TLP22 Transcript
EPISODE 22
[INTRODUCTION]
00:00:01
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Welcome to the podcast with your host, Jake Wiley.
[INTERVIEW]
Jake Wiley (JW): Welcome partners. This is your host, Jake Wiley. This week, I'm joined by Lane Kawaoka of SimplePassiveCashflow.com. Lane, welcome to the show.
00:59
Lane Kawaoka (LK): Hey, thanks for having me, Jake. Aloha, everybody.
01:02
JW: Aloha. So those of you guys who can't see the video, Lane’s obviously in Hawaii, and it's really early recording. But Lane, I'd love for you to give a little bit of background because you've got a great story of how you, where you started, and kind of how you ended up in kind of this passive investing world.
01:17
LK: Yeah, so I kind of grew up on this linear path I think a lot of us grew up on we're taught to study hard, go to school, work at a job for 30, 40 years, invest in your 401(k) max out your Roth, maybe make a backdoor Roth all these kind of strange strategies that like people who would think that they’re financial hackers do but I again buy a house to live in. That one's kind of also thrown in there too. So, I kind of went to school to be an engineer started to save my money. I was really frugal with my money. If really good to save, save it. And I started to buy a house to live in. Although I was never home all the time. Because I was away for work as most you know, young professionals are I was construction supervisor at the time chopping around so I just decided to rent it out. This is well before all the twirls of the world; this is from 2009. This is when I bought my first rental and then that was where I got the taste of cashflow. And I was like shoot, I just do this again and again, I'll be financially free. In 2015, I had eleven of these turnkey rentals. That was kind of where my next pivot point was when I realized this isn’t too scalable. That's not what a (inaudible) investors do.
02:23
JW: Let's talk about the next step. Then. How did you tip into scalability?
02:27
LK: Yeah, so after that point, I started to meet the right people, right. So, from 2009 to 2015, I was just saving money as a young kid got up to a credit investor status, and started to, started to feel like there's something different, right? That was like first shrinking the armor. And then I started to find other high net worth credit investors, you know, they’re doctors, lawyers, engineers, 10-20 years older than I was. And I started to build relationships with them and started to kind of piece together this whole mystery and started to realize that the path forward was not going to be by 40, 50 rental properties as I once thought. It was about putting my money in as a passive investor and going in as one of these larger deals out there. And that was also kind of where I started to discover it kind of helped people these days, kind of see the real path for was just really not investing, right? Like you don't need to make that much money investing, just don't lose your money. But more importantly, the tax, the legal, the infinite banking, these other strategies that the wealthy implement that kind of augment the whole investing thing, kind of creates this whole full circle of you know, what accredited high net worth investors do is, is really the way to get financial stability and financial freedom and kind of create that critical mass point where your money makes more money than you and you quit your job that was kind of like my path forward from there.
03:46
JW: You know, like you I started with the single-families. And I thought, like, hey, I can just keep doing this. This makes sense. It's simple. Like I understand what it's like to own a house to rent a house to you know, this makes a lot of sense. But you're right, it's just totally not scalable. And it becomes a ton of work. And, you know, one setback, quasi major setback in any of those properties really, really has an impact on the cash flow. And I think is we think about the listeners, you know, they've probably heard me say this a million times, but the goal is to become a limited partner, right? To do this passively. And to not just create another job because a lot of people go out there and they do that, right? They think well I can get into real estate and then it's like, well, I'll just buy some properties and it's like, then you're a landlord. What are your tips for those that are looking to jump into the game now? What would you suggest? How would they get started?
04:31
LK: Well, go buy a rental property first buddy, right? Where do you go buy 100 unit? I mean, it depends who we're talking to. Right like I mean, there's a variety of different characters that kind of run across you know, you got the guy who's been in successful business probably has the ability to operate you know what I mean. What I like about real estate is anybody kind of do it but that's the bad thing right? There is a competition barrier right there unless you've done 120-unit apartment complexes in the past you don't have the broker relationships. You don't have the Fannie Mae Freddie Mac card to get your lending, your loans done, it's just not going to happen. It's an incredibly unfair game for somebody breaking into it.
