Category: Finance Tips
Air Date: 03.30.2021
The traditional methods of building wealth, like investing in postgraduate degrees, working for up to 50 years in your W2 job, and putting money towards your 401(k) mutual funds are all good and well, but they’re not the best strategies out there. Why not begin with the end in mind and have multiple streams of income today? Today’s guest, Lane Kawaoka, can help you do just that. Lane uses his engineering degree to reverse engineer the wealth-building strategies that the rich use in his top 50 investing podcast, Simple Passive Cashflow. He owns 4,200 rental units and is the leader of the Hui Deal Pipeline Club, which has acquired over $350 million of real estate by syndicating over $40 million of private equity since 2016. In this episode, Lane shares his advice for doing what the rich do by diversifying into real estate and investing with private operators, and he explains why he believes you should not invest in retirement accounts, how taxes play into your investments and his three rules for investing. Tune in today!
Key Points From This Episode:
- Hear about Lane’s background and what sparked his interest in passive investing.
- Lane’s journey from his first passive investment to a business and a podcast about it.
- How the podcast originated because of the “dumb questions” his friends asked him.
- The virtual events that have adapted to COVID and the limited time of those with families.
- Do what the rich are doing by diversifying your investments into real estate.
- The benefits of investing with private operators and cutting out the middleman.
- Four reasons why Lane believes you shouldn’t invest in retirement accounts.
- How taxes play into real estate investing; using your passive activity losses to offset passive income gains from an asset or deal.
- Some of the lessons Lane has learned along the way, like letting every dollar work for you.
- The importance of educating yourself on the benefits using podcasts and blogs.
- Why Lane believes that anybody can do real estate investing; it’s an endgame strategy.
- Lane’s three rules for investing: it must cash flow, be a hard asset, and be leverage-able.
- Keys to Success: the value of building organic relationships, why Lane is so proud of quitting his day job, and book to read.
- Lane’s one key to success: figuring out the next thing to do and executing it to completion
“Why not begin with the end in mind and create many streams of income today and, especially while you have a day job and you don’t need to live off those streams of income, have those streams of income buy more streams of income?” — @SimplePassiveCF [0:08:47]
“Every dollar you have is essentially a soldier for you. It doesn’t need to be in a development deal making 20% ROI per year. It doesn’t need to be in a stable triple net deal at 10%, but I think most people have a vast majority of their wealth doing jack.” — @SimplePassiveCF [0:19:38]
“Golden rule, don’t take financial advice from people who are not financially free.” — @SimplePassiveCF [0:23:17]
“This real estate stuff is probably the best risk adjusted return that you can get out there. Anybody can do this real estate stuff, especially as a passive investor. It really is an endgame strategy.” — @SimplePassiveCF [0:27:43]
Links Mentioned in Today’s Episode:
If you enjoy the guests and content please subscribe and leave a review. Your reviews matter and each one has a major impact on the success of the show!
Interested in Investing Alongside me in our next multifamily deal?
Contact me at firstname.lastname@example.org.
My operating partner, Birge and Held Asset Management have a twelve-year track record creating sustainable wealth for over 2000 investors through high-quality multifamily investments.
Thanks for listening!
—Full Transcript Below—
“LK: If you want to just be like everybody else, we know what’s going to happen if you keep doing what you’re doing. I know without a doubt what’s going to happen if you keep investing in your 401(k) and paying down your mortgage, like my parents, right? And the crazy thing is it works. It just takes a long time. In 40, 50 years, yeah, you’ll pay off your house and your net worth would be somewhere around a million. But I see the financial profiles of thousands and there’s people who get it and people who don’t. “
[00:00:28] KR: Welcome to Ritter on Real Estate, the show about how to passively invest like a pro. On each episode, I interview real estate experts who give their top investing advice, strategies, and tools that break down the insights into practical steps to avoid the pitfalls and make better investments. I want to help you passively invest like a pro. This is Ritter on Real Estate, and I’m your host, Kent Ritter.
