MFREE 099 Full Episode with Lane Kawaoka: Are You Stuck on the Wrong Floor of the Wealth Elevator?

In this episode of the Multifamily Real Estate Experiment Podcast, host Shelon Hutchinson, also known as Hutch the Marine Investor, interviews Lane Kawaoka, a former civil and industrial engineer turned full-time real estate investor and founder of Wealth Elevator. Lane shares his journey from traditional financial paths to building wealth through real estate, owning over 10,000 rental units, and syndicating over $200 million in private equity. The discussion touches on key financial strategies, including the flaws in traditional methods like 401ks, the significance of the wealth elevator concept, tax efficiencies through real estate professional status, and infinite banking. Lane also emphasizes the importance of diversification and introducing readers to his book, 'The Wealth Elevator,' which captures these insights. The episode concludes with the focus round, where Lane shares personal insights and tips for real estate enthusiasts.

00:00 Introduction and Guest Welcome

02:23 Lane Kawaoka's Journey to Real Estate

04:18 The Importance of Cash Flow and Networking

08:28 Transition to Multifamily and Syndications

16:06 The Wealth Elevator Concept

19:00 Tax Strategies and Real Estate Professional Status

24:05 Focus Round and Final Thoughts

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Thank you to all of our listeners!!! We would love to hear from you!!!

Email me at:
hutch@hsquaredcapital.com

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www.hsquaredcapital.com

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Transcript

Speaker: 0:00

Welcome all you multifamily enthusiasts to another episode of the multifamily real estate experiment podcast. I'm your host, Shalon Hutchison, and if you're in real estate for a little bit, you know me as Hutch, the Marine Investor. And today we have a unique guest. Guess, because look, there are a lot of us that travel the traditional path and we want to maybe not dismantle, but gives you, give you an opportunity to think different and expose you to maybe a more up to date way of, considering or looking at your financial trajectory. All right. So our guest today is Lane Kawaoka. He was a licensed professional civil and industrial engineer turned real estate, full time real estate investor and syndicator. He's the founder of Wealth Elevator that owns over 10, 000 rental units and have syndicated over 200 million in private equity, helping investors move beyond the outdated financial strategy. I'm going to build true wealth through real estate. If you have been told that, maxing out your IRA 401k or buy a house and live in it, and then rely on the traditional banking lane is here to blow those ideas apart and show you a better way to build wealth. So lane, welcome to the show, my brother.

Speaker 2: 1:25

Hey, thanks for having me. Aloha, everybody.

Speaker: 1:28

Yes, sir. Now, before we get into the meat and potato of this podcast, man, I'd like to, see some of those, get some of those mantras and, some good quotes that, that drive our investors. Do you have a favorite real estate quote or mantra that drives you?

Speaker 2: 1:41

No, I think at the end of the day, it's just buy assets and, some people are really bad at saving. So if you follow that mantra, you buy those assets before you, you go spend the money. And I think that at the end of the day, there's a, just a personal finance game of, when you got money, you saved up 20 grand, go buy a rental property. If you got 50 grand, put it into a deal with, that's a real estate deal. Or, today we look at private equity deals to buying businesses, whatever it is, some people have a trouble saving it or investing it. and if it sits there, it's a lot just by entry, lots of entropy. Some people just go spend it. That's the problem, I

Speaker: 2:14

think. Yeah, it's definitely a huge problem, man. I think a lot of us, we need to change our relationship with money, right? And that's where a conversation like these come in, man. So let's talk about this about, two minutes, you spent tens of years, going through high school, college, and also building a career as a, as a civil and industrial engineer, help us to understand that journey and how it brought you to real estate.

Speaker 2: 2:41

Yeah, they call it the linear path, right? We're all taught to study hard, do the 401k thing, buy a house to live in, it works, takes a long time, I think I just by luck, I, bought a house to live in. Again, this is all part of the linear path that we're taught to do. And because I was traveling all over for work, never really, on Saturday I was home. It was silly for me to have this big house to myself. So I just started to rent it out. And this is in my early 20s. just a couple years after college, I got the taste of cash flow and I was like, Whoa, what if I just rinse, wash, repeat, do this a few more times, and I'll be able to quit the rat race, get out of this job I don't really care for too much. And that was, that was You know, what unlocked it for me.

