The Art of Long-Term Wealth Building and Management

Your financial freedom is built on wealth that you effectively generate and multiply long-term. But how do you do this successfully regardless of the state of the economy and volatility, especially in the US?

In this fascinating episode of the Hidden Money Podcast, we talk with Omar Khan of Boardwalk Wealth. Omar’s seasoned business and financial savviness produces deep insights into financial decision-making, investment strategies, productive mindsets, and more.

In this episode, we discuss

• The fundamental role of private equity in wealth-building and its distinct advantages, including lower volatility and potential for substantial returns.
• Insights into the tax implications of private equity investments, underscoring the need for awareness of tax drag and the significant impact of tax-efficient strategies on long-term wealth growth.
• The impending tax bill and its potential effects on depreciation, highlighting the importance of staying informed and leveraging changes in tax laws for financial gain.
• The versatility of real estate investments, exploring how real estate can thrive in various economic conditions, from prosperous times to downturns, making it a crucial element in a diversified investment portfolio.
• Strategies for maximizing returns in private equity, including success stories where investors achieved impressive gains through careful planning, strategic refinancing, and leveraging tax-deferral opportunities.
• The concept of laddering exposure and maintaining liquidity as crucial elements in navigating market fluctuations and safeguarding investments when planned financial strategy does not work.
• The significance of constant diligence, proactive financial planning, and some healthy "paranoia" in protecting investments, with a focus on being prepared for unexpected challenges and downturns.
• Practical advice on structuring deals, managing balance sheets, and utilizing 1031 exchanges to compound gains and ensure tax efficiency in the long-term wealth-building journey.

To Learn More

You can visit Omar Khan’s website Home - Boardwalk Wealth and join his mailing list via the form Join Omar Khan's Mailing List | Boardwalk Wealth on the Home Page. You can also email him at [email protected] if you have any questions or want to explore his services more.

To access the bonus tax content mentioned in the episode, go to https://www.hiddenmoney.com/bonus

To start using the tax code as a tool to grow your wealth, schedule a call with Pine & Co. CPAs: https://www.pinecocpas.com/consultation

TRANSCRIPT

[00:00:00] 

Mike Pine: Welcome to today's Hidden Money podcast. Kevin and I are super excited to have our good friend, awesome client and sage investor, Omar Khan. Omar, thank you so much for being here.

Omar Khan: Thank you, guys. I'm really glad to be here, and thank you for hosting me.

Mike Pine: Omar, you do so many things. You're a syndicator in tons of multifamily housing, you're a developer, you've got a restaurant chain that you're starting up, and is growing quickly. So many other things. How did you get into this field? Give us just a quick few minutes summary of what made Omar who he is today, and how you got here.

Omar Khan: Well, I think it's a combination of personal, professional environmental reasons.

 I know lots of engineers, and a lot of times, people are physicians and you'll ask them, 'Okay, so, how'd you choose to become a physician or an engineer?'

--It's because somebody's mom was a physician, or somebody's dad was an engineer. So, I think, a lot of times, if you grow up in a certain environment, you are you're just a product of that environment, because you're used to a certain way of thinking, [00:01:00] talking, all of those sort of things, and without even realizing, you absorb those things, 

so, that's the environmental issue, or personal stuff. Professional was- I spent 10 + years in investment, banking, finance,

so, I had a really good set of experiences, but none of these would have actually worked out if I didn't move to the US, I think late 2015, early 2016. Great set of experiences, I had the personal desire to do something on my own based on my background, but again, the environment that I was in wasn't necessarily as conducive. 

So, when I moved to Texas, and I give this example to a lot of my friends, it's not like they give you a manual when you land and say, 'Okay, here's how to run a business.'

--But it's just that the environment here, for whatever reason, and I don't know why- it's everybody's a hustler. Everybody wants to do a deal. They want to figure a way out. And I see this now because I go to places like Georgia and Florida, which are great states to do business in- we've got properties and assets there- but that sense of [00:02:00] urgency that I felt, especially people in Dallas has, because I'm using this as a proxy for Texas,

there is just not that sense of urgency there. Like- 'Hey, let's do a deal. Let's try to figure something out.' --So again, personal and professional is one thing, but if you're not in the right environment, probably what's happened, or what series of events have occurred at the pace at which they have occurred, would not have been possible.

