Ascending the "Wealth Elevator" with Lane Kawaoka

Many thanks to Lane Kawaoka, real estate investor, podcast host, and author of “The Wealth Elevator,” for joining me on Episode #167 of The Art of Medicine with Dr. Andrew Wilner. Lane detailed his journey from engineering to real estate investing, eventually transitioning from single-family rental properties to multi-million dollar syndications and commercial deals. He now leads a $2.1 billion real estate company.

In his book, The Wealth Elevator, Lane categorizes investors by net worth, ranging from the “basement” to the “penthouse.” The book targets investors with a net worth of at least 1 million dollars. For most of these investors, the goal is “financial freedom.” To obtain this goal, Lane suggested that professionals become a “capital aggregator” rather than trading time for money as an “income generator.”

Lane emphasized the limitations of traditional 401 (k) s and IRAs, but conceded that downturns in the real estate market can result in significant financial losses from alternative investments. He recommended asset diversification as a protection against the possibility of failed real estate projects.

Lane emphasized the importance of building relationships with accredited investors with significant investing experience. These investors have access to exclusive real estate opportunities sponsored by proven operators. Lane encourages his investors to network with each other and sponsors annual investor retreats.

Lane’s website offers information and free courses: https://thewealthelevator.com/home/club/

@thewealthelevator #realestate #investing #syndication #401k 

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Transcript

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[Andrew Wilner, MD] (0:08 - 1:13)

Welcome to the Art of Medicine, the program that explores the arts, business, and clinical aspects of the practice of medicine. I'm your host, Dr. Andrew Wilner. I've planned a great program for today, but first, a word from our sponsor, locumstory.com.

Locumstory.com is a free, unbiased educational resource about locum tenens. It's not an agency. LocumStory answers your questions on their website, podcasts, webinars, videos, and they even have a locums 101 crash course.

Learn about locums and get insights from real-life physicians, PAs, and NPs at locumstory.com. And now to my guest. Today, I have the pleasure of speaking with Lane Kawaoka.

Lane is a professional real estate investor and the author of the book, The Wealth Elevator. He also hosts The Wealth Elevator podcast. Lane is here to help us learn what physician investors should and should not do when it comes to real estate investing.

Welcome, Lane.

[Lane Kawaoka] (1:14 - 1:16)

Hey, thanks for having me. Aloha, everybody.

[Andrew Wilner, MD] (1:17 - 2:39)

Well, Lane, I'm excited. I have a 40-minute commute, and for the last two weeks, for 35 of those 40 minutes, I've been listening to your book. So your voice is like in my head, you know, and I listened to every word, and it was kind of an eye-opener.

I'm a fairly naive financially, I would say, although over time, I've just kind of had to learn what, you know, what you need to learn. My dad was a CPA, and so when I was a young physician, you know, and there are taxes, I would just say, Dad, do it. And he would give me the paperwork and I would sign it.

And I didn't want to have anything to do with it because all of my energy was really devoted to my craft, to learning to be a better doctor. And money seemed like a great distraction without any particular innate value. As I've gotten older, with more responsibilities, the money question has become more important.

And unfortunately, Dad finally passed away at the age of 90 and left me to figure it all out. So I've done a lot of self-education, and your book was part of that. So let's start with your background.

How did you become a real estate expert, and why am I talking to you?

[Lane Kawaoka] (2:41 - 6:27)

Yeah, I mean, I think I kind of grew up on the same path. In fact, my sister's a doctor. So at least, I mean, one of us went that direction.

I went the engineering direction because I wasn't as smart, and I just didn't want to go to grad school. And I also didn't want to learn a foreign language. I was never really good at that.

But, you know, that's how I became an engineer, so I could hit the ground running and make the biggest salary I could right out of college. And I would say, like, the caveat is, like, I was always good at saving my money, right? Like, growing up, we were always taught to be pretty frugal.

But we were taught, much like everybody here is, like, the linear path, go to school, study hard, you know, become a high paid white collar worker, and then invest in the 401k and then buy a house to live in. And that's what I was programmed to do. And that's what I did.

I started to work at the railroad as a construction supervisor, pretty decent pay for a civil engineer, industrial engineer. And I saved maybe 30, 40 grand per year to buy a $300,000 house in Seattle, Washington. This is back in 2009, you know, with just the standard 20% down payment.

But because I was traveling all over for work, never really had a, you know, I was only home on Saturday for like three or four years. I was only home to enjoy this big house to myself. And this is, I'm in my early 20s, right?

So just like, well, let me just rent this thing out, because I'll make some money. And then I started to realize, like, wow, this is pretty powerful stuff on making money four ways with the tax benefits, we can get more into that. That's a huge thing for high income earners.

The tenants are paying down my mortgage with their own sweat and tears and depreciation, and then the cash flow that was coming, right? Like that first property was $2,200 a month in rents I was getting. And I think my mortgage was 1600.

