The IDEAL Investor Show: The Path to Early Retirement

Episode 20: Find the Best Location for Your Practice with Thomas Allen

• Axel Meierhoefer • Season 1 • Episode 17

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Thomas Allen founded the Practice Real Estate group in 2014 after several years of working in both medical tenant representation and commercial real estate. He has earned a reputation as a smart, creative, and trustworthy advisor to his clients. His vision is to build a company that delivers that same level of service across the country.


TIMELINE:

00:00 Intro

00:46 What is foliolens.com

01:29 Who is Thomas Allen?

04:13 Tips for Finding the Best Location for Your Medical Office? 

07:20 Different ways to expand your business location

09:08 What is better for your medical practice- improve referral or visibility?

11:12 The benefits or Pros and Cons of Retail Clinics

12:07 Should I invest in an office space during inflation?

14:51 How the economic environment in your area has actually evolved?

16:57 Things to Consider When Choosing Office Space

17:59 Investor Q & A: What's your goal going forward?

18:51 Investor Q & A: Is there some exit strategy that you can see for your business?

21:38 Investor Q & A: What will you do with the millions in your bank account?

24:23 Investor Q & A:  Is there a person you admire that you would love to meet?

25:06 Investor Q & A: If you had a time machine, where would you go? 

26:48 How to get a hold of Thomas?

27:50 Outro


 Interested in a free evaluation? Head over to www.practicerealestategroup.com and sell your medical practice or medical-related real estate today!


Quotes:

“I'm not necessarily focused on a number a thing, I want to keep just growing a company that turns out to be large, where our team and our clients, our investors are happy and we're winning. And if we keep helping people and winning, then we'll keep growing organically.”


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Thomas Allen:

One of the advantages to investing in healthcare real estate is it is very expensive for these doctors to move. And so you have a pretty captive tenant, I mean doesn't mean that they don't move but their renewal rate their office tenants is significantly higher. And so with them just paying down equity and making a mortgage payment for 20 years of their career versus paying rent for 20-30 years or their career. I mean, they're out there making money that way, even if it doesn't appreciate their lease building equity right.

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Axel Meierhoefer:

Hello, and welcome to The Ideal Investor Show. My name is Axel Meierhoefer. And we have an awesome guest, Thomas Allen is with us today. And he has lots of experience in real estate investing. So just a perfect person to talk with us and to us about real estate. And Thomas started out if I look at my little notes here in commercial real estate and property management and so forth. And now as a company called Practice Real Estate. Thomas, welcome to The Ideal Investor Show. Tell us a little bit how did you end up becoming a CEO?

Thomas Allen:

Yeah, thanks for having me. Well, you know, I graduated college actually in 2008, during the great financial crisis. And yeah, it was crazy. And somehow I found a job working for a high net worth family out of Dallas, Texas, that owned a significant amount of kind of Class B retail and they wanted an in house leasing person. And so that's that's how I got my start in commercial post college. Actually had my license in college and help college students find apartments. And that was a great little learning start and make really good money for a college student. But as I was, was leasing the shopping centers during this huge economic downturn, the only people that were calling our shopping centers that seemed or doctors, they were still looking for space. And a lot of times the doctors that were calling didn't have anybody helping them. You saw most retail tenants having an agent or a broker, helping them find the spot, negotiate the deals- all these doctors calling in with nobody helping them. They had no idea what they were doing. And so as I started thinking about my next career move, you know, I loved commercial real estate, I knew I wanted to stay in it, I decided to transition into trying to work with just doctors to help them make smart real estate decisions as I'd see some of the mistakes that they made. And I found a guide, kind of one person that was doing that around Dallas, and worked for him for a couple years and then left to go out on my own and expand it to the rest of Texas and some of Houston for a couple years and got it going and then move to where I am now in Austin Delta Company are added.

Axel Meierhoefer:

Yeah, that's very good. And I mean, Austin is,from what I can tell, an amazing markets. If you don't want to do ductus anymore. You can use car workers and stuff right next to the big new Tesla factory.

