• Investment tactics often require big buy-ins and high fees.
• New tech is lowering the price of entry in fields like direct indexing and private markets.
• This article is part of "Transforming Business," a series on the must-know leaders and trends impacting industries.

Investing like a billionaire comes with a high price tag. But thanks to technology, the barriers to these elite opportunities are starting to crumble.

Consider direct indexing, a strategy favored by the rich to lower taxes by selling underperforming stocks and using the losses to offset other gains. These personalized portfolios used to be out of reach of the merely affluent, requiring steep account minimums. Over the past five years, direct indexing has exploded as technological advancements have made it worthwhile for wealth managers to offer the services to Main Street customers. The account minimum for Fidelity's FidFolios, for example, is only $5,000.

"Direct indexing has become accessible at a different level of wealth than it has been in the past," said Ranjit Kapila, the copresident and chief operating officer of Parametric. "That wouldn't have been available or possible without the technology trends we've had to be able to do this level of computation at scale in a cost-efficient manner."

Parametric, the pioneer of direct indexing, is also moving downstream. By adopting fractional-share investing, Parametric lowered the minimum for its core product to $100,000 from $250,000. The firm plans to offer a direct-indexing product with fewer customization features for $25,000 in 2025.

Private markets face steeper hurdles. This opaque field was traditionally reserved for deep-pocketed investors like pension funds and ultrarich individuals. But now investors have more access to financial results for funds and privately held companies as data providers race to meet their needs. Machine learning and AI have made it easier for these firms to extract and analyze data.

BlackRock views this data as the great equalizer and has grand ambitions of indexing these opaque private markets. The asset-management giant agreed this summer to acquire the data powerhouse Preqin for $3.2 billion.

"We anticipate indexes and data will be important to future drivers of the democratization of all alternatives," BlackRock CEO Larry Fink said on a conference call. "And this acquisition is the unlock."

Leon Sinclair, Preqin's executive vice president, argued that with the number of public companies dwindling, it's imperative for mass-affluent investors to get better access to private markets.

"Clearly there's more, deeper, better sources of funding for private companies that could stay private for longer," Sinclair said. "I think it's fair that the mass affluent can — in the right way — be brought along on that journey to get exposure to that part of the mosaic earlier."

Investing in automation for a competitive edge

Kapila described these technological developments as part of a trend in wealth management to capture customers before they make it big.

"There's a desire by financial advisors to try and engage investors earlier in their wealth-accumulation cycle," Kapila said.

Parametric, acquired by Morgan Stanley in 2021, operates in a competitive arena. Thanks to a wave of similar acquisitions, Parametric faces well-capitalized rivals such as BlackRock's Aperio and Franklin Templeton's Canvas. Industry stalwarts like Fidelity and upstarts like Envestnet also want a piece of the action.

Kapila said the need to compete on scale and fees required Parametric's technology to be as efficient as possible.

"It'll be harder," he said. "We have to do many, many more accounts to really drive growth in assets, etc. But those challenges are exciting to me as a technologist."

To meet that need, Kapila is pushing Parametric to develop more automated products, such as Radius, which launched this year. Radius constructs equity and fixed-income portfolios and runs simulations to identify the best selections for portfolio managers. He plans to launch more cloud-native tools, which are easier to scale and manage, for other asset classes in 2025 and 2026. Parametric is also piloting generative-AI tools to onboard accounts more efficiently.

Clients' expectations are also rising. There's demand for Parametric's tax benefits but with actively managed strategies rather than indexes, he said, spurring partnerships with asset managers.

Parametric recently launched an offering that allows customers to pick equities off strategies from the financial-advisory and asset-management firm Lazard.

To stay ahead of the curve, Preqin is developing more sophisticated products. Last year, the UK firm launched an Actionability Signal that uses machine learning to identify private companies likely to be open for investment.

"The sole focus on public information for certain tasks around valuation and risk management are not really going to be the way that people do this," Sinclair said. "We're moving much more to a world where real proprietary private information at the asset level, which is transactionally oriented, is available to people."

