Transcription
All right, welcome to the Dr. Frost podcast, where I talk about everything business, real estate, and medicine. Today, I have the pleasure of hosting Dr. Mir Baloo, MD, a highly accomplished wealth strategist, private fund manager, and international bestselling author. He is the founder of Bouch Capital Partners and the host of Financial Wellness MD, where he empowers professionals to achieve financial independence through strategic passive investments. With over a decade of experience in private equity, Dr. B has managed an impressive $700 million in projects. He is also the author of "Make It, Keep It" and "Prosperity Prescription," and a contributor to Forbes, where he shares invaluable insights for healthcare professionals seeking financial freedom and work-life balance.
So, thank you, Dr. Bouch, for coming on to my humble podcast.
Hey, thanks for having me on!
Yeah, of course! You're the second doctor entrepreneur on the show, so this is kind of the direction that I want to go. You're helping me go in that direction.
Of course!
I'd like to just get to know people a little bit before we get going. The place I always like to start, I think it just mentally gets people going, is: what were you doing after high school? What was your path around then?
So, after high school, which was in Midland, Texas, I decided to stay in Texas. I didn't want to go too far, so I went to Trinity University in San Antonio. I wanted to be pre-dental because my teeth were so crooked, and my orthodontist fixed it after three years of braces. I was like, "Wow, that's so awesome! I want to do that!" So, on the first day of college, I said, "Hey, I want to be pre-dental. Who do I talk to?" Whoever was at the desk, the receptionist or whatever, said, "Yeah, we don't have pre-dental; we just have pre-med." So, I was like, "Okay, well, I guess I'll be a doctor then." So, yeah, sign me up for that! That's actually how I decided to be pre-med. I had no choice according to this person who probably just got hired a week ago to work at the college.
Yeah, such strong influence with just little conversations! It's funny how that just happens. You do have great teeth, by the way.
Oh, thanks! Sorry, I keep using teeth whitening toothpaste that my mom gets me.
So, some random person was like, "You should be a doctor." That was kind of like my second choice since my dad was an internal medicine doctor, so I kind of thought I was going to go in that direction anyway. But when I applied to medical school, things didn't work out that well, so I got rejected by medical school. I was like, "What the heck happened? This is not supposed to happen to me! Everything I do, I'm pretty successful at it. What happened?" I guess I slipped through the cracks or whatever you want to call it and had to reapply. But in the meantime, I had at least one year off, so I put my life savings into an electronic payments business and lost it all but learned a lot about business very quickly.
Then, I went back to live with my parents for the second year because I did get in, but I deferred for a year. So, I went back to live with my parents. I was about 21 or 22 at the time, and then my dad, who was doing internal medicine, went bankrupt. At that point, I realized, "You know what? I really can't trust any source of income or method of making income at this point." I didn't get into med school, and it didn't work out in my first business either. So, it got me thinking I need to get smart about my personal finances and financial decisions in general, which got me to read over 300 or 400 books on business, finance, leadership, sales, marketing—just everything. Most of those, probably more than half, were on audiobook, by the way.
But eventually, I did get into medical school, became an anesthesiologist, went to the University of Miami to get out of Texas for at least a little bit, and came back to Dallas, Texas, to do anesthesia. That was in 2010, so not too long ago—maybe 14 years ago. But I knew I wasn't just going to do that, so immediately within a year, I got my real estate license, and a few months later, I had a brokerage. That same year, I got my securities license.
Oh my gosh!
Because I figured, "Hey, if I want to learn about personal financing and doing big deals, let me just go where these people are and just work for somebody at a boutique investment bank," which is where I got started in 2011.
Oh my gosh, that is quite the journey!
That's a quick path from finishing anesthesiology residency in 2010, is that what you said?
Right, and then you had all these bubbling ideas in the back of your mind, your dad going bankrupt, and you were just reading books and getting super smart on all this stuff. It sounds like you pretty much knew what you wanted to do when you were done with residency.
I knew I wanted to do big real estate deals, and I tried to do some between the ages of 21 and 32. The big thing I did while I was in medical school was I was an LP on a multifamily deal that was in '05, I guess—almost 20 years ago. We did a short sale flip in Dallas while I was in Miami, so we had a couple of real estate things work out, but it was just hard to do it by myself. I had to partner up, and then I just wanted to get more serious about it.
You know, what do you do in medicine? You go to a three-, four-, or five-year residency. So, I was like, "Well, let me get a license that deals specifically with securities and real estate." And so, that was what I did. I got mentored by these guys that were doing hundreds of millions of dollars of real estate a year.
Oh my gosh!
I learned a lot. I think it saved me from a lot of headaches because they never lost money in any real estate deal, so that also made my reputation pretty solid right out of the bat.
Holy cow! So, I mean, how do you even... I guess there are so many things that just happen in a short period of time. It sounds like. So, how did you figure that stuff out?
Well, you know, it was interesting. I was going to all these meetups in Dallas. They have, like, "Oh, hey, come over here, come over there, and you can network," and this and that, and it wasn't going anywhere. Then, I did want to get into apartment complexes at some point, and so these people were talking about, "Hey, this is what we do; this is how it works; here's the numbers." But the owner of the building that I was in, you know, they congratulated and gave a shout-out to the host who was hosting the place, and I was like, "You know, I need to meet this guy because he owns this whole strip that we're in."
