In this episode of the Exit Strategies Radio Show, host Corwyn J. Melette sits down with Lane Kawaoka, a former engineer turned real estate mogul, to discuss his incredible journey from traditional engineering to building a massive 10,000+ real estate units managing a $2.1 billion portfolio. Lane shares his personal story of transitioning from owning single-family homes to large-scale syndications, using strategic tax methods and wealth-building tactics that helped him achieve financial freedom.
Lane dives into key insights on how to build wealth through real estate, offering valuable advice for both beginner and accredited investors. He also discusses the importance of finding community, connecting with like-minded individuals, and leveraging opportunities to scale your investments.
Additionally, Lane introduces his book and podcast, ‘The Wealth Elevator,’ designed to guide investors at various stages of their financial journey.
Key Takeaways:
- 4:05 Lane’s early career and his realization that corporate life wasn’t for him.
- 10:18 The challenges of scaling a portfolio and when to transition to syndicated investments.
- 19:52 Key tax strategies and the benefits of bonus depreciation for accredited investors.
- 22:04 Lane’s hindsight advice: What he would have done differently to accelerate his journey.
- 24:00 The alternative financial strategies of the wealthy that go beyond traditional 401(k) plans.
Connect with Lane@:
- Website: https://thewealthelevator.com/
- Linkedin: https://www.linkedin.com/in/lanekawaoka/
Connect with Corwyn@:
- Contact Number: 843-619-3005
- Email: corwyn@corwynmelette.com
Shoutout to our Sponsor: ROBYN COLLINS
Do you want something more? More Meaningful Moments opportunities, deeper relationships and memorable experiences? Do you want to make a difference? If you say YES, a career and real estate could be the opportunity you’re looking for guiding people to one of the most important decisions they ever made, the purchase or sale of their home can be both rewarding and lucrative.
Exit Realty has a revolutionary compensation model training and technology that provides you with the tools you need to start and build your successful real estate career. Call me today ROBYN COLLINS with REDROBYN HOMES at 843-557-5003. Again that’s 843-557-5003 or visit RedRobynhomes.com/join.exit and make your Exit today.
Support this podcast: https://podcasters.spotify.com/pod/show/corwyn-j-melette/support
ROBYN:
Do you want something more? More meaningful moments, opportunities, deeper relationships, and memorable experiences? Do you want to make a difference? If you said yes, a career in real estate could be the opportunity you’re looking for. Guiding people through one of the most important decisions they ever made, the purchase or sale of their home can be both rewarding and lucrative. Exit Realty’s revolutionary compensation model, training, and technology that provides you with the tools you need to start and build your successful real estate career. Call me today, Robyn Collins, R – O – B – Y – N Collins with Red Robin Homes at 843-557-5003. Again, that’s 843-557-5003 or visit us at redrobinhomes.com/joinexit and make your exit today
CORWYN:
Hey, I am your host, Corwyn J. Melette, broker and owner of Exit Realty Low Country Group in beautiful North Charleston, South Carolina. If this is your first time listening to this show, you sir or ma’am are in for a treat. That is because our mission here is very simple, that is to empower our community through financial literacy and real estate education. That’s what we do. So guys, I want to give a quick shout out to those who listen faithfully, guys, you tune in. I’m super excited, we’re working on something, so I don’t want to necessarily spill the beans, if you will, or let the cat out of the bag, but I want you to stay tuned because we’re working on something very special, something near and dear to my heart, and I’m hopeful that we’ll be able to bring that to fruition. For those who tune in faithfully, guys, you know how I feel about you. I say that you guys rock. You spread the word, you let people know what we’re doing over here, and most importantly, you are empowering not only yourself, but your family and those around you by taking action for what you hear on this show. So thank you so much. You are the reason why we keep going. So today, always, I mess with y’all, I tell y’all to put the flapjack down, I tell y’all to turn the grits off and grab some pen and paper and get to the radio because you need to be listening to what’s going on and you need to be taking notes, and today is no different. We have, quote unquote, the average Joe, the guy who started just like many of you have either started or have ambition to, and we want to make sure today that we pay attention to his journey as he shares and gives insights in how you can manifest your own dreams. So guys, today, look here. We have been having some amazing guests, and I’m super excited, and this guy actually lives somewhere that I want to visit. He is over in Hawaii. So we have with us today none other than Lane Kawaoka. Lane is a real estate investor. He started just like, again, many of us with a W-2, and he’s trying to figure out how he can get you into, all right? So guys, welcome Lane to the show. Lane, how you doing?
