Latest / The Hannah Hammond Show / His Billion-Dollar Investment Strategy Blew My Mind | Lane Kawaoka

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His Billion-Dollar Investment Strategy Blew My Mind | Lane Kawaoka · The Hannah Hammond Show

0:00
So in seven years, you guys have done 2 billion in transactions.
0:03
So I'm still trying to figure out how you did that so in such
0:05
a short period of time. Everybody teaches about like how
0:08
to underwrite these deals. You know what to do in the
0:10
beginning due due diligence. Nobody ever freaking talks about
0:14
like operation. There's the jockey and the
0:16
horse, right? The jockey is the operator.
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And that is as important, if not I, I think more important than
0:23
the horse, which is the vehicle, the asset class, the business
0:26
strategy, the model. A lot of people bet on the horse
0:30
and not the jockey and then they lose all their money.
0:32
At least what I've learned is, you know, we can't just be a 1
0:35
trick pony anymore, right? The light value add, lipstick on
0:38
a pig, renovate flooring, appliances, new paint job, new
0:42
playground equipment. I mean, that works in certain
0:44
markets and then I think it's a great business plan, but it just
0:47
doesn't work. So like, who are you parted
0:49
with? What's your structure?
0:50
How are you raising capital today?
0:54
We are joined by Lane Kawaoka from Oahu, Hawaii.
0:59
And I'm so excited for this conversation.
1:01
You have just, I mean, accomplished things that many,
1:05
many people just don't even dare to dream of.
1:08
So First off, congratulations on all your success.
1:11
And I know you recently launched a book called The Journey to
1:15
Simple Passive Cash Flow. So like excited to dive into
1:17
that. And you have raised hundreds of
1:19
millions of dollars. You were an engineer for many
1:22
years, which I was an engineer too in my past life.
1:26
And then you decided at some point to to quit and go full
1:29
time into syndications and then raising money for your fund and
1:32
you now control over 10,000 units and have $2.1 billion of
1:40
assets under management. So, so excited to dive into it
1:43
and thank you for coming on the show.
1:45
Yeah. Thanks for having me.
1:46
Aloha, everybody. Aloha, yeah.
1:50
So what was that journey look like from you?
1:52
I know I was reading your bio and getting to know you a little
1:54
bit, and you mentioned the story of leaving the dark days in
1:59
Seattle from your engineering job and then deciding to quit
2:03
and go into real estate full time.
2:04
So like, what are some of the mental and emotional things that
2:06
were going through your head that made you move back to
2:10
Hawaii, quit your job and go a completely different direction?
2:13
Yeah, I mean it was a long time coming.
2:16
I mean I was started investing in 2009 and it didn't really hit
2:20
that tipping point till 2018. I think up to that point, I
2:26
think maybe we've done, I mean we started to get traction on
2:28
the real estate operation side, the syndication side.
2:32
But you know, all the way up from 2009 to 2015, sixteen, I
2:36
was just a passive investor, you know, working, working as
2:40
engineering job, trying to live 2 lives, right?
2:43
And I think, you know, to kind of talk more about the, the
2:47
mindset, you know, you got to kind of put your head down and
2:50
not really talk too much of what you do because not everybody
2:52
thinks that you're not super dedicated to your engineering
2:55
job or your W2 job. But you know, for, you know, a
2:59
lot of, you're going to school, right?
3:01
A lot of college, like kind of preparing you to get a degree
3:04
that you're supposed to stay in it for decades.
3:07
And that's kind of leaving that life behind.
3:10
And you, similar to me, you started investing in real estate
3:13
while you were an engineer. And what gave you the bug?
3:16
Like how did you even learn about real estate?
3:19
I so I bought a house to live in because that's, we're all taught
3:22
to do, right. We kind of follow the, the dogma
3:26
like little lemmings. And I bought a house to live in
3:29
a couple years out of graduating college.
3:32
You know, back then I was saving maybe 30-40 grand per year.
3:36
So it saved up pretty quickly. And then I was home all by
3:40
myself on, you know, because I travelled for work.
3:43
I was a construction supervisor back then, so I was 100% travel.
3:47
So I was only home on Saturday. I was like sitting there in this
3:50
big house to myself in my early 20s.
3:52
And I'm like, this is a little like, doesn't seem like we're
3:55
getting the most use of this asset, right, other than holding
3:58
my stuff through my week while I'm working.
4:01
And that was kind of where just on a whim, I just started to
4:03
rent it out. And but that was kind of where I
4:05
got this, that taste of cash flow, right?
4:07
In the beginning, it was just a lot of beer money.
4:10
And you know, I guess that was cash flow, right?
4:12
But then I started to realize like wait a minute, if I just
4:15
rinse, wash repeat did this a few more times, I'd be able to
4:18
turn this into a thing and escape the rat race.
4:22
And so you bought end up buying 11 rental properties in multiple
4:26
different states while you were still working.
4:29
Yeah, So bought a that that person was in Seattle.
4:32
It was everything you're not supposed to buy in terms of a
4:34
rental property didn't I mean, if it would have bought it a few
4:38
years later, would have never cash flowed, didn't know any
4:41
better. But you know then about a duplex
4:43
that was more of AB class renter type.
4:46
But Seattle is a very expensive place and it's a blue state too.
4:50
So started to buy properties remotely, Birmingham, Atlanta,
4:53
Indianapolis. Started to do that turnkey
4:55
rental thing that I think a lot of investors get into.
4:59
And from 2000, yeah, 2012 to 2015, started to buy a lot of
5:05
these smaller turnkeys out of state.
5:08
But you know, all during that time I think what really put me
5:11
on the map was there was a few 4-5 years there where I was
5:14
pretty much had no rent or mortgage because I was living
5:17
off the company dime and able to put away like 6 figures every
5:21
year to down payments on these properties.
5:24
Awesome. And so you were, what company
5:26
were you working with? So for those of you who don't
5:28
know, there, there are companies out there that do sell turnkey
5:31
rentals where they'll renovate them, fill them with a tenant,
5:34
and then they'll even manage them for you.
5:36
So it's a great opportunity for people to be able to buy rentals
5:38
but not have to do the, you know, toilets and drama and
5:42
drama, whatever they they, that quote is in the rental space.
5:44
So yeah, what? Who did you work with and how
5:47
did that work out for you? Sure.
5:48
I don't even think they're in business anymore.
5:50
I mean, I don't think there's any margins in that world
5:53
anymore because I think it used to be where you would have like
5:56
a marketing company kind of play in the middle man to the house
5:59
flipper and they would be able to upcharge.
6:04
Like the, you know, you buy $120,000 property, but they,
6:07
they sell it to you for 130 because you're just a
6:09
unsophisticated turnkey investor.
6:14
And so I, I kind of caught on to that pretty early that these
6:18
guys were just, you know, increasing the price by 5 grand,
6:21
10 grand. And I just went straight to
6:23
brokers. So I kind of gambled a little
6:26
bit in the beginning there, but I definitely found like the
6:30
brokers that also did property management because there's a big
6:32
difference between people finding you retail houses versus
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those who, you know, I think actually like in some of my
6:39
markets, I actually got the the broker to who was a property
6:43
manager, right? I started with the property
6:45
manager and I said, hey, help me, you have a real estate
6:48
license, help me buy a property. We'll put it into your portfolio
6:51
after. OK.
6:53
And you were buying like $100,000 properties?
6:59
Pretty much. I mean back then it was like I
7:01
was able to buy them at like 80 grand a piece and he hit that 1%
7:06
rent to value ratio. But you know, these days those
7:09
same properties would probably be 140,000.
