How To Turn $25,000 Into A Substantial Return In Real Estate | FT. Scott McGillivray

If you're an investor and you're trying to save for retirement, you would put about 50% into stocks and 50% into bonds. But we're in a very dislocated story about fixed income now. I've taken my commercial real estate position from 31% of my portfolio—that's how big it used to be. I was yielding almost six percent on that for well over a decade. I've reduced that down to eight percent. And I'm not talking about residential right now, I'm talking about commercial real estate.

Let me welcome to the show Kevin O'Leary. He has launched O'Leary Funds, he has launched O'Leary Fine Wines, he is the founder of O'Leary Financial Group. You know him from Dragon's Den; you love him from Shark Tank. He's also known as Mr. Wonderful. Kevin, welcome to the show.

Great to be here! Thank you so much. We have so much to talk about, and this isn't our first time discussing these topics. This is more like a continuation of our conversation because for many years, you and I have been back and forth about where the best places are to put your money. And now more than ever, this is probably a really interesting time to talk about this subject.

I think so, and there's been a huge change in the economy, obviously coming out of the pandemic. Plus, all the stimulus has caused some asset bubbles across a wide range of asset classes, and that's why you have to go tiptoeing through the tulips. You got to be careful at this point.

Okay, so let's start talking about what people should be doing right now. I mean, things are clearly changing. We're coming out of a very weird time. There's a lot of money that's been put into the market. People are thinking about inflation; people are worried about bubbles. What do you see on the horizon?

Well, I think we're at a time when we're going to go into explosive growth in the back end of this year in a way we haven't seen since the 1950s. I'll give you an example: The estimates for growth in Q4 go from seven to nine and a half percent. You haven't seen that for decades, and that's because of all this tremendous stimulus. At the same time, we've still got about nine million people unemployed, so the Fed is trying to keep their pedal to the metal on keeping rates practically zero so that these people can be pulled into the economy.

The challenge is that really no one knows the answer to this yet. Is the economy trying to bootstart again? 2019 and 2020 don't exist anymore. There's been a massive digitization. In other words, most companies, including big ones like Nike, if you look at their numbers just a couple of weeks ago, they've done something in five months that they thought would take six years. They're 50% direct to consumer all around the world, which has put a lot of pressure on retail. They don't need Foot Locker; they don't need that 1200 square foot strip mall location. They don't need any of that stuff; they're just shipping direct to consumers. And that's across the board, right through the entire not only U.S. but global economy. And that does change things a little bit; it displaces millions of people. You know, the person that worked in a restaurant, the person that worked in an airline counter, the person that worked in returns for clothing merchandise—all that stuff is changing incrementally a thousand here, a thousand there, but in aggregate, it's millions of people. The economy has to figure out where they fit in the new digital economy. That's the challenge.

Well, even more so than the economy itself is the individuals in the economy. I think everybody's looking at this, and you make a great point. You know, things have shifted in the last 12 months. Things that would normally take 12 to 20 years to happen have happened in a short period of time. And now everyone's also had a minute to kind of think about their own situation, their own career, their own personal life. And I hear more than ever that people are saying, “Well, now what do I do to capitalize on all this money coming into the market, all of these changes? Where do I put the money that I have? Where do I invest? And how do I make sure that when all this money is exchanging hands, a piece of it ends up in my pocket?”

Yeah, it's a great point. I mean, let's just talk about the basics. Historically, in an economy that was as buoyant as this one, if you're an investor and you're trying to save for retirement in the long run, you would put about 50 percent into stocks and 50 into bonds. But we're in a very dislocated story about fixed income now because interest rates—even a 10-year bond—are still under 2%, and that doesn't even beat inflation. So it's actually a negative return after inflation.

So the place to be when you're going through this adjustment, because people are making the assumption interest rates are going to go up, is risky. Because if you think about people that want to retire down the road, you don't want to lose a lot of money when bond prices collapse if rates go up. The price of the bond collapses if you have a 10-year piece of paper; you're stuck underwater getting a negative return after inflation for a decade. That's a bad outcome.