Speaker: 3:25

that is awesome, man. And, I think even myself too, man, I did have, I didn't get lucky when I came to America from Jamaica that, my dad was a real estate investor. So it gave me a little bug of what was, what was possible in a real estate, business, but it was also in a single family space, and I adapted that as well too, right. and. I got comfortable a little right when I bought it, when I started in real estate, I wanted to buy some place that my family and I could live right. And then the idea of doing a live in flip, fix it up and then potential of selling it for profit later, so I wasn't really looking beyond that, So did you have any moments or any other examples in your life other than your own personal experience that really got you to look? Look at real estate as an asset class that you should look at as an investment strategy.

Speaker 2: 4:18

And initially I just did it because it made sense from a numbers perspective, right? Like being an engineer, a lot of it is, what does specially drives. And then, after a few months of doing it, I was like, yeah, this is real. if I take in 20, 2, 200 in rent, sure. I pay for things like the property management takes their 10 percent and this. This thing breaks, that thing breaks, I got to pay for the taxes, insurance, but I was like, like what I calculated out from my analyzer at the start seemed to fit right at the end. my, my parents never owned rental real estate. They always discouraged it. They always said that the tenant would mess up the property, and I never really had any accredited investor uncles around me. so I didn't really have any models. you hear about real estate as a way that the wealthy have, they go down, but I didn't really have any of that until maybe about I started investing in 2009, had that in service and bought another rental prop, not bought another two units in Seattle. I think a few years later, 2012, something like that. But by 2015, I had 11 rental properties. And I was just doing this all by myself, segregated, in a way. And It wasn't until then, I haphazardly started to connect with other accredited investor, The power of the network at that point, and then I started to realize that, as I became more of an accredited investor at that point in the wealth building journey, I started to realize and meet other people that kind of validated what I was saying, Buying properties in Birmingham, Atlanta, Indianapolis at the time. It was like, It's crazy, right? But I was meeting all these other so called crazy people doing the same thing.

Speaker: 6:04

No, that's a good thing, man. So as he was buying these, as you were acquiring these properties in different states, where were you living at the time?

Speaker 2: 6:11

at the time I was in Seattle, Washington, working for the railroad, traveling all over the Pacific Northwest, Texas, Oklahoma, pretty much everywhere still, at the start of the show, we're talking a little bit about personal finance, right? At this time, I was, engineers don't get paid that great, but because I was traveling all over for work, living off the company dime, I was Putting away maybe a hundred grand in pure savings to go buy down payments on these properties for maybe a few years there. certainly saving over maybe 40, 50 grand per year for almost a dozen years there.

Speaker: 6:48

Yeah.

Speaker 2: 6:48

And that was what really powered the investing.

Speaker: 6:52

Nice, man. That's good stuff, man. I think one of the things that we see with a lot of folks, especially, we see with a high net worth or. People with a high salary is that when they get a job or a career that has a high salary, they increase their lifestyle, right? To expand or to maximize that spending of the capital that, that they're earning, that they are earning. And it's pretty cool that you took a different approach. you saw a way to make your money make more money.

Speaker 2: 7:21

Yeah. yeah. if you think of like a basketball game, it's not, it is how much points you spend, but it's more at the end of the day, how much you outscore your opponent. So in similar thought, you can make 200, 000 to 400, 000 per year, but at the end of the day, the score that really matters is how much you net, right? Your income minus expenses. I tell a lot of my clients, if you were able to save$50,000$100,000 a year, you're doing really well. Yeah. The important thing now is to funnel that into investments that just blow it, like most people out there, like a lot of high income earners, they just go and blow it. Or put it into the lane 401k, where they're just getting standardized investments that have high fees that, you know, or going through a certified financial planner and doing that type of stuff, they're not investing directly in the assets. So, I think that was my key. I was lucky and I was just, pretty frugal guy, able to save my money. And I did that for, a good half a decade where it was extreme saver mode. And then, eating ramen noodles at the time, but, I followed it into the right type of assets. And then in 2015 16, started to transition into, the multifamily, the syndications and private placements, because it was just a lot more scalable, mostly because I started to meet other purely passive investors. And that was the trend that were it. They were heading in that direction.