LANE:
Hey, aloha, everybody. Good to see you.
CORWYN:
So Lane, if you don’t mind, give our listeners, if you will, that 50,000 foot view of who you are and what you do.
LANE:
Yeah, so I’m a real estate syndicator. We focus on multifamily value add and development, $2.1 billion of past deals, 60, 70 plus projects. But it didn’t always start like that. I started investing in 2009, my first single family home that I was blindly led to think that you’re supposed to buy your house to live in. I guess I wasn’t an average Joe. I had a good college degree. I was an engineer and just started to work for the man. But once I got that first rental property, I was like, wow, if I kept doing this a bunch more times, I’ll be able to leave the rat race. So that was the start of it all.
CORWYN:
So Lane, what was the awakening moment for you? You may mention of you just realized that if I did this differently, started this or did what I’m doing now repeatedly, that I could achieve something different. So what was that moment for you when you realized that?
LANE:
Yeah, I mean, before that, I was always save your money, be frugal, get a good job, max out the 401k, that type of stuff. And then of course, buy your house to live in. But I just started to rent out my house and I just saw the numbers happening. It was a good time to do it. I bought my first property in Seattle, Washington, which is more of a primary market. There’s no way you’re going to cash flow out there, especially these days. And I just started to buy another duplex, a little bit more B-class style than the high end A-class where the numbers are even worse there. And I started to just see how you could build. And eventually, it wasn’t there yet by any means, replace a good chunk of your income and get to financial freedom, maybe about a third amount of time that I thought I would have otherwise.
CORWYN:
So you are a huge fan based of what you’re just for our listeners, guys, we’re talking about currently what could be considered to be a little bit passive investing. So I’m going to ask you a couple of questions here, Lane, to really define that space. But you’re a huge fan of passive investing, is that correct?
LANE:
Yeah, the first life I lived as an investor, I was working my engineering job full time. And those first rental properties were at a professional property manager. You got to pay them 10% of the rent, maybe a full or half months of the first month’s rent as a lease up fee. But they did the dirty work for me. And I didn’t know how to manage rental properties back then. Still don’t. That’s what the property manager’s job is. And when you go into deals where you have the buffer to pay for that type of service makes a portfolio scalable. Most investors make the mistake of doing it all themselves, paying down the property. In reality, just calling my story, after those few properties in Seattle, I eventually had 11 out of state in Birmingham, Atlanta, Indianapolis, and obviously remote when I was living in Seattle at the time. So I had property management in those very remote geographic areas to myself.In fact, I didn’t even really see a lot of those rental properties. I bought them sight unseen. People think that’s crazy. But it’s pretty typical for remote investors in the turnkey investment world that kind of do that. So it’s not out of this world. And all the time, just work in my day job, right?
CORWYN:
So Lane, you touched on something there. So thank you, because you actually got to in that where the question I had. So you use property managers, and my assumption is that you either identify properties or have agents that may identify property that you may want to consider. And then you do the transaction or deal, if you will, long distance oftentimes. Because as an investor, I literally just had this conversation recently with one of my newer agents, trying to define for them and get them to understand that it doesn’t matter how it looks. It matters how it performs for an investor. Does that make sense? I mean, rent is a certain class of property you want, don’t get me wrong, but you’re not looking for pretty. You’re looking for positive, that flow. So you do a lot of your transactions that way, is what I take.
LANE:
Yeah, it’s numbers first. I’m an engineer, right? The numbers got to work first. And that’s where you can, you’re thinking in terms of search criteria, you can just knock off a lot of geographic areas. And then in each metro area, you have different levels, like class A, B, C, certain your high end areas, the numbers just won’t work, right? Those are great places to live, but not the necessary makes the best rental stock. And also on the low end, right? You don’t want to be in the slums, right? So there’s a nice little sweet spot somewhere there in the middle. I would probably say for people who have no context, just maybe take 80% that of a median home in the area, obviously, that can range from $600,000 in California and Hawaii to about $150,000 in Alabama, but tak e 80% of that. And that’s usually about where a good starting point to start looking for rental properties is, at least the first few.
CORWYN:
It makes perfect sense. So we’re going to get to, but you have a podcast. I want to make sure that we get that, incorporate that as far as the message and the information that you share over there. But you have amassed, managed, and I say managed, but amassed, if you will, a fairly large portfolio of properties that are scattered around the country. So I’m going to ask you a couple of questions here. That portfolio, do you invest in various types of properties, again, the Class A, B, what have you, or do you focus just in one particular class of property because you know that arena so well?
