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EP55 - The Journey of a Physician and Real Estate Investor with Gurpreet Padda, MD (Part 2 of 2)

This week’s episode is the second 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.

This week we dive into his real estate management, development, and investment company, Red Pill Kapital. We discuss how he started it, what he invests in, and his advocacy for providing passive real estate wealth-building strategies for private practice physicians.

In this episode, we talk about…

[1:39] The disappearance of private practice

Dr. Padda shares his theory that most private practices will disappear within the next 10-15 years. Concierge medicine will likely be more sustainable than pure private practice. There is an incentive for hospitals because their physicians can charge a facility fee and the ancillary services that they can charge for are high compared to what private practices can charge. 

You are less disadvantaged in concierge medicine because then you have a direct contract with the patient. Complementary alternative care is another area that hospitals are not interested in. For example, they don’t want pain management associated with them. If you go into a specialty service that people are willing to pay for, Dr. Padda believes you will be fine. He perceives going into a general practice setting as more risky. Insurance and other regulations are expensive, and the reimbursement is low.

[6:04] How Dr. Padda started Red Pill Kapital

Red Pill Kapital is a play on a scene from the movie The Matrix. The concept is that you take either the blue pill or the red pill. The blue pill lets you stay just the way you are, but the red pill opens your eyes to reality.

Dr. Padda was working with exonerees who had been released from prison after serving several years for crimes they did not commit. When this occurs, they are given a lump sum payment, and the vast majority of them squander that money in the first year or two. He was trying to entertain a group of exonerees while also urging them to open their eyes to this financial reality. Instead of gambling with your money, you can use your money to grow resources that are going to carry you through the next 20 or 30 years. 

[7:34] Evaluating capital growth on a project

As we learned last week, Dr. Padda has been in real estate since he was a young man. In his experience, he has concluded that there is no right way to do it. There is no one right asset type. It’s all about the way that you need to do it at that time, and then re-evaluating.

In one example, Dr. Padda described purchasing a small office building for around $2.2 million. Office buildings are based on net operating income. So the higher your net operating income, the higher the value of the building. The problem with this particular building was that it didn’t have very much occupancy. He was able to quickly find other tenants that wanted to move into the building. Increasing the net operating income by about 10-15% was enough based upon the cap rate in that area to increase the value of that building by $1.5 million within a year.

In this case, Dr. Padda immediately flipped the building because he wanted to capture that cash flow with that equity rate. He sold the building after a year and a half and was able to put the money into other projects.

There are other projects that Dr. Padda holds and evaluates how much money he will make per month from that property. In another example, he purchased a medical complex, brought in tenants, and it now generates $3500-$4000 net operating cash flow per month. The tenant is associated with the federal government and they have guaranteed the income for it, so this cash flow will continue for the next 20 years. 

[9:52] The decision about whether or not to syndicate investments

Dr. Padda shared that he does not like risking other people’s money as much as he would risk his own. This idea also lends itself to the concept of Red Pill Kapital, which is an asymmetrical return. He encourages investors to take the least amount of risk for the maximum amount of benefit. So if he is going to syndicate something, it is because he knows that cash flow is going to be really good.

When the risk is low and the yield is high, he is more likely to bring the deal to other people. On the other hand, Dr. Padda does not believe you should syndicate speculative deals – speculation is something you do with yourself and with your own money. People may lose trust in you as an investor if you bring them deals that do not work out in their favor.

Dr. Padda also shared, however, that he has never lost any significant money with real estate. If you wait long enough, he explained, you will eventually make money. The market will come up, and inflation will chew away at some of the start-up costs. Some of his real estate investments have taken longer than expected to increase in value, or required more redevelopment, but he is picky about what he invests in and it has all worked out in the end. 

[14:09] Real estate lessons learned

Many physician owners go into real estate with their exit in mind. They were told that they had to own their own buildings, and then they go and do it. They may go in with a couple of their buddies, develop and occupy the building, and then they neglect the management aspect of it. Maybe they don’t want to pay for professional management, or they think they can get by because they have a handyman they can call, or they really want to save money and do it themselves. Then when they go to sell it, there’s some cleanup that has to happen. 

Dr. Padda advises physician owners to think about exit strategy and the life cycle of the property. When he starts a project, he asks himself how long he expects to hold it and considers the exit plan. Is he going to flip it? Is he going to try to get cash flow in it? Is he going to reposition it in a different way? What kind of tenants does he need? He then creates at least three exit plans, each with a timeline and an expected rate of return.

[16:04] Being a passive participant versus an active investor in a real estate deal

Dr. Padda has people that work with him that are passive, and he is passive in other people’s deals. He will participate passively in other deals because they may be too far away for him to take care of. For example, he is passive in a deal in Houston because it is safer for him. He is unfamiliar with how Houston politics works, so it would be difficult for him to be an active investor. If you are the active investor, you need to have a well-defined exit plan. You have to understand and build in your cost of management to keep the building in good shape. 

So there are opportunities to create wealth in real estate via passive investment if active investment is unappealing to you. There are also professionals out there who can help you and support your investment process.

[20:35] Previous jobs held by Dr. Padda

Dr. Padda’s first “real job” was residency. Before that, he hustled and created his own jobs. We heard about his real estate work in last week’s episode, and he also shared that he would mow grass. His first real paycheck from an employer, however, came from residency.

He also described another company he had in the past, where he would travel and collect artifacts from different cultures. He would then sell them in Europe or the United States, appealing to people who wanted to own a unique historical piece.

[23:55] Who Dr. Padda is reading or listening to right now for news, information, or inspiration

Dr. Padda shared that he does not typically look at mainstream news. He tries to take a balanced approach. He looks at specific YouTube channels to get his macroeconomics for the day. If a topic interests him, he will look at BBC, Al-Jazeera, Fox News, and CNN for that topic. Somewhere in the middle of those four different opinions, he said, lies the truth. 

While he does not attend to the news often, he does do a lot of reading. He recommended Richer, Wiser, Happier by William Green – a book about stock market investing. 

[26:38] What Dr. Padda does for self-care

Most mornings, Dr. Padda gets up around 3:00-3:30 in the morning. He spends the first three or four hours of his day introspecting and writing his thoughts down. He works out for an hour, and he also does biohacking. He tries to figure out how much exertion he can create with the least amount of time to get the maximum end result.

[27:31] Is a person born with a desire to heal, or is this learned only through their training?

Dr. Padda’s response:

“I think people are born with a desire to heal. I think that the training allows them to do it.

And whether you’re trained as a nurse, you’re trained as a pharmacist, whether you’re trained as a physician, that vehicle that you use to get there is the training and whether you’re a physician or not, there’s a lot of people that are non-physicians that are amazing healers. There’s a lot of, you know, people that I’ve met that are just amazing untrained healers.

And I think they have a deep desire to connect to people and a deep desire to make the world a better place. So I think that that comes first. And then you have the vehicle of training that tells you how you’re going to manifest it, or how are you going to create that.”

[28:22] Are leaders born or trained?

Part of Dr. Padda’s response:

“I had to be trained. I was always bossy. Don’t get me wrong. But being bossy is not leadership. Being bossy is just being an idiot. Being a leader is being able to pull other people to what you need them to do. And hopefully, because it’s good for them.

Leadership is the ability to move people from point A to point B for their benefit, but they don’t themselves see, or they need somebody to help them see, and you have to sometimes train people to be leaders. I mean everybody’s bossy, but, and all little kids are bossy if you ever watch them, but they’re not leaders. They’re not leaders till they train themselves…It’s a constant process.”

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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