In June, his division launched a data tool that analyzes $4.8 trillion worth of deals across 6,500 funds. This database can be used in a slew of ways, from backing up valuations in negotiations to identifying which financial factors, such as revenue growth or debt paydown, contributed the most value to a successful deal.

With the rise of generative AI, Sinclair expects that users will be able to interpret data with more ease using natural language commands.

"I think you'll see that be more prominent across the industry where people expect to interact with large data sets in really natural common ways," he said. "We think all that will probably start to be visible over the coming years."

Tech is the first step to narrowing education gaps

On average, retail investors allocate just 5% of their portfolios to alternative investments. If BlackRock successfully indexes private markets, it could go a long way toward boosting that percentage.

However, Sinclair said more work is required to help mass affluent investors feel comfortable investing in private markets. As someone who grew up working class and was only introduced to finance in college, he knows there is an education gap to overcome.

"To get Joe Bloggs very excited and comfortable with committing capital, they need to be able to understand what the different basis of those returns are," Sinclair said.

He added: "I think it's in the industry's interest to enable those new sources of capital, to bridge the gap in understanding, to bridge the gap in analytics, to bridge the gap in frequency of reporting, to make that an easier journey for people to go on."

• Dion McNeeley used a buy-and-hold strategy to build a 16-unit rental portfolio.
• He experimented with the BRRRR method by purchasing and renovating a duplex in 2023.
• He could eventually sell the property and leverage an IRS rule to avoid capital gains tax.

Dion McNeeley spent over a decade carefully building a portfolio of rental properties throughout Washington State.

"I've never sold a property. I've never done a cash-out refinance. I've never taken out a home equity line of credit," he told Business Insider. "I'm the slow, boring investor: Save up a down payment, buy the next place; save up a down payment, buy the next place."

His buy-and-hold strategy allowed him to quit his day job in 2022 and retire in his early 50s. He had enough rental income coming in from his 16-unit portfolio to sustain his lifestyle and then some.

In 2023, he decided to experiment with the BRRRR — short for buy, rehab, rent, refinance, repeat — method and purchased a beat-up duplex outside Seattle.

"I don't think people should start investing with the BRRRR strategy. There are so many mistakes that you can make with the after-repair value, the estimated cost, and the estimated time of doing repairs," said McNeeley, who scaled his portfolio by "house hacking," a strategy that involves buying a multi-family property, living in one unit, and renting out the rest. "I didn't do any BRRRRs to reach financial freedom and retire early."

The early retiree shared his experience doing a "live-in BRRRR" — he lived in the duplex while doing renovations — including how he found the property and added value, and the strategy he could eventually use to sell and sidestep capital gains tax.

Finding a deal by focusing on 'days on market'

The first step to successfully executing a BRRRR is finding a distressed property with potential.

Real estate investors tend to agree that you make your money on the purchase — not on the sale. To land a good deal in 2023, McNeeley focused on one specific metric when combing through listings: the number of days a property has been on the market.

"I'm watching what are called 'days on market,'" he said. Generally speaking, the longer a home has been sitting, the better chance you have of negotiating a deal with the seller. "Long" is relative to the average days on market, which varies by location. "In some, it's 10; in others, it's 30."

In his area in Washington, he said the average is between six and nine days. He narrowed his search to properties that were listed for at least three times the average, or about 30 days.

The duplex he ended up buying had been on the market for over 100 days and was listed for $500,000.

"I offered 400,000 because that's the number that made sense for me," said McNeeley. After about two months of negotiating, he got it for the number he wanted. "I never moved from 400. It went from 500 to 477 to 444 to 422. When I got another offer accepted somewhere else, I contacted them to say I was pulling my offer. They said, 'We'll take your 400.'"

Putting $62,000 worth of renovations into the property

When McNeeley bought the duplex, one of the units was "completely destroyed," he said. "It needed drywall, plumbing, electric. It wasn't livable."

