EP 45 - Benefits of Passive Investing & the Trifecta to Real Estate Investing Success with Lane Kawaoka

What if you've been missing out on a secret trifecta that could catapult your real estate investing to the next level? Our guest today, Lane Kawaoka, a successful real estate syndicator, lifts the curtain on his one, two, three strategy that has propelled him from a W2 worker dabbling in single family rentals, to a distinguished industry player. He takes us on his journey, sharing how he transitioned to full-time real estate investing, and his key insights on why primary markets like California and New York aren't always the cash cow we imagine.

Lane walks us through his comprehensive approach, explaining how a blend of deals, taxes, and infinite banking can forge a path to your financial freedom. You'll hear about his experiences in multifamily business, his adaptations to high interest rates, and his invaluable advice on the importance of choosing the right mentors. We delve into his strategies in tax planning and investment, the do's and don'ts when offsetting capital gains from property sales, and his thoughts on the marketing tactics used in the industry.

We also had the pleasure of conversing with Lin about his passive real estate investing approaches and his upcoming book, The Wealth Elevator. He shared his thoughts on Lane's trifecta approach and how it could be a game changer. Lin and Lane's conversation is a must-listen for any serious real estate investor. Brace yourself for a wealth of knowledge and inspiration that might just pivot your real estate investing journey. Be sure not to miss this enlightening conversation!

To Learn more about Lane and what he does go to:https://simplepassivecashflow.com/

Transcript

Mark Perlberg: 0:01

Welcome to the show everyone. We are joined by Lane Kawaoka. He is a real estate syndicator and has a unique approach to looking at your what he calls the one, two, three trifecta that we're going to jump into in a little bit. He started off with single family rentals, started off as a W2 worker investing in rentals, like many of our clients, and transitioned into full-time real estate investing. He shows other people how to invest passively and build wealth in a tax efficient manner. Lane, in your own words, introduce yourself in 60 seconds or less and then we'll talk about your story and some of the things you're doing.

Lane Kawaoka: 0:45

Yeah, I guess we've purchased $2.1 billion of assets, over 65 deals, I believe. We're over 10,000 rental units. We are in the value add space by 1970s, 1980s properties, but a little lipstick on the big and bump up the rents. We've been growing and expanding into ground up developments. It's just a little bit less competition in that arena, is the snapshot today.

Mark Perlberg: 1:21

Awesome. Also, if you go on Lane's site, you can see all the projects he's working on and just a brief description of what they are the region, the class and everything else. It's pretty cool to see some of the stuff he's doing. He also has a cool podcast. Let's talk first about how did you go from single family rentals into syndications.

Lane Kawaoka: 1:48

Yeah, I started what I call the linear path. I think we were talking earlier about a lot of the listeners. You're starting working your day job. I graduated from the University of Washington in 2007. I started to work for the man as a construction supervisor with my engineering degree Up until that point. That was when I was taught right Study hard, go to school, work at that job for 40, 50 years, maxing out your 401k along the way, and buy a house to live in.

Lane Kawaoka: 2:18

I bought that house to live in, but because I was working on the road all the time, as a lot of young professionals do, it seemed kind of a waste to have this big house to myself in Seattle Washington. I just decided to, on a whim, rent it out. I realized, wow, this is cool. You get this cash flow, the tax benefits, you get the mortgage paid out from your tenant and you get the appreciation. After a few months of just thinking of it as a cool beer money check, I started to realize that, hey, if I just did this a handful of more times, saved up big chunks of down payments for more properties. I would be able to escape the rat race and quit my engineering job that I didn't like.

Mark Perlberg: 3:15

Eventually you went from the smaller single family into the larger syndications right.

Lane Kawaoka: 3:20

Yeah, I just kept buying more properties as I was working my day job. I eventually got into those trinky rentals that everybody hears back in 2012. At 2015, I had 11 of those rental properties. The pricing on those things today are a lot more expensive and the rent-to-value ratios have definitely gone down under 1%. Unless you want to buy a property in the ghetto or Baltimore or Detroit or something like that. I was making a few hundred dollars each on them.

Lane Kawaoka: 3:56

However, there's maybe a big share or two every year a big catastrophe to happen in every quarter. When you have that many properties, you have a lot of evictions and things that go wrong. Maybe I lost money on whatever three of them, but on average, when you pool all the assets together and then they're P&Ls, I was making a few thousand dollars a month on that stuff. Most of my clients. Today we talk about getting to $10,000 to $25,000 of passive income a month. To get to that level, you're going to need to have 30, 50 plus properties. That's just not scalable.

Lane Kawaoka: 4:39

Around 2015, I started to interact with other high-network accredited investors, started to join different masterminds I just heard it from the horse's mouth or more higher-network investors than I were and more experienced investors and older investors, the tune was at some point we become an accredited investor, I would say when you certainly become the high-income earner, even if you're younger or your network goes over half a million, you start to look to private placements and syndications, investing in more short real estate. You get away from owning your own little rental properties with the high liability. Also, when you get into these syndicated deals or taking advantage of forced appreciation, whereas when you're buying little rental properties, really all you're really doing is to buy a whole bit of a pre-model. Or you're buying something with a 30-year app. You're not doing anything to it, you're just getting lucky or hoping that the market appreciates where, when you force appreciate an asset, you take faith in your own hands.

