Tax Loss Harvesting 2.0 (for Real Estate Investors) 

Episode Transcript:  

  Have you considered consulting with a wealth manager, or are you currently on the hunt for a wealth manager? Today you're gonna have the chance to hear firsthand from one and learn a lot of helpful info. Let's get ready to scale.

Hey guys. My name is Jeannette Friedrich. I'm the Director of Investor Relations here at Blue Lake Capital. Joining me today is Samuel Harnish. Samuel is the founder of Quantitative Financial Strategies where he specializes in helping investors with a net worth of 5 million plus, reduce their burden of taxes and grow their wealth via exclusive access to private markets and tax efficient strategies, which we all actually really love here.

Before that he was an investment analyst for Schoolcraft Capital as well as a member of the research team and investment committee of a $1 billion multifamily office serving families with total assets under management of 10 million to a hundred million. He also has been a lacrosse coach at a number of.

Schools in Dallas. He has his Bachelor's in Business administration with a specialization in finance and data analytics from the University of Denver, as well as a master's in Applied Quantitative Finance, which just sounds cool from the University of Denver. He's also a CFA charter holder, a certified financial planner, and a certified private wealth advisor, and he is joining us today from Denver.

So Samuel, welcome to the show. 

Thank you so much for having me. 

Yes. I'm excited to hear your story. You don't often hear of an analyst suddenly opening up their own wealth management firm, though I think it's fabulous. So what's the background there? What made you decide to do that? I. 

Sure. I guess I would go back to starting my career at PIMCO in Newport Beach and loved being on the asset management side.

It was a much more sophisticated approach to investment management. I just felt it wasn't the right fit for me because I was a little too far removed. From the end clients, most of the, clients at PIMCO that I was servicing were institutions like pensions sovereign wealth funds, like really large pools of capital.

I. And you're just a little too far removed from me personally, from the actual end beneficiaries of those pools of capital. And so that's what led me to wanna move over to wealth management, where you can actually sit down face to face with someone whose investments you're helping manage. But it's really much more tangible and meaningful for me personally, when you can actually sit across from that person.

And then, yeah, I guess going to start my own firm, it was a huge jump from being on the investment side. To the client facing advisor side. And it has not been easy, so I completely understand why it's not common. I think what you'll normally see is people will build their own book of business as an associate or junior advisor, and then maybe they'll look to start their own.

But for me, I just reached a point where there was enough friends and family that wanted to work with me and I've always wanted to have my own business, that it made sense to just take the leap and go for it. 

Nice. Very nice. Along those lines, let's talk about going for it, right?

Today's market is definitely very volatile. And there's, a challenge always in trying to manage risk versus reward for, your clients. So I'm, curious to know where are you advising people to allocate their capital and why? 

Yeah, it's I think you'd have to go back to 2016 when there were times where a single tweet is moving markets the way that it is today.

I guess I'd go back to first principles when it comes to portfolio construction is the way that we manage wealth is so diversified across public markets and private markets. You've got a dozen different asset classes. And so part of my answer is protecting wealth via diversification lowers our exposure to some of the volatility in markets today.

We'll probably run at far less public equity market exposure than your average wealth management firm. And then the second part I would say is that we're always looking to take advantage of tax loss harvesting opportunities. And so for our equity allocations in client portfolios, we welcome volatility.

It, it increases the tax alpha that we're able to harvest. Because as markets are whipping around, what we're doing is every single day we're looking, is there an opportunity to sell a certain position at a loss and swap for a different one? And if you look at what's happened in markets, we saw one of the fastest drawdowns and then one of the quickest recoveries.

So what we did is in the drawdown, we harvest all those positions and then we've snapped back. And so we're at a very close level to where we were a month ago, but along the way we've extracted all these future tax savings through the tax loss harvesting that we do. 

Fascinating. Very interesting.

And that actually leads me to another question that I'd love to know your insight into, which is what are some specific tax strategies that, you often see even really affluent clients maybe overlook. 

I would say the biggest one is this next level, next evolution of tax loss harvesting.

Normally people have only ever done it in a long only construct, but if you're able to add shorting, which is when you bet against a stock to a client's account, the volume and opportunities to harvest capital losses. Goes up meaningfully. And so that's something that traditionally has only been available to billionaire single family offices.



