Latest / Glovisor Podcast / Ep. 32: How the Wealthy REALLY Invest (It's Not What Most People Think) Lane Kawaoka
Transcript
- Joe: What if financial freedom wasn't about working harder, but about making your money work smarter? Welcome to the Globisor Podcast, where we explore business growth, communication, leadership, and personal development through real conversations with people that make an impact. Today's guest left behind a successful engineering career to build a real estate empire of more than 10,000 units and over $2 billion worth in acquisitions. Through his investing platform and top rank podcasts, he's helping hardworking professionals escape the rat race by using the same wealth-building strategies trusted by the affluent and high net worth individuals. Globiser welcomes Lane Kawalka. Lane Kawaoka: Hey, thanks for having me, Joe. Hello, everybody. Joe: Great. Looking forward to this conversation. I just couldn't believe when I I heard the two billion dollars in acquisition, I said, that's an impressive number. it's hard to conceptualize, so I can't wait to hear more about it. So Elaine, tell us, what is it that you do? Lane Kawaoka: Yeah, so today I'm real estate syndicator, so we'll buy apartment buildings, fix them up and sell it, but we'll also do private equity. So we'll go into all different types of businesses, some online businesses and do roll ups. essentially the model of buying, you know, dish not distress real estate, but maybe slightly distress businesses and bring in some capital with a plan and then fix it up and sell it, right? So it's kind of the private equity model. but yeah, didn't always start that way, that's for sure. Joe: when you say roll up, what does that mean? Can you get us on the same page? Lane Kawaoka: I think you can do this a few different ways, right? Like, I mean, I think when people think of private equity, they think of these big guys in suits coming in, taking over companies and then engulfing them in their bigger infrastructure, right? Where they may have a larger parent company that does the the administrative tasks for that new acquisition, but four or five others that they have. So that's essentially the term where you're kind of rolling these companies up into the bigger hole. You're finding synergies and like I mentioned, administration. But you also may have you know, we had it where you know you you have a company that has a Rolodex of current clients that trust you, but you bolt them on to another company that offers different services. For example, you know, company that does SEO services, right? And you may have another company that does podcasting services, right? Just picking something out of the blue. You may A be able to offer some of those podcasting services to that first group, right? So you kinda cross pollinate and you just extract more value out of both companies that way. Joe: now are you industry specific? Lane Kawaoka: I think that's where our unique thing is like as far as businesses goes, we're somewhat agnostic. You know, if we can find an operator that we know like and trust and that business in the past, you know, we'll kind of follow their expertise. It's very different than our when our when we do real estate, right? We are real estate operators, we like properties in the class B and C class, you know, and that's so that means nineteen seventies to two thousands build. in certain areas like Texas, Florida, Alabama, Arizona, you know, certain vintage, right? Certain part of the strike zone if you're a baseball fan. And we kinda stick to that, right? We don't go to senior living. We don't go to high end luxury residential. We don't go to self storage, right? We kinda stay stay in our lane. Joe: you've selected some of the things you don't do. Now, was that by initial design or is that trial and error? Lane Kawaoka: Well, you know, I think when you're the operator, the person doing the actual work, I th I do think you need to specialize into something. but you know, I think that's where where we've kind of evolved over investors is unfortunately what you specialize in may not be the best place to invest. No different than, you know, when I first got started investing, I bought rental properties in Seattle, Washington, you know, that where I happen to live. Most times just From a probability standpoint, most people living people out there where you live is probably not gonna be the best place to invest. More than likely, just saying, right? So I think that's where the flexibility comes in, where you need to kind of figure out, all right, where is the best place to invest that I can give myself the best chance? Because investing is risky, right? You need to try and stack the chips in your favor. or, you know, you can't do this with stocks and stuff like that, but you know, try and get the the most insider trading that you can. And you can do that with real estate and buying businesses. but yeah, you know, going back to, you know, buying the the properties, right? Like I think that's where we need we realized that we needed to figure out what did we do best and kind of