Speaker: 8:45

That is awesome, man. And you start to do these things, you start to see more people that look like you, right? Not necessarily in physical feature, but those people that thinking the same, And have some new way of thinking. Now you see, you talk about a 401k, I trust that when you work for the railroad as an engineer, you had a 401k.

Speaker 2: 9:04

Yeah, and I think we had a pension too, like railroad benefits, that's all kind of a sham, right? a lot of these pensions and social security, it's give it to them so they can grow it at 2%, something really lame. but then again, again, Most people have a trouble just saving their money. So I guess it's good for that, right? But if you're listening to a financially minded podcast, you're probably a little bit better than the average bear saving your money. So you should go take that and go invest it on your own. whether that's real estate stocks, doesn't matter. Just go and invest it on your own. that's what I just to define that out, like people say, the stock market or REITs invest in the same types of assets. Yeah, sure, they do invest in the same direct assets, but there's so many more middlemen in there, and that's the big difference.

Speaker: 9:52

Yeah, that's awesome, man. I appreciate you. That answered my first question about, why the 401k might be a flawed, plan, but to your point, there's some people that doesn't really have the discipline or the knowledge to, to, to save towards a predetermined, outcome in their financial future that may need to use a 401k where they don't really touch that money. yeah. Yeah. In the, in your organization, what are some of the things you, what are some of the places you notice that, other than the 401k and IRAs that people are, that, maybe some of your clients are storing their capital?

Speaker 2: 10:24

so we'll use like infinite banking, whole life plans, the important thing is to configure it the right way, right? because not all infinite banking plans are the same, right? Some are configured with half the amount of insurance, some with only 10%. The latter is a little bit about a little bit better, a little bit lower, a lot lower fees. It's better to stuff it with paid up additions. we help people originate these types of policies, but basically by whole life insurance, which is just another type of asset. It's not a physical asset, but it's a paper asset. And just, the way to think about it is, you buy a house and then if you pay down your house, you have value there, right? That you can borrow at it. The infinite banking concept. operates the similar manner where you're banking on yourself in a way. It's like a key lock. You can make paid up additions to it, and then you can borrow from it over time. And then, the ideas, you can use this kind of tool. And that's what it is. It's a financial tool to do many things. You can pay off debt. In our case, we skew it to investing, right? Because a lot of us are in our growth years still. We're putting our money in, funneling it back out, taking a loan from it and go and investing in other investments. And yeah, we have to take loans from ourselves, but at least it's paying ourselves back the interest. But at some point when the investments go full cycle, or we've hit a certain point, Mostly what I call like endgame level and endgame level is different for everybody, for younger people with, families that are still growing that haven't yet sent their kids to college. That may mean four or five, 6 million net worth for people who are over the age of 60, kids are already off, gone to college, already financially on their own. Maybe not financially independent, but financially, on their own, sufficient, that may mean 1. 5 million talking to somebody yesterday, especially if they're single. that's in my book, we define these different levels of wealth building, right? When I first got it started, I was on this first floor of the wealth elevator, right? Like I wasn't in the basement level are a lot of people. Who make less than 50, 60 grand per year. They are really, they have a hard time even saving 10, 20, 000 per year. Those people, I don't, they'll listen to me. They'll read a Susie Orman and Dave Ramsey book. But I think where my content really starts to kick off is that first floor of the wealth elevator, where you're really trying to, you're saving 000 a year, at least. And you buy rental properties. But like I said, it's the. Inflection point. You go from the first floor to the second floor of the wealth elevator, and now you're starting to transition to syndications and private placements because low and behold, your net worth is becoming around accredited investor status, and you're actually a target to be sued. And at this point, it makes more sense to get out of the line of fire with all these little rental properties and frivolous lawsuits at this point. we talk beyond, you know, going from the second floor to the third floor to the penthouse level, right? That's detailed in the book. What you do for your mindset and your different investment strategies and your infinite banking. But, as I, looking back, there were defined points and there were differences in when, how the strategy was to be taken, right? It wasn't just one size fits all.

Speaker: 13:56

Now, that answered the question I was actually going to ask you, Nix, about a different, the different, five floors. it's four or five floors in the Weld elevator.

