David Phelps on Why Traditional Investing Methods Are Flawed & the Biggest Investor Mistakes
David has been a long-time mentor of mine and runs a community for dentists and practice owners who want to accelerate their financial freedom by investing in lucrative investments outside of the share market.
David has a laser-clear focus on what it takes to achieve financial freedom with safety and speed. In this interview, he shares with me three key things:
- His unique investing philosophy using alternative investment strategies
- Why the traditional model for wealth creation is flawed
- The biggest mistakes that he’s seeing investors make today
If you’re someone who’s currently heavily invested in the stock market or traditional property assets and not finding that you’re getting any closer to retirement, then you’re going to want to listen to this one.
00:00 – Intro
03:00 – David’s background
07:50 – What drives you to be a mentor?
12:39 – The flaws of traditional investing
15:21 – Is alternative property investing essential to wealth-building?
18:07 – Using debt as an asset
22:11 – Challenges that David’s clients face
24:41 – David’s mastermind model explained
27:35 – The best opportunities for people right now
Q: Can you tell the audience a little bit about who you are and what you do?
- Licensed dentist but don’t practice anymore
- Practised clinical dentistry for 20 years and then left it 15 years when his daughter had health issues
- Was able to leave because he got involved in real estate investment during college – small scale, single-family investments
- Great place to start, whether active or passive, for many beginner investors
- Built a portfolio of single-family rental houses over 15 years and that gave him a platform to leave his clinical practice given he had enough cash flow so that he could spend more time with his daughter
- There was a good void in his life, and as his daughter’s health got back on track, he was reconsidering whether he should get back into dentistry
- Wasn’t a magnate in real estate but had enough passive cashflow that was predictable and sustainable (something he teaches in Freedom Founders)
- You have to trade time initially, but once you can convert it into the ownership of tangible assets that create cash flow, real estate provides this
- Friends and colleagues were asking him how he achieved it
- Shared how he did it
- Freedom Founders is an evolution from an organic questioning of how he did it
- He could teach, but most people need help with implementing
- Built a network of trusted advisors who are running real estate operations on the ground and he essentially acts as a translator and curator between bringing people with capital with the advisors who can help with it
Q: You’re someone who created financial independence through investment relatively early. You could have simply said game over, but you didn’t. You don’t need to work now. What is it that drives you now and made you become a coach/mentor?
- He does need to work but not for the reasons most people do
- It’s all about purpose and meaning
- Freedom is about having the time we have – are we able to spend the way we love to? Some of it is time off and with family (non-business) and some is with the business
- Location – going into the office is mundane, and we’re programmed to live our lives that way when it’s not necessarily best for us
- Who – who do I work with to create the value that I want to create for other people? These are his clients and his team
- Dealing with consumers/patients when he was running his dental practice – it wasn’t always the ideal situation whereas he now has the choice of who he wants to deal with
Q: You talk about the flaws around traditional investing. Can you elaborate more about this?
- Too many people wait too long to start building their future bank – wealth, equity, assets put aside for “retirement.”
- Most people are afraid to do the wrong thing
- People are too busy
- People do things but in the wrong model such as the traditional market, e.g. stock market
- You can do better with property, but it takes some work
- There’s an abdication of responsibility – people think that by putting money there because it’s easy and within a few clicks, they feel they’re doing something under the advice of their financial advisors
- When they reach “retirement” or when they need to access this wealth, they commonly find that it’s not what they expected and heavily under-delivers
- Their financial advisors don’t take responsibility
- He teaches more about financial acumen and how to be more in charge of your financial future
Q: What is alternative property investment, and why are you such a huge advocate for it as part of wealth building?
- Financial products are sold as a product – a vehicle to achieve something for you, but where’s the strategy?
- What’s the end goal?
- The end goal is to have assets that produce sustainable, predictable cash flow and ideally, have an inflation hedge to protect the purchasing power against future inflation
- Wall St is hit and miss
- Tangible assets such as real estate (capital assets) and businesses are what he calls alternative investments
- Real estate is a passive vehicle that’s easier to understand
- When they’re well managed, the produce predictable and sustainable cash flow
- Used a lot of leverage which you can’t do with Wall Street – he went from a single property he owned with his father to leveraging the capital gains on it to build a portfolio of 35 properties in 15 years
Q: The Australian property market is similar to New York, with many strategies relying on a rising market with negative or zero cash flow. In a turbulent market, there are a lot of investors who have put capital into traditional investing, and they’re floundering. Even though interest rates are low, banks aren’t lending any more money. What’s your opinion of how alternative investing options bolts into someone who has a more traditional-heavy portfolio?
- Debt as an asset – own the debt like a bank
- The bank holds a mortgage like an asset while it’s considered a liability for investors
- In the capital stack, the safest position to be is to be the bank
- When you’re at the bottom of the stack, you get paid no matter what happens
- When there’s a downturn in the market due to the need for investors to liquidate, it’s a great time to purchase
- You can’t catch falling knives, but you can use metrics and understand your markets well to time your purchases
Q: What types of challenges are people facing when they seek your help?
- It depends on what they’ve done up to that point in life, such as their “lifestyle burn rate.”
- They haven’t done a good job due to the need to maintain a lifestyle they struggle to maintain with too much consumer debt and not enough equity
- People are pivoting and finding that they need to figure out how to get off the “treadmill.”
- These people don’t follow the right models – some of it is their fault, others it’s not
Q: You run a very sought-after and exclusive mastermind. Why have you chosen the format of a “done with you” model rather than DIY or “done for you”?
- Done for you – not a licensed financial advisor
- Do it yourself – there’s a place for that, particularly if you’re younger and you’ve got the energy
- Done with you – for those who are in business or practice who want speed to goal. They want to achieve financial freedom faster than their current trajectory
- They need to have over $1m in deployable capital
- We help them reallocate under-deployed or undeployed equity and get it working for them like it’s never worked for them before, and help them implement it with them
- The reason why he helps them implement it is because they don’t have the time or the timeline for it, e.g. finding deal makers and making mistakes
- These are people who are in their mid to later career and just want to make it happen
Q: What advice would you give to people who are feeling uncertainty with the current market? Where do you see the best opportunities for investment in the next 3 to 5 years?
- It’s been a wake-up call for a lot of people and disrupted a lot of people’s lifestyle, security and plans
- It shows that there’ll always be disruptions that you can’t control – there are ways to hedge
- The wake-up call is also personal – people on the “hamster wheel” are now reassessing their priorities and reorganising
- For business owners – there are opportunities within your own business to reallocate and reoptimise
- Some businesses won’t be coming back, and that offers some market share, and it’s an opportunity
- For alternative investments, some assets are going on sale at reduced/discounted prices
- Wealth goes through periods of transfer when there’s disruption – wealth doesn’t go away, it just transfers
- If you can position yourself with your cashflow margins within your business, investments and lifestyles, then you can get through the gap and take advantage of opportunities during a downturn in the business cycle and market
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