stick to that. And, you know, essentially you're building I think a businesses and even investing in real estate no different than like an assembly line. You have to try and find ways to streamline what you're doing and rinse, wash, repeating, doing it again and again. And then streamlining it and making it cheaper. So I mean, essentially th our our when we're doing multifamily, our, you know, factory is we're renovating units. It may not be like, you know, very quickly, but we may go through several a month at least. And that's kind of a repeatable process that you do for the two hundred, three hundred unit apartment building complex. So, you know, everything can be Done a bit faster, a little bit more efficiently. And you know, that that's kind of the art of specializing in something as an operator. Joe: it sounds that you're doing a little bit more of the buy and hold. Is that the strategy? Lane Kawaoka: somewhat, right? I think the nice thing about apartments is you could hold on to it in cash flow, right? So it gives you that ability to kind of make your exit strategy somewhat flexible. You don't have to sell when you are done. and that's where, you know, you I I think but make no mistake, you have to sell it. Right. You don't want to hold on to an aging building. You know, these are these are commercial assets. They're not like residential properties. Residential properties are little bit different, where with that you can have a fifty-year property be just as good as a hundred-year property. You're gonna have to put a boatload of money into that hundred-year property and and it's probably not gonna be worth it. But it's does, pretty much stay, you know, it it could be timeless. Whereas a nineteen seventies property, which we would categorize as a class C asset, you know, eventually it gets older and older and older and you can't put lipstick on a pig at the end of the day, right? And essentially that's what we do. We put lipstick on a pig, try and squeeze a extra value of these kind of slowly dying assets. And we renovate it. We'll bump the rents up a little bit in the process, bump the value of the apartment, and we sell it. We won't be out. Joe: is there a minimum number of units that you get involved in in one project, or is it by dollar amount? Lane Kawaoka: it its minimum amount of units is kind of the threshold, but you know, we try to push it higher as much as possible. But the two big thresholds is you know sixty units because you want to have a a property manager in the property at all times. You know, when you get under under 60, it just doesn't justify a person being there. and this is a big problem with residential real estate. Most times you have a property manager running around all all town to his, you know, he's normally a Property manager like a hundred or two hundred properties that he barely sees because he's running around 95% of the day, driving logistically. And that's what's nice about commercial property management, who's there. They can control the culture of the building. And you know, with sixteen and you have enough scale to justify somebody's salary there. But where I would say you really get synergies is when you start to make it worthwhile to hire a full-time handyman, right? And th those types of HVAC staff. That with the threshold would be about a hundred. Joe: Gotcha. So every successful entrepreneur has a defining moment. Now, what was it that inspired you to pursue this path? Lane Kawaoka: Yeah, I mean I I I think I was doing this all by myself for myself. you know, bought a rental property in 2009, changed it to a rental property, and that was kinda where I realized, wow, the power residential real estate where you're getting cash flow, tax benefits, the tenants are paying down your mortgage for you with your own heart, sweat in tears. And you're also getting depreciation. And I was like, Wow, why would I wanna do my four one K stuff? And ride that roller coaster. And what I realized there was that I was investing primarily into the asset. Whereas most people don't realize that they get sloppy seconds by investing to the stock market by getting all these middlemen picking up their returns before they do. So you know, I think that the takeaway here for investors is try get as close to the action as you can. However, you know, you gotta do your due diligence. There's risk involved with that, right? But if you sound yourself with a community of other investors, you know, you can do well, I think. You know, at least at least, you know, I speak for myself. But, you know, I I I think that's where, you know, in investors or I started to realize that, you know, doing this myself, that there was a transition buying little rental properties. In twenty sixteen I had eleven rental properties and I was, you know, moving to a financial freedom. But until I found syndications and private placements investing in more higher quality commercial assets, that's when I really started to realize kind of the the light ahead of and I realized how accredit investors invested. You know, they weren't investing in little rental