Why We Created WealthChannel, With Jimmy Atkinson & Andy Hagans

WealthChannel has grown into a large, engaged community of High Net Worth investors, but where did it all begin?

WealthChannel co-founders Jimmy Atkinson and Andy Hagans discuss the origins of the WealthChannel media empire (including how it began in a dorm room at the University Notre Dame).

Watch On YouTube

Episode Highlights

  • The back story of Jimmy and Andy’s business partnership, which started in their college dorm room.
  • Andy’s “ah-ha moment” when he realized he want to be on the buying side of private equity.
  • Details on Jimmy and Andy’s allocations to angel investments, venture capital, private equity, and real estate.
  • The four reasons why High Net Worth investors should consider investing in alts.
  • Why Jimmy and Andy decided to take the bold step of rebranding their existing businesses into WealthChannel.

Today’s Guests: Jimmy Atkinson & Andy Hagans

About The Alternative Investment Podcast

The Alternative Investment Podcast is a leading voice in the alternatives industry, covering private equity, venture capital, and real estate. Host Andy Hagans interviews asset managers, family offices, and industry thought leaders, as they discuss the most effective strategies to grow generational wealth.

Listen Now

Show Transcript

Andy: Welcome to “The Alternative Investment Podcast.” I’m your host, Andy Hagans, and today, we’re going back to where it all began. We’re talking about the backstory, Jimmy, why you and I love alternative investments. We eat, breathe, sleep, live, invest in alternative… What else do we do with alternative? Everything. We are all in. Is that accurate?

Jimmy: Yeah. We’re all in on being an investor, whether that’s passive or we’re also entrepreneurial investors, where we invest in our own companies, right, Andy? That we manage and run.

Andy: Yeah. And I think that’s, you know, what you just mentioned, the fact that we’re entrepreneurs, that’s really how we got into alts. And it’s funny. So many LPs that I’ve met, they also have their own businesses. There are just so many entrepreneurs and business owners who are investing into alternatives. And I do think there’s a link there. So, let’s actually talk about that link. Let’s start where it all began. Why do Jimmy and I, why do we love alternative investments so much? Why are we so invested into alts? That story, I think, starts in our dorm room, about 20 years ago. Would you say that’s accurate, Jimmy?

Jimmy: Yeah. So, if this is our origin story, we need to go back to North Quad, Stanford Hall, at the University of Notre Dame, right, Andy?

Andy: That’s right. Now, take us there. Paint the picture.

Jimmy: Yeah. So, well, let’s see. I’m a year older than you. But I met you in the dorm. I was a sophomore. You were a freshman. We became friends, right? Because we lived right across the hall from each other. A lot of your friends became my friends and vice versa. And a couple years later, we became business partners. We started making websites in our dorm room, right, Andy? During my senior year, your junior year.

Andy: Yeah, we were still in school. Yeah, we [crosstalk 00:01:45] started our first business in school. Yeah.

Jimmy: Yeah, Steve Jobs started Apple in a garage, in Steve Wozniak’s garage, or maybe it was vice versa. Michael Dell started Dell Computers in his garage. We don’t have a garage story, but we have a dorm room story. I think that’s our origin story. Similar to a garage. A little bit…

Andy: It’s the next best thing. If you can’t be building a computer in a garage, I think the next best thing is to be building a website in your dorm room. So…

Jimmy: Can’t disagree with that.

Andy: It started there. And so, you and I, you know, our first business, even our first couple businesses, probably, maybe made a little money. Nothing really hit huge traction, but they became, they sort of evolved into what I would say was our first big hit in the field of lead generation. So, you and I, we were into lead generation, we were into marketing, and we built this first company, and we sold it for, at the time, you know, for us was, like, incredible amount of money to us. You know, two guys in their early 20s. We sold it to a private equity group, a strategic buyer. And we were like, well, that’s pretty cool, right? And then we turned around and built a second company in that same space. And then we ended up building a third company, ETF Database. And so, you know, we’re serial entrepreneurs. Would you say that’s accurate?

Jimmy: Yes, absolutely. I would even say, by the way, the first dorm room businesses that we built, Andy, looking back on it now, it wasn’t a lot of money, but at the time, we were making a few hundred bucks a month, and for two poor, starving college students, that was some extra beer money and some extra going out on the town and taking our friends out to dinner money. That was pretty cool to have at the time, actually.

