Will Power
Being a physical therapy entrepreneur can be unbelievably challenging at times. From patient care, to running the businesses, to balancing a family, it’s no wonder many entrepreneurs feel overwhelmed and burned out. Each Tuesday, join Will Humphreys, a retired private practice owner and medical entrepreneur, as he introduces game-changing leadership concepts and interviews other successful leaders in healthcare. If you want to start, scale, or sell your outpatient physical therapy business, this is for you. Together not only can we increase our income, impact and freedom, we can build the largest network of healthcare leaders in the world at the Will Power Podcast.
Will Power
Why Private Practice Owners Must Own Their Real Estate with Colin Carr
In this eye-opening episode of the Will Power Podcast, host Will Humphreys sits down with commercial real estate expert Colin Carr, founder of CARR, to reveal a financial strategy most private practice owners overlook, owning the real estate their business operates in.
Together, Will and Colin dive deep into how real estate ownership can become the most valuable asset in a healthcare entrepreneur’s portfolio, even more than the practice itself. They discuss the pros and cons of leasing vs. owning, how to avoid costly mistakes in lease renewals, and why negotiating with the right strategy can save you hundreds of thousands of dollars.
What You’ll Learn:
- Why real estate is often more valuable than the practice itself
- The critical difference between leasing and owning
- How healthcare providers lose massive amounts of money during lease renewals
- Why timing the market isn’t as important as time in the market
- The top 3 mistakes practice owners make in real estate deals
- How specialized representation gives you the leverage you need
- Why working with a healthcare-specific real estate firm changes the game
- Real-world examples of providers who built generational wealth through commercial real estate
🔗 Connect with Colin Carr:
- Website: https://www.carr.us
- LinkedIn: https://www.linkedin.com/company/carrhealthcare
- Facebook: https://www.facebook.com/CARRHealthcare/
- YouTube: https://www.youtube.com/c/CARRHealthcare
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Every private practice owner should own the building they're in. Today we're talking to Colin Carr. He is an expert in real estate, founder and CEO of Carr Incorporated, the nation's leading provider of healthcare real estate for services for only tenants and buyers. They're so niche they only help healthcare professionals or private practice owners buy or lease their buildings and we're going to be talking about how to avoid the biggest mistakes that private practice owners make when it comes to leasing and buying. We're going to talk about why buying is so important, no matter what the market is, when the best time is to join the real estate game, where you are in your stage of business and how that could influence whether you buy or lease. We're going to talk about saving hundreds of thousands of dollars with very small negotiating tactics.
Speaker 1:This episode is worth so much money and it's super short. I think it's like 40 minutes. Yeah, Colin, I am on a mission, like you are, to help private practice owners understand the importance of of owning the real estate that their business is in. I didn't know until after I sold, like how valuable that was, so let's start really like fundamental stuff. You know, when a private practice owner is looking at their real estate consideration. What do you think the pros and cons are of leasing versus owning the space?
Speaker 2:Yeah, there's a lot of factors that go into whether you lease or purchase, but before I jump in there, I do want to hit on what you just said. If you have the ability to own real estate, the real estate is going to be worth more than a practice. Once you get ready to sell Literally, it's 80 or 90% of the the real estate is going to be worth more than a practice once you get ready to sell Literally it's 80 or 90% of the time the real estate is worth more than the practice and so when you look at the value of that, you might spend 10, 15, 20, 30 years building a practice and you can purchase real estate if you have the ability to and it fits your requirement, that's going to be worth more than the practice at some point. So it's really a two for one. I mean, it's two of your largest assets that you have and they're both very saleable. And the real estate becomes even worth more money when you have a practice tied to it. So I couldn't agree more. Owning real estate is one of the greatest investments that healthcare providers will ever make.
Speaker 2:The question on what you should do as far as leasing or purchasing it comes down to a couple of factors. Number one it comes down to inventory. You might have a desire to own real estate. You might have an established practice and say I'm leasing, I want to purchase now, and you might go to the market and there might not be any properties for sale that meets your criteria. It's not like residential, where there's always another house for sale or you can just push into another neighborhood or go a little further away from the metro area Commercial real estate. If you're in a finite area and you want to stay in a certain market, there might not be any options for you to buy, and it depends on the market. If you're in Tulsa, oklahoma, there's going to be land on the outskirts. If you're in Manhattan, there's no more land, and so inventory is going to determine real quickly whether you've got options to purchase or not.
Speaker 2:The next factor is going to be just what's your current situation? Do you have money for the down payment? What's the cashflow look like? What's the quality of property? Sometimes you can buy real estate, but if it's in an inferior location it's going to hurt your patient referrals If it's maybe not as good of a location as you could find a lease. You got to take that into consideration too.
Speaker 2:And then you just get into the economics of it. You start looking at concepts like what's it cost to lease versus what's it cost to have a mortgage. What does it look like after you factor in tax deductions? When you own commercial real estate, you can depreciate that real estate and you can pick up additional tax deductions. What does it look like after principal pay down?