But as of just a couple years ago, it's something that's become much more accessible. And I don't think, I don't think the majority of affluent families are aware of just how powerful this strategy can be. For offsetting gains on liquidity events. It was part of the reason why I started my firm is my family has a family business that's been passed down for a couple generations and it's looking myself, none of my brothers are gonna take it over.

And so there's an exit when you exit a business and it has a real estate component to it, and I'm sure you're aware it's, industrial properties in Southern California, if you've held them for 20 or 30 years, they're worth quite a bit more maybe than when you bought it. That is a huge tax liability when you go through that exit.

And so what this strategy allows you to do is create these sort of on paper capital losses, much like depreciation in real estate, and you just use those to offset the gains that you trigger on whatever your particular liquidity event is. 

Interesting. Now, you said something about, that a couple of years ago it became much more accessible than it used to be.

What event made it more accessible? What specifically, brought that about 

more than anything else? The advancements in technology. I think one of the big ones was stocks became free to trade. I. Right around COVID times that dramatically reduced the transaction costs of a strategy that isn't buy and hold.

It's one where you're trading a little bit more actively. The second part, and probably the biggest one, is the ability for these hedge fund managers to link directly to your Schwab or Fidelity account and execute this strategy personalized just in your account. That was never possible. At this kind of hundreds of names, long and short.

With all of the specific cost basis and transaction details flowing from the custodian to the manager. That's what has made all of this possible. And is it's, I personally think it's the biggest thing to happen in wealth management, maybe since Vanguard came out with the index fund. 

Wow. Fascinating.

Fascinating. And then what about in private markets? Where are you advising your clients to invest in private markets and where do you see the opportunities there? 

Sure. So again, as in. Private markets. Tax efficiency of investing in real estate is pretty hard to beat.

So I do really prefer first a client's taxable assets that we have. You do want a chunk of it invested in real estate and you want to do it in a certain way. You wanna make sure that you're doing high building to land ratio. So there's a lot for you to depreciate. You want to initiate cost segregation studies.

Maybe we're getting a hundred percent bonus depreciation back. We'll see. Fingers crossed, we're all praying for it. So you wanna do that and then instead of transacting in and out of properties, like you might see some sort of opportunistic managers do. I prefer the much longer hold periods because I just don't want to trigger depreciation, recapture capital gains.

And so the way that we'll do it is we wanna hold properties for 15 years if we can. 



Make all of that rental income tax free with the depreciation, and then when that kind of runs out, that's when we'll look to do a 10 31 into another property and just start the process all over again.

Yep. Music to my ears. Love it. All right. Very good. Now, I'm also curious to know, so aside of what you were talking about as far as, the advancements in technology that have allowed for, these new enhanced tax loss strategies or tax harvesting strategies that you're using, what other fundamental shifts have you seen in wealth management and how has that influenced your client strategy?

There's a few, so I'm trying to think which one to pick. I guess the other one I will say is the access to alternatives or private markets. I think if you look even just 10 years ago, the landscape was completely different and the vast majority of wealth in the, we're not talking, multis single family.

We're talking like your traditional ra. Maybe they have some. Client portfolios in the 1 million to 10 million range. I think you saw very little private market exposure. It's never been easier to access, like institutional quality private markets for financial advisors. And it's, I think it's mostly a good thing.

It's also, tough for people where they don't have the experience. They don't, it is completely different than investing in public markets and the dispersion across, the manager's performance is massive. I think fortunately for me, I had the chance to learn at a multi-family office.

Just being on the research team. All I did was look at private market investments and meet with managers and got a grasp of how it all works. But I would say that's probably the biggest shift, that it's still ongoing. I think over the next 10 years you're gonna see a dramatic rise in the exposure to private markets in the RAA channel.

Interesting. All right. And now I wanted to also pick your brain about what you're seeing, either with your own clients or maybe just even some friends and family that you have about the Chubb's Wealth Report. So this is a report that came out back in 2024. We should see another one come out this year at some point.

The findings were interesting. So for example 63% of the respondents said that they believe there's more opportunities for building wealth now than ever before. But 90% of them also said that they were worried about climate change. And given everything that happened, even here in LA just recently with, the fires, which was.

Horrible. How often do you think that wealth is perceived when it's really just tied to, say, a single piece of real estate that kind of can make their, someone's wealth appear bloated when in reality maybe they're highly leveraged? 