Andy: Yeah, that’s a good point. That’s a good point. I mean, so, there’s a lesson there. It doesn’t matter how small you start, right? The point is to get started, so…

Jimmy: Well, and it gave us a taste, too. And it was like, this is fun. This is fun. We’re making some extra money. We’re kind of in control of things. And, again, you’re right, it wasn’t a lot of money, absolutely speaking, but relatively speaking, for us at the time, it was fun and it was a pretty good chunk of change we were making.

Andy: Yeah, for a couple college kids…

Jimmy: Yeah, for a couple of college kids, it wasn’t bad.

Andy: So, you and I, so, we’ve basically been business partners for 20 years, or maybe 19, but we’ll call it 20.

Jimmy: We’re rounding up to 20. Sure.

Andy: Yeah, we’ll round it up. And then our next kind of big hit was ETF Database, which I have to give credit to Michael Johnson, who’s another one of our current business partners, who was the primary guy there. But you and I built that company with him. We ended up selling ETF Database. And by the way, at its peak, I think it was arguably, or maybe inarguably the largest independent media covering exchange traded funds in the United States, so that’s pretty cool that we built that. We sold it to a strategic buyer, which later evolved, merged, evolved, exited is now kind of part of VettaFi, which is a huge, very successful, awesome company. But, in all of that journey, and I don’t regret any of it, by the way, but through those transactions, we build these businesses and we sold them. And in hindsight, you know, several years later, I realize, wow, the private equity buyers in those transactions, they did very, very well on those deals, right? Like, as a seller, you know, when you’re an entrepreneur, you build a business, a lot of times, consciously or not, you’re driving towards that liquidity event. Would you say that’s fair, Jimmy?

Jimmy: I think that’s fair, especially… I don’t know about everybody, but anecdotally speaking, Andy, like, for me, for you and for Michael, like, the three of us, we were in our mid to late 20s when we had some of those exits and when we exited ETF Database. It kind of depends how much cash do you have in the bank account, right? Are you cash poor? Will this type of liquidity event materially change your life? And some of these exits that we had in our 20s, they did. They did materially change my life, at least, and I think yours and Michael’s as well. As we get a little bit older now, entering our 30s, and I just hit 40 last year, Andy, we look back and we think, boy, maybe we shouldn’t have done that at the time. Again, I don’t know if it’s regret, and I don’t think I do have regret.

I’m actually not saying we shouldn’t have done that, but I kind of see things from the other side of the transaction. As the buyer, as the private equity buyer, they really did have a pretty good outcome there. We did too, because we were cash poor at the time, and now we’re not. But they were able to grow those companies even further. And, as you mentioned the case of ETF Database, it got rolled up a couple more times. Alerian ended up buying it, a large index provider, and they rebranded recently as VettaFi, which sure would be nice to… Actually, I should point out that I am, at least, and I think you are too, Andy, we do still own a very, very small minority interest in VettaFi.

Andy: You gotta let that stock ride, right?

Jimmy: But it’d be nice to own much more of it, of course, at this point in time. But yeah, you can’t have regrets about exiting a little bit early maybe.

Andy: Well, then that’s the thing, because your, as an entrepreneur, your net worth, it’s illiquid, and it’s non-diversified. So it’s…

Jimmy: It’s very concentrated, right? It’s like, you’re not just working 40, 50, 60 hours a week at this one place. You’re not investing just your time, but all of your capital is tied up there as well. And it’s illiquid, it’s hard to extract it. And we had some cash flow coming in on all three of these companies that you mentioned. So we were cutting ourselves a salary, we were taking some partner distributions quarterly or semi-annually at least.

Andy: But it’s not the same as just…

Jimmy: It’s not the same as getting a big windfall.

Andy: …a big, sexy liquidity event. Yeah, and then we ended up building a fourth company and we sold. We essentially built all of these and sold them all to private equity, or to strategic buyers who are backed by private equity. And again, no regrets, but you can kind of look back at it in hindsight, where you sell a company, you know, essentially for 7X or 10X EBITDA or whatever, you know, 7X or 10X earnings, the private equity buyers buy that company, and then they may have other resources or strategies or whatever, and they can grow it from there. But you as the entrepreneur, you say, okay, I have my liquidity, right? You do whatever you do. You might, you know, go buy a house. But then you say, okay, what do you do with that liquidity? You don’t just keep it in a savings account. If you do that very long, you’re gonna lose a ton of value in real terms, right? So you have to invest it. And if you invest it in liquid, you know, ETFs, mutual funds, index funds, bond funds, those types of things, you quickly realize, wow, the yield on these is very, very low. So, like, I may have just sold my private company at 7X or 10X. Now I’m gonna go take that money and go invest in an index fund that’s essentially, well…

Jimmy: Twenty or 25X?

