Asset management during recessions is not about timing the market; it’s about time in the market. In this episode, Omar Khan, the founder and principal at Boardwalk Wealth, discusses how to manage your assets and protect your investments during times of economic uncertainty. He delves into the concept of asset management, particularly in multifamily. He also touches on the market’s state, what have been its low points in the past, and the possible threats to look out for. Drawing from his experience and expertise, Omar offers valuable insights and actionable tips for investors to protect their investments and be prepared for the worst. Whether you’re an experienced or novice investor, this episode provides you with the necessary tools to successfully navigate a recession and emerge victorious. Tune in and start taking control of your financial future.
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LinkedIn: linkedin.com/in/omark1
Website Links: BoardwalkWealth.com
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About Omar Khan
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. Lead by Omar, Boardwalk Wealth has managed over $200+ 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.
Asset Management To Protect Your Investment During Recessions – Omar Khan
Welcome back to the show. I feel like it’s been a while since we chatted on here.
We feel a little rusty. We’ve traveled the world. We’ve been in Florida, Naples, Salt Lake City, and all over the place.
I’ll tell you one thing. When COVID was here, Canada was shut down. It was a good thing because we didn’t have one like this.
You could be nerds sitting at home and working, but now you’re traveling.
The borders are open and everything else. We have been traveling nonstop to the most amazing conferences ever which we’re going to be mentioning here. We’ve been to how many conferences, August? We’ve lost track. I’ve had the pleasure of speaking on stage about investor psychology at the Salt Lake City Best Ever Conference. That was probably one of the best conferences. We are going to be meeting Omar Khan here in Vegas from April 26th to 28th, 2023. He’s putting on a conference. It’s a multifamily wealth project.
Come on down to Vegas. Let’s have a great time. We party it up a bit. Go to all the nightclubs and the great stuff they have there. Go to a multifamily conference. What’s better than that? It’s the best of all worlds.
Anybody reading, we do have a 25% off discount code. If you read this, make sure you reach out to me, and I’ll go ahead and send that over to you because you’ve got to come to join us. It’s going to be amazing.
We’re in this choppy environment when it comes to interest rates. Interest rates have risen in a hyperbolic way by the Fed. It’s causing some distress in the banking system. Some banks are failing. It’s scary times. The Fed had a meeting on March 22nd, 2023 and they still increased the interest rates by 25 basis points. Even though the banking system is somewhat fragile, they believe it’s not because they’re pumping money to keep the banking system alive, but how does this relate to multifamily real estate?
It relates to it because, in these choppy environments, it is the groups that are doing asset management the right way that can survive the storm. It is groups who also bought the right deals but more importantly, asset managing the right deal. A lot of time, what a lot of experts talk about is if it is the horse or the jockey and by far, most experts always talk about it’s the jockey.
A good GP can always salvage a bad deal even if it was bought at the wrong time. We have Omar. He is an asset manager on a lot of his deals. We’re going to go over his background and experience. We’re going to give you a crash course on asset management which I feel is very important in this environment.
A little bit about Omar, he is the Founder and Principal at Boardwalk Wealth, a Dallas-based private equity firm connecting international investments with US-based multifamily real estate opportunities. Led by Omar, Boardwalk Wealth has managed over 200-plus million multifamily real estate transactions. He has advised on $4 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. We believe this interview with Omar will bring great value to both active and passive investors on the topic of asset management. I’m excited to learn more. Welcome to our show, Omar.
Thank you. I appreciate it. I’m a returning champion, so I’m always happy to talk to you guys and see you in Vegas.
Let’s get started, Omar. Maybe you can tell our readers a little bit about your background and then your start in real estate. We can then get into asset management.
My background is in people who work in investment banking, asset management, and portfolio management. I graduated from the University of Toronto in Finance, did my CFA, and worked at a couple of bulge bracket banks within Canada. I moved down to the US in late 2015 or early 2016, somewhere in that region. My family is a business family. They had their businesses so I would have the entrepreneurial bug. They’re reasonably financially sophisticated and being in the financial industry, that helped in understanding various tax structures, operations, and all of that stuff.
When it came time to decide, “What do we do with the rest of our lives?” when I got married, we pretty quickly realized we wanted to be in a line of work that was very relationally driven. It had to be by definition a private market and tax efficient. My wife and I did the math when we were 30. Relatively speaking, I was in finance and she’s a physician.
The combined household income is nice but we thought to ourselves, “Even if you don’t get a raise ever again in the future because we’re 30, we don’t get a raise ever again, we’re still paying a couple of $100,000 in taxes every year. If we can find a way to chip at that goal, then that’s free cashflow that we’ve unlocked.” You don’t technically get a raise from work but you’ve gotten a raise in terms of cash.