So, I talked to him. He said, "Yeah, you know, you could do real estate with us; we'll show you how to raise money, and we're actually moving into the broker-dealer space." We can explain what that is in a little bit. So, in the broker-dealer world, basically, they're like a money-raising machine, and they also source deals and do due diligence. So, they're basically the deal side; they're bringing in the buyers and the sellers together.
And so, I was on the side bringing in the buyers—who's going to be the investors for these things, right? So, he was just putting together the same year, and he's like, "Amir, if you want to work with us, you know, you could kind of follow us around and hang out in the office and all that, but if you want to get paid, you need to get licensed up." So, I'm like, "All right, well, if one thing I'm decently good at is taking some exams, so give me some more 100-page books." It's not like I hadn't done this before.
So, yeah, actually, it was really hard, but the 63 was easy, but the Series 22, which deals with farmland, oil and gas, and real estate, that one was pretty esoteric. So, anyway, I passed with like an 80 or something like that. You basically failed, but based on the scores we used to get in high school, right?
Right, right, right!
But yeah, anyway, got through that, and then in 2016, I went off on my own. I pulled my brother out of his MBA courses. I was like, "Look, forget about the MBA for now; I need boots on the ground to grow this real estate thing that I've started." So, he came on board, we formed Beluch Brothers Development, and then we started putting together securities under Beluch Brothers Development. We do one-off deals, depending on who wanted to partner up. I wasn't really trying to push it too much; I was really doing it for myself. It just ended up being bigger because everybody wanted to get in on Dallas real estate.
So, that's how we started, and then eventually we branched off into private equity. We had three private equity funds, mainly into life sciences, which is super cool—like to be able to, you know, make money and you're actually helping the world with what you went to school for, right? So, we got like cancer screening companies; we have things to remove kidney stones in like 30 seconds—super cool companies we helped.
So, before we get... I gotta ask you a couple questions about what happened. You had said that you were hanging out with these guys, you got your securities license, and then what did you... How did you... Were you like on Wall Street, calling people like Wolf of Wall Street style, just without options?
So, you know exactly what I was doing!
I like... Actually, let me tell you how it worked. So, when you join a broker-dealer, they did set up a room, and it's a bunch of cubby holes, and you could just buy lists. It could be 25 cents a lead, $5 a lead, depending on how qualified it is, but it might say, "Hey, you know, Bob Smith was introduced to real estate in the last 30 days." So, somebody got a lead, and you just call them and say, "Hey, you know, Bob, are you still interested in real estate? My name's Amir; we've got some deals coming up in Dallas. I just wanted to give you a heads up." Maybe it goes somewhere, but sometimes it doesn't.
So, there was a little bit of that, and I had to do that whether I wanted to or not because everybody else was doing it. So, yeah, I would do that a little bit. A lot of it was actually just going out to events and just meeting people. You know, there wasn't any crowdfunding; you weren't allowed to advertise online, right? So, you know, this is 2011, 2012. I think the Jobs Act was somewhere around that time—2012, 2013 or something like that. And even then, it still wasn't big. So, this is like you just had to network, and I was always out and about.
So, that's basically how I did it. I wasn't in the office that much; I was in the field. We would either do property tours or, you know, put together get-togethers or in-person events. So, that's basically what we did.
And then you were just networking with potential investors, basically?
And then once you met them at these events, then you would, like, I'm sure after the party or maybe during the party, you would talk to them about your deal that you're raising capital for, is that right?
Yeah, if they're interested, I'll just say, "Hey, you know, what type of things are you up to? What are you up to?" They'd say, "Oh, well, you know, I'm doing this and that." I'd say, "Hey, you know, if you want to take a look at what we're doing and diversify a bit, let me know. I'll have somebody send you some information." So, I never sent them the information; somebody else, either an administrative person or somebody that I partnered up with, would help do the follow-up and all that while I was in the OR. He was doing all that, so we kind of tag-teamed like that. That's how I was able to get it done because these guys were full-time, right? This is like their job, and I still had to work at least seven to one on average doing anesthesia.
Yeah, I think anesthesia probably is the specialty to do that.
Yep, that and ER, I think, is up there too, as long as you can structure your days where you have some free time. The hospital is now too, working one week on, one week off.
So, yeah, if you're in medical school listening to this and you're thinking you might want to do this, you might want to take a look at your specialty and how you could structure your time where you have a lot of downtime or a lot of free time at least.
Right, yeah, that would be smart.
Yeah, probably not Family Medicine; it won't be as easy.
Not easy, yeah.
But, yeah, I think that it's always hard to know when you're making a decision what specialty to go into, right? That's like a whole other box that we could...
Right.
But, okay, so you were basically just doing events in Dallas. You know, it's nice that you're in a big city too. One of the things that I struggle with is that I'm in a smaller city, and I'm kind of in between two big cities, and they're not really big cities. I live by Richmond; I live in between Richmond and Norfolk. But I always kind of wish that I were in a big city like Dallas because it seems like... Or I have friends that live in San Diego, and I'm sure there's just tons and tons of real estate meetups.
So maybe that's a tip right there: just live in a bigger city if you want to meet people in person, you know, to do it that way.
It definitely helps to be in a big city. If not now, because of the Jobs Act and they allow online advertising, you could be doing virtual events. I just did one last week; it was a medical wealth masterclass—a three-day masterclass. So, people were, you know, I was meeting people from all over the U.S., actually. So, that's one way to overcome that, but it takes some time to plan out, and you need to get your tech set up and all that.