And you know, if you might have been successful in other avenues, and definitely probably have the skill set to do it, but you may not have those specific building blocks necessary to kind of push through the beginning stages. And what I tell people like I mean, why I initially went down to the mid partner path, you know, my net worth was barely a million bucks. You know, I was in my kind of late 40s at the time. I was still saving pretty good money, and I just did the math, I just increased my investments increased by 12 to 14% per year didn't pay too much taxes, and there to be financially free. Well, before I was 35-40, which did happen. And that was where I was like, Why the hell would I want to be a general partner and take all that responsibility and trade my time for money? That's eventually what I did right for other reasons, but most people just doesn't make sense. And it would have points that boils down to is like an ego thing. I get it like people want to be, I want to be the man. Well, what do you want that, right? Do you really want that? Or do you just want it for like the eagle notoriety? What do you really want? Right? And this is where I, you know, kind of tell people like, alright, what's your goal? What net worth what cashflow level? And what lifestyle does that buy? That's the mere goal, why kind of stay on the bus, right, and this is a metaphor that I use many times is if you've ever ridden a bus line, or subway, everybody gets off the bus at some point, there's some goal, some destination you're trying to hit. One of the weirdos kind of stay to the end because they don't know what's going on and they just fall asleep, don't be that weirdo kind of stays on the bus way too long, just for the notoriety for it. Because you know, if you're past the age of 55, whatever hobby you understand that nobody cares, nobody cares how far long bus line got, you know that you are a syndicator of 2000 units. That's kind of points to like the maturation process of individual, right, like, define the rules of your game that you want to play and hit that. And most likely, it's pretty damn easy to hit it as a passive investor investing in good deals.
07:05
JW: Right. Yeah, I think I mean, the point being is there's some attraction to the potential upside of being the guy that's putting the deal together, right. But there's also a lot of risk. And I think that sidetracks people from their goals, right, you know, it's like, w ell, hey, look, I could hit a home run on this project, if I take it myself, or you could be a passive investor and another deal and make outsized returns, you're gonna do better, most likely than you would if you're just investing in the stock market, or hoping for the best in a 401k, like you mentioned before, and I think it's just about finding the right deals, finding the right partners, because too, when you find the right partners, they know what they're doing. And they know how to generate those returns for you. What are your thoughts on that?
07:43
LK: I mean, part of it is you don't trust anybody but yourself. And I was there at one time, right. But if you play nice with other passive investors, both colleagues, it's pretty easy to figure out who's legit in this passive investing world, you know, I think going back to like, you know, who has that mindset that where they want to be the man, or the lady running the deal. I mean, it's typically people with what their net worth is less than nearly a couple of million bucks, which to me isn't that much money, or they make less than $80,000 a year, I think that's a big thing. Like most of my folks, they make six figures, and they're able to save at least 30 to $50,000 a year, if you're able to do that you're gonna be FI within the decade, more than likely, sure, there's ways to compress that. But you know, being a general partner just doesn't make sense going down that path. And again, it comes down to like, what is your highest and best use if you make a good living, especially if you're a doctor, or you make over 200 grand a year, dude, like, just keep doing that? I mean, you don't have to do it for very much longer, but like, just be smart with your money, invest in the right place, and you’ll be FI. That's the goal. But I get it. I mean, your net worth dictates a lot of this behavior and how much money your velocity, which is how much money you make minus how much you save, it's always a question I always ask and calls. Yeah, I don't care what you make a lot of clients live in like San Francisco make 300,000 400,000. But they only save 30 Nothing surprises me these days. But yeah, that philosophy and where you are, in terms of your net worth dictates a lot of this.
09:10
JW: Let’s talk about, like a passive investor. So, I think that a lot of the folks that I work with or have talked to, you know, they're busy, like you mentioned, like they have a high paying job, they're probably putting a ton of hours, and they're looking for investments. And you know, I think that there's a lot of, let's just say you go to a financial advisor, I mean, just pick one, you just kind of have a brief discussion with him and talk about some goals, and then they put you in some sort of matrix and then like, that's it, you kind of wait and see. I think passive investing is different, right? You've got to do a little bit more diligence and research on the people that you're going to invest with, like what are some of the mistakes that you've seen people make making passive investments?