Andy: Exactly. In terms of dividend yield, it might be 50X, but in terms of earnings yield, sure, let’s…

Jimmy: Yeah, if you’re looking at a PE ratio of, like, the broad S&P 500, you’re not buying it for 7X or 10X. You’re buying it for, I don’t know what it is currently, it’s gotta be like 20 to 30, somewhere in that range, I’m guessing.

Andy: Yeah. So, that’s…I mean, we call it the illiquidity premium, to kind of put a positive spin on it, but I would almost call it the liquidity penalty, right? So, you wanna exit this business you’ve built, and invest it in more liquid, you know, normal, typical investments. But the fact of the matter is those yield less, and they tend to return less because they’re considered, you know, more diversified and less risky or whatever. They just trade at much higher multiples. And that’s kind of what I realized is that you may have had an income stream from this business you sold, but then when you go and invest it, you know, you’re really trading one asset for another. And when you trade, generally speaking, when you trade that illiquid asset into a liquid asset, you’re trading into a much lower income stream.

Jimmy: Lower income stream, lower upside, but I would also say lower risk too, right? Like, companies like ExxonMobil, Microsoft, IBM, Coca-Cola are much less risky than Jimmy and Andy’s startup business from the dorm room probably, wouldn’t you say? That’s fair to say?

Andy: Yeah, no, that’s true. That’s true. And so I think, you know, looking at it, you know, from a very zoomed-out perspective, the question is, well, what kind of risk can you afford, right? So, if you’re a year or two or five years from retirement, and you have a chance to exit your business and go, you know, into more safer, more traditional investments, that definitely would be a logical choice, but at a certain point, you can see why, at the other end of the spectrum, like, you know, endowment funds at the Ivy League schools, right? Like, the famous Yale and Harvard endowment funds, they can afford to take more risk. Like, these are basically perpetual endowments. They don’t have a one to five-year time horizon. They’re basically perpetual. So they kind of go to that extreme and they say, well, we don’t need this liquidity, right? We’re Harvard. We’ve been around for whatever, 400 years, or however long Harvard’s been around. You know, our endowment fund’s likely to be around another 400 years, so we don’t need this immediate liquidity. Why not go to this much further end along this risk-return profile, invest in illiquid businesses, that are frankly just better investments, that generate higher returns over the long run. So that’s the illiquidity premium, right? That’s the Harvard, that’s the Yale portfolio, made famous by David Swensen.

Jimmy: Yeah. No, I think that’s absolutely right, Andy. Once you get up above a certain number of AUM, let’s say, or investible assets, liquid net worth, whatever you wanna term it, I think it becomes more commonplace that you’ll see your percentage of your portfolio in alts grow. Yeah, I was speaking with a hundred-millionaire a couple years ago in…

Andy: Well, Jimmy, we just say a tenth-billionaire. You know, if you wanna…

Jimmy: Tenth-billionaire, let’s say. Sure. And I was asking him, and he’s an asset manager as well, and I was asking him, you know, what percentage of your own portfolio do you have in alts? And he floored me when he said 98% basically are in alts. And at first I thought he was crazy, and then it dawned on me, oh, well I guess that kind of makes sense. He doesn’t have a need for liquidity. Like, maybe a more median type of high-net-worth investor might have.

Andy: I mean, isn’t that another way of saying that he’s keeping 2 million bucks in liquid assets?

Jimmy: He’s keeping 2 million bucks in liquid assets, which [crosstalk 00:13:04]

Andy: Which, really, how much liquid assets do you need? Unless you own five mansions, and private jets or whatever, how much liquidity do you need to support your lifestyle, right? Like, if you’re out of work for a year, or two years even, how much liquidity do you need to support your lifestyle, take care of your family or whatever? Well, anything way beyond that is really excess liquidity, right? So if you keep it all in these liquid investments, conceptually speaking, you’ll be paying that liquidity penalty. Now, I wanna…

Jimmy: And you wanna limit the amount of your portfolio that you’re paying that penalty on.

