Ethan, a devoted family man with five kids, once found England, including its renowned institutions like Oxford and Cambridge, pretty dull.
He laments the inefficiencies of the American financial system and wonders aloud if "anyone truly cares if half of all banks just vanished?"
From China to the U.S., Ethan's remarkable academic journey showcases his sheer drive and tenacity. We delve into his vibrant personal life, the rich tapestry of cultures in his family, and the reasons Houston became home.
He offers a candid look at the dual landscape of opportunities private capital holds, juxtaposed with the often intricate maze of obtaining bank loans.
Through Ethan's eyes, you'll gain a deeper grasp of the nuances in the American system and their bearing on loan sanctions.
And as we navigate the waters of real estate investment, Ethan unveils the strategies that powered his thriving family office.
Transitioning from conventional employment to hard money lending and private equity funds, he provides sage advice on wealth management, underscores the importance of a professional class, and offers a treasure trove of insights into real estate ventures.
Live free. Get Educated. Master Your Money.
Subscribe to our Podcast here!
https://investingstuffyoushouldknow.buzzsprout.com
Youtube Videos now up as well! Subscribe here:
https://www.youtube.com/channel/UC1kV60Yxx4ntgLqAwOCR1Pg
Ethan, a devoted family man with five kids, once found England, including its renowned institutions like Oxford and Cambridge, pretty dull.
He laments the inefficiencies of the American financial system and wonders aloud if "anyone truly cares if half of all banks just vanished?"
From China to the U.S., Ethan's remarkable academic journey showcases his sheer drive and tenacity. We delve into his vibrant personal life, the rich tapestry of cultures in his family, and the reasons Houston became home.
He offers a candid look at the dual landscape of opportunities private capital holds, juxtaposed with the often intricate maze of obtaining bank loans.
Through Ethan's eyes, you'll gain a deeper grasp of the nuances in the American system and their bearing on loan sanctions.
And as we navigate the waters of real estate investment, Ethan unveils the strategies that powered his thriving family office.
Transitioning from conventional employment to hard money lending and private equity funds, he provides sage advice on wealth management, underscores the importance of a professional class, and offers a treasure trove of insights into real estate ventures.
Live free. Get Educated. Master Your Money.
Subscribe to our Podcast here!
https://investingstuffyoushouldknow.buzzsprout.com
Youtube Videos now up as well! Subscribe here:
https://www.youtube.com/channel/UC1kV60Yxx4ntgLqAwOCR1Pg
Welcome to the Investing Staff Fusionel podcast, where we bring you expert insights into the world of investing and beyond. My name is Johnny Nelson and today we're thrilled to have Ethan Gao as our special guest. Ethan, thank you for jumping on here with us, and I know you're going to share some amazing knowledge and some of your story with the audience.
Johnny Nelson:Yeah, thank you so much for having me, Johnny, Amazing man, amazing here. So you have a diverse background. You're an attorney, you've been in the financial space, deep into real estate. A lot of the folks at least a lot of the audience that we had are into real estate, into syndications and things like that. But let's start at the beginning of where I guess, maybe where you were born and kind of grew up, and then I also know that you have quite a pedigree in the educational space too. So share with us a few of those background tidbits.
Ethan Gao:Yeah, absolutely so. I was born in China. In the 1980s during the one child policy my parents met. They're from the same city in China originally but they went to college in a different city in China and that's where they met. They were college sweethearts. They got married right away. They had me.
Ethan Gao:When it was around 1989, my father got an opportunity to study in the United States so he went to a small college called I want to say it's like University of Texas, commerce at sorry, university of Texas at Commerce. So it's in Commerce, texas, near Dallas, which was a very small town. Because he did that, my mom and I kind of came with him a year later and then his faculty advisor for his PhD, his doctorate in education, moved to Baylor University. So then we moved to Waco, texas. So I spent several years in Waco, texas, at elementary school and one year middle school. I was actually there during 1993 when David Koresh and Abracen came through town. We got like a week off of school or something. It was super bizarre. And then once my dad graduated, my mom also ended up going to Baylor. Once they graduated, my dad got a job in Toledo, ohio. So we moved to Ohio in 1996.
