REIA 256 Vikram Raya: How to take advantage of the economic winter.

Welcome to Real Estate Investing Abundance, the show for busy, fulfilled professionals like you to learn how to develop financial independence built on solid passive real estate investments. Now here is your host, Dr. Allen Lomax.

Hello, enlightened investors. Welcome back to the show. Delighted to be with you once again. Today we're going to take a look at how to take advantage Of the economic winter. With us is Vic Raya, who is a trained cardiologist and functional medicine physician. He's an international speaker, high-performance coach, and avid real estate investor. He's been active in multifamily real estate since 2015 and is the founding partner and CEO of Viking Capital Investments. As a real estate private equity firm, Viking Capital is approaching 4,300 units and $600 million in assets acquired. Vic has raised over $100 million in private equity from high-net-worth individuals, doctors, and other professionals around the country who want to achieve true wealth and diversify their income. Vic was elected into the Forbes Business Council And was commemorated by U.S. Congressman Tim Connolly and Don Beyer into Congressional Record for Excellence in Entrepreneurship. He recently gave a keynote lecture at the CNN headquarters with Dr. Oz. He is the recipient of the prestigious Outstanding 50 Asian Americans in Business Award on Wall Street. So, Vic, Take us into the show and share an experience that helped you to be who you are today.

Thanks, Allen. Appreciate the kind intro. What I found that was super formative was when I was growing up, the number one source of pain and discord in my family was for my parents to fight over money. And my dad was an engineer, my mom worked in some retail jobs, so we were middle class, but It's always about, oh, can we afford this? Can we do this? Oh, I don't know. Are you being too frivolous with money? And money was just this painful topic. And my younger brother, he was sort of oblivious to it all. But for me, it really pained me to see everyone fighting over this. And I was like, I got to figure this out. I mean, I wanted nice things because I saw my friends have nice things. And I was like, I felt guilty wanting that because I know we couldn't get it. Over the years, subconsciously, that has driven me to be focused on creating financial wealth, freedom, and abundance. And I was interested in becoming a physician. One, I was the first one in the family on our side, so that was really keen as an experience. But really, I had so many people in my family have heart attacks that I was like, all right, I need to study this. And so I ended up becoming a cardiologist and helping my family out. But What I realized was the end goal that I was looking for, which was essentially living life on my terms and ultimate freedom, did not end up with just the W-2. I found that controlling your own destiny would require additional knowledge and skills. And so whether you're a passive investor or an active investor, if you just relegate yourself to just being in your own profession, then you're putting yourself at risk. And if you want to de-risk your life, you need to figure out how to use labor, leverage, interest rates, specialized knowledge, and this will help unlock a whole new level of wealth, freedom, and happiness, I think, in most people.

Vic, it's interesting how some of the most painful experiences of our life end up being some of our greatest motivators. Not pleasant to have them, but oftentimes we can look back on those times and go, You know, those really were helpful and formative. Vic, tell us what is going on in this crazy climate and uncertain times now.

Alan, I know a lot of your enlightened listeners out there are, you know, they're concerned. Maybe they're not bringing enough income home from their jobs, or maybe they're investing, but the investment didn't turn out exactly as they planned, or nothing has really happened yet. So the ecosystem of uncertainty that we're all being a part of is starting to cause concern and angst in the population. And people are worried that, is this another 2008? And I'm right there with them. I totally understand where they're coming from because those are a lot of the thoughts that myself or some of the investors that I work with all over the country are having. But when I start looking at the economic data, it gives me pause and reflection of this actually is a good thing. And I'll tell you why I say that. The market was overheated. I mean, whether no matter what asset class you're looking at, literally you had to pay and then overpay and then pay more to win those deals. There's only so much you can do that at some point before the values exceed the true nature of the asset. Next, the excess liquidity in the system has to be regulated. And I know why the Fed did it. I mean, we were in a pandemic crisis, an economic recession, and so they delayed that By pumping in liquidity. But at some point we have to go through a period of like healing, reset, financial housekeeping, if you will. And that's what's going on now. So if the interest rates are not raised, then inflation will be a much bigger problem globally. And I was traveling with my family for a month in Italy, and I just came back, Alan, a couple days ago. And on my travels, I noticed that For the first time in over 20 years, the US dollar and the euro are at parity. And that gave me wonder. I'm like, man, why is that? And then I was starting to dig into it more. And it's interesting, regardless of how people think of the US, the way US is handling things is apparently better than most of what the whole country is. And so there is a $10 trillion tsunami of wealth being poured into the US as a flight to safety. As a safe haven. So what that tells me is regardless of what's going on, number one, the middle class has money because they've saved it during the pandemic. Number 2, there's a significant amount of pent-up demand regardless of what's going on economically. Traveling is going crazy all over the world right now. Number 3, this foreign equity and capital is looking for yield. And right now the only place there is yield is in the US. So that being said, I think this correction recession slowdown we're going to have is more going to be like the 2000 bubble crash or recession versus the 2008. And it'll be a short-lived necessary recalibration of our economy. And for the investors of the Steed Talker Capital or investors of Viking Capital, my company, if you're wise and smart, this is the time to take advantage of this economic winter Well, Vic, that sounds very hopeful, and I can certainly follow you on those indicators that are out there.

