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Syndication with Omar Khan

Syndication with Omar Khan
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Dave Debeau [00:00:09] Hey, everyone, this is Dave Debeau with another episode of the Property Profits Real Estate podcast and today, zooming in all the way from Oklahoma City. Is that right, Omar?

Omar Khan [00:00:18] Yeah, I'm near Oklahoma City. I mean, I can tell you the name. It's eight Oklahoma, but you probably won't even know where it is.

Dave Debeau [00:00:25] I probably

Omar Khan [00:00:26] wouldn't. I didn't also know where it is till I actually got a place in Perovic.

Dave Debeau [00:00:30] So Omaha is a very, very interesting gentlemen to be talking with because he's got a very international background, especially when it comes to real estate. Investing is done. Deals in Canada is focusing on deals in the United States. So I'm really looking forward to talking with Omar about syndication, for raising capital, for doing multifamily properties in the States. So, Omar, welcome to the podcast.

Omar Khan [00:00:59] Hey, thanks, Dave. Pleasure to be here.

Dave Debeau [00:01:01] All right. So first of all, why don't you tell us just briefly. What is it that you're really focusing on these days when it comes to real estate investing?

Omar Khan [00:01:10] Well, primarily is multifamily, which is essentially a fancy way of saying apartments. And what we do is we only invest in the southern states in the US. I live here, but there's also a whole host of other reasons we can get into and not base. Because I'm a Canadian citizen. I've lived in Canada for the longest time, but I also grew up in a few other places. And if you go to international schools, I went to a good private school. But then also University of Toronto, very international, worked in Toronto, worked in Calgary. So you didn't have a good enough network, especially if you're working in finance because everybody's an investment professional. So because of that, it's allowed me when I moved to the US to move into these sorts of fields pretty easily because of my personal and professional background. But I also had access to a network of investors, which is obviously going know the more deals you do, the networking groups. So that's kind of neat in a nutshell. What I do.

Dave Debeau [00:02:00] Well, it's really interesting. What I find really interesting as well, Omar, is just the whole mindset, because so many of us here in Canada, especially Canadians that are born and raised and just plan on living and dying here, they have no concept of perhaps living overseas or living in a different country for a while or doing business in another country. Personally, I had a little bit of experience of that. I lived overseas for 14 years in Latin America.

Omar Khan [00:02:25] So that's a little bit more than a little bit on a lot of it. But it's been a while. It's been a while.

Dave Debeau [00:02:32] But it is really it does give you a whole different perspective. So are you coming from outside of Canada, moving to Canada, going to school here, becoming a Canadian citizen, but then hanging around with people from around the world? You're more of a global citizen than stuck to any one country.

Omar Khan [00:02:47] Yeah, I know that's a that's a derogatory term these days. You know, people don't like to say, but yeah. Look, I mean, I'm not going to apologize for the fact. And look, I picked up a lot of things along the way, which has basically helped me when I moved to the US. It helped me move very easily, number one, because I feel like even if you're Canadian and you want to live in Canada, I always suggest people look, if you grew up in Calgary, move to Toronto, Montreal, Vancouver, once. Nobody's saying you got to stay there forever. Or if you're in Toronto, move to Vancouver, Montreal, Calgary, Edmonton, and God forbid, Winnipeg was, you know, because it helps you understand it, just the whole process of moving even within your own country. But it also helps you understand that, look, there's a whole world out there and people look and view the same things very differently. And a lot of times it's very good to have different perspectives. Now, you don't have to always go down that rabbit hole, but he's got to understand where other people come from because you can always pick up small little things from people, attitude or toolkits. You become a more holistic, well-rounded person. Yeah, very, very. Even if it's, by the way, the same country, because a lot of Canadians feel I knew this for a fact when I was moving to Calgary from Toronto. And I would I mean, I'm in downtown Toronto and went to school there. I worked in the financial district and most people were like, well, they don't see, you know, what happened. You died in the wilderness. Right. And I'm not joking with you. You laugh at it now. And that was kind of like the unsaid sort of thing rival I do come from. And it's just not the same thing, you know? I mean, it's

Dave Debeau [00:04:16] I know I got a good buddy who lives downtown Vancouver. He's originally from Hong Kong. And I remember I invited him to Kamloops, which, to give you a perspective,

Omar Khan [00:04:25] is about it. You would think you were inviting him to Mars. Yeah, three and a half

Dave Debeau [00:04:28] hour drive from Vancouver, which we do all the time. And to him, that was like a major, major trip because his whole world focused around downtown Vancouver.

Omar Khan [00:04:38] So, yeah, it's like fifty blocks of downtown my Couvreur or downtown Toronto. And that's it. That's your whole world.

Dave Debeau [00:04:43] Exactly. So why don't why don't we jump right into it? Why don't what I'd really like to find out from you, because you've got such a a strong background in it, you know, the Canadian perspective and now you completely understand how things work in the States when it comes to raising capital for multifamily properties from Canada. There's a few different ways of doing it. You focus on syndication. So, you know, Reader's Digest level explanation. When somebody in the states wants to work with a joint venture partner or a money partner on a deal, what are the kind of the big picture rules and regulations around that?