Mark Perlberg: 5:46

Yeah, that first step, though, when you talked about when you buy your first rental property in Seattle, were you living in it. When you're renting it out as well, with that first time.

Lane Kawaoka: 5:55

Yeah, that first one I did the mistakes I made. Where you don't buy properties in the nicest area, that's the nicest properties. Because you're running that high in that class A type of property at clientele, you don't get the rental value ratios needed to be able to cash flow. Then I went to more but maybe B plus B duplex in South Seattle, a little bit rougher part of town. Then I got out of Seattle altogether. The primary markets like California, Hawaii, Seattle, New York, they're just not going to work for cash flow, especially after 2015. That was where I picked up most of my turn keys in Atlanta, where you're at Indianapolis and Birmingham, Alabama.

Mark Perlberg: 6:48

It's always exciting, though, when you get your first rent check. When you get your first rent check, it's your first time to have tax deductions, because, as of 2017, you can't have any unreimbursed business expenses from your employer. All of a sudden, you get to deduct a portion of your mortgage interest expense and you have the depreciation on a portion of the home that you ran out to your guests. You can also write off conferences and other sorts of expenditures related to your education and development in your real estate investing career, which is now legitimate even if your first step is just getting roommates in the house you own. In case anyone wants to learn more about the tax implications of house hacking, you can find a quick video I did on the tax treatment of house hacking and how to allocate the portions of your overhead to the guests expenses there. I also have a video called Tax and Investment Strategies to Financial Freedom.

Mark Perlberg: 7:46

A lot of our earliest content was really focused on getting people out of their nine to five and how tax incentives with real estate investing can help accelerate your achievement of that goal by creating tax savings that are enhanced through massive deductions of cost-seq to create refunds to reinvest in your rental properties. What we've seen with a lot of our clients and this started off with that goal of financial freedom. They had their W-2 jobs and they had their first rental. They're super excited, right? Maybe short-term rentals take advantage of the cost-seqs to use them to offset their W-2s, even without rep status.

Mark Perlberg: 8:26

But what's happening now and we've talked about this a lot is a lot of clients now, after their third or fourth rental or their fifth or tenth rental they haven't replaced their W-2 income. They realize that it's easier to make money at their W-2 and come in their rentals. Now they can't find deals. It's harder now than it was in 2008 when people were afraid to buy. Now people are looking into alternatives. You discovered this alternative a lot earlier than some of our clients Now. When you're looking at these larger portfolios here, you have the opportunity to purchase larger assets with more cash flow, more appreciation, more opportunities. Here it probably doesn't take. When you consider the amount of time to acquire one of these larger syndications compared to purchase a single family rental for $300,000, it makes you a couple hundred bucks you realize that the value of your time is so much greater when you are dedicating it to these larger assets. What do you say?

Lane Kawaoka: 9:40

Yeah, exactly, and that was kind of where I found myself, maybe around 2015, when I had 11 rental properties. I was just going to buy more and more rental properties since I met other higher net worth investors and that was a transition from selling off my rentals without 1031 exchanges, of course, and getting into more involved in syndications and private placements as a passive investor. And, like you said, what we do in the podcast and on our consulting side is we kind of walk investors by the hand through if they were an active, smaller time landlord, and take them into the world of passive investing. And part of that is the realization, as you mentioned, where what is your highest and best use, what is the best use of your time? And for a lot of people reluctantly, who may not like their day job, that may be your day job, right, you know, be a doctor, dentist or an engineer. That's just where you're going to make the highest amount of money. Then, to be like one of these kids on these internet forums who like to buy, rent, rehab, refinance, repair themselves One of the big things I was going to kind of go down that road because I was a younger investor in my late 20s at the time and I was pretty smart and, heck, I was a construction engineer right Like, project management is what I did for a living.

Lane Kawaoka: 11:10

However, what I started to realize is the landscape of these deals. Right, when you're under maybe a million, five million dollar purchase price on these properties, like a single family home, duplex, triplex, quad or even eight flex or 32 unit, you're in this realm of the masses, right Like. I mean sure, not everybody buys rental properties or an eight unit or 16 unit, but a lot of people do. Right, you're competing with the masses and, as computer engineers will call it, there's a lot of crowdiness in that world and you're paying retail prices and a lot of times you're competing with unsophisticated investors even buying those 32 units and plus. You're not getting enough economies of scale to get a full-time property manager in there, the leasing agent and, more importantly, getting full-time handyman HVAC staff in there. You don't really get that synergies until maybe you go over 40 to 60 units and that's kind of where there's a bit of a gap. Right Like, we target maybe 150 units plus, maybe 300 units plus.

Lane Kawaoka: 12:22

Today we develop, but the reason why we're doing that is to get away from kind of the common man investor level right, where the competition is the fiercest. There's bad pricing and there's not very good economies of scale in that and we kind of get up all that stratosphere and look for some projects that have a little bit of hair on it, because that keeps the institutions away, right. We also have to contend with the larger institutions. They kind of think of them as a big bear or a coot of sharks in the ocean, and those are the people.

Lane Kawaoka: 12:57

The good thing is that their investors are just lazy retirement retail investors, so they don't really need to give them that good returns, right. They're investing in those REITs, right, that's how they're investing through and they're looking for really easy stabilized properties. So we can kind of stay in this middle ground between those two thresholds. We find that there's less competition, better deals, and the brokers have kind of told us the way we kind of do these deals where we pool individual LP investors, kind of average guys, right, like us listening, if you call average guys accredited investors with a net worth of a million dollars or greater, I guess we are sort of average accredited Joe's out there. But to pull these types of investors together and get access to these commercial assets that at one time were only accessible to larger institutions is pretty amazing, I guess from the words of the brokers who control these assets.