properties. And that's kind of where I realized like maybe I should create an ecosystem, a a community of people doing this because you know, my my parents never owned rental properties. I never knew any. I never had a rich uncle or a credit investor uncle. I didn't know what a credit investor was. so for me, I had to kind of piece this together all by myself. But you know, that was kind of what I realized the need was out there for for first generation multimillionaires to find a tribe of other like minded investors to swap ideas, build friendships, but also find deal flow and do due diligence with each other. Joe: that's what you have today is sort of an ecosystem of people with the s same like ideas that want to invest in real estate. Lane Kawaoka: Right, right. And then, you they've they're of course credit investors, so million dollar net worth or greater, or make over two hundred thousand at their day job. and you know, they're in that mindset of scaling their portfolio and allocating their portfolio because they've gotten out of that stage in life where they're just trading time for money. Joe: collectively you decide on purchasing certain assets or is there a manager that handles this type of decision making? Lane Kawaoka: we are the professionals, we are the managers, right? I mean everybody else are are you know, they could do that one day, but many choose to just stay in the passive role. Right. So of course everybody does their own due diligence on their own. You know, everybody signs their own paperwork, takes you know, everybody's taking on risk. But as the general partner, right, we're the ones that's kind of guiding the ship. Joe: so the other investors are earning a return on those decisions and on those properties? Lane Kawaoka: the analogy I use, it's like a airplane. Right. So in the in the cockpit you have the general partners, the people who are running the show find the deals, they you know, they do everything. people come back and coach, they know they pay the air fill, they get in, you know, they're riding the airplane. They get they get a piece of the action too. You know, every deal is structured a little bit different. But essentially the structure of the deal is or this at least I like it because the spirit of the deal is everybody's rowing in the same direction and everybody gets hurt if the plane goes down, even the people in the cockpit. Right. But what this do now now allows investors to diversify into dozens and dozens and dozens of these these private investments directly. And it's so allows them nice diversification. Joe: so it's not property specific, it's more of a group or asset. Lane Kawaoka: it can be both. I mean a lot of deals, it's just one apartment. So I think that makes it a lot easier for investors to do their due diligence on. And it also, you know, as they get their reports, they can kind of, you know, see the P and L's of that particular asset. Some are blind pool funds. I particularly don't like these these ones. these are more on the institutional side where I you know, I just don't think that deals are that great. But, you know, they'll they'll put twenty five apartments into one fun. one diversified fund. and then, you know, sometimes you have deals where it's just two apartments, for example, like a two pack or a three pack. Right. So these deals are plentiful out there. You know, unfortunately, you know, before I was an accredit investor, I I just didn't know of this this world existed. Joe: if one of our listeners wanted to work with you, what would that journey look like? Lane Kawaoka: I mean, it's not for everybody, right? I mean, there is obviously risk involved. there is no guarantee of any return. but I think in this world, I mean, just like in real estate, it's a relationship business. especially if you've never invested in this type of private placements and syndications before, you know, you got I it kinda works both ways, right? I think the investor wants to understand who they're working with and also the general partner wants to understand who they're bringing in. you know, is if you said it's not for everybody. And until you're in a deal, unfortunately, you may not know if it's for you from a from a maybe not risk standpoint, but from a you know, just being able to sit there and coach and relax and be okay with it. you know, the saying always goes, if you know, you can't afford to lose the money, don't invest at all. I think that certainly does apply. But, you know, very wealthy individuals, as I learned through my journeys and I put into my book The Wealth Elevator, then they they don't invest off the public markets. They invest off the private markets with people they know, like, and trust. Joe: Interesting. So now we we threw around this big number of two billion dollars in acquisitions. Explain to us a little bit how how did you arrive to doing all of this? Lane Kawaoka: Yeah, I mean, from my first like almost decade, like, you know, I started investing in 2009 to 2016, had 11 rental properties. That was the stage where I kind of pivoted to going into these syndications and private