You know, I knew nothing about the 50% rule, all these other things I learned several years later, but I was off and rolling and I kind of realized like, wow, there are other ways to make money other than the standard Wall Street stuff, 401k stuff that they want you to invest. You know, started to buy a couple more properties in Seattle, then I realized probably not best to buy properties in nice areas, which I mean, we try to buy properties kind of in the meaty medium areas, right? Not the slum lords.

But you know, in this more B class kind of clientele. And then I started to buy properties in Birmingham, Atlanta, Indianapolis. And in 2015, I had 11 of these little rental properties, all while also working my engineering job, right?

Because that was, I think, for a lot of people listening, your biggest thing, especially in the beginning is honing a craft, trading time for money, whether you're a doctor, engineer, lawyer, or dentist, that's what you do. But it becomes a flip. You know, we're talking about my book, The Second Floor of the Wealth Elevator, where we become more of a capital aggregator than an income generator, in a way.

But yeah, that's how kind of things got kickstarted. And I was very early on, I was like, why the heck would I want to put my money into the stock market stuff and ride this roller coaster at 6 to 8% when I'm making like, way more in this little rental property. And I'm not, you know, no expert, I'm just got a property manager, I'm just kind of doing this little, I'm an amateur, but I'm making more and more money doing this.

And that's where I realized that most times, like they want you, and I say they, like the big, some people here don't like big pharma. Well, there's big finance out there. They don't want you to invest in anything other than things that they offer so they can make their money off of.

And we call this the secondary market, right? We access investments, the secondary means, or what we call sloppy seconds. What I'm advocating here is invest in the same investments, but directly from the primary source.

[Andrew Wilner, MD] (6:28 - 6:41)

So I just finished listening to your book, The Wealth Elevator, and you described the different floors. I thought that was a great way to think about it. Do you want to tell us?

You can tell it better than me.

[Lane Kawaoka] (6:41 - 7:36)

Yeah, The Wealth Elevator book is is mainly written for credit investors. So people who have a net worth of $1 million or greater. The reason why I did that, I always felt like it was underserved.

Like there's so many books out there, like Dave Ramsey, Susan Orman, written for people in credit card debt, make less than $50,000 a year. In the book, we call this the basement level of The Wealth Elevator. The book's not targeted to that people, we mainly call it out.

But most people are in this kind of paradigm. I actually think it makes sense for a lot of these people to buy a house to live in because their mortgage becomes a forced piggy bank. Because if they wouldn't be paying their monthly mortgage, they probably blow their money.

But again, like when I graduated college, I didn't have any net worth. But I also wasn't in credit card debt. And I was pretty good with my money, right?

Like I grew up in a household where we're taught to never to order a soft drink when we went to a restaurant because that's a freaking waste of money, things like that.

[Andrew Wilner, MD] (7:37 - 7:53)

So when we went out, we didn't order drinks, and we didn't order dessert. Because those were outrageously expensive at the restaurants. But if we went out to dinner, you could order dinner and we'd have dessert and coffee at home.

That's how I grew up.

[Lane Kawaoka] (7:53 - 9:02)

That's the life of the first generation multimillionaire, right? And that's who this book is written for. Nowadays, I obviously I do things a little bit differently.

I pay my $5 for my soda water because it's calorie free. And I like the feel of the bubbles. And I don't care.

These days, because it comes from passive cash flow. But yeah, I think that's the baseline for our ecosystem and our group, right? A lot of first generation multimillionaires, you kind of thought the first $100,000 is the hardest to get.

And that's where you are when you're in that first floor of the wealth elevator. When I graduated college, I had a good salary, probably six figures today. But I was still able to save $20,000 to $50,000 a year.

But I use that to buy 20% down payments in rental properties. And this obviously skips past all the house flipper stuff, the wholesaling stuff. To me, that's what you do when you want to be active.

You don't really make too much money at your day job and need a job, right? But let's face this, a lot of us make six figures, and our hourly rates are way too high to be messing around with some of these more house flipping type of rehabbing type of activities.

[Andrew Wilner, MD] (9:02 - 9:08)

Right. Those are hands on for sure. To call it passive income probably isn't really correct, right?

[Lane Kawaoka] (9:09 - 12:48)

Correct. Correct. And it comes with a lot of risk, right?

And this is kind of what I did from 2009 to 2015, right? I just kind of slowly just bought rental properties. In 2015, I had 11 of these things.

But each one produced passive cash flow, maybe $300 per each. So I had $3,000 of passive cash flow per month, which is not going to complain, right? I think I was still single back then, and that was like a third paycheck.

And life was good. Life was good. I was kind of working my engineering job on the side and still full time, right?

But still doing this on the side, still pretty passive. But you know, most of my clients today, they really need $10,000 to $20,000 of passive income a month. But this is kind of where I realized that little single family homes, you scale out of it pretty quickly.

And for me, when I got to this point, I started to interact with other accredited investors. What's an accredited investor? Well, it's nothing really that special.

