In the first part of the show, Jason Hartman talks about economic recovery, robotics evolution, and an article about rent increase. Afterward, he welcomes Richard Wilson to the show to discuss family offices. Richard shares that a family office is a money management system for the wealthy to curb costly mistakes. He also discusses multi, single, and virtual family offices and the traditional and creative ways to work with families.
Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
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Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11, states had hundreds of tenants and been involved in 1000s of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day, you really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:03
Welcome, welcome. Welcome. This is your host, Jason Hartman. And this is episode number 625 625. Thank you so much for joining us today from 164 countries worldwide, we’re glad to have you. We appreciate you listening. So Gosh, so much going on in the world. There are signs all over that what I said many years ago, is finally starting to show not that it this is wasn’t even really a prediction, I will say but just that we’re you know, the economic recovery, the quote, recovery, unquote, is likely a myth. You know, there are so many signs that we’re seeing around the world now, of, you know, really some some some very disconcerting things, whether it be a reduction in rail, and shipping traffic, whether it be the robot revolution that people are claiming could cut 5 million jobs in the next four years. Now, you know, every technological innovation always seems to lead to just a better life in general, you know, so is it gonna be any different this time, I don’t know, you know, the new software update for my Tesla and many other people who own Tesla’s now it has a feature called summon, where literally, it’s like that show that you might have seen on the reruns. Or maybe you grew up with it. nightrider. Remember, he had his car kit, and he would talk to the car and give it commands on his watch. And it would come get him and rescue him from people firing gunshots at him, and so forth. Now it’s real.
You know, what about all these kids that do valet parking as a job or not even kids anymore, you know, now, mature people are valet Parkers, because the economy has not created real corporate jobs the way it did in the past. And I’ll just tell you from my own personal experience, now, this is obviously very subjective, very much anecdotal. This is not, you know, some statistical survey done properly. But just my own experience from the young people I know. And the women I date, you know, years ago, it seemed like they had real corporate jobs. I remember my ex girlfriend, Leslie, she was a contract negotiator for a big health insurance company, my ex girlfriend, Beverly, she was a chemical engineer with Dow Chemical. Gosh, you know, I can’t even think of the others. I mean, they but they all used to have these sort of real, I’ll call them that real corporate type jobs. And now, you know, there’s a bunch of hodgepodge of freelancing and entrepreneurial things. And, you know, well, I’m a yoga instructor on the side. I mean, it’s just not the same world. And some of this is for the better. You know, certainly it means a lot more freedom. I mean, nobody really liked the nine to five or eight to 7pm cubicle job, right. So that has changed, maybe it is for the better. But those $70,000 a year corporate jobs. They just ain’t so common anymore. You know, that’s just not the thing. And when you look at the robotics Revolution, the first cuts will be the $15 an hour burger flippers in Seattle. I mean, that’s a disaster. An epic disaster. If you ever saw one. It’ll be the Uber and Lyft drivers, the taxi drivers. You know, this is what Joseph Schumpeter the economists called Joseph Schumpeter, the economist called creative destruction, creative destruction. But is it possible that the destruction is not always creative? Now the people who suffer initially from the destruction? You know, they don’t feel it’s very creative at all. But usually it leads to better things. And that’s good. But you know, it’s gonna be interesting how it how it all plays out.
I mean, Bill Bonner was out with an article recently. And it says the entire recovery is one giant myth. And God, I was saying that seven years ago, well, he probably was, too. I’m a huge bill Bonner fan. We had him on the show before, you know, he’s definitely a pessimist, I would say. And so, as I always say, it’s an amazing time to be alive. And well, you know, ultimately, I think it is. But of course, it depends. Where you find yourself in the scheme of things. Do you find yourself in one of these jobs that can easily be outsourced to a robot? And those jobs will surprise us? And is this bad? You know, initially, it might seem like oh, my God, this is gonna lead to massive unemployment. But maybe we don’t need jobs. Maybe we just need the stuff jobs create, maybe we can really have a robot economy, hey, let them do all the work, just like we do with China. You know, the the folks in the US, you know, those manufacturing jobs, they’ve gone overseas? Well, hey, let them let them sweat. You know, let them do all the work. While we while we get all the benefits, and we really do, by the way. So you know, that’s, that’s why the prices are so cheap, of everything virtually. But, you know, as I’ve said before, China, is possibly the last big, untapped cheap labor market. Because after China, really all we’ve got left for the global economy to exploit. And I don’t necessarily say that in a negative way. Although it might sound that way. When you say the, you know, when you when you use the word exploit, all we’ve got left for the global economy to go after is Africa, the vast African continent of potentially cheap labor. And there are some signs there of, you know, economies that are getting their act together, but not many. Okay. So Africa is not China, and China is certainly not Africa, we will see, we will see, but in the meantime, rents are skyrocketing. Are you happy investors, rents are going up. In fact, this is a Business Insider article about rents increasing in 2016. It says that this is a Zillow forecast, by the way, it predicts that rents will pick up this year from that, you know, this is just the average right? So it’s hard to do this, really. But they’ll pick up to 13 $196 per month from 1381. So that’s not a huge increase. But then it depends where you are. depends where you are, right? Overall, it talks about how rents have increased dramatically over the past few years. In the US in 2013, nearly 21 million renters are living in homes they couldn’t afford. And now what does that mean?
