I am going to bet that just about every 50+ year old dentist reading this has heard of the author, Robert G. Allen. His first book, Creating Wealth, was published in 1983 and would best be described as a quasi-business textbook detailing how to buy real estate with no money down. He did not invent this process as William Nickerson had preceded him with a similar publication in 1959, and he was certainly not the last. Carleton Sheets and Wade Cook also promoted books, seminars and cassette tape learning programs to teach us these magical concepts and make us all real estate millionaires. The plan was simple: given a variety of “creative financing” techniques, you could walk away from a closing as the new owner of a property without using any of your own money. You were then free to hold and rent the property to an adoring tenant or flip it into an even larger number of properties. By repeating the process enough times, you could soon build a large net worth. Oh and what a glorious day it would be when you cashed out, took all the money to the bank and lived happily ever after without lifting a finger. What could possibly go wrong?

I must now share a dirty little secret…I bought into this stuff! I suspect that a large number of readers also shared my interest. The real estate world was a different place in the 70s, 80s and 90s and there was just enough plausibility to the concepts to be very attractive to guys that grew up without the joy of a high net worth lifestyle. Heck, if you would just follow a few simple steps, you too could drive a new Ferrari. I read most of the books, went to a couple of the seminars and listened to those magical cassette tapes while driving my old Fiero (NOT related to Ferrari) until they were worn out. And do you know what? I bought real estate with no money down! It really could be done!

The one thing that the authors and lecturers left out however is that while you COULD by real estate with no money down, what they didn’t tell you (would have put a damper on cassette sales) was that you couldn’t do it very often and it was usually not a very good deal in the long run. My no money down purchase of an old car dealership for $30,000 was a great deal for the seller. Yes, he was a “motivated seller” as he was now living in another state, and yes, he carried the financing for 36 months but in the final analysis, I lost around $10,000 on the deal.

What does any of this have to do with you and your dental practice? Ironically, the same demographic group (retirement-aged dentists) that was so enamored with the no money down path to wealth creation is the victim of a practice transition strategy that has about an equal chance of success. I can’t tell you how many times I have heard a plan the goes something like this: “Well, I’d like to find a recent graduate, have them come to work for me for a couple of years while I mentor them in all the special things we do in my office, introduce them to all of my patients, vendors and referral sources, sell them the practice and then stay on and work for them for two or three days a week until I’m really ready to retire.” Sounds like a great plan, doesn’t it? The sweet transition of your legacy has an almost a Marcus Welby quality to it.

So now I share the second dirty little secret of this article, and I must warn you, this will be painful and offensive to some of you. The likelihood is that your current strategy is not going to happen. We think the Marcus Welby segue will work about one time in twenty (some call us optimistic) or what refer to as the five percent solution. There are several key reasons this plan will not work, and I’ll hit just the highlights. I am well aware that there have been countless articles written and traveling lecturers crusading for this dream scenario, but they frequently leave out a couple of critical details that would make their presentation less engaging to their audiences. Let’s look at a few facts of life.

1. There are not enough of them to go around. I’m going to use the enrollment data from the UMKC School of Dentistry as I am most familiar with its details, but will assure you that the landscape is universally affected. The classes of the 70’s and early 80’s were huge. Supported by Uncle Sam, classes were increased to care for the projected needs of the Baby Boomer population. Nationally, the highest enrollment ever was in 1978 when just over 6,000 students were in undergraduate dental programs. My class of 1977 eventually graduated 160 new dentists, most of whom, as was the culture of the day, spread out across the Midwest and started new practices. The latest class graduated right at 100 students. Without ANY judgment about the demographics of those two groups, let’s do a little First Grade math; 160 minus 100 leaves 60 or about 38% of the 1977 class that will potentially have no successor.

2. They are different than we were. Current dental school graduates are about 50/50 boys and girls and many of both sexes have spouses whose careers are not portable. In 1977, we had one woman graduate with our class and had an unrealistically disproportionate ethnic mix. While the math is not as simplistic, certainly the demographic shift takes another fair sized group out of the market and it may not be unrealistic to now assume that over 50% of the current practices will have no successor, especially if the office is located more than 50 miles from a major metropolitan center.

3. They need money now. I mentioned earlier that Uncle Sam directly assisted in the financial support for students in the 70s. After four years, I graduated with $2,800 in student loan debt, which I paid off over ten years with a monthly payment of $27.10. That number is embarrassing when compared to the current undergraduate loan debt of around $200,000. Selling-aged doctors frequently don’t understand that current grads have to make money NOW! That sweet segue scenario is stressful when their student loan payment is more than the seller’s house payment.

4. You probably don’t have enough space. I have had numerous doctors, with a hygienist, working out of a three operatory office who claimed to be on the hunt for their five percent solution successor. While it may be agreed that new docs need a little time to ramp up their speed, they are much more capable than you think, and this is going to be a big problem very quickly. Dentists often do not play well with other children anyway, and this would be like putting two cats in a bag.

5. You don’t have enough money! This is the really big one that no one ever wants to tell you about. Roger Hill of the McGill and Hill Group, who I consider to be the guru of delayed and fractional sales (and who has the good sense to have one of his seminars on the subject in St. Thomas in February) will tell you that you shouldn’t even be going down this path unless your annual collections are consistently north of seven figures. That’s $1,000,000+ in revenue or the pot’s just not big enough for both of you to live out of. Did any of the authors or speakers mention that fact? Probably not, but if they did, most of the audience chose not to hear it. It is a game changer and no one wants to accept that fact that their strategy may be flawed.

Just as with the no money down devotees, the five percent solution realities are hard to face. Since it is preached so passionately and works just often enough to be plausible, retirement-aged doctors really want to believe that they can make it happen. Whether it is in trying to extend their career for financial reasons or just the mental image of the kindly old doc taking that new guy under his wing, they just have a hard time letting it go. Over the years I have heard just about every justification as to why it will work out differently for them, but in the end, it doesn’t. If you don’t have a couple of extra operatories, a million dollars in revenue, patients waiting in line to become patients of the practice and an extended time line for full retirement, you might want to replace your exit strategy with something more realistic.

Steve Wolff, DDS

UMKC Class of 1977