7:12
Yeah. How did you decide what states
7:14
to invest in? Red States and yeah, just listen
7:19
to all like the, the, the marketing out there and
7:22
podcasts, right? They all sit at the time they
7:24
all sit to go to Indianapolis, Memphis.
7:27
I think some of the locations have changed because certain
7:30
places like like Birmingham used to be a great place, but it's
7:33
just gotten too damn expensive to make the numbers work.
7:37
I think nowadays, I think you see some turnkey providers out
7:39
of Baltimore, which is like just not the best of areas if you ask
7:44
me, but from a location standpoint.
7:47
But hey, that's what they've had to do, right, with prices
7:49
getting more and more and more. And it's just, you know, I think
7:53
especially when you got past this side of 2015, 2016, you
7:58
weren't able to buy properties at that, at that basis and you
8:02
were no longer able to cash flow.
8:03
So to me, like I, it was kind of like being in the pond and the
8:09
water constantly getting higher and higher and it kind of forced
8:12
me into value adding value, right?
8:15
Where a traditionally I was just a past investor.
8:18
I never did wholesaling or flips.
8:19
I was lucky enough to have some money to get over that step.
8:21
But to progress as an investor, I had to kind of put the
8:26
operator hat and partially I think that was kind of why put
8:29
the engineering job too. Why?
8:35
Because you can't shut like you can do essentially what I was
8:39
doing initially was the buy hope and pray strategy.
8:42
Yeah. So 20% down payment.
8:45
I was lucky enough to be a good saver, save my money, put 2025
8:49
grand down, buy a property or in Swash, repeat.
8:52
But at some point in that timeline, it just you weren't
8:56
able to cash flow comfortably $200 per month.
9:00
So what do I do other than just sitting on my butt and
9:03
complaining to the world that everything is just getting more
9:05
and more expensive? But now I got to take on more
9:08
audacious business plans and renovate units.
9:10
And that was kind of where, you know, I started to interact with
9:14
other accredited investors. And all of them kind of came
9:17
from the same path where, yeah, we started out with single
9:20
family homes, but they're just not scalable, right?
9:22
With, with 11 single family homes, I had maybe an eviction
9:25
or two every year, some kind of big catastrophe every quarter
9:29
like a tree fall on the House or like a flood in the basement
9:31
from a rainstorm, which was not a huge problem because I had
9:35
property management on all these assets.
9:37
You know, how else would I work a full time engineering job?
9:41
But all that for what few $1000 per month across 11 properties.
9:46
It just, you know, most of my clients, they, you know, need 10
9:49
to $25,000 of cash flow per month and therefore you're gonna
9:54
have to increase the exception rate by three or four times.
9:56
So now you're talking about an eviction every month like some
10:01
kind of big issue every every week and that's just not
10:04
scalable. And then, you know, when your
10:06
net worth gets above $1,000,000, certainly now you're more of a
10:10
target to get sued because you actually have something to lose.
10:13
And that that's kind of where the transition to going to more
10:17
of the LP position where you're not really on the chopping block
10:20
as that in terms of liability became more of a forefront.
10:24
And then additionally, you know, you, I don't know what the rules
10:27
are today in terms of of residential lending, but back
10:31
then you got capped out and 10 Fannie Mae Freddie Mac loans in
10:35
your name and your spouse's name, so.
10:37
Yeah, it's it's still the same I believe today on the residential
10:41
side we do commercial lending. So I don't really touch any
10:44
owner occupied stuff but I believe it's the same.
10:46
Yeah, I think it is, yeah. Yeah.
10:50
It's so when you do you did you sell those assets?
10:54
Yeah, I quickly sold them. So what I did is I started to
10:58
learn about, you know, I mean, I was kind of like, well, single
11:02
family works well. Let me do something like not
11:05
super breathtaking, but it's called the multifamily, right?
11:08
Like go figure, just follow the bread crumbs.
11:11
So I started to learn more about that, started to learn how to
11:13
underwrite those types of deals, which is more complicated.
11:17
But you know, if you have some experience running single
11:19
families, you just divide it by the unit count, right?
11:21
And you can kind of digest it in your head a little bit better.
11:26
And, and that was kind of where I started to learn more about
11:29
that, get more involved as ALP side and the GP side on some of
11:33
these deals. And you know, just like when I
11:36
tested out a little single family home out of state when I
11:39
lived in Seattle, it's the same process.
11:41
Try it out and then swiftly sell off my assets and move them over
11:46
over the next couple years. Luckily I had I think I had
11:50
maybe a couple 100 grand to kind of get me started before selling
11:53
off all my all my eggs that I had previously purchased over
11:58
the years, namely the the 11 single families.
12:01
But yeah, you know, use the lazy 1031 exchange to just sell them
12:04
off and quickly go into deals and capture those losses to
12:08
offset it at that time. Yeah, that's awesome.
12:11
So you you did you do a reverse 1031 exchange or did you crunch
12:15
the time and find the property and sell them all at once?
12:19
So, so I don't know if it's an official term, but some people
12:22
call this the lazy 1031 exchange.
12:25
You know, you don't get a custodian or anything, but you
12:27
just kind of do it all in the same year.
12:29
Like, you know, if you go into a deal you that gives you your
12:32
turn the equity side that has passive losses or especially
12:36
doing bonus depreciation, do a cost sag, you typically get like
12:39
this huge amount of passive activity losses house for short.
12:44
And it's way, way more than you would get with normal single
12:48
family homes with 127th the depreciation over 27 long years.
12:53
So like, and I, I think I early on my first few years, I must
12:58
have deployed a quarter million, half a million and I was kind of
13:02
swimming and maybe half a million, well, maybe a little
13:06
bit less like 300, four, $100,000 of passive losses.
13:09
I can't remember exactly, but more than I would have needed.
13:12
So I used that to offset the gain.
13:14
I think one year I had a capital gain from my selling my single
13:19
family homes and it was really big because I had previously
13:21
1031 exchanged and right so I had been building up.
13:25
But because I had several $100,000 of suspended passive
13:29
losses built up, I was able to use tap that and offset that
13:34
capital gain in that year. So that's what essentially what
13:37
people call the lazy 1031. And were you?
13:42
Because I'm trying to remember when did cost segregation come
13:44
into play? That was in around 2016 I think.
13:47
Yeah. So when Trump got in that the
13:48
first time, he kind of put it in place.
13:51
I think when he he got it, he put in place about a year later,
13:55
but he made it retroactive to when he came in.
13:57
So that was actually a good timing.
13:59
But in reality, the bonus, 100% bonus depreciation is not a
14:04
huge, huge deal, right? If you do a cost segregation
14:07
with or without 100% bonus depreciation put in place, you
14:11
should be able to extract a lot, lot more losses that first year
14:17
then you would have, you know, like I said, with or without
14:19
bonus depreciation. Yeah.
14:21
And that's kind of the beauty of when you do a cost sag on a
14:24
bigger asset. But you know, usually cost
14:26
segregations cost maybe 58 grand, which if you're doing it
14:30
on a single family home property, probably doesn't make
14:33
sense as we say in Hawaii, whole right, like lose money doing
14:37
that. It's the waste, but on a bigger
14:40
commercial asset, you know, 58 grand to do a cost say to
14:43
extract those losses earlier than later is definitely more
14:48
cost effective. Yeah, it's it's a game changer
14:51
for sure. And different asset classes have
14:53
different levels, you know, different amounts that they
14:57
could be cost segregated. So you're in asset classes like
15:01
multi family. You're also in storage and
15:04
mobile home parks or or mobile home parks and RV parks.
15:06
I've done a little bit of that as ALP, right, like I kind of I
15:10
mean, in the beginning I really went all over the place, but you
15:13
know, I think I I'm, I'm an operator, right?
