Who Is Doing Your Due Diligence?

by Dr David Phelps

by Dr David Phelps


arren Buffett has a famous saying. 

 “Only when the tide goes out do you see who’s been swimming naked.”

What does Warren mean by that? What does it mean when it comes to investing for dentists and other business owners? Well just like, “a rising tide lifts all boats” when a tide goes out, boats that are not set or well founded, will drift.

Warren, in particular, is talking about the markets. About speculative, exuberant, irrational markets. Markets that have been built up by what we've seen here in our marketplace in the last 10 years since the downturn in 2008, the Great Financial Recession. Nothing but a bull market.

Well, where does that come from?

It comes from the trillions of dollars that have been pumped into the economy by the federal reserve and the treasury. An unprecedented amount of money. Of course, we also went through COVID where more money was injected into the system, but I’m not going to say anybody did things that were bad. The government, they try to manage the economy the best they can, but it's been shown that they have trouble doing it.

[As a relevant aside on Biden’s recent Student Loan Debt Relief, I encourage you to check out why this new update does not bode well for the future of the economy. You can watch my video update here.]

So, what's the problem here? 

The problem is, we’ve had this irrational upmarket for the last 10 years. Almost everybody who was in business or making any kind of investments (whether in the financial markets or real estate) did well. In an up market, it's really difficult for people to make bad moves or lose money, especially if you just give it a little time. The market will catch back up and save the day. It's what's been happening.

I've seen this happen multiple times over my last 42 years of being an investor in real estate. I've also seen when the markets make a correction and there's always going to be a correction. In fact, we're probably standing right in front of one right now. I can't say exactly when the dominoes will fall or how hard they'll fall, but I know you have to be ready. 

When that happens, that's when the tide goes out.

Those who have been riding the waves of this market will find out that maybe their infrastructure, their criteria, their operations, their profit margins, their cash flow margins, their cash on hand was not sufficient to ride through that downturn.

Why is this important for you?

Investing for Dentists, Business Owners and More…

This is relevant if you're out there looking for places to invest your capital, particularly in alternative investments, which is what I love. I’ve been investing in alternatives for over 40 years.

It's what gave me the ability to leave my practice around 17 years ago when my daughter was sick, because I had this portfolio of cash producing real estate. I learned how to do it. I learned how to mitigate and navigate the marketplace. 

If you're investing with people, which is a great way to go because you don't have time to find the access points in the marketplace yourself, then you’ve got to find the right people. 

The question is, how can you find the right people?

Find investing for dentists and more at Freedom Founders
Dr. David Phelps, DDS discusses due diligence and investing for dentists at a recent, Freedom Founders' meeting.

How will you know when you find them? You might not know until after the tide goes out during a market correction – not a good time to find out.

In Freedom Founders, we do extensive due diligence on all of our real estate Trusted Advisors, the people in which we're able to invest our capital. Whether it's in syndications, funds, direct into real estate properties, or lending opportunities, we do background checks on all the principals of every company which I’ve curated from my world of influence. I'm out there, I'm in the space. I get to find out who's who, and then we still do background checks.

We also do a full underwriting of every fund and syndication that is brought into our group, and we have multiple coming in all the time. Different funds. Different types of syndications – multifamily, self storage communities, mobile home park communities, you name it. We've got it all when it comes to investing for dentists and more, but we want to make sure that the constructs, the metrics, and the legal documents are all proofed and well-written to protect our interests – the investor's interest

Now, who's doing that for you?

I guess there's nobody.

I was reading through a blog on, let’s call it, an aggregation site. There are a lot of aggregation sites. There’s nothing wrong with them. An aggregator is somebody who curates good content and maybe provides principles or education in some regard. You can go and find resources and links to different topics on different things that are applicable to you. There's a lot in the financial space and there was this one particular blog I was reading the other day.

This particular blog host writer does a great job in bringing good financial information to busy professional practice and business owners, but he tries to be all things to all people. I think that's dangerous.

