How To Get A Passive Return On Your Investment

Hey, it's Mark Podolski, the land geek with your favorite niche real estate website, www.thelandgeek.com. and on this week's podcast, we've got somebody that knows how to raise the money. But before we talk to our guests, I'd be remiss if I didn't properly introduce my co host. You know him, you love him. The brain, the professor. Scott Todd From Scott Todd landmodo.com if you're not automating your Craigslist and your Facebook postings, posting domination.com thelandgeek Learn anything about anything. Investor ninjas.com Scott Todd how are you, Mark?

I'm great.

How are you?

I'm a little intimidated by our guest. Let's just get into it.

Well, I'm intimidated by you guys. You guys really know how to do a lot of things that I don't.

Well, we'll see about that. Today's guest is Omar khan from boardwalk wealth.com Boardwalk wealth is a private equity firm located in beautiful Dallas, Texas. They connect passive investors to multifamily real estate opportunities of B and C class properties with value add potential. And that's pretty good. That's pretty good. So Omar Khan.

Yeah, I can tell you that.

How the heck did you get started with a private equity firm? Walk us through your entrepreneurial journey.

Well, it's kind of not as exciting as you think it is. I worked for 10 plus years on the corporate finance, investment banking side, both on the sell and buy side, which basically is a fancy way of saying I was both advising on assets, assets, buying assets, structuring assets, structuring deals, and then actually going to buy them on the other side as well. So I did that for a little while. And then my family, I mean, they're fairly financially sophisticated. They want a lot of commercial real estate. This is not their main business. It's just where they park their money over the years. Right. So growing up I had a lot of those sort of experiences as well actually negotiate. I mean, not me directly, but you know, my dad, my uncle was negotiating with bankers and actually being the gcs and you know, while they were running their other businesses. So I kind of had experiences, interestingly enough, both from the institutional side as well as the entrepreneurial side. And I moved down to the US four years ago and when I moved down I realized, I mean, I was what, 31? Yeah, 31 at the time. And I realized that again, I moved from Canada and I realized, okay, my taxes are somewhat similar. I mean, they're slightly Less, but they're not that less. Right. And I get. I get no health care. I get none of the other stuff. So why am I paying so much money in taxes? Right, Right. What's going on?

And by that, that's a good question, by the way.

I mean, and then I realized that is one of the most American questions I could have ever asked. So, you know, we start. I ported over a lot of my contacts, basically from Canada. I've lived in Dubai, Pakistan as well, went to an international school. So I have lots of friends all over the world, and they're all fairly affluent. Right. So I ported over a lot of those contacts. And then when I moved to Dallas, one of my really good family friends of ours, they have a big family office out of Toronto. They were restructuring a big office portfolio in Houston because they want to pass it on to the next generation and all that sort of stuff. So my buddy gives me a call out of the blue, and he's like, look, we've got this $200 million office portfolio. We want to restructure it. I'm going down to Houston. Why don't you show up? And I had nothing going on, and he's one of my closest friends, so decided to go down. And, you know, you do one deal and then you do another deal, and you know how it is, right? You do a good enough job and more people know you, and more people know you. And one of the things that I tell people is that at the pace at which I've scaled, this would not have been possible in any other country except the U.S. i mean, not just say the amount of assets, but the amount of fact that people are so entrepreneurial. It's just, go, go, go. Let's go get it done. Let's do the right deal. Let's make some money.

It's a very Texas thing. It's always bigger and faster in Texas.

Is it? See, because now I'm in Florida and Georgia as well. And I can. I don't know what it is because, again, lots of investors, countries, and I can tell you, like, it's a lot of times what I feel like the difference between American investors and other investors is, look, if you want to do it, you'll do it. If you don't want to do it, you don't waste time. It's like, hey, yay or nay, and move on. Right? Whereas with a lot of international investors, it always seems like people take forever to make up their mind which, look, it can be good or bad. I'm not saying it's always good, it's always bad. But I'm just thinking that's a characteristic, right. And I feel like optimism and intensity and pace is actually a better strategy than hoping and praying for, like the deal of the century to come by.