Andy: Exactly. And to be clear, I have a very diversified portfolio. So, I mean, I’m very heavily invested in alternatives, but I own your normal index funds, ETFs, you know, stock and bond funds. Just, over time, more and more of my portfolio is shifting into alternatives. So I do wanna be clear, I’m not, like, 100% in alts, but really, since that aha moment, you know, or that process, like, it wasn’t really one moment, it was more process, a dawning realization. And it’s funny, Jimmy, because it’s like, I knew it, but it still took time for me to act on that information, I guess is how I would put it. But as this kind of dawning realization, I just decided, you know, alts are where the real money is made.

Jimmy: Well, if you wanna invest like a billionaire, right, Andy? Billionaires don’t have a lot of their money tied up in the stock market or in the bond market. They’re not just investing at Vanguard, and they’ve got a basket of three, four, or five index ETFs or index mutual funds like you and I have, right? When you start commanding that much money, you have that much net worth or that much AUM, you can go outside of that traditional type of portfolio that people have been telling us all of our lives, “Hey, invest here, invest low-cost, 60-40 is the way to go.” You can kind of get a little more creative and chase some outsized returns once you have a minimal level of liquidity available to you.

Andy: Exactly. I mean, basically, the mindset is, keep liquid what you need liquid. And by the way, that could be a psychological need. And that’s okay because everyone’s portfolio is personal, right? But once you’re at that level, you’re gonna generate higher returns, generally, with alternative investments. Now, the devil’s in the details, right? So it’s not like every alternative investment is a slam dunk. But, when I look back at my own investing career, and by the way, with the alts, there have been, especially with angel investing, there’s been a few clunkers, right? By the way, that’s part of angel investing, that’s part of VC, you know, that power law. But on the whole, unquestionably, I’ve generated higher returns with alternative investments. And so, I think you and I both were maybe, you know, on some funds, we’re literally LPs in the same fund. There may be some different investments that we’re different on, but we’re both pretty much playing in these same sandboxes, which is, we’ve done angel investments, we’re LPs in venture capital, we are LPs in private real estate funds, and then we also do private equity. And when I use private equity, I use that in a very broad sense, because that can mean a couple different things. And honestly, you know, somebody asked me what my favorite was, and, like, I guess I might say private equity, but Jimmy, I honestly love it all. Like, I really do love it all.

Jimmy: I do too. And yeah, I think I am a lot like you, Andy. And, you know, I’ve actually really kind of always liked investing ever since I started first building up my bank account in college and right after college, figuring out where to put my money. Actually, I was kind of a boring investor when I first started, Andy. I remember interest rates on CDs in the mid-2000s were paying, like, 5% or 6%, so I had a lot of my money just in CDs for a while. Which helped cushion the blow of the financial crisis of ’08, ’09. I missed a lot of that, or ’07, ’08, ’09 I guess I should say. But, like you, Andy, I do have a lot of my net worth in liquid assets at my brokerage account.

I use Vanguard. I’ve got a portfolio of I think four or five different index mutual funds. Pretty boring, plain vanilla-type funds, investing in the broad stock market, broad bonds. I’d have to take a look and see what the others are. But I have started peeling off a little bit more here and there over the last few years, investing in different private equity real estate funds, Opportunity Zone Funds, specifically, with a couple of capital gain events that I’ve had in the last couple years, and some venture capital funds. We’ve done a little bit of angel investing, you and I, Andy, over the years. Some hits, some failures. That’s okay. That’s all part of the process. But yeah, I would say the biggest returns I’ve ever had have been in myself and my own companies, our own companies, Andy, right? Those can be looked at as private equity investments that you and I have made, just small amounts of capital, put to work on an idea that you and I entrepreneurially have worked on together. Those have created huge returns for us, right? 50X, 100X in some cases.

Andy: Yeah, and I think, you know, with private equity… So, here’s the interesting thing with private equity. And by the way, you know, you’re right that a lot of our successes have been that very actively-managed, you know, you basically call it a startup, I would say, at a certain point. But I’ve also had some success with private equity where I’m more passive. You know, where I’m an LP. And, you know, one theme, I would say, is when you’re buying in with private equity, you’re generally buying in at a much lower multiple, right? So, if your multiple is, like, infinity because you’re investing in something without any revenue traction, then I’m like, well, that’s an angel investment, right?

Jimmy: Yeah.