Kevin Schneider: Agreed. And I don't think my children are going to become accountants in the environment. It's just not as sexy as the profession that you're in, and what you get to do with opening up these franchises and syndications and real estate. Yeah. That's something you can get behind, telling my two daughters that accounting is pretty good.

Saving taxes is fun. That generation may not be there unless I can inspire them. It's somehow, miracle. But I love what you said there because from our vantage point, you could be as smart as a whip, and be a CPA, and know your tax law in and out, but if you live in central Texas and a small town with a population of 1000, your environment is strangling you [00:03:00] because your client base isn't there, and there's so much talent out there, and people listening could be in those situations where they have the talent, they have the knowledge, they have the drive, but that environment does play a part.

That's a good outlook, Omar.

Omar Khan: I think it's a big part, because intelligence, I feel, above a certain level, is highly overrated. A lot of other factors then have to step into place because the world's a big place, and there's lots of intelligent people out there.

Kevin Schneider: Yeah, where I also see pitfalls though, is blaming the environment too. That

could be a negative aspect of it. It's like- I'm doing everything right, but the, politics... and this is happening to me... and people.. Some people just don't take ownership of their financial future, their investments, and they blame their environment.

That is a problem. But what we're saying is if you're doing everything right, and you're just not in the right spot, that is way different than being a victim and blaming your environment.

Omar Khan: I lived in Pakistan. Luckily for me, my family was reasonably affluent, so obviously, I didn't have to go through all the trials and tribulations a lot of [00:04:00] other people might have to go through. But again, the fact of the matter is that the options you have in the US as an example, you just don't have those options anywhere else in terms of moving. Think about it this way. Even in Canada- Canada is a first world country. Great place to live. Great place to raise your kids. Really, if you're in finance and you're English speaking, it's really Toronto, then Calgary, maybe Vancouver.

But again, by the time you get to Vancouver, it is so highly niched. And Calgary is great- I lived in Calgary. I lived in Toronto as well. Calgary is a lot more entrepreneurial and Toronto is like the big kahuna, but that's it. So, if you want to go anywhere else, you don't got those options. In the US, forget about the coasts- in the Midwest alone you have so many cities you can go to. Even in Texas alone you've got four cities. You've got Dallas, Houston, Austin, San Antonio. These, in them of themselves, are economic powerhouses. 

 [00:05:00] So, you got options- if you choose to not choose those options, that's on you.

Mike Pine: I agree. I don't want to make this a patriotic show about the United States, but I happen to be a patriot for the United States. I absolutely love what you've drawn out here. America- based on a lot of things- there's a whole lot of variables here- but America is the greatest place to try to start a business.

It's the greatest place to try to grow your employee base. It's the greatest place to be innovative, and taxation plays a big role in that. We've seen- when you look at the stages, the kind of waves of innovation where bubbles go up, bubbles go down- taxes, regulations play a huge role in that, and there's even different geographical issues with regulations here in America, and we're seeing a lot of companies pour out of some states that have been big

business states for many, many years, but the regulation's starting to strangle people. And this [00:06:00] is why I think, Kevin, we need to have another talk with your daughters, because I think they should be inspired to want to be in the tax realm, be CPAs. By understanding these regulations, we can help entrepreneurs

break out of the mold when the regulations are strangling them- there's almost always a way around it. When taxes are killing you and preventing you from hiring more people, there's probably good incentives in the tax code to help you get there, and we get to do that. So Kevin, let's talk to your daughters this weekend. They should want to be CPAs.

Kevin Schneider: We're learning our multiplication facts right now, so baby steps, but yeah, I agree.

Omar Khan: And I just want to point to that again. 

This is not a pro-US rant here. It's just that again in a lot of countries you have superseding federal laws that don't allow for this level of tax flexibility that you'll have in the US. So, as an example, let's put it this way- if Texas, for whatever reason, loses its pro-business tax advantages, there are many [00:07:00] other states willing to pick up the slack.

And by the way, when you move there, they have very specific laws that encourage certain behavior. 

So even, for instance, if you're a Texas-based entrepreneur, you are not stuck here. You have the luxury and flexibility of moving to other states, if you so desire. That luxury and flexibility is not available in most countries, where you have overarching tax scores that even if you move states or provinces, it's not really going to change anything.

Mike Pine: Right. That's why our Republic, it offers a bunch of different, separate laboratories to be able to figure out what's right, what's wrong. Social policies are very important, business policies are very important, environmental policies are very important, but you have to find a balance, and by having all these different states trying to do their best to focus on what's important,

we're able to see what balances work and what balances don't. As long as you're willing to pivot, when you realize maybe some of the things you as a state decided were a great idea, aren't working out so well. So, you should pivot and try to change the way you've been going a different direction.