Thomas Allen:

Everybody's seeing what's going on in Austin on the news. And I still tell people when I talked to him that the news didn't do it justice, what's happening here? I mean, it's crazy every day. What I can't wait, this is happening.

Axel Meierhoefer:

Well, it's a good problem to have. And there's high demand and massive growth and all that kind of stuff. So that's really cool. I saw actually one thing that really got the message across to me to say I want to have Thomas on our show that was on your website, where in one of the testimonials, somebody said "I'm a dentist I know teeth, but I have no idea about real estate". So somebody needed to help me with that. And then I guess you did that. That's really good and great. So for our audience. I mean, as I mentioned before we started the recording one of the goals is always we want to educate the audience. We want to give them additional facets, additional little pieces of wisdom and information that are related to real estate investing. So when you think about somebody you just mentioned people used to approach you (and even already in 2008, 2009, 2010) from the medical profession looking for a space, when you look for a property or for space, like you mentioned, what kind of process? Or what kind of steps? Are you going to say, Okay, what would be a good choice or good opportunity? Or what do you try to find for them?

Unknown:

Yeah, so we are experts. So I like to think of as a narrowing down process, right? It's saying, what kind of doctor are you Who's your ideal patient, and let's go find the best market that has your patient base in it with the least amount of competition. And that's a simple way of saying it. But we built some proprietary software inhouse and have a team that works with it to create custom reports to find the best areas for all different types of doctors to open practices.

Thomas Allen:

And then from there, it's like, okay, we've identified the market, let's go find the best real estate opportunity for that practice. And a lot of times they're buying a building or buying land or building ground up, or they're leasing, right. It just kind of depends on the situation, the size of the practice, meaning how much space they need. The size of the practice, if it's a large group practice, that's private equity back, they're gonna make a lot more money opening good new locations, and they are owning real estates. And they're more focused on leasing, because it's a faster, less capital intensive option. Or if they're a group of five or six doctors that need a big space for surgery center. Well, owning that real estate's gonna be a big focus, because that's one of the big unique things about these healthcare users that probably the general public doesn't realize is their fit out, their built out of the interior of a space, is a significant investment, especially when you compare it to a regular office space for attorney or accountant or, or

Axel Meierhoefer:

Yeah, Absolutely. I appreciate you whatever. mentioning this. Before we started the show I mentioned my uncle was a dentist, and in the early 80s, early 1980. So like, touch a little bit Hold on. He bought a building, and just the equipment. And you have to keep in mind this is early 80s. dollars, right? Not today's dollars, he spent about $560,000 Just on the equipment, and that had nothing to do with the building itself. So yeah, I think he he put four or five chairs, but then all this other stuff. But one thing that you mentioned is you do initially an analysis of what is the right market for the doctor, a group of doctors, does that mean that the majority of people that get in touch with you and work with you are just starting their practice? Or what happens if somebody is already practicing, and for whatever reason, they either want to expand or want to modernize, or something, is that different?

Unknown:

Um, it's a little different. So we get a lot of

Thomas Allen:

It's a lot around what's your goals and moving to calls. So we work with a lot of first time startups, our ideal clients, our best clients are multiple location groups that are adding. We've got groups that have five locations, we got this office. And we can map out where their current patients groups, we got a group right now we're working with that we met when they had one location, they're 40. Now and they're trying to go to 100 in the next four years. But you know, we work on a lot of relocations, to where they either need more space because their practice is growing, or they need to upgrade live and or work and figure out maybe we should move to the the space because maybe they bought the practice and they've been in there a few years. And it's time to make the investment to move and get some upgraded space. And so that is a little bit of a different conversation. other side of the highway, or here's kind of a radius that we can look to move. And a lot of times when they're moving, they're moving. A lot of times the goal is hey, I want to move out of a leased space, and I want to own something. So I'm going to practice another 20-30 years, and I want to build the equity. My practice is big enough. Now I know what size building or space I'm going to need for the next 20-30 years. And let's go build a ground up building or by building and retrofit it.

