097. Scaling Up From Engineer to Over $2B in Real Estate with Lane Kawaoka

Connect with the host:

LinkedIn: https://www.linkedin.com/in/brandon-e-jenkins/

Website: https://www.birchprosper.com/

 --

About the guest:

Lane Kawaoka is a seasoned real estate investor with over a decade of experience, who controls over 10,000+ units. He owns CrowdfundAloha.com, SimplePassiveCashflow.com, and ReiAloha.com. With a background as a Civil/Industrial Engineer and project manager for $250 million in capital construction, Lane uses his analytical skills to inspire professionals through his Top-50 Investing podcast and the HUI Deal Pipeline Club. He guides accredited investors to diversify beyond traditional investments, focusing on Class C & B Multi-Family Apartments, RV Parks, mobile homes, and hotels. 

Connect with Lane Kawaoka: 

Website: simplepassivecashflow.com

Episode Highlights:

✔️ Leveraging email marketing

✔️ Building a thought leadership platform

✔️ Transitioning from small deals to scalable projects.

✔️ Storytelling in marketing.

✔️ Dealing with economic downturns in real estate.

--

💡 Interested in learning more about opportunities to partner in deals as a passive investor? 

★ Join Our Investor Club ★   https://forms.gle/AEpWgPg7krd8YzPU8

Transcript

SPEAKER_02 0:05

If you're an active investor right now, then you know how challenging it is to find deals that work. Whether you're looking to jump into the market or if you're a seasoned investor, we're in a time where rules of thumb really don't apply. But it helps to have a conversation about where the market is and to hear the valuable perspectives of other syndicators and fund managers in the business. So in this episode, we're going to sit down with Lane Kawaoka to hear about how he was able to leverage his technical experience and background as an engineer to become a full-time investor. So we'll get some insights on where the market's going a little bit and some of the things that he's done to kind of stay uh afloat, stay uh successful in this business. Um, don't miss this informative episode as we unpack a bit of Lane's journey in this world of real estate. Stay tuned. How successful would you be if you had the blueprint for building wealth as a real estate investor or as someone who acquires small businesses? If you want to move the needle financially in your life, then you need to understand one thing the capital stack. I'm your host, Brandon Jenkins, and this is where your journey to financial freedom begins. Hey, what's up, everyone, and welcome back to the Capital Stack. My name is Brandon Jenkins. I'm your host, and I am super, super excited for today's show and today's guest. Um, someone who I've actually um kind of looked up to in terms of, you know, not only his uh growth and expansion in in this space, um, but also uh how effectively he has engaged with his audience and his investors, which is something that's super important. Our guest for today is Lane Kawaoka. How are you doing, Lane? Hey, thanks for having me, Brandon. Aloha, everybody. Absolutely, man. Thanks for being here. So Lane needs no introduction, but I'm gonna do it anyway. Lane is the owner of crowdfundaloha.com, simplepassivecashflow.com, and reialoha.com. To put all these into uh perspective for you, you know, Lane has platforms for coaching and mentorship, um, e-courses, masterminds, and just tons of opportunities for um investors looking for cash flow and strong asymmetric returns for the capital. Um, so like yours truly, Lane got his start as an engineer. So he leverages his analytical background and expertise as a project manager to help him um, or he leveraged his background and expertise to help him make the transition to the space. Um, and I forgot to mention that uh Lane has over 10,000 units in assets under control and/or management. So, Lane, uh with that, man, welcome to the show. Why don't you kind of give us a little bit of background and uh talk to us about your journey?

SPEAKER_00 2:40

Yeah, um so today uh$2.1 billion of assets under ownership uh comes out to be like 10,000 units or so. Um 65 projects plus, I'm thinking. Um so yeah, I mean, we kind of got to this level of you know, past a billion dollars of assets and you know, started to hire out other team members that are kind of better than we are when we first initially started. And I hear that's what you're supposed to do at some point. But yeah, you know, um used to be an engineer. Um, you know, I think a lot of people maybe listing, you know, used to be, you know, working a day job or you know, I was kind of grew up in this family where you're taught to be frugal, study hard, go to college, you know, work for 30, 40, 50 years, who knows what. But you know, investing in the 401k and all these traditional wealth building ideas. And you know, when I started to work, I bought, I saved my money, I think it was like 70 grand to go buy a house here in Seattle. And um because why I don't know, I was brainwashed, right? And that that point I was I realized like, wow, like I started to rent it out. I got this cash flow coming in. Um, and then I was like, wow, if I kept doing this like a few more times, I'll be definitely on my way to escaping the rap race.

SPEAKER_02 4:01

Yeah, no, absolutely, man. Absolutely appreciate you sharing your your background. Um, and you know, I so I kind of actually noticed pretty early on um when you kind of got your start, how effective you were and how effective you you continue to be at engagement, including marketing and things like um email marketing. Um, so I know obviously email marketing is not new, but uh of the people that I could think of who used it effectively in this space, I think you're you're near the top of the list because I think you were very um good about engaging, making sure you sort of connected people with opportunities, um, you know, you know, making sure that you knew exactly kind of what your investors were looking for and then that you could provide an opportunity based on what they needed. Um so I just think you, you know, you did a really good job kind of early on of managing sort of your marketing and and media um uh engine. And so it sounds like, and so you started off kind of by by yourself. What prompted you, especially coming from an engineering background? It's not something that you would think would immediately transition to to having that way of effectively getting your message out as well. How did you sort of do that? Was that were you inspired by anything or just kind of came naturally for you?

