TGCI 94: High yield, lower risk alternative in a volatile market

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Episode 94: High yield, lower risk alternative in a volatile market

Copy of EP #18 - 2 Guests

Summary

In today’s episode, Pancham interviews Rajan Gupta – a fellow real estate investor in Mesos Capital. He was the first official guest on The Gold Collar Investor Podcast when this podcast was launched in 2019.

Investors have gained a lot of key takeaways in his episode on the major differences of Wall Street and Main Street investing that his episode became one of the most listened to episodes!

In this episode, Rajan is back on the show to discuss all about the current state of the economy. He will also share investment alternatives that can help lower your risk profile. Don’t miss this episode as you’ll learn different investment strategies to generate more cash flow!

PanchamHeadshotTGCI
Pancham Gupta
Screen Shot 2021-01-25 at 2.41.40 PM
Rajan Gupta

Tune in to this show and enjoy!

Copy of Quote #00 - 1 Guest

Timestamped Shownotes:

  • 1:04 – Pancham welcomes Rajan to the show
  • 1:36 – His viewpoint on the current state of the market
  • 3:11 – Why prices are inflated in various asset classes
  • 5:59 – On investing in private and alternative investments
  • 7:54 – Why bonds are more riskier than stocks
  • 9:48 – Mesos Income Fund as an investment alternative
  • 14:04 – Kinds of asset classes that Mesos Income Fund invests
  • 17:33 – Rajan’s contact information
  • 19:94 – His parting advice to real estate investors

3 Key Points:

  1. Rather than saving cash, invest in asset classes to your full capacity that can also give you high yields.
  2. Expose yourself in the investing industry and learn about private and alternative investments from people in different fields.
  3. Diversify your investment to be able to understand the market and its industry well.

Get in Touch:

Pancham Gupta Emailp@thegoldcollarinvestor.com

Read Full Transcript

Introduction

Welcome to The Gold Collar Investor Podcast with your host, Pancham Gupta. This podcast is dedicated to helping high-paid professionals to break out of Wall Street investments and create multiple income streams. Here is your host, Pancham Gupta.

Hi, this is Joe Fairless. If you wanna diversify out of Wall Street investments, then listen to The Gold Collar Investor Podcast.

Hey, this is Mauricio Rauld, founder and CEO of Premier Law Group and if you are serious about investing in real estate, listen to The Gold Collar Investor podcast with Pancham Gupta.

Robert: Hi, there. I’m Robert Helms, host of The Real Estate Guys Radio Program and if you want to have better results in your life, you gotta put better ideas in your mind. You’re in the right place here at The Gold Collar Investor Podcast.

Pancham Gupta: Welcome to another episode of The Gold Collar Investor Podcast. It’s a cold January day here in New York. This is your host, Pancham.  Really appreciate you for tuning in today. I have invited my good friend and partner, Rajan back on the show to discuss the state of the economy, the ever increasing asset prices of all kinds, be it stock market, cryptocurrencies, real estate, you name it, we will be discussing some investment alternatives too that are less volatile and still provide high yield on the show. Rajan, welcome to the show.

 

Rajan Gupta: Pancham, thanks for having me.

 

Pancham Gupta: Well, thank you for coming back on the show.  You were the first, officially the first guest on this podcast, and it was the episode number three. And where we discussed the difference between the main street and Wall Street Investments.  Believe it or not, I don’t think I have ever told you it’s one of the most listened episode on the podcast. I don’t know what rank but it’s definitely in top five. So glad to have you back here. And you know what, we are recording this on January 17, 2021. We have a brand new administration, that’s going to take over, you know, White House this week. There’s a lot going on, we have a vaccine that came out, we have stock market hitting all-time highs, we have crypto assets hitting all-time highs. So, what are your thoughts on the current state of the market?