It’s a combination of those things but the biggest impetuous was that my personal and professional background was a good fit for what I wanted to do, which was to have the entrepreneurial bug. Real estate was a pretty easy sell because it’s a private market. It’s very tax efficient and you don’t have to go explain it to people. Instinctively, people understand what’s going on. The sellability of that aspect is, “What do you do?” That sellability isn’t that hard. That’s how it started.
If I didn’t have the background leading up to it, the technical and the personal background, I could think about all of these things but I would never have the tools to effectively put together what I was putting together. Having this set of experiences helped me. Otherwise, I’d be another guy with a problem. That was impetuous. We have restaurants. We’re looking at a couple of factories to acquire. Once you get down on that journey, there are many ways that you can diversify yourself but the point is to get started on that journey.
Let’s break this down a bit more. You and your wife are high-income earners. You realize you’re paying a lot in taxes and real estate could be a vehicle to assist in reducing those taxes. You get into real estate. For a lot of people watching, the term real estate is too broad. It says, “This is a large ecosystem. There are a lot of different things you can do it.” Aside from the initial investments you made, you got into real estate private equity. It’s this concept of buying real estate with a group of investors or a selected amount of investors where the majority of equity in the project is coming from these passive investors, be it retail or institutional.
It could be your family and friends but it’s coming from another group. It’s not coming from your group, this concept of syndication or real estate private equity. When did that light turn on? Was it out of a need? Was it out of a want? Did you pursue it immediately? Talk to us about that transition because it’s very important. I was in real estate for over a decade before finding out there was even an option to raise money. This concept of raising equity, I didn’t even understand it. Talk to us about when that light turned on for you.
I wish I could tell you I know how to raise money effectively. I don’t unlock the secrets. A lot of this stuff was because of my personal family background. My family is a business family that is actively involved in capital markets as well as their businesses. I at least had the awareness that a lot of these deals, private transactions that are done, are not just with somebody, one guy writing a check all the time. There is some aspect of pooled funds.
It’s whether you pool your fund because you’ve all got rich buddies or you’re at the country club or whether it’s done institutionally but funds are pooled together. Nobody’s putting all of their eggs in one basket. I would love to tell you that awareness was there because I was a profound thinker but that’s not the case. It was primarily observing what my family was doing and what other people were doing in our social circle. That awareness was there but having awareness then knowing how to do it are two separate things. The awareness was always there by observing other people but I didn’t necessarily know how to do it.
Let’s break it down even a bit more. You believe in real estate and you fundamentally understand that there’s a way to raise capital. What was the first asset class you focused on? We know commercial real estate. There are multiple asset classes, multifamily value add, and development. What was the first thing you got your hands on?
I did multifamily. I wasn’t interested in houses. Hotels are too operationally intensive so maybe that’s the future thing when I built out a team. I was iffy about retail. The rough math for me says that I’m not an expert in leasing so I’m leaving all of that stuff. First of all, your cashflows are very lumpy. Secondly, it’s very much a hit-and-miss deal. Essentially, all you’re banking on is compressing cap rates in retail. That aspect didn’t work out for me as well.
It was industrial or multifamily. Some days it feels like I should have gone to industrial because that’s a way harder line but essentially, you have to pick a field. Multifamily seemed like an easier field to not only get into but also to advertise what you are doing because of the explanation of the business plan. I can explain this to my mom and she gets it.
Whereas with industrial, a lot of times you might have to explain it. It was the path of least resistance I took. I eliminated other opportunities like hotels, hospitality, retail, or office. The office was never on the cards because its revenue is too lumpy. There are lots of different cashflow issues there that I didn’t want to get involved in.
We talked about the business of real estate private equity and asset classes that exist. Within the multifamily value at asset class, there is a business model utilized. I’ll break down this business into three main points. You got the equity side, raising capital from investors. You got sourcing the deal as acquisitions, finding the deal underwriting. You’ve then got asset management, which is executing the business plan. You bought an asset, raised the money needed and then execute the business plan, whatever that plan is.
Even if the plan is just to sit on the asset, make sure you keep the occupancy high and sell it in five years, which is very simple. A lot of REITs and large institutions do this. Talk to us about asset management. At what point did you start having asset management on your shoulders? Did you initially bring on an asset manager?