Oh, yeah, no, that's true. That's true. I mean, even I guess during COVID, everything's kind of changed, I guess, the way people think about things because we had to figure out how to network not in person, so...
Right, that's true.
Yeah, that's a lot why I do social media and the podcast is because I live in kind of an isolated place, and online is like the only way I... It feels like the only way to find people.
So, yeah, you can reach a lot of people.
Yeah, so how's your masterclass going?
It was pretty good! I got some feedback. It was a big focus on tax because we're in the fourth quarter of the year. So, I probably need to do another module on rep status and some other things too that people had mentioned to go deeper into, like cost segregation and stuff. I maybe went through it pretty fast. You know, surprisingly, a big hit was tax credits. You know, a lot of doctors get into real estate for the depreciation, the tax benefits, but you can go out there and just buy tax credits for, you know, 85, 90 cents on the dollar. I mean, that's wiping out 10, 15% of your tax. So, that was probably the most popular masterclass. I'm just now getting even more feedback, so when I do the encore presentation in a couple of weeks, it'll be a little bit better. I'm basically just trying to give people what they want to hear about and what they want to learn about.
Yeah, wow! I guess you can obviously tell I kind of get distracted a little bit, but I don't even know what a tax credit is. Maybe you can tell me.
Well, you know, the first time I heard about it was in real estate. So, my brother and I, one of our developments is in the historic district of Fort Worth, and when we're building there, we're kind of... Whenever you do the government job a little bit, they will give you tax credits. So, because we're kind of making this historic rundown area better with our new homes, they give us tax credits and tax abatements too. So, tax credits for every house, we're getting two grand, which we can apply directly toward our taxes. So, if I owe 100 grand in taxes, now I owe 98,000. And then with tax abatements, we're able to talk them down to where the property taxes are $200—not a month, but per year on the house. So, that definitely makes it a better rental and also easier to sell.
So, a tax credit, you're basically doing the government's job. For example, we don't want a bunch of emissions in the environment, right? So, if you buy a Tesla, you're going to get about, at least right now, about a $7,500 tax credit, which is not a deduction; it's a credit. So, it's a dollar-for-dollar off your taxes. So, if you owe $100,000, that $7,500 cash credit would mean now you owe $92,500.
So, there's also a secondary market for this for people that, you know, either they raise money for their real estate projects. Like, let's say if it's an opportunity zone, the government might issue you tax credits, and then you could sell those or give those to your LP partners in exchange, and so they would get the tax benefit now, and you'd be getting the money for that because you sold those tax credits.
Oh, yeah! And the ones we have right now are pretty new; almost nobody knows about it, but they're from Native American tribes. They raise money to create energy projects on their reservations, and it's just a one-time sale, and we're not tied to the project. So, literally, it's like you're buying, you know, it's almost like you're buying money at 85 cents on the dollar, but it has to be used toward tax; you can't go use it to buy a house.
Yeah, yeah! I've gotten a lot of people, at least the doctors that I've talked to, that are like they don't really care as much what the returns are; they just want tax write-offs for their... If you're a W-2 income earner, wow, that really sucks. You gotta start a business or do something like tomorrow.
But something that will help, even if you're W-2, it wipes it out regardless. Tax credits can wipe out. So, if you earn $400,000 a year and you pay, I don't know what that would be, like $150,000 in taxes or something like that, how do you buy a tax credit?
Right, so let's say if you owe, let's say if you owe $100,000 in taxes, you can either write a check to the IRS for $100,000, or you could write a check to our Lone Star Fund for $85,000 because that's how much we're getting the tax credits for. We're basically buying in bulk, and then you get a K-1 that shows the tax credit on there, and you're done, which is like a partnership distribution, which doesn't show that you made any income or any loss; it just shows the credit because we're just buying credits.
Oh, and then you guys take that money and you go put it into...
And we buy credits for emissions and, or like something that helps the government, right?
Right, in this case, the tribes will do energy projects—solar, wind, or oil and gas.
Okay, the government loves that because now they don't have to create a program for it. It's faster to just issue this from the U.S. Treasury and say, "Hey, here's some tax credits; you guys figure it out."
Awesome!
Yeah, use it as a JV. You know, in this case, they're doing a JV with a publicly traded company, and they have like $2 billion in tax credits, so it would be some big projects.
Okay, okay. It's good for them; it's good for us. You know, whenever... By the way, we were just talking about taxes, and you were just mentioning a lot of people invest in real estate because of the tax benefits. You know, whenever you're looking for tax benefits, just look at what the government wants to accomplish. They love it when people invest in real estate because it's kind of like the core of the economy. Like, if we're building houses and there's transactional stuff going on there, the roofers get paid, the plumbers get paid, you know, people selling lumber get paid—the whole supply chain is making money as long as we're turning on these houses.
So, if you're somebody that could put money into this housing ecosystem, you're strengthening the economy, and so they...
Yeah, and you're providing housing for people!
Right, that totally makes sense. I obviously believe in capitalism and, you know, starting businesses. My business that I'm doing with my partners focuses on affordable housing.
Awesome!