 

Rajan Gupta: So Pancham, again, thanks for having me, excited to know that I was one of the most listened to podcasts. So yeah, so I’m generally overall very, very bullish about the market.   I think as you said, elections are over, we have a new administration, we have more certainty around it, the mandate from the Fed is very clear. They’re going to keep the interest rates low for a prolonged period of time. So next two, three years, quantitative easing. So, I think asset prices although inflated, the old saying as they go, never fight the Fed, you have to be invested in the market to your capacity of risk averseness and things. I am invested both in capital markets and real estate, which is our forte, along with some alternate investments. So that’s what I think that we will have jitters along the way, you cannot just have a steep curve going upwards. But I strongly believe asset prices which are particularly linked to liquidity and interest rates, stock market, commercial real estate multifamily that we do. Bitcoin is a perfect example of a kind of a unidirectional trade at this point. I see them like going up for another couple of years, if not more.

 

Pancham Gupta: Oh, that’s a pretty bold statement. They’re unidirectional. So, when you say that, Rajan that, you know, it’s going to you feel that all these asset classes are kind of set for another kind of bump next coming years. Like what’s the basis is that because you’re saying that the rates are low and markets are flush for liquidity, that this liquidity has to go somewhere and has to generate something is that main reason?

 

Rajan Gupta: Yes. Like I mean, I mean, the chase for the yield is on as we always say, cap rates are compressing in terms of multifamily valuation, liquidity is high and rates are low. COVID has made a lot of businesses and asset classes suffer. But on the same side, same effect. Some businesses and some asset classes have boomed, particularly in the asset class we are in like we know multifamily. If we rewind one year back in March, a lot of people were very scared about the ability of tenants to pay rent, like how would the asset class in general fare and now fast forward in 2021, most of the buildings most of the assets have done quite well. And with the new administration coming in, minimum wages, assistance for rent and all that stuff, I think it’s particularly positive for multifamily.  Going on the equity markets, I still believe that although stock prices and valuations are skyrocketing, and it seems like a risky game to be, that’s the only alternative. I strongly believe cash is the worst position to be in. Don’t get me wrong, I still keep cash in my bank account, but just enough for my survivability and day to day business operations and stuff like that. So, I like to be fully invested to my capacity. I am risk averse in some parts of my portfolio. But still, I like to chase yield and I strongly advise everybody to chase yield and not sit on large piles of cash in their bank account.

 

Pancham Gupta: Thank you. Thank you. For sharing your viewpoint that I’ll tell you I recently not recent, probably four months ago, interviewed Jordan Goodman on the show. And you mentioned something like there is no other alternative. I learned this something called Tina, t i n a.  There is no alternative for the very first time. And you know, at the time when he said this, I was like, you know, he’s right, he’s been more than right. Since then, we’ve seen that happening. And with another 1.5 trillion coming in the market, which is Biden’s proposed stimulus plan. On top of that, you like you mentioned, which is $15, minimum wage that we’re talking about. All of that bodes well for multifamily, for sure. And, you know, I’m in the same position as you, same viewpoint that be invested because you have to keep some cash, but overall, be invested. And that’s where the, with the trend seems to be right, like in terms of there is nothing there is no alternative. So, I want to actually switch gears, I know you and I, we have been talking to a lot of investors lately. Now, this is the state of the market, which has led to, you know, a bit of catch 22 situation for many, many high paid professionals. Most people have some kind of exposure to this ever increasing stock market if they are already invested in it. And they’re sitting on some cash, like you were saying, right, either in their personal savings account, or some kind of retirement account, like 401k, or their IRAs, or some people have, you know, whole life insurance policies.  I have one right like, and you know, they have high cash value sitting in there, which is doing nothing, and you know, it’s with this yields going down, and you know, no close to zero, they are not making as much as they were making before, right? So, this cash is not doing much given where the interest rates are, if people want to generate some cash on their investments, which are sitting on the side, on top of what they’ve already invested in their high beta, you know, bets, like, do they have any other options at all?