15:17
So I kind of want to stick to my own home cooking things I do
15:21
myself, but also things like I know right, where I can
15:26
underwrite. And you know, like we look at a
15:29
deal and you know, we for, for example, we know the property
15:34
management firm, right? Or we have comparables.
15:37
We can baseline even our own units on what that that operator
15:41
is using in terms of their comparables, like that sort of
15:44
insider knowledge. So I, I tell people like, yeah,
15:49
don't listen to what I do, right?
15:50
Like I'm a little bit not, I'm a little bit less diversified or
15:55
actually a lot less diversified than your average passive
15:57
investor out there. So are you, you're, you're
16:01
managing your own funds though now and raising capital,
16:05
correct? Yeah.
16:07
So I mean the, the what we've done has kind of changed and
16:11
pivoted over the years, right. Like when I we first started to
16:14
do this pre 2020, you know, interest rates were all time
16:20
lows, right. Everybody was kind of just
16:22
feeding at the through of free money and there was a lot of
16:25
cash flow in a lot of these deals and 2022 like we stopped.
16:31
We, we kind of, that was kind of an error.
16:34
I, I do believe, I don't think interest rates, the Fed rates
16:37
going to come under 3% in the next decade.
16:41
I mean, at least that's what the tantrum financial curve is
16:43
saying. But that's where we, you know,
16:47
for a while that we didn't acquire anything.
16:49
I mean, that's probably what that's why the market went down
16:52
so much, 20 to 30% off the peaks because even us as buyers, we
16:55
stopped buying. And when it's pure economics,
16:58
buyers and sellers, when there's less buyers, prices go down.
17:02
So I think that's kind of where like we've kind of pivoted a
17:05
little bit. We're looking more to private
17:07
equity. You don't have to getting things
17:09
outside of real estate because right now it's hard to make buy
17:12
and hold multi family. You know that that typical model
17:16
where you're doing light renovations, you know, 5-10 to
17:19
grand per unit, bumping the rents up 100 bucks, 200 bucks
17:23
per unit. It's hard to make those deals
17:26
work these days because you know, taxes, insurance went up
17:30
in an inflation. You know, there was a property
17:33
that I bought in 2020. It was a 300 unit initially when
17:37
we purchased it. The taxes like 150,000 for the
17:42
property a year and I think now it's like in the four hundreds.
17:46
It's just phenomenal. Yeah, the insurance and the
17:49
taxes has got gotten so astronomical, it's insane.
17:52
And the right, it's still so hard to make deals pencil.
17:54
I mean, now we're starting to see it be a little bit easier to
17:56
make deals pencil because now there's more distressed debt.
17:59
You know, we have a trillion dollars of commercial debt
18:01
coming due this year, which has already started.
18:04
A lot of that's come due. So we've already seen a lot of
18:06
things start to trade at a much better basis than the past
18:10
couple of years. I think the past couple of years
18:12
it was very much like a stagnant stalemate type market and there
18:15
just wasn't a lot going on because prices were high,
18:18
inventory was still low, but buyer demand was low.
18:21
But it was just a pretty wonky time.
18:22
So it's nice to see things are starting to trade again and
18:25
deals are starting to make sense again.
18:26
And although it's still hard, but I think it'll continue to
18:28
improve. And you know, now that we have
18:31
the 100% bonus, depreciation is back and I think it's going to
18:35
be a little bit easier to start raising capital again.
18:38
And and then good sponsors will have the ability to scoop up
18:41
some of these distressed assets at much lower prices.
18:44
You know, I've, I have one closing today that's selling for
18:47
half of its loan balance. So those are some pretty good
18:50
deals. Yeah, Yeah.
18:52
I think, I mean, at least what I've learned is, you know, we
18:56
can't just be a 1 trick pony anymore, right?
18:59
The light value add lipstick on a pig, renovate flooring,
19:02
appliances, new paint job, new playground equipment.
19:06
I mean that works in certain markets and then I think it's a
19:09
great business plan. But in certain markets or
19:12
economic microeconomic climates, it just doesn't work.
19:17
So in 2020 we started to do a little bit of development too.
19:23
I think even that is, you know is very dependent on interest
19:26
rates too, right? But the nice thing about that is
19:28
you create so much tremendous value where in light value add,
19:33
all you're really trying to do is bump the NOY by 10 to 20%.
19:37
Now, if you're fully leveraged, you know, that'd be more than
19:41
enough to double your, your capital, your equity, right.
19:45
But in, in developments, I mean, you're talking, you know, almost
19:50
infinite in terms of NOI bump. I mean, you're going from zero
19:54
NOI to what it is. And so it's a much big jump,
19:57
obviously more risk, right? And I think that's the overall
20:00
the general trend and investors may not want to hear that, but
20:04
you have to go to essentially more audacious riskier business
20:07
plans to chase alpha. And it's not, but that's, this
20:11
has been happening since the beginning of time.
20:13
It's not getting any easier for anybody.
20:16
Yeah, and I always say I actually get excited when
20:19
there's a higher barrier to entry because it's less
20:22
competition, you know, more people.
20:24
The word development sounds a lot scarier than let me do a
20:27
light rehab, a light value add. And it's just a higher barrier
20:31
entry. And so that's why people that
20:32
are really good at it, they just do they dominate, they crush.
20:35
And I have, I talked to tons of developers all the time because
20:39
that's our, our client base for HP Capital.
20:41
And some people have absolutely killed it.
20:44
Even through all these storms like the past few years with
20:47
interest rates and everything. They're, they, you know, they
20:50
lost some profits as far as not as big of a slam dunk, but still
20:54
a pretty big slam dunk. And they've just really mastered
20:57
their craft. Yeah, and anything you to
21:00
highlight what you said there, like when you get into
21:03
something, you want to find something with a little bit of
21:05
bearer to entry. I wasn't super keen to this in
21:08
in in my early days because, you know, I mean, what's easier than
21:12
buying a little single family home rental property or getting
21:15
real estate? It's the easiest type of
21:17
investment class to get into. Obviously there's some downsides
21:21
too, right? There's not too much you can do
21:22
it when rent, rent start dropping at the same time too.
21:26
There's not too many levers to pull.
21:27
But you know, like that was why we kind of moved a little bit to
21:31
the development side too, because just from like a lending
21:34
standpoint with large multi family deals, 1000 unit, 200
21:38
unit apartments, as long as you have somebody on your team who
21:41
has the Fannie Mae Freddie Mac card, you know, you can get a
21:45
loan. Very different story in the
21:49
development world, right? You have to really show true
21:51
experience, operational experience to kind of get in the
21:55
door that way. And that was kind of where I
21:58
think, you know, pre 2018, 2020, it's very competitive because
22:03
the barrier to entry to buying large apartments is rather low.
22:06
So we're trying to search for these opportunities where, you
22:10
know, just, I mean, that particular instance, it's like
22:13
the qualifications for, for lending, right, is a little bit
22:16
higher for development. And now today, you know, buying
22:20
particular businesses, you need the expertise of a particular
22:23
owner, right? Not everybody can run a termite
22:27
business, right? And not not every any banker
22:30
from New York can't do that, that's for sure.
22:32
Yeah, yeah, you need the experience.
22:34
And just like you said that that's what makes the barrier to
22:36
entry high. You can't just go get a
22:38
development, you know, construction loan.
22:40
They want to know who's guaranteeing this loan, what's
22:43
your net worth, what's your experience?
22:44
How many projects have you completed in the past 36 months
22:47
and make sure that you're actually a secure borrower.
22:49
And then it can be hard if you're brand new.
22:51
How do you identify that credit partner who can show the
22:55
financials and can show the experience?
22:57
And then like really what is your value, right?