You just have a net worth of a million dollars or greater. Or if you're a younger doctor, you make over $200,000 a year, which most do. Congratulations, you're an accredited investor.

So you have access to more of these types of private placements and opportunities out there. And I just happened to kind of get involved with a lot of these accredited investors. And mind you, my parents never owned properties.

I didn't have any rich uncle. I didn't even know what an accredited investor up until like 2014 was. So I started to kind of hang out with these people.

And they had the same pedigree as me. They might have been a little bit older than me at the time. But they're all kind of echoing the same thing.

Like these little single family home rental properties were great, like duplexes, quads, they're great to get started. But you get to a point where they're just not scalable. And when you get to a net worth $1 million or greater, or I can probably say most doctors are at a point where the legal liability becomes a big issue.

Sure, you have entities and LLCs and insurance and all that stuff. But that's not going to protect you from the frivolous lawsuit that just happens all the time. And at this point, people know you got money.

When I was a broke engineer with my first or second rental property, I mean, this is not legal advice by no means. If people need a referral to a good CPA or lawyer, reach out. But I was broke.

So it's like, I mean, sometimes it's the best form of asset protection. But when you become an accredited investor and net worth $1 million or greater, or people know you make multiple six figures, you've got a target on your back. So at this point, it makes a lot of sense to get out of the firing range of owning little rental properties and going into larger deals, more institutional quality deals, but as a passive LP, limited partner, which is implied limited liability there.

So this is kind of where my journey progressed. And this is kind of where a lot of the lessons and best practices I learned from other high net worth investors that I kind of distilled down into the Wealth Elevator book. And I think we're on the second floor of the Wealth Elevator, right?

Like that's when you become an accredited investor. These are a lot of the tactics and strategies that I realized that a lot of people did that is very implementable by anybody out there. But it's very counterintuitive than what my parents taught me, right?

Or what people were doing in the cubicle land, or people who trade time for money are doing out there. Oftentimes, you never want to take financial advice from people who are not financially free. You never want to take advice from the guy who was kind of tabulating his social security in the cubicle next door, who's 55 to 65.

Like why the heck would you want to take financial advice from that person? I was just lucky because I got access to higher net worth wealthier people who are doing things very, very differently than what the average folks were doing out there.

[Andrew Wilner, MD] (12:48 - 12:52)

I've got some pointed questions. But first, tell us what you're doing now.

[Lane Kawaoka] (12:54 - 17:40)

Yeah, so it's kind of an extension. Like at that point, I started to invest as a past investor into larger syndications and private placements, large apartments, so like 15 units, 300 unit apartment complexes. When you get involved in that role, it's really difficult to find the right people to work with, right?

Because now you're working directly with the operator, sponsor, syndicator, general partner. And from that, I mean, like my first 15 deals I went to as a past investor, I probably was like, probably shouldn't have worked with those three people. And so then I just started to do it myself because I didn't trust anybody.

So that was how it started. Fast forward, I think we've done like 60 plus deals, 10,000 units later, $2 billion acquisitions later. You know, we kind of operate now like as a pseudo family office, a multifamily office, where we use our relationships, me and my partners to find deals, and then we know how to underwrite them.

So this is a world out there, when you get to the third floor of the wealth elevator, everybody should probably get rid of their day jobs, stopping a doctor, and you switch to being more of a capital aggregator. But the key here is you have to build this critical mass. And that critical mass to me is anywhere from $2 to $5 million net worth.

And if you guys are doctors, you guys probably have a lavish lifestyle at this point, probably call it closer to $5 million net worth. This is when you start to get on the third floor of the wealth elevator. What that's defined as, you know, depends on your monthly burn rate, right?

Like most people, like I said, you guys need $10,000 to $20,000 of passive cash flow per month. Per year, that's what, a quarter million. And if you divide it by 0.04, you know, that's where you get that net worth goal, right?

So once you get to that third floor of the wealth elevator, you know, you certainly should stop trading time for money and working as a day job. Now, I know some people, they're kind of business operators, and they may morph into that more. But the mindset is more not making money, but having my money, which I've gotten to this critical mass point, and now to kind of grow it.

Another idea of this whole critical mass point, and this is what people call financial freedom. If you think of a rocket ship, it takes so much energy and fuel to get that thing like one foot off the ground, right? That's kind of like analogous to the first $100,000 net worth, that's the hardest part, and then the first million.

But you know, you blast off the outer space, and you break the atmosphere up there, and you go zero gravity. You know, that's this idea of financial independence, right? Or specifically like, you know, my investments are giving me $20 grand per month, and me and my wife can't freaking spend all this.

Like, I mean, it's a great thing. It's wonderful. And there's so many people that quietly in stealth live this lifestyle.

And also, like, to me, you create all this wealth, but you don't want to be a good steward of it, right? You just want to just blow it and give it to your kids, and they become nincompoops. And I mean, your kids will probably be fine, right?