Axel Meierhoefer:

Yeah, that's very cool. Now, you said earlier first, is this component of searching, especially for the ones that are just starting out. Searching where's the market? Where are the patients basically, regardless of what kind of particular medical field in. When you think about the properties because I think that would be really interesting. And I think educational, and I'm assuming they're also parallels when you actually evaluating properties. What would be some of the things that you look for, on behalf of like a dentist or an eye doctor, some or even a clinical team from a building or property, if not so much from what they do, ultimately, in time.

Thomas Allen:

The biggest thing is visibility. So if you're you brought up the dentist, the optometrist, those are more kind of retail driven visibility. And so yes, a lot of the customer-patient Decision Making nowadays is -Alright, who's on my insurance now let's get online and look at websites and see what website looks like who they are. But they're also more likely to go to you're like, Oh, I've been seeing that dentist or that optometrist every day as I drive to work, like, that'd be a convenient place to go, let me go see throw my insurance and, and what their website looks like and who they are. Versus, we work with a big retina specialty group here in town. And they don't need visibility, they're getting referred to by endocrinologist, because a lot of patients with diabetes have to have retina exams twice a year, and they might be doing surgeries at the hospital. So like, it just the visibility has nothing for them. So they're going to go locate closer to the hospital and where the referral sources are. So that's another thing I kind of missed on is we're also looking at referral sources. Because you know, a lot of these practices, it's referral driven, you know, taking your nose and throat doctor, than being next to a pediatrician in a large family practice is going to drive patient referrals. And once again, that they don't care about visibility. Dermatology used to kind of be that way. But now there's, I don't know, if you'll notice driving around a lot of markets, dermatologists are moving into retail space, and what visibility, they're seeing a lot of value there. Because all the elective procedures that drives revenue.

Axel Meierhoefer:

Yeah. And I think that a lot of the retail spaces, especially malls have lots of parking and many shops anymore. Yeah, it's probably a little different, because your tiny account you'll save (kind of). But I've seen in places I mean, I live in the San Diego area, which is definitely not depressed in any way. But even here, when we go into our local malls, there are quite a few significant spots, even to the point that the Nordstroms, they felt that one of them they have, I think six in the area, and they decided, "Okay, in this particular more, we're going to close shop or date during the pandemic."

Thomas Allen:

Wow.

Axel Meierhoefer:

So this is a massive space on three levels. And so no, I'm not saying that would be something that a clinic would go in or something. But still, there is a lot of benefits, because access is easy. Parking is easy, you know, everything is there, from tiny, single little units all the way to bigger one. So I can totally see that. One of the things that is kind of interesting, because our customers when we're talking about, you know, investing in real estate for passive income, have lately started more and more asking, with all this run up in prices, which for those who already own real estate, and your doctors who you helped the last 234 or five years are probably all happy about the equity gain in their properties. But how does that fly in your field? Is there any concern that prices have gone too high? And that it's harder to actually make any appreciation happen over time?

Unknown:

Well, no. Well, I've been fortunate to operate. We operate primarily in Texas, we do some agents in the Northeast, and we have some referral sources that send us clients throughout the country. And the client chooses to work with us to our healthcare specific nature versus a local agent. But things have only gotten more expensive around here. And could there be concerned about appreciation? Yes, but we're seeing lease rates rise. And as you know, in commercial real estate, the value of the property is tied to that lease. And so as long as the lease rates keep increasing, and there's not supply, when they go to sell their practice one day, they should be able to get a market rent that causes the building to be worth more than what they paid for it.

Thomas Allen:

Now the other way to look at it is we hit on how expensive it is for these finish outs that one of the advantages to investing in the healthcare real estate is, it is very expensive for these doctors to move. And so you have a pretty captive tenant, I mean, it doesn't mean that they don't move, but their renewal rate compared to Office tenant is significantly higher, right. And so them just paying down equity and making a mortgage payment for 20 years, their career versus paying rent for 20-30 years through their career. I mean, they're making money that way. So even if it doesn't appreciate, there's their lease building equity, right?