Ethan Gao:At that point I skipped a grade. So in Texas, waco, I was in sixth grade and that was middle school. In Ohio sixth grade is elementary school. So my parents basically pulled a Chinese immigrant move and they said we didn't like swim all the way across the ocean to get here so that you could go back to elementary school. So why don't you just skip a grade and just go to junior high? I said that was great. So I was always good at school, wasn't a big deal. So that's how I skipped one grade. And then during high school I took a bunch of advanced math classes stereotypical Chinese thing and so I had a lot of extra credits. So I just graduated high school early in three years, and also Toledo. Ohio wasn't super interesting. And then living with my parents was also not particularly interesting. They had a rough time during that time period. They would fight all the time. So I went to Cornell when I was 16 and a half. I actually met my wife the first day of class.
Johnny Nelson:That's incredible, man. Yeah, was she older than you? I imagine a little bit.
Ethan Gao:Yeah, she was just 18 and I was 16 and a half, so she was almost exactly a year and a half older than me, yeah, so she had started. Just you know, she had one of those late birthdays or whatever. So she, we got together. We've been together 23 years. We got five kids together.
Ethan Gao:So at Cornell she decided that she wanted to become an investment banker because she heard they made a lot of money. I said that sounds phenomenal, that sounds like better than most reasons to first selecting a job. So she needed to be in New York City. So I wanted to be a lawyer. So I went to Columbia Law School so that we could both be in New York City at the same time. She graduated into a great economy you know, the first job she ever had as an investment banker at JP Morgan. She made more than her parents Plus my parents combined, oh my God. And then I graduated from Columbia Law School when I was 22 years old, into a great economy in 2006. And then, you know I also the first job I had I made more than my wife plus my parents combined. Amazing man, amazing.
Johnny Nelson:Wow.
Ethan Gao:That's kind of how we built. Our initial wealth is just from fancy schools and fancy jobs. So, like at Cornell, I graduated in three years to save money and I already had some college credits anyway. So I graduated from college when I was 19. So I was probably the youngest kid in my law school class.
Johnny Nelson:Yeah, man, that's incredible. I saw that in your bio there. It was like holy smokes, this guy just like crushed school again and again you know leaving, you know getting through Cornell like you did. So you know, in just like three years or less there, so that's that's amazing. So, okay, man, that's that's amazing. So thank you for sharing all that, the background and kind of I love your story. It's, you know, that's yes, it's immigration or immigrants, and then you text this and you kind of moved around the US. I imagine you're fluent at least in two language, probably English and Mandarin. Is that true? Or do you have any others? Or yeah, that's.
Ethan Gao:that's very perceptive. So the part of China we're from we do not have our own regional dialect, we just have an accent when we speak standard Mandarin. The part of China my wife's from, they actually have an actual language which is not intelligible to Mandarin speakers.
Johnny Nelson:Okay, Now we're going real deep. To us, the Americans, and the English speakers like ah, okay, yeah.
Ethan Gao:Yeah, yeah, Like what's the parents, what's the parents Like it's all sounds. All sounds Chinese to me.
Johnny Nelson:Oh, that's so good. Okay, well, let's jump into actually. So, like you said you, I did all this a lot of education, you're good with the good, with books and just natural ability because you move quickly through. It looks like corporate, the corporate life as well. Let's talk about you know, just the just a few things that you've done here. You have done like 350 private loans secured by real estate. What? Oh, actually a lot of private loans, but also across a wide variety of asset classes. What trends do you see within some of those categories? Right now, there's a lot of stuff going on in the market a lot of shifting, a lot of changing. Can you give us a few insights of the things that you see from your vantage point after all these years? Yeah, I can give a caveat.
Ethan Gao:So, even though I've been in real estate for about eight years, in commercial and multifamily for about three years, you know trends are by nature not predictable and even if they are picking the, you know, the bottom or the top is extremely hard and risky. Sure, this is, you know, late July 2023. The market is thinking the Federal Reserve will do one more 25 basis point hike and then hopefully no more hikes until a cut. You know, maybe in 2024, right before elections, or in 2025, or you know God knows what. So that's what the market is currently predicting. You know, I think we'll know in a couple of days when they announce the headlines from the Federal Reserve meeting.