Speaker 2:When you cut a check to a landlord, that money goes to the landlord. When you cut a check to a landlord, that money goes to the landlord. When you cut a check to a lender, like a mortgage company, a portion of that pays down principal and every month your net worth goes up. So you can take a portion of that principal away from the payment and say this is really just a forced savings account. And so the numbers are going to tell a different story. You might start out and have a lease that's 5,000 a month, a purchase that's $10,000 a month. But after depreciation, after some of the deductions, after principal pay down, the effective cost of owning might actually be less than leasing. And so you've just got to run the numbers and say what's the actual cost of owning versus leasing and then you factor in some of those other items like inventory and quality of properties and so forth.
Speaker 1:Yeah, but it sounds like as great as that was, and thank you for defining that it sounds like. At the end of the day, whenever possible, owning is the way to go.
Speaker 2:That's my preference personally. I mean there's some exceptions that roll. If you just said, listen, I'm going to be selling my practice in a year or two, I've got a lease renewal coming up. I just want to just kind of stamp a lease renewal and then sell my practice in a year or two and drift off into the sunset, that's a different story.
Speaker 2:If you're just getting started and you think you're going to want a much larger space or a different type of building in the future, leasing might be the best option for you to get started. Maybe you lease for five years. Then, once you get your feet underneath you and you know the exact area you want to be in, you know the exact size that's going to facilitate your need to the next 10, 15 years, then you buy the right size building. So there are times when leasing does make more sense. But if you are in a position where you can see yourself in that building for 15, 20 years, you've got the ability to put the down payment on it. The financing is going to work for you. You know I'm going to push towards the purchase nine out of 10 times.
Speaker 1:Well, and that's what I want to confirm, that was the biggest surprise on the financial end of my exit. So I had four to five locations and when I exited I had ownership in two of the buildings and it was so amazing to me how that played out Because, as one of my friends, ed Drummond, says, who's a real estate expert, he's like it's not timing the market of real estate, it's time in the market, and so what you're saying is paralleled with that. You know private practice owners who have their own business, and if they own their own building, while they're doing this thing called owning the business, there's all these like short term advantages, tax wise, for owning the building, not to mention before I continue my call and there were times where we we would have a financially slow month and so we just reduced our rent that month because there was a little bit of a gap there. So we were able to make some adjustments that helped the business in a way that a landlord wouldn't have been able to do.
Speaker 1:So, yeah, and then when we sold, it was so crazy because you said it best. Sometimes the value of the building is worth as or more than the value of the business and, like in my case, the buyers wanted to sign the highest level leases they could to keep me engaged in the business. So I got a AAA lease with all these wonderful like it was a great lease. And after selling the practice having that business, the building sorry, the income from the building come in has been huge and my net worth has continued to scale over time because that building continues to become more and more valuable. Anything you want to say on that piece before I start drilling you?
Speaker 2:Yeah, no, To that point I mean when you own the real estate and you go to sell the practice you can decide at that point do you want to sell both assets? Do you want to sell the real estate and the practice and cash out of both? A lot of people, though, will sell the practice, and then they'll write like a 10, 12 or 15 year lease with the buyer of the practice, and then they'll continue to either pay that building off or, if it is paid off, they'll just continue to cashflow, and it just becomes an annuity. And so you continue to pick up tax deductions as an owner. Every year you get depreciation. Every year you get interest write-offs and other operating expense write-offs. Every month, the principal pay down goes to build your net worth if you still have a loan on it.
Speaker 2:So a lot of people will choose to sell the practice, hold the real estate and, again, at that point, you can hold it for five years, then sell it. You can hold it for 10, 15. You can hold as long as you want to, but it becomes another like a secondary business if you will, and you know, as long as you're the owner of the practice like you are the most surefire tenant you're going to ever have. Like, if you're going to bet on anyone, you bet on yourself and then, even when you go to sell the practice, you've got someone who's qualified enough to purchase the practice. You set it up. You know if it's a good location, you know if it's run properly, you know the property has been taken care of well because you've been the owner, and it becomes like one of your best commercial real estate investments you can get your hands on.
Speaker 1:Yeah, Rock stars. What Colin is saying is so valuable in so many ways because I saw a guy in my exit who had multiple locations. He used the money that he got for his practice to pay off the remaining portion balances on his commercial real estate loans which is, by the way, there's controversy in that but he did it because he wanted the passive income. So it's like, like he, Colin, said, it's like starting, it's like having this whole other business that doesn't require effort, Like that was the thing. It's like it continues to grow value without you doing. I mean, there's some property ownership steps, but they're so small and you can hire companies that are out there there's great ones I can recommend but ultimately there's this idea of you're putting very little effort into this growing net worth and then the passive income.
Speaker 1:This guy was receiving multiple six figures every month because he had sold his business and then set up these crazy cool leases and just the freedom it creates. I always tell people if you're going to start a business, buy the building. So, Colin, my question to you is you're obviously recommending that, even still, with the interest rates being where they are now versus where they were, let's talk about real-time investments for people who are like, yeah, but aren't interest rates rising? What do you say to those people who are in a position where it would probably make sense for them to own a building, but they're concerned about the market?