placements as a passive investor first. and you know, that this is the hard part. This is why we created the community. When you first get involved in this world, you don't have a network. You're just going on the internet and finding the good marketers, pe you know, the unproven operators out there. And that's what I was doing. And, know, like my first fifteen deals I went into, I wish I wouldn't have invested in like three of But I wouldn't have known. I didn't have a network. and that was kind of where I realized, well, maybe I should just do this on my own. Right. This is where I was a little bit different than than than other folks. And, you know, other people in the deal with me thought the same thing and we kind of partnered off partnered up. Right and work together in a smaller group. So initially when we started to do this and I'd say that was around 2018, we would buy a smaller class C property. So a little bit a lot more beat up, a little older, cheaper, and also smaller too, you know, like 50 units, 60 unit sizes. They were a little bit quicker to turn around because they're smaller, right? You know, you go through five units, you know, you're already done with 10%. Where if you're in the three hundred unit, you know, you gotta do that for four more years, right? At five units a month. Right. But that's what we did. It was difficult working with that clientele though. You know, when you work with class C properties, you know, I mean, we tried our best, but you know, most times you're gonna get only eighty percent of the rents to be collected month to month. Like that's just how it is in that sector. But Joe: Yeah. Lane Kawaoka: If you do your job well, you can drastically bump the values on those properties, right? It is a lot more volatile, I'll say in the in the lower rank. So we s we moved up to more cleaner, nice nicer class B assets, went to larger properties. In twenty twenty went over a billion dollars of assets. And you know, at that point it gets easier for us, as you could imagine, as you you get more notoriety and scale. But that was kind of the trajectory and then In twenty twenty two to twenty twenty four, that was when interest rates skyrocketed and commercial real estate really came down, you know, like about thirty percent. So, you know, if people interest rates really impact real residential and commercial real estate for sure. people wanna understand where interest rates are going. I would what I would recommend is Googling the Chancel and Financial Curve and the CME FedWatch tool. Those are the best predictors of that's what the pros use to model out their deals. and they're saying that interest rates aren't going to be coming down in the anytime soon. you know, it may come down like a half a point later, you know, this year, early next year, but that's that's hardly anything. suffice to say, I don't think it's gonna be the grandpa's real estate market like how it was from 2008 to 20 and 21 anymore. So which is why we've also switched to buying businesses. and diversify that way. And and I personally also want to diversify outside of real estate too. You know, I still hold a large major maybe not majority anymore, but you know, a big portion of my portfolio in residential and commercial real estate. Joe: you have a very wide and broad macro view of the market. where do you see the residential and the commercial markets headed in the next five to ten years? Lane Kawaoka: I mean, commercial real estate I think has bottomed out. I mean it's gone down thirty percent off the peaks of a few years ago. now people talk about this because this is not residential real estate, which is in front of everybody's eyes. Commercial real estate's able to hide their pricing a lot better. you know, I think you're gonna have a fallout in private credit, which is a different industry. You know, people Google Google that, they'll they're gonna start to see what I'm talking about. But As far as commercial real estate goes, I mean you still have a lot of s new supply hitting the market right now, but nobody started building new projects after twenty twenty-two, twenty twenty three. And those projects take about a year and a half to be born and be leased up. So kind of like how babies take nine months, commercial properties, commercial apartments take about a a year or two. So you're gonna see this new supply that's coming on now just drop off the map. So that means No new supply, rents are gonna tick off again, and then property values are gonna go up from here. But we know that, you know, we know that supply dynamic in the next several years, right? Cause you can pull permits and you can see what's happening. the other on the residential side, I'm not too much on the residential side. you got a different dynamic there with the 30 year mortgages. You know, a lot of people are stuck in their homes, sort of prisoners with their low rates. They don't want to move. You know, as I talk to people, I I think that's a big fallacy from a personal finance standpoint. but suffice to say that perception is reality for most of Americans out there. If