Omar Khan [00:05:26] But no one is heavily regulated. And just to let you know, I'm an operator who also happens to raise our own money for my own project. So as opposed to a lot of folks we find online and again, there's nothing wrong with it, but I'm just getting the whole picture. A lot of folks are capital reserves. The problem a lot of times we just capital reserves is that for the lack of a better word, they're there guns for hire. Right. And look, you might have a good experience. You might not have a good experience in the problem, because if you're not dealing directly with an owner operator, the problem becomes that whoever sold you the deal. Well, at closing, as in when you give the money in. Take over the property, they basically receive 90 percent of their income and now they can just walk away, right. So they have no incentive long term, more often than not, basically see it all the way through the end. But an owner or an operator like myself, I'm obviously I'm not the only one. There's so many other people out there. We have to keep going back to the Web multiple times. Right. Because we're developing this is our livelihood. Right. And we're like

Dave Debeau [00:06:32] musically as the owner operator, you don't make any money unless your investors make money.

Omar Khan [00:06:36] Exactly. And the thing is that what I can do is I would go one day, mark another, Jim another, and I just kind of spread myself like that, right. I do plenty of the year. I can tell you as an owner operator, not even extremely big, like mega companies are doing 20 deals, big deals. So you've got to realize that there is a difference in the incentives that each person has as an owner operators more long term. They've got to look at long term capital. He's got to look at you for right now. How much money can you give me? Right. All right. So that's a big difference that's being said, because these are shares. You're buying the real estate. But what you're buying is a share in a company that owns real estate.

Dave Debeau [00:07:16] OK, so maybe back up and explain to us, how does it typically work for multifamily deal in the States when you're you're syndicating it out?

Omar Khan [00:07:27] So it's a very simple process, how it basically works. And let's assume there's a 30 million dollar deal right now to close on a 30 million dollar deal. Even if you've got a 70, 75 percent LTV loan to value, you add all the closing costs. Maybe you need like seven or eight million dollars cash. Just right now. Most people don't have seven to eight million dollars lying around. Right. Or they maybe never will have seven to eight million dollars. So what you do, like any other company or any other firm, any other mutual fund company and an operator as an example myself, will go to our list of investors and say, look, this is a great opportunity. I found this out, the financials, all of that stuff. And hey, we've got to raise seven to eight excuse me, million dollars. So my average investor trips anywhere between seventy five, two hundred fifty thousand dollars at a time. And some are more and some are less. And this way we raise the money now we raise the money. In the meantime, my group, which is me, basically I'm heading it will take care of the debt and all of that stuff because our investors are basically getting passive returns. They're not actively involved in the day to day operations of things. Right. So we'll do all the operations, the heavy lifting, the construction, the debt, pretty much all of that stuff. The other thing a lot of folks will realize is that a lot of folks say, well, I want to do my own thing. Well, the thing that people don't realize from a legal point of view isn't necessarily that you can't or can't do the deal, that as a limited partner, you have limited liability. So as an example, if things go south, you can only lose the extent of the worst. You can only lose the extent of the money you've invested. But when your name is on the loan documents or when you're the operator and you know, there's there's a paper trail to show that you're you know, you're the operator. Yeah. You have unlimited money. So things will out there to do. Somebody sues you for ten billion dollars and they win and you're investor equity was only, say, 10 million dollars. Well, the rest of it, a guy like me has to bring out of his pocket. So a lot of folks, what they don't realize that a lot of times I've had investors coming. I want to do my own deals. I was like, well, yeah, you should go out and try doing it. But your lawyer will immediately tell you, forget about the money and forget about the returns. Are you even comfortable taking that much liability on your head? So a lot of people look at it from cash or income, I look at it from a liability perspective. So do you or do you not want to take it on? Right. So please note that.

Dave Debeau [00:09:57] OK, so Omar, again, for for people that aren't familiar with that. So basically, let's say that 30 million dollar deal, you need

Omar Khan [00:10:05] 70

Dave Debeau [00:10:06] million bucks, you're going to buy the property within a a limited period of corporation. Right. And that's the thing in the States. There's a ton of different kinds of corporations. What kind you typically.