Mark Perlberg: 14:00

Yeah, and when you're doing single family you're not only conversing, you're even more of your competition is with other people looking to buy those as primary residents and those folks they may be willing to buy at or above asking based on the school district or because they want to garden, that they love the backyard, they love the neighborhood and all these other personal reasons. And then you're buying from people who aren't used to selling properties before. So they're struggling to work with agents and agree on pricing and go through a whole process with you. So when you think about that buying process obviously is a lot. You'll find greater efficiencies in buying these commercial assets. And we also see a lot of people when they transition to from single family rentals or small multifamily to syndications, they start. They start consolidating their assets and selling off these smaller properties. They're finding it's less and less worth their time. So then there's some tax planning opportunities here or implications. Now you said that you didn't 1031 exchange and the likely reason why is this really tricky to 1031 into a syndication? It's possible if you structure it as a tendency in common. We've seen it a few times being done where, instead of owning a piece of the LLC at first, you each own a portion of that real estate, so you can exchange your share of the real estate into an ownership portion of that real estate. Well, let's say you can't do that. Here's some other ways. You can consolidate your assets and sell off your single family rentals into larger syndication type of rentals or some other ideas. Now keep in mind this is 2023, we have 80% bonus depreciation. It was easier last year when we had 100, and next year it'll be 60. Who knows what will happen with bonus depreciation? But what's going to happen here is when you sell your property, you get back your principal and your profits and if you reinvest it in the same year into other syndications and larger multifamily, even if you don't have real estate professional tax status and this is probably more useful if you don't because you may have some suspended losses Any suspended or unused losses because you didn't have rep and you had some tax deductions will be activated and will offset some of the capital gain. And then also, when you invest into other multifamily projects, you're almost always going to run a cost segregation study in year one and then those losses from the depreciation generally that are enhanced from that cost segregation study and depreciation are going to create losses, to offset the capital gain from the single family rentals you've sold, to acquire capital to invest in these multifamily.

Mark Perlberg: 16:48

So oftentimes when clients tell us, oh, what am I going to do about the capital gains? Do I have to 1031? We say wait, hold on. Let's look at the suspended losses, let's look at the depreciation you're going to get from your purchases this year and we may find that with this or other investments and a combination of other strategies, you may not need to do a 1031 and there may not be any tax implications at all from the capital gains. Some other ideas that you could also invest in qualified opportunity zone funds. If you're tired of landlord and you want to invest passively, you can roll some of those into qualified opportunity zones or Delaware statutory trusts. So lots of opportunities here. But you may find there may be no tax capital gains at all as long as you're deploying your cash into something.

Lane Kawaoka: 17:35

Yeah, and I'll comment on a few of those. So you mentioned the first, the tenant income and the tick. We've done them before, but they're from the operator side, the syndicator side. It is kind of a headache legally, unless you're going to bring in maybe a million, $2 million or more. We really don't want to do it because it's just too much brain damage for everybody involved. And also, think about it right, when you're in value at real estate syndications, we turn these assets pretty quickly, maybe even a few years that now you're going to be in the same position and now you're going to have to tick or go into the next asset.

Lane Kawaoka: 18:18

But that's where, like, if you're looking to going back to my story, when I sold a level of my rental properties the first year, of course I invested in syndications a little bit for a couple of years to make sure this is the way I wanted to go, and then at some point I made that's just how I do things I get proof of concept and then I move forward. So, 2016, I was like, yeah, these syndications is the way I want to go in the future. So I started to sell off my rental properties. There's a lot of websites out there that sell turnkey rentals to retail investors right, because you have a new turnkey investor born every day, so you guys know where those websites are. You can sell it out there with the tenant in place, so you don't have to stop your cash flow. So that's what I did the first year. I sold at least seven of them and I had a quarter million dollars of capital gain and depreciation recapture. But because I was investing in private placements previously, I had all this passive losses built up in my 85, 82 form and I was able to use that to offset all my taxable gain. And really if you're looking at a capital gain depreciation recapture of half a million, even a million dollars or less, you should be able to recoup that through the passive losses or getting through syndications if you invest in them. I mean, that's kind of what my street level perspective is.

Lane Kawaoka: 19:47

Investors most times are selling a rental property maybe to appreciate a quarter million or like how I had. I had seven rental properties that I was sold all in one year. It usually isn't that much of a capital gain under a quarter million, under a half a million. Just invest in good deals or there's marks of other options out there. We're also doing another deal where we buy equipment and use the Section 179 to get other losses that you don't have to recapture. We're also doing those types of deals for under options like that. But to me the 1031 exchange is a very archaic option that a lot of people talk about and a lot of these guys are just salesmen of the 1031 exchange and to me it's like the last option and I think it only makes sense when it's a huge, huge capital gain to appreciate, recapture over a million, a couple million plus.