So the trend now is to move more into equity. Instead of being 50-50, in my own portfolio, I've gone to 70-30. I favor companies that are very healthy and are involved in paying out distributions in the form of profits and dividends and that are in sectors that are not going through some dramatic change. Like energy; energy stocks are under pressure, and they will be by the end of the year, I think, because a lot of institutions won’t buy hydrocarbons anymore. It’s kind of a strange outcome, but it’s policy right down from the president on down.

But there are other sectors of the economy, and what you want is to own a stock that has pricing power in inflation so they can actually increase the prices of their goods and services. And indeed, if you look back in history, inflationary times—at least the beginning of them when it didn’t go to hyperinflation—but maybe inflation two or three percent. You did very, very well owning stocks and big companies that really had powerful balance sheets.

So if you're putting 70 percent into these equities—because me personally, I have zero in bonds. There’s no point in investing in bonds to me; it doesn’t get me out of bed in the morning and get me excited. I’m looking for bigger potential. And, you know, I'm the type of person—if I'm putting a hundred dollars into something, I would like to see it go to 200, or to zero. But anything in between, to me, is just, you know, there are better options out there.

So I mean equities can't be the only place. What about real estate? I got to bring it up. I mean, we have a ton of real estate investors that have done extremely well. This has been the single greatest performance of my real estate portfolio in the 20 years that I've been investing in real estate. I'm seeing 20 to 28 percent year-over-year increases in the value of my portfolio, and that has—you normally project for three to five percent, not 25 percent.

You're right; it's been an asset class. I don't care what part of the country you look at. But let's dig deep in real estate; let's talk about that for a second because I've taken my commercial real estate position from 31% of my portfolio—that's how big it used to be—because I've held climate-controlled storage, hotels, all kinds of commercial real estate, office space, et cetera. Retail, office space for the companies I invest in, all of that. And that's been a huge part of my portfolio, yielding almost six percent on that for well over a decade. I've reduced that down to eight percent. Why? I'm not talking about residential right now. I'm talking about commercial real estate.

Let’s just go through that. Let's start at the top: AAA office tower, a place where I've parked lots of money for a long time—my office in Boston and New York, my lawyers’ offices in those same cities—they're reducing their footprint by about 30 percent. Why? Because they've gone to a model now where some large portion of their people rotate in and out of working from home. Not because they wanted to do that, not because they're worried about the pandemic or when it's over or not over, et cetera. People over the last year have done something they never would have tried; it would have been too risky. They've decided because of health needs, obviously during a pandemic, to try and work from home 24 hours a day. And it worked. We have the technology to allow that to happen.

So many—in just in my own companies, I’ve got 10,000 people in my supply chain of just 26 investments. And what we've learned is people in compliance, accounting, and logistics, that people used to work in little cubicles—they don’t want to do that anymore. They want to work at home, and if we can’t provide that optionality to them, they’re going to get a job somewhere else.

So we’ve had to include that. So in every case for me, where my companies are headquartered—New York State, Florida, Texas, California—that’s the nexus of what I’ve got—we are slashing, hacking, chopping, litigating our way out of leases all over the place. That’s not a healthy backdrop for commercial real estate. I’m not the only person doing it; the whole S&P 500 is doing it because the new normal is going to be some percentage that work at home. That’s not great.

Here’s another problem: An office tower in New York City, capacity of an elevator, 55 people. Office 78th floor—am I getting on that elevator in November and December? Not a chance in hell. Why would I ever do that again? I don’t know. It’ll be COVID 20, 21, 22, 23, mutant derivative—whatever it is—no interest in jamming myself into a packed place like that. That cap rate, as you well know in real estate, might have been 4.2 percent prior to the pandemic. My guess is, and I know everybody that owns these buildings talks their book and they should, I bet you two years from now the cap rate on that AAA office in New York and Boston will be six percent. So I'm getting out of the way of that diesel train while it gets repriced.

