The Fastest Way To Build A Six Or Even… Seven Figure Real Estate EMPIRE!
Today’s guest has a few words of caution for anyone who thinks they can just read a book and listen to a few podcasts to prepare for life as a real estate investor. Truth be told, this might be the most candid conversation I’ve had on this show.
Lane Kawaoka is a real estate syndicator, family office advisor, coach, and mentor. He currently owns over 8,000 units and over $1.2B in AUM and has raised over $135 million with 650 investors. He’s also the host of the Simple Passive Cashflow podcast.
In our conversation, we talked about how the current interest rate environment is likely to impact how investors find new deals and why multifamily real estate is still the preferred asset class right now, despite a looming recession.
I really loved Lane’s transparency and honesty about the advice that is out there on YouTube and in the podcast world. Anyone who has done it will tell you that it takes a lot of hard work and even a little luck to build a successful real estate business. And that’s the big takeaway here today.
Key Takeaways with Lane Kawaoka
- Why Lane believes the recession is coming and what he’s looking for in cap rates in new deals.
- How multifamily is still Lane’s preferred asset class and why self-storage isn’t where he’s looking to invest his money.
- How consuming podcasts and blogs can’t replace hard work and a little luck that goes into building a successful business.
- Lane’s candid thoughts on the advice that is available from real estate podcasters and YouTubers.
- The value of hiring professional property management and putting money into the staff who manage your properties.
Lane Kawaoka Tweetables
- Lane Kawaoka
- Follow Lane Kawaoka on LinkedIn | Instagram
- Simple Passive Cashflow Podcast
- The Journey To Simple Passive Cashflow: Real Estate Investing for the Working Professional by Lane Kawaoka
- Mr. Money Mustache
- Paula Pant
- The Lifestyle Investor
- The Lifestyle Investor: The 10 Commandments of Cash Flow Investing for Passive Income and Financial Freedom by Justin Donald, Ryan Levesque, Mike Koenigs
- Ryan Daniel Moran
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Connect with Josh Cantwell
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Josh Cantwell: So, hey there, guys. Welcome back to Accelerated Investor. This is Josh. And listen, I’m excited to be with all of you and share this podcast and this information. Today, I’ve got an amazing guest. His name is Lane Kawaoka. And Lane is an investor from Honolulu, Hawaii. He’s done over 50 major commercial investment projects, including mostly multifamily. He owns over 8,000 units of multifamily apartments. He owns over $1.2 billion of real estate, has recruited over $135 million of capital and over 650 investors. And he also has over 80% of his initial investors come back and repeat, invest within the first year.
And so, Lane and I are going to talk about a few things today. Number one, we’re going to talk about what does it mean to be a successful capital raiser. Number two, what does it mean to be a successful asset manager? Number three, what does it mean in Lane’s eyes to be a successful leader of a billion-dollar organization? And you’re also going to learn more about Lane’s podcast, his mentorship programs, and all of his different offerings at SimplePassiveCashflow.com.
So, if you guys would give it up and get ready for this amazing interview on the Accelerated Investor podcast with me, Josh Cantwell, and Lane, this is going to be an amazing interview. Here we go.
Josh Cantwell: So, Lane, listen, welcome to Accelerated Investor. Thanks for carving out some time. Welcome to the show.
Lane Kawaoka: Hey, thanks for having me, Josh. Aloha, everybody. Happy morning here.
Josh Cantwell: Yeah. Lane’s still knocking off the rust. Where he’s at, it’s barely eight in the morning. He’s in Honolulu, Hawaii, as I mentioned in the intro. And today, we’re going to talk with Lane after all of his success that he’s had in this business. We’re going to talk to him about success. Before we get to that, Lane, why don’t you just tell our audience just a little bit more about what are your thoughts on today’s market? Obviously, last year, with all the interest rate hikes, things have changed, things have pivoted. What are your thoughts on today’s environment? And what are you looking forward to in 2023 as you evaluate the market and make investment decisions?