Andy: Private equity, you’re typically buying an operating business that’s generating free cash flow already. And right off the bat, you’re generally buying in at a lower multiple, right? A lower PE ratio or lower EBITDA multiple. And then the idea is, you know, like, with one investment I made, I was a passive investor, I was an LP, but I offered a little bit of strategic, you know, value to them. And just even just, like, a tiny bit of strategic value was able to enhance their trajectory a little bit. But even aside from that, they already just had a good growth path. And that investment, for me, it’s been almost entirely passive. It’s been very, very successful. And that investment, you know, the one that I’m thinking of in particular, it really demonstrates the point to me, there’s, generally, more alpha in alternative investments, but there’s also this other side of portfolio diversification, and almost locking up your money in a business, in an illiquid business, versus having it in the stock market, which can kind of feel very ethereal, or like you’re at a casino or something. Do you know what I mean, Jimmy?

Jimmy: Yeah. You turn on the TV and you can see the values of all of your investments scroll by on the bottom of the TV screen throughout the course of the day, if all of your investments are liquid in some sort of brokerage account. If all you own are stocks or bonds, you’re gonna always know exactly how much your assets are worth, which can be a good thing, but it could also be a bad thing. I mean, imagine if you pulled into the driveway of your house and there was a big number above your house that was changing in real time every day.

Andy: No, I don’t even think it’s a good thing and a bad thing, Jimmy. I think it’s pretty much just a bad thing. I mean, like, what you just described…

Jimmy: Psychologically, behaviorally. Yeah, Andy, it’s funny. Actually, I was just doing a podcast with DJ Van Keuren, our family office real estate institute friend, earlier this morning. And we brought up this very point. And I mentioned to him, the investor’s worst enemy sometimes is himself or herself, right? I mean, the types of behavioral mistakes that investors get themselves into, being able to trade at any hour of the day, you oftentimes see investors buy high, sell low because the psychology works against them. The behavioral mechanisms of the human mind just kind of work against that investor so often. So by locking up your money in some illiquid assets, whether it’s your house, or a business that you’re running, or someone else’s business that you’ve invested in passively, it helps you avoid those behavioral mistakes, doesn’t it, Andy?

Andy: Yeah. And it’s interesting because we were talking about this, you know, liquidity premium, or, excuse me, illiquidity premium, or we should call it liquidity penalty. Conceptually, to me, it’s almost backwards, right? Like, I understand, in a pure abstract basis, if everyone were totally rational robots, which they aren’t, right?

Jimmy: Right, that’s the problem though. The market is not rational. There is no invisible hand, a rational, invisible hand guiding the market. It’s all a bunch of irrational human actors that are… We’re not robots. We have emotions, we have psychology.

Andy: Apes like you and me, Jimmy.

Jimmy: Exactly.

Andy: But back to this illiquidity premium, it’s almost like you should get a liquidity premium, because by going into all these liquid investments, it’s like you’re playing with fire. You’re investing in something that is more likely to bring out the worst in your behavior. It’s like you’re tempting fate. And, you know, I can look back in my investment career. I’m pretty good. I have a pretty strong stomach for the ups and downs of the market, but especially early on, I can see that I fell into some of those behavioral mistakes. And I think some listeners, or just some people out there might think, “Well, those are the dumb investors. That’s not me. I would never fall into that trap.” And it’s like, okay, well if 100,000 people walk through a casino, or hang out in a casino for three hours, how many of ’em end up playing a slot machine, right? Pretty fair percentage. So, if you’re saying, well, I’m not gonna be one of those investors who fall into the behavioral trap, it’s like, I’ll pat you on the back and I’ll say, “Okay, I guess you’re one of the 2% or 3%.”

Jimmy: Yeah, they’re the same types of people who say, “Hey, commercials don’t work on me,” right?

Andy: Exactly. That’s exactly right. So it’s kind of the irony of liquid investments is if you’re willing to just say, you know what, I’m gonna take average. I’m gonna grind down my costs. I’m gonna be okay with the median. If you just buy and hold with liquid investments… If you’re actually able to do that, you’ll end up being on, like, the 90th percentile.

Jimmy: That’s a really good outcome. I was gonna say, Andy. That’s a really, really good outcome.