Let’s talk about B, you know, second-tier real estate. Let’s talk about Bed Bath & Beyond, for example, in B grade malls all over America. There were 1,700 malls pre-pandemic. So Bed Bath & Beyond—they closed 200 stores. Why? They don’t need them. Direct-to-consumer sales—they curate bath oil, salts, towels, sheets. Everybody knows who they are, but their online direct-to-consumer sales are up 76% year-over-year. So they closed all those stores; they walked away. What happens to them? Well, nobody needs them; they've got to be converted into climate-controlled storage, cloud kitchens. That conversion rate—they're probably a five cap prior. I bet you they're trading at a seven-plus. They need millions of dollars to... So that whole space is a mess, in my view. That is not a good place to have money tied up.

We can talk about residential next.

Yeah, we’ll talk about residential in a second. But I'm going to unpack that a little bit too because I would say maybe 10% of my portfolio is commercial, whereas the other 90% is residential and multi-res. Commercial—but here’s what I love about everything that you said is that, you know, cap rates have been so low for so long, it's been almost impossible to generate positive cash flow in this space. And now seeing that it’s a mess, I love it. When there's a mess, I run towards it.

So I’m watching now what’s going on, and I’m saying, you know, we’re probably three to six months away from a rugged ending to this pandemic, let’s call it. But like you said, who knows what’s gonna happen next? But let’s say in six months, ninety percent of the country is vaccinated. That’s when the reality, the wake-up call will happen when these stores don’t have a reason to open again. That’s when your cap rates will go up, and I’m positioning myself in a way to be able to capitalize on these because I do believe that these can be repurposed. I do believe in the cloud kitchen idea. And I do think some of these office towers—you might not need an office on the 78th floor, but you can convert a lot of that to residential. And there’s a ton of value there, right? The cost of building is a fortune; the cost of renovating is significantly less.

And if we can—you know, I would say that, yeah, there’s a lot of collateral damage to be done in the commercial real estate space, but that’s not a reason to run away from it; it's almost a reason to run towards it.

I agree, and I think the way to look at it, though, is it’s too early. You’re not even in the first inning; you’re still warming up at the plate. Here’s why: Let’s talk about—I agree with you totally. Let’s talk about a city like Boston. There’s huge demand for residential space; at least a third of the floors in these AAA office towers are empty right now, and they’re not going to be refilled. So you got to talk about the cap rate of the overall building on a blended-use basis, right?

Leases that come and are brought back are renewable. A lot of people don’t like to have mixed residential in there, so you're also going to have to repurpose elevator shafts—one side for residential, maybe one for commercial. Then you’ve got to install HEPA filters throughout the entire building because people are going to be demanding that. Let’s call that a few million bucks. I mean, there’s so much capex you've got to push through.

So I think those things instead of trading in a four cap—maybe a five, maybe six, maybe six and a half cap—that's the time to get in. Or go through a fund that's going to be in a stressed situation. There’ll be so many B-grade offices that are going to be gutted and turned into residential or some other purpose: cloud kitchen or climate-controlled storage. All of that stuff's going to trade in the seven to eight cap, and that’s the time to get a broad portfolio.

So I’m like you; I’m sitting on cash. I pulled it out starting last January. So I’m lucky because I got a little pre-pandemic sales; then I didn’t do as well getting out in March, April, May. But I was able to get liquid on all of it except eight percent, and now I’m just waiting to get back in. But I think he’d wait a year. I think we’ll get the ten-year back up to two and a half percent, three percent. Cap rates are going to go through the roof when that happens. A few bankruptcies, please! I love that; that really helps jolt the system when a big tower goes to zero and all of a sudden it's going through litigation. That’s the time to get in.

That cycle has been around forever; it used to happen every seven to ten years. We haven’t had a good shot at this for a decade plus, so 15, 20 years since we had a really good jolt. New York is bleeding red right now; that place is getting worse with all the crazy politicians. Everybody's moving here to Miami.

And then we can look at the residential side, which has been the best place to have had your money over the last 24 months in pretty well any asset class.

Absolutely, which hasn’t always been the tune that you’ve sung. We've had conversations about, you know, where you were worried about a bubble and interest rates flying high. I’ve doubled down in residential over the last several years. You know, no matter what, people need somewhere to live. I always know that piece, and the cap rates have been just terrible. I'll tell you—purchasing multi-family buildings, you know, people are selling at a three cap. I sold a building at a 2.4 cap about a month ago, and I thought those people were absolutely nuts to buy it.