Well, renters just like borrowers, when you go to invest in an income property, you have what you have a dti, a debt to income ratio, right? So they say that a renter can’t afford their house. And the way they define this is by saying that more than 30% of their income goes toward housing. More than 30% goes toward housing. That means it’s unaffordable. Well, let me tell you folks, having lived in San Diego for the past six and a half months, I you know, I had to move here for my tax benefit, hey, if I can get some money back from the Socialist Republic of California, doggone I’m going to do it, because I have paid into this state dearly for many, many years. And I’m going to tell you in a moment that that’s all gonna change. I’ll get to that in a second. But I’ll tell you the standard of living for people living in San Diego compared to Arizona is far lower in San Diego. In fact, and I think I might have mentioned this before at the risk of repeating myself, but maybe I didn’t say this. You know, the website dog vaycay and rover.com if you’re a dog owner, you know this right? Because these are great like Airbnb sharing economy websites. for dogs, when you need a dog sitter, and you go out of town, you go on a trip, people will open up their homes to babysit your dog to earn extra money. And I used this when I lived in Phoenix, and I’ve used it here in San Diego many times in both places. And let me tell you something, the prices in San Diego are much higher for dog vaycay or rover.com. But also the the relative first world squalor. Do you like that? The first world squalor that people live in here, compared to Phoenix where they live in much nicer places, you know, detached homes with yards, right? And they charge maybe $30 per night. Versus in San Diego, you’ll have to pay 40 $45 per night. And these people are babysitting for dogs and little tiny crappy apartments. It’s unbelievable. The standard of living is so much lower in the expensive real estate markets.
So this is what will happen. As I’ve predicted for 1011, maybe 12 years now, that the standard of living for hundreds of millions of people, that means like, over 200 million just in America will decline. But around the world, it will decline for many, many others. For some it can’t decline much because they’re coming up from the bottom. You know, what is it like two thirds of the world lives on less than $2 a day? Hmm. Keep your perspective in check and be grateful for what you have. Because if you’re listening to this, I bet you’re not living into on $2 a day. Okay. So, you know, there’s all these perspectives, we’ve got to keep in check. You look at these expensive real estate markets, like San Diego, and you just think, is it really worth it? And you can you can now summon your Tesla to come to you. Right? So this is coming, Ford has made a huge initiative, right to bring low priced, autonomous, self driving car features to the masses. And they will Okay, this is a revolution Do we need to pay a massive fortune for real estate in these high end markets? I say no, I say there’s going to be massive downward pressure on high end real estate markets. It’s a prediction. Let’s see if it comes true. So speaking of high end markets, I have served my time I had to to qualify for my tax write off. I had to live I had to move back into the Socialist Republic of California for six months in a day. And I’ve lived here for well over that time. And now I’m going back. Yes, I toyed with the idea of moving to Florida, I really do want to live in a no income tax state. But you know, I loved my four years in Arizona so much. I just miss it. Yeah, I know. You think it’s hot, but the weather is better there. Overall, it’s much better than San Diego. I gotta tell you in San Diego is supposed to have the best weather in the world. I disagree. The summer here was hot and humid and really kind of awful. And it’s been cold and freezing. And the cold here is like this damp cold. It’s different than the dry cold in the desert. Although it may be the same temperature. I don’t know. I just cannot make the math work in these in these high tax states. I mean, I will pay if I stay I figured, you know, I never lived in San Diego, I lived in LA grew up in Los Angeles lived in Orange County as an adult. And you know, like the mall for a time. And I thought you know, San Diego, that’s probably the coolest place in California. And I do like it. But I gotta tell you, the infrastructure here has fallen apart, the roads are terrible. You go to parking, there’s no place to park, you know, it’s crowded, right? It’s a crowded, expensive real estate market. So, you know, I’ve argued many times that the lower priced real estate markets actually have a better quality of life. And I still believe that, you know, I’m not evaluating every factor. Of course, you have to evaluate things like school districts, if you’re a parent, and a bunch of other factors jobs if you have a normal job, but, you know, for many years, I work to be geographically independent. I’m going to use that freedom. I’m going to live in lower tax nexuses. And ultimately, I want to live in a no income tax or no income tax state. Of course, you can’t get away from the feds the long arm of the Obama regime, they will get to you.
Okay, so hey, we’ve got so yes, I am moving. So that’s the big news I wanted to share with you. Okay, so we’ve got a great show. for you today on something you may not have heard of, this may be a new thing. It’s called the family office. Now, it’s been around for a long time. But maybe you have or haven’t heard of the concept of the family office. And this is a place where wealthy families invest, they buy a lot of real estate, and they manage a lot of real estate. And there are opportunities to work with these family offices as real estate investors. So listen up for that, I think you’ll find that interesting. But also, I really will, you’re listening to this interview with our guest, Richard Wilson, I want you to think about your real estate investment portfolio as the concept of having your own, maybe, maybe you’re an individual, maybe you’re a single person, maybe you’re a couple, maybe you’ve got kids and, and those kids are, you know, eight, nine years old, and they may never learn to drive, because they won’t need to the self driving car. Imagine that. Think about your kids, if your kids are under 10 there’s a possibility they may never learn to drive a car. If your kids are under five, they probably never will learn to drive a car. You know, it used to be Will you ever learn to drive a stick shift? Right? I love driving a stick shift. By the way, it’s so fun. But you know, now hardly anybody knows how to drive a stick shift anymore, right? But soon, nobody will even know how to drive a car at all. And it’s arguable that some people don’t know how to drive a car nowadays. My mom being one of those, yes, I can’t wait till she gets a self driving car. Because mom needs it.