Axel Meierhoefer:

Yeah, totally. That totally makes sense. And I think one of the things maybe you can touch on that a little bit, because I have one of the questions on our list that I wanted to ask you. But before we go there, when we discuss the passive income investing strategy, then one of the important questions that often comes up is how do I find well performing properties, which is a little bit different than in your medical field because it's more patient oriented or if you want to call them customer oriented, whereas somebody who wants to find a three bedroom, two bath house that generates passive income and performance, right, where you're not paying through the nose and barely make any rent income. There aren't that many locations when you know, the rising market basically floats all the boats so to speak. But I think it would be cool if you could say a little bit if you can, I mean, I know it's pretty crazy to describe but maybe you can make an effort to describe "How the economic environment in your area has actually evolved?" because I think that's a great example of why you don't have to necessarily be concerned with appreciation and market prices and stuff like that. So how is the economic environment in the last few years and on and why?

Unknown:

Yeah, this is a great question, I think I can provide a really good example. So I was involved in a project in South Austin, and South Austin demographics are amazing. And in 2014, three corners of the intersection of Mopac in the st. Davis, were bought by this developer that is now my partner. And we were involved in the lease up and sell up on this project. The first building we did they did as a condo office building, and these office condos is 20,000 square feet. And these office condos were sold for I believe, $220, a square foot for shelf space, which, at the time, it was like, I don't know, if we can get $220 per square foot, right? It's so pretty quick. So that's when they went ahead and bought the other corner, and felt so confident in the market that

Axel Meierhoefer:

That was very, very impressive. Yeah. And it they did lease buildings, because you're going to make more money as an investor off the lease building that you then sell up the chain to like a syndicated healthcare REIT, which is ultimately who these buildings sold to. And I believe the leases in that building were done at $23-$24 a square foot at the time, a lot of our clients were going into this building, and $23-$24 a foot for a health care tenant was a higher rent, that's the base rent for paying the triple net operating expenses. Nowadays, we are right now currently building two brand new buildings that are leased buildings. And doctors are, I'm not gonna say halfway paying, but we are having to get $32 a square foot. And in the span of five years rents gone up 50% of kind of what doctors can and will pay to be in a space. can you just say, you know, for typical doctor's office, I know clinics would be different. But for any kind of typical practitioner office, what kind of precise space are they looking at?

Thomas Allen:

You know, most practices are at least two doctors, they're normally 2,500-3,000 feet. And so you're talking...

Axel Meierhoefer:

$10,000 a month?

Thomas Allen:

Yeah, once you put the typical expenses on it, they're paying about 10 grand a month, and that's what it costs. And then the condo side, because there's a lot of doctors, the other thing is lenders, doctors that have a problem getting money from lenders, their default rate is low, and they stay there forever, etc. And so there is a premium price on owning, and we are seeing Shell office condos around the market in good locations going for $340 a square foot. So once again, another 50% increase in price over the last five, six years. A lot of that's driven by land and construction and everything else. But there's no way doctors would have paid that or medical group sort of paid that five years ago.

Axel Meierhoefer:

Understood. So one of the questions on our list that you've probably seen is, with all that, that now that we have kind of like explored a little bit what you're doing, where you're doing and how you're doing it, what the market is doing. What's your goal, or whether you want to take this going forward?

Thomas Allen:

Yeah, it was a great question. It made me kind of reflect, I'm not necessarily focused on a number a thing, I want to keep just growing a company that turns out to be large, where our team and our clients, our investors are happy and we're winning. And if we keep helping people and winning, then we'll keep growing organically. And so this will turn out to be an awesome, it already is an awesome company. We've gone from one person to 23 people over the last, I guess almost eight years now. And I couldn't be more proud of everybody that works here. And our clients have done great. Our investors and some of the projects where we have raised money and been great. I just want to keep executing.

