflowing 10, 15, $20,000 per month on a well-run, fully occupied home, which is financial freedom from one home, which is amazing. And a lot of those folks have managers who are running these. So they're working on the business, not in the business.

The second way to invest would be a lease to operator model. That's how we got started. So we purchased some homes in Arizona and we leased those out to an operator on a commercial lease. They pay us a lease fee each month. They provide all the day-to-day care that typically will cashflow about as good as a short-term rental without all the headaches of managing a short-term rental. So you know, in Arizona, for example, where we have five homes, we're cash flowing anywhere from about $2,200 to $4,000 per month on those five homes. And that's pretty good cash flow, especially in an environment where it's really hard to cash flow with interest rates where they are, with home prices where they are. It's just a lot more difficult in terms of a single family investment. It's the best investment you can make.

The other two ways would be you want to operate and lease that home out from a real estate investor, for example. That doesn't really apply to physicians typically, but that is a way to invest in assisted living as well as you're just the operator leasing out the home from a landlord. And then lastly would be more passive. That would be, you know, investing in a syndication for assisted living or doing a joint venture or something along those lines. That's going to be way more passive. You're not involved in the day-to-day care or finding the real estate or anything like that, but you're still getting the benefits of investing in this population.

There's also a lot of tax benefits for investing in assisted living because in terms of depreciation benefits are essentially writing off the depreciation of the value of the home. You can also do that for the furnishings of the homes. You're talking about, you know, it's 10 residents, 10 beds and 10 dressers and medical equipment. All those sorts of things can be written off as well. And then that depreciation benefits pass pro rata to the investors. And that can be a huge tax benefit for physicians, as well as if you had a spouse who had real estate professional status, then you can take that accelerated depreciation and use that against your, losses against your W-2 income. So there's a lot of fantastic ways that you can do that. Hopefully that answers your question there, John.

John: Yeah, I think that covers a lot of it.

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