The reason I ask this is that you’re connected with one of the Goliaths of this space like Neil. He’s trusted your experience and background to bring you on as a partner so you must have been doing something right. Tell us about your involvement. How do you get involved coming from your background in finance, investment banking and all that stuff into actual asset management? When we’re talking about asset management, we’ll ask some further questions differentiated between the financial advising world. At what point do you realize that you want to be hands-on with the asset management of the properties that you’re buying?
The other part I forgot to mention from the earlier question was that operationally speaking, multifamily, in my opinion at least, is much easier to operate because it has so many more levers. You can pull 5, 6, 7 or 8 levers to drive value whereas with other areas and I don’t have experience so this is a high-level overview, you don’t have that many levers.
Asset Management: Multifamily is much easier to operate because it has so many more levers to drive value.
For instance, if you’re stuck in a long lease with the retailer’s office, then you’re stuck in that place. You’re not getting out of that lease anytime soon as the market goes up. First of all, computationally and operationally, I feel multifamily is a very vanilla-type product. Vanilla in the sense that it’s cash coming in and cash going out.
If you understand your cash conversion cycle, accounting people will understand and it’s simple. It’s not that hard. It comes in your temperament. Do you want to go by the dirtiest, grimiest thing or do you want to go by the shiniest object? Where do you lie on that spectrum? Oftentimes, that determines what actions you can take. For me, it was very simple.
Computationally and day-to-day multifamily management is relatively easier to do asset management at least. Therefore, it wasn’t that hard. If anybody’s coming from an investment banking background, you’ve done a valuation, created pitch decks or worked on the buy side, this is as vanilla of a product as you’re probably going to get. People think it’s hard but let’s put it this way. Multifamily is a lot easier like acquisitions value-add multifamily. Unless you buy deep distress in the ghetto, that’s a different element altogether.
It is as vanilla of a product as you’re possibly going to buy in the private markets. I don’t even know what an accurate comparison is. It is relatively so much simpler to say do this and then to say, “Think about it this way.” You want to buy an oil and gas company that has 15,000 wells all across 3 basins. It’s a very vanilla product.
From day one, having the financial expertise and that background was very helpful but it was also compounded by the fact that this was a relatively easier path to take. As I told you, I took the easier path. The easier path also implied operations, scalability, how do you deal and course correct along the way operation.
Omar, could you differentiate between asset management and finance and real estate asset management?
It’s the same thing. It’s just in a different product. For instance, asset management essentially means that you have a business plan. Whatever it is, whether it’s a multifamily or a financial advisor, you have to create a business plan for the future or the next X amount of years. In that business plan, you start from the end goal and work your way backward. As an example, if you’re a financial advisor, let’s say you have a client who’s a doctor that makes $300,000, $400,000 or $500,000 a year and they say, “I have saved $200,000 of whatever investments and I’m going to retire in 30 years. I want to have at least $5 million.”
What’s the path to get there? What tax breaks are you going to get? What vehicles you’re going to invest in? It’s the same plan within multifamily. Think about it. If you get tons of class B or class A assets or developments, you decide, “My cost of acquisition is X.” Let’s say it’s a $100,000 unit. I budget because I’ve got an RFP and bids. It’s going to cost me at least $10,000 to $15,000 per unit to renovate whatever product I have because I’ve researched how many units I’m going to renovate.
Let’s say it’s a $100-unit building. You say, “It’s going to cost me $10,000 to renovate per unit,” assuming in the next year. We’re going to keep it simple. We have 100 units here so that’s about $1 million, 10,000 times $100. I say, “$100,000 purchase price, $10,000 CapEx.” Maybe you add a little fudge factor on top of another $5,000 or $6,000. You say, “My all-in basis, when I’m done with this project, is going to be $115,000 to $120,000.”
In 3 or 4 years, you have to make some assumptions. You can’t assume the world’s going to end all the time. With some assumptions, you’re going to make, “Can I get to the stage where if my basis is $120,000, can I sell it at the bare minimum for over $120,000?” That’s the bare minimum. “Can I sell this for $150,000?” How would you assume that you could sell it for $150,000? One is you’re going to do your underwriting, see your numbers and do that analysis but you’re also looking at comps, same as the single-family market.
If you see, for instance, a guy down the street with a similar type of product bought their assets for X but they were able to sell it for $140,000, it’s very similar. Let’s assume it’s a ‘90s vintage product in Buckhead in Atlanta. Everything’s the same. You have something to compare yourself against. You can also compare. Keep things simple. Let’s say my rents are at $1,000 and in year 3, my rents are going to be $1,500 for it to be a viable enterprise for me.