22:59
So there's just that balance, balance of breaking in.
23:02
So that's why it's easier to start with value add stuff, show
23:04
that experience under your belt, do some heavier and heavier
23:07
rehabs. And then you have some real
23:09
value, real experience, something to really bring to the
23:12
table. And then the ability to find a
23:13
partner to, to go into to these deals on like I was just talking
23:17
to a client of ours. We're going to be financing
23:20
their four towers that they're building.
23:24
And he came from the residential place.
23:27
So he was doing fix and flip, single family fix and flips.
23:30
Then he got into single family development and then he he moved
23:33
his way into commercial development.
23:34
Now they're doing large, you know, mixed-use towers and
23:37
stuff. So it's pretty cool to kind of
23:38
see that transition. But how did you guys transition
23:42
into development like who who's involved in your company and how
23:45
did you guys make that that transition and what barriers did
23:48
you face or or challenges did you face as you started to make
23:51
that transition, especially in a challenging market?
23:54
Yeah, I mean, that transition was rather relatively easy
23:58
because we just brought on an experience development partner
24:02
who had the construction background and was a fellow
24:05
engineer to myself. But you know, like, like you
24:09
said, it's like, I mean, you kind of just quickly went over,
24:12
but it's easier said than done, right?
24:14
Like when it's a chicken and egg thing, when you're getting
24:16
started, it's really, really hard to kind of get that Fannie
24:21
Mae Freddie card or that experience card or whatever
24:24
you're looking for to get qualified for these larger
24:27
loans. Initially what I did is, you
24:30
know, this is like 2016, I just started to network and kind of
24:34
got on like, you know, the kind of the grunt work level involved
24:39
in some of these deals. And I think this is kind of
24:41
where I I was able to kind of learn or you know, people use
24:44
the analogy for these syndication deals is like the
24:46
airplane where in the cockpit you have the the general
24:50
partners, long guarantors and the LP's are the in the back
24:54
seat in in coach. But what they don't talk a lot
24:58
about is that there's the jump seat in the airplane, right?
25:01
You know, the deadhead pilots back and forth.
25:03
But in this analogy, you know, I sat in on that jump seat a lot
25:08
of times and I could see how different people did different
25:10
deals, couldn't learn without playing around with the controls
25:14
myself. So it was a great opportunity
25:16
for me to get a look behind the scenes.
25:20
And it's very different than what LP's see, that's for sure,
25:23
and definitely helps me. Do, you know, underwriting on
25:26
new deals today? And it gives me empathy and kind
25:30
of what investors are looking for because I'm kind of in
25:33
between there too. But from a qualification
25:36
standpoint. And I know you guys kind of help
25:38
people navigate these these worlds.
25:41
And that's always a big help having a broker to kind of help
25:44
you do this. But yeah, you I would say like,
25:49
yeah, try and get on the jump seat on one of these deals and
25:52
then that use that to build your resume and then have somebody
25:56
like you guys kind of massage the resumes And yeah, you know,
26:01
kind of just at least you're working towards something.
26:04
Yeah. How did you find that
26:05
opportunity to like what? What did that structure look
26:08
like where you could learn and bring value?
26:10
You know, back then there were a lot of these like investor
26:13
groups out there. A lot of them are like pay to
26:16
play though, which I think is helpful.
26:21
I don't know if these groups are entirely useful if not for like
26:28
motivation or and finding these these groups like these people,
26:32
right, potential partners to go in, especially when in you're in
26:36
the infancy stage, right, trying to like be trying to get your
26:39
Fanny card or being a key principal on Grand Tour on one
26:44
of these properties. Or just like how I did just sit
26:46
on the jump seat and just learn, learn, learn without being being
26:50
the guy. But yeah, like that's there.
26:54
You know, I, I would say that after the mass exodus in
26:58
2022-2023, I don't know if a lot of these, these kinds of groups
27:03
still get together, but I, I do think that they're still out
27:05
there for sure. But that's in like anything, you
27:08
got to find the ecosystem, the incubators.
27:11
Yeah. What is that group gone?
27:14
That one in particular? I don't know, I don't know.
27:19
OK. And you weren't investing in the
27:22
deal, you were just kind of learning from they were
27:24
reviewing a deal or how did you get involved?
27:28
Yeah. I mean, I would, I would
27:29
actually be on like the management team and also
27:32
investing as a passive too. So, you know, in those, in those
27:37
instances, you know, I guess I found this out later, right?
27:41
Like I, I was investing with a lot of unproven operators or
27:45
what they call emerging operators people, what I call
27:49
under $1 billion of assets. Maybe not the best place for my
27:56
money back then, but hey, you know, I got through it right.
28:01
Like, you know, knock on wood today.
28:04
Did you have any any the LP investments go bad?
28:08
Oh, yeah, for sure. You know, that's what's going to
28:10
happen when you're working with operators under $1 billion of
28:14
acquisitions. You know, today we've got over
28:18
$2 billion of acquisitions in 2021 / 1 billion.
28:24
But it, you know, it was it before then, you know, you're
28:27
learning on the job. Yeah, nobody teaches.
28:30
Everybody teaches about like how to underwrite these deals and
28:35
you know what to do in the beginning, due diligence.
28:37
Nobody ever freaking talks about like operation and nor nor like
28:43
I don't know if you could put it in a textbook or a curriculum
28:46
because it's just like it's just pure entrepreneurship And you
28:49
know, it's not doesn't take a genius to run an apartment, for
28:53
example, right? Like like I said, real estate is
28:55
one of the easiest asset classes, not the Pooh, Pooh it
28:59
right, but it is one of the easier asset classes out there.
29:02
So you know, from an investment standpoint, you know, you one
29:06
could just review the numbers and make a good educated
29:10
decision whether to invest. You know, especially like when
29:15
you compare with private equity and private equity, it's the
29:17
opposite, the operator so much more important than the idea or
29:21
the asset. Yeah, I was, I just came from a
29:26
podcast with Andrew Abernathy. He does storage Class A storage
29:30
developments and we were talking about that too is like there's
29:32
the jockey and the horse, right? The jockey is the operator and
29:36
that is as important, if not I think more important than the
29:40
horse, which is the vehicle, which is the asset class, the
29:44
the business strategy, the model, things like that.
29:46
So it's so important and I think a lot of people bet on the horse
29:51
and not the jockey and then they lose all their money because
29:54
sure, it might be a good deal and a good opportunity, but if
29:56
you don't have the right person riding the horse, it's they're
29:59
not going to win, they're not going to win the race.
30:01
Can I add a few more parts of that analogy because I love that
30:04
analogy. You know, you got the racetrack.
30:08
The racetrack is kind of like the market, the macroeconomic
30:11
climate. You can have the best jockey and
30:15
you can have the horse on steroids.
30:18
But if you're in a market that like we've seen in 2022 where
30:22
interest rates skyrocket and you're just in the wrong loan
30:25
package, it's it's all gonna, it's all gonna hurt, right?
30:29
And that's why you try and diversify into many, many deals
30:32
and especially a lot across, you know, four to seven-year time
30:36
horizon, right? I think that was kind of where
30:38
we, we, we came out ahead and we've had our lumps for sure,
30:41
for sure. But, you know, we've been active
30:45
prior to 2020 and, you know, have some of those properties
30:49
still owned today to be able to ride the waves out.
30:53
And then another part of that analogy is the stable hands, you
30:58
know, the people kind of the pit crew, right?
31:01
Yeah. If you use the race car analogy,
31:03
those are your LP's, right? Some LP groups, you know, these
31:07
days we like to invest alongside more family offices or more
31:11
institutional investors because when promised to come up, issues
31:17
do happen. You know, they can put up the
31:19
money, right? Whereas sometimes when you're
31:22
working with retail investors, you know, your, your, your
31:25
doctors, your engineers, it's really hard for them to write a
31:30
$25,000 check, right? That's and that's what what is
31:34
needed to get out, out of the pit stop and moving.