they think that they have a good three percent mortgage, they're gonna stay put. So what that does, it creates low artif sort of I mean, it creates low supply. which to me creates this artificial environment where prices stay high. But I don't think that demand is there, right? Joe: would you be able to share a client success story of someone who's worked with you? Lane Kawaoka: Yeah, I mean, we have a lot of folks that are good savers or have s exited their bus their business for life changing money. You know, life changing money is typically five million dollars or greater. you know, if you take five million dollars and you put it into T bills, which is your lowest risk, lowest return investment or life insurance, you know, that's four or five percent there. That's twenty twenty five grand of passive cash flow a month. not even doing any of the tax strategies with real estate. You know, that's probably on most most for most people. So I I think we see a lot of these guys that are essentially running forty miles long in a twenty-seven mile long marathon. They just keep going. because they're not able to transition or land the plane to convert their what they've made, what their net worth is, the critical mass, to passive cash flow. and they certainly haven't moved on to the family office stage where they take this good chunk of money. And grow it to eight figures and beyond. you know, that's kind of where what we do. We kind of put them in the ecosystem, that chamber with other families kind of making that move. You know, the first generation multimillionaire. that may not be for everybody. I I certainly think, you know, put your own oxygen mask on first, quit your day job, try to get to four or five mil first, and then choose what you would like to do. You know, if it's just hang out with your kids and enjoy life and just spend the rest. N nothing wrong with that. But at least personally what I try to do for myself in the inner circle is, you know, you you take this money and you you start allocating. You're you you move from the world of a a money creator, trading time for money, to a money allocator. So you're allocating into different projects that are diversified. And then you also teach that to your kids so they don't screw it up. Joe: when I first started investing in real estate, that was in the mid-90s. And back then, family offices were rare. We had a couple of family offices that we would meet with, you know, once a month or every quarter, and we would bring deals and talk about it. But nowadays, I'm contacted by many different family offices. So from your perspective, what's a family office and and why do we have so many nowadays? Lane Kawaoka: I mean a family office, I mean, you could have as little as like a million dollars, but it's kind of more of a formal formalaic like prospectus that, hey, we're in the business of investing our money. you know, you have some people with twenty million dollars that are not in the business of investing and just are spending it. They're obviously not a formalized family office. From there, you know, th there's a saying that if you meant one family office, you meant one family office. They're all different. Most of are not very that too sophisticated, to be honest. but you know, for the ones that have at least twenty to fifty million dollars, they'll typically have a underwriting, a small underwriting team, which might be just one guy or some guy on contract. and then a you know, somebody who is the chief investment officer who has some experience running these assets, who can kind of interpret the what the underwriter does to pick new deals to go into. you know, they're not the operators, remember. You know, so you could probably argue whether finding relationships and the deals is more important than actually picking the right deals, assuming you you underwrite it on your side the right way as with the underwriter. this is somewhat what we emulate, right? Like we have underwriting, if not we do it ourselves. We we you know, people pitch deals all the time in the private markets, but they're always using their assumptions, right? Like, you know, the to in my opinion, very aggressive c reversion cap rates. They might be assuming that the rents are going up five percent every year, you know, in a myriad of different items. and I the what I see, what we do is our is a process are very simple. We take the raw financials, put it into our spreadsheet analyzer, and we underwrite the deal with conservative underwriting. And we kind of put it up against what else we're seeing that month or that quarter, and we try and pick the best one. You know. and so I think what people call this is a multifamily office where we we kind of find deal flow for many other people and we operate in that, you know, that's kind of our our our lane in a way, if you want to categorize our business. But but yeah, you know, I mean, I I what I tell people is, you know, as long as you're if you're ten million dollars are under, you could still have a family office. Right? I mean, you could be still doing your job. You can still be