Lane Kawaoka: Yeah, I mean, I think a recession is coming up. If not, we’re in right now. But the important thing for multifamily operators is kind of a hailstorm at this moment because interest rates are sky-high. Rates got jacked up, what, 3% or 4% in a six-month period, which is unprecedented and the highest ever. So, if you’ve got your bridge notes or your floating rates, you’re kind of getting killed right now. I know I’ve got a few of those that the market shares have doubled on me. And it’s just no fault to myself other than like, maybe I should have bought higher rate caps. But a lot of these rates have exceeded the standard rate cap of 2%. Nobody really buys anything more than 2% rate caps, and that just speaks to the unprecedented.
So, not a good time to be buying even though prices might have come down 10%, 15%. I think some people who are looking to take some risks might be able to get out there in a hailstorm right now. And while some of the larger players like ourselves are kind of sitting on the sidelines, not wanting to get into 6%, 7%, 8% loans, but I mean, it’s real estate. Maybe it will go up, right? Typically, I guess. But for now, we’re kind of just staying under shelter and don’t get hit on the side with a baseball-sized hailstorm.
Josh Cantwell: Yeah. So, when you say hailstorm, Lane, do you think that’s in all asset classes of multifamily – A-class, B-class C-class, luxury? Is it certain parts of the country in your mind, certain markets? Or are there still investment opportunities in certain places?
Lane Kawaoka: I’m speaking generally because the interest rates impact all. Your community banks to small banks aren’t really lending. You got to go back to your big Fannie and Freddie’s, but the loan terms aren’t as favorable as it once was. And what I mean is that the loan values, that could be hard to get in a year, 70% are better. It’s going to be worse than that.
So, it kind of kills the deal if you’re trying to do the old double your money in five years for investors. But yeah, you know, every deal is unique, right? I mean, every submarket is unique. Obviously, we’re all trying to be in the best emerging markets, not like Seattle whose rents are dropping super quickly. But certain markets I’ve seen that are a little bit softer like San Antonio, I’ve got a couple of properties there. I’m just speaking in terms of the Sunbelt emerging markets that we all like to play in. Phoenix is kind of cooling off in terms of rent rates and it’s still, I think, on a one-year to five-year time horizon, the rents are still going up, I mean, but not going up at like 15% as it was in 2020 to 2022.
Josh Cantwell: Sure. Fantastic stuff. So, does that mean if you were giving any kind of advice or high-level thoughts to our audience, is it, look, even if you buy today, you’ll be a little bit more conservative with your rent projections for the next couple of years? Bit long-term debt, maybe it’s five, seven, nine-year debt. Maybe raise more capital from your investors. You have a lower loan-to-value. What are your thoughts on some of the things that we should be doing in order to win, in order to still be acquiring properties in this market? What are some of the thoughts around that?
Lane Kawaoka: Yeah, I mean, I think reversion cap rate, even though the cap rates have expanded at least half a point from where we were maybe just a year ago. I think it’s still prudent to expand even another half a point, even a full point on the reversion cap rates. So, I’d say if you’re going in at 5.5, you better use 6.5 rent increases per year, I mean, it depends on your market. I’d say if you’re in Dallas, which I think people love Dallas, it’s a little south over. I wouldn’t be using more than a 2% rent increase per year knowing that it may even go down. But that’s just kind of the weird time we’re in right now. Like, I mean, there are some deals that I see are 95% occupied, but it’s like losing money because of the mortgage and now you’re like, all right, well, let’s just take this deal out via distressed pay, even with the loan terms. Fixed-rate loan terms now, I can’t get that thing to cash flow positive. So, I mean, I bet at some point, maybe I’ll find one, but it’s just very difficult.
Just because you get a 20% discount or 10% discount off where it was a year ago, it doesn’t mean that it’s a good deal or it pencils today. But like I said, hey, if you’re under a quarter billion dollars of assets under ownership, maybe you got to take some chances. But we’re sitting at $1.2 billion of assets. It’s just not the direction we want to be heading. And we’re kind of heading off in different directions other than value-add multifamily based on this environment.
Josh Cantwell: Sure. Are there other asset classes that appeal to you outside of multifamily? Is it industrial? Is it self-storage? Is it assisted living? What else is appealing in this market?