Let me tell you. I always bugged my mom about that. But yeah, I want you to think of your real estate investment portfolio as a family office. Okay? If you own six properties, just a six pack of properties. I want you to think of it like it’s a family office. You’re in this for not just your own wealth, but to create, hopefully generational wealth for your family. Okay, so when you’re listening to this interview, and we talk about family offices, model and emulate the wealthy, you know, as Tony Robbins always says, success leaves clues, success leaves clues. And this is a big clue. It’s a way to think of it think of your real estate portfolio as a real business, a family office, and model some of these ideas that you hear on a smaller scale. You don’t have to have 20 3050 $100 million to model the concept and view this as a way of thinking for your own real estate portfolio. Hey, before we get to our guests today, I want to tell you about some of our upcoming shows. We just planned out the next 20 episodes, and we have got so much awesome content coming your way. Our next episode 626 we’ll have Gino the founder of cozy. We’re going to talk about tenant screening, rent collection and self management. We had his colleague on before that was Lucas with landlord ology that was a company that Gino and cozy acquired.
But you’re going to hear from cozy themself on the next episode, and Gino spoke at our meet the Masters event. So I think you’ll really enjoy that flashback Friday, financial planning with publisher of the Nerds eye view. That’s going to be a fantastic episode. And then next Monday, we’re gonna have john Taft talking about a force for good, how enlightened finance can restore faith in capitalism. He’s the CEO of RBC wealth management. On the following episode 629. We’re gonna do a market profile, give you some more information on Orlando. We had our property tour there a couple of months ago, and we really want to hit on that market again, now that we’ve got a lot of clients who have had experiences there have feedback and, and things are going well. So we’re going to share some stuff with you on Orlando. And then we’re going to have another flashback. We’re going to do power end strategy with Robert Greene. Yes, the very famous author of many best selling books, Robert Greene talking about mastery power and seduction 48 Laws of Power on 631. We’re going to talk about and by the way, that’s a 10th show and the flashback Friday all in one on 631 renting to Uncle Sam, section eight cash flow property, also a Birmingham market profile. We’ve not been super happy with our relationship in Birmingham. So we’ve got some other ones and you’re going to hear from another relationship. We have there. And I think you’ll like that. And then Garrett Sutton who spoke at our recent recent meet the Masters event, his co author of a fantastic new book that I’m about a little more than halfway through now, Gerri detweiler, she’s going to be on talking about how to buy real estate or really anything else, using credit that you can create in your entities. So your LLC or corporation, that you may or may not have set up, or you may want to set up after you hear this interview. And you know, there’s so many hype stirs in that field, that it’s just nice to hear from a realistic, real world viewpoint of this stuff. On our flashback Friday 633. We’re going to be talking with Joel grass Meyer, the founder of property tracker, calm and talk about how you can use software to evaluate and manage your properties. And then 630 for commercial versus residential investing, is renting a waste and oil and the economy. Obviously, the decline in oil prices has wide ranging impacts. 635 we got Edward Klein. He’s with Newsweek and the New York Times Magazine contributor to Vanity, vanity fair and Parade Magazine. He’s going to talk about the election cycle and what’s going on there with these presidential candidates. We’ve got the hedge fund manager, James, all teacher, you’ve certainly heard of James, all teacher, all teacher con confidential, many best selling books, he’s going to be on with us.
Gosh, we’ve got we just got so many things. I’d take me another 10 minutes to explain the rest of the shows. But there’s a lot of great stuff coming up. So stay tuned for that. If you’d like to join us in Dubai. With venture Alliance, you can come as a guest venture Alliance mastermind.com. That’s just a couple of weeks away. also put a tentative date on your calendar for a another j h you Jason Hartman University event with some skiing and snowboarding Yes. We have never done an event here. But a partner wants me to come speak at their real estate club meeting. And I decided to stay the weekend and do an event there. That’ll be March 12, and 13th, tentative for Jason Hartman University and none other than Salt Lake City, Utah. Yes, Park city’s right nearby and it’s got the best snow in the world. So if you’re a skier, plan, some nice spring skiing, and a Jason Hartman University for Saturday, March 12. And Sunday, March 13. That’s a tentative date more as we get closer to the event, but you can get it on your calendar. Also, be sure to check out Hartman education comm Hartman education comm for our meet the Masters home study course where you can get everything audio and video online and view it at your convenience and repeat your views and so forth. Some great stuff there. We’ve been getting some very nice feedback on that program. So thank you for purchasing that. And be sure to go check it out.
All right, hey, let’s get to our guest and let’s talk about let’s talk about, yes. Let’s talk about family offices and high net worth investors. Here we go. It’s my pleasure to welcome one of the thought leaders in a space that you may or may not be familiar with known as the family office. Richard C. Wilson is coming to us today from Key Biscayne, Florida. And Richard welcome. How are you?
Richard Wilson 23:33
I’m great. Thank you for having me, Jason.
Jason Hartman 23:35
It’s good to have you on. So, you know, for the listeners who may not know, and maybe many of them have heard of this as well, what is a family office?
Richard Wilson 23:44
A family office is really a holistic wealth management, you know, full balance sheet wealth management solution for those individual individuals that are worth 50 million 100 million or a billion dollars plus. So in short, it’s a way to have a 360 degree control and management system over your money when you have a large enough empire that it’s worth paying for that full time dedicated help.
Jason Hartman 24:08
You know, some of the listeners might now be thinking, Well, my net worth isn’t 50 or $100 million. Why does this matter to me? Well, we’re gonna get to that. And you know, so is this is something that a wealthy person just decides to set up in order to manage their wealth. Right.
