How Dentists Can Build Passive Income Through Real Estate

Garth Hatch (00:00)
The thing I like about real estate is it’s not like a stock where things change and sell and buy in nanoseconds. Real estate is still what they call a fairly inefficient market, meaning ⁓ it’s not something that most ⁓ hedge funds can just go and know what’s a great deal or not.

know your own backyard wherever you live and what’s a good neighborhood? What’s a bad neighborhood? What’s an area of town that you think is going to be growing versus maybe shrinking? ⁓ You have inside knowledge where you can be able to find a good deal

Cody Crabb (02:07)
Welcome back to the Real Estate Pros podcast. I’m your host, Cody Crabb with Investor Fuel. And today I’m joined by Garth Hatch. He’s a real estate investor, a coach and a consultant with experience operating across multiple markets and a perspective that blends investing with work in the dental space. Today we’re gonna dig into his background as an investor, what he’s seeing in the markets that he’s active in and get some practical lessons that operators can take from his experience. ⁓ Thanks so much for joining us today, Garth.

Garth Hatch (02:35)
Hey, looking forward to this, Cody. Thanks so much for having me. Appreciate it.

Cody Crabb (02:38)
Of course, yeah. if people kind of were gonna throw two, it kind of sounds like Mad Libs, right? Like real estate investor, dental practitioner. I’d be curious to know kind of how you came to get into these two very specific areas and what kind of brought them together.

Garth Hatch (02:57)
Yeah, good question. So I had a rich uncle when I grew up in California, started investing in Southern California in the early 70s, 80s, 90s, and did very well. So he was kind like my rich dad, uncle, you know, example. And he did it through real estate primarily and businesses and real estate, but primarily was real estate. so I, at a young age knew.

I wanted to be involved in real estate somehow just because that was my example of how I could become financially independent and ended up going to dental school. I went through dental school on an army scholarship and ⁓ once I was out of dental school, I just figured I need to start investing in real estate in one way or the other just to get going. So I started out just buying a house that I lived in. My wife.

A year later, she found another house that she liked in the same neighborhood. So we ⁓ bought another house, kept the first one as a rental, ended up doing, bought another house too in that same neighborhood while we were in South Carolina and got the bug of investment property and how it helps with taxes ⁓ and building wealth and just never stopped.

Cody Crabb (04:18)
Gotcha, cool. Yeah, that’s pretty unique. ⁓ I think a lot of people ⁓ would look at that story and kind of relate to it a lot. You said the Rich Dad example, I’d say probably every third person on here is like, I read Rich Dad Poor Dad and I got the, you know. So I think that a lot of people can relate to that for sure. ⁓ So, all right. ⁓ And so the feeling of the passive income, like wanting this passive income.

It seems like you kind of had that since the beginning, but when did you start going? I need to share this. I need to like get people to you know to where I am and get them and help them out.

Garth Hatch (05:43)
Yeah, yeah, good question. Well, there’s so many people that have good incomes and yet they, if they couldn’t work for whatever reason, be there, be they a dentist or be they a carpenter or anything else, ⁓ if they couldn’t work, most people would be broke within either a few weeks or months. And that’s a scary situation because there’s all kinds of things that can happen in life. You can have injuries, you can have…

You know, there’s death, divorce, there’s all kinds of things, you know, your business could go under. There’s all kinds of things that can happen. And if you feel like you’re just barely treading water, that’s a scary situation. And in the U.S., there are so many opportunities and real estate has been for thousands of years, one of the best ways to both hold wealth and build wealth.

through real estate and there’s many reasons we could dive into because you know why that is. But it’s a formula that works. You know there’s a lot of things that you could do and you you could build an AI app and become a billionaire or you could start some amazing ⁓ business and be ⁓ a millionaire, a billionaire. But very few people actually do that. Whereas with real estate if you do it right, you buy right.

you know, eight, nine out of 10, you know, people can do it with just some basic five, you know, fifth grade math. It’s not something complex. If you understand the fundamentals, you can do it and do it repeatedly ⁓ and really build passive income. And it’s not something that happens overnight. It’s more of a pressure cooker than a microwave type thing. But as you do it slowly, it starts to snowball and eventually you can get to where

you can have enough passive income coming in to cover your lifestyle. Once you’re there, you’re rich, you know, and you’re wealthy, in my opinion, you know.

Cody Crabb (07:44)
Yeah, yeah.

Yeah, I always think about that. People talk about how rich they wanna be and I’m like, what if you just had unlimited money? I’m not saying you have a giant bank account, you just have a card that every time you swipe it, it just works. That feels rich, but you don’t have a massive bank account. You know what I mean? I think that thinking about it that way is definitely a little different for people, but I think it’s more accurate. So a question I’d have for you is how would you define passive income?

because I see people all over the spectrum of like, no, I literally need to never see it again. I need to just drop it and it’s gone. Or like, it’s basically a job, but they’re just kind of tricking themselves into thinking it’s not. So where on the spectrum do you fall there?

Garth Hatch (08:12)
Okay.