Mark Perlberg: 20:41

Yeah, we, we, and it's so so many times our clients will will start to initiate a 1031 and we'll say hold on, talk to us at first, like is there even any capital gains? Now we've seen instances where clients we had one prospect who did a 1031 exchange and we did his return and the 1031 exchange actually resulted in him paying more taxes, not not to mention the fees to pay the qualified intermediary to run the 1031, but also our fees to report it, because that 8824 form to report the 1031 is is a pain in the neck and we charge a premium to do it. On the return, the reason why it was he didn't realize that he was actually selling his property at a loss. He didn't realize that. And so when you, even though you defer your gains to the 1031, you also defer your losses with the 1031.

Mark Perlberg: 21:36

If the, if you were foolish enough to to sell a to 1031 a property with a loss, so we would have, we would have been able to free up that loss when we dispose of that property and actually had a reduction in his taxes. And now, because of this, we actually did not get to write off the losses from that rental property because they were all rolled into the next property. So but now for our, for our listeners and understanding the tax implications. Some high level things you should think about is you know if you're relying on these, the depreciation from your new purchase to offset the capital gains? You want to make sure the capital gains and the purchase are in the same year, so they'll they'll because you can't carry your losses back. And, but most importantly, before you even think about listing this property, talk to a tax advisor to understand the tax implications of of what you're doing.

Lane Kawaoka: 22:34

Yeah, and and I also kind of mentioned another one I worked with a client last week on is he got kind of tricked and duped into doing a cost segregation on a couple of his rentals. And you know, there's always like a cost analysis or, you know, analysis of time and money in there and of course, in just I mean we can talk about more about this later. But like you know, you're in the world of financial services and there's all these people like always selling stuff like these different solo 401k option is that these irrevocable trusts? But like, yeah, this might.

Lane Kawaoka: 23:08

One of my clients got sold this cost segment. I was like man, you should have talked to me first because, like you're going to sell these silly rental properties anyway. Like I said, right, like most accredited investors, they finally realize what a legal liability and headache and how owners owning, when you own these properties over time, you return an equity goes way, way down and you need to either reliverage or sell the asset and you kind of move on to bigger and more passive activities. But you know he, he didn't realize that. You know, yeah, he got, he did a cost segregation, he paid this, the money for it, and then he has to sell it and recapture it in a couple of years anyway. What a complete waste of money to do that. Cost segregation. But you know, I think that's what's hard for investors, right? There's a lot of things you hear on podcasts that sound great but you don't hear the cons of it, right, because you're just kind of listening to the surface level stuff and the marketing pitch and all these types of strategies.

Mark Perlberg: 24:05

Yeah, and a lot of you know. We've seen instances where the client thought a cost seg sounded really cool because you're a promoter of it, but didn't talk to the advisor and there was zero value to the cost seg because the losses were just going to be suspended because he didn't have a short term rental, didn't have real estate professional tax status, no tax benefits whatsoever. So you know the client, the prospect I remember we were looking through his stuff and he just wasted $5,000 on a cost segregation study. And also you want to think about the timing of a cost seg because it was possible that in a future year maybe the client's wife could have had real estate professional tax status. You could have done the cost seg in a future year potentially and create some savings. But if you were to recognize the losses in a year without that rep status, you're totally blowing the opportunity for a future cost seg where the losses could be treated as non-passive. So there's a timing element as well if you find the cost seg is appropriate.

Mark Perlberg: 25:05

So you know we see this all the time where people think that they can DIY their own tax plan. Just like you know, save it for Home Depot if you're going to do some DIY and you know, paint your living room or your man cave walls for some DIY projects, but this is not stuff that you DIY. It's great to educate yourself. You know we love throwing ideas and most of my audience has other tax accounts, but if you're listening in your client, you really need collaboration with someone who knows their stuff on these topics.

Lane Kawaoka: 25:36

Yeah, I totally agree. I mean it's great to listen to maybe a hundred or a couple hundred podcasts but, like, at some point you're just hearing the surface level stuff. And I think all that prepares you to do is, you know, have a good education, educated conversation and power discussion with Mark and mix it up with other credit investors. And that was kind of, you know, I think that's what I kind of teach a lot is, you know, interact with real, purely passive credit investors. I mean kind of a couple insights I have from the operator, general, partner, sponsor side. You know that you mentioned earlier about cost segregation.

Lane Kawaoka: 26:14

You know there's a kind of a little marketing trick that people in our industry will use to trick people. Well, not trick people, to get them a little bit sense of urgency is like you know use last year was 100% bonus depreciation, this year is 80% and then if we go down to 60, it's got a sunset, who knows if it's going to get back up to 100. But that's kind of one of those you know little marketing tricks to get people excited about. You know they got to it's it's it's to get FOMO right. But you know that's that bonus depreciation is kind of the cherry on top, it's not the majority of the depreciation, at least what I've seen from the difference between 2021 K1, some deals we've cost.

Lane Kawaoka: 26:54

Say, get 2022 K1. You're still getting a lot more than your standard 27 straight line depreciation that you're getting on your little rental properties. You know, with commercial assets, you know, even without the cost say, you know there are certain items that are able to be depreciated a lot quickly and aggressively, whereas you know I don't know if you have any comments on that, but, like Mark, because you see a lot of K1s, I haven't really seen too much of a difference from last year and this year, with with bonus depreciation going down 80 to 80%. I mean, I think the big thing for people don't realize is the bonus depreciation portion is not the entire portion, I would say it's a very minority portion of it that's going down 20% every year.