I always just kind of still shake my head and wonder how it is that all of this can keep going as it's going. And as, I mean, all indications are that we are in recession, 2 quarters of decline is kind of the— it's not the only indicator of recession, but it has indicated most recessions over the last, what, 30, 40 years. So by that account, we are in a recession. And yet in many respects, in many ways, it doesn't seem like it. The National Association of Realtors put out their report 2 or 3 days ago. June housing prices had increased over last year. Houses are staying on the market an average of 15 days. So even though there are indications of recession, the housing market seems to be charging along without any particular slowdown, even with all of these high interest rates. And yet there are all these uncertainties. The sanctions on Russia are not working out like intended. They seem to be helping Russia rather than hurting. And yet Europe is hurting tremendously because of those sanctions. And yet there's no indication that we're going to let up on those sanctions, even though it's hurting the West more than it's hurting Russia. Like you say, though, there are trillions of dollars still flowing into the US. And It may just be a slowdown that provides opportunity. Well, what are enlightened investors doing right now in these uncertain times?

I think one, they're getting educated. They're reading a lot, they're understanding, they're trying to figure out how things are interconnected, whether it's the real estate market, the housing market, commercial real estate, the economy, jobs, housing, right? It's the education then opens up opportunities By finding partners. If they're an active investor, then hopefully they're taking advantage of their local market and just understanding a specific asset class and really going after that and really mastering that. But if they're interested in passive investing, then it's really saying, hey, look, where have I invested? Have I invested in the stock market? Great. How has that treated me? Well, I've done great for some quarters and now I'm getting killed. Okay. This up and down, is that the volatility? Is that the kind of investment I like? Is there another way to get similar returns without the volatility? Okay. Have I looked into alternatives? REITs, multifamily syndications, mobile home parks, self-storage. What are the options there?

Crypto.

Did I invest in crypto?

Wow.

Was that really speculative or was that based on science and some kind of underlying fundamentals? And so it's education, it's introspection, and it's reassessment and pivoting toward a better rubric and metric of where they want to take their financial life. That's what the intelligent investor, the enlightened investor is doing during this economic winter. Most Fortune 500 companies really got founded in winter, in economic recession. People make more money in recessions than in expansions. Expansions are usually multi-year long, sometimes almost decades long. Contractions are usually months to a year long at most. So these opportunities, if you have cash or if you have access to capital, This is the time to go in. And I'm seeing deals falling out of contract. I'm seeing people having their, they have variable debt and then they have to give the, they can't make the payments, they have to give it back. There's short sales going on. That being said, I chose multifamily as an asset class where I've specialized in. I've spent almost 10 years of my life mastering multifamily, and it is one of the most resilient, stable asset classes out there. And last year it had a record-breaking year. Almost 40% of all commercial real estate transactions were in multifamily. Normally that's office that takes the king. So that being said, we're probably not going to get any steep discounts in multifamily, but I'm looking for the 5 to 10% discounts I'm going to get, and I'm looking to put my investors in these positions and really take advantage of this opportunity. So instead of paying 10% over asking, I'm getting to probably get involved in by paying 10% under asking. And so this is the opportunistic thought process you want to have during these cycles.