09:48
LK: You're getting off the beaten path for sure. Right? But the problem with the financial planner and all that stuff, yeah, it's consistent, but it's consistently bad where you're getting money taken by all these super heavy fees, top of the line expenses. You're gonna make higher returns if you get off the beaten path. But I think that the issue is investing or stepping on a landmine, right, investing with the wrong people that just don't have the track record, experience, and know-how or they're dishonest people. I've, trust me, I've been there. I've had a couple of occasions for lost my money with the wrong people because they just turned out to be shysters. And it's incredibly hard to find out who's legit in this world. I do this for a living. And sometimes I can't even tell who's legit. Does Wyoming kind of invest in myself or the people I know I can trust and I don't branch off from there too much. But like, you know, how are you going to find the new next up-and-coming talent, so you're just not stuck with the institutional players who just throw you into some blind pool fun, where the returns are lower, even though they try and sell it on diversification, you know, you've got off build relationships, other accredited high net worth investors, in a couple of dozen of these deals too and build organic relationships. And that's why your network is your network to gain some practical tips there, you got to get away from the real estate fluffy world, the meetup world, the free online form, where all of it that's just a bunch of like freeloaders, a bunch of guys who hear real estate as a get rich quick scheme. That's not where high net worth, accredited investors are hanging out. That's not where you would like to be able to get opportunity to build organic relationship with them. And when you do somehow get in the room with other accredited investors don't mess it up. I think when people kind of, you know, if you'd like some events, where you know, we do set that that situation up, tell people like don't be that person who just goes around and drops their shorts and says, who are you investing with? Tell me, tell me who your precious is, right? Like high net worth accredited investors, they already know who they're investing with. I'll speak like for myself, like, what I'm trying to do is I'm trying to determine who do I want to create a personal long-term relationship and part of the people I don't want to put into that category, people who are running around asking for themselves, they're a taker, they're just looking for themselves. And yeah, they might be a kind, nice guy. But at the end of the day, they're kind of thinking about number one first, right? So, what I say to people, as you know, take it slow, do the courting process slowly, even myself, right with my closest peers and colleagues, we don't tell each other what we're investing in. Part of it is like, it's kind of like better than you. I don't know, there's some kind of unspoken gamesmanship, right, but we don't show each other's our spreadsheets of all the people things we invest in and the ROI numbers just to me, I don't think that that's LP etiquette, it can put a lot of people off is what I'm saying, I don't really care, but I've seen it put a lot of people off and it kind of outs you as one of those takers. What I've seen is you know, you've built a relationship over the years and there might come opportunity over drinks or you're like, well, who has been working and who's not Alright, cool. Now start talking about the important stuff with like, how you're working with your family, to pass off this legacy wealth, you know, those more important things. Like I said, those are the infinite banking, legal taxes and family succession planning and game investing is more important than what deal you're investing in, because what deal you're investing in, although people listening may think otherwise, at some point becomes very easy to know who you're going to invest with. At some point.
13:10
JW: You brought it up twice now and I'm gonna ask the question, so of all the things you mentioned infinite banking, I think people are gonna have questions about what is that?
13:17
LK: Yeah, I mean, it's using a whole life overfunded insurance, that's the technology behind it, something nothing fancy, but you're basically able to use a little tax loophole where they said that if you use life insurance, the gains from it can be tax-free, that's a way you can like throw money in there and have it grow as you're waiting for your next deal, right, that's the place I put my cash value or my equity to build the cash value so that when I do have a deal or two deals come up in a row I deploy my capital from that without it sitting in the bank making nothing and then on the nice byproduct of that is when it's in life insurance is kind of protected the kind of like how your 401 K is from predators and litigators. But the biggest thing is like I get that like because it's life insurance per IRS code, it's tax-free so there's some tricks to that though like you know, people were like just getting a small amount of life insurance not the government's like you have to have a certain amount bare minimum because we know what guys are doing out there and you don't like it so but it's a commodity right? You're going to like a lot of the larger companies like parents or guardians you know these AAA rated companies but you got to configure it right is the key so you know a lot of it has to do just with like how frankly how much your agent wants to sell your Commission's they make money off the life insurance portion of it, but you as you try to make it for this cash value capital source. You want that life insurance to be the lease and the paid-up additions to be the greatest so most people what I see most agents what they do is they make it like a 70-30 split or a 50-50 split with 30% going to the insurance or 50% going to insurance and that's how they make money to put food on the table for their family.