[00:00:49] KR: Hello, fellow investors. Welcome to Ritter on Real Estate, where we teach you how to passively invest like a pro. I’m your host, Kent Ritter, and today, we’ve got a special guest. His name is Lane Kawaoka, and he owns 4,200 rental units, and is the leader of the Hui Deal Pipeline Club, which has acquired over $350 million of real estate by syndicating over $40 million of private equity since 2016. Lane uses his engineering degree to reverse engineer the wealth building strategies that the rich use in the top 50 investing podcast, simplepassivecashflow.com.
Lane, welcome to the show. Thank you so much for being here today.
[00:01:32] LK: Yeah, thanks for having me, Kent. Aloha, everybody.
[00:01:35] KR: Yeah, so let’s start at the top. Tell our listeners a little bit more about yourself, and what made you be so passionate about passive investing?
[00:01:43] LK: Yeah, so I started investing back in 2009. I graduated a couple years out of college. Up until that point, I kind of walked this linear path that I think a lot of us walk as working professionals. You’re told to go to school, study hard, get a professional degree, and then work at that job for 40 to 50 years and, on the way, buy a house to live in, have 2.1 kids or whatever. So, I bought that house to live in but, as a single guy, I was working on the road all the time. I never was there. So, I just decided to rent it out. The rents are 2,200 bucks a month, and the mortgage was $1,600 to a young 20-something-year-old kid, that was a lot of beer money. Very quickly, I realized this was my ticket out of the rat race and that’s where it all began.
[00:02:30] KR: That’s awesome. I mean, how did you get from that investment, seeing that opportunity, to starting now, a podcast, the community, and just this kind of ecosystem of all these different investors?
[00:02:41] LK: Yeah, I mean, it took a lot of time. From 2009, I bought the first property. 2015, I had around 11 single-family homes. So, it was just about saving up down payments. I was pretty good at saving money. I was pretty frugal back then. I’ll be able to put away 50, 100 grand a year to buying rental properties. But then around 2015, I realized what a lot of us realize as accredited investors, is it’s not scalable.
I found the right tribe of other high net worth other doctors, lawyers, engineers, who were investing differently. You don’t own rental properties. You’re not a landlord. You don’t even have to deal with property management companies. You’re just a passive LP partner, diversified over many different deals, different partners, different geographic areas, different business plans.
You just sit back and cash the checks, man. That’s what it’s all about.
[00:03:35] KR: Yeah, right. I mean, that’s a great way to invest, especially if you’re focused on something that you love. If you’re passionate about your day job, then it’s a great way to continue to build wealth outside of that.
[00:03:46] LK: Yeah. And if that’s you, good for you, because I wasn’t. I finally quit a few years back, but it took a while. I mean, try to build up your passive streams of income, so it replaces your W2 salary, so you feel comfortable to leave. Because, for a lot of us, it’s the golden handcuffs.
[00:04:04] KR: That’s right. So, you discover this world, this different type of investing, and then you take it a step further, right? You don’t just stop by investing in these deals yourself. You go out and you create a community around it, you create a podcast, you create an investing club, Talk a little bit about those things and kind of what led you to begin to spread the word about these types of investments?
[00:04:27] LK: Yeah, so in 2015, I was still sort of in the headspace of buying rental properties. Like a lot of people have this idea that they’re going to get 10 in their name, 10 in their spouse’s name of Fannie Mae, Freddie Mac loans, which is a little silly for a lot of us today to have the idea. But one step at a time, that’s the progression over the years. I kind of thought I was going to be heading that path and a lot of my friends had been doing this since 2009. It was almost like five, six years a lot of my friends were starting to actually see some of the changes in my spending habits, in my finances. They were like, “That property you bought sight unseen in Birmingham, how’s that going?” It’s going well, and “How do I do that?” As we all know, most of our friends ask us a lot of dumb questions, but never do anything, because it’s just so easy to just blindly invest in the stock market and mutual funds.
I just got tired of it all and just started to make a podcast surrounding how do you buy that first remote rental property initially? My genesis really occurred the next couple years where I transitioned to be more of an accredited investor, and a lot of investors who started to do single-family home remote rentals for cash flow came over, along with me on my journey. A lot of people – I don’t know how it happened, but a lot of people just kind of rallied around me, and we kind of created this passive investor community.