Axel Meierhoefer:

Yeah, that sounds very good. Now, one thing that I have learned as somebody who has started and finished, so to speak, a couple of businesses, there's this old statement, start with the end in mind, is there some exit strategy that you can see for your business?

Thomas Allen:

There's always a thought of there are a few companies that I think would be interested in buying the brokerage side of our business, I've gotten phone calls. And so we are I look at this company as more of a company a lot of I think real estate brokerages are just a bunch of people there together, you know, advising the same type of client and kind of sharing expenses, but we're building an actual company or systems and processes and that generates consistent profits and then isn't, you know, all one agent or broker doing most of business and so, yeah, could I see the brokers business selling one day? Absolutely. But I really am passionate about the investment and ownership side of real estate and so I'm hoping to just keep growing that brokerage business to create investment opportunities for our agents, brokers, customers, etc.

Axel Meierhoefer:

Okay, cool. Yeah, that sounds good in that context into use the word investing a couple of times Do you see or foresee sometime in the future that regular people could invest in those properties? Or do you think doctors because of the easy access to funds would predominantly rather own themselves.

Thomas Allen:

So that's frankly, the battle we fight is we're trying to create these cash flowing assets, we've come up with a great method where a lot of doctors like I kind of hit on earlier, maybe they're expanding to multiple locations, and they don't want to use their equity to go buy buildings. And so we create a limited partnership, right, in a section of that partnership, the doctors that are in the building can invest in it, that's what we're doing on these two projects. But yeah, we're also raising outside capital from simply kind of high net worth, not super high net worth, but 50,000 minimum investment. \ So like one building, we're about to buy as a million dollar equity injection, and the doctors will probably be about two or 300,000 of it, and then we'll raise the other 700. Me and a couple of the partners will put in obviously some equity as well, but we're gonna raise it from some outside sources.

Axel Meierhoefer:

And that would then work if I understand it, right, kinda like a syndication deal.

Thomas Allen:

Yeah, it's a syndication deal. I mean, that's what it is. Yeah.

Axel Meierhoefer:

And for anybody who is not totally clear on what a syndication deal is, I can plug a little bit our YouTube channel, if you look there, there's a series called terminology explained it because- I'm sure Thomas, you will agree there's a ton of terms in the field of real estate, I'm not claiming that we have covered all of them by no means. But I know for a fact that syndication we have looked once or twice, so anybody who says him not really, totally sure what's different to anything else where I can invest in real estate, that would be a good place to go. Now, another thing I am always curious when somebody was so successful, like you are in the business, if that irresistible offer came, right, Thomas, and you will say, Wow, that is just such a good offer. I can't let it go. What would you do, let's say after it's all said and done, the millions have come to your bank account. And so what Thomas Allen do next, so to speak, just a little bit, daydreaming him.

Thomas Allen:

Um, uh, I really enjoy working and building things. So I'm sure I'd go find something else to try to build. And I also do enjoy, I love searching for property to invest in buy and put I'm a deal junkie, so I have a feeling I'd end up staying in medical office space, trying to buy deals, do deals, and then you know, maybe I get into other asset classes? Or maybe I go buy another business? I really don't know. But I know I wouldn't just sit around. And that's just not how I'm wired.

Axel Meierhoefer:

Yeah, no, absolutely. And I can tell you from my mentoring practice at Ideal Wealth Grower, what we find is that there are a lot of people and it sounds like you have already found your passion, right. So I wonder if I were to ask a little differently would probably not necessarily use the term work, right? Because it's your occupation, but you're super passionate about and that really comes across anybody who listens to the two of us, and we'll hear that how passionate you are about it. But what I'm also finding and that's kind of why I asked this question a little bit as a hypothetical, is a lot of people have interest that they could have potentially developed into some form of mastery, but they knew when they got out of college, or when they got their first job, or whatever it is, that that is a passion or something they're really into that isn't really a moneymaker. Right? Which is kind of, for me the motivation to say why do I want to help people to generate passive income through real estate investing is to enable them to live into that not having to worry whether that makes money or not, if you like painting or gardening or making music or stuff and whatever level of mastery you can achieve that satisfies you that doesn't necessarily need to make money if you have another source, right? So I guess if I interpret Thomas Allen correctly, I would say you would probably still, like do the BRRRR method or do a new syndication for something different and you wouldn't just start becoming a painter or singer or something.

