My Realty Gains
Omar is the founder and principal at Boardwalk Wealth, a Dallas-based private equity firm connecting international investors with US-based multifamily real estate opportunities. Led by Omar, Boardwalk Wealth has managed over $175+ million of multifamily real estate transactions. He has advised on ~$4.0 billion in capital financing and M&A transactions in commercial real estate and commodities. He is the exclusive advisor for high net-worth families and international entrepreneurs on their US-based real estate portfolio allocations. As a CFA charter holder, Omar has extensive experience in valuation across commodities and real estate in 3 countries.
What You’re Going to Learn:
What is Real Estate investing?
Prashant Kumar, CCIM – Would you tell me what are the benefits of real estate investing for such high-tech minds?
Omar Khan – Look, I think I’m going to start by just saying that the vast majority of listers predominantly are high income earners. We’re looking at people whose household incomes are 3 to 500,000 USD that give or take at the minimum, and while a lot of people are making that money or slightly more, they don’t feel like they’re rich because they’ve very high-demanding jobs. They’ve got families. Typically, the type of people that have talked about is conservative. They don’t spend money on stupid things. They’re saving and investing. They’ve already emigrated from a country, so they’ve done a lot of hard work. They know how much hard work they’ve done to get to this stage. I tell a lot of those people the same story with my brother-in-law. He’s not an immigrant, but he’s busy. Right. He works at Google. He makes a lot of money. Now, he’s very good with his money. They don’t spend money on stupid things but the biggest expense you have on your books, whether you realize it or not, as a high-income earning family or a person, isn’t your mortgage, say if your kids to go to college or private school. It’s the amount of taxes you pay. If you’re in a state like California, if you say making 400 or $500,000, I’m assuming that’s around 4,50,000. Don’t quote me on that. You’re in the highest tax bracket which means any amount of dollars you make a post that bracket, you’re going to be paying close to 50% in taxes for every incremental dollar. For instance, if you made a million dollars above the highest flat, they’re not making a million. They’re making maybe 500,000. Right. You have to start thinking like that, where is the rest of this money going?
If you’re conventionally investing, say just in stocks, I invest in index cards and mutual funds. If you’re just doing that and you’re not doing other things you have to realize you’re not maximizing the potential returns that you can make for your family. And the big reason for that is look, that the vast majority of the financial advice on offer.By the way, I’m a CFA charter holder. It’s a gold standard of portfolio and wealth management but the vast majority of wealth or financial advice that’s given, look, even the term wealth management, says management of wealth. That assumes you already have wealth. If you don’t have wealth, you have to create wealth first, and you can’t create wealth by taking the same advice.
Let’s say somebody who’s making $100,000 or $60,000 and doing the same thing that they were doing because you make five, six, seven, eight, nine, or ten times the money. You have a very different set of options available to you. If you don’t take advantage of those options, you don’t get into tax advantage vehicles like real estate. You leave a lot of money on the table. Right. And this is something. And again, I’m coming back to my brother-in-law, for example. He knows I do this for a living. He’s a pretty financially sophisticated guy. I was in the Bay Area last year, last month because my wife and kids are traveling. I was in the Bay Area. I was with my brother-in-law. We were hanging out. And during the day because he’s working from home. He was hearing me talk with a bunch of my different investors, similar sort of profile, right? So at the end of the day, we’re just watching I think we were watching TV or a movie or something. So he’s like, okay, so tell me about this depreciation write-off. What are you doing?
And again, he kind of knew it in his head. But it’s like when we were talking right before this podcast, we all know as an example, that we have to eat, right? We have to exercise, we have to meditate. Knowing is one thing, doing it is something different, right? So he knew about all of these things, heard about them but he put them behind of his head, didn’t do anything about it. He and I started talking and I kind of explain, okay, this is what happened. I showed him my tax returns. You see, we make money. This is how many tax write-offs we get. Our tax burden, even though we’re making similar or more money than you, we’re paying no taxes on the money. And he’s like, well, how can you pay no taxes? I was like, well, you get all these write-offs, right? And it got to the point and this is within a ten-minute conversation and he’s an engineer, right. He’s very analytical. He’s a software developer at Google. It got to a point where after 10-15 minutes, he’s like, all right, I’m going to go to sleep, whatever. Next, he was working from home. He didn’t do any work.