So, I agree. We are pro-America, [00:08:00] but we're pro-world too. Part of being an entrepreneur is finding resources that you can apply or invest in other areas to grow the economy, to grow business, to grow jobs. That's why we have you on here today with Hidden Money.

There's hidden money in all kinds of investments. We all need to build a financial freedom. If we want to make a difference in the economy, if we want to do big things, we've got to grow our businesses, and to do that, we've got to find the hidden money in so many different areas and grow financial freedom. So, let's go down that track.

Let's talk about private equity, your field, your area that you're in. What avenue does private equity offer to people who are trying to grow their financial freedom? 

Omar Khan: Multiple studies have been put out showing that, typically, because private equity is not on the daily pricing roller coaster of the public markets, they can be a very good complement to your portfolio, because oftentimes, they are [00:09:00] stepping into situations where- it's not like the underlying businesses at fault, or the concept of the business is an issue- the execution is not working.

 So, for these types of businesses, for these types of opportunities, where earlier, if you have, say, a manufacturing business in Central Texas, 40 years ago- it's a great business- let's assume it's a $20-30 million dollar business, so it's not like the entire state of Texas depends on this, but it's a great engine of economic driver, right for your local areas, employs a lot of people, provides a lot of sustenance to people. Well, that couldn't have been sold earlier because there's just frankly no other buyer. So now, slowly it will decay and wither away 

Now, with private equity, what you're seeing is a fresh batch of eyes, professional managers, professional investors will come in. They will take that to the next step. They will pass that baton on to the next group of people, and the idea is continuous refinement and improvement.

How do you know in 20 years who's going to buy your business?

There is no way for you [00:10:00] to know, and maybe your kids are really smart and intelligent, and they just don't want to take over your business. They have other interests in life. So, for you as a business owner to monetize your biggest asset, which is, typically, your business, that's where private equity individuals step in. You get a good deal,

they have a running business, oftentimes, and it's a win-win situation. And by the way, I haven't even talked about the virtuous cycle you have because the business doesn't die and wither away. You pay more taxes, you employ more people, your communities are enriched because of all of the positive effects that happen with continuous employment.

 All of those virtues aside, this provides a good way for your businesses to constantly grow. A business that doesn't constantly grow is going to die, and private equity will kill it very quickly.

Kevin Schneider: We're seeing a step-in private equity in all sectors. It's not just real estate. They're getting in finance, they're getting in accounting, they'll scoop up any business that is ready and primed, or even almost on the cusp [00:11:00] of breaking through, and then private equity can come in and multiply that so long as the PE people are

trained, and then they have a plan in place, where a lot of us small business people don't have plans. Now, fortunately, Mike and I realized that running a CPA shop requires a lot more planning than you would normally think. Normally, we just head down, do taxes, but a lot of business owners get stuck in that mindset where they're doing the work.

They're on the battlefield with the troops doing everything, and the business isn't being worked on. And so, from your vantage point, when you're looking at companies or anything that you're looking to enhance, do you see a lot of those issues with maybe small businesses that you run into where they just need some help planning, and they need a path set before them, and get out of the day to day?

Omar Khan: I'll use the example of real estate because that's where the bulk of our business is, but we looked at other businesses as well. 

 The same fundamentals and principles [00:12:00] that we're looking at on acquisitions, we're looking at in developments, are the same fundamentals and principles you're going to be applying when you're looking at small businesses. Obviously, execution will differ. This fundamental principle, when we're looking at an ongoing existing acquisition, is- Is there a level of mismanagement?

--Is there a balance sheet issue, as an example? Balance sheet issues are such like- let's assume these days, you have a loan that is not a good match for that property, as an example. Nothing wrong with the property, but you know the property card, as an example- just spit off cash out of thin air. So, you have to match your financing sources with the type of assets you have.

Then, when you're actually doing the management of these assets, how good and aggressive is your management? Are you providing a good community for people to live in? But in exchange, are you collecting on your bills on time? So, we see this a lot with owners and people that we're buying from, that either have a lot of money but don't have good management, or have good management, by the way, and have no money.