Speaker 2: 14:07

yeah. they are some, they somewhat bleed together, of course, But there's definitely more than two, that's for sure. And these are all the floors that I walked over the last decade or two myself. and I think nowadays, because we buy, we interact with high net worth folks, and then the family office level, which are the higher net worth beyond that, because we're buying a lot of the assets and working with them these days, I see the differences with them, I'm around a lot of second, third generation family businesses, which, you get around the 10, 20, 50 million plus range. That's on the fourth floor, the penthouse level of the wealth elevator. You see how they interact and why they do things. It may not seem super efficient, right? In terms of growth, they're at that point where they just need to, just keep the money. At that point, again, like I said, once you have four or five million dollars net worth for most people listening here, that should be enough for you, right? You should be able to put it into, I'm all fan for multifamily here, right? And private equity by businesses today. And we syndicate those types of, deals. But these are alternative investments. They come with much higher risk. And I think a better reward, which is why we do it. But once you have a certain number, it's not about making returns. It's more about safe, keeping it at the end of the day. And T bills and life insurance making 5 percent or under, isn't like much in terms of beating the pace of inflation. But when you have that much money, it makes a lot of sense, right? So each their own depends on what floor the wealth elevator you're at. You may not be there yet, you may need to still grow your net worth 000, 000. But I think it's important to know what's on the next step ahead.

Speaker: 16:00

Yeah, no doubt. Or at least what, what level is your end game, right? The two point is to each their own. Now, let's talk a little bit about, the Wealth Elevator, man. Tell us about, a little bit more about our organization and how that is really helping people in your network.

Speaker 2: 16:16

Yeah, I when I went on this journey myself, I started to discover that there is a lot of, people who were on this journey, but there was really never really a group or community that I really fit in personally. There are a lot of, I think, groups that teach people how to do this, but a lot of those people are, not quite there. there are groups like Tiger 21 where you need, I think, 20 or 30 million of investable assets that, people join people who are a lot of those people have grown their own businesses or inherited their own businesses and gone from there. But, what do you do when you're a guy going from a million dollars to eight figures, 10 million, right? There wasn't really too many groups like that. You're out there floating around in the. In the solar system on your own. So what I want to create, let's put it out there in a book form of the information of these myself following this journey, right? it was a journey that I started since I graduated college back in 2009. And just it's a slow and steady pace. It's not a get rich quick scheme. Multifamily is a great, was a big part of it, right? Because the tax benefits, the returns were there. I wrote a great wave. Things change in the future, right? And I think part of that is being around a lot of smart people. Jumping from different asset classes, but also people that are similar in core values, right? not spending more than you say, things like that, right? Investing it for the future, planting seeds today, so you can reap the rewards tomorrow, or, just a general delayed gratification, which we all know is very important. I think that a lot of that. Yeah. And a lot of the tactics, especially like the tax tactics, right? come through this interaction with other investors. that's how I learned about, when I was in, going, coming up through this world, right? In 2015, 16, started to learn about infinite banking, started to learn about alternative investments and how people were using rep status to not pay. Little to no taxes legally, all this was new to me. After a while, it started to become very clear and actually very implementable by the average guy, but it was very different than what our parents taught us. so that's why I put it all in a book. Okay. there's a lot of these things were just singularity best practices. That was very alternative to the way I think a lot of us went out and thought that we're supposed to do it, save 6. Don't buy your 6 latte to save your pennies and putting it in, subpar traditional investments.

Speaker: 18:48

No, I got you, man. So you said something that I don't want to breeze over. And I think our listeners might've totally missed it, right? Yeah. You mentioned, all people using the rep, which is a real estate professional, to save on taxes. Can you cover down on that a little bit?