Lane Kawaoka: I mean, I’m still a big fan of multifamily because, to me, this industry can’t get disrupted as much as self-storage. Self-storage, I mean, it’s smaller assets. A lot of people on the internet talk about it. But what I don’t like about it is your Class A asset. When you take over an asset, the operators are always trying to turn it into Class A because you always need the demographic to go to it at night and for it to be a safe, 24-hour secure facility, which is Class A.
Josh Cantwell: Sure.
Lane Kawaoka: And it’s so easy to build something Class A so your comps just blow up on you, where multifamily if you take over a Class C or Class B, even a Class A- building and something’s built next door to you, Class A, it kind of doesn’t really compete with you. One could say it even helps you push rents up in the market in the area. But that’s why I don’t really like self-storage. But I still like multifamily, but just kind of not with these kind of loan terms. So, there’s not like an end in sight in the rent, or the interest rates kind of keep rising.
Josh Cantwell: Right. Yeah, we’ve seen deals where back in fourth quarter, they were offered. We were even awarded a couple of deals, decided not to buy them because the interest rate environment had changed so quickly, then quickly found out that actually the next two groups behind us also would subsequently get awarded the deal. They had moved on to something else. And now, even with, like you said, a 10% or 15% retrade, which you find out that those sellers are willing to do, the rents are still low and they don’t cover. The debt service coverage ratio is terrible. So, the amount of money that they’re willing to advance at closing is very low loan-to-value so you’ve got to recruit more capital in order to lock in long-term interest rates.
So, there’s going to be more of that, I guess, for our audience listening, because I think, look, rates can change overnight. They can move it extremely quickly, but sellers and buyers, especially sellers who are tied to a sales price, are not willing to move as quickly. And so, you have this dichotomy or kind of this hole in the market, this gap in the market where buyers have to adjust to rising interest rates and higher cap rates. But sellers are still stuck on last year’s price, takes the seller a lot to say, “Hey, I got to take a $2 million haircut or a $3 million haircut to make this property sell. You know what? I’ll just hang onto it. I’ll just sit on it.” We’re seeing a lot of that, but I do anticipate second quarter, especially that sellers are going to get more realistic. They’re going to realize, “Crap, I maybe missed the window, but I still want to sell.” And I think we got a very low basis and I can still exit that property for a pretty good profit, especially if they’re a long-term holder.
Now, if somebody just bought the property in 2018, 2019 and they missed the window, then the profit margin is not as big, right? Some of those guys are going to have to sell because of their recap extensions expiring. So, give me an interesting market for the next two quarters. Well, then I know we’re limited on time. So, after all the things that you’ve accomplished, I wanted our audience to hear from you about what’s your definition of success. And so, when I read on your website that you’ve acquired $132 million of investors who invested with you, over 644 investors have invested with you, what do you think it takes to be a successful capital raiser? In your mind, your definition, what has it taken for you to become a successful capital raiser? And what do you think are some of the characteristics or traits of guys and companies that can really raise a lot of money? What do you think their characteristics are that they have in common?
Lane Kawaoka: Well, I mean, hard work, of course, but I think a lot of it is just, quite frankly, luck. I mean, if I didn’t start my podcast back in 2016, and at the time, I was kind of just telling my story and teaching about turnkey rentals and remote rentals back then. None of this would have ever happened to me. I’m just another schmuck with a podcast, essentially, right? And I think that’s what people don’t realize. And maybe things have moved on to YouTube and maybe where it was, was little blogs.
But I guess like, I mean, I was interested in this stuff for a long, long time, started the podcast at the right time, and a big aha moment was in 2018 when I went to FinCon. And FinCon, for people that don’t know, it’s a little bit different ecosystem, it’s more of personal finance bloggers, but that’s the world I came from. In my college years, I would actually read all these personal finance blogs and that’s what Simple Passive Cashflow really is. It’s not really multifamily investing or real estate investing. It’s more personal finance. And we happen to use real estate and we happen to use all these high net worth tech strategies that I personally learn.
But I went to this conference and I’m like, wow, there’s like 10,000 people here. And I’m meeting people. And a lot of them have great blogs or podcasts or YouTubes. They’re great content, but ain’t none of them hit success, ain’t none of them got any traction with the damn thing and they’ve been blogging for four freakin’ years. And I’m like, wow, I didn’t realize how competitive this stuff is. And you can’t really put your finger on when it factors. And I just chalked it up to luck.