And so we're buying apartment complexes and selling them off as condos for, like, lower-tier income. And I feel really good about that because I feel like, you know, I feel like I'm helping people. I think a lot of real estate investors kind of can come across as being sleazy, or maybe like other people view them as being sleazy, but in my mind, like, we're stimulating the economy and helping a lot of people, you know, like what you just said—everybody's getting paid in the way.
So, you know, I always just love hearing stories like that because people that do business and, yeah, they make a lot of money, but you're also doing a lot of good along the way.
And you have to have those types of things to motivate you. If it's just about the money, you lose motivation; you're not going to perform the best. So, you know, if you have something else that's driving you like that—if you look at all the people in the top 1%, they always had something else that drove them. It was never just the money.
So, by the way, we do affordable housing too. I say 90% of the time, that's basically what we're doing—homes between... In Dallas, that means homes between like $280,000 to $450,000.
So, okay, that's kind of affordable in Dallas. Do you look at the AMI? That's like a big metric that we talk about—annual or average median income.
Oh, we look at median income, but the most important thing we look at is the comps and the absorption rate. So, if something's not... If the absorption rate is slowing down somewhere, we want to know why, and there could be some price sensitivity there.
So, but tell me how you're using the AMI, and I'll show you how we might be accomplishing the same.
Yeah, maybe similar. So, we look at 80% AMI, and AMI is based—AMI is like a HUD number for basically figuring out by ZIP code where HUD is going to spend money to subsidize housing.
Got it.
Based on the AMI. And so, if the AMI of a certain zip code, meaning that median income, is like $80,000, then we focus on 80% AMI. So, 80% of $80,000 would be $64,000. So, we focus on building housing for people with an income of $64,000.
Got it, got it.
And then we reverse engineer what their rent should be based on how much they should afford for their mortgage, which is about 28 or 30% of their income, and then that's what their rent should be. And then we focus on how do we buy property and turn it into condos so that people can afford... People will get pre-approved for a mortgage if they earn $64,000 a year.
Yeah, pretty cool, pretty cool example. The government will probably back you on that too. Like, in Texas, and probably where you're at too, we do have something called a Laura Land Use Restriction Agreement. So, the government can say, "Hey, you could use this land for multifamily, but a certain percentage of the units had to be rented out at this percentage of the AMI."
So, we did have one in Plano, actually. Believe it or not, Plano is like so hot, but we had a deal that we brokered to somebody that had a Laura on it. This thing rented out like crazy—like occupancy through the roof because the rents were so affordable.
So, I think if you can get down to fixing problems for people, you're the one fixing a problem that nobody else wants to fix. So, there's, you know, not a lot of... The problem exists because nobody else is willing to fix it. So, if you go fix the problem, there's not a lot of competition, and it can be a big problem.
So, you know, the reason we, in 2019-2020, is when my brother and I decided, "Hey, we need to start focusing on build-to-rent communities," which is kind of like multifamily 2.0. And you probably know some of this data too, but we're so behind on delivering houses. Even in 15 years, we're not going to catch up with the demand, so the supply is so low.
And so, even with like four of the top home builders in the nation trying to build homes specifically for rent, so somebody could afford actually a house, we're still not even going to touch the demand growth. So, it's a big deal to make it affordable. It's like a pretty much like a crisis.
Yeah, I don't know the exact numbers, but what we're doing is I'm focusing on Portland, and there's subsidized housing in Portland. You can't raise rents, or there's a lot of rent restrictions, and so a lot of people stay away from Portland.
But we're buying because these nonprofits know that we're going to buy, and then we're not going to kick people out. We're trying to make them homeowners by giving them tax credits for the last couple months of their rent.
But because we're doing that, the sellers feel more comfortable with us because they know that we're trying to fix the Portland problem, which is a housing crisis.
Okay, so we get steeper discounts, but this isn't about me. I just... I don't know how we got here.
No, good! It's good to know that we're kind of going along similar paths but in different parts of the U.S.
Yeah, I guess I think the connecting piece was we were talking about business and how business is good and stimulates the economy, right?
Right!
We jumped on to that from tax credits, so that's how I went from masterclass to tax credits to tax credits on real estate for affordable housing, and then here we are.
Yeah, yeah, that's funny!
So, back to you. We were talking about your... You were like a broker-dealer. How did you... Did you work with a broker-dealer and then, like, separate and go off with your brother in 2019?
Yeah, whenever you have a securities license—and this is good for everybody listening to know—like, whoever is holding your license, there's something called selling away, and also outside business activities. So, for some people, they're not going to allow you to recommend anything outside of what they sell, right?
So, for example, a financial advisor, their whole business is around selling public securities and bonds, so that's why they really can't tell you, "Hey, you should buy a rental property; you should do this syndication," or whatever. They really can't do it. That's called selling away, and they write an employment contract, saying, "Hey, you can't do that." And if you try to do something in real estate on your own, that could be considered an OBA—outside business activity.
And some people can approve it. Like, my broker-dealer approved me for everything; I could do whatever I want for the most part. But there are some restrictions. For me to be fully unrestricted, I had to leave because it would just be conflicts of interest. Because if you're raising money or doing wealth management with a securities license under somebody else's roof, you know, that's their business, and they need more of the client's money in that business, right? That's just how it makes sense.
So, if you're trying to push it somewhere else, imagine if you're working at McDonald's, and you're like, "Well, you know, French fries are better at Burger King." Like, you can't...
Oh, yeah, you get fired!