Andy: Well, because most investors in the stock market, their actual real-world returns trail the stock market. Period. Right? So, if someone says, “Well, the S&P returns 9% a year. Do alts return 9% a year?” I go, “Well, the average investor doesn’t return, with the S&P, what the S&P returns, because the median investor is trailing it by a significant amount.” So I think, you know, when we’re thinking about alternatives, for me, it’s not just, we’re, you know, generating more alpha, we’re getting higher returns. It’s also just a style of investing that, hmm, it’s a fit for me. Like, it feels good in my gut, and I know that when I’m going illiquid, I’m more likely to make good decisions, I’m more likely to stay patient, I’m more likely to think long-term. It’s just a better style of investing.

Jimmy: I think the long-term thing, that’s where you hit the nail on the head. That investment horizon that you have, or that runway that you have, the amount of time you have to invest, if you keep your eye on that long-term prize… Because if you need liquidity right away, an alternative investment might not be right for you, but if you’re early enough in your career, or you have other forms of liquidity that you’re able to access, and you’ve got some extra capital left over, I think that’s exactly right, Andy. I think it’s keeping your eye on that long-term prize of letting that investment eat for as long as possible, and accruing those returns slowly over time, through the ups and downs. The market is gonna show ups and downs all the time. You open up “The Wall Street Journal” on any given day, right, and it’ll say “stocks were up,” or “stocks were down,” and it’ll even ascribe a singular reason oftentimes, which I think is kind of funny because I think it’s very hard to know why exactly the stock market went up or down. But when you have an alternative investment…

Andy: It’s kinda like saying a butterfly flapped its wings in Beijing, so it rained today, or something.

Jimmy: Exactly. Exactly. I mean, oftentimes it is that ridiculous. And sometimes it’s obvious why the stock market goes up or down, if there’s some huge seismic event in the world or some huge economic event in the world. But on a day-to-day basis, the stock market goes up, the stock market goes down. We don’t really know why sometimes, but “The Wall Street Journal,” and I don’t mean to pick on “The Wall Street Journal,” I actually love that newspaper, but all these different financial media organizations will try to ascribe some sort of reason why. But with alts, with illiquid investments, you’re not bothered by the volatility day-to-day. It’s not even matter. It’s immaterial. And it’s impossible to track with alts, which, as you point out, Andy, psychologically, behaviorally speaking, probably a good thing.

Andy: Yeah. And, you know, so, we talked about, what are the benefits of alts so far? You know, more alpha, higher returns, but I think now we’re really honing in on the second big benefit, which is diversification. And you’ve talked a lot about, you know, the behavioral traps, and sort of, you know, sleeping more soundly, thinking long-term. I think the other side of it is, if you look at the research, the academic research, you know, from a mathematical standpoint, alternatives tend to be less volatile, or at least, in the context of an overall portfolio, they lower that overall portfolio volatility. But I think what you and I…

Jimmy: Well, and part of that might just be that they’re not marked to market every day, like stocks are, right? They’re marked to market once a year, or a couple times a year.

Andy: At the end of the day, what does it matter, right? If it’s helping investors achieve better outcomes, if they’re literally not able to sell during a flash crash or whatever, then that’s improving investor outcomes. So, you know, those are two really big benefits. The third one that I do wanna talk about, it’s not quite as fun, because everything we’ve talked about, so, like, talking about making investments in venture capital, I’m sorry, Jimmy, this is fun. Right? Like, you feel like, you know, like “I’m somebody. I’m investing in venture capital,” or “I’m investing in private real estate,” or “I’m investing in private equity.” That’s fun.

The third thing here, tax benefits. That’s a huge part of investing in alternatives. And it’s funny, because I always talk about triple net returns, right? So, it doesn’t matter what an investor theoretically grosses as gross returns. You have to factor in inflation, fees, and taxes to find out their real returns, you know, their actual, real-life returns in their portfolio. Taxes are just the least exciting thing. And it’s like, if I build a portfolio that generates an additional 100 basis points of alpha, because I’m an investing genius, I get so many utils from that, right? I’m just, like, drowning in utils. But if I earn that same 100 basis points in triple net returns with tax mitigation strategies, it’s kinda like, “Eh. That’s okay, I guess.”

Jimmy: I don’t know, man. You and I are different there. I like the tax mitigation strategies. To me, they’re exciting. I get utils from taking advantage of a tax incentive here or a tax policy there, or whatever you wanna call it. I get a rush from that stuff, man. I don’t know. Maybe that’s where you and I differ.