The unit he moved into wasn't much better. It was "close to not livable," he described.

He said he spent $62,000 and 10 months renovating. In May 2024, a tenant moved into the second unit.

"With the appreciation of the last year and the other unit being rented, the property is worth about $700,000, so I've made close to $300,000 in profit," said McNeeley, who bought the house in cash.

Avoiding financing was important to him.

"One of the biggest problems with the BRRRR method is the funding source," he said. "For the 'repair' part of BRRRR, a lot of people borrow hard money because they want to buy a property that you can't get traditional lending on. That hard money will have a higher interest rate — and usually within six months or a year the interest rate goes up a lot, so you want to get the repairs done and get it rented out within that six months or a year, whatever your timeline is, and then refinance to a traditional mortgage."

He bought in cash to avoid the time crunch.

The price of doing a 'live-in BRRRR': Living in a construction zone

The 'live-in BRRRR' has been lucrative for McNeeley. When he started the project, he moved out of the unit of one of his properties — a fourplex — and filled it with a tenant. Now that all four units are rented, the property is "almost making $4,000 a month without me living there," McNeeley said.

He moved into the duplex, which he purchased in cash, so he doesn't have a mortgage. He pays taxes and insurance, but the unit he fixed up rents for $2,125 a month and more than covers his expenses, "so I'm being paid to live where I'm at," he said.

The major tradeoff was living in a construction zone and without a kitchen and bathroom for months during the renovation

"I would literally go to the state park up the street to take showers. It was almost like camping for two months," said McNeeley. "I was willing to do some things that people aren't."

What's next? A cash-out refi or selling and avoiding up to $250,000 in capital gains tax

Now that the rehab is complete, the next step of the BRRRR method would be to refinance.

"I could do a cash-out refinance and get my money back because I've added the value to the property," he said. "I could take $500,000 or $600,000 out and go buy another rental and increase my cash flow. That's a good outcome."

Or, he could divert from the BRRRR and sell the property. This option intrigues him because of the Section 121 Exclusion, an IRS rule that lets taxpayers exclude up to $250,000 of the gain from the sale.

The main requirement is that you must use the home as your main residence for at least two of the five years preceding the sale, which McNeeley will satisfy in July 2025. If you're selling a vacation home, for example, you can't use the exclusion. You can also only use the exclusion every two years.

"I could sell it, make a couple hundred thousand dollars in profit, and not have to pay a penny in taxes — and either go and repeat the process somewhere else or go buy something with the gains and have a bigger, nicer place," he said, adding that he likely won't do another live-in BRRRR because of the rougher living conditions.

"I probably won't know until July when I have an appraisal done on if I'm going to do a cash-out refinance or I'm going to sell the place," he said. "It's really hard to make a decision when both outcomes are positive."

• Jose Palafox used a DST 1031 exchange to defer taxes on his Portland rental sale.
• The strategy allows reinvestment into a trust, so Palafox no longer has to manage a property.
• It wasn't the simplest strategy to execute and involved a lot of paperwork and moving parts.

In the summer of 2024, Jose Palafox took advantage of a little-known tax strategy called a DST 1031 exchange, which allows investors to avoid capital gains tax on the sale of a rental property.

Palafox was ready to sell his Portland rental, which had become more of a headache than a cash cow.

"My HOA fees had increased, my taxes had increased, and rents in Portland had gone down, so I wasn't making much if anything," the San Francisco-based millennial told Business Insider. "And I hadn't ever wanted to be a landlord."

He found himself a landlord when he got a job offer in the Bay Area while living in Portland. Rather than selling his primary residence at the time, he converted it to a rental, heeding common advice to hold onto real estate: "Everyone told me, 'Buy a house and don't sell it.'"