31:39
But yeah, you know, that's that's the nature of investing
31:42
in ventures, right? There will be problems that do
31:45
come up. Hopefully not hopefully it's
31:48
smooth sailing. But yeah, you know, that's you
31:52
got the horse and the jockey are probably the big ones.
31:55
And I think too often people say, well, just bet on the good,
31:59
the good operator, right, the jockey.
32:03
You know, I think they say that because they might be talking to
32:05
more of an unsophisticated investor base that has no
32:08
bearing. And you know, they, they don't,
32:10
that's the problem with LP's is, or their LP's problem is they
32:16
don't get access to raw financials, P&L's rent rolls.
32:19
So I'm like, what, what due diligence are they doing, right?
32:23
Like how do you know the rent comps are totally out of whack
32:26
or they're using, they're assuming the rents are going to
32:28
go up 4 or 5% every single year on top of the 200%, the $200
32:34
rent increase. That's a little bit way out
32:36
there too. And it's, that's just how it is,
32:41
right In the retail investment world.
32:43
Now when you get to more family office, more institutional
32:45
level, there are no pitch decks really.
32:49
There's, there's just give me the PN, LS and rentals.
32:51
I mean, that's how we say, right, give me the PN, LS,
32:53
rentals. I don't want to hear your
32:54
commentary about the project. Let me just run the numbers, see
32:58
what it's worth today and run my own comps based on what I know
33:00
about that market. Again, if I have properties in
33:04
that area, I even have a better insight into it.
33:08
But yeah, like that's it's, it's all numbers.
33:11
And this is how the big firms do it out of New York, right?
33:14
I mean, it sounds it's at some point you put a boot on the
33:18
ground, you kick the dirt. But a lot of this initially
33:21
should be done just with raw financials.
33:24
Yeah. How did you go from, you know,
33:27
buying $100,000 houses to investing as an LP here and
33:31
there to now having done $2.1 billion in acquisitions?
33:39
I just, I think they, they always say the first one's the
33:41
hardest one. Yeah, it was.
33:43
The first one was like a little 50 unit.
33:47
Didn't have too many investors back then so it was a struggle
33:49
to get $1,000,000. Put a big chunk of my money in
33:55
and just learn by doing and then just then Swatch a Pete do it
33:59
again. So that was a syndication, that
34:02
was your first one apartment. And so did you have any partner
34:05
or were you the only GP or what was that structure like?
34:07
Yeah, there were, there were a few of us.
34:10
It wasn't a huge, huge general partnership, but yeah, there's,
34:14
you know, I mean a lot of it is kind of natural if you're like
34:19
into like project management and you can get things done.
34:23
That's why I prefer to see, you know, when I invest and evaluate
34:27
A sponsor and operator, you know, I like to see, obviously
34:32
you want to see a track record, right?
34:33
But if they haven't done $1 billion a pass deals, I at least
34:36
want to see, you know, them working for a Fortune 500
34:41
company and a director level or above for at least 5-10 years.
34:47
College education. I mean, I'm not huge on college
34:51
education being that great, but you know, it's, it's, it's good
34:54
to see on somebody's resume. I mean, I, I might be wrong and
34:59
this might be totally like, you know, wrong.
35:02
But hey, it's my money. I can be as discriminatory as
35:04
I'd like is, is what I'd say. Yeah.
35:08
And so are you and in that property you sold it and then
35:11
you 1031 and do another one, a bigger one.
35:14
No, just, I mean since the beginning I've just been doing
35:17
the lazy 1031. I mean, I've never really run
35:22
personally run dry on passive activity losses.
35:25
OK. So did you, did you sell that
35:29
asset or did you hold it? We sold that, yeah, I think we
35:33
we sold that. I think after 20, I don't know.
35:36
I can't remember after 2020. I think we held it for like 4-3
35:40
or four years. OK.
35:42
And then and then you just bought a bigger one and you
35:45
raise more money. Yeah.
35:47
I mean, it all gets lost in the shuffle, right?
35:49
Like, I mean, when at that point you start, you stop drawing like
35:53
the the push pins and the strings and it just kind of goes
35:57
into your investment portfolio, right?
36:00
And you're just constantly, you know, turning these things over.
36:04
And that's why to tell a lot of folks like a good framework is,
36:09
you know, you never want to invest more than 5% of your net
36:11
worth into any one thing, right? That way you're, you're kind of
36:14
having some guidelines on diversification because you do
36:17
want diversification. But if you also are able to save
36:22
50 grand per year quarter now that allows you to go into a
36:26
deal once a year or four, ideally 4 * a year, right?
36:31
So you're not super pick, you're not super desperate to deploy
36:33
capital at the same time you're able to build this pipeline.
36:39
And if you do this for five years, which is the normal
36:42
timeline for most value add projects, you know, some, some
36:45
are quick flips, you can get it done in a year or two, some are
36:48
longer, right? But on average, theoretically
36:51
you go with a five year time horizon.
36:53
And if you do want a quarter, that's 20 deals, 20 deals at
36:57
$50,000 a pop. And what is that?
36:59
I think let's say you know, that's seven figures, right?
37:02
Million bucks, I think that's a good theoretical, you know,
37:06
model to kind of start off with. Of course things are going to
37:09
change, right? As any deal you get into
37:12
projections change right off the bat and just like building out
37:16
alternative investment portfolio, right?
37:19
And have you can so yeah, I know.
37:23
I hear it says that you started a the family office Ohana where
37:27
you started. You did a retreat in Hawaii for
37:30
sophisticated and accredited investors and then now you you
37:36
run this mastermind or this group still today.
37:39
Yeah, I mean, that was kind of what I struggled with initially,
37:42
right? Like I didn't have any rich
37:44
uncles. My parents never own rental
37:47
properties. They always told me that don't
37:49
own rental properties because your intents will screw it up or
37:52
you'll get sued. So I, I didn't know what if a
37:56
credit investor was, you know, not not too, too long ago.
38:01
So it's really hard for me to kind of understand what, what
38:05
wealthy people do. And that's why I wrote my book
38:07
the wealth elevator, which is the new one.
38:09
You guys can pick that up on Amazon, but it kind of
38:12
identifies different layers to the wealth building journey,
38:15
right? Like everybody writes these
38:16
books on how to get out of debt. The Suzy Orman, Dave Ramsey.
38:19
This is not the book on that. This is, you know, there's,
38:22
there's, there's phases to this. The first floor is where I was
38:25
not a credit investor buying little single family home
38:28
rentals. And then when my net worth got
38:30
over a million, I was on that second floor getting more
38:32
involved in these alternative investment syndications,
38:35
etcetera. And then, you know, getting to
38:39
the next peak over, right? And the next peak over is kind
38:42
of when you get around 4 to $5,000,000 net worth for most
38:45
people, right? You have enough, you're
38:48
supposedly financially independent.
38:51
You could take all your money and take it out of equity deals
38:55
and stocks and put it into T-bills and chill or life
38:58
insurance at 5%, right? But you know, people have a
39:03
choice whether they want to try in the next generation.
39:07
And this, This is why it becomes like a family thing, right?
39:10
We tell people to bring their families to this.
39:12
You know, they're likely not going to get to 20 million, a
39:16
$100 million in their generation, but they can put
39:18
their path, their family on the path to getting there.
39:21
But to ascend to our goal and at least in our members lifetime is
39:27
to get them past that. That was a 8 figure mark.
39:30
And that's what this group is, right?