Because you have enough oversight, and you're watching them like a freaking hawk all day long as they grow up. But it's the grandkids, it's generation three and four that typically blow it 90% of the time. But you may or may not care about that.

I kind of don't care about it. It's too far off for me. But what I want is, at least when I'm driving the helm as the patriarch of my own family office, my family wealth, is we want to be good stewards of this wealth.

And we want to continue to grow it in investments we see fit in a diversified pool of investments. And this could mean investing in the traditional investments. But a lot of times, you know, you don't break through the atmosphere by investing in the primary or the secondary markets of like what Wall Street offers.

You invest directly with these types of deals to cut through the middlemen. And a lot of times, like an example, right, like oil and gas is a big option for high income earners. People put it into your own LMMs or chat GPTs, ask it why.

Intangible drilling costs. If you've never heard of this, and you make over $300,000 a year, you need to get with the program because every wealthy person who has a good CPA is aware of these things. They may not be doing it, but they're aware of it.

But okay, so I need to invest in oil and gas deals and to get these IDCs. Well, you're not going to get it if you invest through the Wall Street ticker for this. You're investing in the company that's getting these returns, but you need to invest directly in the venture to get these types of credits and these deductions.

And this is an example of like you can't access some of these benefits unless you break through and you get primary to the source. But I kind of went on a tangent there. Sorry, Andrew, but maybe bring it back in.

[Andrew Wilner, MD] (17:41 - 18:26)

You mentioned syndication. Let's talk about that. At least once a week now I'm getting an email where they want me to invest in an apartment complex or something.

They want $50,000 or $100,000. I looked at one of these the other day. They had four different kinds of fees for the privilege of receiving my $100,000.

They had a 1% management fee every year of my $100,000. Then they had capital improvement fees because they were going to remodel the apartment and I was going to be a part of that. I don't know.

There were two other fees. The only thing that seemed guaranteed about the whole thing was that they were going to get my fees.

[Lane Kawaoka] (18:27 - 18:47)

Well, that's an investment, right? Nothing is guaranteed in an investment. If you can't handle it, just go invest in a savings bond or something like that.

Welcome to the world of, I mean, you are a partner and you have to kind of read these documents. I think the hard thing when people enter this world is people don't know what's normal and customary.

[Andrew Wilner, MD] (18:48 - 18:53)

Tell me, a syndicate, just start from the beginning. What is that?

[Lane Kawaoka] (18:54 - 19:12)

An analogy I like to use for a syndication is you're going to go buy a 300-unit apartment complex. The people running that asset, they found the deal. They're going to use their networks.

They're going to put the debt in their name or in the general partnership in the cockpit. You could have one person. You could have eight people.

These are people flying the airplane.

[Andrew Wilner, MD] (19:13 - 19:13)

But why do they need me?

[Lane Kawaoka] (19:15 - 22:03)

Well, they need to make money, right? They need the people at back and coach to feed the beast and invest so that we can all buy this asset together. The nice thing about this analogy is technically if the plane goes down, the venture doesn't go well, everybody loses, right?

So, I mean, most operators, they just want to do well to make people happy to come back and invest because it's a reputation thing. But this is the way that high net worth people invest directly in these types of deals. And it could be an apartment.

It could be a dentist wants to roll up some of their competitors, right? And that's more of a form of a private equity deal. It could be for an angel investment in the tech space, right?

This syndication is just a form of pulling capital together that is SEC compliant. You know, you can talk to a lawyer about that. But this is the way, I mean, that you can kind of play the game where you can cut through a lot of middlemen.

And you mentioned all the fees previously. You would probably be surprised on what the fee structure is with the traditional investment side. It is way more worse, astronomically worse.

But you're just unaware of it, right? And that's how most people are. They're just blissfully unaware.

And again, that was kind of where very early on, I was like, why the heck would I want to take my money in the 401k and make the 6 to 8% when I'm making like triple double in my little single family home when I'm just doing it myself? Like, what the heck? Right?

Like, I mean, this is to me at that time, I was like, well, you know, I do 20% down payment. Yeah, you know, the tenant could skip on me month after month here or there. But for the most part, I'm still making money.

Why would I want to put my money in this 401k stuff? And to me, that was kind of the dissidence that was created. And it wasn't confirmed to me until several years later, until I met other the ecosystem of other high net worth of credit investors that verified for me.

Yeah. Yeah, dude. That's why we invest in these things directly.

And in a way, it's kind of like people watch The Wizard of Oz, right? When they go around the curtain, they see the little man behind the curtain. And he says, pay no attention to the little man.

That's essentially kind of like what Wall Street is, right? They're essentially taking all your hidden fees and you're taking on all the risk. And now some people who are like, well, you know, I look at my Vanguard and they have very low expense ratio fees.

That's nonsense. That's all bottom of the line fees. They're not talking about all the top of the line fees that they're charging you for.

I mean, how else do they have these big buildings and marketing budgets? At the end of the day, it's what you make at the end of the day, right? With all these fees.