Andy: Well, that’s fair. And let’s talk about some of these tax advantages, right? So, first, you know, with oil and gas, and, I mean, with investing in energy investments, some of these have enormous tax deductions, so they’re very attractive to investors who have a very high current income and are looking to, you know, lower some of their current year taxable income. So, big up-front deductions with energy investments. But a lot of other alternatives have huge tax benefits as well. Obviously, real estate. Let’s talk about real estate, Jimmy. What are the tax benefits of real estate?

Jimmy: Well, I wanna go back to oil and gas, because you glossed over. I think depletion is the word you’re looking for there. Depletion allowance, something like that. I forget exactly what it’s called, but as an oil well is actually, like, physically depleted, you get to write that off. But yeah, moving on to real estate. Depreciation is a huge one, right? You get to depreciate the value of the building, and then if you wanna get really sophisticated, you can do a cost segregation study. And instead of just depreciating the building, you can depreciate all of the assets that go into constructing the building. So, you can depreciate the floors, the copper piping in the walls, the washing machines and dishwashers, and they all have different depreciation schedules.

Andy: But, Jimmy, okay, just, I gotta stop you there. Just hearing about this stuff, I’m about to black out.

Jimmy: I like it. I like this stuff and you don’t like it.

Andy: Here’s the good news, though. Like, I’m an LP in a private real estate fund, right? And I know that they’re on top of all that, so that when I get my K-1, all that stuff that you just said, it’s done for me, right?

Jimmy: Exactly.

Andy: Because I’m investing with this smart manager, and it’s done for me. So, I think, with real estate, the interesting thing is you’re stacking all of these tax benefits. Because everything you just said, you know, depreciation and, like, this operational, the nooks and crannies of the tax code… We haven’t even gotten to the 1031, right? The 1031, one of the very most powerful tax mitigation strategies, estate planning tools. I mean, it’s just a huge benefit for real estate investors, right?

Jimmy: Yeah, the 1031, and then its fractionalized counterpart, the Delaware Statutory Trust, or the DST, essentially allows investors to buy an investment property, sell it, and then, instead of paying tax on that gain from the appreciation, if you roll over your sales proceeds into another investment property, you essentially defer capital gains taxation indefinitely. And you can continue to kind of daisy-chain together these 1031 exchanges over the course of your entire life, without ever having to recognize a capital gain. And upon death, the fair market value of the…I’m sorry, the basis of the investment properties that you’re left with step up to fair market value for your heirs. So your heirs never have to pay taxes on the capital gains at all. So it’s essentially, completely eliminates capital gain taxation if you string together these 1031s over the course of your career properly.

Andy: Swap till you drop. Yeah, and, I mean…

Jimmy: Swap till you drop, as you like to say, Andy.

Andy: Yeah. I mean, between depreciation, between 1031, DSTs, we don’t really have time to talk about Opportunity Zones today, but we’re both investors in the Opportunity Zone programs. There’s all sorts of tax deductions and tax advantage wrappers, tax advantage strategies available to real estate investors, to energy investors, to all sorts of these investments. So, whether you kind of nerd out about that stuff like Jimmy does, or if you just sort of enjoy it passively as an LP, to let somebody else do the hard work of figuring out those details, that’s a huge benefit of alternative investment. So, we have more alpha, portfolio diversification, tax benefits, and then my last one, they’re fun.

Jimmy: They are fun.

Andy: They’re just fun, yeah. It’s fun to be an LP in a venture fund. It’s fun to do angel investing, if you have the time, because it’s kind of time-intensive. It’s fun to be an LP and be able to say, okay, I own a piece of an apartment building.

Jimmy: Yeah, it’s fun to talk about, and it’s fun to podcast about too, right, Andy?

Andy: Absolutely. And I know, in our listenership, you know, on our YouTube channel, folks who come to our events, there’s just a lot of like-minded investors, right? And it’s not even a small community anymore. You know, there’s always been folks investing in alts, but I really feel like it’s gaining steam. Would you say that’s accurate?

Jimmy: It’s gaining steam. The tent is getting bigger. We’re bringing more investors into the tent, as… We kind of like to say that 60-40 is dead. I don’t know if that’s 100% true, but I think…

Andy: No, it’s dead. Dude, I saw the death certificate.

Jimmy: You saw the cadaver?

Andy: It’s dead. It’s dead.

Jimmy: It’s dead and buried.

Andy: Yeah.