But what's the—what the heck's going on here? Like how is this—? To me, I mean, we've got probably another year that we can sustain this kind of growth, and then we're going to hit a wall. Like, you can only go so far before people can't buy anything.

Well, it’s very regional in that sense. I mean, you look at in inner-city San Francisco—it's not doing anywhere near as well as Miami is, as Boston is. I mean, Austin, Texas. I mean, it really depends on where you are right now. In Miami, if you’ve had—you’re up about 40 percent over the last 24 months on typical residential. The demand for housing here is insatiable as people move out of the heavy tax states like Massachusetts, New York City, other places, California. We’ve got a lot of people displaced from California here. The mayor of Miami has really opened up—he’s called the Bitcoin Mayor; he’s the Digital Mayor. He’s really providing for companies to move their staff; hedge funds are moving here.

So it’s been crazy. And so now you're in a really interesting place. If you come to Miami and you want to buy—I'll give you an example. I watch the indexes on condominiums in South Beach. I love to watch every single building. I'm very well aware of the pricing over the last three years, every turn—every time a condo changes hands, I get all the data and I store it. So I’ll give you an example: Last year, a three-bedroom, 2,800 square foot unit, with obstructed views against the side building—because if you go on that particular building past the 17th floor, you get a full view of the city. And those traded at a huge premium. But this thing last sold for three million, one hundred and fifty thousand dollars in obstructed view 24 months ago. It’s on the market today for four million, six hundred thousand. Now it’s got a real bid at 4.1 million, but they didn’t close. But that gives you an idea. That’s right across the board—that's a huge capital appreciation.

And of course, maintenance fees on that building are probably about seven to nine thousand a month on top of that. I’m just picking one situation to give you an idea of how extended those markets are, and yet they couldn’t rent that location—that particular unit—for any more than about eighteen thousand a month. You see how, if you do the math, that’s a really—it’s whacked out. That doesn’t make sense. You’d rent in perpetuity if you could do that deal.

Absolutely! That’s what I’m talking about. Yeah, we’re doing—I mean, in terms of rental returns for me right now, it’s the short-term, you know, vacation market—the right what I call the recreational properties. That’s where we have seen the biggest bump. I think mainly because most vacations are now domestic, you know, especially in Ontario, Toronto—north of Toronto. I know you've got real estate in Toronto and north of the city, as do I—that has been possibly the best returns I’ve had other than, like, Florida. I've got Naples and Fort Myers. I got two buildings that I'm involved with, the Capsock Caprese on, which we started in 2016. Those will be hopefully coming to market next year. If this market sustains, we’re gonna outperform our expectations by a hundred percent.

So I’m loving Miami the same way you are—the short-term vacation rental market—which is probably a temporary thing, but tons of pressure here. The rental rates are through the roof! We’ve doubled our rents since two years ago, and everything is completely full. Everybody’s buying; everybody wants to be buying. There’s no inventory. Like, where does this end?

For me personally, I’d love to see it continue. And I don't mean to sound like a terrible person because I know this is pricing a lot of people out of the market, but you know, if I’ve got—you’ve got some money today because people do have cash—they’ve got equity in their house; they’ve got some savings. Where do you put your money? Where are we going here?

Yeah, let’s take a hot city—let's do Austin, we can do Miami. Let’s stick with Miami. What’s happening here now is you've got the first stage of what I call a flat market. And the way you can identify a flat market is there are tons of offers out there at extended prices. Back to that unit I talked about at a 4.6 ask—last time it traded 3.1—multiple bids at about, you know, sort of around the 4 million range. So giving a really good lift, but nothing closing. So you can’t sell it at 4.6. People have figured out, including the rental they have to do to it, that they'd have to probably wait three to five—six, seven years to get their money back.