And that's what I kind of to come back and you're like, that's the way these guys are going to have fees, right? And typically, I have this in my e-course, right? And people are savvy.

They'll just copy everything in my e-course and just run it.

[Andrew Wilner, MD] (22:03 - 22:05)

And where is that again for people listening?

[Lane Kawaoka] (22:05 - 22:50)

They can go to thewealthelevator.com slash syndication and get free access to that. But there's kind of a standard range of acquisition fees, monthly management fees that operators will charge, usually at one to three percent on each of those. And then there'll be a carried interest.

And the carried interest is, you know, kind of going back to this airplane analogy, right? Like when the investment goes well, the general partnership, the operators are going to take a portion of that, maybe 20 or 30 percent of that. But that incentivizes them to fly the freaking airplane as best as possible.

And so that they make more money, too, in the process. Right. And so everybody's kind of aligned if you go into the right deals.

Right.

[Andrew Wilner, MD] (22:51 - 23:15)

Well, that's the other thing. You know, I mentioned this that I was preparing for this interview and I mentioned this kind of concept of syndication to a physician friend of mine. She said, oh, no, don't do that.

It's like scams. I know so many of these pitches that were sent to doctors and, you know, the deal didn't even exist. You know, it was like there wasn't even a deal.

I never heard from them again. How do you avoid that?

[Lane Kawaoka] (23:16 - 24:24)

Unfortunately, you are investing off the beaten path. Right. And that's I mean, I went through there.

A lot of people go through this process where you're kind of investing blindly. It's a chicken and egg thing until you build up a community and an ecosystem of your own to help you check and verify these characters. You are kind of kind of at a whim and at risk.

Make no mistake about it. If that makes you feel uncomfortable, well, you're either going to do one or two things. Go back to the traditional investments that we all know it's going to happen there.

They're going to get theirs. Or you're like, all right, you know, I I'm going to slowly invest in a handful of these deals and I'm going to get off my butt and I'm going to meet other people and slowly build my ecosystem. And that's the difference between a second, third generation wealthy person and a first generation multimillionaire or somebody who has no money is that they feel like they can do everything by themselves and they don't need other people.

And I think that's I think that's what separates good investors from ones that just sit on their boxers all day long and play on the computer. You know, this is a people business.

[Andrew Wilner, MD] (24:25 - 24:27)

That's interesting. Well, you talk in the book about a Hui.

[Lane Kawaoka] (24:28 - 29:01)

Yeah, I mean, like, look, I was like the worst at this, right? Like I'm an introverted engineer. So very kind of socially awkward, to be honest.

And from 2009, when I bought my first rental property to 2015, I thought I was super smart buying all these little rental properties. And I just kept to myself. You know, granted, I didn't know any other credit investors, right?

The people at the local real estate club or a bunch of house flippers, they don't have any money, those guys. But I mean, I just kept to myself. Like it wasn't until I started to branch out and meet other people.

The cool thing was like there was a big resonance with like value systems and saving money and growing things. And like, you know, like we like the garden, right? Like we'd like to plant seeds and wait and patient and wait.

Right. And things kind of hopefully go our way if we diversify. But, you know, I wouldn't have realized this unless I got around these other people.

And from there, I started to realize, you know, who to invest in. So that's the part. That's the two sides of the equation that we teach in the courses, like who do you invest in?

You know, you got to look for the right things. But part of that is just having an ecosystem around you. Now, the other side of the equation is like, what do you invest in?

Like and this is where we take more of a pragmatic approach. This might, you know, for people listening who is new to this, this may resonate a little bit more at this stage in the game. You know, these real estate deals, the nice thing about real estate deals is like there's an existing profit and loss statement that you can underwrite.

You know, typically when you buy an asset, you get the last 24 months, the trilling T12 and T24. So you kind of see what the income is and all the expenses and boom, it gets blown up. You know, I used to teach people how to buy little rental properties when I first started with my podcast a long, long time ago.

If people want a sense of what I'm talking about, we still have the analyzer for the little single family home for free at thewealthelevator.com slash turnkey. But you know, when you're talking commercial properties, this is a little bit more complicated than that, but it's the same concept, right? You have, here are the way, here are the income that's coming in and here are the expenses, landscaping, insurance, taxes, maybe a couple of dozen others.

And you can kind of see how this property performs. So this is what I've learned over the past five years is very wealthy people, a lot of times they may not be the founding father. They may be the second or third generation who've hired these roles out.

They'll get a professional underwriter to take these financials and they kind of extrapolate what is this property worth. In commercial real estate, the nice thing is that the property is worth, not on some random number, it's based off of what the asset is producing. You know, it's just like a business.

You buy the business based off the profits times the multiplier, right? And the multiplier kind of changes up and down based on the market, but it allows a basis in reality of what this thing is worth. So what we do is we, I mean, we know a lot of the players, right?