So, [00:13:00] what typically happens is if you have- I'll use the second example first- if you have great management, but no money, you are basically becoming, in effect, over a period of time, a slumlord, because you cannot improve your property, you cannot improve the environment, and all you're doing getting better and better at is collecting your checks and cutting your expenses, but you can't save your way to prosperity.

So, you're on a gradual decline to nothingness. On the flip side, you've got a lot of money, but you've got no management. What does that mean? You are basically building the Taj Mahal where you shouldn't be doing any of that stuff. You're spending say on renovations, 2.. 3.. 4x more than what is needed.

 And then, you've got no management- you're moving all of these people in into your fancy apartments, and what not, but you're not collecting on the fees. Anytime somebody has a sob story, you don't collect. Your bad debt is very much. Now, what basically happens- your bad debt is very much, you're not collecting, you can't pay your lender- you're in a bit of trouble.

So both of these cases, mismanagement, lack of capital, other issues. [00:14:00] People like us step in who have both systems principles and processes in place, as well as the capital in place to bring the asset to its best and highest usage.

Mike Pine: So, what type of person who's not invested in private equity before, who should be interested? Who should start looking into this? And why does private equity make sense for certain people and not others?

Omar Khan: First of all, I believe that you need to have a good financial plan in place. For us, as an example, we can only take money from accredited investors or qualified investors. There's definitions you can look up online. Mike and Kevin will be happy to help you. So, you need to be making a certain amount of income and/or have a certain amount of net worth.

Now, I am off the camp because I was in portfolio management as well. People who don't have, at least, a million, $2 million- they shouldn't even be looking at private equity. I know. It hurts my business in the short term to say this, but you need to have a certain pool of liquidity because if you just have a million, $1.5 million, the problem there is- [00:15:00] it probably means you are relying on your job as your source of income, which means, God forbid if you lose your job, the bills aren't going to pay themselves. So, you need to have some level of firepower, or some financial backing in the past, just to make sure that the 3.. 6.. 9 months that, God forbid, you might encounter, your whole financial life doesn't unravel. Once you pass that threshold, or you have enough liquidity, or for instance, you're in a highly stable career-

think- lots of doctors, if both couple are doctors- you can afford to take a certain higher level of risk that a person with a slightly more volatile job, who might be making more money-

think- a salesperson that's in a very cyclical industry- they might not have that luxury because, yeah, they might be making more money, but they're in a very highly cyclical industry where the good years are really good, but the bad years... you can't catch a break to save your life. So, have a little bit of financial firepower, and then you start playing these games where you're managing your tax exposures.

You're going [00:16:00] for these big hits because the one thing that I always found funny was- because I'm a CFA charter holder- they're the gold standard in portfolio and risk management- 

every single time in that curriculum, and when you talk to people, they talk about wealth management, but then, the question nobody ever asks is- 'Well, you need to have wealth to manage it! If you don't have wealth, how are you going to manage it?'

--People are so concerned about managing the wealth they don't have, that you, kind of, skip the first couple of steps which is the creation of the wealth. So, focus on the creation of the wealth part first, then take the next step. Don't go to step 100 and be like- 'Alright, don't worry, I got the first 1 to 99. Don't worry about that.'

--No, no, no. Those are also important steps.

Mike Pine: Yeah, very much so. 

And another thing- private equity just is not as liquid as regular stock markets.

Because it's not that liquid, it doesn't have as much ups and downs. 

Omar Khan: 

Mike Pine: It doesn't have the same volatility, but if you need your money back, you can't just call your broker and say, 'Hey, go sell this.' --I mean, in emergencies you can sell it at a huge [00:17:00] discount sometimes, but that's not a good investment strategy at all.

But if you can let it ride, then you can start to grow your wealth and snowball it. One other aspect I want to bring up- most private equity in the tax world is taxed as partnerships. Partnerships mean- if you're an investor in a partnership versus someone who goes and buys a stock or mutual fund- if you're an investor in a partnership, you are an owner of that business.

You get to share in that business and in the tax characteristics. You get the income from it. You get the deductions from it. You don't get that with any type of equity or bonds or most regular investments. That's a big deal because when you consider trying to grow and snowball your wealth growth, if you can save money early in the year, some taxes, and allow that to continue to grow and play it forward, in 10 years, you can have 10 X the portfolio that you would, if you're just paying tax on a regular annual dividend that comes out of a stock. So, just wanted to throw in that tax tidbit. Private equity is beautiful.