Yeah, you know, and that’s a really good point because passive to me means do I have to wake up in the morning and actively go to a job and do it to, you know, to receive income? I say vertical income versus horizontal income. Vertical income would be, you know, me going to the dental office and doing root canals, you know, with patients to receive a paycheck, you know, and most people that would be

their active income. They could be an attorney or a plumber or it doesn’t matter what it is, but they have to wake up in the morning and go do something on a regular basis, consistent basis to either get paid by the hour or by the job, but either way they have to go out and do something. Passive income to me is something where you can have other people like a property manager or…

other people could kind of, you you can leverage that situation where somebody can manage a property and it still requires some effort from your time. You know, I don’t think anything is truly passive where you can never touch it again. Maybe, maybe an index fund, but even that you have to at least check it and see how they’re doing, you know, but, but passive means for me at least is if it takes, you know,

Cody Crabb (09:41)
Yeah.

Garth Hatch (09:51)
five to ten hours a month or less, to me I think that’s pretty passive.

Cody Crabb (09:56)
Yeah, think you’re right. and think a good way, like something that you said kind of made me go, that’s probably the definition, which is you can duplicate yourself. So like, if you’re not the only one that can do it, you can kind of outsource even the stuff like the daily management of it. If you’re a dentist, it’s not like you can just go, you know, I’ll hire a sub dentist. Like you’re either doing it or you’re not. I think, ⁓ yeah, I think that’s a good way to frame it. ⁓

When someone says they want passive income, what do they usually kind of think, what do they underestimate about it? So what do they think is the easy part that is not the easy part?

Garth Hatch (10:39)
Good question. I think for most people, maybe I’ll flip it a little bit, is what’s usually the hardest part? I think for most people, the hardest part is just getting started. Really, it’s that fear of, I’m gonna mess it up, I’m going to make a mistake, I don’t understand the market, there’s a lot of things I don’t understand, and so they just never pull the trigger.

And there should be reasons that you should be concerned because real estate, you’re using leverage in most cases, you know, with a bank loan or some sort of a loan to buy a larger asset. So you can, when you’re using leverage, you can get hurt on both ends. It can be positive and negative. And so you do need to do your homework. But if it’s fairly basic,

math and fairly basic information.

The thing I like about real estate is it’s not like a stock where things change and sell and buy in nanoseconds. Real estate is still what they call a fairly inefficient market, meaning ⁓ it’s not something that most ⁓ hedge funds can just go and know what’s a great deal or not. And even if they could, it’s probably on a smaller scale where they’re looking for larger properties or larger portfolios of properties.

Whereas if you know your own backyard wherever you live and what’s a good neighborhood? What’s a bad neighborhood? What’s an area of town that you think is going to be growing versus maybe shrinking? ⁓ You have inside knowledge where you can be able to find a good deal

and It’s something I would definitely read, know listen to podcasts like this podcast tip to better understand what is a good deal? What’s a bad deal but

The biggest thing is just getting started because real estate is very forgiving where if you don’t buy the best deal but you at least can make it cash flow where it at least hopefully cover itself or mainly cover itself, you’re usually okay. ⁓ Where most people get burnt is if it doesn’t cash flow right off the bat or real negative cash flow.

like land, know, land is another situation in real estate where you can actually make really good money, but you can also get burned too, because most of the time land does not produce passive income like a rental property would. And so you want to make sure that you’re in a piece of real estate that should hopefully cover itself most of the time. And if it can do that,

Cody Crabb (13:42)
Yeah.

Garth Hatch (13:54)
then it’s usually pretty forgiving where even if the market goes down and it will, the market will go down, the market will go up, but over time, almost all markets in the US go up over time just because there’s inflation. There’s so many factors why real estate continues to go up over time. And so even if I were to buy, for example, I bought real estate in 2005, 2006 and

We all know what happened in 2008. There’s a big crash. And those properties were worth less than I originally bought them because of that crash. But all of them are worth much more now than when I originally bought them. And so that’s a nice, if you can hold it long enough, you’re almost always gonna win.

Cody Crabb (14:36)
Hmm.

Yeah, yeah, that’s kind of the thing I hear from a lot of people that I interview here. One thing that I would love to kind of get your opinion on is, so you said don’t overthink it, don’t over, like don’t stress yourself out too much, but obviously some homework is necessary. Like you’ve got to have some stuff. What would you say are like the basic, you got to at least do due diligence on these things to buy something.

Garth Hatch (15:10)
Yeah.

Yeah. I would say you want to know the market where you’re buying. And for most people, the best market to start on is your backyard, just because you’re going to know that town better than anybody else. You can always buy across the state or across the country, but it is harder because you just don’t know the ins and outs and how even in the same town, you could have a good neighborhood and a bad neighborhood. Even in, you know,

one side of one street could be good versus another side. there’s only. Yeah.

Cody Crabb (15:42)
Yeah, I’m thinking of where I live and I

can think of two, three blocks, one direction. I would never buy a house there, but it feels completely safe where I live. So yeah, I know what you mean.