Speaker 2:Yeah, that's great. So here's what I tell you Interest rates for now are very fair. If you were to compare it to where they were four or five years ago, that's the lowest they've ever been in the history of interest rates, and so it's not a real good comparison If you look at a historical chart of the last 20, 30 years.
Speaker 2:The markets go up, markets go down, rates go up, rates go down. You can't. You can't anchor to where they were three or four years ago, because that was an anomaly. You know where they're at today. I mean, if you're purchasing commercial real estate, you know to get an interest rate like at maybe five and a half six, six and a half percent, even seven, like that's still a very fair interest rate. And the bottom line is we know a couple of things. We know the market's going to keep moving. We know rates are going to go up and down.
Speaker 2:If rates are higher than you want, you still transact, you still buy the right building at the right time and then you just simply refinance it. I mean, if rates come down in six months or a year, then you refinance it and it's not hard to figure out. So savvy real estate investors don't sit on the sidelines indefinitely just because rates are not where they want. They still buy good properties and then they just wait for the market to adjust and then, when rates go down, they capitalize, they refinance properties. Then all of a sudden things make more sense and they're even more profitable. So I mean we're not seeing any slowdown.
Speaker 2:Now again, if rates were 12%, yeah, you would see less people being able to afford the same amount of real estate. You'd have to either downsize the size of the building or the purchase price to make the numbers work. But I mean you're talking about interest rates like in again, the high fives, sixes, maybe a high six or a seven, depending on if it was an SBA loan or something was unusual about it. I mean a 6% interest rate, that's as normal as it gets. I mean that's still a very good interest rate. You can't compare it to when rates were at 3%, because that was the product of a lot of crazy things happening and that's just not where we're at today.
Speaker 1:Yeah, it's so funny that you mentioned that. I think the key thing you said earlier, colin, was this idea that this is for people who are going to be in their business for a while, this idea that we this is for people who are going to be in their business for a while, like if you have 10 years minimum. And here's a here's a story to illustrate your point. My first commercial building that I purchased for my physical therapy practice was in 2006. I bought at the peak of peaks, before the crash of crashes. We bought our building. It was a half million dollar building for 2000 square feet back in 2006. Literally in a year and a half it was worth half that much. People were selling around for under $250,000. I was aware of this. I wasn't thrilled about it, but it didn't bum me out because I knew this was a practice that I was going to be growing for decades at least a decade and a decade's a long time you know. So like for me what we we still, even then, enjoyed having the control of the mortgage. I think the key thing there was that we could afford the initial payment. That was big because, as things fluctuated in that practice and it fluctuated that was a secondary location for us, so we were learning how to be real business owners at the time. So, like the profits would rise and fall and there was times where we cut rent down but we were. We were always able to pay our loan. That was the big thing. But then, you know, it fast forward to 2018. And we actually ended up selling that business just a couple of years ago, or the building. We sold the business in 2018. But then we kept the mortgage or the excuse me the renter income on that and then we decided to leverage that into buying more real estate. So me and my partner sold that, that building, and we ended up selling it for a profit that was more than what our initial initial loan was. So it's just kind of like a really cool illustration of what you said is.
Speaker 1:Like when people are listening, they're like I worry about timing the market. It's not timing the market, it's time in the market. The bigger question I want healthcare providers to ask is where is healthcare going in the next 10, 20 years? If they're going to be in their business for 10 to 20 years, where's healthcare going? Nowhere, so as long as they're going to stay in it and grind through the normal crap with insurance or whatever they're doing. There's going to be a return on that. So what I love about you guys and I mentioned this in the introduction is that you guys specialize, like you are the most niche and you're the biggest in the country that specialize in helping doctors and healthcare company owners find the right real estate options for them. So how does you, being specialized, provide additional value for people that you work?
Speaker 2:with. Yeah, I appreciate the question. So it's very similar to healthcare. I mean, if you want to get braces, you're not going to go to an oral surgeon, go to an orthodontist. If you're to get your hip replaced, you're going to go to an orthopedic surgeon, Like everyone's got you know their own lane in some form of healthcare. It's the same thing for physical therapy, Like you're going to a physical therapist because they're trained in a way that helps you get back to your prime or to help you get beyond anywhere you've ever been before recovery from a surgery, an injury, whatever it might be. You're not going to a family practice doctor for that, You're going to a physical therapist. So it's the same thing for us. All we do is specialize in representing healthcare providers. We're only on the tenant and buyer side. We don't do any landlord or any seller work, and so the first thing that comes up is we just don't have conflicts of interest.
Speaker 1:That's the number one thing that you have to be aware of that's a big one.
Speaker 2:Because people will drive around and call on a building or they'll get online and search a database and they'll call the listing agent. The listing agent will start facilitating information, love to show you the property and all of a sudden that person doesn't realize the person you're talking to has a legal obligation, a fiduciary obligation, to help the seller or the landlord maximize their profitability, Meaning they're going to take you for the highest lease rate, the highest purchase price, the lowest. They have a legal obligation basically to punish you in the negotiation. And so, again, the person is not going to be an idiot, they're not going to tell you that and they're going to be gracious, cordial, accommodating, they're going to follow up with you and you're oh, this man. You're going to say this guy is really nice or this lady is really nice. They're legally working against you.