Executing a DST 1031 exchange, in which you sell a property and reinvest the proceeds into a Delaware Statutory Trust (DST), not only allowed him to defer capital gains tax — it also released him from landlord responsibilities. He essentially exchanged his Portland condo for a DST, which holds commercial real estate assets, and now owns fractions of high-grade institutional properties. He receives a $550 dividend payment each month, which BI verified by looking at a deposit made into his checking account from the DST.

Palafox says he's bringing in more from the DST than he was when he was renting his condo, and the investment is completely passive.

It was the right move for him and his financial situation — he didn't need to touch the proceeds from the property sale and could afford to reinvest it — and he avoided a tax consequence while gaining exposure to real estate assets he could never have afforded as an individual investor.

Of course, the process, which Palafox completed in the summer of 2024 according to an exchange statement viewed by BI, didn't come without its barriers to entry. Here are the challenges he faced before and during the exchange.

1. You have to be an accredited investor. To do a DST 1031 exchange, you have to be what's called an accredited investor. There are a few ways to qualify: having a net worth over $1 million, not including the value of your primary residence; having an annual income of $200,000 as an individual or $300,000 if you're married and filing jointly (this is how Palafox qualified); or having certain professional certifications, such as the Series 7, Series 65, or Series 82 licenses.

Unless you're an accredited investor, it can be difficult to even find information about various DST sponsors, noted Palfox, who hired a financial advisor to walk him through his options: "You have to be a qualified investor in order to even see the list of available DSTs."

2. Prepare to deal with a lot of paperwork and multiple parties. In Palafox's experience, there was a lot of paperwork — he said he signed about 10 documents via Docusign from start to finish — and there were a lot of moving parts. In addition to his advisor, he worked with a real-estate agent to list and sell his rental, two separate title companies (one for the property sale and another for the DST), and the DST sponsor.

He also had to find a qualified intermediary (QI). This is a neutral third party that holds the home sale proceeds until the investor buys their replacement property.

3. It can be an emotional roller coaster, especially when your money is with the QI. The most unsettling part of the process for Palafox was immediately after he sold his rental.

"For a period of time it felt like I had no idea where my money was from the sale," he said. On paper, his six-figure sale proceeds were in an escrow account, "but beyond a piece of paper I docusigned and the general say-so of people I'd never met on email I didn't really know how I would get my money back if I had to. My wife accused me of getting into a Ponzi scheme for a while."

He still has some anxiety about his investment because it's so different from anything else he owns. The only "proof" he has that he owns anything is an email from his DST sponsor congratulating him for his purchase, "which is still kind of terrifying," he said.

4. It could complicate your tax situation. "One thing I am not looking forward to is paying taxes," said Palafox. "Depending on the product you could be paying taxes in multiple additional states. I will use an accountant but I expect some increased costs and complications to file come tax time."

Even once you've gotten past the major barriers to entry to doing a DST 1031 exchange, "it's still a lot more challenging and in some ways less satisfying than clicking a button on your favorite trading app and buying stocks or crypto," he added. "There's no ticker to watch, these are boring investments that produce boring returns."

Still, he'd deal with the paperwork and stress all over again if he could go back, particularly because of the "UPREIT" option. Palafox said that what really sold him on this strategy was another tax code "loophole," of sorts, known as the 721 exchange, or UPREIT.

Eventually, a DST will end (most have a predetermined lifespan of five to 10 years), at which point his options are "to either 1031 into another DST or, ideally, be bought by a REIT fund that wants to own and operate these buildings longer term," he said. "Using a 721 exchange, I can roll into the REIT fund, again deferring taxes. At the end of this process, I would own shares in a private or public REIT, which I could fractionally liquidate. So, if I want to sell half of my investment, I could."

In short, at the end of his DST, he could get into a REIT without causing a taxable event.

"When I finally understood the flow from my investment into a REIT fund, the light really went off for me," he said. "I remember saying, 'Wow, this is the future,' and now I'm a bit of a fan, I guess."