The difference between Mr. Money Mustache or Paula Pant is they just got frickin’ lucky at the right time. And then, of course, they kind of pressed the pedal and hired the right people after that. But the difference between them and just some other schmuck at the roundtable eating lunch with who’s been blogging for four years, six years, their heart, sweat, and tears and passion is really nothing. It’s really nothing. And that was something that I kind of realize, kind of just rubbing shoulders with those people a long, long time ago. And I don’t take it for granted. A lot of this is a lot great.
Like if you’re a multifamily operator, the hardest part is getting your first deal. You got to kiss some ass for one to two or three years, and then maybe you get a deal thrown your way. Or maybe right now, you’re in this hailstorm and all the big players aren’t doing anything, and maybe you’re going to get a deal that’s 99% occupied where they’re in trouble and you’re going to also adopt the problem child property, but that’s your start.
Josh Cantwell: Well, I think it’s luck and hard work where those two meet, right? It’s opportunity. It’s hard work. Sometimes, it’s luck, it’s stumbling into the right person. It’s getting the right deal at the right time. No doubt about it. We all have different experiences, life experiences that create simple luck, if you will, who we rub shoulders with and when we rub shoulders with them.
A friend of mine is Justin Donald. And he has his book and podcast called Lifestyle Investor. Well, Justin and I met in 2018 at an event called CapCon. So, our friend Ryan Moran runs Capitalism.com. He invited me to speak. I spoke at his event. I walked off, and Justin and I stumbled into each other at the bar. We had some drinks, stayed in touch for about a year. He became an investor with me.
A year or two after that, he launches the Lifestyle Investor book and podcast, becomes a New York Times best-seller, and I’m the fourth guest on his podcast. And we’ve gotten over 100, 150 new investor leads from that one interview. People have invested millions of millions of dollars with us. So, that’s another form of, I guess, luck, just happening to stumble into Justin and stumble into him at the right event at the right time before he launched his book, and then all of a sudden, featured in the book and things took off. And we’ve raised millions and millions of dollars from that one interaction. That’s the luck, like you talk about, you’re at the table, it just happens to happen, right?
Lane Kawaoka: Yeah. And maybe not saying that that was your wedge moving forward, but you definitely capitalize it and moving forward. And most people, they never get that push forward. They never get that semi viral video of it or that has 500. Just a thousand views can be your push forward. But I mean I do consult for this for other operator groups. I don’t charge for this. This is only for my friends. So, don’t call me and ask me for advice. Please don’t do that.
But I was pretty upfront in saying the other day, I was like, look, stop listening to what these guys are telling you, what you’re hearing on a podcast, or like how they did it. Those are self-selecting biases that are success stories. You’re not successful in that respect. Don’t listen to what they say. They’re just regurgitating some mumbo jumbo that sounds good and some little short reel on YouTube, a short TikTok video.
The truth of the matter is that person wrote a frickin’ book, got lucky, or happened to be in one of the biggest podcasts ever and got lucky. Do not take biographies and try and recreate it. What I try and do is I try and find the mediocre people out there that have hit success that didn’t really get luck, like a luck kind of push for it. And I’m like, well, what is that person doing? I mean, people try and copy Simple Passive Cashflow all the time. I’m like, dude, you’re wasting your frickin’ time. I got really lucky back in 2016. You got to go find the mediocre guy and try to emulate what they’re doing, although it’s probably too late at that point.
Josh Cantwell: Right. So, back to your point of bright, hard work because that hard work at that point, even if it takes you a year or two years, find that first deal, you found it. Even if it takes somebody 10 years to build up a substantial portfolio, let’s say a quarter of a billion dollars, essentially, in most people’s minds, they’ve made it versus working for somebody else and waiting until your 70 years old to retire. That’s pretty amazing.