Ethan Gao:But I think what caught a lot of people unaware across asset classes, and not just real estate but stock market and other things, was the rapid increase in interest rates. I don't think most market participants in real estate nor financial markets were expecting that. And if somebody did, then they should have, you know, shorted Euro dollar futures up to and they should have made a billion dollars, and I actually don't even know any stories about that. So I don't even think anybody did that, you know, back then.
Johnny Nelson:No, one saw that that particular angle and I don't think so.
Ethan Gao:No one saw it yeah.
Johnny Nelson:And then they did.
Ethan Gao:They didn't do it in size. You know, like in 2008, 2009, a couple of very famous people ended up calling the top and then they made a lot of money. And then they immediately told everybody I have not seen somebody come out and say, hey, I predicted this and I made a billion dollars doing it. Look at how smart I am. I have not seen that yet in the marketplace. So that makes me think that nobody actually did it.
Johnny Nelson:Yeah which means that I don't care. All the smartest people out there, even the contrary did not predict like did not see this. It's kind of the unusual blocks. What nature of the continued rate rate hikes correct yeah.
Ethan Gao:Right, I think people expected ways to go up. They didn't expect it to be raised like every meeting every month, right. That's kind of like getting you know you're already on the floor and then they just kick you constantly. They just come back to kick you. You're saying in your eyes, two white mother at it.
Johnny Nelson:Right yeah, what kind of opportunity has that opened up then, ethan, within the I guess, the fund space, I guess the private equity space has that? You know, obviously the banks are tightening up right now and is it just impacting everyone so profoundly that there really is no like there's always some opportunity, but is there like a special opportunity for hard money, private equity and some other entities that have a little bit more, they could be a little more nimble in the space? Do you see any opportunity there? Or is just kind of like hard times and you know real tight, you know sharp pencils for everyone?
Ethan Gao:No, I think there's definitely a lot of opportunity for private capital because banks are extremely hard to borrow from right now, including some banks I'm working with right now. You know they're throwing up all kinds of roadblocks and special provisions. It's almost like they're trying to just turn you down for a loan but for some reason they're not. They can't just come out and say, hey, we just really don't want to do this deal. I wish they would just say that so then we wouldn't waste all this time, absolutely man Share with me.
Johnny Nelson:I mean, I think I've read about it, I know, but you have such a great vantage point here. Why do banks, like they're in the business of lending money and making and doing transactions and all these things, or why? What is the? I guess they seem to get struck with fear and their version to risk Is that. I mean, basically, it's just, it seems like it shuts your business down. Why are they so reluctant to do business Like? Why is it so onerous? Because I'm hearing that from everyone. So give us a perspective of the bank. Let's step into their shoes. Why are they so risk, risk-averse, and what are they saying? And how can they still survive by basically not doing business with anyone, by making it so difficult?
Ethan Gao:Yeah, that's a great question. I think I have part of the answer, but not the full answer. Sure, I Used to represent a lot of banks doing syndicated acquired agreements, but those are, you know, like hundreds of millions of dollars or yeah.
Johnny Nelson:Huge, huge deals.
Ethan Gao:Yeah, massive deals, right. So now I'm in the kind of you know, 10 to 40 million dollar alone, Right, or actually really I'm in the one to 40 million dollar loan age. So I would say the United States is a bit unique In that there's a bank on every corner, okay, or a credit union with like some random purpose or some purpose that made sense 50 years ago but doesn't even make sense now, like, for example, here in Houston, texas, we have a credit union that's massive. It's called TV ECU, which stands for Texas Dow something credit union. So this just used to be a credit union that was open to people that worked at like Dow chemical company.
Ethan Gao:Okay, wow, very nice, very specific, literally you have to work here to be in this pretty, and now they do loans to all kinds of people that have never used. By that they lend people. They lend money to people that don't even know what TD ECU stands for. They might guess credit union at the back, but they have no idea what TD E mean.
Ethan Gao:Yeah, I don't even know the E means. So the the American system is Exordinarily inefficient. So I, okay, I'm approved for loans using the exact same personal financial statement, speaking the exact same way, with the exact same project, same tax returns, same liquidity proof. I have gotten approved that a bank on you know Main Street and then I walk over to you know Broad Street and I get rejected there out of out of hand without even a meeting right, they just say we've reviewed no thanks. Yeah, it is the most inefficient system that I have seen in quite a long time and I kind of wish that somebody made it more efficient. I mean, you know I don't want to speak out of term, but probably half of these banks could disappear and nobody would really give a shit.