Right! So, that's one of the reasons that I left, and also I knew I was going to go off on my own anyway, and I just didn't want to start off from scratch. I wanted to learn from some of the best people in the game first, so they knew I was eventually going to leave at some point, and after about four or five years, it was probably time.
Wow, okay!
Yeah, that makes total sense. I actually pitched my deal to a bunch of my relatives, and I have this one relative that I was trying to persuade because I know he has a financial background, and he told me he can't... I was trying to, like, get him to go, and then I was saying if he goes, then everybody else might go too, but he's like, "I can't do that because I'm a financial adviser."
Exactly!
Yeah, that's good to know because people are out there trying to say, "Hey, what do I do? Do I do this? Do I do that? Do I do crypto? Do I do real estate? Do I do S&P?" You know, whoever you're talking to, you got to know kind of how... what their financial alignments are and their financial incentives are. So, you got to probably talk to a few people to get a good feel on where you could be investing based on your priorities.
Yeah, that makes sense!
Yes, yeah, because you're going to be biased. That totally makes sense. So, if you had your... So, you had your Series 7 and then... or 63 and a 22. I never got the 7, but I have the 63 and the 22, so I can't do... I can't sell public securities.
Okay, okay.
I'll have to go study the 100-page book! But so, were you able to... Can you, like, start a fund if you have a series license?
Or you have to, like...
But not active. I don't think I... That broker-dealer...
Yeah, I had to not have an active license. So, or at least my license can't be under a BD or RIA or anything like that. So, in order for me to be a fund manager, because that would be a conflict of interest.
Okay, yeah, got it!
Legally, I don't think there would be an issue. Legally, I don't think there would be an issue. Like, I could do a fund for maybe a charity event or something, and I probably could have gotten that approved, but if it's something where, you know, it might be some competition for the broker-dealer, then, you know, it's probably not going to work.
Oh, okay!
So, is that what you did? Did you, like, let your license expire, or did you, like, end your contract with them?
Yeah, well, as soon as I left, and it's someone like the real estate license, if you don't have a broker holding your license, you can't use it. So, I have my securities license, but it was inactive because I wasn't attached to a broker-dealer; I wasn't attached to an RIA; I wasn't attached to some investment house like Morgan Stanley or whoever else is out there—Merrill Lynch or anything like that.
Got it, okay!
And what was your motivation for leaving? Was it just something calling you to do something different?
It was time. It was time to do bigger things with my brother.
Okay!
It was just time. I wasn't learning that much more; I had enough deals under my belt. I knew the game; I had the team. So, that was pretty much just... Just like in residency, you know, somebody's kind of holding your hand on the first few patients, but at some time, you're like, "You know what? I can see patients on my own now." And that's why I started on this path in the first place—treated just like a residency.
Okay, so you're basically... You learned what you needed to learn, and then you're ready to go off on your own.
Cool! So then, what was next for you on your journey?
Well, then it was just about scaling up, and it's a lot harder than I thought. I was doing a lot of different things. I should have stayed just focused on one thing; we probably could have gotten there sooner. But, you know, we're in year 12 of doing developments, and we've got a lot in a lot of deals in the pipeline. So, we're pretty happy with just scaling up the build-to-rent communities and building multiple subdivisions at a time. We're doing about three or four at a time right now, and we're working with... Now we're actually trying to work with other broker-dealers to raise money for us.
Surprisingly, we have some people from Dubai; we have other fund managers who want to put together blind pool funds—like $50 million at a time.
Oh, wow!
We have about, like, we've underwritten about $600 million in Dallas alone that we could build like tomorrow. So, that's kind of where we're at. So, we want to scale that up because, like what you're talking about, this is kind of what the world needs, and we're good at what we're doing here, and we've got the structure and the team and more than a decade of experience.
I also want people to, you know, when people put together portfolios and want to invest, I don't want them to just have the blinders on just in real estate, which is why we still will do private equity; we'll do private credit. Those are the big three categories for alternative investments. Traditional investments, by the way, is just, you know, stocks and bonds—financial advisor stuff—and then everything else is alternatives, which is private equity, which means private businesses, and then real estate and private credit—private debt, which means just like you can invest in a hard money lending fund or some type of fixed income product.
So, we have those things too. We have fixed income products. People want to do promissory notes, or we do have an e-commerce debt fund—things like that where you get double-digit returns, and it's just like a fixed rate versus partnerships in real estate or partnerships in business.
So, basically, you get an equity return, right?
Right!
They could all be structured differently, so we could do, you know, depending on which asset class you're in, you could decide where you want to be in the capital stack. Do you want to be on the equity side? Do you want to be on the debt side? And then, you know, I spend a lot of time explaining that to physicians, actually, because they don't... They just need to understand that you can decide your level of risk depending on where you want to be in the capital stack, and then you can decrease your risk by being in multiple asset classes that are not correlated with each other.
Okay, do you want to tell me more about that?
Yeah, you know Ray Dalio? He's like one of the most well-known hedge fund managers.
Yeah, probably the most famous!
So, he wrote a book called "Principles," which tons of fund managers look at. A big chunk of the book is based on reducing risk by the Holy Grail principle. The Holy Grail principle says that if you invest in 8 to 12 asset classes—like 8 to 12 different buckets that are not correlated with each other—like stocks go up and something else goes up, that's high correlation. If stocks go up and something else goes down, that's inverse correlation.