Jimmy: Well, it, suffice it to say, this type of investing, alternative investing, is becoming more accessible to more high-net-worth investors over time. And it’s becoming more popular as well. So, there’s more supply and there’s more demand for it, seemingly coalescing, and that’s why we founded “WealthChannel,” Andy, to build this community of high-net-worth investors, and to try to bring more education, more awareness of what alternative investing is, and what types of alternative investments are available to such investors.

Andy: Yeah. And, you know, you kind of, Jimmy, to give credit, you know, where credit’s due. Really, “WealthChannel” began several years ago when you started covering the Opportunity Zone space. We were already investing in alts, but you started covering it from that media side, and you started running events for real estate investors, under the OpportunityDb brand. You know, then we branched out. We have the Alts Expo, I launched this podcast, and we realized, you know, we’re actually starting to build, it’s almost like a tribe. You know, it’s a community, but we had, you know, several different websites and all this, and it’s like, you know what? It’s just time to bring this all under one umbrella. So, that’s what we’re doing with “WealthChannel.” We’re bringing everybody into one umbrella. And we have how many events, roughly? Right now, I think we have seven events planned this year.

Jimmy: We’re doing seven or eight events this year.

Andy: Yeah, but, you know, you and I are kind of famous every once in a while. Like, we’ll wake up on July 3rd or something and we’ll be like, you know what? I wanna do an oil and gas event on August 20th. Can we make that, you know? Or whatever. So I’m sure that…

Jimmy: Yes, exactly.

Andy: It’s just, you know, we like to make it exciting, we like to make it fun. You know, sometimes we’ll meet people, new sponsors, new products, new trends, and so, you know, we like to kind of keep it fun, and I have to say, it’s really that community that we’re building that I think is the key that makes the whole thing run and gel. Because at our events, there’s so much interaction, you know, the live Q&A, and it’s tremendous amount of fun.

Jimmy: That was our big aha moment I think we had a few months ago, Andy, was, wait a second, we’re not just putting education out there into the ether. We’re actually building a community. We have tens of thousands of followers across platforms, on our email lists, and our YouTube account, and our LinkedIn accounts, and there’s a lot of people that look to us as experts, as curators of all of this knowledge, and it really has kind of become a community of high-net-worth investors, for sure.

Andy: Yeah. And I have to say, I can honestly say it’s a privilege, you know, to be running…

Jimmy: I agree.

Andy: …these events and to do the podcast. I mean, I’ve had folks on this show… Two years ago, before I started the show, I’ve had, you know, leaders on the show. I’m like, I never would’ve even imagined that they would come on our show. It’s not really about us. I think it’s about so many high-net-worth investors are increasingly embracing alts, and there was almost, like, a void of community, or a place where people could go and talk about this, and where investors could talk with each other. So I think to some extent, we kind of lucked out, you know, by founding “WealthChannel” and by launching these podcasts. But we’re almost out of time. Jimmy, before I let you go, I wanna give you a chance to plug everybody, to plug our project, to tell our, you know, audience of high-net-worth investors where they can go to learn more about “WealthChannel,” our events, and keep up with all our content.

Jimmy: Yeah. I mean, at “WealthChannel,” like you said, we’re building a premier community for high-net worth investors, alternative investing, Opportunity Zone investing, accredited investor type of investment options. You can find out more about this community, and the event that we run, at wealthchannel.com. And please also follow us on YouTube. We produce a lot of video content, whether it’s this show, “The Alternative Investment Podcast,” or my show, the “Opportunity Zones & Private Equity Show,” we host all of that under the “WealthChannel” umbrella at youtube.com/@wealthchannelcom.

Andy: And I gotta put that in our show notes. So, I’ll make sure to link to WealthChannel, I’ll make sure to link to our YouTube channel, and, you know, honestly, you gotta subscribe on YouTube. That’s really where the magic happens, right? Jimmy, I don’t wanna pressure any of our listeners. Let’s just say, you and I, we have a number in our head.

Jimmy: We do.

Andy: We know what it is, and we’re not gonna be happy until our YouTube channel hits that number. So, if you’re interested at all, make sure to go to YouTube, smash that Subscribe button, and we will see you for our next episode. Jimmy, thanks again for joining me on the show today.

Jimmy: Thanks, Andy. It’s been great.

Andy Hagans
Andy Hagans

Andy is co-founder and co-CEO at WealthChannel.