Johnny Nelson:Well, that's, that's impressive. But I mean we saw, I mean we see, I know, I mean during the we saw some fairly large banks SVB and signature bank collapse and they're like they had some sizable you know sizable assets. You know they had quite a bit of money, you know, you know, in the holdings and they went under. And so there's thousands of banks that are you know much, much, much our credit unions that are much, much smaller than that. So that just kind of bolsters that point where, like even these, yeah, the massive banks had cost some major disruption but you know the system was able to absorb it. So you think about banks that are half, half those holdings are or less, and, like you said, they could just know one would, we wouldn't even blink that the hundred just continue.
Ethan Gao:It really wouldn't impact too much. You know, you just have a new bank name, or what have you? So yeah, so, so banks always do this. So right now what's happening is Treasuries pay so much Relative to banks. So right now it's actually Inefficient generally to have your money at a bank and you could earn more by buying a treasury. And the treasure is Is backed by the full faith and credit United States government. A bank deposit is only backed by up to 250k Full faith and credit United States government, right. So banks are seeing deposit flights, so their ratios are all out of whack. Interest rates are rising. So a lot of regional, regional and local banks. They've got massive exposure to the local market real estate. So all that stuff is down 10, 20, 30%.
Johnny Nelson:So they're being squeezed on two fronts, so it's just really difficult for them to do so for sure, um trans, kind of transitioning to a kind of a topic more very relevant to yourself here. What do you see From your experiences as an attorney and an investor? What kind of additional insight and perspective do you think that adds to to the way you view deals that you come across? What additional criteria and I guess, hurdles this D Are you looking for and does these deals have to cross or pass? I guess that maybe the kind of the essence of the question is like so we're getting some insight from an attorney and how does he look at deals? You know, kind of as a couple of takeaways for the audience, like so how I talked to the smart attorney or I listen to the smart attorney, what are the things that are the not obvious things that he looks for that like, oh, there's this return and this deal and this area, it's all good, you know, what do you look for? That's like not, it's not obvious.
Ethan Gao:What you guys before the interview. So I think one of the advantages of being an attorney is I can spell bullshit Faster oh, yeah, yeah, yes for sure. And I can turn down things faster.
Johnny Nelson:Gotcha. So you can, you can current, you can process, or or yeah, trot a lot of deals quickly and get to the good ones, if there's any good ones to be had right.
Ethan Gao:Absolutely so. Just talking to a borrower or talking to a real estate deal guy, just just listening to them talk about structure or their past deals, you could basically spot an idiot immediately. So what the idiots? I just very respectfully try to get off the phone as fast as possible. You know, I had I had a call with within. For example, I had a call with somebody that said they've done private lending before and so they're familiar with loan documentation and then when they're lending people money, they do ABC and none of what they said in ABC Made any sense. So any question if they'd even heard about private lending or if they'd even Google private lending. Yeah, we didn't know private lending.
Johnny Nelson:Yeah. So those those kind of life, just like the basic, like you see, those BS checks you just quickly, just like cut through that and get through that quite quickly Right now, if I weren't a lawyer and if I didn't do a lot of deals, I might not you know what they sound.
Ethan Gao:What they said might have sounded great, I don't know. So I might have wasted more time looking at their deal, where I might have potentially sent them my money and they didn't know what they were doing or they were, they were scamming me you know you invested in a lot of different asset classes over the course of your career.
Johnny Nelson:Ethan, is there a have you found something that's like more robust across the stats fan of time, or is it just kind of Opportunistic and the market shifts and financing shifts and, you know, deal opportunities present themselves. It's a very kind of case dependent, or do you see, do you have a couple of asset classes that you really like and could you explain why?
Ethan Gao:if that's the case, yeah, I wouldn't say yeah, I don't think that's the right way of thinking about it.
Johnny Nelson:Sure, In light of me. I love getting my mind tweaked and I love getting people saying hey, think about it like this, so tell me that.