SPEAKER_00 5:08

Um, I mean, I I I mean, being an engineer, you can kind of figure stuff up, right? Um, I was always kind of pretty okay with like computer stuff, you know, making PowerPoints, making clip art, and somehow was able to use the YouTube to make a website, that type of stuff. And then yeah, the earlier messages out through email were pretty janky, right? I didn't know how to make like some kind of newsletter format kind of thing. It was just like, you know, just type it out and send it out. And but the signal was there, I guess, right? And I think not a lot of people like speak from the heart and are authentic, especially this day and age. Um everybody's kind of faking it. That's what they teach you, right? At all these kind of like seminars and conferences, which I think are kind of nonsense. They they teach you to fake it till they make it, which kind of makes sense because if y'all didn't do anything yet, then I guess you have to kind of fake it till you make it, right? Um, but you know, I kind of went about it a different way. I I was just initially when I started the podcast back in 2016, it was all just to share my story, faults and all. And at the time I was buying little rental properties, you know, the turnkey rentals that people will start off with. Um skipped over all that house flipping burr stuff um because I had a you know good paying job. But you know, just telling my story and you know, it resonated with that audience at that time. And when I first started, that there was a lot of I was non-accredited, and there were a lot of non-accredited listeners or some accredited listeners that were listening to that kind of got duped into buying turkey rentals along with myself. Um, but you know, over time it just got bigger and bigger, you know, just like kind of like a lot of these larger, more reputable operators these days, you know, they don't have that many investors. They you know, maybe a hundred or two hundred of them, but their investors grew with them and had a lot more money now, you know. So um, yeah, I I guess early influences like I used to listen to like this paleo podcast. This is also how old it is, right? Nobody does paleo anymore, but this must have been like shoot. I mean, I I remember like driving in my truck at work because I used to work construction and we'd travel all the all the across the country to go to the work site, and it was like 2010, 2012. I was just binging on podcasts back at the time, and one of them was like the paleo solution by Rob Wolf. That was one of the earlier ones. And I was like, man, this is fun. Like, it's fun, you know. I didn't number I was just out there on the road all by myself, and you get to know these guys pretty well. And that was back in 2010, 2012, and then five, six years later go by, and I decide, yeah, it's about time maybe I start to do the same thing. And you know, I kind of felt like it was kind of late then. But looking back on it now, that was kind of like that that window at the time.

SPEAKER_02 7:58

Yeah, it was that's actually a good point that you that you made there. It's it's uh you know, it's interesting because there are a lot of people who are telling themselves even now that they're late to the game or that you know, if they if they come out with a thought leadership platform, they're they're behind. And um, you know, I I would say that that's that's not true at all. Because even by the time that you, you know, you launched yours, um, you're you're you're it's very accurate to say that um you were fairly early in terms of the wave of multi, certainly for syndicators, the sort of the wave of podcasts that have now come out. Um, you know, you were early in that, but podcasts have been around for a long time. And so um I would even say that to anyone now. If you you're thinking about launching a thought leadership platform, you don't worry about, you know, you're not too late because your message is your own. And so you have all you have to do is come up with something that's unique, and then there you go. Yeah.

SPEAKER_00 8:44

Yeah. I mean, you hit it right on the head there. I mean, if if but if you're just another like fake it to make it copycat, don't waste your freaking time, man. Yeah, you know, go find some deals, then they can dink your podcasts like everybody else, right? Like that's you gotta be unique, you gotta be something that you know people resonate with. Like the signal has to be there, even though if you're kind of rough around the edges, I think.

SPEAKER_02 9:10

Yeah, yeah, I would agree with that. I think that um because the differences, but you know, you're you're talking to a room that's empty versus actually talking to someone, you know, having an audience, you know. So if you if you come out with something but you don't have a message that stands out or a pitch or an angle or whatever you want to call it, um, you know, then you're better off trying to be on the stage versus being the stage.

SPEAKER_00 9:30

Yeah, I mean it it's tough, right? Like I think I think maybe podcasts kind of set you know, that ship sailed maybe about 2018-2020, and then YouTube, you know, 2020 to 2021, maybe that ship has sailed too. Like it the game always changes, right? Um I just got kind of lucky. I mean, if it weren't for starting at the right time, um yeah, I wouldn't it would just be an I mean uh I don't know, I think people like who are looking to make a podcast, go look at like a group called like FinCon, right? Like so like a lot of financial bloggers. And I went to this conference back in like 2017-18, and my lesson learned and takeaway was man, there are a lot of good financial bloggers, podcasters, youtubers out there. And this is back, this is a while back ago, of course. But how many people actually listen to their content? No one, no one knows, no one cares, is the same, right? And it just takes you know, part of partially luck, but partially if you're in a crowded space, it ain't gonna work.

SPEAKER_02 10:41

Yeah, I mean, which but you know what though I will say that um like I know recently there's been um kind of an update in terms of like I know Apple and I think a few other platforms are doing it, but where you have a channel, you know, and I actually think that there's some opportunity there. I don't I don't know very many, um, certainly in our space where they've established kind of a channel so that you have an assortment of content, it's which is which is interesting because so on one and on one hand, sure, the platform itself is uh and effectively a channel, whereas you can choose what you want. But if you think about it, if you have sort of a curated list of podcasts that offer, I don't know, asset management or something like that, you pull them together as a channel, and then you tell someone, hey, listen, you come here for this specific information and we have a wealth of it. You know, I think that's a good way of sort of standing out a little bit because it is saturated, but but again, to me, there's just opportunities for uh, you know, to get your message out there and to make the to put the signal out there, like you mentioned, to where it's still effective, you know, it just takes some innovation.

SPEAKER_00 11:37

I mean, that's the tough part with with podcasts, especially um where you might have events with like YouTube and stuff like that, is like the searchability, like this the words that we're talking about now. I mean, sure, you could transcribe it, but like the crawlers, they don't really go into this stuff and pick it up and you know get into the Google search. Um and yeah, that's it makes it tough about podcasts, and especially with like the Chat GPT stuff, you can just regurgitate stuff and you can just sit in your closet and transcribe what chat GTP, I mean, that's not gonna bode well for you know the podcasters who you know don't have that original message. At the end of the day, it's I mean, if I kind of like look back and like reverse engineer, like it's the stories, it's the real world stuff. You can't BS that, right? Yeah, and I think that was why it was so popular or why it got that initial traction. I mean, today, I mean, I mean, you know, like podcast viewership, I mean, it's just it's not some asymmetric climb, that's for sure. Yeah, it's not a it's not a lead gen tool, it's just a conversion tool, if anything.