39:32
Like it's a cohort of investors who apply the framework of
39:37
alternative investments, whether that's self storage, multifamily
39:40
or whatever, or things outside of real estate, privately
39:44
sourced deals, institutional quality deals that are off the
39:47
beaten retail market, right, all these alternative investment
39:53
taxes strategies and a little bit in infinite banking.
39:55
And that's kind of the formula that we follow.
39:58
And how did you, when you were launching that group, how did
40:00
you market for it? Like how did you get your batch
40:02
of people to come to a retreat? And what is your kind of
40:05
structure look like? And yeah, how did you grow it
40:08
and how many people are in it? Yeah.
40:09
I think the first year we did it was for that 2000.
40:12
No, I mean, we always, we've always done little events from
40:16
like 2017, 18 initially like we would, I would just, you know,
40:22
when I was in Seattle, we, we take people on like a wine bar
40:26
crawl, right? Or if I go to LA, like we do a
40:31
little kind of more meet up kind of vibe in 20/20/19, right.
40:37
Right before the pandemic, we kind of made a more of an
40:40
attempt to do more of a formalized event in Honolulu,
40:43
HI, but it completely opposite of your conference, right, which
40:45
is mostly paid speakers and the attention is on the stage as
40:50
opposed to with the individual people.
40:53
So when we do events, it's a lot of the round tables, lot of
40:56
table topics to get people comfortable with each other and
41:00
being more intimate. It's conducive to a of people.
41:04
You know, essentially these guys are emerging family offices,
41:08
right? They are, they don't yet have
41:11
that much money, but they also are not broke people, right?
41:15
They're certainly all accredited investors.
41:18
So these are the cohort to climb the ladder together.
41:21
So we've done one every year. I think we're on our, like, I
41:25
think next one will be our 8th annual one.
41:30
Definitely have changed the program to be a little bit more
41:33
conducive to, it's not a conference, it's more of like a
41:37
summit or a camp. Sometimes I, I don't want to
41:40
call it a camp, but it kind of I want that's the vibe I'm going
41:43
for, right? Like that's how we do things in
41:45
Hawaii. It's more family base, Ohana
41:47
base, lot more, lot more informal.
41:53
I think that's what kind of brings the barriers downs and
41:56
allows the opportunities for people to see like, you know, my
41:59
family is on this trajectory, right?
42:01
We're very into our finances, but we have the certain set of
42:04
values and I think that's what ties the group together.
42:08
A lot of those values come from pretty much all of us are first
42:11
generation multi millionaires, right?
42:13
No trust when babies here. Maybe we have a couple, but
42:17
they're kind of rare. Yeah, but it's just the DNA of
42:21
you save your money, you work hard, you've you've made it to a
42:26
good place, right? And maybe it's time to
42:28
celebrate. But certainly you want to keep
42:32
the momentum and find a a cohort or a peer group around you that
42:37
your family can also join and be a part of too.
42:40
How have you? How did you find the people to
42:42
start your first cohort? Like how?
42:45
Did you market? It was always just through like
42:47
you know, in the beginning when I kind of started the brand in
42:50
2016, just build a list, right? Just send emails out to the list
42:57
and it just started with that. And like I said, you know, like
43:00
the first couple years just tested it out on some smaller
43:03
informal events. I think would be charged people
43:05
like 50 bucks to attend or something like that.
43:09
But yeah, you know, just at that time, I didn't really understand
43:14
what we were trying to create in my head.
43:15
I just had the vision of like, hey, it would be nice to have a
43:20
group of people, you know, certainly under 50 people as
43:23
opposed to these mega conferences of people that think
43:26
the same way, same values. And then people can bring their
43:30
families. And then also a place where like
43:33
I just tell my wife like, look, if I died, here's a short list
43:36
of these this people who come that I trust that you go, you
43:40
know, you know, you'll be so sad when I die, yet you'll have a
43:44
big life insurance payout apparently.
43:47
But you know, these are the people that you consult with,
43:50
right? And so were they mostly just
43:54
from your? Network that you already knew or
43:56
were you getting lists from? Like buying data from the power
43:59
of the Internet, Right? Like people?
44:01
People listen to my podcasts and you know that in the big very
44:06
beginning stages, I just just told my story, right?
44:10
Like at that time I was still buying little single family
44:13
homes or in that mentality. So initially, like the brand
44:17
used to be called simple passive cash flow.
44:19
We kind of went away from that because steals on cash flow,
44:23
right? That's not what high net worth
44:24
families do. They don't care about cash flow.
44:26
That's what you do when you're kind of below the $5,000,000
44:29
mark. You care about cash flow.
44:31
After that point, it's more about equity growth, right?
44:34
But back then, that was why the brand was called Simple Passive
44:36
Cash Flow. But it was also about, you know,
44:39
we helped a lot of people buy little single family homes
44:41
because that's what I did. Like, I don't really talk about
44:43
things I haven't personally done myself, but that was kind of
44:49
where I built a lot of traction since then.
44:51
Our group has definitely aged over the years.
44:54
Like I say, most people are in our 50s.
44:57
I'm trying to catch up with them, but yeah, like I, I, I
45:01
think in an issue like we had a lot of guys in their 20s and
45:04
30s, you know, those Henry's right, high, high income, not
45:08
wealthy yet that, you know, made 150 thousand $250,000 a year
45:14
from their tech jobs. Had some energy because they
45:17
didn't have kids yet and have that energy sucked out of them
45:20
quite yet to buy single family homes and get a little more
45:23
active. But I think the group has more
45:26
grown up with me as, as I've kind of abandoned that
45:30
residential real estate, single family home world, as I've kind
45:34
of gone to the second floor and the third floor of the wealth
45:37
elevator. And in my book, we have like
45:38
this table of that's always what I say first is figure out what
45:42
floor you're at first because that helps you, helps you
45:46
understand self-awareness of where you're at first as opposed
45:50
to like, you know, we think we live in a TikTok and YouTube
45:53
short world where there's all these financial tips out there.
45:55
But when the heck does it? When is it prescribed?
45:58
At what point at the financial journey you're at?
46:02
Yeah, I think some of the most successful people I've.
46:04
Known personally and studied, they have this incredible
46:08
ability to identify what signal and what's noise.
46:13
Because information is free now, especially with AI, like
46:17
anything you could possibly want to learn is free.
46:19
You can figure it out at your fingertips.
46:21
But it's the ability to determine and be able to
46:23
decipher what is relevant to me and what is the correct
46:27
information to actually act on and implement into my life for
46:31
my goals, my mission, where I'm at now and where I want to go.
46:34
And that's the hard piece is knowing what information to
46:37
actually listen to and what to follow because everybody's got
46:39
advice and not one thing works for everybody like you could
46:42
have. There's multiple ways.
46:43
I'm just gonna cat. I hate that saying, but it's so
46:45
true. You know, there's what works for
46:47
one person. Doesn't mean it's gonna work the
46:48
best for you or doesn't mean that that wasn't the right
46:51
strategy that's gonna work for someone else.
46:53
Yeah. I mean essentially.
46:55
It's kind of like the process of learning, right?
46:57
Or tackling down a big task. I mean, I'm in the middle of
47:02
like a home move right now. So my house is in shambles.
47:05
But you know, what do we do? We, we try and pack up boxes and
47:09
label it on the, on the according rooms.
47:11
So no different than here. Like certain ideas, mindsets,
47:17
even tax strategies are more pertain to when your net worth
47:21
goes over $5,000,000, for example, right?
47:24
Or somewhere when you're trying to get out of debt, right?
47:27
Like the latte factor, that silly thing, but that's very
47:30
important. That and keeping a freaking
47:32
budget is very important for people under half, $1,000,000
47:35
net worth. But certain things only apply,
47:39
you know, at certain net worth ranges.