Ethan Gao:Yeah. I think all that matters is the margin of safety, ie, are you buying something cheap enough, okay. And are you buying something with a loan or with an investor base? That's okay. With a long hold, like the public markets or stocks and bonds in general, in real estate, you don't really have to market what your position is worth at any specific moment in time. Maybe you have to give a quarterly report, maybe you need to do audited financials, but in general, you don't have that real-time analysis Right. Like if you own an office building, you don't necessarily have to say, oh yeah, it's worth like half now and now I got to dump it at a horrible basis or at a horrible price. If you have the right loan or if you have the investor base that's going to write it out with you for a couple years and then, when they tell people to get their butt back in the office, office buildings will be worth significantly more than right now, where half the country is working from home.
Johnny Nelson:Right. So time is your friend and, like you said, kind of that, the cost basis, how much you purchased before. If the debt is good and if the cost basis is good, you can weather a lot of storms essentially. And you're saying, the asset class doesn't really matter, but within real estate it doesn't necessarily. It doesn't deeply, deeply matter if the fundamentals are there, is that a good?
Ethan Gao:assessment of that. Yeah, there's no such thing as a sure. Certain things will trend up and certain things will trend down, but I think it's very hard to forget, right? So if you're like, oh, I'm going to go all in on self-storage right now, you just might be wrong, I think a better approach is, hey, let's look at every asset that comes and are we buying it cheap enough? And is our loan strong enough or long enough? Where, if we had to hold it for a long ass time, is anybody going to force us to sell it? Yeah, so you don't you want to force them to being a seller. You can. You know. We'll say, in general is a relatively forgiving asset class. If you're just, if you're not no gun to your head, you're not forced to sell it at a bad time. You generally do okay.
Johnny Nelson:I love that perspective. Yeah, it's a if long as you have that, that optionality, as some some call it that, the opportunity and optionality to to not you know. If you're not forced to do something that you know that's not, you know, to your best interest, then, like you said, it's very, it can be very forgiving. And then there's, of course, there's all these other ansolary benefits. So if you can write that out long enough and you make dumb mistakes, but you, you were smart at the beginning then you know you can probably pull through and I like that a lot.
Johnny Nelson:You've lived around the world, ethan, kind of going to another, just another perspective here what, what's your favorite place that you've lived? And I, obviously we can be. Like you said, you're in Houston, texas now, because you've been there for a while and perhaps you'd want to continue to stay there. What is the again? So one question is like where'd you, if you could live in Houston anywhere, where'd you live? And then what's what's keeping you in Houston right now? Not that you shouldn't be, but just like what's, what's the upside there?
Ethan Gao:Yeah, that's a great question. So as an adult, I lived in New York City. New Jersey, which was, you know, where I lived, was essentially like an extension of New York City.
Johnny Nelson:Yeah, ohio, like you said.
Ethan Gao:Yeah, ohio, small town. Small town. Ohio, small town. Texas, hong Kong and Houston. My favorite place overall is Houston. A lot of that is fast and circumstance based. So I have five kids. I would not be wealthy enough to live with five kids in Manhattan or Boston. Okay, and also those houses like, especially in Boston. The house would be like a hundred years old, so the house would be older than me plus all my five kids combined. Yeah, yeah. So Houston's great. You can live in the suburbs, get a big ass house, still relatively affordable. The property taxes are high, but so what? There's no income tax. I don't like the cold, so even though it's 110 degrees today and it feels like 180, that's still better to me than having to live through a New England or mid-Atlantic winter.
Johnny Nelson:Yeah, yeah.
Ethan Gao:I enjoyed living in Hong Kong for two years as an adult, primarily because that was the first time in my life when I could walk around and then people assumed, just because of the way that I looked, they assumed that I wasn't foreign.
Johnny Nelson:Oh, I never thought about that, man yeah.
Ethan Gao:They assumed I was from there, and then they would speak to me in Cantonese and I'd be like I know what you're talking about. And then they'll oh yeah, now we know, now we know, we got to charge you more. But at least walk around Like I couldn't get racially profiled or anything because I was the same race as the majority of the people there.
Johnny Nelson:Yeah, man, that's.
Ethan Gao:So that was kind of different, right, because growing up in small town America people are always like, where are you from? And then the next question is where are you really from?
Johnny Nelson:Yeah, I'm like, okay, we're all like yeah.