Thomas Allen:

No, no, no, I wouldn't. I am I'm very passionate about golf. I think it teaches a ton of life lessons. I'm an avid golfer, scratch golfer, I probably set aside some more time to volunteer with like the first team and work with children and golf. But aside, that'd be a passion deal. But now I go do some other syndicate I can find something else to do. I have too.

Axel Meierhoefer:

Very cool, okay, what So two quick last questions that we asked everybody? Is there somebody out there that living or passed away would say I really admire that person and would love to meet that person? So if so, who is it and what would you want to talk to?

Thomas Allen:

I didn't see that question on the list. I didn't prepare it. But one of the people I find most interesting is I'm sure a lot of people do is Teddy Roosevelt. You know, he lived just such an interesting life filled with adventure and do great things. And, you know, we all get a little tired sometimes I'd love to talk to him about how he kept a passion for life and um, Motor, for lack of better words, accomplish so much. And there's so many people that accomplish so much.

Axel Meierhoefer:

Yeah, absolutely. I mean, there were definitely some challenges in his life. It wasn't just a bed of roses either, you know? Yeah. Yeah. That's a good one. The other one that question that you saw, and I wonder what you prepared is we always see, you know, as the last question, or one of the last questions, if you had a time machine, you could go forward or backward, where would you go?

Thomas Allen:

Yeah, I was thinking about it. I was like, gosh, people are gonna think I'm crazy. I don't think I'd go back that far. I think I'd go back to East Texas in like, the 20s through the 50s, when the oil boom was happening, and like, the amount of money and the fortunes that were being made, and the characters you'd be dealing with, and I just think it would be an inch, because that's, you know, when that oil boom started. That is what has made Texas what it is. And I would love to see that world when it was happening.

Axel Meierhoefer:

Would you be like in Star Trek, just an observer? Would you want to get in?

Thomas Allen:

Oh, I have to be in there. I'd be right in the middle of it. Yeah. I'd love to do that. Which is ironic that I'm in real estate. I'm in Texas that could do get in the oil business. But I just think that time period, and Texas would have been a neat one.

Axel Meierhoefer:

Absolutely, I can see that. I mean, for me, what triggers a picture that you just do for me is what would be most interesting is not even so much the oil or the drilling or stuff, but the characters that we're in, right, the kind of people that it took to go into, like, for the most part, if you're honest, most of Texas is pretty desert, like to take that particular area to say I make my fortune here, which several people really did. Awesome, right? So yeah, that that would be really, really interesting. I can imagine that. Okay, cool. For those if we are lucky enough to have some doctors on the call that want to see what they could do if they got a taste on medical practices in the Austin area in Texas, but also for anybody who says, Wow, that's an interesting field. Maybe I want to participate in one of those syndications. When the next opportunity comes up, how would people get ahold of you?

Thomas Allen:

In our website, I've got my email on there, and I'm a really good personal email and you can email me and we set up a time to chat. We're always looking for opportunities. And I believe in connecting with smart, good people. And so if somebody wants to reach out, I'd love to take some time to talk.

Axel Meierhoefer:

Yeah, awesome. Yeah, it was a great honor that you came on the show. And we really appreciate your wisdom, especially because that's a fear that is maybe not that obvious to everybody. So just to reiterate, the website, and people will see this in the show notes is practicerealestate.com. And Thomas Allen was our guest today. So thank you for making the time Thomas and anybody who has questions, just go on the website and check out how to get ahold of Thomas.

Thomas Allen:

Thanks, Axel.

Axel Meierhoefer:

Thank you.

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