SPEAKER_02 12:44

Yeah, I would agree with that. I would agree with that. And so um, yeah, I think that it kind of goes to um, you know, people need to focus on kind of the spirit of why they're doing it, you know. If it's if you're in fact, I've had people ask me that, well, hey, how many, you know, what's the ROI band on it? And it's like, well, you know, for me, it's I'm not exactly using it to say, hey, uh, for every one listener, I need to have, you know, or every 10 listeners, I need to have one investor, something like that. You know, so I think it depends on, you know, exactly what the spirit behind it is. You know, is it education? Is it kind of getting the message out? You know, what is it? Um, and so um, so I wanted to ask you something that that uh I'm sure the listeners are are are wondering because you we mentioned how during while you had a job, you still built your portfolio. And um, there are a lot of people who still to this day believe that you can't do that or it's it you can't be efficient at it or whatever it is. So, how did you go about doing that? And maybe what advice would you give to someone who's uh who wants to do that, wants to get started?

SPEAKER_00 13:35

Well, I mean, you know, some people are just really inefficient with their time, right? I mean, for those people, go read David Allen getting things done, you know, get built yourself a framework for time management. Um, you know, I was always pretty good at that. Granted, I didn't have kids at the time, right? Um, you know, I I was kind of investing in my 20s and in my early 30s before it makes a difference. Yeah, it makes a huge freaking difference, right? You know, most of my investors are either like the young, younger guys who make like a buck fifty out of college plus, you know, I got carefree in the world, right? Um, or there's over over the age of 45 and their kids are can like you know do their own thing and don't want to hang out with mom and dad at that point, right? There's no there's like this there's no in between. There's no in between, right? I'm kind of personally in there myself and I I understand it. Um, so if you're kind of a younger guy under the age of 40, get with it before kids come. Um but but anyway, I mean, yeah, you know, like I I you know, I was pretty decent about getting things done, being judicious about my time, and you know, I I think I focused on the right things, right? Like I never flipped or wholesale or did any of that type of stuff because I was able to save enough money from my job. Um, you know, I didn't make a high, high salary as an engineer, but you know, I was I was able to save maybe 30, 50 grand per year. And then there was a few years where I just worked on the road like a rambling man and um didn't pay for any rent or mortgage, and I just lived off the company dime. And yeah, then I turbocharged things for a handful of years there, saving almost 100 grand a year. But all that money went into investments at the time, you know, turnkey rentals. And part of this is just time, right? Like, you know, like most of my investors, they're they're mid to late 40s, they have a lot of money, but that they just had a bunch of time for that money to grow at at a lower rate, right, in traditional investments. You know, they're kicking themselves that they didn't do alternatives, but you know, it's just time it needs to be on your side. But yeah, you know, I I you know worked my eight-hour job um in and I eventually went to more government jobs to have a better quality of life, to you know, do the real business, which is my investing, of course. And then, you know, in the evenings, you're kind of doing things, you know, with the properties and the property management. You're trying to make calls during the day, especially if if you live on the west coast, you know, most of these properties are more central and eastern time. You gotta get those knock those phone calls out during lunch or earlier before work. Um, you just get put in that steady, you know, one to two hours every single day, you know. Although at the time I was probably working four hours after my day job on this stuff. Um, you know, you got you got choices in life, guys. Like you either gotta watch Netflix or um you know make some make steady strides to what you really want or what's good for you in the long run.

SPEAKER_02 16:45

Yeah, I would agree with that. I think that um, you know, the reality is it it comes down to decisions that you have to make. I mean, if you if if you want more and you find yourself in a situation where you have you know a full-time job and you're and you're on the grind and uh but you still want more and it's actually what you want, then you just have to make the decision to go after it. And and it's like you said, that the the easy way to do it, I say easy, but the the way to do it, easy or not, is to evaluate the things that you're doing and say, is this actually adding value to me, or is this actually helping me reach my goal? And I like that you mentioned, you know, kind of people, you know, you sit down and watch Netflix or you watch the game or you do whatever. It's like, well, um, are you where you want to be? And by by spending, you know, taking time because that that's what it is, it is for people have to realize they're taking time away from working toward their goal. If they're okay with that, okay, good, and then they're okay with that. But if not, you have a decision to make. And um, I you know, I would argue that a lot a lot of people I think most people understand to some extent what needs to be done in order to get where they want to. I think it comes down to well, I want to relax. And it's like, okay, cool. If you want to relax, that you can do that, but you have to you do have to remember that then you're making a decision to um not spend that time on the things that you're hoping to accomplish. You know, it's hard it's for some people, it's a hard choice, but it that is it is a decision, in fact.

SPEAKER_00 18:07

You know, to it's yeah, I mean, like I I'm somewhat conscious of this, as you are, right? As we talk about this, but you know, I'd like to you know lose maybe five pounds to get somewhat of a non like you know, tire tummy. Um, and today will be a struggle, right? Like I'll I'll stuff my face with some Trader Joe stuff here, or you know, i I know what to do. I'm I'm somewhat motivated, but will I make the small um binary choices along the way that'll add up to you know coming in at a daily calorie intake of X or less? I don't know, right? Like, I mean that's maybe I'm just not intentional. You know, now you can go into Ed Milet, you know, what's my standard, you know, you know, but yeah, I don't know what it is, right? I mean, that's that's life. Um, you know, that's the Stephen Presley resistance, right, is all in front of us. Um I would probably say that, you know, I think in terms of like building a business and investing, what I do notice that a lot of people, you know, just like you know, diet, right? Like I was saying, people know what to do, they know generally what the steps are. Like the the issue is like people will get really motivated for a shorter period of time, yeah, for a few weeks or a few months, but they they kind of come out like a bat out of hell and they just kind of start doing stuff, but they don't it's they don't keep it going for a longer period of time, you know. Like for for people to kind of crack into investments or you know, just some the the ultimate test is like trying to trick a uh multifamily broker to do it, give you a decent deal that's not garbage, um, when you haven't done a deal, right? I mean, brokers are motivated by working with people that have closed deals, and it's a chicken and egg thing, it's totally unfair, and it makes no sense for them to give a new person a deal. Um, you you have to, it's going to take 18 to 24 months if you get lucky and if they like you. Yeah, you know, like you just have to do that. The stars have to align. Yeah, I mean, the stars have to align, and you have to still be freaking around in two years, yeah. Like that's that's the hard part. And I think a lot of people don't don't realize that they think, yeah, I'm gonna work pretty hard in three months, there's gonna be some successful thing that happens. Like, no, bro, it's gonna be two years, and that's if you're lucky. I mean, like the most people that join up for these like multi-family boot camps or educational things, like it's like one to three percent of people who actually make it to that two-year thing and actually get a half a halfway decent deal thrown their way. Um, that actually pencils. And I don't I forgot what what book that is. Um, you know, they talk about the crucible being in around the right people, or maybe like a success code, I think maybe it's called, but but part of it is like, you know, the they did like a psycholog psychologic test with little kids, and they were like, Oh, how or maybe it doesn't kill little kids, but um they were like, Oh, you how long does it take you to get to your goal, right? Um, the the key the people who were like more long-term focused, like, well, it's gonna take two years or five years or ten years, as opposed to under a year, those people had a much, much higher um rate to getting to where they're at. And I think it's kind of like me and running, like I do CrossFit and you know, I like to lift heavy weights, but I'm horrible at running, you know. I I if if if there's like a one mile running or even 800 meters of running in a workout, I'm like, man, this sucks. Like I'm just gonna just gotta hold my try and try and keep up, right? Um but I tell myself this to like I know it's gonna not gonna be pleasant, it's gonna be a long It's going to take me 12 minutes to run a streaking mile. And but I'm telling myself this so that I can kind of get through it and and and make it through. Right. And I think part of this is just making it through and surviving for two years and keeping an effort level up.