But where I set it up personally is like drive that all down to 10%. So it's a 90-10. So it’s really easy to hit those mandatory premiums, you know, you do a policy for 600,000, over six years, or $100,000 per year 90% of that 600, grand 60 grand, I mean, you've hit that minimum amount, the first-year funding, whereas if it was a 70-30, split, or 50-50, it's much harder, and you should probably get anxious over that for hitting that number. But this is a strategy that the wealthy does. I mean, it doesn't move the needle too much. And you know, I think like people geek out on this stuff a little bit too much, especially like, if your net worth is under a million dollars, like dude, go make more money, go invest first. But like after you've been investing, and you've got your taxes gave an order, this is kind of the third piece in that order kind of start to implement this stuff, because it's kind of, again, it doesn't move the needle too much. But it is, you know, I think most passive investors realize if they're interacting with the right people, reading, watching the right stuff, you can get to a pretty good state when like the minimum effective dose in about a year or two and then focus on these other things. That's so simple, passive cash flow is all about, it's very simple, right? There's just a lot of other nonsense garbage out there, like these qualified retirement plans, all these 1030 ones, like these confusing things that aren't necessarily like tools I would use out of the tool bag, but they just kind of befuddled things making a lot of noise out there that, to me, things are very simple. Invest in good deals, maybe do real estate professional status, if your AGI is over 340. If not, try and mitigate your taxes as much as possible with passive losses to your passive income, do some infinite banking, get your net worth over three, or four million. And at that point, maybe get out of value add deals and go to more endgame type of investment strategies.
JW: Like what?
LK: You know, things where you're investing with more institutional operators, it's going to be lower returns. But the nice thing about institutional operators, is that it’s a little bit more stable. Of course, you don't want to go back to the stock. Well, maybe you do, right. Like I mean, that's kind of my idea, personally, right. Like, at some point, I want to get to a point where I go back to that Wall Street garbage, because although it's consistently bad, at least it's consistent. And it's something that my family can unravel, when I’m dead. Just not leave them in a pickle. In conjunction, people talk about like triple net leases and stuff like that. I'm not a huge fan of those. And I'd rather be in apartments, I just know that more. Because you know, like a Walgreens, the Amazon model with the pharmacies, they're going too far at Walgreens, triple nets aren't the most safest thing in the world anymore. I think. And that's where if you talk to a lot of family office, folks, you know, this is where you start to play these board games and kind of sharp shoot your investment strategy. And in the beginning, you're focusing on a lot of like you're putting all your eggs in one basket, because you have to because you can't get penetration otherwise. And that means buying one rental property than buying a handful of rental properties, then you start to diversify a little bit more by going to a bunch of syndication deals. But at some point, when you get endgame, which I defined as $4-5 million for most people, right, which provides a pretty decent cash flow stream of 20 grand per month, you start to look for these other type of hedges.
Another idea would be like IULs. IULs are kind of a scam. You know, I think a lot of people try and sell them, but they are the right tool for extremely high net worth, people just want consistency. But yeah, if your net worth is under a couple million dollars, I wouldn't mess with those things that just kind of run away from the person selling you that garbage. These are the things that I'm kind of working on today, personally, you know, like these market game type of things, where if I had a brain tumor, you know, like, died in two weeks, like I wouldn't leave my family in a predicament because I get it like the stuff I do now like, you know, have my, my wife cosign on this stuff, because it's a waste of time have explaining this stuff. And maybe that's not a good attitude, but like, I can't imagine them. I mean, sure, they'll get a big payout, because of the whole life insurance thing. And that's another story. But like, I’m probably more good dead than I am alive. But then again, if I’m not here, like where we put this $100,000 into this deal that deal. Like who to trust, you know, my spouse and family don't know how, what to do.
19:11
JW: Right? Well I think a really interesting point that you brought up there is that there is a lot of noise out there, especially in the investment space. And really, a lot of the things that are flashy, that are kind of coming across your radar are quasi scammy or just overly complex, or it's being sold by somebody. I think you've mentioned this, too, that’s just looking for a commission. And you know, for getting into the game and being smart. And maybe your first handful of deals like it should just be simple, right? Like you don't need to have an overly complex tax strategy. You don't need to be looking at three different layers of how you move your money through a deal. Like it should just be hey, find a good deal, good operator and we invest but when you start doing your research on passive investing, there's so much information out there that it can be really, really distracting. No, Is that fair?