So, things where it's really mixed up—like the variables driving them are really mixed up—you can reduce your risk by 80%.
Wow!
So, basically, you're taking out four-fifths of the risk, which means your risk-adjusted returns are five times better, right? Because it's actually easier to decrease risk than it is to try to get a higher return.
Okay!
Most markets are pretty efficient. So, like, let's say somebody sneezes on Twitter; the stock price moves in a few milliseconds, right? It's kind of hard to find the inefficiencies of the markets to get that extra alpha. And alpha is like how much money you make more above the market average, right?
It's hard to get that alpha, but people don't focus that much on reducing risk with real diversity and understanding where they could place themselves in the capital stack. Those two things, if investors understand those two things, I mean, you know, they're going to be cruising.
So, what exactly do you mean by... I think I know what you mean by capital stack, but how do you explain that too?
So, whenever we do capital formation, there are a couple of places you could be. So, let's say, unless you want to take down an apartment complex or a hotel. So, there's the first position debt, which is usually the bank, right? The bank is in the least risky position because when the thing sells, who gets paid back first? It's the bank.
The bank!
And then who gets paid after that? It'll be the preferred equity or whoever the preferred debt is. Preferred just means before common. So, it goes preferred and then common. So, if you're preferred—anything preferred, preferred equity or preferred debt—you're second in line for the money, and then you have the common equity and common debt. Also, there can be secondary debt. All that stuff gets paid last.
So, imagine you're in line at a cafeteria in high school, and it's Friday—it's pizza day. You know, if you're not... People that are first in line, they're getting their pizza. If something goes bad and, you know, the chef leaves or there's not enough cheese or something like that, you know, the other people waiting in line might not get any pizza, or they might lose out.
So, in some deals, if you're way back in line, you might not get any money back, or you might get less. But if the deal is good, you'll end up making more money because you took more risk. So, the common equity actually makes the most amount of money, you know, because what's the bank making on a multifamily deal? They make their 6% right now, right?
But the limited partners who are in second position, way later in line to get the money, they're looking for, you know, 10, 12, 14%, whatever their magic number is, right? You can decide where you want to be in that stack.
So, for example, when people get older and they don't want to mess around with losing all the money they made, they might just want to be hard money lenders and lend as first position lenders, which is great. Imagine you buy a house; these guys are buying houses for 70 cents on the dollar. They have a 30% buffer. If that fix-and-flipper or that developer doesn't finish the deal, they get a 30% buffer before they even break even.
So, they're, you know, relaxing in the sun and getting their 9, 10, 11% return a year.
Yeah, that makes sense!
And then, if there's a pref of like 6 to 8 percent, you want to... You're going to get that, right?
Yeah, I get what you're saying. Now that you explained the pizza line, I was a little bit lost, to be honest, when you said capital stack, but yeah, I get what you're saying now.
Yeah, and so you have the combo, right? You have what you were saying right there. Some people do a pref payment, and then you get an equity kicker at the end. So, the pref payment is coming before the managers. So, the managers are getting the common equity, like the GPs get the common equity. So, the investors are getting their pref—let's say 6%. They got to get that first, and then the GPs will... Then there'll be a split between the GPs and the LPs after that if there is anything there, right?
So, definitely, if you're coming in and there's a pref, that's a little bit less risky of a deal because you're coming after the bank, but you're coming before the GPs and managers, right?
Yeah, yeah, that makes sense!
And let's say you didn't want any equity, then instead of a 6% pref, you might just get a straight 9% pref. And by the way, the reason debt is so popular right now is imagine if... Because interest rates are up, when you're on the equity side, these things don't pop off like they used to for the equity players. So, we might as well take more risk and do high debt because the cost of debt is up.
So, you might as well be on that side when interest rates are low, and it's easy to borrow. All the deals look better on the equity side. So, depending on interest rates going up or down, you know, the market will see one place being more favorable than the other from a risk standpoint.
So, debt funds are really... Debt funds are really hot right now. Even people putting together money for first position debt at 9%, they're raising like hundreds of millions of dollars.
Wow, okay!
Yeah, I've heard of debt funds. I was looking at doing a debt fund. It seems like something you'd need to go... It seems like you would need to be more of like an operator, though, to be raising for a debt fund.
Well, there... You don't have to because when you do... When you do debt, let's say... So, one of my friends, he raised just last month—he raised about $3 million in a 9% debt fund. So, he says, "Hey, you guys are going to get..."
Break that down for me!
Yeah, so now he can take his fund, and his fund will invest in whatever I can. And anything he makes above 9%, he's going to get that as the manager, plus probably a 1% admin fee somewhere in there for doing the work.
So, like an AUM fee, like 1% of the $3 million, he's going to get that just for doing... for his labor, and then his bonuses or performance is based on what he could lend at above 9%. So, if he's lending at 11%, he's making that 2% spread, and so that's how he makes money. But it has to be first position.
So, if he's... If he can get first position debt at 11%, 12%, I mean, good for him! That's not that easy to do, but he's doing it.
Okay, so if I had a debt fund and I raised a million dollars or $5 million, I can lend that out to... Could I lend that out to a fixing flipper?
Yeah, if a fixing flipper wanted you to charge them 12 and 2, that's pretty standard in Texas—12% interest for nine months, plus 2% on points for doing the loan. And you would keep that 2%, and that's almost like what you get paid for putting the deal together.