Right, right, right. So, Scott, Todd, what are your thoughts?

Well, I mean, there's a lot there, right? Like, you know, I think that one, we sometimes forget who our network is. Right? Like, and that's a big thing is, you know, you got to leverage the network whichever way you can.

And.

The second piece behind that is really, I'd be interested to know, like, Omar, like a lot of people, you say family office and everybody thinks of, like, you know, money coming out the walls, right. For people that don't know, a family office is like the investment branch of a wealthy family, okay? Like, that's what the family office is. But like, everybody and their brothers beating down the door to get to the family office for their investments. How do you do it?

It doesn't work like that. Look, a lot of it's really funny. Again, working on the institutional side, I keep, you know, again, because I have to promote my brand as well, obviously, like a lot of other people. So, you know, my marketing guys out there on all social media and otherwise as well, we go to events and it's kind of funny and slash endearing. When I hear people say, oh, I have a family office, I was like, bro, first of all, there's a lot of pieces that require into you dealing with somebody of that sophistication. It's not just the money, because, look, a lot of people have money. You need to have your reporting in order. You need to have good systems. You need to have a bench strength. You can't be some one random Joe blow off the street no matter how good your deal is. And people are just going to give you money. Because when sophisticated pools of capital are looking to place money, they're not just looking at the deal. They're looking at things like, hey, how good is this person's bench strength? How. How good is the organization? Are they a real organization or is this some guy out of a coffee shop? Right. Yes or no? I mean, but that's just the perception. That's just the way. How good is the reporting? Do they have the reports audited? Do they have a CPA on? You know, there's a lot of things like that that go into place that have nothing to do with the actual quality of the deal. And then on top of that, a lot of this is relationship Heavy. So the first deal, it's like you're pulling teeth, right? But by the time you get to your second, third, fourth deal, you don't necessarily have to pull teeth as much, but it's very relationship driven. And it doesn't happen like you're some guy on Facebook posting memes, and suddenly a family guy office is gonna just give you money. Cause you sound like a cool guy. Stuff doesn't work like that.

Yeah, go ahead.

I mean, a lot of people think that way, right? Like, a lot of people think, oh, man, all I gotta do is send this fantastic deal. Because one of the things that you hear all the time is go find.

The deal, and you'll find the deal.

And the money's there, right? But, like, it's not always there, is it?

Hey, but my retort to that has been, look, I can find you $100 million. Deal. Can you show up with $80 million? Okay, let's go, man. Can you show up? Because I can tell you you can't. Because if you could show up at $80 million, you and I wouldn't be having this conversation over zoom, which is typically where the conversation ends.

So, Omar, what's some of the worst advice you see or hear given in your area of expertise?

Look, I think it's really funny. Again, before I moved to the U.S. i didn't even know they were real estate mentors of this type. Number one. And again, I'm a lifelong learner, so I'm always, hey, if somebody can give me a tip, I'm all for it, man. But what's really funny is it's the case of these days, I feel a lot of times a case of the blind leading the blind. So I see guys who are talking about mentorship and masterminds. I'm like, bro, you haven't even done a deal in the past five years. What are you talking about, man? You can't even build a financial model. You can't even model out your returns. What are you talking about? And you know what's funny? I thought, well, that's quite self evident, right? Why? Well, it turns out I'm the moron. Because there's people beating down other people's doors in the hope that they have some magic potion that they're going to drink and suddenly money's going to fall from the sky. And yeah, I mean, you guys know this. Your experience, things don't work out like that, right? It's a lot of blood, sweat, and tears. A lot of false starts. And you can do everything Right. And nothing works and everything wrong and everything works. It's a lot of those sort of things. Right?

Yeah. We see the false prophets all the time and it makes us pull our hair out. In fact, Scott had a ton of hair until about a year ago.