Out the market goes flat. The amount of appreciation that’s going to happen over the next 12 months in Miami, in my view, if we mark to market the way I'm indexing these buildings. I don’t do single standalone houses; I index condos. That’s a very good way because you get all the data, and you can understand it region by region. I don’t see we’re going to get any appreciation for the next 24 months—zero—while the market waits out that bid-ask illiquidity, because usually what happens is people will sit there as long as 18—sometimes 24 months—and if they have to be a seller, then they’ll start hitting the bids, which are going to be significantly less.

And so, you know, then you start to see the market either roll over or then you have a stabilized price point. But if you’re putting together right now—if you’re going to buy 10 condos and rent them out, I think you do a pretty—you have a pretty bad outcome 36 months later, which is pretty far, as you know. Three years—that’s all I can really look at on the condo index. It’s fully valued. The chances you’re going to get another 40% increase in this over the next two years? Zero.

So I think you have to be cautious. I think we are at a place where prices go sideways for a while. I’m not saying they collapse; there’s no reason for that to happen with all this free money coming from the sky. But price appreciation in real estate? You’ve got to be careful. There are so many cranes in the Miami skyline—so many buildings coming in that are not yet fully sold out. Really interesting to see when this puppy cracks because it hasn’t cracked now in 12 years.

So I’m not ringing the bell; I’m just saying don’t look for capital appreciation. You may want to look for other asset classes at this point.

Well, Miami is a bit of a yo-yo city when it comes to valuations. In 2008, I remember my properties—I only had two properties in Miami—and they dropped by more than any other property values that I had, and then they rebounded by more than any other properties that I had. And now during this pandemic, Miami seems to be inflating more than any of the other markets.

So I do love it for that reason. I love a market that moves around a lot because there’s so much opportunity to make profit. But there are definitely some other, like in Texas, there are a ton of spots in Texas that I still think are undervalued when you look at sort of nationwide price points. And, you know, across the board there, as long as there's cash flow, which if you can secure properties outside of these core centers with cash flow, the returns are still phenomenal.

I mean, if you’re talking about housing prices and condo prices not moving, what do you think is going to happen to equities? I mean, you're a big fan of equities. What's gonna happen to equities over the next year or three years?

Yeah, but the thing about equities, one of the things—when we leave real estate for a moment here, is that people have to realize something about it: It is not a liquid asset. The cost of trading real estate—the transfer tax issues, the appreciation versus losses, the volatile pricing—it is not anywhere near as liquid as equities. And so, you’ve got—you have to pay all of those costs. Let’s call it five to six percent of transaction. So you’re giving up a significant portion of the appreciation, and that’s why it’s not easy to flip this stuff.

And so, it’s better to say, “Okay, I’m going to go 33 percent of my portfolio in real estate.” It’s a long-term hold strategy. So what you said earlier really matters. When you enter the market really matters because you could end up losing five or six percent three years later, just the transactional cost to get out if it’s a volatile market like New York and Miami are now—volatile markets in terms of pricing at all different classes and sizes and strata of price points.

So I totally understand what you’re saying, but I would be more cautious in the entry point now in big cities when it comes to—every day I mark to market our portfolios, and equities I watch like a hawk. And I use exchange-traded funds. I like indexing. I like to say, “Okay, I want to take an overweighting in consumer. I want to overweight healthcare; I want to overweight technology.” I mean, there’s all kinds of ETFs you can do that with, and they’re totally liquid. They’re in a tax wrapper; they’re very efficient on a tax basis. But that’s how I’m doing it on the equity side.

So today, for example, I increased a position. I have a very simple rule: I never let one stock become more than five percent of the equity portfolio, and never let a sector like technology become more than 20 percent. And so I’m constantly adjusting as markets move up and down. Tech slowed down for a while; now it’s picking back up again. So I'm constantly adjusting, using these ETF wrappers to do that. I was trading this morning into a SPAC that I've owned many, many SPACs before they do their deals. I know all the operators, and so I was adjusting some of the warrant holdings I have. I mean, that’s a very buoyant, active, liquid market. It’s completely different than real estate.

And yeah, I’m very long right now because I do not have another place to deploy capital. There’s not a whole thing—not a lot of things I like right now except the liquidity and the potential of appreciation of seven or eight percent this year on equities.