If you go out into the market and look at other similar properties that your renters might be able to rent and the nicest product out there is barely scratching $1,100, you know you’ve got a huge gap. Unless something drastic happens. It’s not like rents are going to jump up by 40% or 50% in 3 years. A lot of this is a science where you’ll do the underwriting but a lot of this is an art and common sense. If the guy down the street has bought a class A product at say $150,000 a unit and you’re buying a ‘70s vintage product at $140,000-ish unit, that’s not enough of a margin of safety.
Omar, when you make the comparison of asset management in finance in financial advising with asset management of multifamily, I would say that asset management on a multifamily level is more hands-on. You’re also in a way involved. When you’re talking about asset management in finance in financial advising, you’re structuring, forecasting and strategizing. Whereas asset management in multifamily, you got to hire a property management team if you’re using a third party.
If they’re not performing, you got to go in there, fire them and bring in a new team. If you have a contracting team, certain material comes in. You’re very much hands-on in getting your hands dirty and playing more of a management role than when it comes to asset management and managing portfolios.
It’s if somebody doesn’t have their systems together and doesn’t have the discipline to buy within Sandbox. For instance, if your Sandbox is the ‘80s and ‘90s value-add deals in the Southeast in 100 or 150 units, pitch roofs and average demographics are $60,000 to $80,000, you’ve got a little bit of a model. It is not as onerous if one day you’re buying in the ghetto. The next day you’re buying class A. On the third day, you’re doing development. On the fourth day, you’re in a different market with different dynamics.
I’m only speaking from our experiences. We have a little bit of Sandbox. It doesn’t mean that other good deals aren’t outside of that Sandbox. There are many good deals out of that Sandbox and many people have made a lot of money. More than us in fact but we want to play within Sandbox. All of our processes, systems, contacts and the ways we set up our company are aligned with these systems and processes.
Therefore, the hands-on aspect, while it’s important, we have enough data, reporting structures and history to see a lot of things before they happen. You don’t see 100% of those things. For us, at the start, it might have been very hands-on and day-to-day. Now, with all of these structures in place because we’re only playing in Sandbox, it is not as onerous as you would imagine it to be.
It depends on the business model you have. If your business model is spray and pray, then it’s a different ballgame. Think about somebody who’s in hospitality, office, retail, industrial, short-term rentals, self-storage and all over the place. Their asset manager would have to be out of this world and amazing, versus us where we’re subject matter experts but in a very narrow range.
Omar, I’m curious. Does an asset manager get involved in the acquisition process? How important is this?
For us, yes, they do because our company is very close-knit but if you’re looking at bigger companies, oftentimes they don’t. That’s a big problem in bigger companies because the acquisitions guys are paid to do deals. Think about it this way. If somebody is incentivized to do more deals, they are incentivized to stretch and stretch, which might not be an accurate reflection of reality. In a lot of bigger institutional firms, there is always that tension between acquisitions, which is considered the front of the house and asset management, which is considered the back of the house.
Asset Management: If somebody is incentivized to do more deals, they are just incentivized to stretch and stretch, which might not be an accurate reflection of reality.
In companies of our size that are medium-sized companies, our team is closely knit. We only do a few deals a year because the bulk of it is our money. Therefore, our teams are very closely knit. I’m not trying to say that that model is wrong because once you get above a certain threshold and you’re at the $10, $20 or $40 billion mark, you have to put these boundaries in place. You can’t win. It’s a matter of size.
Omar, you’re also involved in ground-up development projects aside from multifamily value add. There are the titles and warnings and using the right phrases. Is asset management, in a development situation, exist or does it only come into play after the asset has been stabilized and then the asset manager comes in? Is that a responsibility idea from day one?
It’s our responsibility from day one because part of the asset management is also making sure that our development partners are on track as well. For instance, if there’s a delay in closing, why is there a delay in closing? If they’re going above budget in certain things, why are we going above budget? At the end of the day, you can use whatever term you want but the fact of the matter is that you have to always be communicating various aspects of your team members and various roles.
The purpose of the asset manager in that regard is like a hub and spoke model. The asset manager is a hub and all of these other things are spokes so just because your product hasn’t been delivered doesn’t necessarily mean there’s no work. I’ll give you an example. We’re delivering a product in late July or early August, blue on the rain, but we already have to start doing the pre-leasing for that. Before we even have to do the pre-leasing, every year before the pre-leasing even starts, every month we have to be in touch with our property managers who are going to start doing the property management once we start pre-leasing to accurately get an idea of, “If we have our rents, where is our budget?” We have a rolling forecast made.