Omar Khan: The tax drag part- [00:18:00] it's called the tax drag because it's a drag on your returns. The tax drag part is real. And I think, when you say to people... because I have encountered multiple examples of this in my own life... when you tell it to people, they'll nod their head and say, 'Yeah, I got it.

I got it.' --But till they don't do the simple arithmetic exercise themselves... let's assume I make $100. I pay 30% in taxes, and I reinvest the rest. How does that look over, say, a 10.. 20 year period versus I get my $100 and it's a tax deferred, and I let it grow for 10 years, and then I pay taxes? What's the difference there?

Just a simple arithmetic example. I think, people, when they just do it for the first time, that's when their eyes open. It's like compound interest, Everybody says they get it but we still naturally tend to think in linear terms- 1.. 2.. 3.. 4, and these things don't grow in linear terms.

They go exponential. They go 1.. 2.. 3.. 45! That's literally how it just explodes. So, run this little arithmetic [00:19:00] exercise yourself because it's like the thing you have to see it to believe it, so revealed. Run that exercise and you'll realize how much money you're leaving on the table.

Kevin Schneider: Yeah, and with the new tax bill, as of this recording, it's all pending, but I would imagine you're going to see a spike in people interested in getting with you, Omar, because this is a huge tax bill that's coming through that's going to re-up depreciation, which just means it's going to up it to 100%.

Whereas in 2024, if you bought that same asset, you're getting it 60% write-off on all your 15 year qualified improvement property down. This is going to get you 40% more tax deduction on all your qualified improvement property. So, in this scenario that Omar laid out, if you have $100 under current tax law, you might still pay tax on $20.. Or $15.

If this tax bill goes through, you're paying tax on 5- $5 of that, you can reinvest more money because of these tax savings, so it's a tremendous multiplier of wealth, tremendous multiplier. And Mike and I, that's why we love [00:20:00] what we do is because we do think you should pay your fair share of tax.

 Not a cent more! No. We know the tax law. We know where to push and pull, and if the tax law allows for it, do it because you're going to only stimulate the economy. You're only going to improve your family, your own wealth, your security.

Don't rely on the government and social security. Rely on yourself and your strategies.

Omar Khan: By the way just to that point, you're not doing anything illegal if it's the law. If the government is literally telling you don't give me money, now, if you don't happen to listen that's on you. Think about it this way- would you go to any store,

 you pick up something, and they say it's $100. You don't say, 'No, here's $150. Take it right now!' --You don't do that. If it's $100, you're like, you're trying to find a deal. Maybe you pay $100, or you try to find a deal. You don't say, 'Hey, take more of my money.'

-- What kind of person does that?

Mike Pine: And the reason that the incentives are there in the tax code, the reason that this bill is even [00:21:00] being brought up again to reestablish full bonus depreciation- it's been renewed six times since 9/11- the only reason is because our government knows by people saving those taxes to redeploy it back into the economy, it grows the heck out of our economy.

They might not admit it publicly, a lot of the politicians on the TV, but they know it, and they're trying to push this through because they want to get re-elected, and it's hard to get re-elected if the economy is going down the drain. It's easier if it's going up. That's why they're doing it. It is your patriotic duty.

The government understands they can't grow our economy. They need us to do it. And that is our duty to do it. So, by not paying those taxes, we are following our patriotic duty. We're doing what the government needs us to do, what our fellow citizens need us to do to grow the economy. You take that money.

Don't flush it down the toilet at the treasury department. Pour it back into business. Grow the economy. Everyone's happy. It's a win-win.

Omar Khan: Even if you [00:22:00] don't save or invest it, let's assume you go down to your local restaurant, bar, you spend that money. Well, somebody's making that income, right? 

I mean, somebody's providing a service. You tip the server. You bought food or drinks at this bar or restaurant. My point is any usage of that money is eventually going to make its way back into the economy.

And anytime you put it back into the economy, there's a money multiplier effect. It's not like you put a dollar and the economy suffers as a result. You put a dollar, that person takes that dollar- and we're using small examples there- that person takes that dollar, goes to go pay for their food and services.

The food and services vendor takes that, goes and pays their other vendor. So, this now dollar makes its way multiple.. nine or ten times across the economy. So, that each $1 has a nine or ten times effect across the wider economy. It's not just your $1.

Mike Pine: That is a beautiful illustration and absolutely true. But if you take that dollar in the beginning before spending it at a [00:23:00] restaurant, and send it to the IRS or the treasury department, it doesn't continue to get used in the economy. Perfect illustration.