[00:05:59] KR: I think that’s great. I mean, that’s awesome to be able to have a community where you can bounce ideas off, share investments, learn from each other. What goes on in the community? Are you having events? How do you guys share information? How do you guys learn from each other?
[00:06:14] LK: Yeah, I mean, we used to have in-person stuff, had an annual event in Hawaii, but with the pandemic and all, it’s a little hard to do that. But then again, I mean, most of us are really high paid professionals with families and it’s really hard to go to events. A lot of people that are in my community, they’ll never go to a real estate conference, because it’s just a lot of time away from home and they, frankly, don’t want to burn the vacation. So, a lot of the virtual stuff we do today is kind of lined up more towards what resources, time resources, they’re working with.
[00:06:48] KR: Got you. I know you have some ideas on counterculture related to, I’d say building wealth and the things that you invest in, and it’s very alternative. Some of these items that you’ve talked about as far as rules for building wealth, things that maybe most people do, but you would actually recommend folks to not do. Can you expand a little bit on some of those items that are some of these common things you see people do and you’re saying, “You know, that’s really not the right way to go about it”?
[00:07:19] LK: Let’s say I’m passionate, but I’d say I’m pissed, right? Because this is what all the hard-working folks out there, like my parents, doctorate degrees, master’s degrees, and they’re forced to work 40 to 50 years investing in this mutual fund 401(k) nonsense, that really only the Wall Street gets rich with all the hidden fees. I’m not a big advocate for buying your house to live in. I live here in Hawaii, but I rent. I can get so much more value and I can arbitrage that money in my investments. Maybe someday I’ll buy that $5 million house but, quite frankly, my money’s working harder for me in investments. We don’t do retirement accounts. I’d rather take my money out. We can kind of dig more into deep, but for tax reasons, for many tax reasons, and the passive activity losses that you get from deals, why would you want to be investing via a retirement fund?
Yeah, they say, yeah, the growth doesn’t tax but when you invest out of it, you get the passive activity losses to be able to manipulate your taxes as you see fit, which you give up when you invest in a retirement account. Just generally, like the whole accumulation theory that we’re all taught to believe. Be a good little boy and girl and save up $2 to $4 million in your retirement accounts, and then you can live off the pile in your dying age. That’s great and it works, but it takes a lot of time. A lot of people are picking at that pile until you get there, but in endgame, you need cash flow, right? Why not begin with the end in mind and create many streams of income today, and especially while you have a day job and you don’t need to live off those streams of income, have those streams of income buy more streams of income?
A lot of counterintuitive things that the rich do that the layperson just doesn’t. They’re kind of groomed and I would say, you know, brainwashed to think otherwise.
[00:09:09] KR: Well, it’s the only thing that we’re accustomed to, right? It’s the only thing that we’re exposed to, for the most part. Even your employer is, “Put your money in your 401(k),” and then in the 401(k), depending on who your employer is, you may have 10 to 30 options to invest in, but that’s really about it. This idea of looking at real estate as an alternative asset, which is as it’s defined, I think is just kind of a funny idea and their real estate is, it’s been around longer than anything else. It’s really not an alternative at all. It’s something that everybody should be investing in. If you look at the richest people in the world, they all are.
Something that always amazes me is when you look at the proportions of people’s portfolio, and you look at whether it’s large institutions like Harvard endowment, for example, or you look at high net worth individuals, I mean they have anywhere from maybe 20$ to 40% of their allocation into real estate. And then you look at folks that are kind of just average people, and most of them have zero.
When you just look at it from that standpoint, going back to your point of do what the rich are doing, kind of that’s what I took away at least. You just look at the portfolio allocation and the difference there, and you see that most people are missing out, if they’re not diversifying into real estate.
[00:10:23] LK: Yeah, and take another lens at it. I mean, you can invest in real estate VRE, but that’s a retail product where everybody and their mother stealing your returns from you. The idea is to kind of go off of both the retail market and go more wholesale or a little bit beaten off the path with private operators that you know personally. You’re cutting out all these middlemen and administrative costs, and how else do these big buildings get created?