LANE:
Yeah, it’s changed throughout the years. When we first got started buying apartments, you do what you can get, right? We didn’t have that much money, and so we started with these crappy Class C assets that were 50 units, 100 units in size, and that’s how you got to get your break, right? A lot of people will join these education groups, spend a lot of money, but I would say single digits of those people were actually successful. I was kind of lucky enough to get established, but even when you’re starting off there, you have to take what you can get from the brokers. Our strategy is more like we don’t want to go into distressed assets. We want to get good lending off the bat, and typically you need 90% occupied or better Therefore, the brokers are going to control those deals. People think that you can send yellow letters around and sucker some apartment owner. These guys are dumb. It doesn’t work. But that’s how we got started, and then eventually learned our lessons. Things just break. A lot of these apartments are older, 1970s and older, and then secondly, the clientele, the tenant base is just rough. You’ll have collections in the 80% range, meaning two out of 10 people just aren’t paying or always late paying. You can make a lot of good money, and we’ve been able to value add and exit out really quickly on those. We started to realize the class B was a nice sweet spot. Once we could get there, our investor group was small at the time. And then essentially what you’re seeing is this kind of swimming upstream phenomenon in any business owner. In 2020, when we got over a billion dollars assets, we started to develop from scratch too. So we’ve gone and completed and leased up on one of them. I think we’re just adding the menus, right? But if you notice the trend, it’s always going to easier clientele on the higher end. Certainly not like luxury apartments, but still in the workforce housing sector, which I think at the end of the day, that’s the basis of our investment thesis, is lower middle class is getting to be a bigger population than middle class, which I think a lot of us who are listening right now, you’re in the shrinking middle class, you’re becoming an endangered species. And most of those constituents are going to need to live in apartments long-term and decent ones.
CORWYN:
So I’m going to hit you with a few different things here, because a C-class property I have, I won’t call it a horror story, but I watched someone make an acquisition on what easily was a C-class property. And I don’t think they did inspections and all that stuff. So later on when I did get connected, otherwise got engaged, I’m seeing, I’m like, wait a minute, if this would have been done, you probably could have done this and you more than likely overbought because you didn’t do certain things. So what are some of the lessons as an investor, again, you’re a beginning investor and you’re working yourself from single families or maybe duplexes and tris and getting to a larger portfolio of doors, smaller apartment communities, 30, 40, 50 units. What are some of the things that you’ve learned in your experience that an investor should be considering or otherwise confirming rent rolls, inspections and things they need they should have done? What has been your experience along that vein that you’d be able to share?
LANE:
Yeah, I probably could spend five hours on this, but I think the first thing that comes to mind is you check the recent P&Ls the last couple of years. You see what the nice thing about these investments is you have a running track record on it. It’s not like venture capital where it’s just an idea and you’re just there’s no run rate, there’s no income and there’s no expenses. Here you have a good long run record from that. So, of course, you need to audit the rent rolls and then make sure that money is actually landing in the bank because you just have fictitious rent rolls too. But I think that’s where things are a little bit easier in a way with single family homes and residential properties. You get like a housing home inspector to inspect the property, right? But they typically they’re not the greatest. They kind of have these like very for general public kind of reports. When you start to step up to the bigger assets, you have more commercial quality reports with a lot better like scope of work and actually construction estimates to remediate the deferred maintenance and even like the standard upgrades that you’re looking to do. So in a way that allows you to type in or write in pencil the renovation budget and then, of course, you work hand in hand with your property management company to less operating budget and capex budget there too. It still is all a guess, but obviously you want to have contingency in there. And that’s where like having experience doing this before and also having other assets in the same geographic area to benchmark it with. But I think that’s where the last thing I think is there’s a little misperception that people who own single family homes, quads, they think that they can go get a 12 unit, I’ll get a 34 unit. In reality, there is a big no man’s land under 50, 60 units, because at that point you can get a full time leasing agent to be at the property. But more importantly, when you get above 100 units, I think is the next big step is when you can have a full time handyman to run around the property. Because you want to get away from like the third party vendors, like the plumber comes to your property and charges you a thousand dollars just to do something simple. Right. You want to knock that stuff under salary on your staff.