Yeah, well, I’ll tell you how I’ve had—it’s been a—let’s call it since late 2019, early 2020, before the pandemic was declared. Since that point, till now, my equities are up about 18%. So they dropped—now, mind you, right when the pandemic hit, they dropped like a rock, and I probably was down 18 to 20 percent. That fully rebounded, and now I'm up, as I said—getting close to 20% in a year and six months.

Let’s call it a year and five months. Real estate did kind of freeze for a bit, never went down, other than the condo market actually took a small hit for a very short period of time, but has fully recovered. But the real estate portion is up about 25%. So in an interesting year—and I always like to do this when I’m talking to you because, listen, you manage a lot of money and a lot of your own money and a lot of other people’s money, which I appreciate. You need to be balanced; you need to, you know, kind of hedge and diversify, and you’re into private markets and public markets and everything in between.

Whereas I’m heavy up in certain categories; I’ll heavy up in real estate, then I’ll heavy up in—you know, I’d rather have 10 to 15 stocks, and each one represents five to ten percent of my portfolio. And then I just kind of focus on that category. But here we are—the first time you and I had this debate was in 2014. Believe it or not, it’s been a while since you and I have been debating these things. And we got pretty heated about real estate versus equities, and so far since then, real estate has outperformed my equities every year. Not to say that both aren't wonderful; they can be wonderful, as are you, Mr. Wonderful.

But I dare to look forward and try to give people advice who are saying, you know, I’ve got fifty thousand dollars—they may not have a million dollars—but let’s say someone has fifty thousand dollars, they’re 25 years old, they’ve got fifty thousand, and they want to turn that into something substantial, something significant. How do they do that? How do they take twenty-five thousand dollars and turn it into something substantial?

Well, I think if you’re willing to manage real estate—in other words, buy a facility residential, put leverage on it by getting a five-year maybe a fixed rate, and then rent it out and manage it. I have lots of friends that do that, particularly in student housing. I've got a friend who's in Boston, one of the largest student housing builders with construction financing, and then he stabilizes the buildings. That's been a pretty good return, no question about it.

Then he’s a long-term landowner in cherished locations like Cambridge and things like that. But that’s a full-time gig. I mean, that guy works seven days a week, 25 hours a day managing that and building his wealth that way. The other way to do it, if you have $25,000—most people make the mistake early on in life in their early 20s not to put aside something.

And I mean, the easiest way to do it is to simply index it. Say, “I’m going to take a hundred bucks a week and stick it into the stock market,” which generally has given a six and a half to nine percent return over the last hundred years per year with lots of volatility in between. But the long term, over a career, 40-50 years, you put a hundred bucks a week aside—even on an average salary of fifty-six thousand—you’re going to end up in a good place. You’re gonna have like a million and a half dollars in your bank account. Forget about real estate—just using the stock market, which is very liquid and easy to do. You can’t put a hundred dollars a week into real estate.

And I always say when people say, “Well, my real estate portfolios beat my stock market outcome,” I always say you have to do it liquid. In other words, if you have to look at your portfolio, turn it back to cash, and then compare it with what your cash value of stocks are—because they’re totally liquid. You could cash them out by the end of the day. Not so easy to sell in a perfect time in real estate. Sometimes the market gets locked up, as you said earlier. Sometimes the fees of exit are very high—up to ten percent. So I’m always cautious about that metric.

But I have no problem with real estate because we've just come off a 35-year run where bond rates and interest rates and the cost of money have gone to historic lows. I think that’s changing now, and that will be a bit of a headwind for real estate down the road. But again, it’s which class of real estate—either stressed out real estate and commercial, or tiptoeing through the tulips in residential. I have a lot of residential real estate I hold, and you know, you’re right—the Canadian markets, Toronto, the vacation areas, you know, Georgian Bay, Muskoka; these things are up double over the last two years. It’s just crazy what’s going on there.

But again, I'm just wondering, can that—is that sustainable? My guess is not. But I just think there are new asset classes emerging. I think, you know, we haven’t talked about it yet, but certainly have to position yourself against inflation. And recently, again, going back to check the box on regulators, the Canadian, the French, the German, the British, the Australian have all opened up to make it easier to own cryptocurrencies. And it’s just a matter of time, I think, before the U.S. regulator provides the same. And that’s been a very interesting place to play.