So he pulled it all out.

Yeah, I mean, that's just what happens.

I mean, I think Texas is also the ground zero for things. I think hope springs eternal in Texas. And there's lots of people, man. I mean, I thought, why would you pay 30, $50,000, whereas you could just go invest in somebody's deal and kind of learn. Right. And try to make money along the way. And it turns out I'm the dummy. There are people out there who are willing to max out their credit cards, do really dumb things in the hope that they will find that one magic trick that's gonna make them a millionaire overnight.

Right, Right. So who is a good sort of buyer Persona for your services? Are they an accredited investor?

I've done a lot of work on that because we have to have to really focus. So for me, it's typically an accredited investor. Typically it's a male, but now it's 80, 20. Male, female now. Right. But typically it's an accredited investor. They're in their mid-40s. They are. They have invested before, so they understand, at least they have an idea of what's going on. Nobody's saying they have to know everything. Right. And the other deal also that they are sophisticated enough that they can run their own numbers themselves. But again, this doesn't mean they always run their numbers themselves. Right. This means that if they chose to do it, they would do it. This gives me a lot of comfort in the sense that people are coming from a position of knowledge and experience. So when you're having a conversation with them, what I felt is it's a more deeper conversation. And that investor isn't a one and done type investor. That investor is an investor. A, that's a repeat investor. And they also give you more money. So it's not like, hey, I'll give you 50 grand or 75 grand once a year. No, I'll give you 250 grand five times a year.

Right, Right. So, you know, Scott and I see this all the time. We're accredited investors and everybody has, it feels like their own fund. And we're looking at, you know, we'll see, you know, 8% preface 50% of the profits management fee, you know, and maybe the average return sky would be 20 to 30%. Is that.

Yeah. But they're saying it's 20 to 30. Right. It's not a piece of paper.

Right, right. Like that's there.

Yeah, right.

It's not real track record. So for Scott and I, or the listeners who might be accredited investors, what are the realistic expectations of doing a multifamily deal where there's value add, where you can be a passive investor? How long? What would be our pre interest rate and then what would be. How long before the fund unwinds, we get our money back? What does that really look like from 30,000ft?

I can tell you at least we're just in bigger cities. So I'll tell you the cities we're in. San Antonio, Austin, Jacksonville, Atlanta. Right. And I have a partner in Dallas. We look, I mean, I live there, but we just haven't been able to find the right deal in Dallas, even though it's a great market. The point I'm trying to make is we're in bigger markets, right? So we're at this stage of the cycle. We're looking at basically mid teens and low. Mid teens. IRR is a realistic game. Now, what will happen is the first thing every. You tell investors everything is like, look, this return is just on a piece of paper. It doesn't really mean anything because what means is the assumptions behind it. Are they reasonable? Because you can tweak one or two assumptions and really make your numbers look really nice. Right? Investors. The first thing, even after you give them this entire speech, you explain it to them, they say, hey, I was like, do you understand? Yes. First thing they ask is, how much are the returns? Dude, you gotta understand what goes into this. Cause as soon as you say, how much are the returns? You know what a sponsor does now, they know that you're only looking at one number. So they'll jack around with their assumptions to make. To basically fit a square peg through a round hole. Right? So if you're realistic these days, typically. I don't know what happened to my camera right there. Okay. So if you're realistic these days in the bigger cities, if it's a true value add, because those are getting hard to find in the multifamily space, and we're in the B space, you're looking at low to mid teens. IRR, 8% prep is very doable. But cash on cash has to be around 80 and a half. That is realistic with a good sponsor. Now, what happens typically is when you're not a good sponsor or you're jacking around with the numbers, you'll show really high Cash on cash, really high investor returns. But when you're in the deal, then you realize you're not getting any distributions on time. All that other stuff starting to happen.

So, Scott, Todd, what are your thoughts?

Omar, did you say 18 and a half percent?