Speaker 2:And so once you realize that you can't be in a situation where there's conflicts of interest that's paramount. And then you get into the place where you realize that you've got to have specialized representation. You've got to have an advocate on your side of the table who knows what they're doing, who understands how to maximize your upside. How do you get the most competitive lease rate or purchase price? How do you get the highest level of concessions? How do you avoid getting stuck in pitfalls, delays or traps that people fall into all the time, when they don't know what they're doing and you realize how much money is really on the line? That's the foundation of our business.
Speaker 1:Yeah, and it's so true. I had a situation like that where I had a real estate agent who was working both sides of the thing and they weren't even healthcare specific and that that lease was so disappointing compared to these other leases I had, and I really value that part of being hyper-specialized. You niche, and that's where the value comes in. So let's talk about mistakes, then. What are the most common mistakes that private practice owners make when they're purchasing their real estate?
Speaker 2:Yeah, absolutely. So I'll give you three or four and these are going to apply to whether you purchase or lease. It's kind of the same thing. The very first one is do it yourself. It's the doctor or the administrator that says I'm a smart, intelligent person, I know how to pick up a phone, I know how to send an email, I can negotiate, I can sign a lease, you can do every one of those things, but you can't do them as well as someone who specializes. So the number one mistake we see people making is they just do it themselves. And yeah, I mean, I can pull my own teeth, like I have a pair of pliers and I can. You know, I can have my son jump on my back and adjust my back. I can do a lot of things myself, but I'm not going to get the same result. So the do-it-yourself is number one, unequivocally.
Speaker 1:Before you jump in, there's legal things too. There's those things called you do it better, but there's a whole bunch of legal stuff that's just out there constantly floating around and to not have to like to either just do it thinking I'll never affect me as silly, or to be overly worried when you don't even know how, where to start learning that stuff. It's nice to have the legalities of how these things work just kind of handled, because you're working with professionals.
Speaker 2:Yeah, there's the legalities, absolutely. But there's also just like street credibility, like there's no landlord on the face of the earth that's going to get a phone call from a healthcare provider and think, oh, this guy is a real estate savvy expert. There's no way when a real estate listing broker or a real estate landlord gets a call from a doctor, they're licking their chops. They're instantly thinking I'm going to take him or her for a 20% premium, I'm going to save myself probably $50,000 to $100,000 in concessions.
Speaker 2:There's no respect there. It's not hard to figure out. Some random person that has no idea about real estate at Chipotle is not calling on properties. Starbucks doesn't have some random administrative assistant just dialing to say what's available. Take any Fortune 500 company the only people that are making the phone calls on real estate are the most qualified experts in the country. And so you look at what does a Fortune 500 or 100 company do? And then a healthcare provider will do the exact opposite of that and think that they're super savvy. And so I don't mean that disrespectfully, but the amount of healthcare providers.
Speaker 1:It's a big mistake.
Speaker 2:Yeah, it's like if you got a letter saying you're being sued, there's no one in their right mind would say I'm just going to go it alone. You would lawyer up instantly. If you get a letter from the IRS saying you owe a bunch of taxes or you made a mistake, there's no way you're just going to pick up the phone and call the IRS. To call the IRS, you're going to have your CPA or a tax attorney make that first phone call, because there's no credibility when some random person who's not trained in an area is trying to do something.
Speaker 2:Yeah, I love that, I love that the do-it-yourself is by far number one. The number two mistake and this is one that's probably going to surprise people, because it's very different than most people think is they don't know how to negotiate. They'll pick one property and they'll just start trading paper or submitting offers, and the problem with that is there's no benchmark or plumb line to measure the deal against. And so the reason this is contrary to how people think is because in residential real estate, whether you go with an agent or you look online, when you find a property you like, you submit an offer, and it's typical to submit one offer, it's in a contract form. If the seller says yes, I like it, or they counter you and then you agree, you're in a legally binding contract. There's options for you to get out or to avoid it, based upon objections and deadlines and requirements, but you typically pick one property, submit the offer and if they say yes, you're under contract.
Speaker 2:In commercial real estate, you negotiate on a non-binding basis in a letter of intent or an RFP request or proposal, and it's common in commercial real estate to be negotiating with four or five landlords or sellers simultaneously, and the reason being is you don't have any idea if one landlord is much more motivated than another landlord. You might have two properties that are side by side, that look identical. Well, one landlord might've bought it 20 years ago and have no mortgage. Other guy is leveraged to the hilt and he can't do the same deal. One landlord might be getting ready to sell their property and they want the highest lease rate, but they're willing to give significant concessions for it. The other guy is going to hold it for the next 20 years and he's willing to do a much more competitive deal because he wants occupancy over lease rate.