SPEAKER_02 22:17

Yeah, I would agree. Again, I mean, to me, I I I think that's that's important. I think that perseverance, I think having a vision, um, and not thinking that just, you know, you show up and then tomorrow you're gonna be in the in a big, you know, huge deal. Um, you know, uh it's just being realistic. And um, you know, the only way to to could even compress it a little bit is to attempt to partner up, but you still have to, you can't come in cold and and and have have us an experienced sponsor take you seriously either. Um, you know, because you still have to convey and communicate value, you know, what what what can you bring to the that's what that's actually what I see a lot is, you know. So I see what when I share with people kind of what I do um now, what I typically see is, you know, um people get captured by the allure of being, you know, an active uh investor or general partner in a deal, um, but they sort of temporarily forget about the the huge amount of work that goes with it, or they don't know. And so they they kind of you know get started, but doing a bunch of things without a whole lot of focus and it peters out and they get you know discouraged. Um, but it's you know that and that comes from a combination of things, one of which is you know not having kind of that vision or an understanding that, yeah, this is a marathon. Um, and so and and yes, certainly you can eventually have a lot of success with it, but it takes patience and perseverance and work, you know. That's why it's a it's an active role. Um yeah, yeah. And so so let's talk then about the transition, though. So so you you transitioned and you you leveled up to um larger and larger uh deals. And I'll just ask, like, what was maybe the what what did you see that kind of made you say, you know what, I think I can kind of step up to this larger um project, this larger uh uh property.

SPEAKER_00 23:54

Well, I mean, they kind of get easier as you go along. I mean, the harder projects are like those, you know, like the 50 units class C, you know, worst tenants, and you don't have the economies of scale, you know, when you're under 100 units to get a property manager and you get a full-time handyman on salary, and then you're paying all these BS third-party repair bills from the plumber or the age fat guy. Like, that's when it's the hardest. Um so yeah, I mean, we quickly moved up to like class B, you know, for more times of scale and a better clientele. Um, but man, you still run into like it's you're still doing it with people, right? And like like some of these properties will more class C properties, you know, your delinquency will be like 20%. I mean, it's like one out of what is that, one out of five people are just gonna be deadbeats, and you gotta flush them through. And you may never flush them through. It just may be a horrible, a bad area, you know. I mean, yeah, and and you know, that's kind of where we kind of stepped up to larger deals.

SPEAKER_02 24:59

Um you send you syndicated that first deal, or or how did you get it?

SPEAKER_00 25:04

Yeah, okay, okay. Yeah. Um, I think the capital raise was like a 1.1 or 1.2 million or something like that. But then yeah, you know, you kind of stepped up to larger deals. Um, but man, like you know, you never get away from people, right? Tenants, and um, you know, I don't know. I mean, you asked, like, well, what are you doing, you know, what are you doing this all for? What you know, what's your why, I guess, earlier. And I'm kind of just thinking to myself, man, like, you know, you do multi-family for for money. There's a lot of headache with this stuff. And like, there's a reason why these institutions don't buy value add class B and multi C and multifamily. It's a pain in the butt and it's risky. Sure, if you're under a few million dollars net worth and you're trying to get to, you know, that what I call end game is four to five million dollars net worth, where you can kind of sit, sit under laurels and cash flow at four or five percent with a bunch of T bills and some cure security back line of credits to give you a little bit more leverage on that. You know, you you have to you have to go. You have to, you know, either passively invest for maybe a decade or two, or you got to roll the dice as a GP if that's kind of your angle. Um, but yeah, you know, like I think we've been trying to just swim upstream, right? I mean, just within our kind of history, um, pretty short history, you know, like you got eviction moratoriums, you got supply chain issues, you got like pandemics, you have the rise in interest rates is the latest episode, right? And then stagflation, where a lot of the places in Texas, you have the taxes doubling, tripling on us, and insurance doubling and tripling or tripling on us. Um, you run into all these problems, and you know, it's just it's not sunshine and rainfalls all the time. And it's about you know, it doesn't work all the time. Works most of the time if you're good, but like it I think that's the like what is it all for, right? Passive investment, why did you all start this in the first place? Passive income. Well, once you get it, you know, you get out the game, right? Because it's to me, I mean, I enjoy the podcast and helping out, you know, newer and passive investors, but I don't really get jollies off of value adding multifamily real estate, bro.

SPEAKER_02 27:26

Like, yeah, and so and so kind of what you're what you're also sort of hinting at then is um more quality kind of class, either a solid B plus or solid A, which is like you mentioned there briefly, what institutions typically will go after for uh the large variety of reasons, one of which is preservation of value, but also you have, like you mentioned from a more practical standpoint, you tend to have um less of a headache from from the tenants in terms in terms of their ability to pay rent, um, you know, and afford sort of if you do have any increase to you know rent or amenities fees, whatever you it is, they can typically afford that. And so uh, you know, and that's something that that for aspiring operators is a bit difficult to see sometimes is that um listen, that just that part, just managing that, you mentioned delinquency, I think, in your first deal, or in or in that type of deal, like a B or C or a B minus or C. And so um though those that effort itself is a task. That's its own sort of role, really, is managing turnover, managing, you know, um, you know, delinquency, these kinds of things. And so when you are in like a solid A, you tend to not have that. You'll still have some, you know, some of those things come through, but nowhere near to the extent that you will for say a C or something like that. And so I think that's kind of that that's what you're getting at, right? It's just kind of a the the types of issues you have to deal with in a um institutional quality asset versus um something else.