Richard Wilson 24:27
Correct. And, you know, to jump a little bit ahead on on the why it matters I can’t help myself is that wealth x said that there’s 14,600 Ultra wealthy individuals globally, who are all worth more than than $20 million, I think is the statistic they use.
Jason Hartman 24:44
Give us the number of that how many how many are there?
Richard Wilson 24:47
14,400 Ultra wealthy individuals globally
Jason Hartman 24:51
Considered 20 million and above
Richard Wilson 24:53
Right, and the number of centimillionaires, those were the 100 million dollars or more is increasing every day. These are people that are all around us, they own the sports teams that you cheer for, they control some of the politicians that you like and don’t like, you know, they own the building that you might be sitting in right now, you know, while listening to this podcast, so I think that, you know, while it sometimes can feel like it’s hard to find these people, you might not have any friends worth $100 million. They’re all around us. And they influence our lives every day. And they can be great Capital Partners as well,
Jason Hartman 25:25
You say Capital Partners, because they invest in deals, right. So they’re, they’re looking to, you know, maybe do what financing like private, private lending hard money financing on deals, and also take equity in deals, and maybe partner with you on a real estate transaction, for example, right?
Richard Wilson 25:43
Correct. I helped run one single family office and over the holiday break, you know, we invested in a $36 million note, on a building where a large corporate strategic was basically needing to get out from under that note, for corporate reasons. And so, you know, we took that over as an investment. So it’s just one example. But there’s so many family offices now globally, that if you look in any niche when people come to, you know, one of our family office events, and they say oh to family offices invest in X or Y? And the answer is always Yes. Because there’s so many family offices that invest in different things based on how their wealth is created. But later on in the show, I’m sure we’ll get to some of those big trends. And where do most family offices invest.
Jason Hartman 26:26
Now, I want to make sure that we don’t have any, you know, misunderstanding in terms of the language we’re using. You said, single family office and a lot of our listeners will think, well, I invest in single family homes. What is a single-family office versus is there another type of family office?
Richard Wilson 26:42
Yes, there’s basically three or four terms you’ll you’ll hear thrown around in the space. Family office is an umbrella term, and there’s really two major types, there’s a multifamily office where somebody might have five clients, 10 clients, even 200 clients that are worth 20 million or 50 million each, and they’re serving it. And it’s really like a high end, high end, very holistic wealth management firm, then, you know, that’s called a multifamily office. The other important term is single family office, it means you know, you sold your business, you’re worth 400 million, you want a full time team dedicated only to you not serving 10 other clients as well. And that’s called a single family office. And a new up and coming term that just people should be aware of, if they’re really interested in this is the word virtual family office, it just means a very small single family office, perhaps for somebody just worth 50 million or $75 million, and not worth, you know, 700 million or a billion dollars for a full fledged single family office.
Jason Hartman 27:40
Suffice it to say that, you know, this, these words refer to the number of families running the office, if you will, versus the type of investment whether it be multifamily home, you know, apartment complexes or single family homes. Just want to make sure we get that out of the way. It’s a minor distinction, you know, could could lead to some misunderstanding, how many family offices are there in the world? Does anybody know? It’s probably impossible to actually know that for sure. Right?
Richard Wilson 28:08
Right. It’s very secretive, there’s for sure over 10,000 family offices globally, and the industry is growing so quickly, right now, that, you know, eight to 10 years ago, there were zero family offices in China, Indonesia, Malaysia, who explicitly held themselves out as family offices, even in Moscow, and I was there five, six years ago isn’t a single one calling themselves a family office. And nowadays, there are family offices and all those countries, there’s dozens, if not hundreds, in China that are explicitly are identifying themselves as one. And it’s important to know that this term is an up and coming term. And this industry is really just, you know, taking stride and really becoming a more serious space. And the reason I bring that up is that the single-family office space alone, I think is going to be bigger than the whole family office industry in another seven or 10 years. So just being aware of this trend, I think is just valuable. And just knowing that this is going to be something you’re going to hear about more and more in the mass media and books and people that you work with.
Jason Hartman 29:11
I mean, this is probably this concept may be by under a different name has probably been around for decades. If not, you know, well over 100 years, I mean the, the industrialists of the day, the Carnegie’s and the melons and the Rockefellers. I mean, they basically I’m sure had family offices, right?
Richard Wilson 29:31
That’s correct. That’s correct. I think that um, you know, you could argue for 1000s of years and the way that the ancient Chinese used to organize, you know, some of their affairs or the way that a castle was set up to defend, you know, the kingdom. You know, you can argue that it goes back 1000s of years actually. And I think that the the important point is that now, a lot of families just had holding companies before and parts of the family office are really tying into, you know, this whole trend of having tomorrow formalized family office because there’s so many benefits to making sure that you actually have, you know, a family charter and governance in place and some of the more formal structures and processes. So it’s not just a loose Holding Company, which doesn’t typically mean it’s being managed all very holistically or professionally,
Jason Hartman 30:15
When was the term coined? I mean, do you know when how far it goes back?
Richard Wilson 30:19
For sure, it goes back at least 40 years, you know, I’ve seen it written in old articles and books as far back as I believe, the 60s and 70s. But I really think that if you looked at, you know, hedge funds, the word hedge fund, a lot of people in the public eye had no idea what a hedge fund did, even in the, let’s say, early 90s, late 80s. But some people in finance knew what a hedge fund was. Then they started being on the cover of newspapers, sometimes for fraud, sometimes for other reasons.