Speaker 2:And so you don't know those things until you negotiate, multiple people and also, too, landlords aren't going to give you their best deal. A landlord is not going to come up and say look, I would do a deal at $25 a square foot if I was pressed. So here's 25. They're going to come at you at 30. They're not coming to 25 unless there's a fear of loss, unless they think they're going to miss the deal, unless they think other landlords that they're competing against are doing the same thing. They're not going to just voluntarily give you a $200,000 rent reduction because you asked them. They have to be pushed into that deal or forced to do it to be competitive with the market. Nobody just voluntarily gives away hundreds of thousands of dollars, and so you don't do things like that unless you have to. If you were a provider, you would never lower your rates or fees or accept a lower reimbursement from an insurance company, unless you had to.
Speaker 2:And so, yeah, and that's the whole idea, and so, but you, I'll say this and I'll let you jump in. You cannot get to that point unless you have four or five landlords that you can leverage against each other, put one against the other, and then you've got real-time intelligence coming at you. This guy's willing to do this. This guy's willing to offer this much free rent. This guy's willing to do. You know, these three properties are at 2% annual increases. I'm not going to pay three and a half with you. You don't have that information unless you are in the market with multiple landlords and multiple offers going back and forth.
Speaker 1:Yeah, I love that. It seems like to me from what you just said, there's a lot of reasons why you'd want to work with a professional who's hyper niche in this space If you're going to be purchasing a building as a private practice owner. There's all these things that you mentioned, but you really hyper-focused on the negotiation part of it. Like there's all these legalities, there's all these different steps, but when you were talking right now, I got a real sense that, like, negotiating is a different level at these commercial real estate pieces. So how much is really on the line, like when people are thinking about negotiating, what does that look like? I think you gave a good example, for example, but is there anything else you would add to that?
Speaker 2:Yeah, I mean, there's a couple hundred thousand dollars that are in play in every transaction, and that number catches people off guard. They either are surprised by it or they don't believe it, but it's, it's how do you get to that Like number?
Speaker 2:Like I'm sure you use use how do you get to that number? Use some scenarios that would paint that picture pay by that amount of money. That's only like a 10% difference on lease rate for a lot of properties, like a gross lease rate of 30 a square foot or even a base lease rate of 30 a square foot. If you overpay by $3 a square foot, $3 a square foot times 3,000 square feet, that's $90,000 over 10 years. So that's just the lease rate.
Speaker 2:If you have an annual increase, let's say that's at three and a half percent and you could have paid 3% or two and a half percent and you're on an inflated lease rate already. Like there's tens of thousands of dollars more in annual increases that you could have avoided If you miss out on a couple of months of free rent, like not just free build out period but actually free rent to start your new deal. I mean it's not hard to figure out. I mean every month of free rent, $30 a square foot on 3,000 square feet, that's $7,500 a month. If you only got a month or two of free rent and you could have received four or five months of free rent, there's another $25,000, $30,000.
Speaker 2:Wow and so you start getting into things like build-out allowances, like to renovate a space. There's a number of other concessions that are available. So of other concessions that are available. So again, you just start. You take 90,000 here, 20,000 here, 30,000 there, and you add it up. It's very easy to come up with a couple hundred thousand. But even if it was just 50,000, like I don't like, let's take it down to the most, like lowest number you could imagine, Like who wants to lose $50,000 if you didn't have to.
Speaker 1:Yeah, but it was hundreds of thousands of dollars plus like terms. I think the other thing that goes in negotiating that I experienced was this idea of like having a professional negotiate terms, because there's the deal and then there's the terms. I coach people on how to sell their practices. I could, you know, I tell people all the time who here would raise, sell their business for $10 million. Right, every hand goes up, it's like okay, and then I start going through terms with all these clawbacks and like provisions and, very quickly, there's not a single hand raised. So you have like the money that's being left on the table and, by the way, that's scary $3 a square foot. More, like I could see a private practice owner going oh, that's not that big of a difference 10% but we're talking six figures of difference. And they're the ones because they know you don't have a representative. They're the ones saying like, well, let's see if he takes it. Yeah.
Speaker 2:And they'll say stuff like this. They'll say you know, this is the lowest rate in the center. Like I've never done this deal before, like man, you, literally. They'll say things like four-year-old wrestling their 40-year-old dad. Like somehow the four-year-old manages to pin the 40-year-old dad and then goes and tells mom like hey, dad, or I just beat dad in a wrestling match, and the four-year-old is just like walking high. I mean landlords will say stuff to these tenants, especially healthcare providers, that they would never say in a million years to like a Charles Schwab, or like a JP Chase Morgan or a Lockheed Martin, like pick, your large Amazon, your large national company. They would never say things like that because they know that he called the carpet. But they'll say things like well, you know we don't do free rent here, or everyone has a 4% annual increase. Or if I do this deal with you, like you got to promise not to tell anybody because you'll have the most competitive leash right. And they're just literally lying right to the doctor's face. You say, well, why do they do that?
Speaker 1:Because they can and they want the money, like they don't care about the doctor, like they know ego with medical professionals, especially certain types of docs where it's like, wow, you really got me pinned against a corner and the doctor was like, yeah, I did.
Speaker 1:Another score for Surgeon Bob, like it's one of those where literally, you have no clue that you're even being played, until you have someone come in who's an expert and they would never say that Wow, colin, you guys really got our lowest rate. We never go this low. They would never do that crap.