Every month, we’re tracking assuming this property was already running. How are we doing? By the time this property starts pre-leasing and leasing, you don’t want to be caught by a surprise. If the market for instance is going up, then we’re already adjusting our expectations or if the market is going down, then we’re already saying, “Maybe you offer more concessions during pre-leasing.” Instead of offering 0 months of concessions, maybe you start with 2 months of concessions. Maybe you’ve got to do more advertising locally. Those aspects always stay whether you are developing, acquiring or whatever it is.
Quick question here, if no private equity or capital was raising involved, what would that title be called? When I was in construction and real estate, we had a development manager but we didn’t have an asset manager. Is that term used when there’s private capital involved?
I’m going to be honest with you. I don’t know the answer to that. You can call it a project manager. It’s a commonly used title so people don’t even think about it. It’s like how every second person in the bank is an executive director. It’s just a title, it doesn’t matter.
Let’s switch the conversation a bit here. Let’s talk about the elephant in the room. Before our recording, we were talking about the conference and I’m going to be speaking on the panel about this topic which is distressed assets. We know distressed assets are coming to the market. I was interviewing John Chang. His market is at Millichap. He also believes distressed assets are coming to the market.
The economy and the banking system are not sick the way it was in 2008. They’re not over-leveraged. You don’t have people defaulting. In a lot of movies, you see that was made about the GFC. You don’t have people that have no business owning 5 or 6 different properties. You don’t have those defaults coming in where it’s going to be a deck of cards but you have distressed assets coming in because a lot of groups that syndicated deals or a lot of groups that wanted to deal either didn’t buy rate caps.
If they bought rate caps, they didn’t have enough reserves to repurchase their rate cap and how high it went. Also, nobody expected the rates to go up this fast. We know that distressed assets are coming to the market. On the flip side of this, in my discussion with John Chang, he has clients who have billions of dry powder ready to be deployed into this asset class.
We’re smaller syndication groups. You’re a boutique private equity firm. How do we compete with billions of dollars of institutional money, which they’re buying the same asset classes that we’re buying when there is a turn in the market? The very important point I want to talk about is there are a lot of firms out there unlike our firms who have 50, 60 or 100 employees and they haven’t done a deal since July 2022.
They got to feed those people and the way to feed those people is through their acquisition fees and asset management fees. Maybe they can exit some deals but we’re competing with groups who need to do deals. How do we compete? How is that going to work? Let’s touch on that a bit and then we get into the importance of asset management for groups that are surviving this choppy time.
That is the same answer as how we were competing when the market was good and how you can move when the market is bad. If the deal doesn’t work, you don’t do it. For instance, if somebody has a bigger payroll and they have to do a deal to feed that payroll, that’s a them problem. That’s not a me problem. It’s a bit like if I do something stupid, that’s not their problem. That’s my problem. I have to go deal with it.
If the deal doesn't work, don't do it. Click To TweetThe other part also is if somebody has billions of dollars in dry powder to deploy, I’m not in competition with them. They’re not looking at the deals that I’m looking at. God help them if they were competing with me. That’s all I’m saying. That would suck for them more than it would suck for me. My point is that at the end of the day, it is what it is. If somebody is willing to pay more money, that’s the private markets at work. That sucks and it’s awful but what are you going to do?
The flip side of this is this is a big country. There are always deals out there. Sometimes it’s bad and sometimes it’s good but nobody was complaining when times were good. I didn’t complain. If you don’t complain when times are good and say, “Maybe I shouldn’t be making all this money. Maybe I get up and make money. This is not normal,” then you can’t complain on the flip side.
This is a cyclical industry. The market given, the market taken. As long as we hopefully charge some middle ground and we don’t get that affected hopefully, we’ll be fine. If somebody has a big payroll and they want to do more deals, if they keep doing stupid deals, they’re not going to have a big payroll for too long because they will be bankrupt. It sucks if you’re on the receiving end of it. I’m on the receiving end of it sometimes but it is what it is. Nobody’s going to change what they do so what do you do? If somebody with $1 billion is competing with me, God help them. I feel sorry for them. That’s all I want to say. I’m small potatoes compared to the person who has $1 billion in equity.
Omar, can you provide examples of successful asset management strategies that you’ve implemented in the past?
I can give you examples. We always have a rolling cashflow forecast but we’re even doing an interim cashflow forecast. If I’m on the 10th of the month, I look at my cash, just the operational cash position. Not excess cash or whatever you have. We’re even doing that within the month. Do we always want to do it? When so many things are happening, you have to pick and choose your battles.
Additionally, with liquidity management, we always did this because I’ve seen it within my family. I’m the third generation. We’ve been able to survive through three generations in multiple countries and it isn’t necessarily because my family is smart. I know my family. They’re really not that smart. It’s because we were always somewhat prudent in the allocation of our cash. Most of my family members didn’t chase the shiny object.