Just like any loan has some, you know, closing points on it, right? That's what you get for actually doing the deal, and the spread is whatever you can get. And then the LPs get their 9%, but they're not doing any work; they're chilling, knowing that you're doing all the work to get them good first position debt, which is the lowest risk.
They're at the front of the pizza line!
Right! That makes you put them at the front of the pizza line in a big way without them having to leave their couch.
Yeah, so if somebody just... I think my audience is kind of more beginners. Maybe there's some super advanced people, but just to explain the point, so if, let's say, I lent $300,000 to somebody, I would get two points—that would be $6,000.
Yeah, $6,000 right there!
Right, and then I would get the difference of 9% and like 12%, whatever that is when it comes back. So, you get basically 5% of $300,000, which would be like $15,000.
Yeah, for being the middleman!
Correct! And you should have a team doing the underwriting. If you're not doing it, you're going to be sharing some of that money with the underwriter. You might have to go out to the property; you're going to be looking at appraisals.
So, there's some analysis—basically, you know, sourcing deals and underwriting them. And when it fits the buy box of this lending fund, this debt fund, then you pull the trigger and then do a couple docu-signs and knock it out.
That's super hot right now because interest rates are... Interest rates are so high anyway.
So, it's just... It just makes sense!
Okay, so interest rates are high; put this together, and you can raise a lot of money for first position. Imagine 80% of the deal when you close a multifamily is usually first position debt, but it comes from the bank.
So, imagine you could be the bank, basically!
Yeah, sounds awesome! That sounds great!
And then you're explaining to people that you're secured because you're in first position, right? Let's say if you're raising money from family offices or institutions, they probably don't want to be LP in a multifamily deal, but if you gave them first position debt and you say, "Yeah, you're in the Texas triangle, and the default rate is less than 1%, and you're doing, you know, low LTVs—like 60%," they'll give you $100 million!
Really?
Yeah, and you have to have a track record and, you know, get to them somehow, which is not easy to do, right? Just pick up a phone and say, "Hey, can you give me $100 million?"
But, right, you have to put it all together and...
Right, right, of course!
Were you going on... You were talking about the Holy Grail thing?
Yeah!
Were you done with that one? Because you were saying you were talking about diversifying.
Oh, I have a whole presentation on that. It's like a 40-slide presentation, but, you know, in general, there's a guy named Markowitz. He won the Nobel Peace Prize like decades ago for coming up with this theory. He proved with mathematics that if you invest in eight or more, you know, low-correlated asset classes, you can reduce your risk by 80%, and your returns are still the same.
Yeah!
So, that was Nobel Prize-winning math on investing that almost nobody does, but, you know, the top hedge fund managers know about it and try to do some of that. And then somebody won the Nobel Prize on it, but nobody really does it in practice.
But, you know, we try to do that at Beluch Capital. That's why we're in a couple of different asset classes that are not correlated.
Oh, okay!
So, how do people, if they're like, "I don't know which one to do?" Like, for example, I just talked to somebody that has a ton of money in Nvidia, and they just made a ton of money in Nvidia.
But then I was talking to him about how he probably should diversify, even though his Nvidia is doing super awesome right now.
How do you, like, go about that? Do you just pick, like, what makes sense to you, what you like?
Question: What's a good way of going about it?
So, if you don't know what your priorities are, what you feel comfortable with... So, for example, I feel very comfortable with real estate. If I put a larger percentage of my portfolio in real estate than the average person, I'm going to do better because I know it better. I can underwrite it better; I get better deal flow there. Everything is better for me in real estate.
Now, what is a standard portfolio? So, what I do is I show people, you know, Yale and Harvard endowments and how they're split. They do about 30% private equity; they do about 25% real estate; 22% public stocks; and the rest is whatever, right? Whatever those small pie charts are.
So, if you... So, a third of what they do is private businesses, and that's what doctors are the most underweight in because they don't have access to good private businesses, right?
So, they should try to look for those, and those are long-term plays—usually, you know, seven to ten years. And if they don't... A lot of people, they like the Nvidia because if they don't like it, they just push a button, and it goes into cash.
Private equity is the opposite. You put your money in, you know, you might not see that money come back for a decade.
And then real estate, you guys for the most part know real estate. There's a bunch of asset classes under there, so people can get into real estate. And even those different real estate asset classes...
Oh, I lost you! I cannot hear you, Dr. Bouch!
Oh, hey, I lost you!
Oh, I don't know what happened. Right here it says I have my internet signal. Something with the software. I'm still running; I'm still running. My internet's working. You just kind of disappeared. Hold on a second. I don't know if you could click the link back in.
I clicked on the link. That's never happened before!
Yeah, that was kind of... I've never had that happen to me either, actually. Now my internet is saying that it's out.
Oh, okay!
Like, and I have two different internets coming to my house, so let me get on the second one.
I know!
Trying to jump back in.
Entering studio.
All right, here we go!
There you are!
All right, sorry! We were talking about the portfolios of Harvard and Yale.
Yeah, right!
How those are up...
Yeah, 30% private equity or something like that, right?
So, you could look at that as maybe like a little bit of a goal, but let's say, like, in my example, I get so much real estate deal flow, I'm just cherry-picking left and right. So, I'm going to have, for that reason, I'm going to have better risk-adjusted returns if I do more in real estate, right?