Speaker 2:They'd feel like, fine, let's just go with it, yeah no, and that's a great point, and we can tell we get their lowest lease rate because we start, I mean, they get emotional and they start getting upset and, like I mean, we started getting landlords that, like you, would think these guys could control their emotions at a higher level, but they a lot of times can't And'll figure out what's going on.
Speaker 2:We'll look at vacancy rates. You get a landlord that's got two or three vacant units and if you're in a lease renewal and you might be giving them another vacancy if they don't bring terms that are competitive enough. That's serious leverage. They don't want to go negative $8,000 or $9,000 a month because they didn't give you enough free rent to go negative eight or 9,000 a month by because because they didn't give you enough free rent. Like you can leverage the loss factor or the fear factor of these guys can't afford to lose you. But again you don't get there unless you have other options. You know how to play the game and you know what's going on with the market.
Speaker 1:I looked a word up while you were talking right now, called leverage, because leverage is something that I didn't. We all hear this word. These are words that we all hear in business and many people get a sense of it, so they just move on. Here's what the definition of leverage is, guys, cause I learned this recently in great depth when one of my friends was in a heavy negotiation over over a hundred million dollar deal.
Speaker 1:Leverage is the exertion of force by means of an object used, and it's that's like actual leverage, meaning like if you're using a lever finance is a different definition, but it's essentially it's using something for maximum advantage. When you have leverage, you have momentum and capabilities that you wouldn't have otherwise, and it's not about when we hear the word force and healthcare. We're like, oh, I don't want to be a jerk. It's like that's not what it is. We're talking about leveraging the reality around us to get the best rate possible. We never want to get to the point where the people on the other side are feeling screwed, but that's what you're saying, is that that's not what they're talking about?
Speaker 1:Their, their modus operandi in the vast majority of all cases is to get the best rate possible so that they can make the most money off their, their people, that they're renting to them. So if we can leverage, leverage, if we can use leverage to to create a space of equality and to get a really good deal for all, that's fair market value. That's what we mean by leverage and that's where hundreds of thousands of dollars coming up, I mean there's. So it's interesting because, as you're talking, I'm like okay, private practice owners reach out to you when they want to buy a building, but you're also saying reach out to you when they're ready to renew.
Speaker 2:Yeah, the number one transaction where health providers lose money at the highest level unequivocally are lease renewals. It's the number one transaction and there's a couple reasons why. Number one most health care providers signed a bad lease to start. They did not capitalize. Maybe they got a good deal or maybe they had great representation that definitely happens. But the vast majority sign leases that are above market. 99% of all leases have an annual increase. So if you sign a lease that's $2, $3 a foot above market and then you have above market annual increases and then for the nine out of the 10 years you release it, it ratchets up. By the time you get to that 10th year you're way over market. Now you start out two, $3 a foot above market. Now you're way over market. And then they just sign off on their next lease renewal. And so a lot of healthcare providers don't realize this.
Speaker 2:You know everything's in play on a lease renewal free rents in play, renovation allowances in play, lower lease rates in play. And you have to ask the question if you move out of the space, what is it going to cost the landlord to release that space? How long will it sit vacant? How much money will they lose when it goes vacant, how much time will it take to release it? If the new person needs a build out, how long will it be in a build out period for where they're not getting rent, and then how much free rent are they going to give? What does it cost to do a new deal? And you add up all that amount of money and it's significant for a landlord. So you know that that that speaks to a significant amount of opportunity.
Speaker 2:But on the other side of the coin, landlords are going to assume that you don't know what you're doing. If you're a healthcare provider, if you haven't hired an agent, you're not serious about moving. So if you're just going it alone and you say, send me a proposal, that's one of the biggest mistakes you could ever possibly make is say send me a proposal or what would you do for me? That instantly tells the landlord you have no clue what you're doing. And so lease renewals are the number one place where landlords just punish tenants. It's the number one transaction where they make significant premiums 10, 15%, 20% premiums that they would never make with a savvy tenant. And so, yeah, leasing more tenants and more healthcare providers. Let me say this More healthcare providers lose money during a lease renewal than any other transaction.
Speaker 2:So, it doesn't matter if it's purchasing or leasing, it's any transaction with a landlord or seller. You've got to come with your A game and it's not going to be you coming alone, it's becoming with a savvy real estate agent, exclusively representing your interest, that takes you to market and then negotiates on four or five properties on your behalf.
Speaker 1:That's amazing. It feels like what people would do in your case is they would be developing more of a real estate strategy as part of their private practice piece. Because when you niche the way that you do, you help people like develop the secondary part of their business that they don't even know. That is like just tacking it on to what their main heavy lift is, which is their private practice. How do you operate with larger clients of yours that have multiple pieces? Do you multiple real estate pieces Sorry, there's a guy that popped up over my window cleaning the what is going on but do you strategize with your clients? How do you help them develop? They're really serious about wanting to expand multiple locations in real estate. How do you work with those clients?