[00:10:51] KR: That’s a good perspective. I never thought about it like that. It’s a retail product. If you just think about it, like any other supply chain you go from, the person is the manufacturer to the wholesaler to the retailer, and there are fees, and then pieces of the deal taken out at each point. I never thought of that.
[00:11:07] LK: Yeah, same Nike shoes, just a different price at Neiman Marcus, or Macy’s, or eBay, right? Now, you can say that because eBay is supposedly a guarantee authentic but not quite.
[00:11:22] KR: A couple of things that you hit on that I think are really interesting and really timely. One is talking about not investing with retirement accounts and the reasons why not to do that. I mean, that’s something that I get asked that all the time as I’m talking with potential investors. They’re asking questions about sources, “Should I invest in a retirement account? Should I not? What are the ramifications of that?”
I know that it’s a fairly complex topic, but I wanted to hear some of your thoughts on reasons why you shouldn’t do that.
[00:11:56] LK: Before even start to dig into your retirement funds, which is sort of irreversible, once you take it out, you can’t put it right back. I mean, obviously, try and get at your liquidity, and then your home equity via HELOC or refinance there, but, yeah, it ultimately comes down to getting at that nest egg that you were kind of blindly taught to just put into there.
Four big reasons why you shouldn’t be using those retirement funds. Number one, normal traditional financing is predicated on you’re going to be old, and then you’re going to stop working your job, and you’re also shriveling up and dying, and you’re going to be in a lower tax bracket in the future. Now, that is right for most people, but personally, you and me, and people listening, you guys are going to be making more money in the future. So, you’re going to be in a higher tax bracket in future. So, point one for taking out your money and then paying your taxes now.
Number two, where is this country going? How else we’re going to pay for all this government stimulus? Eventually, there’s going to be more inflation, but also more taxes to pay for all this damn stuff. So, I guess what I’m saying there is pay your taxes now, before tax brackets go up in the future.
Number three, I mean, I’m not waiting until I’m 65 and who knows when it gets up to 70-years-old to get at that money, right? I want it now, because I’m going to retire. Most of us can get financially free in the next 5 to 10 years by doing this, who are working professionals. Then lastly, you have the passive activity losses that you get from these deals. Now, I’m going to get get these passive activity losses and you’re able to offset your ordinary income via real estate professional status strategy. Now, you’re able to manipulate how much taxes you pay.
That’s ultimately how you’re able to micromanage your tax situation.
[00:13:48] KR: This idea that you’re going to work and work and save and save, and then someday, you’re going to be in a lower tax bracket, when you actually want to take that money out, and you can just kind of live off of that savings after that fixed pile of money and kind of hope that you die before the money runs out. That’s kind of what were sold of how you’re supposed to go about your life, right? And where you’re supposed to end up.
When you were just talking about that, it hits such a chord for me, because when I started investing in real estate really seriously about five years ago. As I started learning about syndications, and then these private investments and just the benefits of real estate investing in general, it was like the curtains were drawn back for me and I was like, “Oh my god, like what is this?”
Now, when you say that, like yeah, you’re just going to work really hard for 40 years, you’re going to hopefully save enough to outlast your lifespan, but that’s all you get, is that that fixed set of money. It sounds ridiculous now. But that was how I thought and that was how I invested. I said, “Okay, well, I got to put money into my retirement account.” Then, “Yeah, one day I’ll be in a lower tax bracket.” Well, how do you get in a lower tax bracket? It means you’re not making any money.
When I started thinking about this, I’m like, it just sounds crazy right now. The way that I think now and how much how much my mindset has grown, this idea of saving versus investing. The saving, just putting it into an account, letting the bank use your money, but not getting any return off of it, versus taking your money and really taking control and investing it and creating cash flow, so that I hope I never have a year where I make less money than I did the year before. I hope I never end up in a lower tax bracket. I mean, that really struck a chord for me, because my mindset has shifted so far but, thinking back where I was even five years ago, it’s just crazy to me.
[00:15:43] LK: Wizard of Oz behind the curtain.