CORWYN:
Yes, exactly. As you get better control over it versus paying this fee with whatever markup or what have you. Now you’re able to essentially have someone on payroll. And to be transparent, you should have enough stuff, if you will, going on that would it should allow you or give you the ability to control your costs better again versus having to try to do that differently. So I definitely see where you’re going with that lane by all means. So you are a huge fan, again, this space around apartments. Do you see, do you believe there are any other assets or asset classes or types that investors should be considering as it relates around or revolves around real property?
LANE:
Yeah, I think when you get into this world of these are all services that blue collared Americans you utilize, you start to hear a lot about self-storage. I’m not a huge fan of self-storage. I think it’s a great necessity. Strangely, people buy more crap they can store in their house. But the problem with that is you always need to have a class kind of quality, right? You need it to be very safe, air conditioned for people to go up at night, get their stuff. So that in lies a problem, right? Like you’re, you need to renovate it to class A standards or build it. But then the problem is anybody else can just build a self-storage facility next to you and you’re going to be competing directly with them. So this is the nice thing with apartments. Like if you have a class B apartment and a class A gets built right across the street from you, it doesn’t necessarily hurt you too much in the long run. It actually helps things because the location is getting better with better people. And especially with self-storage, it’s easy to build it. It’s just a space, right? So it’s a locker room. So it can get built so quickly. So it can just blow up your comps, parks, done a little bit of that. It’s just not, it’s hard to scale that because you don’t have access to good property management companies. It’s very fragmented. And it is more on the lower end, which not to say that you can’t make money with that. But I think from my point of view, I just would prefer to work with more stable tenant base.
CORWYN:
Makes perfect sense. Lane, you talked about like in the very beginning, the first house that you purchased, you didn’t put an investor eye on it per se. When you bought your first home, it was just that accomplishment or what have you. But you didn’t think strategically. But you advise people to do differently, like when they’re starting out, like if you want or have ambition to be an investor. So how would you advise someone that’s looking to, OK, look, I’m having bought my first home, so let’s get that out of there. How would you suggest that they strategize so they can position themselves to be able to begin to create and accumulate wealth through real property?
LANE:
Yeah, I would suggest taking a look at my book and seeing where they fall in terms of which floor that they fall. It depends like this wealth building journey. It all depends on how much money you have and what your net worth is, essentially. And if you’re in debt and you don’t really make more than 50 grand a year, you’re kind of in the basement level of the wealth elevator and you need to get out of debt. You need to budget. Where I started, I had some student loans, but had a good paying engineering job. And the name of the game from 2009 to 2015 was just to buy little rental properties. And from there, just run your numbers on my website. I’ve got like a lot of free guides for buying remote rental properties. That’s the name of the game. If you’re already on a credit investor, the single family homes just aren’t going to cut it and they’re high liability because you’re on the front lines for liability. And that was where I got to in 2015 with 11 rentals. It just wasn’t scalable, but it was necessary to getting to that second floor of the wealth elevator.
CORWYN:
So that’s a perfect segue into so your podcast is called The Wealth Elevator. So tell our listeners about it. But then if I recall correctly, also, Lane, you wrote a book by the same title, correct?
LANE:
Yeah, a lot of this is put. And then I got a customer engineer. I got like a flow chart and a chart to differentiate these levels. But to me, the strategy kind of changes what paradigm you’re in. We also talk about after four or five mil net worth, you get on the penthouse and then some. But I think like there are things I think you got to go through each of the stages. But there are things I think you can do to set you up to expedite, to get to the next level. I think I bought too many single family homes, too many. I probably should have bought maybe only a few and then moved on to more scalable deals as an investor. I started my podcast in 2016. At that time, I was still the tail end of buying rental properties. I only talk about what I do. I only talk from experience. So at that time, I was talking about buying single family homes. We built a nice little community of people, remote rental property owners. And then in that time, I was transitioning from the first floor to the second floor of the wealth elevator myself, getting more involved in syndications and private placements, and then now utilizing different tax strategies, bonus depreciations through cost segs in these larger deals. And people with the audience and obviously like the topics we talk about on that podcast, they are more geared towards accredited investors, people, million dollar net worth or greater. But that’s I would probably say like the first thing to do is figure out where you are and understand where those strategies are that you should be doing. Again, if you don’t got money, you got to make some money. This is a capital intensive business. If you’re an accredited investor, we’ll start acting like a credit investor.
CORWYN:
Makes perfect sense. So Lane, we are getting close to the end of the show. I want to make sure we take this opportunity now to make sure that we let our listeners know how to find you, how to connect, how to get in, not just contact, but in community with like minded folks. So if you don’t mind, tell us that. Where can people find you, find your book, your podcast, all that information?