Ethan Gao:Where are your parents from? Where are your grandparents from? We know you're not from here, so stop dodging the question.
Johnny Nelson:Yeah, I'm sure you've traveled also just a little bit tail end and just more of a curiosity Probably vacationed around the country, maybe around the world as well. Where's been your favorite place to visit?
Ethan Gao:I'm not a big travel guy. I think there's something relatively unique about me versus other middle-class Americans who just love traveling, like my wife loves traveling. So I did a 10-day tour with her of Europe many years ago, before we had kids, and I was just so exhausted and bored. I'll just give you an anecdote, kind of so. We were young, I think I was 25 and she was 27. I think she was right about to graduate from Harvard Business School or something, if I got the time right. So I remember we went to England and so we saw Oxford University and we walked around and I was like, okay, cool, holy cow, it's old, great. And then the next day we had to go see Cambridge University and I was like, man, I'm tired, like can I just stay at the hotel and watch Family Guy? Can you go tour Cambridge University and just take a couple of pictures, because I'm pretty sure it's just the same? And she was like, okay, fine, yes.
Ethan Gao:Newton was here.
Johnny Nelson:All the British scientists were here or at the other place and we were thankful for their contributions. But that was a long time ago, right?
Ethan Gao:Yeah, and to me that was a great day. So I just sat at the hotel, watched Family Guy or whatever. And then she came back and then we went to our next destination. I looked at a couple of the pictures. I'm like, yeah, this looks just like Oxford. I was like I didn't really miss anything. She was like we didn't. But you know, so I don't love so. And then back to your earlier comment. So I actually I actually studied Spanish, french and German at different points in my life academically. I'm not good at speaking any of them. I can read some of them decently well. So when we did this trip around Europe like we went to Austria, germany, switzerland, northern Italy, belgium, france, england and stuff. So that was kind of cool just to see stuff. I think what a lot of Americans don't know is that the quality of life and other like, even in Western Europe, I think in many respects is extremely low compared to the United States.
Johnny Nelson:I've heard that I have the same perspective and I've seen it. But yeah, and it's like people think you know they like all these social services, for example, and they're like, oh, it's the same, I'm like not. If you look at the, you know the gross, you know the median income. It's like it's vastly lower, like how, the same.
Ethan Gao:Well, I'll just give a couple of hopefully these are insights and I'm not just repeating stuff that people already know. I'll give a couple of other things. So it's not necessarily comparing the GDP per capita or how the healthcare is, because I mean the healthcare is going to be better than here, right? But, for example, if you had a so let's just give an example of like England to have a top tier job, you basically are forced to live in London. So, unlike the United States, where you can make a lot of money in New York, dallas, washington DC, seattle, even potentially Minneapolis, to have like a top income producing job, like you're basically forced to live in London. And similarly, like in you know, whatever France or Germany, you know you have to work in Frankfurt or Paris and if you're outside of that you just won't make nearly as high of an income. Like they have one financial one, very, very large, overriding business center. That's interesting.
Johnny Nelson:That's really interesting yeah.
Ethan Gao:So if you're not a big city guy, you can't be like me and run to Houston and make like I made the exact same amount of money I did at my top law firm in Houston as I would have if I was in Los Angeles or New York. That's more rare in other places. Number two if you're forced to live in that big city, by definition, your cost of living is going to be much higher, right? So you want to have a car in London? Sounds great, good luck. And then just something just more cultural kind of more reflective of business atmosphere. This is especially true in Hong Kong as well. I could literally return this to Costco. I could literally eat all of these, yeah, and I can go to Costco and I could be like this sucks, yeah, give me my money back.
Johnny Nelson:The quality wasn't any good.
Ethan Gao:I had to like I went through like 99. Yeah, that's what I was like.
Johnny Nelson:I determined on the 99th they was like this just didn't come up with my standards.
Ethan Gao:Exactly After I took 99 and I left one. I was like this you know what? After 99, this was just crap. So I can go to Costco and then they will say, yes, sir, give you your money back. In Hong Kong I was there for two years and I bought a bunch of baby stuff because I had my first kid in Hong Kong. Yes, and if you don't have a receipt, good luck returning anything. They're like we don't know where you got that from. Like just go check your camera, don't you have like inventory lines? We don't care If you don't know. No original receipt, no return. And then it's usually within seven days. You can only return it if there's a defect or another issue. Like there's no, like two year manufacturers warranty. You can't send in your backpack to Jansport for a lifetime warranty and say I broke my backpack, I'm not going to give you one, right. That doesn't really exist. So, the customer being always right and the customer being a very customer friendly country, it's very different.