Omar Khan [00:10:19] So if you're if you have Canadian investors, so please people to please note that. And I can share a link to an article I have also, if you are a Canadian investor investing in any sort of US based syndication entity, whatever it is, the big advantage to investing in U.S. real estate is the amount of tax write offs you can get. Essentially, what's a fancy way of saying that? I can be depositing cash in your bank account because the returns they're generating. But on paper, I can be showing a loss because of their tax rules. So essentially, net net, you're getting cash in the bank, but you're not paying an income tax on it, if that makes any sense. That's why it's very attractive to invest in real estate, because these are tax, which are specific tax breaks you get in the US that you don't get in Canada. The problem becomes that if you just go invest in and this is really technical, I don't want to bore you to death, but it's very important that if you are investing in an entity which is an LLC or limited liability company. This so, you know, when you get these tax breaks, the CAC out for the lack of a better term does not allow you to take these tax breaks. They don't view this entity as a pass through entity, the mortgage debt. So what you have to do as a Canadian is be vigilant and know that every time you're investing in a syndication or any sort of entity like this, you have to be investing in an entity which is and be a limited partnership, because that is the only type of entity that the CIA and the IRS, which is the CIA equivalent in the US, both consider for you to be able to get those tax benefits passed through without any hindrance. And I know it's a technical concept. A lot of Americans syndicators, when you talk to them, you've got to realize America is so big and so rich, so many people live here that they never have to go out of America. And the other great thing which I love about America, I love this about that they assume that their laws apply everywhere in the world. So if it's an American law, why wouldn't it apply in Canada? Because it's a different country. They have we have our own laws. So when you ask us to most Americans in Canada who never had to deal with international people, they just put it in an LLC because legally in America, the difference between an LLC and an LP, it's not a lot or it's nothing. But for you as a Canadian, it is the difference between making, say, I don't know, one hundred dollars or twenty five dollars. That's how much of a difference it can be. So again, these are technical things I've heard.

Dave Debeau [00:12:54] I've heard nightmare stories of Canadians investing the wrong way in the states and just getting

Omar Khan [00:12:59] hammered by the tax whack their whack tier. Yeah. And what I'm trying to say, again, I know this is very cut and dry and so boring, right. But if you don't do it the right way, you are literally throwing money down the toilet. Yeah. So that's what I'm trying to say. There's no use for you to do it without understanding.

Dave Debeau [00:13:17] OK, so syndication this is a way for you as an operator to raise capital from people and still stay compliant with the Trade Commission. Big picture. What what are some of the rules and regulations around that for operators for for raising capital?

Omar Khan [00:13:33] So I can tell you this, No. One, there can be no instance of variable compensation. By the way, this is not just with the Trade Commission. This is the Securities and Exchange Commission, the SEC, because the Securities and Exchange Commission, whether it's a public company or a private company like ours, we still have to file our contracts in compliance with their mandate. Right. So basically, no one you can't beat, as I said, a gun for hire. So if some guy you hear online and there's so many of these guys that are raising money for this thing or that thing that is straight up illegal, you cannot do that because there's again, there's a technical reason for that. The technical reason is that the FCC says you have to be licensed as a broker dealer because, again, there are issues that bring issues like liability and having a license associated with it, just like you're in any trade, you need to have a license for that trade. So if you don't have a license and operate in that trade, there are penalties associated with you doing that. And the problem becomes that the penalties are not just from that person. Let's say who was doing the infraction? You as an investor, your money will now be stuck in a deal which is non-compliant. So then you will never be able to get that money out. So. Right. You have to understand, whereas you might not be charged with this little thing, but it's your money at the end of the day, right? I mean, that's all you care about. So I'm not trying to be alarmist. What I'm trying to tell you is there are structures, rules and laws in place. And typically the easiest way around this is to deal directly with owner operators because they have some exemptions and then you never run afoul of.

Dave Debeau [00:15:10] So I guess that's what he's going to ask, what are some of the rules around you as an owner operator raising capital for your deals?

Omar Khan [00:15:16] For me, I have I it's called an exemption. So I have an exemption that I don't need a broker dealer license for my own deals. So I'm the operator. I'm the key partner involved in this. I can go raise money for this deal. No problem. But let's assume you as an unrelated party cannot come into this deal and only get paid to raise money. You need to have some sort of other operational or technical or some aspect of risk has to be associated with your involvement. Right. So what you can do is I have a similar deal together. I put my own money on the line. Everything happens. And then in the end, you just come in. You're a little bit of money. I pay you for that money. Boudicca, that can't work. Yeah. So I have that as an exemption because I have bought my own money and my own company at risk. They give you that exemption. But some guy randomly can't just do this. And I know people do it. Yeah, I'm for hire. Yeah, yeah, yeah, yeah. I, I take a lot of people to do it, but I'm just telling you, what are the things associated with it

Dave Debeau [00:16:18] of our time flies when you're having fun and people want to find out more about you and what you're up to, what should they do.

Omar Khan [00:16:25] Oh, you can go to our website Boardwalk Wealth dot com Belliard walk wealth dot com. My email is over on the boardwalk. Well done.

Dave Debeau [00:16:34] Fantastic. Thank you very much for sharing your wealth of wisdom.

Omar Khan [00:16:37] Thank you so much for having me. I greatly appreciate it.

Dave Debeau [00:16:40] All right. Already take care and see you on the next episode. Bye. Well, thanks very much for checking out the Property Profits podcast. And you like what we're doing here. Please head on over to iTunes, subscribe read us and leave us to review it. Very, very much appreciated. And if you're looking to create a regular flow of inbound investor inquiries about your real estate deals, then I invite you to attend one of my upcoming live online demonstrations. And you can check that out at Investor Attraction Demo Dotcom Ticker.

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