doing your business. But it's nice when you can kind of tie trade up to, you know, now I'm managing a million dollars and and investing that prudently. And maybe you can invest that in 10 deals at a hundred grand each. But when your net worth becomes four to five million or eight million when you want to go full time family office, you've got the systems in place. So you've made some mistakes along the way, small mistakes. So that now when you are and you have enough money to that critical mass to go full family office mode, you can. Joe: if listeners remember only one thing from today's conversation, what do you hope that to be? Lane Kawaoka: You know, for the average listener out there, you may not be yet to a million dollars net worth. What I would recommend is checking out my book, The Wealth Elevator. I think the biggest thing is figuring out where you are in this space-time continuum of wealth building world. so in the book, I kind of created different floors of the the building, the wealth elevator. So it's important to understand which one you are. If you're like me, you know, good job, not a million dollars net worth, you're probably in the first floor with wealth elevator. What I would say is just Work on buying little rental properties. I mean, that's what I did. Maybe not by eleven, but buy a handful or maybe three or four and get used to it. And then just, you know, time needs to be your friend here. You unfortunately can't just race up to million dollars net worth. Not at that that wrong. I mean, that's the hardest point to build the net worth, other than the first hundred grand. after that, you know, once you get to a million dollars net worth, things open up and as a credit investor, and that's the second floor of the wealth elevator. we didn't talk about the third or fourth, but I would say, you know, check out the book and first thing is self awareness. I know you guys know G Gary Vaynerchuk, right? It's a self awareness, figuring out where you are at first because there's a lot of financial advice out there, but it's meaningless to a lot of people based on where you're at. You know, like I don't follow the six dollar latte rule. That's silly. but you know, like for somebody who's in the first floor of the wealth elevator, they wouldn't spend five thousand dollars to get into the right room. You know, that's that doesn't make sense for them. They need to save their money and invest it. Joe: Yeah, I totally agree. The whole self-awareness, I mean, it applies to just about everything and every investment style. you should know exactly where you are and where you're headed. sometimes some of these younger guys who get into the game and they just they want to go big right away. And yeah, I mean it's good to to grow your game as fast as you can if it's possible, but also don't spend the $5,000 to get into a room that you don't even know what to say yet or what to ask for. Lane Kawaoka: Yeah, yeah, I know what your executive talking about. I mean, look, I don't sell multifamily or private equity coaching. I'm not gonna tell you the line where you can go, you know, don't start with single family homes, go big, go home, right? I think that's the silliest thing in the world. I've I believe in this like this prudent like stair stepping method. You know, you're the first for the wealth deliver, do this stuff, then get to the second, you know, and do this stuff. Syndications and private placements. Then branch off to a little bit more exotic stuff. You know, that's where you get outside of the real world of real estate. Don't just, you know, go into angel investing and, you know, exotic things. Like that's comes later, in my in my personal opinion. but a lot of this is just, you know, my own personal experiences kind of going up the elevator on my own. Joe: And if someone wants to work with you, what do you recommend? Start off with the book? Is there something else that you recommend thereafter? Do you have any courses or you do any coaching to help people? Lane Kawaoka: Yeah, I mean I would say check out the book. If they if they buy the book and they write a review, take a screenshot of it, they can email team at thewealthelevator dot com. we'll hook them up with the PDF version, you know, so I know everybody's putting that into their own AI and asking it their own questions. but we'll also give the PDF or the the MP three version just in case they can't read too well like me. So we'll read it to you. But yeah, you know, I I would say start there, figure out what floor of the wealth elevator you are. if you're not a credit investor, shoot me email lane at the wealth elevator dot com. But but yeah, thanks for having me, Joe. Appreciate it. Joe: Yeah, absolutely. No, this has been great information. is so is there i a website that you wanted for them to go to? Lane Kawaoka: just go on Amazon and put in the wealth elevator. Joe: gotcha. Thanks everyone for listening. If this episode inspired you, share it with someone who needs it. And don't forget to follow the Globiser Podcast for more conversations that make an impact. Till the next time.