Jason Hartman 30:46
I love how you point that out
Richard Wilson 30:48
The 90s, and 2000. So they didn’t always have the best reputation. But at least the public was hearing about these things called hedge funds and seen them on CNBC. While we’re in that phase of family offices, where most people in finance have at least heard the term and they have a rough idea. But the general public has no idea. You know, I live in Key Biscayne, which is an ultra wealthy community. But before I was in Oregon, and some of my best friends still think I run a business helping people run offices in their private homes, when they hear family office, when really, it’s quite the opposite. It’s people who literally own the office buildings in Manhattan, you know, it’s not someone who can afford a real office space. So I think that we’re in that in between space. And I and I think that’s part of the adoption of, you know, we’re crossing that chasm of the adoption rate, you know, going to the mass public being aware.
Jason Hartman 31:35
Right. Interesting, interesting. So what do they do? I mean, did this come out of a reaction or, or, you know, not not come out of the reaction to it, but maybe the growth of the family office concept, I would almost speculate that it’s come out of, you know, the dissatisfaction with all the crooks on Wall Street, families want to get control of their money they want to be in, they want to be direct investors, which I highly recommend, you know, they want to, they want to look at deals and be a direct investor in them, rather than giving their money to some fund manager who’s going to either steal it through their crockery or lose it through their incompetence, or just charge huge management fees for for managing it. Would you say that there’s some truth to that? Or am I way out of line?
Richard Wilson 32:24
There’s definitely, there’s definitely some truth to that. There’s definitely some families that specifically set up a family office because they want to do heavy direct investing, and they need that team that otherwise would be the team that’s living off of those GPP management fees inside of a private equity fund. So they might hire some of those, you know, and when you say GP, you mean general partner, right? Right, the core team at the like a private equity fund, for example. So I think that the reason why family offices exist, and the reason why they’re growing is because if you’re worth $100 million, and you make a 1% mistake, taxation wise, you might lose $1 million in that one year from that one mistake. And if you had had somebody watching out for you, and watching your back and 360 degree managing your balance sheet, then that might not have happened. And the people who who are expected to coordinate between all their advisors are sometimes the people who are the worst position to do so if you’re worth 100 million, you’re probably very busy of equity stakes, and many companies or many properties just like you to Jason, and you should be the last person but
Jason Hartman 33:25
But I’m not worth 100 million yet. That is my goal to be a centimillionaire. It’s 100 million and above.
Richard Wilson 33:33
We both get there, we can meet up over another interview here in the future
Jason Hartman 33:37
I can, I can hardly wait. The Gulfstream jet I’ve been looking at, you know, that’ll become a reality.
Richard Wilson 33:44
I think that like everybody feels so busy these days, even if you’re not worth 100 million, right? I mean, you have multiple shows, you have clients, you have all these properties you’re managing, so you can imagine if it was your responsibility every month to coordinate between your insurance agent, your CPA, your wealth advisor, you know, everyone else is advising investment managers, etc. And you are supposed to play the quarterback in that role. It gets overwhelming most of us because are just trying to keep up with the urgent things. And if you make that little mistake, it could cost you a million dollars if you’re worth 100 million or more. And so that million dollars could have been spent on two to three full time professionals, some formal infrastructure, maybe could outsource a few functions. And it’s just the mistakes are too costly to make when you become ultra wealthy. So you have to have some structures and people in place watching out for you.
Jason Hartman 34:30
Yeah, that that just, that just makes a lot of sense. You know, so tell us what is this family office look like? By and large is a physical office where people actually show up to work, right? Certainly they can be virtual, like you mentioned, but most of them are probably real offices. Right?
Richard Wilson 34:48
Right. Most of them are. If you’re a billion dollar plus single family office, you always have an office unless you’re brand new and just became wealthy. If you look at $300 million and under, family offices from the benchmarks study we’ve done we’ve seen that only 55% of the smaller single family offices have formal dedicated separate office space away from their operating entities, and only about 50% have someone outside their family running it when you get to like the 100 million dollar $200 million level. So depends on where you are in the world and how large it is. But many times you’ll have a seat, a CEO at the top, who used to be a CPA or used to run an operating business, but then also has an investment manager hat that they could wear, because they need to make sure all the trains are leaving the station hire and fire service providers, negotiate fees, review contracts work with counterparties and manage a team. It’s almost like you have a small business you’re running because you have payroll to meet, you’ve got to pay your rent, you have utilities, you have service providers. So there are operations to manage. So usually that type of a brain is that the CEO role. And then depending on the portfolio, you know, if the family made all their money in manufacturing widgets, then perhaps your CIO is going to be a former private equity, head of acquisitions at a private equity fund that only invested in manufacturing businesses, and you’re going to leverage that family’s reputation and put down
Jason Hartman 36:10
Did you really mean to say CIO, Chief Information Officer?
Richard Wilson 36:14
Ah. Cio, Chief Investment Officer.
Jason Hartman 36:15
Oh. Investment officer, okay. Got it.
Richard Wilson 36:17
That’s a confusing thing I know, in our world CIO always means Chief Investment Officer. But I know that it’s also used for Information Officer, but thanks for clarifying that. So basically, that CIO role is critical, sometimes it’s outsourced. And many times families find that if they made their money in an industry, they want to have their hands in that pudding. And they should, because they’ve created so much value there in the past, and they have relationships, and they might find that real estate is something they want to do very directly with a little bit of help on their team or ease into that maybe starting with a consultant and then doing more things in house. But importantly, most families do typically put a portion, also with a multifamily office or a private bank or wealth manager to diversify. So you have some different brains inside the portfolio. And, you know, have some diversification, even if you are making a big bet back into manufacturing, or apartment buildings, etc.