Speaker 2: 19:02

Yeah, I think the thing about real estate is you can take the depreciation on the asset and you can use that to offset passive income, right? So they can come stream off of it. And then, when, if you've held onto the asset, normally, depending who your CPA is, like more than a year, you can typically offset that capital gain. So pretty tax efficient. Now. Before I go into this, I'm not a CPA, people need a referral, they can reach out to me, I can connect you with the people I use. But, if you're able to have your CPA check the box, real estate professional for you, there's a, it's pretty in detail, but essentially need to not have a full time job. And you need to be involved very heavily in the operation of your investments, you can get that checkbox checked. And now, basically, you can have all the You Passive losses that you get from these deals offset the ordinary that you create either at your job or your business. And what's cool is that maybe your spouse who doesn't have a job can qualify on behalf of you as your family. So what a lot of people will do who are high income earners, you got like a doctor who makes 600, 000 a year. And you have a stay at home spouse that manages some heavily rentals in their portfolio for them, or maybe they pick up a short term rental. Now they've checked that box and they go invest in the multifamily deal that does a cost seg and gets, does put in 100 grand, maybe you get 60 70, 000 a depreciation bonus depreciation these days, you're not going to use that the first year. So as opposed to having That those losses pile up on your 8582 form for you, which everybody should have out there. 8582, that's where your passive losses pool up. You should, you could, you ought to use that year to lower your ordinary income. these days, we look where people are at and if they're 380. 380, 380, 000 level, that's typically where it makes a lot of sense to do these, some of these other alternative tax strategies. If you're less than that, you don't pay too much taxes, guys, right? If you're making 200, 000 a year, you're not paying that much taxes. we're talking, we work with a lot of high income earners over that 380 mark. And At that point, because we have a graduated tax system, it is, getting a lot higher at that point. But, none of this is personal tax or legal advice here, guys.

Speaker: 21:29

I got you.

Speaker 2: 21:30

You need a referral. Let me know. reach out to me. But, this is again, these are just the things that I personally just. I've done myself with, of course, the professional guidance of my own CPA, but, a lot of this is unknown by people and I think what I think is cool is like when you have a situation, like I said, a lot of people, a lot of hardworking, people out there of the shrinking middle class, and they're just burning both ends of the candle, both Spouse is working and it's just hard and when you, when they realize that one could stay at home with the kids, obviously much better quality of life and maybe they net more at the end of the day because they're able to do some of this stuff, man, that's cool. That's a game changer, right? And I think that's been the mission. just improve people's lives. it's not like they're cutting corners in terms of tax. I guess they are, but totally legal. these are what the IRS tax code is made to do.

Speaker: 22:23

Yeah. And I've had, a few veterans, they get out of Marine Corps or get in the military. And now they're not really, they don't have their shelter from it, from the military payer. Because we don't pay a lot of taxes or a whole bunch of taxes. However, when you get out and you have a military retirement and you also have a. income job. And if you pair, if you, the spouses also have an icon job, they get a lot, they pay a lot of taxes. And I've had friends who pretty much retired their spouses. However, it's not retire and let's do something else where we can keep some more for own money. It's. We're making good money and I don't want to pay a lot in taxes. So you just quit your job, right? So there's no real long term strategy behind that move. You know what I mean? So these are conversations that I'm having with some of my friends who have, who have, who have retired from the military. Now you mentioned Tiger 21, they sent out a quarterly report that shows, asset allocation. And I just received this one few days ago that talks about, in they put in 28 percent of their, Net worth in private equity, 28% in real estate. 1% is miscellaneous. They have 9% in cash flow, 1% in income out commodity, 1% in, currency, 7% in fixed income. They have 2% in the edge fund and then 23% in, in public equity. so they're real diverse, but definitely they favor, private equity. Real estate and public equity, so it is a, it's a ton of where we can find out these information as far as what the wealthy people are doing with their asset allocation. So appreciate you bringing that up. Lane, I want to be mindful of your time, my brother. We're already about a minute over. Do you have a job that time?

Speaker 2: 23:58

yeah, I got to jump to another call here.

Speaker: 24:00

Okay. Do we have five minutes for a focus round or you got to go?

Speaker 2: 24:04

yeah. Let's knock it out.

Speaker: 24:05

Oh, let's not go to focus rounds, man. what do you do for fun here on the beautiful island of Oahu?

Speaker 2: 24:10

I got kids, so I don't really have hobbies these days. that's burning both ends of the candle.

Speaker: 24:17

Got you. what is one opportunity that was a game changer for you?