SPEAKER_00 28:50

Yeah, yeah. I mean, there's a there's a reason why institutions don't go buy value add properties because it's not worth, it's not a good risk, just return as far as they're they're concerned. And they're not also they're not set up that way. Now, a more nimble, um, a more aggressive operator um who has made it their full-time job, you know, to focus on it, you know, can probably get in there and make it happen on a limited number of assets. But, you know, I mean, there's it's it's kind of it's just like the house flippers, right? Like the I see the house flippers as kind of like honey bees going around sprinkling on the flowers and then they fix up properties and they they recycle them. It's no different than multifamily operators to some extent. Um you're taking on uh you know risk. Um you just gotta be careful when the when the music stops, right? Um I would also say that you know, like that's that's kind of where like you know, these institutions will go after you know more stabilized assets on the higher end, class A. And you know, we've been kind of moving more towards developing and building properties from scratch, you know, so we don't have to deal with tenants, right? There's no tenants in there when you're in the building phase, um, just so get away from you know competition and you know, not many people have the expertise. I mean, that was kind of my background growing up as an engineer, was the construction project management piece. Um, I still have my PE license. Um, I wasted like$300 just for doing that the other week. But yeah, um but yeah, like that's if you if you buy class A, you're not gonna have the returns of the value add, unfortunately, right? And you know, depending on what kind of investors you have, they may not want to invest unless you're gonna double their money in five years. But unfortunately, I call these like semi-sophisticated LPs, they want this number, but they don't know the amount of true risks that's in there. And I get, and I guess that's the beauty of being a passive investor. You don't get any debt in your name. And when shit goes wrong, ain't no skin off your bat. That's your general partner taking on all the downside and risk. Um so that's from an LP's perspective, you know, you you become an LP in the more hairier deals, and these are the hairier deals.

SPEAKER_02 31:07

Yeah, yeah. I mean, well, and so I would say though, to be fair now, for development deals, you do have a significant amount of risk in the early phases of the project. Um, and so what what what are you doing then? So right now you're shifting to development and and still having some existing existing assets, or are you kind of shifting um eventually entirely to development deals?

SPEAKER_00 31:28

Yeah, I mean, that's the idea. Like um, you know, over over time, what we'll probably do is sell off these these, you know, class B assets, some class C, and you know, well, I guess some nicer ones too, but you know, generally get out of that space, um, which is why we've opted to do more third-party property management and not take on that that huge burden. Um and and I think that's it's just a maturation process. You know, I and I asked this question a long time ago, you know, for my, you know, I invest passively too, right? So um, you know, where all like the operators have been around more than even six, seven years, let alone the 2008 recession. Well, people have told me, um, well, they're not here because they get the hell out of value add multifamily, like exactly for the reasons I said, and they go to more institutional asset classes, bigger dollars, and or they go to development. So that was always I was always conscious of you know the path forward, right? Um, but you know, you gotta start somewhere, I suppose, right? And you know, buying a bunch of 50-unit class C's is kind of the way we got started. And you know, I think that's an on-wrap for a lot of people. But you know, there is you know a lot of risk in doing it, no different than you know, thinking of somebody burrowing up property, and you know, there is a lot of risk in that, right?

SPEAKER_02 32:56

Yeah, for sure, for sure. And and and so let's let's maybe talk then about the kind of the development path that you're um on now. Is is your um your philosophy then to focus on a particular market or focus maybe more on a strategy and then just um tailor your uh approach to fit whatever the market is, get you, especially given that you know different markets will have different requirements in terms of getting like entitlements, things like this for uh for the land or what have you.

SPEAKER_00 33:21

Yeah. So I mean, let's say it's probably more strategy than market, but as far as market, you know, this I think we're in alignment, like red states, emerging markets, growing population. Um, you know, we kind of look to build more workforce style housing because I've always, you know, just like the thesis with apartments, right? Like there is a growing demand for workforce housing, uh especially in the lower middle class. Um, and I, you know, not not to say that I'm totally, you know, looking to invest for the better of mankind, but I think you know, we don't need any more luxury like condos. And I also don't think they will perform well. And you know, I do see some kind of crisis coming ahead with all everybody and their mother getting a short-term rental, right? With that, these these more nicer higher-end houses um when a recession hits in 2024. So, yeah, I mean, I would say that um, you know, like the the the like the single family, you know, the Lauren single family, like the three bedrooms, and then slightly up under that, you know, one to two bedrooms is what we'll build. We don't do any three bedrooms because we don't want to compete with the build-to-rent houses. Yeah, I was just gonna add that. That's kind of our our sweet spot, but that's kind of like where, you know, geographic, where do we we build it? But yeah, that's the strategy is to you know cater towards that demographic. And it's typically, you know, not in your urban core, you know, just for the same reason why you don't buy apartments and houses in that inner core district because your rent-to-value ratios aren't going to work. You've got to be a little bit outside that suburban area, in you know, maybe not super far out there, but a little bit of the sprawl, right? 20 minutes, 30 minutes, maybe an hour outside the city center. Um, that seems to be kind of the play. Um, you know, we we invest in you know, apartments in Phoenix, right? But unfortunately, in Phoenix is a little bit more institutionally owned city. You're not gonna find like, you know, 10, 20 acres of raw land in decent area out there. Ain't gonna happen. But you can find some of these places more in like Florida, Texas, Alabama, places like that.

SPEAKER_02 35:36

Yeah. No, absolutely. I I think also, I mean, for what it's worth, I think it's really um, you know, cool that you're able to sort of lean then on your professional and educational background as well, um, which I'm sure you've been, you know, doing this whole time, but but maybe even more directly now, um, to help in that in that effort. I mean, you know, that's one thing I always talk about on this show is um transferable skills and how, you know, I think that far more people should realize that, hey, you know, the thing that I've been doing on a daily basis for my job, I can actually use that to improve my own life or build my own business or whatever it is. And so um, I think it's you know, it'd be kind of cool that you'll be able to lean back on that. So with the work that you did in your past life, um, was it very similar to what you'll be engaged in now or or kind of maybe at a different scale? Or what was other similarities there?