 

Rajan Gupta: I mean, like, traditionally, if you see, fixed income, which is bonds and money market have been one way to generate stable, low volatile income. But given where bond prices are given where interest rates are, bonds, I believe are even more risky than stocks. So, I think to answer your question, people need to educate themselves, they need to spend time and money to basically learn about some private investments, alternate investments. I think you’re doing a very good job with your podcasts, or inviting a lot of people from different spheres, which give people exposure to this. So yeah, so that’s what I feel like at this point, other than some of the opportunities in the private investment or private equity world, you have very little options on money, markets and bonds that will give you stable yields and still keep your risk profile down. 

 

Pancham Gupta: Yeah, you know, you mentioned something very interesting there. I know, we’ve discussed this in our very first episode, like episode three, when we were together, you mentioned something of bonds are even riskier than stocks. If you talk to any financial advisor, I actually had someone named Ted Green on the on the podcast lately. And you know, they talk about bonds being secure, right? So, what do you mean by that?

 

Rajan Gupta: I mean, like there are two components of any investment, your cash flow and then your principal back, like bonds, like yes, like you said, very high in the in the capital stack, typically, like way higher than preferred common equity, even higher than preferred equity, which means, like you will get paid before any other any other participant in the capital strat gets paid. But that assumes that the company or the entity or the corporation, you’re buying the bonds have money left with, given where we are now, we have companies who are completely junk bogus companies, like for the lack of a better word, who don’t have payroll to pay for the next quarter, and they are trading at like about like three and a half 4% yield. I would not buy a bogus company, which does not have any product does not have payroll to pay for the next quarter and demand a 4% yield. I would be demanding even if I’m that risk averse, I would be demanding a way higher yield. So that’s what I mean by bonds are even riskier, you might get that coupon for like, I don’t know, howsoever use might just continue going down, bond prices might continue going up. But if you have to hold that bond till maturity or however you want, you might not get your principal back. I mean, yeah, some people would take that exposure, I would not take that exposure for three, 4%.

 

Pancham Gupta: totally makes sense. Actually, you’re talking about three, 4%. That’s actually very high compared to you know, I was reading recently an article that completely junk category Bond was trading at 2% yield, which was kind of mind boggling when I first saw that. So yeah, totally agree with you there, right, like and you mentioned, you alluded to private investments, right that you need to be aware of some private investments. I know. We at Mesos Capital have come up with one like, why don’t you talk about, what is that option? And, you know, we have created a fund Mesos Income Fund. And you know, why don’t you explain that? What is that option?

 

Rajan Gupta: So, like we have a slew of these investments.  Basically, let me take a step back, like whenever we talk about returns, we have to talk about risk. So, I think without understanding the risk in an investment, talking about the numbers does not make any sense.  A 6% return where the risk profile is very low is commensurate to something like a like a high tech growth stock where the returns are 20% but might be volatile over the over the course of your holding period. So Mesos Income Fund is one such instrument, like after COVID, we saw that lenders were getting a little more jittery on loan to values. And then they were wanting more reserves to be held in held in reserves, which basically left a space in the capital stack for private money to come in. So, what happens is like you have a lender, which was willing to lend 80% in the past, is now lending 75%, is also now wanting operators or syndicators, or owners like ourselves Mesos, to put like additional five to 7% in reserves til the COVID situation settles and that money would come back later, which means that we have a cushion of about this good seven to 8% equity in the deal, which basically can come in and still keep the deal at the same risk profile as it was earlier. Mesos Income Fund is one of those funds that take that position, which means is like the lender has the top priority in the capital stack gives about a 74-75 LTV loan to value. So, if your deal is about 10 million to dump it down, the lender will give seven and a half million dollars of capital to go ahead with the deal. Your common Equity Partners would basically be holding about $2 million of equity, which leaves a cushion of this $500,000 which means those income funds would come and contribute. Now, what happens is the lender always has the first priority and right to get paid on a monthly basis as well as when you refi or sell the deal. Mesos Income Fund sits second in the stack right after the lender and gets paid both the cash flows as well as the capital return on a refi and a sale after the lender and then your common equity guys come in. So, this capital stack basically helps everybody for syndicators like us, we are happy because the risk profile of the deal is similar, the lender is happy because they are lending lower on the deal. The common equity guys happy because they get more exposure more risk more return. And now we have carved out a slice for this one person who has a lot of cash sitting in the bank. Typically IRA holders are people who have high liquidity and also people who have a large exposure to the stock market and want to run their betas down by investing into stable instruments we are paying out 8% on this instrument which is which is very high yield against somewhere between the lender rate which is three and a half 3% and the projected IRR for the class B which is about 13, 14% the chances of these distributions on this Mrs Income Fund are very high probably close to one and the chances of capital loss are way lower than the class B investors.