47:41
And I think that's, you know, to apply that, that framework at
47:45
least helps, helps makes it easier, right?
47:48
Life's life's hard. We're gonna make it a little bit
47:49
easier every time, right? Yeah.
47:52
So. OK, You've been doing this.
47:55
When did you start raising capital?
47:57
2016, Yeah, I think the first one I think. 2018 I think comes
48:02
to mind. Yeah, OK, might have, might have
48:04
been the year prior too, but yeah, definitely after 2016.
48:09
So in seven years you guys have done 2 billion?
48:11
In transactions. So I'm still trying to figure
48:12
out how you did that. So in such a short period of
48:15
time. So like who are you parted with?
48:18
What's your structure? How are you raising capital?
48:21
Because to raise like how much capital do you guys have under
48:24
management 22? Billion of past acquisitions.
48:29
So I think were we really to use the Mario Kart analogy where we
48:34
really hit that, that speed boost I think around 2020 was
48:41
when we I mean they always say like when you do your first deal
48:46
or two, then you get fed a lot of deals, right.
48:48
For us that was prior much prior to 2020.
48:52
So I think around 2020 that was when we really, you know, we hit
48:58
that billion dollar mark around 2020 in there.
49:01
If people recall there was a whole pandemic thing and there's
49:05
a lot of uncertainty. We, we pushed the pedal that
49:10
year and got took advantage of that and it could have, could
49:15
have worked out really bad for us.
49:16
It worked out pretty well that we picked up a lot of good
49:19
assets in that 2020 time period, locked up a lot of good interest
49:24
rates too. But that was kind of where you
49:28
know like the that's where like in this business the brokers
49:31
control a lot of deals, especially for us.
49:34
Like we don't like, we don't go off market really like or
49:38
specifically like when we pick up assets, we don't, we don't
49:42
want to buy anything that's like 80% occupied or less, right?
49:46
Like hair deals with hair on it essentially.
49:50
So therefore the brokers will control those deals that are
49:55
8590% occupied or or greater. So for us, just strictly
50:00
speaking, for us, the deal flow or the faucet is controlled by
50:05
them. So when from the brokers
50:06
perspective, you put yourself in their shoes, you know they're
50:10
going to go to people who are hot and transacting, right?
50:13
People who they see. So like, you know, we put in a
50:16
lot, we put in a lot of offers, right?
50:18
That's how we kind of get our name to the top or you know,
50:21
that's that's how they know. I mean, you could be putting in,
50:24
you know, lowball offers like I'm sure we were a bunch of
50:27
times, but they would see our names, right.
50:30
So that's one tactic that I think got us.
50:33
And then obviously we've closed the deal, right.
50:35
So all the brokers know who closed the deal.
50:38
So that sold are the lenders too, right?
50:40
Like the lenders know who are the, who are the people who are
50:43
actually doing stuff as opposed to just prancing around.
50:47
So, yeah, I think that's kind of where that culmination of just a
50:52
lot a good reputation. Yeah, had the deal.
50:55
Flow and where were you? Were you raising capital mostly
50:57
from your retail investors like the doctors, the lawyers, the
51:00
smaller business owners, things like that?
51:01
Or when did you shift to? Because in the beginning you
51:04
talked about shifting a little bit or working with
51:07
institutional capital. When did you make that shift?
51:09
And what kind of percentage was retail investors versus
51:12
institutional and which one do you like better?
51:15
Yeah, I mean, we work primarily with.
51:17
Like retail investors, right? I think what you know, after
51:22
like 2020 to 2024, we didn't really do much right.
51:26
We're kind of in this transition period getting away from well,
51:30
since we couldn't do multi family right because nothing
51:33
really worked the the price between buyers and sellers.
51:36
There was a disconnect. And I still think that there's a
51:38
big disconnect today. But what what I started to
51:42
realize is that there was a lot of distress in the market and
51:47
there's a lot of these good deals done behind the scenes off
51:51
even the syndication street market done by larger players,
51:55
institutional players. And what I started to, you know,
51:59
This is why I wrote the book, right?
52:00
Like beyond the third floor of the wealth elevator is the
52:03
penthouse. And then you get in your Willy
52:04
Wonka glass elevator and then you go off and fly wherever
52:09
that's sort of where the family offices are.
52:10
They can do whatever, right? They fly around in their glass
52:13
elevators, go up, down, backwards, straight.
52:16
So I would we, you know, this is coming from a kid from Hawaii
52:21
who's never really had a rich uncle or knew any accredited
52:24
investors. And now I'm interacting with
52:26
people well beyond that, you know, cuz we're buying
52:29
properties from them, interacting with them and then
52:31
now kind of rubbing shorter with those people.
52:34
And what I realized is a lot of people are like, you know, 3rd,
52:37
4th generation and what they're doing is nothing that anybody
52:42
can't do. What I realized a lot of these
52:44
guys, what they'll do is they'll hire somebody to go out and find
52:49
deals and underwrite deals from them.
52:51
And you know then, but then you also put in together the
52:53
construct of you have a fractional CFO or full time
52:56
accountant, right, things like that.
52:58
But that's on the more operation side, but we're talking more
53:00
deal flows, deal finding side. And I was like, that's a good
53:05
idea. Why don't we do that, right?
53:08
So I tried to, you know, like just kind of cop like that's the
53:12
key is like, I think understanding what the next
53:14
level is and kind of just copy and emulating.
53:17
So for me, it's like, well, let me try and think like my family
53:20
office like, well, we kind of are, right.
53:23
We are a multi family office these days, essentially what we
53:26
are. So I was like, well, let's find
53:28
what the multi family offices do right?
53:31
And like I said, they have a guy that goes around networks
53:35
business development and looks for these deals that are good
53:39
deals that they may want to invest alongside in.
53:43
So, you know, one good source is like some of the lending brokers
53:47
that we've worked with in the past have kind of made us
53:50
connections, right? Like they, they'll work with a
53:54
family office that may take down a deal by themselves.
53:58
And, you know, like, I mean, even like the, the distress in
54:01
the market, in the capital markets has made the
54:03
opportunities kind of open up in this world because before they
54:08
found the office, you know, they just steamroll they, you know,
54:10
they get the lending that they want.
54:11
But now it's nothing's easy, right?
54:14
It takes properties. I mean, you used to be able to
54:17
close the deal in a couple months.
54:19
Now sometimes these, these damn Closings take like four months
54:23
to a year, right? We've tried to, we've sold an
54:26
asset, took the buyer a year to get their financing in order.
54:30
Yeah, Yeah, it can be. It can be a a nightmare.
54:34
Sometimes for sure, But yeah, so that nightmare has created
54:37
opportunities. For us to like, you know, if
54:39
there's a deal out there that needs a little push to get over
54:43
the hump, you know, that's I think that's where I saw the
54:46
opportunity, at least for myself and, and, and us, right, right.
54:50
And so are most of your. Investors now like single family
54:53
offices or multi family offices or they're still your retail
54:56
investors. Yeah, retail, retail, yeah.
54:59
OK, cool. So what?
55:00
What's next for you? I don't know, I mean whatever I.
55:04
What I've learned at least is like, what got us here isn't
55:07
going to get us to where we want to be.
55:09
If I'm reading the tea leaves, interest rates aren't going to
55:12
be coming down, that the error of free money the last decade is
55:16
not going to be coming around. So perhaps the old strategies
55:21
didn't work and we're just going to have to go to a more
55:25
audacious business plans and investors may not want to hear
55:28
that, but that's the only way I think you're going to be able to
55:30
find alpha, you know, but it also may be outside of the world
55:34
of real estate. Like I'm, I'm a real estate guy.