In good times, it feels like everybody’s getting ahead and you have massive FOMO. “How’s this guy getting ahead of me? How’s this guy making more money?” I have that too but in bad times you realize, “At least I’m not losing money. I’m not bleeding left, right and center.” A lot of it is things that are going to stay the same like your bi-weekly meetings. On the corporate side, as well as the property management side, daily touch bases with the property managers, me and my managers and my operations people, we each have each other’s phone numbers.
If I have to pick up the phone and call them in the evening because we want to change this or do that, a lot of times, our channels of communication are open because people say, “What are you changing?” The problem is if you start changing anything now, it’s already too late. The water has already gone over the bridge. These are things you have to do before bad things happen. You have to be doing things during good times so you train your team. Oftentimes, it’s a training issue as well. Does your team even understand what you want to do? Have you put the right reporting structure and all of this in place? If you do this now, you’re already behind the curve. You’re already going to lose it.
Touching on distressed assets, there are one of the reasons a lot of distressed assets are coming into the market, a lot of people are in difficult times and a lot of sponsors are stopping or reducing cashflows. A substantial reason for that is the capital markets and the interest rates but a portion of that is also their inadequate asset management.
Over the last many years, anybody could make money. Rising tides raise all ships. People were buying asset classes. They weren’t even doing anything like value add. They’re selling it in three years and doubling their money. When the tides go out, you can see who is standing there without their shorts on. How important is asset management when it comes to executing the business plan? We’ve touched on it multiple times but can you give us some important pointers? Is it to maintain and increase occupancy? Is it to maintain and increase rents? Is it to execute the business plan in the right way knowing how many units you have to renovate? Talk to us about some pointers there.
It’s all of that. For instance, it is to renovate units on time but it’s also to realize that if you’re renovating these units, are you getting the rent pump or not? In a particular few cases and I’m not the only one but a few of our assets, what we were realizing is, even if we didn’t put any money, people were still renting those units out from us. We didn’t put any money in some of the units. Why would we put in more money if we could get the same rent? If we blindly went and renovated the units because we wanted to renovate the units, that would be not the most judicious use of our money.
Similarly, we’re focused on upping our occupants. Our portfolio is typically always mid to high-‘90s but we want to push this into the high-‘90s across the board. The reason is I feel it’s more of the fear of what is coming ahead, as opposed to what’s happened in the past or what’s happening now. It’s all of these things. Let’s put it this way. Your deal has to be salvageable. If you buy a turd, shining it is not going to help you.
What investors fear in the market's current state is more of a fear of what is coming ahead as opposed to what's happened in the past or what's happening right now. Click To TweetA lot of this starts right at the start. If you buy something salvageable, there is something to do there. You have a clear path. It’s in a good sub-market. You have some comps to support what you do. You can do something because otherwise, what I see is a lot of times what happens is people hire their property managers. You’re like, “Maybe the property manager isn’t performing,” but you also chose to buy a ghetto deal in a tertiary market where there are 2,000 people. What is the property manager even going to do?
There are limits to what a property manager can do, good or bad. When somebody is doing bad, you know they’re doing bad but even a good property manager is not a magician. They can’t walk on water. A lot of these things start right at the start. Did you buy with discipline in the right markets? If you did that, then you can pull all of these levers and do your little Wizard of Oz thing. If you don’t buy, then none of the other stuff matters.
We’ve got a couple more questions before we get to the next segment of the show. I’ve got one question for you. The reason they’re LPs is that they have to focus on their main business. They’re doctors, lawyers, accountants, high-income earners, and business owners. They want to diversify and they invest with syndication groups like us. When they’re vetting us, how important is asset management? Should they request to get on a call with the asset manager? Should they see the business plan? How do they vet this concept of asset management, which is crucially important? How do they do that as an LP?
I’m going to be very honest with you. Unless you’re in the industry, there’s no way for you either way with any level or degree of confidence. Get this idea out of your head. It’s the same way if I go to a cardiologist. There’s no way for me to accurately know how good or bad a cardiologist posts if something bad happens. There is a certain base level of due diligence. You see whom they have on their payroll. You should see it on their website. It should mention something.
Asset Management: Unless you’re in the industry, there’s no way for you to edit with any level of confidence.
Should they have an independent asset manager?