19:58
LK: Yeah, exactly. You're unfortunately having You know to unlock a lot of, think of it like a video game, trying to unlock all these tax strategies and save more money or invest, make more money to put into Infinite Banking. You're gonna have to invest, right? That's, unfortunately, the prerequisite to this world and that's where a lot of the landmines are in terms of people, right, working with the wrong people. So, this is why I tell people, well, focus on that stuff first, right? Because that's where you're getting chipped leg blown off or loose 50 grand 100 grand here their first make sure you invest with proven people who you know people who are unbiased source invested with in the past had a good experience with once you start investing, that's when you get the tax and you get passive activity losses. Hopefully, they're doing a cost seg or even if they're not doing a cost seg, right, the regular depreciation is fine. That should create a passive for it or suspended passive loss and now you start to implement these tax strategies. But without going into deals, you don't get that stuff. Even if you're investing in the low rental properties. You don't have nearly as much depreciation that type of stuff. Yes, that's the hardest part. I think that is what unlocks this world alive once you get to that point. Now you kind of open up to this these other things like the qualified retirement plans, definitely not self-directed IRAs, ways to get around 1031 exchanges deferred sales and then other legal products like we're beyond the simple LLC like the Wyoming LLC, like I'm talking about some of these more like irrevocable trusts setups. What you start to realize is a lot of these types of setups like they are just you have to ask what it is right? Like is this a grantor trust, who is the trustee right? How's the setup and is it irrevocable, right? This is how you got to start to learn these terms. Because what you start to realize is somebody very smart lawyer came along and patented the damn thing kind of like a computer code and called it something cool, right? And then now you're talking to your other peers and colleagues about something-something cool trust with dynasty trust, or whatever, I want to be careful not to say something-something cool, like, yelled at by somebody, or you know, I don't want to piss off a lawyer, right? But you know, a lot of these things are kind of patented things and some of them are the same exact thing, right? And that's what's confusing. You start to learn these things by the damn market, and Turman not what is right, like, is this a deflected trust, right? That's what it is. But you could be called the universal greatest trust that you ever want, right? Like, right, same thing with the retirement plan. So, there's a lot of smoke and mirrors with that type of stuff. And the easiest way or the straightest line, to me, that isn't always like, the easy way is to build relationships with other passive accredited investors, kind of piece together this mystery amongst yourselves. Unfortunately, you're gonna have to get outside your computer seat and interact with other people.
22:48
JW: Yeah, I think that is the key is you've got to figure out and you've got to interact, and you've got to build relationships for this to be successful. And that goes for everything that you do when you're investing passively. Who do you trust for it to be your attorney? Right? Are they just taking your business? Because they want it? Or do they actually know what they're doing? They put your documents together wrong, like this thing could completely unravel on you. So, I mean, there's just so many things that you've got to spend a little bit of time on. And it all boils down to relationships. And then the good news is that it's all been done before. This is not a new trail, people have done it. You just need to find some good people that you feel comfortable that have walked the path before you and then just walk in their path. Who do they use? Who do they talk with? Like, there's a lot of great things. But Lane, this has been an amazing conversation. I really appreciate it. I always like to finish the show with a little bit of gratitude, because none of us got where we are all by ourselves and we're just talking about bettering relationships, I want to give you an opportunity to give somebody a shout-out publicly that this kind of helped you or giving you a leg up along the way.
23:46
LK: I think I'd like to show gratitude for that somebody who like pulls their head out of their high-paid job and realize that maybe there's a different way and has the Gabonese so like not just kind of stay in their comfort zone of that. And there is a different way of doing things. And you know, the people who have gone down the path of implementing a lot of these strategies and kind of pay it forward some other way. Right? That's what it's kind of all about. I don't like to do Habitat for Humanity, you're not going to find me working on a Saturday building a house that's just not my highest and best use my thought was always kind of teach people how to do this type of stuff, so that they can go build those houses on Saturday, so I don't have to do it, right? So that they can get financially free. I mean, everybody kind of has a different point on the whole spectrum in terms of how do they add value to society, right. I think people have to find their own is not going to build some houses on Saturday.
24:39
JW: Guys, if you liked what you heard, Lane, obviously, is with simplepassivecashflow.com And we'll have a link in the show notes as well. Lane, thank you so much for taking the time.
Jake Wiley: I hope you've enjoyed this episode of the limited partner podcast. Please subscribe and leave a review. If there's any reason you wouldn't leave us a five-star review, please email me directly at [email protected] Your feedback is always appreciated. Now the show is just the tip of the iceberg in terms of the limited partner community. It's a community where limited partners can come together. Learn about what best in class looks like, opportunities, and most importantly, a place to connect. There is nothing out there like this. So, head over to thelimitedpartner.com and sign up. We'll see you next time.
[END]
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