55:36
I, I still like real estate. I had unfortunately had 90% plus
55:42
of my net worth in this last correction in commercial real
55:45
estate and got killed. Some would say, well, that's how
55:48
you know, you got to concentrate to get to a certain level, then
55:51
you diversify. And that's kind of what I told
55:53
myself to write, but I'm trying to open things up a little bit.
55:58
Again, I try and look to people who are more successful than me
56:02
and I try and emulate them. And something one thing I pick
56:05
up on is that they are diversified outside of real
56:08
estate, right? Still alternative investments,
56:10
still off market deals, but this is kind of where we open things
56:15
up to more private equity, right?
56:17
So, you know, working with people that we've know like and
56:20
trust that can do the operation on on a brick and mortar
56:23
business or a virtual business, right, Buying websites, for
56:26
example, things like that. I think you have to have a lot
56:31
more lobster traps out there to to find Alpha.
56:35
You know, unfortunately a young non accredited dude just can't
56:40
buy a single family home in Birmingham for 80 grand and
56:44
rented out for $900 a month. Yeah, yeah, you.
56:49
Always got a pivot, you know, everything's always changing all
56:51
the time and just like you said, what worked yesterday doesn't
56:53
mean it's going to work today or tomorrow.
56:55
And so just being able to have the awareness of where things
56:58
are going and always have an edge, like to what problem am IA
57:02
solution. And if you're just doing the
57:05
same thing that everybody else and their brother is doing and
57:08
you do not have an edge, then I don't really feel like that's a
57:12
business that anybody should be in, but that's going to really
57:15
be that successful or last that long.
57:16
And so even if you're doing a business plan that is similar to
57:19
what other people are doing, what's the edge that you have
57:23
specifically that's going to give you that advantage over the
57:25
others? Yeah, and I and I think like.
57:28
Our, I mean, just thinking my, our clients and mine, like what
57:32
is the problem that we solve for them?
57:33
I mean, they're inundated in the sea of deals.
57:37
Like all these tech portals. I mean, their technology is
57:40
great, but unfortunately it just creates a shroud of just junk
57:45
and they don't know like what's what.
57:48
Like I said, a lot of retail investors never get PNLS and
57:51
rent rolls, nor are they, you know, underwriting specialists.
57:55
So they need help, you know, with more of a, you know, better
58:01
viewpoint on it to make better decisions.
58:05
I do think AI helps. That's why I was just going to
58:09
say unless you have a. Baseline level of.
58:11
Knowledge on this stuff, which again, I think most pass
58:15
investors don't have it respectfully.
58:17
They say that like the AI will just tell you what you want to
58:20
freaking hear, right? It's just a people pleaser,
58:23
right? Yeah.
58:23
I don't know why it does it. It's not like you're going to
58:25
fire anything like that, but like, you know, like that's the
58:30
hard thing about AI. It just confirms your biases.
58:33
Yeah, I know. That is one thing.
58:35
And then as it learns you more and more, it'll, it can learn to
58:37
continue to confirm it, right? Because I don't want to get
58:39
fired more. It's like, that's funny.
58:43
Well, awesome. Well, it's been, really.
58:45
Good. I know I did want to dive into a
58:47
bunch of more things and you just said that you had some
58:49
pretty big losses in this correction.
58:52
Was that in your own funds? I know we have to wrap up here,
58:55
but I just out of curiosity, was that it, were you an LP or was
59:00
that in your own operating company where you just had deals
59:03
go back? Yeah, I mean, I'm, I'm.
59:05
Alongside of that personally too, yeah, Yeah, that's rough,
59:10
yeah. But yeah, you know, that's.
59:13
You need to talk to any operators that been around
59:15
through like a correction or two.
59:18
You know, now we've seen the pretty, we've seen a bigger one
59:21
now than 2008 in commercial real estate in fact.
59:25
Yeah, or the guys. Going in 2008.
59:28
You know, it's, it's kind of par for the course, right?
59:31
And that's why when I, you know, I get on the phone with every
59:34
single investor and we have this talk, it's like, look, man, I
59:39
can't promise anything is going to happen.
59:41
Everything's projected. But like, I mean, that's why
59:45
you, you, you try and underwrite the best deals at the time.
59:49
We don't know if these are going to go well.
59:51
But again, the die the philosophy is if you just dollar
59:54
cost average over four to seven years in the best deals at the
59:57
time. Yeah, I went when the market
1:00:00
comes correcting down, hopefully next time it doesn't come
1:00:03
correcting down 30% like it did, right, like right, cap rates
1:00:07
went up a percent and 1/2, right.
1:00:09
Normally you stress test deals for maybe 1/2 of that, right.
1:00:15
But you know, at the same time if you never pulled the trigger.
1:00:20
Then whether they say no, if you don't risk it, no biscuit too.
1:00:24
So the nice thing about investing in this method as ALP
1:00:28
is your downside is protected, right?
1:00:31
Like if the asset falls and is now 20 million under the senior
1:00:36
debt because of the market fell so heavily, well, you're the LP,
1:00:40
you're not the loan guarantor. You know, yeah, you lose your
1:00:44
principal and that's horrible, right?
1:00:46
But it's not like anybody's chasing after you and the delta
1:00:50
or just like a lawsuit, right? Like a frivolous lawsuit, like a
1:00:53
tenant falls or there's a pool drowning or something.
1:00:57
A lot of pools, at least they're not coming after you personally,
1:01:02
right? So you kind of play this game
1:01:04
where you're just dollar cost averaging and you know, you just
1:01:09
you, you take advantage of the wins when they do come and they
1:01:12
typically come in the beginning of the market cycle, which
1:01:14
technically I feel like we're at right now.
1:01:16
I've already seen some assets come up significantly off the
1:01:20
bottom of the market back in 20 late 2023 into 2024.
1:01:28
And I have some appraisals kind of to prove that within our our
1:01:32
own portfolio. Of course, those are just
1:01:33
individual data points, right, not not indicative of the
1:01:36
market, but these are the signs that will only be de verified
1:01:40
two or three years from now. But then it'll be way too late,
1:01:44
right. It's like kind of picking up on
1:01:46
wow, 20/20/10 to 20/20/12 was a great time invest.
1:01:51
Too bad it's freaking 20/20/16, right, You know?
1:01:54
Yeah, yeah. Just trying to catch as.
1:01:56
Close to the bottom as you can and not getting wiped out at the
1:01:58
top. That's the problem is you get
1:02:00
wiped out at the top and then you don't have the cash to be
1:02:03
able to re enter when it's actually the time to re enter.
1:02:06
Yeah. And that's my philosophy is you
1:02:07
never know. When the market tops and bottoms
1:02:10
are going to be like, if people know, awesome, let me
1:02:13
investigate. You guys give me your e-mail
1:02:15
address please. But I have the thought that I
1:02:19
just don't know. So I'm just going to head out
1:02:21
there and try my best every day, hit every golf shot with as much
1:02:25
like effort as possible, which means every deal that you do,
1:02:30
right, like underwrite it, stress test it to a certain
1:02:33
amount and just pick the best deal that you're presented or
1:02:37
you see, you know, that quarter, for example, right?
1:02:40
Yeah. Well, thank you so much for.
1:02:42
Coming on, it's been great to chat with you and get to know
1:02:44
you and how can people get a hold of you?
1:02:46
If they want to get involved, they can shoot me.
1:02:48
E-mail Lane. At thewealthelevator.com Awesome
1:02:52
and I'm excited to read your new book.
1:02:54
Thanks. All right.
1:02:56
I'll see you later. Thanks for coming on.
1:02:58
Thanks, Anna. Bye bye.