Ethan Gao:That's really cool. We go to business lunches all the time and the waiter comes every five minutes to disrupt our conversation and says can I get you anything You're like? No, leave me alone. Like in Europe or Asia, it's like get your own water. Like, are you ready to pay? Like you know what I'm saying. Get out.
Johnny Nelson:Yeah, it's really so interesting, man, yeah, okay, well that's, we could just keep talking about those side stories, but that's fascinating. So, as you kind of take it to the final couple chapters, or the final two chapters of our episode here, geethan, so you've been a fund manager and also did you start a family office of your own? So talk to us about if those things are true. Talk to us about those two kind of those. But I'm your ambitious guy. You're doing, there's more and more things you're going to do in the future, but those last kind of two looks like endeavors from your social media profile. Talk to us about those two things. So a fund manager and a family office.
Ethan Gao:Yeah, absolutely so. About seven, about eight years ago, I got into real estate. I was able to replace my job income through hard money lending, so I started lending money to Fix and Flippers in Houston and Charlie.
Johnny Nelson:Yeah, with that primary, I imagine that was primarily your own money. Is that true?
Ethan Gao:It was all my own money, awesome. And so the first leg of the money I made was just through my job and my wife's job. And once we had our first kid, my wife decided to not work outside the home, and so we ended up having five kids. Now she does a little bit of work outside of the home, but it's not. She still spends more of her time with our five kids Awesome. So about eight years ago, that's when I started investing my money into real estate and then I invested in some other business ventures, and so basically I've had a family office for about eight years. My parents ended up tagging along with me with their money, and then my in-laws tagged along with me for a small portion of their money. My father-in-law really likes to trade stocks. I have no idea why. I've looked at his track record as dog shit, but you know, can't change old dogs. So I basically had a family office for eight years. I just never branded it that way.
Johnny Nelson:Okay, I like that perspective. That's actually really good insight.
Ethan Gao:Yeah, yes, and then, now that I've branded it as one like, people send me all kinds of garbage that they didn't use to. So it didn't really do anything for me other than getting a lot of garbage. So when I quit my corporate gig, I became a solo attorney. So I started just doing legal work by myself, much smaller types of legal work and still started working on billion dollar mergers and acquisitions. You know, I worked on much smaller stuff.
Johnny Nelson:Do you like one versus the other?
Ethan Gao:Yes, Smaller stuff is way better. Okay, better margin, less sophisticated client, less work, less complexity. Almost everything about practicing by myself is better, except, you know, elon Musk would never hire me to buy Twitter because I worked at him, even though when I used to work at the big fancy firm, he would have definitely considered hiring that firm. Yes, but now that I don't no longer work at that firm, even though I'm the same guy, he would never hire me to do his merging Right.
Ethan Gao:Actually he might be just weird and eccentric, but most people would not. They'd be like no, you work out of your house. No thanks, we're not interested. Give us the biggest firm name you know.
Johnny Nelson:I want downtown. I want to own a marquee name, marquee office. I want a prestige. I want people in exquisite suits.
Ethan Gao:I need to see all that before I even get to the hiring, I want 700 lawyers, even though only one of them is working on my case. I want 700 of them just in case. So when I quit, my financial advisor came to me. We had our annual meeting. He said, oh, you're going to be more of an entrepreneur. I said, yes. He said, hey, you knew quite a lot about life insurance. You are the smartest client I've had on that. You asked so many questions. You just might meet other real estate investors or other lawyers that you could sell life insurance to or financial planning service to. I said, okay, sounds great. I've been doing that as well for the past seven years, and that guy and me we created a private equity fund three years ago.
Johnny Nelson:With the money that from the potential, the clients that were interested in that, or how did that? Where did the funding and kind of the structure from that come from?
Ethan Gao:Yeah, so the vast majority of our investors are people that have either purchased life insurance through us or they use us for financial planning.
Johnny Nelson:I see Gotcha. That's incredible. Yeah, it's a capital.