I'm now three percent in Bitcoin, five percent in gold, and really 22 percent in fixed income because I took those allocations out of my fixed income portfolio, and they’ve more or less outperformed the fixed income. Bitcoin has been remarkable, controversial, but has a lot of interesting attributes to it.

So I'm surprised that you're into cryptocurrencies. I didn't expect to hear that from you. So you're a believer in the cryptocurrencies then?

You know, I was very skeptical back in 2017 because, as you mentioned, I’m involved in lots of financial services companies as an owner or some of my chair, and we are—we're heavily regulated—heavily regulated. And in the initial period, 2017, when people really started to focus on Bitcoin and Ethereum and, you know, some other stable coins, etc., and tokenized coins—which really got the regulator upset—they were sending out Wells letters like greeting cards back in 2017. And if you got caught up in that, more if you want it, you know, that was very expensive going through the regulatory process to make sure you were clear. And you don’t want you never to want to have to check the box that you’re under investigation.

So for most institutional players, we did not participate for the reason of compliance. Now, when the Canadian regulator, a few months ago, at the Canadian regulator—which is very closely tied to the OSC and the AMF in Quebec—are very closely tied to the SEC in the U.S. They share a lot of different policy. And so when they opened up, I came out of the closet, so to speak, and declared that I had been holding Bitcoin since 2017 in a private wallet—not in any of my companies—but since then I have opened up considerably.

And I want to tell the backlash I got—this is rather interesting. When I declared the three percent holding on a, you know, very global business cable operator and watched by most sovereign funds and pension plans in America and globally and in Europe, within minutes of finishing that show—minutes—I started getting texts and phone calls and emails from people saying, “Wait a minute. Where did you get these coins? These Bitcoins specifically?” I said, “Why does it matter?” They said, “60%, 64% exactly.” Because I know a lot more now than I did a few months ago, are mined in China using coal to burn coal to make electricity in a country that is under sanction, has been accused of human rights abuses, and institutions were not happy that that asset class, which they consider a property, was purchased from a non-compliant geography.

Now I’d never heard that before, never. And I had used—or was contemplating balancing the three percent weighting using the Canadian ETFs. I can’t touch those ETFs now; they are loaded with what are called blood coin, Chinese coin, coin mined in an unsustainable way. So your sustainability committee is in—it’s a no then. The ethics committees on these large pension plans do not want companies that are not compliant with, you know, global mandates around human rights. And currently, China’s imprisoning various ethnic groups, as you know, are being accused of that.

I cannot own those coins. So now I’m in a much different place. I have to invest directly in miners that are compliant. I’m negotiating with dozens of them now. And what I found when I moved to that mandate, where I'm mining my own coin with its own providence—it's their virgin coin; that only one owner, me. I've got all kinds of institutions calling me saying, “We’d like to do that too! What’s the game plan? Do you need more capital? Do you want to invest in more miners? Which miners are you doing some kind of compliance check yourself?”

I have a team hired now that’s working for me that is looking at every single compliant miner in the United States, in Norway, in Denmark, in Iceland, in northern Canada. We are building out their facilities; we’re going into partnerships with them. And how do they pay me back? Royalties—in Bitcoin!

Oh, you love your royalties!

I love my royalties! [Laughter]

Oh my God! You know, it’s funny—there’s a lot to unpack there. I do love that insight about the—who knew, right? Who knew that this problem was emerging in crypto land? But that’s almost like—that's a piece of information that will help people navigate where to invest and which cryptocurrencies to invest in because, obviously, the ethically compliant ones are much more, you know, socially acceptable and friendly.

So as the regulators kind of look at these things, that’s something that needs to be taken into consideration if you want to maintain your value in them. So that is a great piece of information. I love that you’re in that space because it’s not a space that I would have predicted I would have seen Kevin O’Leary in. The three percent waiting—I mean remember my rule: I don’t let anything get past five percent as a single stock.