Like we kind of know how they underwrite their deals, but we get deal flow, just like how, like I said, you get deal flow randomly on the internet. But what we'll do is, you know, we've operated all these properties ourselves. We kind of know how to underwrite these properties, especially if it's in a property next to one of our markets, or we know a property management firm that operates properties in this area.

But we take the financials, the T12s, the rent rolls, we put into our analyzer, and then we start to analyze it and see if it's a good investment. And we kind of decide, yay or nay. You know, people are new to this.

We have a service on our website. You know, I don't want to push it out there, but I think this is kind of the bread and butter of where to start, right? Like you underwrite these deals from a pragmatic standpoint, and you kind of understand, you kind of learn how to invest.

You know, this is a little bit different than buying little rental properties, right? That's a little bit more like, you know, you got to know this rehabber, you got to know this guy, the carpet guy. This is more, I think, digestible by people who don't really want to get their hands dirty.

A lot of this is, you know, PDFs, and now you can just throw those PDFs into AI, right? Obviously, you got to watch out for hallucinations, of course. But this is the way that professional investors invest.

They get dozens and dozens of deals dropping into the inbox every month, and they kind of go through them, and they sort out the best ones. And what we try to do is we try and pick out one or two every quarter to invest in. And I tell our investors, like, look, I don't know if these are the best deals out there, but of the ones that we have, and I feel very confident that we have a big sampling of what's out there, you know, these are not only underwritten well, but with people we know, like, and trust.

And again, piecing together the relationship.

[Andrew Wilner, MD] (29:01 - 29:04)

And you invest personally in these deals as well?

[Lane Kawaoka] (29:05 - 30:37)

Yes, in the early days, yes, yes. But nowadays, like, I mean, this is a kind of a paradigm where, and we teach this in the syndication e-course, when you're working with a brand new operator, somebody who's done less than a dozen deals, yeah, I better see that operator putting in 20 to 50 percent of the capital, you know, so if they're raising $3 million, I better see them putting in 300, 400 grand. But an institution like Blackstone, BlackRock, like these big, even these, you know, people, when you go over $4 million in assets, the expectation is they're not going to put in a penny.

And also their fee structure is a little bit higher, like what you were mentioning earlier, and their carried interest is higher, right? And also, therefore, the projected, your returns at the end of the day as a passive investor goes down. Whereas, you know, going back to the other edge, like, I don't recommend this, but some people like to invest in these new people, and they like to gamble with their money, because they're like, oh, we get like, we get 80 percent or 90 percent of the carry, right?

The GP only gets 10 percent. Ooh, we like to beat them up, right? Ah, screw that guy.

Like, well, first of all, the GP is not going to be very motivated, but more importantly, you're working with a newbie operator who's done less than a dozen, couple dozen deals. Like, to me, in my opinion, the sweet spot is when an operator's gone over a billion dollars in assets, but once they get too big, the economics for the passive investor kind of go down. This is my opinion, right?

But everybody has different thoughts on this paradigm.

[Andrew Wilner, MD] (30:38 - 30:42)

So of your 65 syndications over the years, how many of them lost money?

[Lane Kawaoka] (30:44 - 32:23)

Ah, I don't have a good count, but you know, this is the problem. This is the real difficult part of multi-family real estate this last several years. When you bought at the peak of the market in 2021, everything came down at least 30 percent.

So when properties come down 30 percent, the entire capital stack is knocked out, the common equity capital set. So I think this is what you're hearing from a lot of investors who are in the game from 2020 to 2024. They more than likely lost all their money.

But that's what happens in investing sometimes. But the idea is you got to catch it when times are good. The rise from 2010 to 2022, that was a long, lengthy time of upswing from there.

And as an investor, there is a market cycle in everything, just like stock market investing. Every asset class has its ups and downs, like Bitcoin. Bitcoin moves a lot more, right?

And to me, that's why I don't invest in Bitcoin and cryptocurrency, because it is a lot more volatile. At the end of the day, my investment thesis is I try to invest in things that are necessities or things that will be around for 10 years plus. To me, I pay multi-family real estate, especially lower middle class housing in that category.

People need a place to live, and the rich are getting richer, the poor are getting poorer, and the middle class are shrinking to the lower middle class. And they need to invest, they need to rent apartments, right?

[Andrew Wilner, MD] (32:23 - 32:24)

Is that B class?

[Lane Kawaoka] (32:26 - 33:44)

Yeah, you call that B class. So roughly speaking, you grade these investments A, B, and C. So A class are typically your newer builds, maybe built in 2000 and newer.

Typically, you're not going to find the better cash flow in these types of properties. The B class, I would call 1990s to about 1970s. That makes the opportunity for you to go in, put a little lipstick on the pig, new flooring, new appliances, new paint job, new playground equipment, improve the community, get in, get out.

And there can be some value add there while having some cash flow in the interim. When we first got started, we would make some good money on some smaller properties that were more class C. I know we had like a hundred unit in Fort Worth where we like wanted to hit projections on.