 

Pancham Gupta: The common equity investors

 

Rajan Gupta: A common equity investors. So, in nutshell, it basically carves out a second tranche or a senior equity tranche, which pays 8% and has a very low probability of capital loss. So again, like to me like it really helps people who have either very high liquidity, lot of cash sitting in their IRAs or 401k’s or have a lot of exposure on the stock market and want some capital to be deployed in a way where the risk profile is lower and still makes considerable return 8% as compared to zero or half a percent in a money market account.

 

Pancham Gupta: Right. You know, I would also add high cash value life insurance, I would put that in the similar category where people have that sitting on one of them and you know, we can just elaborate that out. So, okay, no, that makes total sense, right, you explain that you know, because of COVID This has become even more lucrative and now, these investments where this Mesos Income Fund is investing in right, you said that we take that slice, you know, we have one asset class which is multifamily, which we are doing and we are raising capital for those deals and we have our own fund taking some slice of that, but we are not just limited to one asset class there. Right. So, can you speak to that a little bit what is the overall objective of this fund and what kind of asset classes this fund is going to be investing in?

 

Rajan Gupta: So Pancham, to answer that, I mean, like, like our investment philosophy is overall not just like an instrument specific is to chase markets, where there is organic population growth, organic job growth, whether an infrastructure is nice, jobs are diverse and growing. So that that comes to the Mesos Income Fund by default.  We like to invest in assets or in projects, which are most probably cash flowing from quarter one, if not, like by in the first couple of quarters. So, the objective of the Income Fund is pretty clear, it’s gonna choose instruments or projects multifamily is one, maybe mobile home parks, maybe self-storage, things basically that organically cash flow. The whole idea of the Income Fund is to provide the investor a yield of 8% regularly on a monthly basis without any sketch. So typically, the deals that Mesos, Mesos capital generally invest are cash flowing from day one. So, on a capital stack, where you have, for example, $100 invested, our deals are cash flowing six or 7%, from day one, and Mesos Income Fund tries to take like the top 20% of that $100 stack, which means to meet a return of 8%. on that $20, you need to generate only $1.6  from day one. And we are generating about we are going into deals that are generating about $5 to $6 from day one. So, the chances of the Mesos in Income Fund investors to get their 8% preferred return, I would not call it certainty or probability one, but very close to that.  The deals have to really, really, really do bad or the environment has to change considerably for that threshold of 8% on the income funds slice to get breached. So pretty simple, like assets and projects that are cash flowing from day one, are projected to increase in cash flow and value in the markets that we have discussed multiple times repeating job population growth infrastructure, whether landlord friendly, all those good to have things. 

 

Pancham Gupta: Wait, so yeah, you know, I guess what the point is that Yeah, we’re talking about Mesos Income Fund as one of the alternatives for which is one of the private alternatives to kind of put your cash which is not doing anything in like some of these accounts, but this is not just one, this is not the only alternative. This is the alternative that we are providing. But there are many alternatives like this, which are available to people who are connected with different kinds of sponsors or people who know like and trust people like you know, who do these kinds of things. So, you just have to know people who are doing these kind of things and be ready to invest and have the opportunities come to you as they become available. So, thanks Rajan for explaining all that. Anything else that you would like to add? How can people find out more about Mesos Income Fund if they want to know more?