Mark Perlberg: 27:40

Yeah. So you know, when we do our 2023 tax returns, we're going to see a little bit less of benefits from the cost tag, but you're still seeing a lot of benefit from the cost tag because, you know, at 80% it's still pretty good. But the remainder amount of your, let's say, your five year life property that you would have in a prior year written off 100%, you're still going to accelerate the depreciation and push it up to the first five years and you do a double, what's called double declining basis depreciation. So in the first two years you're going to write off more than 40% of that asset. So you're still going to see a lot of benefit here.

Mark Perlberg: 28:17

Now the instances where I say that clients may be stressed.

Mark Perlberg: 28:21

You know it was.

Mark Perlberg: 28:23

It was a wonderful time to see 100% bonus depreciation and there's still a lot of benefits in the cost sags.

Mark Perlberg: 28:30

But I would say one area where I would say we are going to see a less of an ROI here is for we have a lot of clients that we're investing in these short-term rentals that were like maybe a quarter million to $500 to $300, $400, $500, $1,000, where we could do a simplified cost sag and maybe free up like $100,000 of a tax deduction and you would, you know. In that instance there might be opportunities here to get back a portion or all of your down payment into these smaller rentals from the cost sags. And what we're going to find is, when we're down to maybe a $0 bonus depreciation, we're going to see that you're going to need a larger and larger rental property to justify doing a cost sag. But for institutional investors such as yourself, your strategy is not going to change at all. It's more for us when we think about these, these smaller early stage investors, where there's going to be less and less opportunities and cost sag is not going to really make as much sense on these smaller types of properties in the future.

Lane Kawaoka: 29:39

Yeah, I mean what some of my clients are doing if, if they're electing the board on to their little rental properties, there's these I call them fake cost sags. Where it's it's kind of a desk review, nobody actually goes out and visits the property like they're supposed to, but the firm that does these things they'll get a little insurance policy to protect you through an audit. But to me it's a little bit, you know. You know, understand the risks that are involved with it. But if you can get it for maybe $500, it might make sense. But for most of my clients or our credit investors, they realize pretty quickly that they're going to dump these rental properties pretty quickly. So doing all these cost sags, extracting the depreciation, especially if they already have a lot of passive losses built up, does have no good. Instead, you know, when they do sell the assets their plan is to go into other syndicated deals. They pick up the passive losses in the first year, which is a huge, huge, you know bump. You know like sometimes what I'll see in, a investor invests 100 grand in like a normal deal with normal leverage, normal down payment, and maybe they're getting 50 grand, maybe even 100 grand somewhere in that range of losses that first year which definitely offset. You know, maybe you got a few thousand dollars of cash flow that first year, definitely offset that. So you may have like 50, 80 grand of still losses still built up Right. And if you do that a few times you can see where you'll have maybe 100, 200 thousand dollars of passive losses built up to offset, like the sale that you're selling the rental properties as you're transitioning over into the LP world.

Lane Kawaoka: 31:21

If not, you know, like I said, there are other mechanisms, like Mark said, like qualified opportunity zones, which I'm not a huge fan of. I don't like to invest in crap areas like that, rough areas like that. But you know there's there's, there's several options. I'll also throw out another one out there in a section 179,. You know, buying a, going into syndicated deals with equipment and then you know, using those losses to offset any capital gain depreciation and that's typically what a lot of my investors will do. You know they'll invest the first few quarters and then look in Q4. Sometimes after Halloween they start to actually look at their taxes how much passive losses they have under 85, 82 form and then they kind of maybe at that point strategize with their CPA like Mark, and then they they'll kind of like see how much exactly do I need, am I good? And then maybe invest in a couple of deals more. You know, let the tax tail weight the dog, in a way.

Mark Perlberg: 32:17

Yeah, we and and qualified opportunities zones are interesting because the QoZ's have been, can be, in real estate, but we've also seen some QoZ funds investing in other businesses. It's what we we recommend. You know, we we presented the opportunities of them to our clients. But we're with our demographic of clients is a lot of them like to control their assets a little more and you kind of can't do that.

Mark Perlberg: 32:50

The cool thing that that gets some people excited about the qualify opportunities, own funds is that you can Kind of treat it as a supercharged Roth and that if you hold on for two, for ten years, you're not gonna pay any capital gains on the disposition on it. However it has to be, you know the investment has to make sense, and if it doesn't make sense just like anything, I mean you. Yes, there are some tax advantages, but if, if the return on investment is its trash, then what's the point? You know you'll save somebody in taxes, which is well, you know It'll justify some of it, but you, you really want to make sure you're investing in the right people too.

Lane Kawaoka: 33:33

Yeah, exactly, I mean, I think sometimes like to go into a rough investment like that. At the end of the day it may not make sense, but I'll give you an example of something where it may right. Like, say, an investor wants to pull off real estate professional status strategy and they they go buy a couple of rental properties that maybe cost them 60 grand to do that, but it allows them to get this rep status badge and now use all their losses to lower their income from 800 grand down to 500, saving them $150,000 every single year. Right, that's a. That's a quick cost benefit analysis. Right there where it makes sense, so that that analysis needs to happen. You know all these decisions.

Mark Perlberg: 34:17

Yeah, and you'll. You'll still get losses from the QoZ. Your basis isn't diminished like it would be from a 1031, so there's I mean there's a whole, and then a lot of people who aren't investing in real estate can use those to for cap gains as well, which is kind of neat. No, I want to talk to you about what you call the SPC 123 trifecta that you've discussed in the past and Talked in particular we. We haven't had much of an opportunity to talk about infinite banking for real estate investors, so I think our audience would be really interested for you to introduce this topic and how you've explored it and explained it with other people and help them find success.