Well, what I hear you saying, Vic, is that downturns are always short-lived, months maybe to a year or so. And so you need to be positioned and ready to move on these as these contractions come into play. You did mention, Vic, that deals are falling out of contract. Where are you seeing that and why is it that they're falling out of contract?

The reason why deals are falling out of contract is they were initially probably under contract from sort of that 60 days ago, even 90 days ago when debt was much more readily available. Now that essentially the debt market has changed, and this is intentional by the Federal Reserve as they're trying to slow down the economy, that's their goal is to create a soft landing and they may be able to achieve it. And not in the sense that it's not going to be a recession. They thought they can do it without it having a recession, but I think a recession is not only necessary, But it is happening based on, I don't know what the, we assume the second, this last quarter is also negative as well. So this mild slowdown of 2 quarters of negative growth is actually a healthy thing for the economy and for the country and the world. So what's happening is this is because of the debt. So interest rates are increased by what the Fed is doing. And so the leverage is not there that would make a lot of these deals work. And so now they've promised the seller one thing, but then when the debt is coming around, they're The numbers are going to not make sense. So some of them are walking away from the earnest money. Some are trying to fight and get the earnest money back. Some are asking for extensions. Some are doing something we call retrading, which is essentially saying, hey, let me change the terms of the deal. I can't do what I originally promised. And normally that's a no-no, but in this market, people are saying, the seller's knowing, hey, look, I got a sweet deal. Even if I have to give back a little bit of it, I'd rather take it now because Moving forward, I may not be able to get this price again. So there's a lot more flexibility and leeway. At some point, things will get repriced and then things will go back to normal again. But in this transition time, people can pick up opportunities. Right now, these sellers still think they can get certain pricing in some markets, but in a lot of other markets, they've come to terms that, hey, that golden age of multifamily may have been a couple of months ago. Now there's a little bit of a moderate mitigated or moderated pricing.

And so all of that change brings about fear and consternation because we don't know where it's going. It could go further down, or maybe it'll be a short recession and things will be back to normal within just a few months. Vic, tell our viewers and listeners what you have to offer and how it is they can get in touch with you to take advantage of that.

So one of the things we believe in is capital preservation. That's huge for us. A lot of our investors are high net worth individuals or high income individuals, and they worked really hard for their income, and we honor that and we want to protect their income. And so capital preservation is paramount. Number 2, we also believe in tax efficiency. And number 3 is obviously we want deals that cash flow because that's important. Cash flow is more bankable than appreciation. So we believe in cash flow. And then finally, it's nice to also have a nice pop when you exit. So these 4 core principles are what we look for in deals. And so What we've done is we created something called the Viking Capital Wealth Fund, and we have 3 deals located over 3 different geographies, 3 different asset types, all in multifamily. And this has provided amazing amount of diversification. It's going to have a lot of pop because we've chosen these awesome markets in the Sunbelt. One is in San Antonio, second is in Houston, and the third one's in Atlanta. These are great markets, a lot of upside. We do something called value-add investing where we find an asset that has something that we can improve, whether it's exteriors, interiors, amenities, operational upside, rebranding the asset, whatever that is. And along with that forced appreciation we create, there's organic appreciation because we're buying in these key markets that have double-digit growth. And pairing these 2 together allows us to achieve these really powerful returns for our investors. We've been averaging, after we've had 9 full-cycle dispositions over the last 8 years, And we've averaged 24.8% annualized return for our investors. And so that being said, I think we can really serve the investors out there if they're interested in joining and look, finding out more about our fund. It is closing soon. I think we have probably in the next 30 days we're going to close it up. So if they're, if they want to find out more, go to vikingmultifamily.com. That's vikingmultifamily.com. And my team and I would be happy to Just walk them through the process, educate them a little bit, show them what we have to offer. And if they're interested, love for them to join us.

And all of that information is, of course, in the show notes as well. Vic, I think we have a pretty good idea what you're talking about when you're talking about capital preservation. Take us into the tax efficiencies that you're providing your investors.