Yeah. I guess the first part of your question, I would agree that it's never been easier to to create wealth.

Are you on TikTok at all? 

I have not been on TikTok in a long time, but I have been on it just not for a very long time. Yeah. Yeah. I was 

having a coffee with someone this morning and she goes, man, I wish I had just started dancing on TikTok in 2020. I wouldn't be working a full time job right now.

And I just, I think this rise of influencers and figuring out ways to monetize audiences and followings on social media is fascinating. And I think it is creating wealth for particularly younger individuals in a way that I can't, I don't think anyone's seen before. I would agree with that.

To your point on the how I think statistically primary residents has never made a, made up a larger proportion of people's on average, their net worth than it does today. The problem with that is it's illiquid. And so you gotta start looking at what are ways for folks to tap that liquidity? You can do, I guess everyone knows like a traditional mortgage, if you own your home outright or you have, one of these 3% rates, you're not putting on a new mortgage at a 7% rate.

So that doesn't work. There's some people doing reverse mortgages, maybe you do a heloc it. There's a few strategies out there that you can do to extract liquidity. Because if you look at like your pie of your net worth, and if three quarters of it is your home, in some ways all that does is increase your property taxes.

In some ways it doesn't actually help you. So I have looked at a few different strategies that you can do for people to try to get some liquidity from that asset. But it's hard. It's hard and I think my, my parents are an example of people that just feel stuck.

They don't like love. The town they live in, they might look at living somewhere else if it weren't for, they're in a below 3% mortgage rate. And so people just don't wanna move. And it's, it's a fascinating time. 

It is indeed. It's very interesting. Now 46% of the respondent, the respondents on this survey also are collectors, and they said that they plan to acquire fine art, jewelry, cars, other valuables.

And, you talked earlier about how important having a diversified a strategy is. So I'm curious to know, do you actually see your clients diversifying with these types of assets? Huh, 

none of mine so far. It's come up in a few conversations and I'm embarrassed to say I'm not particularly well read on these sort of niche.

Luxury alternative assets. I think my concern would be how liquid are these secondary markets for these assets? Because it's one thing to have on paper, say you're diversified in this art piece, and it's another. What is the point of diversification? It's to protect your net worth. If you actually needed to liquidate one of these art pieces.

How big is, what's the bid ask spread? I don't actually know, but I would guess it's bigger than some of the other traditional assets out there. 



That being said, you, every once in a while you see a marketing thing that puts the chart of this is what fine wine or like whiskey or art has done over the past X years and it's beat the s and p 500, and you're like, oh, I need to have some of that.

So I, I think it's interesting, but it's not something that I've actually implemented with any of my clients. 

It's interesting to hear you say that because I agree. I do not, I have not seen, any significant portion of our investors and several of them are also family offices, really be into this kind of stuff.

Yet I continue to read about it and see these data points, and very, yeah. Worth like this. And then I was listening to a podcast 'cause I listened to many of them. And I was listening to a podcast on the way home the other day, and they were talking about a specific piece of art that had been donated to a charitable organization.

That was perceived to be of just tremendous value into. Yeah. And so they had, a charitable auction for it, and everyone was astonished because no one ever bid on the piece. And Billy, yes. And so it the, the point of the podcast was talking about, shin basically shaken sentiment amongst investors, even the very, very affluent, investors who would normally participate in these types of purchases.

We're not moving. So talk about a huge gap in the big A, the bid ask spread. I 

mean, I think are you familiar with the concept of like consumption, hedging benefits of an asset class? 

Interesting. No, explain that. 

Equities are horrible at consumption hedging and what that means is.

How does the asset perform? Basically in a recession when you're most likely to be laid off or have reduced income, what does that asset do? 

That's 

part of the return of risk. Assets is like a high risk asset, is usually terrible at consumption. Hedging benefits of stock market will not be up when you most need it in a recession when you're being laid off.

I wonder if that's also the case with these luxury goods is diversification is only it. It's only good when it works when you need it. There's this sort of naive wise 

words never have never been spoken. Yeah. 

Yeah. It's just this naive notion that, oh, like this asset class moves differently. It's okay, what does art do in a recession like? Do you think it holds its value? Maybe it does. I don't know. It's just some of these asset classes, we don't have a great track record to really answer that accurately. 