No, I said 8. 8 to 8 and a half percent cash on cash, give or take. I mean, that. That's after stabilization, by the way, once you've stabilized it. Right, right.

Okay. All right, so 8, 8% preferred and like an 8 to 8 and a half percent cash.

But that's being realistic in the B space right now in these bigger cities because you've got to realize the Go Go years, the Wild west right after the crash, that's done. Because a lot of these properties have been picked over twice or thrice. And all the brokers and everybody will tell you, well, you can take it to the next level. And the point is, what were the other four guys in the last five years doing? I mean, were they chopped liver? Were they not doing anything? Because, yeah, you can put granite, say, countertops, but if your tenant makes like $30,000 a year, how are they gonna pay for this? Yeah, you can take it to the next level. Nobody's gonna pay you.

Right, right. So just kind of walk us through. You're looking at buying at a cap rate of.

So for these type of properties, I'm looking at anywhere between 4.5% to five and a half.

Okay, 4.5% to 5.5%. So just for the listeners, we just define real quickly what the cap rate means.

So the cap rate is basically the net operating income divided by the purchase price. Now, where it gets interesting, if, you know, accounting, is that the net operating income can mean a lot of things. So you really have some. Just because somebody's saying they have a net operating income of X, in reality doesn't necessarily mean they have a net operating income of X, because they can be playing accounting tricks. They can be doing this, they can be doing that. So that's where you have to be really careful. And that's where a lot of folks who don't understand accounting don't understand the operations behind certain things. That's where they don't pick up the nuances. And they get into these deals where on paper, these deals look really good, but when you get into it, you realize, oh, there's a reason why the last guy didn't upgrade everything, because my tenant base sucks and they're not going to pay me a dime. In fact, they're behind on all their payments. So why would you go. But you know, the marketing is, hey, all you got to do is show up at five or six thousand dollars a unit. You keep throwing it into this money pit and money starts coming out after six months. I mean, it's like any other business. My point is, if you don't know what you're doing, it's like any other business in the world. You're gonna get your ass handed to you. Right? Right.

So Scott puts a million dollars in, he's gonna look at a cash on cash return realistically of 8, 8.5% over what period of time before that fund unwinds?

This is annual. So typically, typically an industry convention is that you're holding on, you're underwriting to a five year hold, right? So you're underwriting or you're targeting a five year hold. But this is when, for instance, if you're doing value add deals, so you're coming and doing a lot of heavy lifting after about year two, maybe two and a half, depending on the size of the property, the bulk of the 99% of the heavy lifting is done. Right. So then this is something that most sponsors don't tell you. But you gotta realize if the deal is structured the right way, 80 to 90% of any sponsors total compensation in the deal, by the way, I'm a sponsor, is when we sell because that's when we make the real bulk of our money. So all these sponsors who tell you I'm a long term buy and hold, invest, buyer, whatever, whatever they want, that's all bs. You have to completely call BS on them because from year two or two and a half, if they're hitting their numbers and Performa, their hair is on fire trying to sell this. Because look, you make 80 to 90% of your comp or why would you delay that comp for three years for no reason? Because you can take that money and plow it into a different deal, but everybody underwrites to a five year hover just because they want to be safe. But you're really trying to get out in years two, three at most.

Scott Tyler, your thoughts?

You know, it's been kind of an eye opening conversation here because ultimately what you realize is that one you really have to take, you have to take the advice or the numbers or the marketing materials that you're getting from people and really in a way just take that for just one second, suspend the numbers and really go back to the operator, right? Like who is the operator? Are they credible? Like do they know what they're doing like, you know, like there's too many people out there that, you know, the false prophets, if you will, or whatever that just. Oh, they went to a weekend seminar. Next thing you know, they're. They're presenting this deck of a hypothetical. They've got no real world experience, and then they're coming to you saying, hey, give me some money. And the numbers look good.