SPEAKER_00 36:24

Yeah, I mean, pretty pretty much. I mean, I used to be, I mean, I was never a really good engineer, right? So that's why I went into management and and supervising crews. So, you know, I can talk to the trades. I understand, you know, kind of how it works, you know, when you're you know you've got blue-collar union staff. But eventually I grew up and you know, did more of the white-collar project manager role um with the railroad. Um and that kind of translates directly into what what you know what the projects that will do today. I mean, we'll hire another chump like me, right? Or what I used to be to manage the projects, you know, whether you call him project manager, superintendent, you know, same deal, right? Some some guy with an engineering degree who's been around for a decade to kind of run the show, right? And you pay him uh, you know,$150,000,$200,000 with some bonuses in there. And like that's they create so much value for the owners, right? So it's very interesting to be on the owner side than kind of the working talent side or the high-skilled labor in a way. Um, but yeah, I know I know the the dance, and it kind of makes me a little sad because like you know, you go to college, but you just become some working stiff carrying out somebody else's dream. And you know, of course, you don't have the risk, right? But you don't get any of the upside, in fact, right? You're just trading your time for dollars with that pretty okay salary. But man, you you you carry on all the the the job site, um signing change orders, reviewing pay estimates, value engineering little problems in the day-to-day. Um you know, that that was kind of my world. Um, I did more horizontal construction than vertical construction that we do today. Okay. But you know, I think what a lot of people don't realize is like, you know, the bigger project you go, the easier it kind of gets because you're able to hire professional um engineers and architects, and then you then you layer on top of that construction management so that they carry out the plans and specs to a T. And you know, it there it's this is a system that I kind of grew up in as a professional where it's a very mature system. There are ways to do this where you know you you acquire a team of smart professionals, you know. And you know, it's kind of like that the whole concept of like even with my business, you know, we started with you know VAs, overseas, and you know, they're good to start with, and you know, they're they're cost effective, right? But you know, over time, you know, you you just need better, more talented people who have better capacity, right? Um, and it's kind of the opposite of the McDonald's theory, right? McDonald's is like they have such a good SOP and they're able to hire you know the cheaper staff to flip burgers. Um, I actually kind of think of the opposite, right? You want to build a more sophisticated um organization where if you do have things that are turn and burn and repetitive, then well, that's what systems and computers and AI is for. And you hire more smarter talent and you have the talent manage the contractors.

SPEAKER_02 39:44

I like that. I think that makes a lot of sense, actually, kind of reversing that so that so that that way the systems, you know, that they'll run smoothly and that uh there'll even be improvement um as well. That's what that's one thing that I think higher um better talent or more sophisticated talent will bring to the table, is not just um rinse and repeat, but it's kind of rinse and repeat, then step back and take a look at what we can cut out or what we can add and then go get back into it. Um and so that there's something that you mentioned I kind of want to uh ask you about here. And and so, and this is around hiring teams to help you get it done. This is my my own curiosity for the development side, um, because this is something that I typically don't hear about. But in terms of hiring people who can help you more efficiently then on the on the uh on the front end, more efficiently navigate the process to getting like the entitlements to securing the land. Is that something that that you're considering as well? Like, you know, maybe some uh consultants that can help you get through faster so you can uh get things approved?

SPEAKER_00 40:40

Well, I mean, I think that's where like you know, that's the print more principal work, right? Or or you have to figure out what your your talents are, what's your unique um you know, as or get a partner that kind of does that type of stuff, right? Um it's similar to like you know a lot of people know about like Amazon e-commerce, right? Like typically the owner will always be the guy deciding on which products, which SKUs to buy, right? Which ones have the biggest delta and opportunity for them to promote. Um, and I guess similarly within our world, right? This the the similar role would be the person who is on the acquisition side on like what piece of land, what best, you know, what best leads to go down to acquire that first piece to, you know, that first domino to fall. Um and I think that can be somewhat outsourced with good brokers. Uh, you know, because not you know, these you're talking like 10, 20 acres of land, like this isn't going to be bought by, you know, you know, some individual, right? Um, individual family who just happen to have that piece of land, right? Most most kind of people, or at least they teach you in the land buying um guru camp, your little one-track homes, right? Like maybe one acre, can't build a multifamily on that. So, like this is again, just like they teach you with multi-family, like the brokers are going to control these these beginning pieces. So, in a way, that's a contractor, right? You you pay them a certain percentage and they they do their job as professionals. And so, yeah, you're kind of outsourcing that portion, but yeah, the acquisitions portion just being the business development with brokers. I mean, that's a big piece of getting started in multifamily, is it still a big component with with our side. But yeah, I mean, there are people who one of the big problems with like developments is from a passive investor side. What I tell my investors is like, make sure you go into like a shovel ready project. There's so many half-baked um developments out there where the land is not entitled to what it needs to be. You know, I'm thinking of some like some train wrecks with like, you know, things with not multifamily residential, but like other uses, like industrial uses or hotel and uses, um, where that you know, you might have you might own the land, but it might be entitled something else, and then you have to get it re-entitled to whatever you need it to be to build whatever you you your your intention is, and that can be a huge process. This is called pre-development. So there are firms out there that will do this for you where they will go at risk, buy the property, and then spend six months to maybe a couple years to value add the property or or the the piece of land. But their value add is more they you know, they're they're in in engrossed in the the municipality, they know the people, they can get things moving. Um, whether that's a you know, either, you know, maybe there's wetlands or some kind of environmental thing on the property, or it's just maybe it's just simply getting it re-reentitled from commercial to residential, you know. Um or or it can be as fine tuning as like um you know, it was the last one, it's like a mobile home park, but it, you know, I think. It's I guess that uh yeah, I guess that's not resonance, but the the big thing was like how many parking spaces can you get on that that piece, right? And that was kind of restrictive of how big you could build that multi-family unit, right? So, like some of these pre-developers will even get kind of get to that, right? You you know, you're buying it as kind of a spec, kind of like a car, right? Like, uh, you know, give me a Toyota Kami, but then you're saying, Well, give me a Toyota Cami with this horsepower and this engine, right? So it's kind of you pay for you know what you're ordering, what you're customizing and getting. But yeah, you know, that's another piece of this, you know, value train that you could contract out, or maybe if some people are out there that they're really they're really good at BSing with, you know, politicians and getting things done that way, but they're horrible at you know, managing people swinging hammers and construction and you know yeah, I mean there's because they're because they're two very different you're right about that.