The other thing I’m considering as a proxy to capture the volatility of bitcoin pricing is simply owning the miners. I mean, if you get a productive miner that is profitable, that knows how to do mining ethically and sustainably, the value of that equity is going to trade with the same volatility of BTC. So I’m building a portfolio of miners that I own, and particularly miners—many of them keep their BTC on their balance sheet. They simply mine another coin; it’s sitting on the balance sheet. So over time, the value of that asset trades in accordance, the whole company trades in accordance with its ability to execute and efficiently mine. And of course, the value of their portfolio of BTC.

I think this is going to be a really interesting market, and it’s a great analogy to what you and I have been talking about. I consider it a new form of real estate; it's not a currency. It’s simply real estate. And I own these very highly prized coins with their providence—the knowledge that only I've owned them—and nothing to do with burning coal to make them. It's very valuable AAA real estate.

That is some pretty good insight and definitely a huge category that people are asking a ton of questions about. I myself am starting to play in that space. I'm aligned with you that it’s, you know, there are ways to hedge against the individual coins themselves. And I think that’s definitely a strategy I’m interested in.

But oh my gosh, I just feel—I’m just so pumped about how much opportunity is coming down the pipeline in the next couple of years. I'm with you on the optimism. I think the next few years are going to be gangbusters in terms of the economy and opportunity. This is a time where people can completely change the trajectory of their financial future if they make some smart decisions.

We will have to catch up again because you and I could probably go on for just about ever talking about how to make money! We both like money, but we sometimes make it in slightly different ways.

I will follow up with this because you said something that I knew you were gonna say, which you said: If a young individual were to put a hundred dollars away every month into equities or just into the markets themselves, they could save a million dollars over the life of their career, which I've done the math; it's true. And I've heard you say this before, so I ran a little bit of math as well because you can’t just put a hundred dollars a month into real estate. But if you could save up about $25,000, okay—which is a goal for young individuals; work hard, save as much as you can, borrow it if you need to from somebody—but if you can put $25,000 as a five percent down payment on a primary residence, which is about $500,000, and you were able to use it as both your home and a rental property—which is how I got started, bought a house, rented out all the rooms and just broke even—basically, the rent just covers the cost of financing, the expenses, maintenance, insurance, all of those things. If you were to do that for 25 years and the market were to increase by five percent a year (which is a lot less than it has over the last 20 years), your investment of $25,000 would grow to a value of 1.7 million dollars in that property over 25 years.

So if you want to save 1.7 million dollars, you need a $25,000 investment. And you and I are both numbers— the only difference in your scenarios are using leverage. Not everybody wants to do that, and that’s why you get the extra juice. Leverage works for you when it works for you and rates are low. If all of a sudden rates spike and you’re levered up—ouch! It hurts! So you got to remember that.

That’s the disagreement we can have. I have come to the conclusion that I don’t use leverage anywhere anymore. Do not use it; don’t have it in any portfolios. I don’t owe anybody anything except for the 30-day float on my credit card, and I completely pay off that balance. Do not want to be in debt anywhere, and I think that’s a good place to get to in your late 30s if you can do that—turn the tides. Because most people borrow money, particularly in their homes and on other forms of debt. But at some point in your life, you have to turn that tide and be a net saver and be completely out of debt. Nothing worse than arriving at 65 with hundreds of thousands of dollars in debt. That really sucks.

Yeah, that totally sucks. I’m aligned with you, but I also believe it’s an evolution. A lot of people are starting out struggling. The market's hard to get into—whether it's stocks, equities, bonds, real estate, bitcoin—it’s hard to make a mark in these places without borrowing money. So I am...when you're young and you've got lots of time to recover, the best time to use leverage is ideally in your 20s and in your 30s. You’re using leverage, not for consumer spending, but for investing. And yeah, there’s going to be a tipping point—maybe it’s 40 years old. At 40 years old, if you’ve done well, and you’ve had a good run and you’ve been smart, you should be able to pay off those debts and self-finance your investments moving forward which would be ideal.

But it’s a bit of both. If you like that video, wait—did you see my next one? Don’t forget to click right over here and subscribe!