And hey, just to add to that point, I would much rather, especially on this size, the average size of deal we're doing is like 25, 30 million, right? I would much rather have somebody who, for instance, did. I mean, only cursory, knew real estate. Didn't really know real estate that much, but was a stone cold killer in accounting. Probably a CPA versus somebody who's a real estate guy but has no clue about accounting. Because at this level, you gotta understand accounting inside out, okay? You gotta understand how to make your numbers look right or wrong, depending on what you're doing right? And if you don't understand it, your lenders will eat you up alive, your renters will eat you up alive, your property management team will eat you up alive. And you will have no idea what's going on because there's just so many.

What, I'm your madman? Because I got that accounting locked and low.

Hey, man, you know accounting. I can tell you this. I've taken so many bets with people. I'm like, dude, give me a guy who knows accounting, he will kill a person who knows real estate within six months.

There you go, man. It's the ninja move.

But somebody who just owns real estate, they're gonna get slaughtered these days because it's becoming so sophisticated now.

So, Omar, if I'm listening to this and I'm not strong on the accounting side, I'm not strong on the numbers side. Is there a book, Is there something you would recommend as far as. Okay, here's how you're going to learn your real estate numbers so that when you do have a conversation with a sponsor, you can have an intelligent conversation. Here's the questions that you're going to want to ask.

Well, first of all, look, books. There's one forgetting the name. Oh, yeah, there's a book called. From Peter Linneman, I'm forgetting he's a professor at Wharton. He's a real. He was or is. I don't know if he's dead or not. At Wharton, a real estate professor. He's got this blue textbook. Now, trust me, when I say textbook, it sounds boring, and it's extremely boring. But it beats losing 100 grand any day, right? So read that. There's another guy. I think he's another professor at Rutgers. His name is Frank Galinelli or something. He's got some book called, like, 35 Real Estate Metrics or something like that. I mean, that's not. That's not bad material because you understand what. What those metrics are, at least. So I would suggest you start off there. But look, there are other resources, like on YouTube, if you YouTube. Hey, how to build a Financial Model. Right? You don't have to know Excel. I mean, you learn everything on. All you got to do is have the willingness to just shut yourself in a room for, say, 30 minutes a day. Realistically, shut off your phone, put yourself in a room for 30 minutes a day for three months in a row. That's it. You do that, I assure you, you will know 99.9% of what you need to know. And that's it. You don't need to go do my job. You just need to know how to protect your own money. That's it.

Omar, let's just play devil's advocate. Let's say that I'm a. I'm a successful neurosurgeon, and I'm doing procedure after procedure. I'm exhausted. I don't have time.

Ha ha. To learn this. No, no. You're a successful neurosurgeon. You 100% already feel that you know everything.

Okay? Right? So at that point, is there an advisory service, sort of like, you know, nobody knows that they have a good dentist until another dentist looks in their mouth and say, oh, yeah, that's a. That's a good crown.

Mark, I'm. There's not. And I'll tell you why there's not. The reason why there isn't is because when it comes to money, everybody's a vulture. I'll be honest.

Everyone's a vulture.

Everybody's looking out for their interest. So, like, you might develop trust over a period of time, but you're not going to get trust out of the box. So you. It's your money at the end of the day. Nobody said you got to know everything. You just need to know enough to know when you're being screwed. That's it. You don't need to go do my job. You don't need to do your job. You just need to know when the fish is smelling rotten. That's it. And you can dig deeper and find people or hire somebody and all of that sort of stuff, or at least you Got to know something is off. If you don't even know that, you better not invest your money first. You better take a step back, you know, spend about, say, a month just reading a book on your downtime, you know.

No, I love it. And Scott, Todd, I think we have a podcast title. How to Know when this Fish Smells Bad or Rotten.

Rotten.

How to Know when the Fish Smells Rotten.

So fish smells rotten.