• Andre Nader built a seven-figure portfolio by saving and investing in index funds.
• He leveraged his tech career and dual-income household to maximize savings and investments.
• One strategy he used to max out tax-advantaged accounts is known as 'a mega backdoor Roth'.

Andre Nader built a seven-figure portfolio before age 40 by following a few simple fundamentals: save a chunk of your income, invest it in low-cost index funds, and max out tax-advantaged accounts.

It helped that he worked in tech. He said he started with a modest $40,000 salary right after graduating, but eventually landed a high-paying job at Meta in 2014.

"I won the income game by being in tech, by being a dual-income household," Nader, whose wife is a designer at Uber, told Business Insider.

When he got laid off in 2023, he and his wife had enough between her tech income and their savings that he didn't have to find another job. Nader, who'd been writing about financial independence on his blog FAANG FIRE since 2021, now writes on Substack full-time and does one-on-one FIRE (financial independence, retire early) coaching.

As a high-earner who describes himself as "naturally frugal," Nader found himself with excess savings each month. When he was working full-time, he and his wife used one of their incomes for household expenses and saved the other.

He spent a lot of time thinking about, "How do I save this in the most efficient way possible?" he said. "And, for many in tech, it's going to be about taking advantage of those tax-advantaged accounts. Because when you're in those extremely high earning years, any amount that you can defer those taxes into the future is potentially extremely, extremely valuable."

One particular tax-advantaged account, a Roth IRA, offers major benefits, including tax-free growth — but there's an income limit that can prevent individuals like Nader from contributing directly to it. In 2024, single tax filers must make less than $146,000 to contribute to a Roth, and married couples filing jointly must make less than $230,000.

Nader has used a workaround known as a mega backdoor to sidestep the Roth IRA income limit, and he recommends all high-earners take advantage of it if they can.

Using a mega backdoor Roth to contribute up to $69,000 a year into his 401(k)

To understand how a mega backdoor Roth works, it's important to first understand how after-tax 401(k) contributions work. Some employers offer an after-tax 401(k) — Nader had access to one when he was at Meta, and his wife has one at Uber — which allows you to save more after you've maxed out your traditional 401(k).

In 2024, the annual contribution limit for a 401(k) is $23,000 for employee contributions; but the combined employee and employer contribution limit is $69,000. Say you max out your 401(k) and contribute $23,000, and your employer contributes $5,000 through the matching program, so you have $28,000 in your 401(k). Since the limit is $69,000, if your plan allows for after-tax contributions, you can put another $41,000 in after-tax dollars into the account.

In Nader's wife's case, Uber matches up to $8,000, so after maxing out her 401(k) in 2024, she'll make an additional $38,000 after-tax contribution ($69,000 - $23,000 - $8,000), he explained.

The catch is, while sitting in the after-tax state, any earnings you make on those contributions are taxable.

That's where the mega backdoor Roth comes into play. It allows you to shift after-tax 401(k) contributions to a Roth IRA or Roth 401(k), where it can grow tax-free. Not all 401(k) plans allow this conversion and you'll want to understand your plan, including its restrictions, before making any after-tax contributions.

In Nader's experience, executing the mega backdoor Roth when he was working at Meta was quick and easy. He logged into Fidelity NetBenefits (his 401(k) provider) and elected the percentage of his after-tax earnings he wanted to contribute. Then, he was able to do an in-plan conversion and selected the option to "convert after-tax contributions."

"Every single time I post about it on LinkedIn, someone doesn't know that they had this benefit," said Nader, who has nearly 25,000 LinkedIn followers and specifically writes for FAANG (Facebook, Amazon, Apple, Netflix, and Google) employees looking to achieve financial independence. "This extra $30,000, effectively, can end up in a Roth 401(k) — and that's a super powerful type of account."

He recognizes that not everyone has access to this strategy, nor has the funds to save $69,000 a year in a 401(k). But if you're a high-earner who would be saving that money anyway and your plan allows a mega backdoor Roth, "it's really valuable for them to be aware that exists."