Jason Hartman 37:11
You know, I think, listeners, as you’re listening to this, I think this is a really good model for small investors, you know, you should have this family office mindset, I think, for managing your own real estate portfolio, where you, you treat it like an actual business, you know, it doesn’t mean you need to have office space, and a bunch of highly paid people working for you. But, you know, maybe when you’re at the point of having, you know, 30 to 50, single family home investments, you know, you think about, well, now, you know, I’ve got this bookkeeper that works for me, and when I get to 70, or 100 units, maybe I’m going to have two of them, you know, maybe I’m going to do my management in house and self manage my properties. And there’s some economies of scale and greater control there, you’re going to get your own crew in terms of your own your own handyman. I mean, you know, this, the same mentality can be applied to much smaller investors, you know, that the middle class investor, I think, should really be listening to this and thinking of it as a conceptual framework.
Richard Wilson 38:21
For sure. And I think that you brought up so many things there. I’ll try to go through these really quickly as I don’t go off on this too long. But I think that you brought up some great points. And I’m a big fan of Dan Sullivan and his concept of unique ability.
Jason Hartman 38:34
He’s been on the show twice. Yeah, I like Dan Sullivan.
Richard Wilson 38:37
Great, great. And I think family, you know, single family offices help the patriarch of the family, the person who created the wealth, focus on what they’re excellent at, whether that’s relationships, or finding new investment opportunities, or getting a business from 3 million in revenue to 100 million in the team around them is also helping them focus just on their unique ability. And I think that part of what’s really fun about meeting with over 1000 family offices now face to face, and helping run a few of them, day to day right now is just seeing how these individuals think that got them to 100 million in wealth and what they’re doing now to go from 100 million, you know, one of my clients, His goal is to be a billionaire in 12 years, and you know, triple triple his net worth so seeing them use strategies like and Vern harnish his book, your Rockefeller habits, like love that book. Yeah, securing choke points is a critical thing. And and I take notes on watching these families and trying to adapt it my own business. And I’d say that when it comes to real estate and a strategy that your listeners could use in their own business, I think one strategy that’s really interesting is that a lot of them use real estate strategically to add to their credibility and get them more deal flow by positioning them within their local industry, or among their peers. So one of the family offices I know based in the Midwest, they bought an old church, renovated it and made that their headquarters and it’s just a This magnificent marble white building. And anyone that goes there, I’ll never forget going there. You know, another one of my past clients
Jason Hartman 40:07
Like, like, how much was that church? I’m curious?
Richard Wilson 40:10
Over $15 million.
Jason Hartman 40:13
Okay, so it was expensive, right? It was like, you know, not in your world, that’s not a big deal. But in our world, it is.
Richard Wilson 40:18
Right, for sure. It was a historical site, I think there might have been some tax credits related to that, but um, for sure, they’re smaller, you know, ways to do this. But I think that another client, you know, he bought a whole zip code and made it like a ranch with horses and hunting and, and boats, etc. And I think that in trying to adapt that to, you know, the individuals listening, you know, I tried to do that, in my own life, moving to keep this game, for example, having a place where our business is visible here in an audience where there’s a lot of ultra wealthy around you, joining the local, you know, Bentley Rolls Royce Association, being part of eo, you know, being part of high quality groups and making sure you have the visibility among the right people, if you’re looking for deal flow and single family homes, that’s going to be different than commercial buildings, which is different than large apartment complexes. But there’s ways to use real estate to not only be a good investment, but if it brings you better quality deal flow, then that extra angle there might more than pay for that whole piece of real estate. So I think that a lot of these families think about leverage and choke points and how to make an investment, manage the downside to the extreme, but also look for those upside opportunities. And just don’t pull the trigger until something has that combination of both the very limited downside, but the upside opportunity is that you just need the right, you know, combination on the roll the dice, and you’re going to get lucky based on how you positioned yourself.
Jason Hartman 41:41
Sure. Yeah, absolutely. And just to go back to this concept of the smaller family office ideology, every one of our clients now has a family office, in essence, and it’s, it’s virtual and outsourced, you know, you have a team, you have your investment counselor, you have your property managers, you have, you know, these various team members, your lenders, etc. You know, and that’s, that’s interesting. That’s interesting. It’s an interesting concept for sure. Okay, tell us more about what these family offices are doing out there, just so we can, you know, know, what’s going on in this world? And, and how, how listeners might partner with a family office and, and, you know, find them approach them and say, Hey, you know, do you want to finance my deals? Do you want to be an equity partner, if I find and bring deals to you, etc?