SPEAKER_02 44:52

They're two very different sort of undertakings. You know, some people are some people go to all of the meetings that you know with with the city council and and to understand what the city's doing in terms of improvements and and they don't want to do anything else, you know. And so, but but that's a necessary piece of it. You know, if you don't have someone who who who has the patience and the wherewithal and capacity to do it, then things might move a little slow for you. But you know, naturally, if you once you get things pushed through and it's time to um break ground, you got to have someone there to manage that, otherwise it all falls apart. I think I think what's interesting too is that you have all kinds of different strategies that you can use, even from um how you structure the deals, you know. Because I've I've heard of some where they uh parse it into three different phases where there's a sort of a higher return on the front end, and and the investors there can choose to cash out if they want or stick with the deal. And then they go through to the other phase where there's a little bit less risk, so there's a little less reward, but it's still more than the final phase when in the vertical, you know. So you got sort of the land and the horizontal, then the vertical, and but all kinds of things that I think opens up a uh in a a different world, which is uh you know really fascinating for um for investors. Um, so I think it's really cool. Uh so one question I have then is is lessons learned, right? Because you've actually talked about some of them. And I'm curious to hear, uh, because you know, um naturally you started off kind of on the class C value add, smaller units now the larger deals are now even in development. And um, maybe what are some of the lessons learned that that the listeners can um take away from this, but that are still wanting to operate in that space, um, that that value add, even deep value add space, you know. Um I mean other than other than stay out of it. What would what are some lessons they can do?

SPEAKER_00 46:31

I mean, I mean, at least for myself, right? No more floating right debt. That's that's tough, right?

SPEAKER_02 46:37

Um but it's well is that cap or not, though?

SPEAKER_00 46:42

You're saying even with even with it? Even with it, yeah. Let's talk about it. I mean, because it's kind of like one of those things where like you can do everything within your power, but your debt service can keep going up and up and up. So if you're gonna, I mean, I but I get it. I like I'm not gonna just sit here on a podcast and tell you to do all this stuff but not understanding the repercussions of you know the the downside. Like the you if you're you're doing that because you need to um hike up your skirt and make your deal look better to passive investors. You know, maybe maybe you're just in a too competitive of a space where everybody else is just trying to get their first deal done or first dozen deal done and they don't really care. Um, but that's that's the kind of behavior, or that's that's the byproduct of the behavior of people all doing that in the similar space. Um, maybe pick a different market, you know, so people are less comparing yourself with other people. But yeah, I mean, I understand why you do the flowing debt, right? On the certain projects, it makes total sense. But I think the lesson learned is like, you know, do it, you know, at least have a couple of years of runway to assume that you can run that property maybe at 60, 70% occupancy. Um, I think that was the thing that you know we learned is you know, we didn't assume that we'd have 10% inflation. I mean, at some point you break the model, you don't assume your inflation is gonna go up 10%, but it did, right? Right, things like that happen. Um, but then you'll never get a deal done. And then you're gonna show your investors that you only're gonna make like 30% over five years, you know, like something ridiculous like that. Yeah. Um, but yeah, you know, like I don't know. I think that's what's hard about some of these podcasts, right? Like you get you get this kind of ridiculous advice like don't do floating rate debt, but it's like, well, how do I the heck, man? What do I do?

SPEAKER_02 48:33

You know, it's yeah, well, because because the other part of it though is that you know, realistically, some of some of the underlying themes behind what we're talking about, that's going to follow you regardless of what you do. If regardless of the asset class, and regardless of the the uh vehicle, um, there are things that will break can and will break the model. And there are things that you know you you you test within your upper and lower bounds and you make a decision and you move forward. Um, you know, and so so you're right. I mean, it's it's like it's be ultra conservative as much as you can and and and um and you and you move forward with it, you know. But um, but but you're right. I would I would have to agree with that. I think going forward that at the very least, people will be looking at uh floating rate um even with a bridge, even with a very uh tight bridge, I'm sorry, uh uh cap, even with a very tight cap, people will be looking at that with a fine-toothed comb. And some people, you know, I might not do it, but it just depends on how it's structured. But I mean, I think that again, it's yeah, it's it's that's a great uh piece of advice there, I think.

SPEAKER_00 49:33

Yeah, I mean, uh, if I was a passive investor, um, because I, you know, I work with more passive investors, I would say, well, step one, like you said, the rate cap, you know, maybe if you really want to be conservative, throw it out for three years. Um, easier said than done when the damn thing costs two, three million dollars today, right? But um, but in normal times, you know, it might cost 50 grand to 100 grand, right? Not too bad. Um, if you want to take it another step further, well, extra reserves to operate at maybe 70 occupancy. But at this point, none of the deals are gonna pencil at this point, right? Yeah, with where we are in the cycle, right? Yeah, or even in, you know, when it is, I mean, now's the time to buy properties, I think, although the LTBs are pretty, pretty low that you get on these loans. Yeah, and then yeah, I mean, and you know, if you wanted to kind of be even more conservative, like if you're not syndicating this and you're just buying your own 100 unit on your own, um, just make sure you have adequate liquidity on the side and you keep it, you keep it liquid. And this is where the institutions have a huge, huge advantage over you know, smaller operators or even larger operators, right? They have a sort of infinite supply of you know cash on the sidelines.

SPEAKER_02 50:49

Excellent, excellent point. And I think that's something that I would say for a passive investor is to pay very close attention to because what we're talking about is de-risking the deal. And you have to have as many things as you can if you're an LP looking to go into a deal, look for whether or not the operator has de-risked it. You know, so if you've got bridge bridge debt, how tight is the is the rate cap? Um, how low is the is the leverage? How much do they have in working capital and reserves? You know, I mean, what are their their projections? You know, how much are they looking to, are they assuming the rent will increase and the other even things like other income? Sometimes I see people hiding and increasing, jacking up the other income unrealistically. Um, you know, or it can be anything. So um I think that one thing I have seen is that going forward, there does appear to be um an increased focus on risk. How's this, you know, where's the risk at this deal? And I mean, even from passive investors, you know, because the ones that are still uh, you know, looking for deals, um, in my from what I've seen, they tend to be clued into what's happened in the next in the past, you know, year or two in terms of so so yeah, I think that you know, all excellent.