Garth Hatch (15:51)
Yeah.

Yeah. And so real estate can be so market dependent and that’s why it’s easiest to start. There’s also good tax benefits too, because if you can actively manage it in your own hometown, there’s a lot of tax advantages with real estate. And so that’s why I think for most people, the best places to start is at home. For some people, it just may not even be possible or they’re in a market. mean,

California is one, I grew up in California, but it is very tough right now to buy a rental property and make it cash flow unless you’re different things like putting multiple units or a sober living or different things that you can still do in any market to make things work, but it is more of a challenge. And so you may need to look outside of your…

your backyard and if you are doing that there are different books to read. David Green has got a good book on buying properties outside of your market and there’s others. But for most people if you can start in your backyard that’s the best place to start.

Cody Crabb (17:37)
Yeah, so, okay, so it’s know your market and kind of what other things would you add to that list? Like, obviously gotta know some numbers to some degree. So like, kind of what would you say there?

Garth Hatch (17:47)
Yeah. Know your market. You need to know what the property would rent for and what’s your purchase price. with the purchase price, the most important thing is what’s your monthly note going to be. Because you could buy the same property and it’s $300,000 or it’s $500,000, which is a big difference in the price, but depending how

you’re financing that if you’ve got a two and a half percent mortgage versus an eight percent mortgage, that mortgage rate makes a huge difference on what your monthly payment is gonna be. And a quick and dirty, you know, back of the napkin way to calculate if it might work, I call it the one percent rule. it’s, I didn’t make it up, it’s been around for a while, but the one percent rule is where if one percent of that monthly, ⁓

rental, you know, if you can buy it for 1 % of the purchase price, then you’re usually going to do well. So for example, if you could buy a property for $200,000 and it will bring in $2,000 a month, then you’re probably going to do pretty well in most markets. If it costs $300,000, can you rent it for about $3,000 a month? And a lot of markets that is tough to do, and right now it is. It’s a harder market.

because of the way the interest rates are, where it’s not easy, and I’ll be the first to admit it, because I’m still looking for deals actively right now, and it’s hard to find a lot of deals that pencil, at least in the areas I’m looking. And so, it can be a challenge, but even if you can’t get the 1%, if you can get close to that, where you might be at .7 or .8, but at least your rental…

you you’re renting a property for $2,000 a month and your mortgage is $1,900.

Okay, you don’t have a lot of wiggle room because by the time you hire property management and pay for taxes and repairs and things like that, you’re probably gonna be a little bit cash negative where it’s probably gonna be losing a little bit of money on the short end. And I would plan on that being for maybe three to five years or more because if you can’t weather that storm, you might get into trouble. And that’s where you do wanna have

at a little bit of cash reserves, have a good job where you could cover a month or two paying that mortgage with nobody living there without putting you into real financial straits. And that’s why it’s sometimes hard to pull a trigger. But if you can, in most markets, the property will continue to appreciate, the rental rates will continue to go up with time, and yet your mortgage will stay fixed.

Cody Crabb (20:47)
Gotcha, well this has been super helpful. I think someone that’s kind of initially thinking maybe I need to wait or maybe I need to have more ducks in a row or things, hearing some of these things really, mean you could decide today if you think you might be ready to do it just based on some of the stuff you’re saying. So thank you so much for giving us all this. ⁓ So let’s say ⁓ we have some dentists listening. They wanna start thinking about this as well. ⁓

Just for them, what are some challenges that dentists specifically see in trying to make this path of income, especially with real estate?

Garth Hatch (21:26)
Yeah, I think it’s just time. For many dentists, they are focused on their practice, that grow in the practice, which they should be, because I think that’s usually for most of them, their vertical income, as I call it, their business is one of the best places they can create wealth and create ⁓ a margin where they have money to invest.

But once they do that, it’s a new realm to invest in something aside from just like a 401k and putting it in a S &P 500 index, which that’s still a good way to invest, especially better than just spending it. But there are other more tax-leveraged assets like real estate that are available if they understand it. And I think the hardest thing is just getting to understand something that they not be familiar with.

Cody Crabb (22:17)
Yeah, for sure. Okay, so if somebody wants to work with you or they want to find out more about what you do, how can they find you online?

Garth Hatch (22:24)
Yeah, lifestyledentists.com is our website. You can reach us there. We’ve got a Facebook page and Instagram. can link it in the show notes, but lifestyledentists.com. you can also ⁓ email me at [email protected].

Cody Crabb (22:46)
what editors report.

Garth Hatch (22:46)
But our website would

probably be a good place to start. Yeah, just lifestyledentist with an S dot com.

Cody Crabb (22:53)
Okay, great, well thank you so much for joining us today and thank you audience also for joining us. If you liked what you heard, if you learned something, and I know you did, go ahead and give us a like, a subscribe, all the things, and make sure you follow the podcast so that you don’t miss any more conversations with awesome people like Garth. Garth, it’s been a pleasure. Thank you so much for joining us today and we’ll see you next time.