Richard Wilson 42:28
For sure. Okay. Yeah. And I do think that everyone has parts of the family office, I think either you really have either chaos, though, or you have like, you know, somebody playing quarterback for you. And you actually have the family office in place, manage that manages that chaos. But let’s talk about that next question now. So basically, family offices are structured, hopefully, always based on exactly what their values and their mission and objectives are. So their team, and their investments will look totally different than where they created their wealth. And what’s our goal? Is that cash, is it protection of capital? Or is it tripling their net worth in the next 10 years? So a lot of families, I would say the 25% of the families that filled out our benchmark study, we had 180 responses 25% of their portfolio is allocated to real estate. And the most popular piece of real estate investment was apartment buildings. Many times they’ll put a normal amount of leverage 65% on such a thing, but sometimes it’s bought with even less leverage, say 50% or sometimes all cash and in other countries I’ve seen because
Jason Hartman 43:35
I love I love that they’re choosing housing. That’s my favorite asset class of all, you know, they’re, they’re pretty conservative, though. I mean, in the old sense of concern, I think, actually, using more leverage as being more conservative, honestly. But you know, that’s not the way most people think I completely understand that. Because, you know, the bank is taking more of the risk, and the investor is taking less when you’re more leveraged. Oddly, it’s counterintuitive, I know. But they’re, they’re pretty conservative. I mean, they’re putting, you know, 60, they’re doing 35%, down to 50% down or even all cash, as you mentioned.
Richard Wilson 44:08
right, and I’d say most common is the you know, the normal 30 to 40% down, but sometimes families see these apartment buildings is kind of a don’t mess it up asset for the next generation. And I embed that within a trust structure or something that helps kind of protect the next generation and I think that’s different than some of their other investments. Within the real estate space I would say that self storage office are Next on the list you know, self storage for obvious reasons. Can I accent looks like you know, apartments to some degree sometimes
Jason Hartman 44:41
I agree. I like Self Storage, pretty good. Never own that asset class, but I like it.
Richard Wilson 44:46
And I think hospitality hotels is kind of a sexiness to it, being able to point to it and say, Oh, yeah, we own this hotel, or we own that. No.
Jason Hartman 44:53
It’s like, it’s like the rich person with a restaurant. You know, it’s got that social component and ego aspect to it
Richard Wilson 44:58
Right. For sure. And I can relate Uh, you know, it’s easier to relate to than a industrial property, or just for some families even leasing out a major office building and negotiating those complex leases. So I think that, you know, the investments are, are varied when it comes to real estate, but some families have, you know, up to 60 70% in real estate. And I would say the more that you, if you’re listening to this in Eastern Europe or Asia, I would say that 70 to 80%, of all net worth of single family offices there is based in commercial real estate, and real estate assets. Some of them have a huge concentration in that area. And that’s how it’s been done there for for many generations. And many times, it’s only family members running their family offices. And they don’t tell anybody how much they’re worth, they give 20 million to JP Morgan 40 to Goldman, they manage a couple 100 million themselves. And if you don’t have the blood of the family in you, then you don’t know how much the family’s worth. And they’re very, very private. In the US. There’s a you know, a spectrum of privacy that changes. I think that’s just important for people to know if you’re listening on, on working with families as counterparties. And I think your next question was on basically how to raise capital from them or just work with them. And
Jason Hartman 46:10
yeah, absolutely. I just have one question, though, before you go on with that. And that’s an important part, when you say there’s a different spectrum of privacy in the US. Are you saying that the US family office is less concerned about privacy? Because it’s not as dangerous to be wealthy in the US? I think it’s a safer place.
Richard Wilson 46:28
Right? That’s correct. Yeah. Not Malaysia, somebody might enact new regulations just to take your business away, or give it to somebody, you know, in a ruling party in another country, or you if you’re in Brazil, you might get kidnapped, or someone your family might be murdered from it. Or just corrupt officials might come to you in Venezuela, Colombia, you might have to pay off four or five new people just because someone heard about you in the newspaper. So
Jason Hartman 46:53
Listeners, that’s why the US is the Brinks truck, it’s still is with all its problems, it’s still, it’s still a great place, you know, it’s a much safer place to be rich, you can you can flaunt your wealth here. And you don’t have to worry too much about being kidnapped. Or, you know, yeah, I mean, you’ll have politicians try to, you know, like the communist Bernie Sanders or Barack Obama, trying to, you know, take away your wealth, but it’s pretty hard for them to do it.
Richard Wilson 47:19
Right, for sure. And I think that the great thing about being here in the US, and one of the reasons I moved to the greater Miami areas that the number one place for the ultra wealthy Chinese to move is the United States. And we have more billionaires just in New York City than the whole country of Canada. And we have more billionaires in the US than anywhere else in the world. And the wealthier the world gets, the more that they choose to send their kids to Harvard, and Wharton and Yale and Stanford, and the more that they choose to buy secure real estate, like here in Key Biscayne, lots of people come here and buy a house in cash. Why? Because in Brazil, inflation is 9.75% here, real estate goes up 15% a year. And you know, even if real estate went down 5% a year here, and you add that on to us inflation, you’re still doing better than if you held on to your money in Brazil. You know, especially given their bad economy, but inflation is so bad, they’re they just plunk down the cash here. And they want to have some assets that are in US denominated, you know, dollars in US type inflation and us value growth. And I think that just that with Eb five, and this has been a safe place to, you know, have a family office and be able to find family office talent are really driving the whole industry towards major cities in the United States.
Jason Hartman 48:34
I would assume that family office clients and we still need to get to that question before we wrap up about how to approach them, partner with them, etc. But I would assume that family offices because of their wealth, that they generally gravitate toward kind of trophy properties, you know, that are in higher-end areas with, you know, some ego component to it a lot of times and things like that. Would would that be true? I mean, they’re they’re probably not buying up tons of cash flow properties in Memphis, for example, which is a market we like or Atlanta or, you know, some of the major Texas cities, they’re, they’re probably like Manhattan, New York, South Florida, Boston, whatever, you know, right?