Lane Kawaoka: 34:58

Yeah, I mean, I think you know, when I was kind of going through this education process myself, like there's so much stuff, right, like there's so much noise out there I'm a big 80-20 guy and I was, you know I'm always trying to search for what are like those big wins that make the most impacts. And what I've discovered it's number one, which is investing good deals. You know, commercial value add deals that have your money back by real estate in tough times and you know these are finding the, the syndication operators and general partners. That's going to run your money. So you can just be an LP and focus on your highest and best use, which is likely at your day job. And then what we, as we mentioned, you get a lot of losses through that heck of a lot more when you're little landlord yourself and Now you're equipped with all these passive activity losses to play and execute different, more advanced strategies. On the tax aside, which is number two, you know for a lot of our clients that are the higher-income earners. You know, number two, the taxes may be a biggest, you know, benefit, especially in the beginning, right, if somebody can lower their tax bill from 300 grand down to 150, as we mentioned in that previous example. But unless you invest in deals number one you don't get the passive losses to go and play and execute these strategies. So those are the two big ones.

Lane Kawaoka: 36:21

The third is infinite banking, or what we call. We kind of configure a little bit differently where there's less of a time commitment on it. We call it a credit investor banking. But make no mistake, the, you know that is number three. It is like a fraction of the impact of number one and two deals and taxes. But when you execute these three synergistic strategies I Mean this is kind of why I Do what I do like a lot of this isn't anything breathtaking. Right, it's very different than what we're all taught, but this isn't something that the average, a credit investor, joe, can't execute on their own. And, yeah, it's very different we're all taught to do.

Lane Kawaoka: 37:02

Right invest in 401ks, qualify retirement plans. You know to me it's a very rare place for those types of vehicles, especially kind of when you get on this simple passive cash on one, two, three plan. But when you're on this plan, you know, I think you get to financial freedom in about a third of the time and a lot of my investors are kind of busy bees and they listen to a lot of podcasts like cars and they. You know they they're always in search mode, right. But I tell them, hey, once you're doing these one, two, three strategies like chill out, you're somewhat optimized, right, you just enjoy life. You're get there, right? You know this is not a get rich quick scheme but, like I said, in a third of the time it typically takes the average, you know, white knuckle saver to get there. You know you're on the path, right, and you're cruising down the highway 85 miles an hour. That I say.

Mark Perlberg: 37:59

Yeah. So I, you know, I think about these conversations I've had with my clients as well, because, you know, yeah, and then some clients will come to us trying to To propose different tax strategies. Yeah, and then I'm thinking to myself you know, you make a half a million and a million, two million dollars a year. Why are you wasting your time Dabbling in tax strategy? That's not where your 20% is. You know, thinking about where you can Channel your energy that's going to create the greatest return here and, and you know, is it in these. You know we Create. You know, exploring these, these ideas that they'll, they'll never really fully implement.

Mark Perlberg: 38:42

We had one client try to start a landscaping business to create tax losses and going through the headache of buying a truck To get the depreciation. And I just say, hey, if you want to get more losses, I just pay me more, right? Like, what are you doing here? Like, where's the value in? You know? Just, you know we just see so much with entrepreneurs getting the flashy object syndrome and maybe starting too many businesses A common one where I see where almost everybody operates at a loss, that is drop shipping. You know they get seduced by some ad saying you can make a hundred thousand dollars a month, only working four hours a week, and they all lose money. I see all the numbers and you know these are people who have a lot of money and you know these are people who actually have really good jobs and pay them well, and they have a degree and they're making above six figures. So you know these are the vehicles like that you're discussing, that allow people to make the best use of their time and focus their energy on the areas that are going to create wealth and income and to grow that passively and to not dabble in all these different things.

Mark Perlberg: 40:01

And you know there's a few good books I enjoyed on and have checked out on the topic, on using life insurance to build wealth, which is really powerful. Yeah, look before you look before you lurp, and the power of zero. David McKnight has some cool stuff. I heard him talk and we're probably going to do. We actually scheduled a workshop on using life insurance Not only for protecting yourself and your family, but as a vehicle for building wealth. Very powerful vehicle and lots of cool ways you can use it. You can finance your premiums. There's, you know, there's a, there's a different. You know there are some areas of of decisions and complexity to navigate with a professional, but there's definitely some wonderful opportunities in this area and it's passive.

Lane Kawaoka: 40:53

Yeah, I mean we've got like a like a two or three hour course with a webinar and there people want to get access to that. You know, just reach out. But yeah, I mean, I think the way I think what we focus more of on our consulting side is more the higher level, you know we'll, you know we'll teach people how to do this type of stuff, but then we'll use professionals like Mark for specifically for the tax side, right. But where we kind of specialize, or what I enjoy more is like the what the high level consulting, you know getting people through these elevators of the wealth, or I call it the wealth elevator, which is what my new book is going to be called, where you're kind of getting through these stages. Right, most people listening are on the first and second floor. You know your net worth is a million to $3 million. But once you get past that $3 million mark you're very, you're knocking on the doorstep of four to five mil, which is, I call, end game for most people. You know end game. At that point you can pretty much live off of 5% of your holdings and never eat into your pile and, essentially, your weight less. You crack the code on financial independence and at that point you don't really need more money right to do all these strategies to accelerate yourself up going up the elevator. You know it's more about. You know building relationship to other passive investors. That's where you find deals right. I mean that's the biggest issue here. That's why emphasize deals so much because there's so many. Just big it to make it operators. I mean you type it into your social media. You know you're inundated by all these like fake it to make it sponsors who've done less than $1 billion of deals each. And you know I've people ask me all the time and we have. You know people want to get access to our free syndication LPE course. It's eight hours, you know, for free to let us know, but you know you'll be educated at that point. But to me it doesn't really. You don't reach, reach that next level of expertise until you start to mix it up with other LPs Right now, unless you know a prerequisite baseline. You know which kind of we teach until you come to a real event or meet other purely passive, accredited investors investing in dozens of deals. You're not really cracking that country club realm yet and that's the big thing I mean.