SPEAKER_00 51:53

Um, you know, well, right now, right now, I mean, we're talking here at 2023. Right now is the time when the the deals are the best, one would assume, right? Because the prices came down 10, 20 percent. Yeah, intrinsic value. Yeah, now you kind of don't really need to use these these rules that you and I are kind of talking about. You just jot down these rules, but you you bust out the rules, these kind of measures in three, five years from now, when things get hot again and the frenzy starts, right? And you just you know, that was kind of where things went, you know, astray. Like you start to uh, you know, things have been good for the last four years and it's gonna continue, and there's frenzy, like and that's that's that's when you need to remember these rules, not when it's kind of fresh right now, because right now things are kind of safer to do stuff at this point.

SPEAKER_02 52:46

That's a good point. Well, so are do you do you think that we're kind of in recover in in the early, early phases of recovery, or maybe just pre-recovery, uh call it?

SPEAKER_00 52:54

Well, I mean recovery and then expansion and blah blah blah, right? I I I mean, there there's gonna become a point where and it's gonna take longer than you think, that the interest rates will hold steady and start to drop. Um the long-term curve, forward curve is looking more like you know, three and a half percent, maybe two and a half percent in the long run, but you know, it doesn't need to get there. At some point, there's gonna be some stability and traction where you know the buyers are gonna come back into the market. Yeah, I think the big thing is like the capital markets need to kind of free up and allow people to get you know better terms, you know, because used to be you could get 70% loan of value and that drop to 60% just to use simple numbers. Yeah, and that's I think what's kind of keeping a lot of people on the sideline, despite the prices coming down 10, 20. So you know, it's it's kind of one of these things where it's like it's always there's always this dynamic of like, here's some reasons why you should buy real estate's good, and here's those reasons why it you shouldn't do it. Yeah, and there's always gonna be those reasons one year from now, five years from now, 10 years from now, 20 years from now. Like at some point, you just have to go, right?

SPEAKER_02 54:07

Yeah, yeah, I couldn't agree more, couldn't agree more. Well, um, look, Lane, um, we're getting to the point where we're at the sort of actionable tip portion of the show. And you've given tons of them actually. So you've given uh quite a few gems here, but I'm gonna ask, so for someone who's looking to invest, maybe they've heard this and um and they're still you know very much excited about getting into the game. Um what's say as a passive investor? What's what's something they could do to take action now toward getting into uh this space?

SPEAKER_00 54:35

Um well, get educated, you know, learn the super basics, like what is a BRAF, what's a split, you know, like um I call that stuff the prerequisite stuff. So the second thing, and the most important thing is interacting with other purely passive accredited investors, right? Um, that's really the only way of figuring this stuff out. Or I mean, when I was first a passive investor, I didn't own any accredited investors investing in this stuff. So I invested with a whole bunch of random people seemingly out there looking back on it, and a lot of them were just fake it to make it newbies or you know, one shyster in there that was stealing my money. But that's that's kind of how this game is played. If you're you don't know anybody, so that's the hard part, right? Like finding purely passive accredited investors. Um, if you're a new investor, and but like I said, you got to have the prerequisite knowledge, which isn't very much. Um, you know, so you don't embarrass yourself and you know become a value suck for when you do sit at a table with four or five purely passive accredited investors. Um, and they say your network is your net worth, right?

SPEAKER_02 55:44

Yep, yeah, absolutely, absolutely. Get educated. I love that. Um, so uh okay, so Elaine, for the uh the listeners who want to hear more about you and check you out and um what how can they reach out to you or how can they see see more of you?

SPEAKER_00 55:56

Yeah, they can um go check out my podcasts, uh passive real estate investing via simple passive cash flow. Uh we'll we'll have the new book come out, The Wealth Elevator. It's more for you know, it's not really multifamily investing, it's more like, well, how do you use, you know, just for example, like multi-family investing or this type of investing in your whole portfolio based on where you are in terms of the net worth stages. You know, we've got some strategies for five, 10 million dollar plus, and you know, maybe this is the wrong podcast to talk about this, but at some point you get out of um real estate and alternative investments and you go back to you know the the stuff we all don't like, right? The traditional, but you got to get yours, you gotta get your net worth to a certain level. Yeah, um, and that's just my story, right? Like I concentrated my net my money, what little I had into real estate initially, got myself past the credit and status beyond. And then, you know, this is kind of the point where you start to reallocate your portfolio. And that's where like that's always been frustrating for me. Like you have all this financial advice out there, you have the Dave Ramsey, Susie Orman for like the new guys who are broke, and you have kind of the space that we're in, right? You have you know people growing their net worth, but then there's a higher end, you know, for you know, for higher net worth over five mil, 10 mil plus. But there's nobody talks about these paradigms in this journey, right? There's different strategies based on where you're at. So that's what I kind of talk about in the wealth elevator book coming up.

SPEAKER_02 57:30

Awesome, awesome. Well, when when is uh, do you know roughly kind of when that when that book will release or um I'm thinking before the end of the year. Okay, awesome, awesome. Well, we'll we'll update the so we'll include the um um your other information in the show notes and and maybe put a link to that as it becomes uh as it comes available. But um, yeah, man, listen, um Lane, like I said, really appreciate your your time and your insight and perspective. Um, so it's just been an awesome conversation. I really appreciate it. And uh thank you so much uh for for being on the show.

SPEAKER_00 57:57

Well, yeah, thanks for having me. See every everybody. Bye.

SPEAKER_02 58:01

As always, thank you so much for tuning in to the show today, brought to you by Bridge Prosper. If you enjoyed today's episode and you'd like to learn more about commercial real estate investing, please like, subscribe, and share. And we'll see you again next week. I'm Brandon Jenkins, and this is the Capital Stack, where we help you learn, apply, and prosper.