They should have somebody. My point at the end of the day is if you’re giving your money to somebody who doesn’t even reinvest back into their business by either hiring people, buying software or whatever steps are needed to improve the quality of that business or the quality of the service that the business provides, then why would you give that person money? It sucks. I’ve got a payroll. I don’t look forward to paying everyone’s salary but I also realized that it is better for me to provide good value and it helps us become better. It’s a constant work in progress, as opposed to doing everything by myself.
It’s not like I can’t do asset management but invariably, there are only 24 hours in the day so I have to hire the right people. If somebody can’t even spend money on their company and reinvest back into their company, number 1) That is a big red flag. 2) What I tell people is, “There is no five-step guide to success but I invest in other people’s deals in real estate and outside as an LP, even in the markets where I’m invested in. If I like somebody and I know they’re good, I’ll invest in them.
What are the two things that I’m assessing typically people for? I’m assessing people for competence and character. The sense idea is if somebody is a great character, they’re honest and awesome but they’re a complete idiot, you don’t want to give your money to that person. Conversely, somebody’s world-class at what they do but they’re a Bernie Madoff type of person. They’re complete crooks. They’re a rip-off. You also don’t want to give it to that person but this assessment of competence and character is qualitative.
You don’t have an Excel model where you check and you’re done. This is the problem that many big allocators have. Companies like CalPERS, CalSTRS and Texas Insurance Retirement Plan. These people have the same problem when they are assessing companies like Blackstone, Apollo, KKR and all these firms. How do we know that you’re adding value? This isn’t something that a doctor has but people higher up don’t have. This is a perennial problem.
We’re making big moves. We’ve always talked about plans to move to the US.
We’ve been manifesting that for the last few years.
Our business is investing in the US so it makes sense to be living in the US. I’ve always felt more American than I did being a Canadian but we’re making that big move as the big news is coming down the pipe. We want to talk about the University of Toronto.
We touched on this a little bit the last time you were on our show and I love this topic but you were once Canadian. You’re still Canadian. You once lived here.
I once lived there, yes. I’m still a Canadian citizen. I go back on and off. I love Canada.
Let’s tell everybody, what made you pack up, shop and move to Texas? What are the main differences that you find between doing business in Canada and the US?
I didn’t move to the US for business. What happened is when I met my wife, we were engaged. She was doing a residency in Upstate New York. I was in Calgary at the time. We eventually had to decide, “When we get married, we eventually have to live together.” It was a tossup between her moving up to Canada so we could go Calgary, Toronto, Vancouver or wherever or me moving down to the US. I decided, “What’s the worst that could happen? I’ll move down to the US.” We decided, “We’re not moving anywhere forward. We’re not moving to Canada or the US. It has to be somewhere warm.”
Somewhere warm was Southern California, Phoenix or Texas. Florida is nice but it’s too hot. It’s a bit too much. Phoenix is nice but it’s in the middle of nowhere. It’s a nice city. I love going there but I wouldn’t want to stay there. Southern California is awesome but I’d have to be a billionaire to live there so the toss-up was Texas. In Texas, it’s all the stuff. It’s fast-growing, big business and economy. Texas’ economy is bigger than Canada’s economy.
I interviewed for a couple of jobs in Houston and Dallas. I know it’s going to piss off a lot of Houston people but I thought Houston was a ghetto. It’s a dump. When I came to Dallas, I was like, “I love the city. It’s pretty cool.” I wish I could tell you that I had a grand plan for business and this and that. It wasn’t. We were engaged and decided to move. What is the difference in business? There are way more opportunities here. People want to engage with you and do business with you. In that respect, it’s a night and day difference. I can’t even give you a comparison but it’s such a stark comparison. You know it when you see it.
What do you feel about the investor mindset of Canadians?
The American mindset is more equity-oriented. The American mindset is generally seen as more growth-oriented, which can be good or bad because growth-oriented also means growth at all costs but also can be bad. My point is if you want to do business, it’s much easier to do business in the US than in Canada.
Let’s get to the next segment of our show.
Here we go. Ten Championship Rounds to Financial Freedom. Omar, we’re going to ask you ten questions, and whatever comes top of mind. Let’s do this. Number one question, who was the most influential person in your life?
This might be a cliché answer but my parents.
Number two, what is the number one book you’d recommend?
It doesn’t have to be a real estate or finance book, any book.
That’s a tough one. I read a lot of books. I don’t think it’s influential but I read the biography of Edmond Safra. He was the Founder of Safra. I can’t pick one book. I’m a voracious reader.
Is there one book that has come to your mind in business or life that you go back to?
No, because I keep reading books and articles. What I’m trying to say is there are so many books that one doesn’t stand out. That’s what I want to say. I’m a voracious reader. I love reading. That’s why. I’m sorry, I wish I had a better answer.