Speaker 2: 24:20

Um, I think for us, it's just like we, in 2016, we started to buy a lot of little single family or 50 units, 60 unit type of properties, the class C, then we obviously, got over a billion dollars, started to buy bigger multifamily units. what I started to see is. a lot of this is like my network of higher net worth investors, they invest in multiple asset classes, right? As you were saying, the Tiger 21 portfolio, real estate is a big part of that. Also, private equity buying businesses, the way we see it is we want to be In, asset class agnostic, right? I'm a big fan of real estate. It's what got me here from 2009 to 2022, right? Big wave. But, I'm trying to get a little bit more diversified. I used to be 80, 90 percent real estate, multifamily, in fact. But, I think that was, it's also why I rode a big wave getting to this point. But as I'm listening to other higher net worth people, to try and diversify that a little bit. So that was a big, game changer, at least for myself. don't get me wrong. So like real estate. But, just to have more of a diversified approach. That said, if you're the dude with 70, 80, 90 percent traditional investments, or what you just said earlier, private equities is what that's called. I think you need to get with the program, especially if you're on the first floor. 4. The wealth elevator, right? Which is under a couple, two, 3 million net worth.

Speaker: 25:49

I gotcha, man. I just came back from, from the race fest, which is, a part of the mastermind for race, race masters. And I went there with five specific goals. And two of those goals was to bring more diversity, to partner with with better with best in class operator operators to bring more diversity to our investors, one being, being a debt income fund and also the oil and gas, instrument as well. so diversity is super important, not just real estate, but there's so many different ways to invest. also taking control off your capital and invested where you, the way fit. Now, what is your most important communication tip?

Speaker 2: 26:25

write it out and then have AI translate it and just make sure a human reads it at the end. it's like a step process,

Speaker: 26:33

I love that, man. That's what I do. All right. What is one thing you wish you understood earlier?

Speaker 2: 26:37

I think I wish I understood the power of diversification that said, all time, time everybody learns lessons, just some people need to learn from people a little bit older than them that the traditional path doesn't work. I think I. Went very heavily into one asset class and, I think 2022 was a very difficult 23 difficult year, right? Going to that peak and then I think now the trough,

Speaker: 27:03

right?

Speaker 2: 27:04

And I think that's at that point, started to realize again, to diversify geographically in different asset classes, just talking to a guy yesterday. And he has all his properties, all his assets in Oklahoma, it's dude, it's like you got to diversify out, right? Not saying that Oklahoma is a bad place or anything like that, which I don't know, the rent growth isn't that great in that region. But, you got to diversify out, even though if you're the operator in control of those assets, different geographic areas, and also different asset classes, I think is the way to go. But without concentration, do you not diversify? Yeah. Build, wealth, too. So you're trying to balance those two things. Again, it depends on what floor of the wealth elevator you're at, right? Different focuses, when you're in the beginning, you have to concentrate and be undiversified in the beginning. But once you have hit a critical mass, maybe a few million dollars net worth, you gotta diversify out.

Speaker: 27:57

That makes sense, man. So location doesn't necessarily mean buy all the properties in the same location. So location, diversification, right? Yeah. So to what you attribute your success. The last question my brother.

Speaker 2: 28:09

I think just, I think a lot of us just go on this path for freedom and, finances has always been interesting to me. It's, in a way, it's like a game. whether, 20 years ago was doing credit card hacks and things like that to me. it's fun. It's interesting. but there comes a point in time where, it's just wasting time doing this. I think at some point, Especially when you're on this wealth building journey, you're on the second, third floor of the wealth elevator, you need to look up and say, yeah, I got enough. I just, I need to spend a little bit and trade this money for experiences and memories. And, I think at that point, I think community and social interactions become the currency of the wealthy. After you hit four or 5 million network.

Speaker: 28:50

Yeah. Awesome, man. Now, if people want to get into your social network or get into your professional network as well, and also learning more about the wealth elevator, how do they go about doing that?

Speaker 2: 29:00

Yeah, they can check out my book, The Wealth Elevator. I think it's on Amazon, pretty sure it is. Or if they listen to podcasts, they can check out The Wealth Elevator.

Speaker: 29:10

My man, thank you so much, my brother. Thank you, appreciate your patience as well, two minutes. The listeners, trust that you find some wealth of information in the paradigm shifting moments during this episode. And thank you for your time. And thank you for listening to another episode of the podcast. I'm Hodgson Marine Investor, out.