I think that's when you can get out over your ski tips and try to be in too many places, not being fully grounded. That's why you have to be cautious about these aggregation sites because, oftentimes, that’s how they pay for their overhead and profit margin. Again, nothing wrong with that. You've got to make money somewhere. If you're not charging the members access point, which most of them don't, then you've got to charge somebody else.

Well, who do they charge?

They charge their sponsors. When they can build a big list of people who come to their site and read curated information, because it's helpful, the people who provide services and products want to be there too.

They want to get in front of thousands of people.

It's a great way to do business. The problem is that these kinds of sponsorships are just a come one, come all. In other words, almost anybody can be there. Certainly not somebody who has a fraudulent background, but basically, it's come one, come all. If you write a check and pay the aggregator (the host for access to that community, tribe, or list) then you can do that. 

So, I was reading this particular blog the other day from someone who had been investing in one of the “real estate partners” that this aggregator had brought on. This partner pays money to get on their site and say, “Hey, here I am. I do this XYZ kind of real estate. Come invest with me.” It's a form of endorsement to do that. The blog host has a disclaimer that says, “Look, people pay me to get access to you all. It's up to you to do your due diligence.”

Now that's fair, but most people don't read the fine print.

So, what ends up happening?

They see someone who's listed there. They say, “Well, this must be a good person, a good company, a good product, a good service, etc. therefore I should try them out.” This could be a financial advisor or any kind of vendor in any space. This one was in real estate.

Apparently, this real estate sponsor partner had really gone down deep in the hole, meaning he wasn't communicating, the returns were bad, and the financials were terrible. The person had gone dark, and some people were complaining about this. The host then said, “Look, I can't help you. I just bring people here. It’s your job to do your own due diligence.”

Again, coming back to what I said earlier…

How are you going to do the due diligence?

If they're not going to do it for you, then do you know how to do it?

Whether it has to do with investing for dentists, buying or selling a business, real estate, or any kind of investment, it's very, very important you know how to do this, particularly when we're in a marketplace like we're in right now.

The market is very turbulent. It's volatile and a correction is at our doorstep

If you've been putting money with different people and had good success so far, great for you. But if you don't know the track record of the person you’re investing with —  their operations or how their financial metrics are, if they’ve gone through a downturn like we had back in the Great Financial Recession in 2008-2010 if they don't have a history that you can plug in… then how do you know they know what to do in a market correction?

There’s lots of danger out there. That's why we do it differently in Freedom Founders. We're not an aggregator. We don't just take money for sponsorships. Our members pay for access. Now that's a charge, but you'd rather have someone pay for access that allows me to give the cleanest and most direct curation of the best people, regardless of how much they're paying, because I don't get paid.

We don't get paid for how much you invest. That's the difference. 

Be very wary about how you invest, where you invest, and what you do or don't know about due diligence. This will influence whether you get through this next correction, or you take a hit. I don't want to see you take a hit. So just be out there on the forefront. Know what you're doing. 

And by all means, stay focused on your freedom.

P.S. Whenever you’re ready, here are some other ways I can help fast track you to your Freedom goal (you’re closer than you think) :

1. Schedule a Call with My Team:

If you’d like to replace your active practice income with passive investment income within 2-3 years, and you have at least $1M in available capital (can include residential/practice equity or practice sale), then schedule a call with my team. If it looks like there is a mutual fit, you’ll have the opportunity to attend one of our upcoming member events as a guest. www.freedomfounders.com/schedule

2. Become a Full-Cycle Investor:

There are many self-proclaimed genius investors today who think everything they touch turns to gold. But they’re about to learn the hard way what others have gained through “expensive” experience. I’m offering a free report on how to become a full-cycle investor, who knows how to preserve and grow capital in Up and Down markets. Will you be prepared when the inevitable recession hits? Get your free report here.

3. Get Your Free Retirement Scorecard:

Benchmark your retirement and wealth-building against hundreds of other practice professionals, and get personalized feedback on your biggest opportunities and leverage points. Click here to take the 3 minute assessment and get your scorecard.

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