He spent the whole day making some complex fancy model, right? He comes back to me at the end of the day and says, hey, do you want to look at this model? And I’ll start I was like, no, I don’t want to look at this model. Right? And he said, look, I sat down for the whole day. I knew the answer in the first ten minutes. I could not believe it and I’m quoting him. He said, look because my sister is doing her Master’s in data science from Georgia Tech, right?
He said if your sister graduates and unless she gets like, say $250,000 job right out of school, which is probably not going to happen because there are good jobs, right. It is worthwhile for her to not do a
job, sit at home and become a real estate professional.
We still take the money that we’re saving and investing, and as a household, we will make more money. You explain this to the average person.
The average person does not understand. Well, how would somebody who’s going to make six figures, how would that household make more money if the person who was going to make six figures stayed at home and didn’t do the job, right? Because we’re trained from day one, do a job, go to work, make money, save it, invest it, the game is rigged.
This is not a conspiracy theory. The game is rigged because if you don’t take advantage of the same investments and the same tax rates that other rich people are taking, you’re basically like a McDonald’s worker just for the higher month’s hourly wage.
Prashant Kumar, CCIM – What you are saying to the listeners is to diversify their portfolio?
Omar Khan– Do not just put all that diversify. Just realize that because you were rich or richer, there is a universe of options available to you that is much different than the universe of options available to somebody who makes one-third the money you make.
Prashant Kumar, CCIM – That is correct. Yeah.
How Omar is helping others to Invest Passively?
Prashant Kumar, CCIM – How in your world are you helping others invest Passively? How are you helping others to gain that freedom? I know you are doing it, but I want to hear it from you.
Omar Khan – I can tell you this when I’m investing in other people’s deals. Right? Now, typically it’s people who are coming from a word of mouth referral or from somebody I trust. As an example, I trust Prashant bhai, he will tell me about someone. I will be more inclined to invest with that person.
Even though I’m in the real estate. I run my deals. We buy apartments all over the world, all over the country. We develop my filtering criteria is very simple..
There are two things I’m filtering and by the way, for technical people, it’s very hard to understand because you can’t build a financial model out of this or a technical model. You can’t write code for this thing.
The two things you’re assessing somebody for are their level of competence, like how can they do this work that they’re saying, and your estimation of their character. And I’ll tell you why, Somebody could be extremely competent but does not have the right business ethics that person is a crook. Conversely, somebody could be extremely honest. They’re very nice, extremely honest. They’re incompetent. They’re an idiot. That’s also not a good use for your money. You need to find people through word of mouth, ideally, who are competent and have good ethics and that only comes with experience and that comes with asking the right questions.
Prashant Kumar, CCIM – Awesome and How are you helping others?
Omar Khan – In my particular work, What happens is I do my deals. So people invest in those deals. They make a lot of money. For instance, I have a lot of investors when they’re looking to invest in somebody else’s deal, even if it’s in the same market. I’m in Georgia, Texas, Florida, and South Dakota, right? Typically, if they’re investing in somebody else’s deal, they’ll give me a call. They’ll send me an email – Hey, what do you think about this guy? And look, we’re in the business, so obviously, we don’t know everyone, but we know enough people in our industry, right? So what I can do is I can pick up the phone or I know the person. Yes, this person is good. This person got a good team. They have a good track record, and good ethics, right? Or they haven’t heard good things about this person. So I’m not going to say something personal, but you should do more investigation yourself, so that in and of itself helps because now you find out the insight behind the scenes story. After all, look, anytime somebody is trying to sell you their investment, they are going to show themselves as the best person on the planet. You need other people to help you analyze the situation.
Prashant Kumar, CCIM – Awesome
What are the benefits investors get by investing in real estate?
Prashant Kumar, CCIM – Besides Tax Advantages what are the other benefits that you want to tell your investors that they would have for investment in real estate? What are the other things?
Omar Khan – Tax is the biggest one. You have ongoing cash flow. Every quarter, every month you get cash flow. That’s good. You also have a lot of tax capital appreciation. On average, we’re getting anywhere from 18% to 20% annual returns.
On a historical day. Now, that has happened in the past but that gives you an idea. Then on top of that, when we sell an asset, we can do, this thing called the 10-31. Think about it this way, you buy shares of Apple, and let’s assume they go up and you make a lot of money. And let’s assume you’re selling shares of Apple. Now, if you bought a share of Apple, you sell it. You have to pay capital gains on it if you had it for more than a year.