Speaker 2:Yeah, we have a lot of clients that have multiple locations and we have lots of clients that have dozens. We have clients that have hundreds of locations and we've helped clients go from literally zero to hundreds. And so it's the same thing. Every transaction gets the same amount of attention. It's not a matter of like hey, you've got 10. We can only get to a few. Every transaction has the same evaluation.
Speaker 2:We look at what they're currently paying, we do a market analysis or we look at where they want to go and see, do a market analysis, and then we always negotiate on multiple properties. We'll look at options to lease, look at options to purchase, We'll look at if they're in an existing space, we'll look at what would it look like if we relocated and bought a building, or relocated and leased a building. And then we always leverage and we always negotiate with multiple people. That's the key is, you cannot just ask a landlord for an offer and then let's just say you get a little bit of movement. You start with one property. They come in at 30, you get them on a 28. Like, but still you don't know compared to what like? What if the other two landlords down the street where I would be at 26, not 28.
Speaker 2:So just cause you got one landlord to come off their lease rate, $2 a square foot doesn't mean it's a great deal. It's better than it started, but it's still not able to be measured against the market. So that's really the key. And so starting every transaction if it's a lease renewal 12 months in advance, that's key to make sure you have enough time to complete the full analysis. And then actually, if you have to move or want to move or want to purchase, that's really important. I guess I'm going to jump back into our previous question. Another top mistake healthcare providers make is they don't time it right. They've got two months left in their lease. They're calling their landlord saying you know, send me a proposal. That landlord knows this person has no ability to move, Like they've missed. They've missed the window, Like they lost their leverage.
Speaker 2:They lost their leverage. That's exactly right. And so you know, not timing a transaction properly. Or you get these people that call their landlord three years in advance and say I want to renegotiate, there's no reason. The landlord's going to voluntarily just cut their cash flow because you called them and asked them. So timing a transaction is another kind of top five mistake as well. And so having that proper timing and again, this is probably the top takeaway, or one of the top takeaways Landlords do not move unless there is a fear of loss. Simple as that.
Speaker 1:Landlords don't move unless there's a fear of loss.
Speaker 2:Yeah, and I'll prove it to you. If you were going to sell your own house and you're going to sell your house let's say you're going to sell your house for a million dollars you're not coming down to $800,000 unless you think that's the only way you can sell it. If you think you can sell it at a million, you're going to hold firm. If you think you sell at $950,000, you come down to $950,000, but you're not going from a million to $800,000 unless you think that's the only way you not going to lower your lease rate. They're not going to give you a huge free rent package. They're not going to give you a bunch of money to renovate your space unless they believe they have to in order to make the deal.
Speaker 1:Amazing. So this has been such a phenomenal episode. I really did. We get a lot of requests to be on the show. I looked at yours and I went hey, kim, we've got to fit Colin in, because I think that our big focus on the podcast is helping private practice owners create financial freedom as well as other types of freedom. But there was no greater freedom, producer, on the financial end, for me than selling my business with owning the building. That was so huge and I didn't have someone like you helping me along the way. And I do have something I want to talk to you about personally after the after the show, real quick. But it's one of those things where this isn't a cool thing. This is a game changer thing and doing it with the right professional is so huge. I have a question that I know they're all asking internally, which is on the real estate side. When it comes to residential, they know how people get paid. How do commercial real estate agents get paid?
Speaker 2:Yeah, that's the beauty of our industry is that it's set up to where the landlord or the seller is going to pay the commission. I'd say literally like 99% of the time. So if you're in a residential transaction and you're selling a house, you hire an agent to list your property and you pay the listing agent a commission and you have a money. Or you have a commission set aside for the buyer's agent too. If a buyer shows up unrepresented, the listing agent gets double commission. Same thing in commercial. If you go to market without an agent, the listing agent gets a double commission or the landlord just keeps that money.
Speaker 2:You don't save money and that's a misnomer. A lot of people think well, if I do it myself, I'm saving commissions. No, you're not the payer of the commission. If you own the building, you could save money by not hiring an agent. That's one way to save it. But if you're a buyer or a tenant and you go unrepresented, all you did is just forfeit basically like free representation. You know, and wasted a lot of time and energy and probably got a really bad deal, and yet you didn't. The insult to injury is you didn't get any savings Like. You lost the savings you could have got and it would have been paid for by the landlord or the seller. So it should not cost you any money to hire an agent. It should be a service that's provided and they're going to get paid for their service. But it's going to come out of the listing agents half or portion, or the landlord's portion but not yours.
Speaker 1:I love it. Okay, final question that I have, and then I'm open to anything on your end if you want to talk about is this thing about? Why are you so passionate about doing this, colin? Like, what is it about what you're doing that drives your passion? And I asked the question for those who aren't watching. He lit up immediately, smile-wise, like he's excited to talk about this.
Speaker 2:Yeah, no, I appreciate that. So I got into real estate when I was 19 years old. I started managing apartment complexes right after high school, did not go to college, started working right away. I got into brokerage when I was 22. And I worked for a guy that did Walmarts, wendy's, blockbusters, large national retailers.