So, I don't have that much deal flow in crypto, and I don't understand it as much. So, if I don't understand something as much, I'm more likely to make a bad decision if I don't have enough deal flow. If I just have one deal that I know I've ever wanted to get into crypto, I mean, I can't really cherry-pick, right?
So, a lot of it is about deal flow—your acquisition. How are you acquiring deals? Can you underwrite it? How familiar are you with it? Does it meet your liquidity needs? So, once you figure that stuff out, then you could put more or less into those different asset classes.
Okay!
One of my mentors, you know, he's actually a family practice doctor who sold the company for like $1.2 billion, but he does like 50% real estate, 40% private equity, and 10% cash. That's it! He doesn't look at anything else. He's killing it!
That's awesome!
Yeah!
Well, I kind of try to stick to around an hour. I feel like we could talk for like an entire day if we...
You got my... You got my cell phone, so you know if you like learning about securities and things like that and capital formation and portfolio structure, that's kind of stuff that I do.
Yeah! What would you say is, like, some advice that you would give to somebody that's a doctor and they're, like, trying to maybe work a little bit less? Like, do you think they should stop working as much? Like, what's your advice to somebody that's trying to, like, get started in investing and wealth generation?
Well, if they want to work a little bit less, I mean, it's always easier to spend less than to make more, right? So, you could definitely see your living expenses, and then you just kind of have to plan out how much less do you want to work. Just one day a week?
So, one of my general surgeon buddies, that's all he wanted to do. So, you know, within a couple of years, we got him that much passive cash flow; he just took off every Friday.
That's awesome!
He needed more off than that! So, once you have your goals written down and put some numbers to it, then you could start making a plan.
So, for example, if you know you need an extra $10K a month coming in, start working backwards. How much do you have to invest into what debt fund, maybe, right? If you want that, if you want it to be consistent, right?
Or if you're still piling up money, you're like, "Look, I don't want to take any time off," you know, or "I'll structure my life where I could take some time off and do like a hospitalist thing or something like that." That's one way to do it.
And then have, you know, do get bigger returns in private equity, but you're going to wait 10 years. But then after 10 years, you're a little bit ahead of where you would have been.
So, yeah, just planning. You know, actually sitting down and doing a plan is kind of hard to do because I think a lot of us are type A personalities; we want everything done yesterday. But, like, even a basic plan you could do on Google Sheets or something.
You know, I put one together for everybody that invests with me. I show them the portfolio stuff, and I say, "Hey, this is what it looks like, and over 10 years, it'll look like this."
Okay!
It's hard to look past 10 years, but yeah, I do that, and it doesn't take very long—like maybe, you know, 20 minutes.
So, at least have a plan. Definitely find some mentors that have been there, done that. Don't just get advice from the doctor's lounge. Try to go to, you know, go to places where this is like their job to put together portfolios and stuff like that.
And, you know, there are some bonuses too. If you guys reach out to me, you could do it on LinkedIn or BL Capital.com. For everybody that's a part of the Landed podcast, you can get a free copy of my book. It's a good primer to start. Don't have all the answers; don't look for all the answers in there; it's just a primer.
Okay!
And then we have a... We also have a 12-week boot camp you guys can get for free, just for financial literacy. And then, you know, if somebody has questions, just want me to point them in the right direction, you could book a one-on-one call with me for about 10 minutes.
And, you know, I could send people that Zoom link if they want it, just to kind of get some guidance to make sure they're not, you know, going the wrong direction for five years or something like that.
Get it? It's more like a clarity call!
Yeah, perfect!
All right, yeah, I'll definitely put links to all of your free things that you talked about in the show notes.
So, was there any lingering thoughts that you wanted to leave us with, or do you feel like we covered so much ground? I was just wanting to make sure that...
Yeah, there's so much to learn, guys! Like, don't be afraid of asking questions. You know, I know there's so many doctors out there that don't know what cap rate is. Just ask five times if you have to until you can explain it to somebody else.
While we were talking about, you know, capital stack, it's just a different term. A lot of people might know kind of a general idea of what that is, but not by that nomenclature.
So, just ask the questions! Don't be afraid to ask questions because you're just putting yourself behind by not asking questions. So, don't be afraid of that. I think as doctors, we don't want to ask questions. Like, when we were on rounds in residency, sometimes, like, "Oh, if we ask questions, the attending might think we don't know something."
Right!
But that's the only way you're going to learn!
Yeah, oh yeah! That's definitely probably one of the biggest... I've personally had, and I could see other people having, is like, you know, we've just sat in a room studying by ourselves and figuring it all out by ourselves.
Yeah, that that's like kind of ingrained, but I feel like real estate and business, you kind of have to do the opposite. You have to not figure it out yourself; you have to just talk to people.
It's a team sport!
Team sport!
Yeah!
All right, well, I appreciate you coming on my podcast, Dr. Bouch. So, people can find you at... You said BLuchCapital.com? Is that what that was?
Yep! Or you can just find me on LinkedIn—Amir Beluch. I should be maybe one of the only ones on there with that name.
Yeah, you'll be back!
Yeah, in Dallas, I should be the only Amir B in Dallas, at least, I think.
Yeah, perfect!
All right, well, with that, we'll just end the podcast. Thanks, everybody, for coming!
Sounds good!
Talk to you guys later!
All right!