Ethan Gao:It's not the word, but yeah, yeah, it's a bit of a capital niche. So he and I created a private equity firm. We've got about 35 million under management. We do real estate, we do loans, we do private lending, we do leverage buyouts.
Ethan Gao:And then what really prompted me to rebrand myself as a family office? Outside of that so that's its own thing, right, I have partners in that. We manage other people's money, and then within my family office, I manage my family's money my own and my family's money. So the reason I prompted you know, I decided to rebrand as a family office for myself was because I started bringing on a professional class. So, generally speaking, in my view, even if you have a billion dollars, if everybody that works at your family office is related to you, you're probably more of a family business than you are a family office, because you don't have a professional class of people that work for you. That's thinking about your family, right? Because when you're in it and you are the family, you may have less professional viewpoints for people that are hired specifically to manage money.
Johnny Nelson:Yeah, and you may have blind spots that you just like you.
Ethan Gao:You have massive blind spots, you have huge biases and you're not objective. Or you might be like, hey, I've got four daughters and a son. I'm leaving all my money to the son and then a professional class will say you know, your son's the dumbest out of the five, so why would you do that? Some day you might have a chance to be accepted in the United States. Right, so it's so cool.
Ethan Gao:People. You need people like that to point it out to you. So I have two guys on my team that are not related to me. As far as I know, they're completely different races than me, so I'm pretty sure they're not related to me and they work for me and they are able to give me that level of insight where they're like this deal is stupid or that person is really stupid, don't partner with them.
Johnny Nelson:Yeah, that's. Excellent, that's excellent.
Ethan Gao:I have that professional class of people unrelated to me that can give me their real opinion without it impacting my family.
Johnny Nelson:Absolutely, man. That's so good. Let's wrap it up here, ethan, on the final chapter, how do you? You got a lot going on. You've been a very busy, prolific guy, family your wife is also super smart and done a lot of things as well. How do you balance out, as we kind of did, the last segment of the show? How do you balance family time with all this entrepreneurial work and the activities that you do?
Ethan Gao:So, unlike when I worked in corporate so in corporate I probably didn't like 80% of my job and I like 20%. Now it's reversed I like about 80% of my job and don't like about 20% of it, and that 20% is starting to get less and less as I get more important or wealthier or as I have more people that can do things for me. I can just start not doing them. So I really enjoy my work. I'm not a. I have a lot of small kids, young kids. I'm not the best guy for small kids. I think I'm better for when my kids are a little older, teenager and probably really when they're in college. I think that's what I'll be like the best.
Ethan Gao:So my wife is really in the thick of things. She knows which friend is which. I know most of that too. Surprisingly, just because I primarily not because I care that much, it's because I have a really good memory. I just remember people's names and which kids they like, which kids they don't like, which birthday party I gotta drop them off at and stuff like that. But balance is always tough. You just kind of have to either carve it out or you have to make a conscious decision of what's important and what's not that important. So I've made a conscious decision that I'd still rather work really, really hard right now, when I'm at kind of a turning point, where I'm at the point of the curve, where things are starting to become easier for me.
Johnny Nelson:Yeah, that's an incredible place to be man. Yeah, I'm getting for that, but I know it's there and I've heard about it, but, like, I'm definitely not there. But that's incredible that you're maybe on the a touching point.
Ethan Gao:Well, and you'll get there and what you'll notice is you get better deals and you're doing deals with better people. So when that curve is shifting, it almost doesn't make sense to stop. Like you should really hit the gas pedal then. So for me, like I'm constantly meeting better people, like I met you randomly, we had a great talk, we had some weird esoteric thing that could be a real thing, and if that's a real thing, we'll make a lot of money and get better and better stuff. So it doesn't make sense to take the pedal off the metal right now.
Johnny Nelson:Awesome man, Awesome here. Well, that's an incredible place to leave that. Thank you for joining us. Thank you for sharing all this knowledge. I mean it's been fantastic anecdotes. You've sprinkled in some amazing humor and family, family and some good insights of business and technical insights too. So, pivoting back to the audience, thank you, audience for listening to another episode of the Investing Stuff you Should Know podcast. Spread the word, tell us that you like it really with review and until next time. Thank you and Ethan, hey, hey.