Beautiful, Omar. Thank you.

Kevin Schneider: So, we're talking about the power of private equity and the good that private equity brings, but it's, like Kevin said earlier, in so many different areas and industries. This is also at a time in the early parts of 2024, where a lot of people in the country said the real estate has had its heyday.

Mike Pine: It can't go up from here. It's already gone up too much. Interest rates are high. It's depressed some prices recently. Why would it be important to invest at least some of your portfolio into real estate?

Omar Khan: First of all, what's that saying? 'We've heard this all before.' '--As an example, Mike and Kevin know this, I'm of the opinion that unlike a lot of real estate people who think this is their only business in the entire world you should ever invest in, and no other business should ever be invested in, I've always been up-front and told people, 'Look, [00:24:00] this is one of many businesses you should be investing in.

You should never have all your eggs in one basket.' -- 

So, if you have, say, a hundred dollars, you should not give me all of your hundred dollars. You would be asinine to give me all of your hundred dollars. It makes no sense. I would not recommend you do this. You allocate a portion to real estate. You allocate a portion to public securities. 

Look, everybody keeps talking about the stock market casino. There is no casino. Just buy the S&P 500 index.

Shut up. Go to sleep. Wake up in 30 years. You'll be a rich person. This requires zero effort from your part- literally zero effort. I think it is nothing that is more of a guaranteed way of generating returns. So, allocate portions, and by the way, this concept of- We will never get back to this stage. This thing is never going back.

--We have all heard this before. This story happens at the end of every cycle. This is a cycle guys. This is a business. You'll have good deals, you'll have bad deals.

You'll have good times in the cycle, you'll have bad times in the cycle. And somehow, a lot of the amateur investors- sophisticated investors don't have [00:25:00] this- amateur investors have this idea in their head that they have this magic ability to predict when is the right time. Guys, people like Warren Buffett and Ray Dalio don't have this ability.

So, if you're some engineer, or you're a doctor in your suburban home in Plano or Frisco, I'm sorry to break it to you, but you don't have this magic power. The magic power is to work with thoughtful, conservative people across the business cycle. Allocate, don't put all your eggs in one basket. Allocate it to multiple businesses.

It's a bit like, at the start of every year, everybody swears that they're going to eat right and go to the gym. And if you want to get back in shape, you want to eat right, you don't just go to the gym once

and be like, 'All right, i'm done. I'm healthy. I don't need to go to the gym anymore.' --And you eat one Tuna wrap, or something, and you're done for the year. No, this is a constant journey every day. You have to show up. You make money, invest a portion of it, [00:26:00] allocate it across multiple businesses, wait for the right time. It's so sad.

 It's tragedy, but it's comic that I see so many people- as soon as they saved up money, you say, 'Go invest in some deal.' --They have this burning desire to go just invest it in any dumb, stupid deal that comes across their desk. 

Look, if you saved up money, this is a sum of your blood, sweat, and tears.

Save it up. Be thoughtful, wait for the right opportunity, and then invest. If you don't have money burning a hole in your pocket because it takes you a year, or two years, to save this money, it'll take you three months to lose all of it. So, be thoughtful, take time out, be patient, realize it's a long term game.

And this is not a thing where you have this ability to predict when the economy is going to be up or down. You have to take the long term approach. You have to dollar cost average. Work with the right, thoughtful people. Don't go work with flashy people because flashy people made flashy endings.

Mike Pine: Great. 

Very good. [00:27:00] Just back to why is real estate a good choice? Not the only choice, but a good choice. Can real estate do well in a down economy?

Omar Khan: Oh yes.

Mike Pine: Can it do well in an up economy?

Omar Khan: Oh yeah, I mean, anything can do well in an up economy.

Mike Pine: In a stagnant economy. Can it do well?

Omar Khan: Yeah, look, in a stagnant economy, you can continue clipping a coupon. In a bad economy, if your balance sheet and your deal is correct, you can continue clipping that coupon. Maybe it goes down a little bit, but you have safety and consistency in return. And in an up economy, not only do you get the yield, because rising grants, rising yields, you also have the ability to sell something at a far higher price than you would otherwise.

So then, you also get that big capital, potential capital gains event, which, by the way, you can totally forego those capital gains if you decide to 1031. Mike and Kevin can tell you, we recently sold a deal at Equinox at night in Atlanta. Investors made 2x their money in 47 months. [00:28:00] Consistent distributions, multiple refinances, and by the way, the refinances were not a taxable event.