Lane Kawaoka: 43:16

When I first started to sell my run properties, get into you know syndications, private placements. I didn't know anybody who was an accredited investor. You know nobody in my family had a million dollars, let alone investing in these country club syndicated deals. I kind of just went off gut feeling and what made sense to me and I invested like one out of every five deals.

Lane Kawaoka: 43:39

Initially my first dozen plus deals were to these fake it to make it. You know people who seem cool but you know one guy stole the money, a couple other guys just wearing competent, and that was kind of why I started to become a journal partner and do deals on my own, because I didn't trust anybody, because they got burned so much. But that's kind of what being an LP investor is all about. When you're making this transition you don't know anybody, you don't know who's real, you don't know the past performance. I mean it can all be fabricated and live, and that's why I say the only real way to verify this stuff is to meet other past investors who invested with these people firsthand in the past.

Mark Perlberg: 44:19

Yeah, you know I am and I think now because you know we were in a time of rapid and rapid inflation and will, where property values were skyrocketing in you know, correct me if I'm wrong, but appear it has appeared to me that there was a time where almost any syndication was.

Mark Perlberg: 44:40

You know, the probability of a syndication being successful was very high. You just had to find a property, have some decent people around and it didn't seem as much of a challenge as it is today to find a deal where you know you're going to have a good exit strategy, where I think and correct me if I'm wrong but it appears to me now that things are getting a little more challenging with the interest rates being as high and that there's a greater risk that some of these syndicators are going to operate and sell out of the loss or get foreclosed on and, you know, need more cash and the interest investors and we're approaching a time where you really need more skills to guarantee your success and maybe some of the earlier folks who are more pretenders and maybe just you know banking on the economic conditions, are going to suffer if they're not using the proper foundations foundational decision making and analysis to have success here.

Lane Kawaoka: 45:38

Yeah, I mean you know, I think you're exactly right, you know. But real estate is kind of easy, right, it's one of the most easiest basic businesses out there. It is a very forgiving asset class, that you know. It is easy, right, let's just leave it at that. But you know exactly to your point. I mean we, we stopped doing, you know the value add multifamily deals last summer, 2022, when interest rates started to keep up. But I mean I can't make deals pencil, quite honestly, because now they make, instead of me being able to get 70% loan, the value, the loan, the value is that you're able to get with higher interest rates are like 60%. So you got to bring more equity to the table. So you're just not going to get that returns are going to hit, and so we, we haven't really pulled the trigger on deals and you know, in this high interest rate environment, we've kind of focused more on preferred equity, which is debt, to be more conservative and we on the safer side, and then also just put our head down more on the development side, which again is more less competitive. Right, there's not all these syndicators running around and have the you know, the track record to get the loans from the bank right to develop 200, 300 unit apartment complexes, like we do. But that's, you know, like we, we kind of started, you know, buying low class C, 50 units, 100 unit properties. You know, built up from there as quickly as possible because the class C properties are just a horrible clientele and we would have, like the link, would see, the 20% range where you know, out of 10 units you'd have two people just not pay you all the time. That's just how it works. So we kind of quickly stepped up to class B assets with a little bit better clientele and larger scale, 200 units plus. But even that you know we've. You know you feel these bumps in the road of pandemic, sediction, moratorium, supply chain and then now state inflation, with expenses increasing, right with inflation, obviously that it's kind of squeezing those types of deals and that's why you know we're trying to constantly trying to swim stream away from the competition, right from the guy who goes to the weekend boot camp pays $50,000 to have a guru mentor now and then. You know, because we asked the question ourselves, right, I asked the question maybe five years ago. I wear the operators and sponsors who have been around for more than a decade and the truth is they get out of this industry and they go to more institutionalized asset classes or they develop, and that's kind of the path we're kind of taking at this point, you know, still better than buying the rental properties. But you know, I think you know, it's just, it is a very crowded space and as people get into it you start to realize, well, there's a lot of multi family syndicators out there, and you know, but unless you're, you ask, you know, before you Google the right words, you're not going to find there. And then I think that's kind of why we do what he do, right, we kind of expose people to this so they can get out of, you know, just to find a rental property load and go into this bigger world. But as I tell my investors, right, you know, like this is what I personally do, there's always something better.

Lane Kawaoka: 48:54

And I think when I started the podcast, you and I were talking earlier, back in 2016. At that time I was talking about buying rental properties. As you know, promote turnkey rental properties. I thought that was the jam. I thought that was the way to do it. Obviously, boy was I wrong. Right, and this is what I kind of been constantly trying to learn is like trying to get to that next level. Right, what are the people that are 5 million, 10 million, 50 million doing? Right to kind of distill down and kind of bring tips back to my audience and you know, hopefully helps them to expedite things. You know, like, if that means not buying a rental property because you just have too much money and it's just not scalable, then you know, that's I think that's the way it manifests itself that people can expedite and cut time cycles out of toward they want to be.