Richard Wilson 49:18
Well, Boston, families love Boston. Same with Memphis, the number of ultra wealthy individuals in your city is typically somewhat correlated with the actual size of the city and how trumped up the prices are there. But in every city, you’ve got the local ultra wealthy that are kind of dominating the space. And I’d say that some families are surprisingly thrifty. You know, one of our conferences, a billion dollar plus single family office said that, for whatever reason, you know, because they created their wealth through being thrifty and watching value that the patriarch would actually go and wash out a large Ziploc bag so you could use it a second time with another type of food in their kitchen. And so extreme things that don’t make sense, but that’s how they defended their wealth on the way up and I think There’s definitely a spectrum. Again, just like with anything, when there’s 1000, plus family offices in a single city, you know, like New York, there’s going to be a spectrum. But there are some families that are distressed, focused, and right now that are being just a little bit more defensive, you know, they might be releasing a few assets from their portfolio and only going into distressed assets or tertiary markets are, you know, places like Memphis or Atlanta, because I don’t want to go into the overly bid up, a lot of them are cautious about losing their money. And they try to be some of the smarter people in the room, and don’t want to be like they big dumb conglomerates, just blindly plowing money into momentum. And so I think that there is a decent segment that goes after distressed assets. But I think they should more I think they should, whenever you can clean up chaos and clean up inefficiency and make it efficient. That’s where you create value. And that’s the only reason my whole business exists in the family office space, because nobody else was writing on it, or writing books on it, etc. And so we’re cleaning up that chaos. And there’s a lot of chaos in markets that aren’t overly competitive. And there’s a lot of chaos and kind of run down debilitated, you know, 200 unit apartment complexes, they’re just below an institutional radar, but they’re going to take some elbow grease, and they’re not in a major city like Boston, I think I think there’s a ton of opportunity there. And if
Jason Hartman 51:13
Yeah, I could totally agree with you. That’s what we do. We do it mostly in the single family market. But absolutely, yeah. Great. So that last question about finding approaching partnering, you know, with family offices.
Richard Wilson 51:26
Right. So basically, I think there’s traditional ways to work with families. And then there’s creative ways, the traditional way, you could be a sell side or by side broker for them. Obviously, if you’re a real estate manager, on the investment side, or a property manager, you could specialize in either serving this market in your local market, or trying to serve it nationally. You know, we got reached out to yesterday by a $400 million family that owns seven properties in New York and LA, they’re hiring estate managers in those two cities. And they’re basically property managers with oversight of the house management and the running of construction, etc. So when you think about that traditional ways to work with a high net worth investor, then take that up a step and imagine what that family might need, they want someone who’s really going to serve them well. And that means a lower volume business for yourself. But it might mean you have four core clients, or seven core clients instead of 30, or 70, or 200. And I think that it’s a good space to get into, if you can, because once you get started, you get referred and referred on and on. And people always ask me, well, if they work off of referrals and trust, then how the heck do you ever get started? It’s like chicken or the egg. You know that?
Jason Hartman 52:37
Right? You can’t get a job without experience and you can’t get experience without getting a job. You know, every young person I remember,
Richard Wilson 52:44
We had a big private bank asked me, you know, how do you hunt down these family offices and say, Well, basically, we don’t, you know, if you add value, they’ll find you. And in your local community, let’s say you are in Atlanta, there is probably in a state management or trust in the state attorney, or a financial planner, group, CFA society, etc. And you can go there and you know, provide value on your niche. If it’s property management for ultra-wealthy families or property management for family offices, or if it’s something else, then giving value first is how we’ve been able to build our referral network. And I just encourage people to do the same. But another important point of working with families is that they are looking for people who can bring them extraordinary deals, they have the capital in place, they typically even have friends and peers, they could get more capital from if they needed to. And so what’s important to them is getting into things at a good cost basis that are quote unquote, off market and that words most bastardize word and abused word, and I think in the whole real estate investment space, but they want things that haven’t been shopped around and trumped up and they want to give in on things before anyone else has heard them heard that they exist. And if you can be that person to a family, then you have a physician to either get a buy side fee over time or be a sponsor who’s actually running the show post close and helping them add that value post close with the family.
Jason Hartman 54:00
Now very interesting baby You know, that’s good old fashioned networking and providing value. You know, there’s not a not a lot of shortcuts to that, you know, it’s just you gotta you got to work for it like anything else. Good stuff, Richard, give out your website, tell people where they can find out more about you.
Richard Wilson 54:13
Sure, the best place would be to go to family offices dot com. We’ve got great conferences every quarter actually, last month, we had a 550 person conference, and nobody else does this. But we guarantee that everyone loves our event or you get your money back. If you don’t like the food. I like the speakers at 550 people with zero people asked for their money back at this, this last event. So family offices comm you can check that out. The last two things I mentioned is that we have a database of over 1500 family offices, which you can find there as well. And then our book, it’s just about free on Kindle or it might be free these days. And it’s only $7 for the 300 page paperback. And it’s on Amazon is the best selling book in the industry. And it’s called the single family office creating operating and managing investments of a single family office and we spent about 700 hours writing that book and we really, you know, 100% believe that it’s can be really valuable to someone looking to get their foot in the door in this niche is kind of an extension of this interview, you’ll you’ll see more statistics and real life interviews with about 30 different family offices in that book.
Jason Hartman 55:14
Very interesting. Very interesting. Richard C. Wilson, thank you so much for enlightening our listeners into this very private world that isn’t on most people’s radar, really interesting inside look. So thank you very much.
Richard Wilson 55:27
Great. Thanks, Jason, I look forward to having you on our family office podcast in the short future.
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