Speaker 2:A couple years into my career I just realized I really liked working with individual business owners. Like we work with large groups too. That's great, but I like working with stakeholders that actually really you know, really care about what's happening. You know it's fine doing a Walmart deal. It's an asset manager. They're going to do 40 Walmarts in a year. You're just kind of a number. I just didn't enjoy that as much as I enjoyed working for someone like you that actually it made a difference If I saved you a hundred grand, like you knew it and you thank for it. And so I just started realizing I liked working for individual business owners.
Speaker 2:And then, um, a number of years into my brokerage career I was working for the largest medical uh landlord in the country or really in the world. It is a very large REIT, a real estate investment trust. People give them money, they buy a real estate, they send you a check. It's like putting money into a stock or Amazon. So I'm working for the largest medical REIT in the country a couple of class A medical buildings and every tenant in the building is a healthcare provider and we had a number of deals that we did where the doctors had lease renewals coming up and I met with a.
Speaker 2:I met with the very first one I was doing a leash renewal for and I asked him like do you know the market? No, have you hired a broker? No, are you interested in moving? No, like I asked the questions differently than that, but that was the gist of the questions that I asked At that point. I know the guy has no possible ability to do anything. He has no leverage, no posture, no skill set.
Speaker 2:So I go back and I report that information to the landlord and the landlord's like great, go back to him at this leash rate. And the lease rate he wanted me to go back was so egregious and so predatory. I mean not like a slight premium, like a 35% premium, and I mean $400,000, $500,000 more rent than this guy should have paid over a 10 year period. And I went back and presented it and the doctor looked at me and he's like, well, if this is what the market is, I guess I have no choice and he just signs off on this deal and I watched this guy lose like 400, 500 grand, and there's more to the story than that. But that's the short version of it.
Speaker 1:That was the pain of it, yeah.
Speaker 2:Yeah, and so I mean I did. I was again. I did a good job for my landlord. Like again, if you were selling your house and your broker got you an extra 200, 300 grand, you'd be high-fiving your broker. You wouldn't be like refunding the money to the buyer, like that's just the game of real estate is you get what you can get. Everything was done ethically, no lines were crossed. But I just had this like feeling afterwards like that was not a fair fight. Like was like that was not a fair fight. Like it was like a heavyweight versus a lightweight or as a heavyweight, like world champion versus some random dude that got pulled out of the stands. That's never fought before. Like it was just, it just wasn't right.
Speaker 2:So I had three or four of those deals that went down in a short period of time and I just realized like look, no one's helping the doctors. Like there's a lot of guys that wanted to list the property and be the landlord rep for the medical building, but nobody was working on the buyer and tenant side. So within a short period of time I started our company, which is called CAR. We launched it and from day one we started moving the needle for doctors by the teams of hundreds of thousands, and when we would show them how much we saved them or what they would have paid without us, like we had. We had friends for life.
Speaker 2:And so for me, I've done thousands of deals now personally and I just I love what I do. I love helping people, I love protecting them and you know not, not every deal is a grand slam. Sometimes it's a whole month and then it's a single, but you know, nonetheless you protect the doctor's interest, you protect their practice, their largest asset, their top income source typically, and you do a good job for them. They know it and they appreciate it, and so it's like you seeing someone go from having a debilitating issue to having full recovery and getting their life back, I mean it's a great feeling.
Speaker 1:Yeah, and I think there's this thing about maybe you do have these grand slams, home runs, triples, doubles, singles, but you don't have them striking out. That's the thing. It's like you're protecting minimally against that. Really, we share a passion in that sense, because what I'm doing now in a different way is trying to support who I believe are the most important men and women in business of anything which is healthcare businesses. Because if, if we can protect the private practice owner to being more profitable and more successful, they're not typically not all, but not typically the people who are going to go buy lots of yachts and that like they're going to take that money and put it back into healthcare, back into their practice, helping patients have better experiences. And I mean, is there something more important than healthcare? It's a foundational element for human survival. So as we're helping the leaders of that industry be more profitable and be protected against these negative elements, I feel like we're serving the community at large. So I'm so excited, colin, to have met you. This has been a real treat of an episode for me.
Speaker 1:I've been wanting to find a connection to real estate on this show for a long time and I'm hoping everyone whether you're a student who's graduating, who wants to own a practice man. What a great episode for those guys and girls to have this information that early. But if you're even 20 years in but you got 10 years to go, man, save, hunt six, potentially six figure amounts on your renewal, I mean it's like just this idea of like what can be possible through real estate, and it's it reminds me of the founder with McDonald's, where Ray Kroc realized you know he's in the real estate business, not the burger business. We're not at that level, but it's important to understand that being in healthcare, especially if you're in the outpatient space real estate is a huge part of that business. Guys, thank you for taking time to listen to today's episode.
Speaker 1:If you found today's information to be useful, could you take a minute and help me? I would love it if you could leave a podcast review in your app so that other people who are looking for this information can find it. Plus, my dream is to have the largest network of medical entrepreneurs and leaders in the world so that together we can change healthcare to make it better for all. So, in addition, if you can think of anyone that you can send this to, not only would that mean a lot to me personally, but it would build this network so that we can make healthcare the way that we want it.