So, Omar, this has been really, really enlightening. The mentorship has been really valuable. But now we're at that point in time where we're going to ask you for your tip of the week. Another tip of the week. A website, a resource, maybe another book where the auto passive income listeners can go improve their businesses, improve their lives. What have you got?

Look, there's two or three of the websites. Number one, you can always use the U.S. census. I love the U.S. census data because A, it's free. B, you've already paid for it through your taxes. See? Well, it's not free, but you pay for it through your deck. And it's got. And pretty much all other resources that you see online, they're building off of the US Census. So pretty much all other stuff you see, it's building off the U.S. census. So U.S. census always helps. There's free sites like city-data.com. i don't know if you know about it. You probably know, right?

Best places.net.

Yeah, bestplaces.net yout can even go to this website, niche. Niche.com. the only reason why I like it is because it's got better graphics. That's the only reason. It sounds like a really stupid reason to like something, right? Because city data just gives you so much information that you're like, whoa, I'm drinking off a fire hose. Right?

You're probably a Mac guy if you. If you care about graphics.

No, I'm not a Mac. I'm going to be honest with you. I live and breathe in Excel all day long and I, my God, I just hate Macs. I just want to break Macs every time it's therapist.

Are you a service user?

No. I mean, look, I am a Windows user. I don't really care what you use. I have a Lenovo, but that's because I'm boring. But hey, all I'm saying is if you want to do anything productive in life, you cannot use a Mac. That's all I'm gonna say.

All right, well, if you want to.

Be a respectable member of society and be like the rest of us should.

Not be okay, well, I think while the two of you eat operating system gruel, the rest of us are really going to enjoy our lives while you.

Guys, when Apple puts you in a sandbox and doesn't let you be the person you you want to be, well.

You guys crunch your Excel numbers. I'll give you that. I'll give you Excel is way better on a PC than a Mac. That is about it. Anyways, I don't want to go into this because Scott Todd is really enjoying this in a way that is just hurting me. Okay, so, Scott, what's your tip of the week? Besides have Omar on the podcast every week?

Yeah, exactly. We just need to take what he just said and like, chunk. It's like an insert. It's okay. Like, just that piece. But check out InVideo IE. InVideo IO. It's. I've been using it now for, I don't know, about six months. It's really cool because they have all kinds of graphic, video, graphic things that are in the cloud. You pop in your videos, you overlay your text, you see the social media graphics all the time. You know, stuff flying around the screen. I think this is a cool product in video IO.

I'm gonna look it up right now.

Is it free? No. Okay.

Good things in life are not free.

Exactly. Let's see now. Omar, you're speaking that Mac language. Well, my tip of the week is learn more about multifamily investing. You know, if you're one of those people that just want to passively get a nice return on your investment. And really, this is a great way to get into multifamily. And just from listening to Omar, you know, he's going to help you and guide you. Just go to boardwalk wealth.com it's going to be a great place to start. And you know, he's got access to Premier partners with a track record of these large scale investments. Best in class property managers, tax and loss specialists in foreign investing. Omar is your man. Even though he loves the PC.

That's how you know I'm going to make you money. Because nobody who's making money working in finance is using a Mac, I can tell you that. No one. Straight up, I'm going to put this a challenge to America.

There you go. I want to thank the listeners. I remind you, the only way, the only way we're going to get the quality of guests like an Omar Khan from boardwalk wealth.com, is you can do us three little favors. You got to subscribe, you got to rate you got to review the podcast. Send us a screenshot of that review to supportlandgeek.com we're going to send you for free the $97 passive income launch Kit course, as well as a new wholetailing course, how to double youe money, 30 days or less. Today's podcast is sponsored by Flight School. Learn more. Go to landgeek.com training go up that land investing mountain with your Sherpa. Scott Todd. Sixteen weeks can literally transform your life. Omar Khan. Are we good?

We're good.

Scott Todd, Are we good?

Mark.

Great.

All right, let's do this. One, two, three. Let freedom ring. Thanks, everybody.

Have a good one, guys. Thank you so much for watching.