 

Rajan Gupta: Oh well, we are still open for subscriptions.  We are sending like the deal, the first deal that the Mesos Income Fund is in is called The Pocket Village – Hoops- . It’s a Class B plus A -site-.  Might call it A minus B plus A minus -2,5, 7 – Bay -. in Wilmington, on super high growth, actually the number one growing city in the whole of United States, which we are due closing on February 1.  We have a couple of slots open; I think about like three or four slots, that we are still like accepting investments. So, look for the emails that we are sending as new data comes in, we send emails regularly, there’s always a button at the bottom of the email. We also have a domain called vsourceincome fund.com which will redirect you to the login page and you can go to the Mesos website and register yourself. So, there are a couple of ways but i think i think bunch of you have done a very good job connecting with people like sending emails and data points on a regular basis. So that should also give you give your subscribers a way to subscribe to  this fund.

 

Pancham Gupta: Yeah, you can just go to guys like if you’re listening to this and you want to find out more details about this fund, or the deals that it’s investing in, do not hesitate to email if you want to email you know, email me at p@thegoldcollarinvestor.com or you can go to the website mesos m e s o s income i n c o m e fund f u n d .com mesosincomefund.com So with that Rajan, like do you have any parting thoughts that you want to share with the listener, who’s listening?

 

Rajan Gupta: Oh, yeah, no, I mean, like we covered a lot in in the 20 minutes we had, but my parting thought would be like in general, my investment philosophy, stay invested.  Like the time spent in the markets is always gonna be the timing of the market that you can do.  Understand your risk profile. I am buying stocks. I am buying other asset classes, but there are opportunities like multifamily syndications and things like the income fund, we just spoke about, like giving 8%, 9% yield, strong yield, keeping the risk profile very low. And like I read; I think a prominent hedge fund manager talking about a very good definition of diversification. Diversification is for people who don’t understand things well. So, I’ve certainly been on one of them, and I believe a lot of my friends and co-investors are in that category. So, I invest in –metals sign-, investment stocks, real estate. I’m personally invested in the Mesos Income Fund. So that’s what my advice to a lot of my co-investors and with my friends is that always diversify.

 

Pancham Gupta: Great advice. Thank you, Rajan again for coming on the show. It’s been a short 20,30 minutes, but you’ve added a ton of value. Thanks again. 

 

Rajan Gupta; Thank you. Thanks for having me.


Pancham Gupta: Thank you for tuning into today’s podcast. I hope you found that interesting, my conversation short conversation with Rajan. If you have any questions regarding the fund or any questions in general, do not hesitate to email me.  My email is p@thegoldcollarinvestor.com, that’s p as in Paul at the gold collar investor.com. This is Pancham signing off.  Until next time, take care. If you are an accredited investor and have been thinking about putting your money to work for you, then I have good news for you. I have created an investor club which I call The Gold Collar Investor Club.  I will be putting together investing opportunities exclusively for the group. These are the opportunities where I have done the due diligence for you and we’ll be investing my own money alongside you. If you are interested, please sign up on thegoldcollar investor.com/club. I repeat the goldcollarinvestor.com/club. I will reach out to schedule a 30 minute phone conversation to discuss your investing goals once you sign up. This can be a good opportunity to diversify and take some chips off the hands of Wall Street to produce some passive income. And in case you are wondering, what is an accredited investor, accredited investor is someone who has earned more than $200,000 as filing single or more than $300,000 filing jointly for last two years. Another way to qualify as an accredited investor is if your total net worth is more than $1 million, excluding your personal home. It includes your stocks, 401k’s IRAs, cars, etc. Just not the equity in your personal home. If this is you, I would highly encourage you to sign up.

Thank you for listening to The Gold Collar Investor Podcast. If you love what you’ve heard and you want more of Pancham Gupta, visit us at www.thegoldcollarinvestor.com and follow us on Facebook at The Gold Collar Investor. The information on this podcast are opinions. As always, please consult your own financial team before investing.

Copy of EP #18 - 2 Guests

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