Mark Perlberg: 49:43

Wonderful. So we talked about your background and your progression into what you're doing now. What do you do outside of real estate and what do you do for fun?

Lane Kawaoka: 49:55

I don't. I'm a general partner and we're in these difficult times right now for us. When there's a recession, things will kind of get a lot easier for us as interest rates go back down, but right now it's all hands on deck for us. I'm in that growth period of my life. I'm in my late 30s and this is the way it's going to be for the next I would say decade. I am not old and gray and slowing down. I've got a two-year-old, so that kind of keeps me busy too. On the personal side, I have no time for golf and poppies in the French East.

Mark Perlberg: 50:31

I know the feeling.

Lane Kawaoka: 50:33

This is where the sandwich generation. Right, we're in the middle, we're the worker bees in the middle, but it's fine. I enjoy interacting and helping out individuals because I realize nobody talks about this thing of stuff. Right, he locks out on their primary residence to get lazy equity going, investing in these syndicated deals and implementing a credit investor banking. I get a lot of pride and ego boost off of helping people in this one specific way, I think.

Mark Perlberg: 51:11

I think you and I are in this unique age group where we graduated right as the recession was hitting. For me it was devastating because in my past life I was trying to be a social studies teacher and a real estate agent to pay for my social studies education. I was in New York City where it all went down. You couldn't make a buck as a real estate agent. The real estate was meant to finance the schools, but because the real estate all tanked, there was no money for the school, so there was a citywide hiring freeze for social studies teachers.

Mark Perlberg: 51:45

I couldn't make a dime, no matter how hard I tried, with all the debt I accrued during those years. It's similar to you. I was put in a position where I find that I'm forced to work and have worked far more and had to be far more resilient than the people younger than me who already were ready to anticipate the changes and come out into a more favorable job market, and also the people older than me who already had their jobs locked in before the recession. So I do think there's this age group of us that just had to grind it out and work harder than everyone else. Then we look at the people older and younger than us, and sometimes they look like a bunch of softies at times.

Lane Kawaoka: 52:25

Yeah, I recognize the role that I've chosen, being the general partner of all these deals. People rely on myself and the team a lot For most of the clients and I think I'm sure the way you see it too. I mean, I pushed the simple life. If you can get yourself past 2.5 million at work and then it feels like downhill getting to four to five. Once you're at four to five million, to me that's end game.

Lane Kawaoka: 52:59

Most of our clients don't need more than $25,000 passive cash flow per month. We do events and we line people up in terms of their burn rate and nobody in the room is higher than a quarter or $25,000 a month. Therefore, $5 million as a base to live off of that 5%. Of course they're better investors. They can probably get 10% plus, but 5% assuming that it's their unsophisticated children taking over the estate is enough. At that point there comes a point where you cross that crossover point and it's more important. Time is more valuable, just living your life, because you never know when it's over. That's the goal is getting people as quickly to that point and have them go from scarcity mindset to abundance mindset and then enjoy the money. We had the Diwood Zero guy, bill Perkins on my podcast. That was a big takeaway for our group. We did a big book study on that. In the beginning you need a hustle, but there's a point for everybody where they need to get a hustle mindset into more abundance and enjoying and spend your damn money.

Mark Perlberg: 54:25

So at first you're going to have the highest return on your cash because you're using a lot of elbow grease. Your ROI may be higher on some of your actions that you're doing, whether you're doing the wholesaling or yourself managing some short-term rentals, and you're really in the weeds. But then, when you get older, you want to have a greater return on your. You start evaluating the return on your time. Obviously, ROI is still very important, but you start seeing a greater return on your time. Your time is limited and you want to use the minimum amount of time to generate what you need to support yourself and live a good, rich and abundant life.

Lane Kawaoka: 55:05

Yeah, I would say most of our clients are 47 years old. $1.5 million, $2 million net worth. They've got two kids, maybe ages 9, 12. That's kind of most of our clients. But there are different people that are kind of my age or below that. They make $150,000 plus out of college as computer programmers, dentists, and they max out their 401ks. They follow the whole boggle heads for your personal finance fire movement, but they don't feel comfortable in that because they make so much more money and they know there's something else and that's kind of what we're in this realm of how to be good stewards of your money and also grow it and get it to that next level, extend the wealth elevator, as we say.

Mark Perlberg: 56:00

Very cool, okay, well, lin, can you tell the audience where they can go to learn more about you and further explore investing in your deals and learning from you?

Lane Kawaoka: 56:12

Yeah, they can. They're podcast listeners. They can check out Simple Passive Cash Flow podcast on passive real estate investing and they can check out the website simplepassivecashflowcom. When the new book the wealth elevator will be coming out later on this year, they can check that out. But yeah, again, email team at simplepassivecashflowcom.

Mark Perlberg: 56:40

Wonderful, and that'll all be in the show notes to those listening on, either at least here on YouTube or on the podcast. All right, well and Lin, thank you so much for your time. Hope you guys enjoyed the show and if you want to learn more from Lin, you have his info. And also if you're interested in our consultations or you know someone who can join our team as a hire, email info at markprobertcpacom.