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EP54 - The Journey of a Physician and Real Estate Investor with Gurpreet Padda, MD (Part 1 of 2)

This week’s episode is the first in a two-part series that features Gurpreet Padda, MD. He is a private practice physician out of St. Louis, Missouri, who runs Reversing Diabetes MD and Padda Institute Center for Interventional Pain Management. Dr. Padda also runs Red Pill Kapital, which is a real estate investment development and management company. He is an advocate for educating private practice physicians on passive wealth strategies through owning real estate.

In this episode, we talk about…

[5:05] Getting into real estate as a teenager
Dr. Padda came to St. Louis with his family when he was 8 or 9 years old, and he had to hustle to figure out how to make money. By the time he was 14, he started to get into real estate. He learned about construction, and when he was 16 he hired contractors to work with him. They would drop him off at high school in their trucks, and he would keep in touch with them by taking phone calls in the cafeteria.

[6:08] The desire to have a life outside of the hospital
When Dr. Padda graduated from medical school, he did his residency in Chicago. He originally wanted to be a surgeon, but the nursing strike happened at that time. He didn’t leave the hospital for six months due to being so short-handed. It dawned on him that, if he was going to have a life outside of the hospital, he was going to have to figure something else out besides surgery.

He was still doing work in real estate as well, buying, selling, and rehabbing properties. That is hard to keep up with when you’re also in residence for general surgery. So at that point, he switched his specialty to anesthesia. He got into pediatric anesthesia, ended up doing heart, liver, and lung transplants, and eventually got into interventional pain.

For 10-12 years, Dr. Padda did a lot of research in that area and published several papers. During this time, he also decided to pursue an MBA in finance. He learned about currency flow and arbitrage, and was then able to apply macroeconomics to his work.

[9:05] Characteristics that are more relevant than your education when it comes to owning a business
Around 12 years after residency, Dr. Padda started doing hospital-based medicine and private practice. After that, he started his own clinics. In his opinion, having his MBA made it easier to talk to people about his decisions but it didn’t make it easier to run the practice.

There are other characteristics that are more relevant when it comes to owning a practice.
– Do you have the capacity to think?
– Do you have the capacity to make decisions?
– Are your decisions appropriate?

Most people make decisions emotionally and then justify them. People with MBAs may be able to justify their rationalizations better, but that doesn’t necessarily mean that their decisions are any better.

[10:30] The applicability of formal education to real estate
Dr. Padda believes that experience with formal education gives you concepts. It allows you to have discussions with bankers. It allows you to have a better understanding of the business and real estate world, but it doesn’t necessarily improve your outcomes. No matter how many letters you have behind your name, you will still make “goofball decisions” from time to time.

[11:09] How Dr. Padda decided on his medical specialty
He has always been an adrenaline junkie, and he shared that he had hyperactive tendencies as a child. Figuring out how to channel his energy led him to go into something that he thought would be “really cool”, which was trauma surgery. Dr. Padda loved the concept of making speedy decisions followed by the calmness when everything becomes clear. He then became interested in the chemistry and the cerebral aspect of anesthesia. Finally, he went into interventional pain because it combined these interests.

As he got older, Dr. Padda began to think longer term. He started to wonder why his patients were as sick as they were. This line of thinking led him to working with patients to reverse diabetes and addiction.

[12:39] How capital flow impacts our health as well as the real estate market
This new endeavor gave him the opportunity to spend a lot of time thinking about epidemiology and thinking about health in a global sense. He transitioned from understanding himself to understanding the population in general. As he made that transition, his training in macroeconomics kicked in. It became clear to Dr. Padda how capital flows across the world and how that capital flow impacts our health.

He was able to see how that impacts the markets domestically. As he points out, there may be bubbles in the stock market and cryptocurrency. Dr. Padda monitors the market because he used to be in arbitrage and he wants to understand what is going on and how the macroeconomics impacts the real estate market.

Investment in real estate is a micro investment in a particular project on one side of the street. It can be impacted by what is behind you in the alley or in front of the building, or even by tenants. So you have to go from a big macro picture of this global world down to this micro investment.

[15:17] The importance of investing in real estate for your practice(s)
Dr. Padda owns all of his practice locations. His company generates revenue and then holds it internally. He points out that medical physicians tend to think it’s worthwhile to throw $35 per square foot into a lease year after year. It doesn’t make sense if you look at it, because they aren’t getting any leverage and they are just making somebody else who owns the real estate more money.

[16:31] How to decide where to purchase real estate for practice locations based on patient perspectives
When thinking about where to purchase his practice locations, he did it based on where the patients were going to be. Being near a hospital may not be advantageous, if that isn’t where patients live and can easily get to. It is better to have locations in areas that have high population density and adequate public transportation access.

You have to approach it from the patient perspective. Where does the patient want to go? So you may want to look at retail real estate.

[17:33] The effect of the pandemic on retail real estate
The current climate is a historic opportunity to buy retail. When something goes up, something else goes down. Retail real estate has gone down during the pandemic, because people think it’s never coming back. When people have excessive fear, that is when the prices are really low. That gives you a margin of safety to buy.
Dr. Padda also suggests thinking about where patients tend to be on a regular basis. For example, locating your clinic near a grocery store means it is more convenient for them to make appointments because they already have to go to the area on a weekly basis.

[21:28] Selling restaurants before the pandemic began
Dr. Padda’s company had a restaurant division, and they sold the entire division in October 2019. They saw that the repo market was crashing, and therefore they knew that a crash was coming in the U.S. economy. They predicted that a liquidity event was going to happen within 6-12 months, and they decided that they did not want to be in a retail business selling food in such an uncertain time.

They had purchased the restaurants after the previous crash of 2009, and then sold them in 2019. Everything is cyclical. As Dr. Padda advises, “You want to exit before everybody else is running for the exits.”

[24:14] Educating clinicians on creative passive cash flow and equity growth
Dr. Padda shares that he has seen amazing physicians that die broke. They have high expenses and they think they will always have high incomes. It disappears the day they quit working, because they don’t have any passive income streams.

[25:22] Why physicians tend to make financial decisions based on narcissism
Doctors typically listen to people that appeal to them. Dr. Padda suggests that physicians, by their very nature, are narcissistic. They have to assume that what they are doing is correct, and with that comes a bit of narcissism.

People that are predators prey on this narcissism. If a salesperson can identify someone who is narcissistic, it is easy to get them to do what you want. You keep complimenting them and telling them how smart they are, and physicians can fall prey to this tactic.

If clinicians go into the stock market, they will most likely go into funds because they may be too intimidated to pick their own stocks. So, they will then pick funds based on what somebody else tells them. Most funds charge 2% annual just on the money holding there, and then 20% on the actual profit. If you look at most of the stock market investment in funds, it doesn’t get above the S&P 500 for the vast majority of funds.

With fees, underperforming funds, and no tax benefits, this strategy rarely pays dividends long-term. Dr. Padda urges physicians to work to better understand the concept of cash flow. You need a consistent revenue stream that comes to you without you working. He wants to help other physicians because he realizes there is a disconnect between their understanding of cash flow and income and capital appreciation.

Links to resources:

Reversing Diabetes MD: https://reversingdiabetes.com

Padda Institute Center for Interventional Pain Management: https://painmd.tv

Red Pill Kapital: https://redpillkapital.com

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