In our particular case, when we sell a real estate property, we can choose. We don’t have to, in the US an investor doesn’t have to. But you can choose to 1031 with the same person. Right. 1031 is a tax mechanism that says you can just basically take all of your money and invest it without paying taxes because you’re deferring your taxes. Right. So that becomes a very powerful tool to multiply your capital.
Prashant Kumar, CCIM – How 1031 would work in syndication. When you have, let’s say, for example, ten investors in one deal with you and they want to do 1031 and they may go in different directions. How do you work with that?
Omar Khan – No, they have to do 1031 with the same sponsor.
That’s where right at the start, like I said screen for ethics, screen for competence. That becomes extremely important right at the start. Because if your starting is not good, nothing happening afterward is going to save you.
Prashant Kumar, CCIM – Yeah.
Can inventors go from one sponsor to another?
Prashant Kumar, CCIM – Can an investor go from one sponsor to another?
Omar Khan – The short answer is if you’re investing 5000 or 200,000, it’s not worth it. Technically, if you structure your affairs and you have a lot of money, everything is possible. This is America, okay? Everything is possible if you have the right amount of money.
Prashant Kumar, CCIM – Typically, that’s what we have seen all the time if you are investing $50,000 or $100000 maybe it is not worth going through the hassles of doing that. Take tenants in common structure with the new deal but if you’re bringing 500 or a million dollars, then maybe a new sponsor would consider that.
Omar Khan – If you had 50, let’s assume I’m doing a deal. You invest money in my deal. Now we sell that deal. Now I can pool all of my investors and go to the next deal, and that can go with it. So you could still invest 50,000 with me. I’m using myself as an example. You can do it with anyone. You could still invest 50,000 with me. You said double your money. Now it’s 100,000. You can take that 100,000. Invest in my next deal if we do it in a 1031 way. But what you can’t do is take $100,000, and go to somebody else. It’s not going to work that way.
Prashant Kumar, CCIM – Is that something that needs to be done?I mean, at the beginning of the first deal or it is done at the end of the first deal?
Omar Khan – No, it is done at the end.
Prashant Kumar, CCIM -Okay. It’s not to be determined at the beginning of the first deal, because that’s all I wanted to qualify.
Omar Khan – If you want to go do all of these things, you want to give people money start is very important, right?
Prashant Kumar, CCIM -Yeah.
Omar Khan – If you have a bad start, nothing else matters.
Prashant Kumar, CCIM – Very good.
How would you rate the mental peace from this Passive Investing, folks will get when they invest?
Prashant Kumar, CCIM – How would you rate the mental peace Passive Investing folks will get when they invest?
Omar Khan – 100%, I can tell you this.
I have so much Shanti(peace) in my life because as I do my real estate but when I have excess cash, I invest with my trusted sponsors, and then they can do their business. I don’t have to go and do everything in life. It’s the same as you know, we need any service. For example – We go to a doctor, engineer, and software designer. It’s the same concept.
Prashant Kumar, CCIM – Yes, that’s the most important part. The deal is being managed by professionals and it is being managed by professional property management companies. Banks are watching it. Banks want to make sure the deal has to go through. There are SEC filings on the deal so there are no scrupulous things.
Omar Khan – You get money literally, metaphorically. It’s going to your mailbox really but It’s going to your bank. Right. But it is known as mailbox money, right. You didn’t do anything. You got the money. You’re good to go.
Prashant Kumar, CCIM – You’re not searching for the deals. Professionals are searching for deals. Professionals are bringing deals to you. And on top of it, the deals are managed by professionals.
Omar Khan – Yeah, that’s the most important part.
Prashant Kumar, CCIM – Yes, that’s the most important part of the deal is being managed by the professionals and it is being managed by the professional property management companies. Banks are watching it. Banks want to make sure the deal has to go through. They are SEC filings on the deal so there are no scruples.
Omar Khan – There’s a lot of compliance. There are a lot of regulations. So you know that if you’re with the right people, your money is safe.
Prashant Kumar, CCIM – Awesome. That was the point I wanted to clarify for the listeners.
In today’s Podcast, Mr. Prashant Kumar CCIM, on behalf of My Realty Gains, invites Omar Khan to guide us through- “Quantifying the benefits of Passive Investing in Real Estate”
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