No problem. That’s perfect. Next question, if you had the opportunity to travel back in time, what advice would you give your younger self?
Put all my money in rate caps and make 30X or 50X returns in 1 year.
Explain that. What do you mean by putting your money in rate caps? The rate cap is an option to invest in rate caps?
You can invest in any derivative product. You can do anything you want.
How do you go about doing it logistically? Whom do you call?
Can you trade derivatives on your brokerage account? A rate cap is a fancy way of saying that you’re betting on the movement of interest rates essentially on a no-show amount so you can buy it. I wish I knew the future and I had some balls to do it. I won’t even go too far back in time, just maybe two years. Take every single penny, max out all my credit cards, do everything and sell everything, put it all in interest rate derivatives, and make 1,500X returns in a few years. I’ve got to buy my own island.
I’m going to learn more about rate cap investing because I want to understand that a bit more.
I wouldn’t necessarily recommend it as a means of making money but you’re telling me to go back in the past so I know what’s happening.
We can do it together in the next cycle.
I don’t know about the next cycle. I don’t think I’m that ballsy but you said you had a time machine so I’m going back in time.
Next question, what’s the best investment you’ve ever made?
My marriage and my kids. Marriage is an investment. Sometimes it’s hard. I don’t know if you guys are married or not.
We are.
There you go. I’m sure it’s not easy every day but that’s the best investment of mine.
What’s the worst investment you’ve ever made? What lessons did you learn from it?
I bought C Drill which was an oil and gas offshore driller because their dividend was 7% or 8% in 2013. I thought it was such a hard shot. It was an over-leveraged piece of crap to the company. I didn’t lose a lot of money but that was the worst freaking investment I’ve ever done. Do not buy C Drill. That guy is a scoundrel.
Next question, Omar, how much would you need in the bank to retire now? What’s your number?
I don’t know what that number is. 1) I don’t think there is a number because I might have the fear of running out. 2) I quite enjoy what I do. I enjoy the money but I also enjoy the fact that I get to meet very interesting people. We’re talking. It wouldn’t have been possible if I wasn’t doing this. I’m having dinner with a guy out of California.
I get to meet such an interesting group of people that are doing such cool things otherwise in their life and different businesses and professionally that I wouldn’t have been able to do it if I was just working my job and all that stuff. The number part though, I’ve always thought about it because you need to know when to quit. You don’t want to be one of those guys who are in their 80s and still chasing the dollar. Maybe $100 million in real estate. Not in just assets cash but straight liquid cash.
If you could have dinner with someone dead or alive, to whom would it be?
Maybe my grandfather. He died fifteen years before I was born. I know that’s not a cool answer. I want to have dinner with Leonard Cohen. He’s a great singer. I would probably take my grandfather or Leonard Cohen in no particular order.
Grandfathers are a common answer in our show.
That makes a lot of sense to me.
Omar, you read a lot of books, so I’m excited to hear your response to this question. Book smarts or street smarts?
Street smarts hands down but if you’re doing the type of work that we’re doing, you need to have some level of book smarts. You can’t be uneducated. There are diminishing returns above a certain level of book smarts, not in living life but in making money.
To make money, not in living life, there is a diminishing return above a certain level of academic knowledge. Click To TweetLast question, if you had $1 million in cash and you had to make one investment now, what would it be?
S&P 500 index.
You broke our hearts.
He said this last time.
If I have $1 million, I’m not putting it in real estate. Are you kidding me? I’m not putting it in an illiquid asset. Anybody who does that got to get their head examined.
What’s the best way people can reach you, Omar? Also, talk about the conference as well. Quickly, how people can get it? Briefly touch on that.
You can join my mailing list by visiting my website, BoardwalkWealth.com. The form is right on the homepage. With regard to the conference, I’m very excited that you guys have graciously decided to come and speak. It’s April 26th to the 28th, 2023 in Vegas, Multifamily Wealth Project. Please use Ava and August’s discount code because that’s going to get you a lot of goodies. The point there for the conference is to connect people who are doing deals because a lot of conferences I’ve gone to are people who talk about doing deals but then they don’t follow up.
The big conferences are good for you to network when you’re starting. After that, you have to go to these conferences, which are 200, 300, or 400 people-level conferences like the ones we have. All of the people coming there are either operators or direct retailers. If you want to take your game to the next level, that’s what you need. You need people who are doing the business, not just talking about the business.
We appreciate it. Thanks for taking the time. It was exciting chatting with you again.
Thanks, Omar.
Thank you, guys. I appreciate it. Bye for now.