Yeah. Interesting. Very good point. Before we move on to the lightning round questions, I do have one last question for you, which is, what, basically what is the difference that you see when it comes to wealth management or that you even take with your own clients?

For just regular individuals versus family offices. And what can individuals learn from some of the things that you do for your family office clients? 

I would say the holistic, more integrated approach. This is not true, I don't want to generalize, but broadly speaking, those wealth managers or firms that cater to the mass affluent, let's say sub 1 million maybe they're doing. Some investment management, some light financial planning. Once you start moving to the higher net worth multifamily office space. And what I do for clients is it's all integrated and related. I don't make any investment recommendations or allocations until I've sat down with everyone's CPA.



I also need to talk to people's estate attorneys because you really need to integrate. I think of it as like a Venn diagram with three. Circles and you've got the investment portfolio management is one. You've got the tax and accounting as another one, and then you've got the estate planning as a third.

It's nearly impossible to make the optimal investment decisions without those additional pieces of information. So that's what I would say is one of the bigger differences that I've seen as you get to the higher net worth, is this holistic integration across those three facets.

Very interesting. Very interesting. All right. Samuel, we have arrived at what we call the lightning round questions, which are five questions that I ask all of the guests that come on the show. So are you ready? 

I should have done my research. I could have known what they were ahead of time. 

This is what you get for not watching full episodes to the end.

Yeah. Yes, Uhhuh. All right. My first question for you, and you can't say lacrosse 'cause I already gave that away when I was reading your intro. What do you do for fun? 

I right now I like mountain biking, like with summer coming around. I think that's a really fun thing to do out here in Colorado.

Yeah, for sure. All right. And what is something interesting about you that most people don't know? 

I have four brothers. Oh that's usually one That's uncommon. I am the middle of five. 

Ah, interesting. The middle child. All right. Very good. And then what about as far as either a book or a podcast?

What would you recommend people, get plugged into if they're really trying to learn and understand wealth management better? 

I think Charles Ellis's book, winning the Losers Game is probably the best place to start with trying to learn more about personal finances and investing is just simplifies everything and tells you what you need to know.



Interesting. Okay. And then, something else that we'd like to talk about on the show is yes, we all wanna make money. We wanna have good returns. That's great. But the point of it ideally, at least to us, is to be able to build and live extraordinary lives. And so what's your advice for someone that's focused on that?

Okay, here's mine. I got active on social media. Like maybe six months ago. And that's the only reason why you and I are even doing this is 'cause we were connected through social media. If you want, what you just said is a more fulfilling and connected life, somehow social media can do that. When I was in college, I deleted all of my social media because I felt it was just a distraction.

And it was not adding to my life. Now in my professional. Career, I have found just the opposite. You will come in contact with so many like-minded people that you disagree with and they'll actually teach you something. So I would encourage everyone to get active on, you don't have to be on TikTok dancing, if you're a professional, maybe posts every once in a while on LinkedIn about what's unique that you're learning or doing in your industry, that would be something that I would recommend to people.

Wow. That's great advice. And uncommon also I don't think anyone has ever said that, but I do think that's a very good point. I have a very simple saying, which is it's the people in your life that make it what it is. You can be loaded, you can have a million things, but if you don't have people surrounding you that you enjoy being with, and can learn from and connect with what's the value of any, of, any of it, anymore.

Yeah, definitely agree and it's a great way to expand the people in your life. All right. And then last but not least, Samuel, if folks wanna get in touch with you, how can they find you? 

Yeah, easiest is probably go to LinkedIn and just search Samuel Harnish. And then from there you can find my links to my website And anything else shoot me a DM if you have any questions.

I always love to answer questions in the direct message space. 

All right. Very good. You've got the social media lingo down. 

I wouldn't go that far. 

All right. Samuel, thank you so much for your time today. Really appreciate the insights. And for those of you that have invested your time with us today, thank you.

Please don't forget to leave us some comments. Let us know anything else you want us to dig into. And in the meantime, be bold, be extraordinary, and keep moving forward. We'll see you guys on the next episode.

Ready to Scale is brought to you by Blue Lake Capital, where we hunt down the best multifamily investment opportunities that we can find and invite investors to join in with us. We target class B value add multifamily properties across the Sunbelt. Our CEO Ellie Perlman, invest a substantial amount of capital into every deal.