So, I appreciate the very candid, transparent response. Let me ask you this, Lane. You’ve acquired over 8,000 units. So, what do you think in your mind does it take to be a successful asset manager, to manage a portfolio of that size, and to have deals that are performing well? It would seem like a lot of people like that would fill up all of your week, 40 hours, and then some. It would be like an 80-hour week. So, what does that take to be a successful asset manager? What kind of infrastructure do you have to manage 8,000 units?
Lane Kawaoka: I mean, number one, I guess a lot of us are working our day jobs. I was an engineer for the longest time. I finally quit my job around 2018, I think. I think that’s a critical thing. If you don’t have the cojones to go all in on it, I mean, I get it, if you’re making less than 60 grand, 80 grand a year, you’re not making much in any way, but for some of the more higher paid white-collar professionals, it can be a bigger step, but it’s something you have to dedicate and go all in and quit your day job and dedicate to this stuff, especially when you’re taking outside capital. And I think that’s when you’re under 100 quarter billion dollars in assets under ownership, but for us, I would say a big turning point was in 2020 when we got a lot of deals. We started to really get a lot of traction in terms of deal flow on the broker side. And that was where we’re kind of heading above half a billion dollars, 500 million.
I forget how many properties that was, but that point was the real transition where myself and my partners, we were the guys getting on the conference calls, the weekly conference calls, the PMs all the time. And that was where we started to hire professionals to kind of do what we did because, at the end of the day, we were just the kooky entrepreneurs that got lucky, and we kind of parlayed that into success and got the first deal. But then, it’s kind of like we wanted to hire people that were in property management for more than a decade, or actually did this for a private equity firm, which is what we were at the end of the day. And I think that’s the transition between your semi-sophisticated mom and pa investor buying 100-unit, 400-unit apartments here or there, and really taking it more on an institutional level with hiring industry professionals.
I think doctors would be really pissed off if I’m like, all right, well, tell me what to do, I’m going to do it, or an engineer coming in or people coming into my workplace and like, all right, tell me what you do. Now, granted, engineering, you don’t need a degree to do the work, but property manager, like here we are going into property managers and trying to make like we know everything because we have five rental properties. And we played landlord for a while. It’s not the case. There’s a lot of industry-level knowledge that is learned by a lot of these property managers, even though they are more on the blue-collar side, that there were things, like, I mean, very quickly, we discovered that they knew a lot of things that we just would have never known and they’ve caught a lot of theft and certain things didn’t add up.
And now, in hindsight, we know that, but this is just where somebody is just looking at the financials and being like, “Wait a minute, this doesn’t look right.” It’s like, “All right, well, can you go take a look at that?” And then, sure enough, uncovering these types of things and then, yeah, so hire professionals and get out of the day-to-day business of the property management or asset management, I guess, is what we’re calling it and hiring it out. And then, yeah, that’s kind of my take.
But yeah, in the beginning, you don’t have the volume to do it, but I would say instead of blowing your acquisition fees and something stupid, folks, put it to your staff. I haven’t really taken any of my money and spent it one bit. My lifestyle is still the same as it was back in 2019, except I wake up a little later and I don’t go to my engineering job anymore.
Josh Cantwell: Yeah. Gotcha. So, you brought in professional property management, right? One of the things that I found, we’ve got four different property managers that manage stuff for us in Houston, Atlanta, Cleveland. And in order to, I think, run a really lean and tight portfolio, we have to manage the managers. So, managing the property manager really hard, secret shopping the property manager from time to time, or sending out one of your boots-on-the-ground type of people to go secret shop the property manager because I don’t know about you, Lane, but I don’t really trust anyone in this business. I don’t trust the contractors, the property managers unless I see it with my own eyes.
And so, I enjoy actually, secret shopping the property managers and they have an owner meeting every other Wednesday or whatever that is, it might only be a half hour to an hour and listening to them tell us what’s going on at the property. But then for me, what it means to be a great asset manager is to then do a secret shop, all the stuff that they’re saying. I had a guy just recently, give you an example, a regional property manager manages 16 buildings. We have a number of those in his portfolio. He tells us, “Oh, yeah, I brought on these two new amazing maintenance techs, two of the best guys I’ve ever interviewed in my 20 years.” Guess how long those two maintenance techs lasted? Five weeks.