So the cliché of it's not how much money you make, but how much you keep, it's truly true because As a high-income physician, I was making 6 figures, but I was paying close to 6 figures as well. So it is refreshing now as a real estate investor to earn income, but then keep a lot of it. Why is that? It's because the US government incentivizes certain types of income. It doesn't incentivize W-2 income just because there's a lot of it out there and doesn't— when you're a W-2 earner, it is powerful and it is a very needed service, but it's a singular You don't necessarily provide, you're not creating jobs, you're not doing all these different things. You're working in a specific field. So hence the tax code is for businesses or entrepreneurship or acquisitions or buying assets. So if you do that, if you do what the tax code is suggesting, there are a wealth of benefits to you. So if you end up achieving, if you're an active investor and you have what we call REP status, real estate professional status at 750 hours of working in real estate, You could actually use your active income and use it to offset passive gains. Number 2, you can do what we call cost segregation bonus depreciation. Let's say you invest in a $10 million multifamily deal. $100,000 is invested in this multifamily deal as a limited partner. In some deals, you can write up $90,000, even $100,000. The full 100% of that amount of investment comes off as a passive loss on paper to you. And so what happens is it balances any other gains you may have that are passive. And it's just such a powerful vehicle. The interesting thing is the US government is now, for whatever reason, due to politics and governmental decisions, this is going to be fading out soon. So there's a sunset clause where right now this year is 100%, next year's going to be 80%, then it's 60%, and so on. So I highly encourage any investor out there, whether it's our investments, Alan's investments, or any other reputable sponsor, consider getting into an investment where they offer this bonus depreciation, and they get that by doing something called cost segregation. And beyond the scope of this call, but really if you do that, you can get these huge losses which you can harvest, and it's phenomenal. And a nickname for this is called a poor man's 1031 or a lazy man's 1031. And for those of you who don't know, a 1031 exchange is essentially you buy an asset, It appreciates in value, you sell it, and then within 120 days you redeploy all that sales proceeds to another equal to or larger asset, and you don't pay any taxes and you just defer it down the road. So that's another obviously powerful strategy as well, which we will employ when we sell our assets.

Vic, very interesting and enlightening conversation here. I've got a question for you. As you look back over your life, what was the most difficult setback you've encountered and how did you come through those times and what was the major lesson you take from that?

Any entrepreneur who is really successful in life should have gotten punched in the face a couple of times. Otherwise they wouldn't have the lessons and the wisdom that they now have. So a couple of them, but I guess one of the big ones is I was running this sort of boutique concierge medical practice that was helping people reverse disease. And that, that term is called functional integrative medicine. We were really getting like a ton of traction. I was helping people like get off their diabetes medications or cholesterol medications, helping them lose weight and really just go beyond the typical medical spectrum of a pill for an ill. And it was super rewarding and it was starting to get super profitable. And then comes along the pandemic and we have to actually shut down Our clinic. We had to shut down things. I had to lay off employees and it was very troubling. And then I shifted to a virtual online space and, but it was just, you know, being handcuffed to do what you were supposed to do, but you couldn't do it was so difficult and it created a lot of stress. But from crisis comes opportunity. And what happened was I started being known around the country as the doctor who's doing things outside of the typical thing there. He's a cardiologist. He's doing this new kind of new edge level kind of clinic. He is doing real estate. He's doing all these cool things. And so I started speaking to other doctors who were going through tough times during the pandemic. And then, you know, I got invited to podcasts and eventually people say, hey, can you coach me? Can you consult with me? I'm like, oh, okay, sure. I don't, that's not really what I'm planning on doing. I don't really have anything formalized, but, and eventually it led to the launch of another company of mine, Limitless MD. So now I coach and consult hundreds of physicians all over the country in how to help optimize their life, their business, and their careers. And it's so rewarding. And then it also allowed me to double down on real estate. And because I did that, I mean, we just got named Inc. 5000 fastest growing companies in America for Viking Capital. So sometimes your dreams are not your destiny.

'Tis true. And of course we can always look back and say, well, we could have done this, we could have done that, but we learn from those things and we move on. And clearly You've taken advantage of those setbacks in a way that has helped you to move forward. Vic, it's been wonderful having you here today. Enlightened Investors, thank you for being with us. If you have questions, comments, let us know. We love to hear from you. I look forward to being with you in our next episode. Vic, thanks so much for being with us today.

Thanks, Allen.

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