That money went to investors, they didn't pay a dime in taxes. And by the way, when we saw this transaction, Mike and Kevin know about this, we were then able to 1031 those funds, and the investors were able to defer paying their capital gains tax. So now, all the money these investors made, they took this entire chunk, put it into the next deal, and now, they're going to let that multiplicative money work for them long term.

And, by the way, when they put their money into the new deal, they get a fresh set of tax write-offs. 

Mike Pine: Uh-huh. 

Omar Khan: So now, you're basically double dipping, and this is a strategy the vast majority of rich families in America have used for the past 100 years, at least, that you keep being conservative, you don't just anytime you get a gain... you just don't take it and go buy a car, or get a bigger house, or go take a vacation. No, [00:29:00] you take all of this money.

You're tax efficient. You 1031 it, get a bigger asset, bigger property, and let that money work for you slowly over a period of time. When you get done with that, don't go blow your money on stupid things again. Take that money, diligently reinvest it, 1031 it again, and so on and so forth. So, in 10.. 20 years when you look back, your small amount of money has multiplied many-fold, and now, it can take care of your retirement, it can pay for your kids weddings, education, all of that sort of stuff.

But it requires careful, thoughtful planning. It requires us to not watch TV and be like the Kardashians. It requires us to stay under the radar, get good counsel from people like Mike and Kevin, work with thoughtful operators like Boardwalk Wealth, but the idea there is- Got to take the long term approach.

You're not going to get rich overnight, it's not going to happen. This stuff only happens in movies.

Kevin Schneider: So, what's your strategy when rates are going up, and you can't do the ReFi strategy anymore? Are you [00:30:00] having to pivot your business model? I mean, because the market can change your world really quick, and just like tax law changes our world overnight. It also affects you too. 

But how do you handle and structure deals and look at deals when the rates are going up, and those strategies may not cash flow, or may not make sense anymore?

Omar Khan: Well, first of all, it is to always have ample stores of liquidity. So, in good times, I got a lot of flack from my partners from having more liquidity on our books. And again, you have to realize, as a manager of funds, the more money we raise, all things being equal, the lower the returns we will have,

because it's a simple fraction. 

So, the fact is, finance theory will tell you that the more cash you have, it's a drag on returns. Don't do it. You should always be max-levered, because on a spreadsheet, the spreadsheet just assumes things are linear, and the real world isn't linear. So, we always have had ample stores of liquidity that have helped us to buffet some of the negative stuff that [00:31:00] happens along the way- No. 1.

No. 2- we are always cognizant of the fact that on our own balance sheets, apart from the company balance sheets, we keep ample stores of liquidity, as well. So, it's a buffer plus another buffer. Then we have intentionally, for instance, laddered our exposure. So, both on rate caps, which are insurance vehicles, as well as loan expiry.

So, this year, we have no loans expiring. That's a big help because if a lot of loans were expiring this year, we'd be in a heap of trouble. Now part of this is intelligence, part of this is good luck. You can call it what it is, but we intentionally laddered. The exposure that we did have, we already refinanced or sold those assets. So, part of this is proactive financial planning, part of this is taking steps right at the start having ample liquidity, setting a buffer, and the last part of this is- I think there's even a book about this... Andy Gove-

I think he was the Intel president, or something, back in the day. He has a great book called Only the Paranoid Survive. 

So, there [00:32:00] is a level of, you can call it paranoia, that you need to have because you could do all the right things for 10 years, and then, in the 11th year, everything's wiped away. So, you always need to be very diligent and vigilant because bad things can happen. So, constant vigilance, constant diligence is the third criteria. 

Kevin Schneider: Good words. Good words. Well, Omar, how can people find you, and how does your process work if some of our listeners are just wanting to get more information on you, the assets that you have, the assets that you're going to be getting? How do they get a-hold of you and your team, and what are next steps for people?

Omar Khan: Well, I have a pretty public profile, but you can join our mailing list by visiting my website www.boardwalkwealth.com I think the link will be in the show notes. The form is right on the Home Page. Again, that's at www.boardwalkwealth.com. You can also reach me, Omar- [email protected], and I believe we can put [00:33:00] these two things in the show notes.

Mike Pine: Absolutely!

Wow. Thank you so much, Omar. 

Disclaimer: The content of this podcast is not legal advice and is meant for educational purposes only.