And so, that type of stuff of managing the manager to me is critical. And to me, it’s secret shopping. It’s saying if you’re not local, like Lane lives in Honolulu, has assets all over the southeast and these growth markets, that’s the type of stuff that we do to make sure. Lane, what do you think it means in your mind with a billion-dollar portfolio, what does it take to be a good leader? What does it take to be the top of the pyramid with all of the property managers, contractors, all the residents? What do you need to do? What does it need to be for you or for any entrepreneur– what are some characteristics or traits of those elite entrepreneurs that build not only the real estate portfolios but really big businesses, period? Are there certain traits that you’ve seen in those folks that you think that those elite entrepreneurs have?
Lane Kawaoka: Well, I think it comes down to style, I mean, everybody’s a little bit different. I mean, I kind of cut my teeth management leadership style back in my engineering job when I was at the construction site as a construction supervisor. The work structure that I had back then is kind of very similar to what I do now. Like back then, I had my foreman, and my foreman has the assistant foreman and then all the guys. This is out in the construction site.
And today, I kind of loosely implement EOS, which is a very similar format. I’m the visionary. I’m the leader. I’m not the guy who is going to be checking up on PM stuff. I’m not secret shopping. Nobody. I’m hiring the COO who is kind of playing the operator role and mandating that we have in-house staff to do that type of stuff, the asset management, to go sneak up on the PMs. That’s the org structure that I have. I want to be the cheerleader. I want to be the person who works hand in hand.
If I can remember back, and obviously, this happens more virtually for me now, but maybe a decade or two ago, every day, once the guys came in and went off and drank beers, I would be next to my foreman’s truck. And we were debriefed for what happened. And we talk about what we need to do as leadership and what is kind of his role, what is my role. Now, not to say that these terms do steer people to get offended, but I was dad, he was mom. And mom and dad need to kind of figure out what’s best for the children to do the next day. And if certain things are better coming from dad, certain things are coming from mom. And that’s exactly how I run my ship today. And that’s just the work structure that I was in back then, and that’s what I use now.
But to me, as the C-suite, CEO, and with my COO staff, that’s how we kind of operate today. And just like on the asset management side, on the operations side, I stay out of that. That’s the COO’s job. They have KPIs, and then they push that down to their staff. And unlike the more office-type staff that I have, same thing I don’t really interact with my kind of individual marketing staff or investor relations staff. I try to catch myself because it’s really hard because this is my business, this is my baby, but there are certain things that are better coming from the COO than myself. But the way I see it is not the most important thing and I know people have heard this before, mom and dad, that’s the biggest relationship. It’s not the family, it’s mom and dad. Whether you believe that or not, that’s kind of what I emulate. It’s like mom and dad have to get together. If they’re aligned, everybody else will kind of follow.
Josh Cantwell: Yeah, great stuff, Lane. Listen, I appreciate you taking a few minutes for us today. The main website where you can catch Lane’s material is SimplePassiveCashflow.com. There, he’s got coaching, mentorship, e-courses, investment deal flow, incubators, masterminds, you name it, testimonials. I’m sure you can check out Lane’s podcast as well, Simple Passive Cashflow. And so, Lane, thanks a lot for carving out some time today. We really appreciate your insights.
Lane Kawaoka: Yeah, thanks, Josh. Thanks, man.
Josh Cantwell: Well, guys, there you have it. Listen, I appreciate Lane’s amazing transparency, talking about hard work and luck. And often, people hit it because they do one thing right. I think it takes obviously, a lot of hard work to build a $1.2 billion portfolio with all the properties and all the investments, over 50 acquisitions that Wayne has done. Interesting to hear him also talk about some of the challenges that he’s currently facing with rate caps and rate cap extensions. So, really excited to hear him talk about that. Check out, again, his opportunities at SimplePassiveCashflow.com.
And then also, don’t forget to visit our main website to hear everything about what we offer at Freeland Ventures, including our mastermind group, our live events, our podcast, our YouTube videos, and all of that at FreelandVentures.com. Guys, if you enjoyed the interview and the transparency from Lane, go ahead and smash down on the Subscribe button and leave us a five-star rating and review. We’ll see you next time.