But that was just tough, right? When you get to class C properties, your tenant profile is difficult to say the least, right? There's a metric called economic vacancy.

So your property may be a hundred percent occupied. Typically, it's 90% occupied, but it matters who's paying. So if you have 20 out of a hundred people that are deadbeats and just not paying, your economic vacancy is 80%.

[Andrew Wilner, MD] (33:44 - 33:44)

That's interesting.

[Lane Kawaoka] (33:45 - 33:51)

Yeah. So that is actually pretty common for class C property turnarounds. Yeah.

[Andrew Wilner, MD] (33:51 - 34:19)

Now in your book, you also talked about, well, one option is you invest in a specific investment. There's going to get a hundred million dollars together. You're going to buy this big building and it's a defined investment.

But there were also sort of kind of like a mutual fund option where there were many of these all together and you could get a share. Does that exist?

[Lane Kawaoka] (34:20 - 34:52)

I mean, like in Vegas, there's so many ways just to play the damn crap staple, right? I mean, in this stuff, you can invest in blind pool funds where the operator may be investing in four or five, a couple of dozen deals. I personally like to invest in deals where I can underwrite the actual asset, right?

So it's like a single asset deal. Some people just don't have enough capital to get diversification though, right? So the funds are probably better for most beginners from that perspective.

[Andrew Wilner, MD] (34:53 - 34:59)

Well, if you've only got a hundred thousand dollars and you put in one deal and that one deal is a dog, then you're stuck. Then it's gone.

[Lane Kawaoka] (34:59 - 35:48)

And that's why I kind of feel like if you're not an accredited investor, you should not be investing in this type of stuff, right? I mean, if you only got a hundred grand, you can only put in one deal. That's not diversification, buddy, right?

This is for the big boys. So keep plugging away in the subpar traditional investments until you get some real money, right? But if you're able to diversify in a dozen plus deals, I'm not saying that's complete diversification, but we're moving in that right direction, right?

So I mean, again, this is why you got to improve. I would challenge everybody that you need to have at least five accredited investors that you personally know that you can call friends because these are the guys who have, you know, a hundred K-1s that come back every year and it's kind of par for the course for them.

[Andrew Wilner, MD] (35:48 - 35:50)

K-1 is a...

[Lane Kawaoka] (35:50 - 36:54)

Yeah, each of these deals, typically, since you're a passive investor, you get a simple K-1 tax form to come back that shows all your depreciation losses and gains. You just hand that over to your CPA. It's not a big deal.

But, you know, unfortunately from what I've seen from our clients, most of them change their CPAs. I mean, I know your dad's a CPA, so be sensitive here, but I mean, let's be honest, like most of these CPAs, they don't invest in this stuff and this is why they're still working their day jobs, right? A CPA's job is to do the tax forms.

It doesn't necessarily mean that they know anything about investing in personal finance, right? So again, you try and take financial advice from people who are financially free. You got to piece this together.

You know, nothing I say is financial advice. Like, that'd be silly to listen to just one person, right? But, you know, we have referrals to CPAs that do this for the more sophisticated clients that do this stuff all the time, but I would probably say 80 to 90% of CPAs out there are just a cookie cutter, triple tax.

Probably could do it on triple tax for you.

[Andrew Wilner, MD] (36:54 - 36:59)

Well, they're just adding and subtracting and numbers that you give them in the proper columns.

[Lane Kawaoka] (37:00 - 38:14)

Right, right. That's their role, right? I mean, just like an engineer, right?

I mean, that's where I come from. I can't do this, but I can use CAD, I can build a culvert, right? But the good engineers are the ones like, oh, you know, why do we have to do a culvert?

Why don't you guys value engineer this whole design and site thing this way? Or like a lawyer, right? Like a lawyer, oh, I can make you a business, like a partnership agreement, right?

Take me four hours. The good lawyers are the ones who offer big world business strategy from, you know, just like CPAs, same thing, right? The CPAs, like you said, they're the ones who fill out the forms.

Yeah, they do it the right way, help you in audits, help you protect you from audits. But the good ones are also the ones that understand the tax codes. And, you know, the tax code is, I mean, there's so many incentives in there.

And what I say is like, the government wants you to invest in certain channels, oil and gas, for one, right? That's something that we do. Another thing is like real estate.

You get these great tax benefits in real estate, specifically speaking is the depreciation on the asset, even though the asset is still there. Why would you not want to use these types of strategies?

[Andrew Wilner, MD] (38:16 - 38:34)

Well, you mentioned a few times associating with accredited investors. I saw on your website that you have certain, I think, periodic meetings of groups. Are those open to potential investors?

Or do you have to already be an investor? Or how does that work?

[Lane Kawaoka] (38:34 - 41:40)

Yeah, I mean, we definitely try and filter the group. That's why we say if you're an accredited investor, you know, maybe reach out, shoot me an email, lane at thewealthelevator.com. We want to kind of get to know you, especially before you start to kind of see some kind of what's behind the curtain for us.