LANE:
Yeah, they can get the book at Amazon released this year called The Wealth Elevator. If you guys take a look at that and shoot us a email, team at the wealthelevator.com, we can hook you up with the audio book version. And if you want to share the PDF with your friends to their extra giveaway. But yeah, if you podcast listener and you don’t got what, $5 to go buy a book, you can check out The Wealth Elevator podcast for free on iTunes, Google Play, et cetera.
CORWYN:
Good deal. Good deal. So Lane, you know, I call this the mic drop question is that high sight question. 2020 is what it looks like when you turn around, when you’re building it, when you’re going through it, sometimes a little bit cloudy. If you knew and you’ve touched on a few things, I imagine maybe a part of that hindsight conversation, but if you could go back to whatever point in life, coming straight out of school before you purchased a home first home, knowing what you know now, what would you have done differently?
LANE:
I think I would have done everything the same up until maybe buying that fifth or sixth rental property and beyond. I probably should have just switched right to more credit investor style investing certainly took me a couple of extra years to sell off those rental properties from 2016 to 18. I had the last one. And very early on, I did make one little mistake of I switched one of my homes from a 30 year mortgage to 15 cause I got duped by it. Oh, it’s so much less interest, but that’s not what you do as an investor. It’s not about like how much interest you pay. It’s more about scaling, especially when you’re under a few million dollars net worth, you’re in the growth years at that point. But I think if anything, if I were to go back, I would have just told myself, look, man, like it’s, this is not a get rich quick scheme. This is just going to take a while. Market cycles go up and down, but if you stay in the game and this could have worked essentially like real estate and all asset classes for the most part, except the king ones like blockbuster video, they stay in business and they keep growing and anything people are always concerned about inflation. Well, real estate is a great mixed commodity type of investment that should go with the pace of inflation. Of course you want to, the next thing about syndication deals is you have a value add strategy. So that’s what I wasn’t doing when I had my little single family homes. It was just the buy hope and pray strategy back then, but it worked. It worked, but yeah, I think if I would have had the book, the wealth elevator, I would have known what happens at each stage and that would have allowed me to have a little bit more insight. I didn’t have any accredited investors around me. I didn’t have wealthy family or parents to even own rental property. So I was kind of dark at that time.
CORWYN:
So you didn’t have connection to what you’re offering people now, which is access to community, like-minded folks that are willing to share strategies, encouragement, all those other things to help people get to the next level. You didn’t have the companion on the elevator, so to speak. You got in your own elevator and there was nobody else there. So now you guys have created a larger elevator that you’re able to help people navigate. Essentially, and there’s actually, there’s a term for it. I forget, it’s not the bellhop, but in some hotels, finer hotels, larger hotels, they have a person who actually just controls and goes up and down in the elevator with people. So essentially you guys have created this concept. I love it. By the way, when you say the wealth elevator, I literally envision people getting in. Okay, I’m ready. I need to go to this floor and they get there and they do what they need to do. And then they come back and they get on it and go up to the next level or whichever level they can get to. So I love the concept.
LANE:
Yeah. This world is a very alternative for sure. Right? Like we’re all taught to go to school, study hard, get a good job, invest in the 401k, buy a house, live in, and then pay it down because you don’t want that. But the wealthy do things differently, right? From infinite banking, privatized banking. And then they don’t necessarily use these government retirement accounts. Why? Because you’re gonna pay taxes on it at the end and that’s when the taxes will probably be higher in the future. In a way, you’re kind of just giving the government a blank check to take whatever they want in the future, where it might make sense to take it out now and pay the penalty and pay the taxes now. So you don’t have to pay it later, but it’s all, none of this is tax or investment advice, but you need to get around other people who are doing things a little bit more of a self-directed approach. Exactly. Exactly.
CORWYN:
So Lane, I want to thank you for taking time out of your busy schedule today to be on the show with us for sharing not only your insight, but also sharing your story. That openness trustfully will help our listeners to better be prepared, but most importantly, to better meet the engagement with the opportunities that do present themselves to them. So again, I want to thank you for taking time out and being on the show with us today. It means so much to me and to our listeners.
LANE:
Got it. Awesome.
CORWYN:
So for our listeners, guys, look, y’all know how I feel. Y’all know what I say. And y’all know, I always put the two of those things together and I deliver it to you this way, which is to tell you that I love you. I love you. And we’re going to see you guys out there in those streets.