But, you know, like I bring my friends and family to these things, my kids. The whole reason is like if I died, you know, my spouse and my kids know who in this ecosystem they can reach out to for financial and maybe even emotional support. We can't have weird people running around my events.

Right. And also, like, I think the formula has worked. I mean, we've been doing this for quite some time.

I think the first one we did was back in 2018. But we attract, you know, first generation multimillionaires. Most of the people in their 50s nowadays, they typically have kids and grandchildren.

And they come in and they, you know, they were hardworking and kind of did it the difficult way the first half, first two thirds of their life. And now it's like, well, I need to get on board in this capital aggregated stuff so that I can learn it so that now that my kids, they just don't have to work their white collar jobs that they may or may not be into it. And the issue there, especially for the third generation, is they already got a lot of money, like mom and like not mom and dad, but grandma and grandpa already have four or five million dollars net worth.

They can just put that in a 4% T-bill or life insurance and just milk that for the rest of their life. But I think all of us listening here does not want that for our kids and grandchildren. We want them to grow.

To me, if you're not growing, you're going backwards. Or in their case, they're becoming a trust fund kid and just drinking, smoking, partying with their rich friends that they haven't been. So that's why we, you know, we kind of make it a family-friendly experience where, you know, if your kid is 18 or especially if they have a day job, right, in the struggle of the day to day, you know, have them come out and get some exposure to some of the older aunties and uncles and myself included and, you know, get them around people that, yeah, you got to work and build skill sets in your 20s, 30s, and 40s. But once you hit that second, third floor of the wealth elevator, I think the mentality switches and what you do switches. So that's what I say, like the first step, and you did it, Andrew, right?

You read the book, right? That's the first thing is like self-awareness, like what floor of the wealth elevator are you on? And you may not have a million dollars net worth yet.

Maybe you should buy a little rental properties and just build up. Maybe you're past the million dollars net worth. Well, how many accredited investors do you know?

Well, you need to get to Hawaii and one of our events and meet other people. Maybe it's just from a technical standpoint, you just need to now learn how to take P&Ls and rent rolls and look at the stuff from a sophisticated investor lens, but you don't even know where to start, right? The problem, I mean, it's not that difficult, but a lot of stuff you just can't throw into ChatGPT and say, is this a good deal?

You're going to get some of the worst answers, most confident answers coming from that output.

[Andrew Wilner, MD] (41:41 - 41:47)

Wayne, we don't have time to do floors four and five, which you go through.

[Lane Kawaoka] (41:47 - 41:50)

It's not important. It's easy from there. I'm telling you that.

[Andrew Wilner, MD] (41:51 - 41:54)

And is there anything else you'd like to add before we close?

[Lane Kawaoka] (41:54 - 42:21)

Yeah. Check out the book, The Wealth Elevator on Amazon. If you guys buy a copy and you leave a nice review, take a screenshot, send it to the team at The Wealth Elevator, and we'll hook you up with the free PDF version so you can throw it into your GPT and ask it all the more personalized questions you like out of it.

And also, if you're not a good reader like me, I'm not a voracious reader. I'm better at listening at things. We'll send you the MP3 version.

Yeah, the audio book was great.

[Andrew Wilner, MD] (42:22 - 42:23)

And you narrated it.

[Lane Kawaoka] (42:23 - 43:22)

Yeah, and I added a lot of other things too. Yes, I enjoyed that. Yeah.

We try and keep kind of a boring subject a little bit more lively here. But yeah, I think some people just aren't... I don't tell my dad about this because he'll probably commit suicide if he realizes he did it the wrong way his whole life.

But yeah, what's frustrating is people are really good people, they work really hard, and they're just continually doing it the way that the big finance industry wants you to do it. Where, yeah, it's going to be a little bit dangerous in the beginning. There's going to be risks associated.

And I've gone through this myself. I had 80%, 90% of my net worth in commercial real estate, and it went through the peak of the market and it came down. I got hurt too.

So I have lessons learned from that. It'd be a little bit more diversified in some different asset classes. But still to this day, I have no stocks or bonds or 401k stuff.

[Andrew Wilner, MD] (43:23 - 45:58)

Lane Karaoka, thanks for joining me on the Art of Medicine. Unbiased educational resource about locum tenens. It's not an agency.

LocumStory exists to answer your questions about the how to's of locums on their website, podcast, webinars, and videos. They even have a locums 101 crash course. At locumstory.com, you can discover if locum tenens make sense for you and your career goals. What makes locumstory.com unique? Is that it's a peer to peer platform with real physicians sharing their experiences and stories, both the good and bad about working locum tenens. Hence the name LocumStory.

LocumStory.com is a self-service tool that you can explore at your own pace with no pressure or obligation. It's completely free. Thanks again to LocumStory.com for sponsoring this episode of the Art of Medicine. I'm Dr. Andrew Wilner. See you next time. This program is hosted, edited, and produced by Andrew Wilner, MD, FACP, FAAN.

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