[00:15:44] KR: Yeah, right. So, it’s something else that you hit on, which I think is super timely, because we’re rounding around tax time. You talked about your passive losses, and how you can use those effectively to build wealth, or at least keep wealth. Can you expand on that a little bit? Because I think that’s a question that a lot of listeners have is how to taxes play into real estate investing?
[00:16:10] LK: Yeah, so I don’t pay taxes, because I have so much losses, it offsets my income.
[00:16:16] KR: Yeah. So, how does that work? How can other people get to that point?
[00:16:19] LK: I mean, obviously, I let my CPA do all this stuff. I mean, you all should be empowered to figure out this stuff on your own. The CPA just does the paperwork for you. But yeah, essentially, you have kind of two types of income for the most part. You have ordinary income, which is derived from your W2 salary, or any kind of active stuff, like stocks and trading, capital gains there. Then you have more passive income, right? Two different colors of money. When you’re in these syndicated deals that are big enough to do a cost segregation to extract all the bonus depreciation losses, you’re getting passive activity losses, called PALs for short, but they’re sort of the insularity with the passive income.
As you have passive income gains from an asset, or a deal, or syndication, or rental, you use those passive activity losses to offset those gains. You cannot offset ordinary income, such as your W2 salary, unless you’re a real estate professional status, and then you could drop those barriers. There are a few hoops and things to get around there, but essentially, that’s the high level that you need to understand first.
[00:17:29] KR: Yeah, I think that that’s the key point, is this idea of using the depreciation from your investments to be able to shelter some of those taxes and be able to, again, just just keep more of your money. There are strategies, like you said, educate yourself on how you can continue to do that, but it’s amazing how many real estate investors when you talk to them, say exactly what you said, say, “I don’t pay any taxes.”
I don’t know if there’s any other profession or any other investment strategy where people can say that. I mean, I think almost everybody I talked to you, that is really a professional investor says the same thing. So, I think it’s just an incredible aspect.
[00:18:09] LK: I don’t particularly like real estate. I like how it’s a hard asset and cash flows, but for some strange reason, the government really incentivizes the heck out of buying real estate. Maybe it’s because we don’t have all these like big housing programs that they need to incentivize folks like us to go out and create workforce housing, or housing for regular folks. I don’t know, I don’t care. But I just go with what the RES code says and they just kind of do best practices that you find from working with other high net worth credit investors. They’re kind of doing the same thing.
[00:18:43] KR: Yeah. That’s awesome. Just understand the landscape and work within the landscape that you’re given, right?
[00:18:51] LK: Yeah. I mean, why fight it, man?
[00:18:54] KR: You mentioned a couple times, the lessons that you’ve learned from other investors. I know you have your own podcast, where you’re hosting a lot of experienced investors. What are some of the things that you’ve learned along the way? What are some tips or some things to avoid that you can share with our listeners?
[00:19:12] LK: It’s a lot of like the mistakes that not to do. I mean, like in personal development, a lot of times you realize you’re running around with the Ferrari with the handbrakes on. It’s a lot of the stuff that I’m sure you guys kind of talk about a lot, but I think that what I see a lot of times is people get it. They may be investing in some deals here and there, but they’re only investing 10% of their net worth.
Every dollar you have is essentially a soldier for you. It doesn’t need to be in a development deal making 20% ROI per year. It doesn’t need to be in a real stable triple net deal at 10%, but I think most people have a vast majority of their wealth doing jack. It’s kind of like a soldier back in the barracks, smoking pot, playing cards, right? Let’s get him digging some holes or something, you don’t need to be on the front lines.
Essentially, it comes down to your weighted average of your return on equity, even though you might have some money in some deals. Well, good for you. But what is the weighted average of all your net worth? Is it all working for you? Is it collectively working harder than you? And maybe that just takes time. Most credit investors, they’ll try to sponsor and go into a few deals here or there. This is not a get rich quick thing. A lot of these deals, it takes three to five years to really see that refinance, so that the full cycle happens. So, I get it, but to really move the needle, it’s a slow process, but you got to kind of move the needle into getting all your money into making 10% to 20% range.
[00:20:48] KR: So, what do you tell people, when you talk to people, you come across someone who’s done it the traditional way, and kind of understands that there’s other ways out there, but says, “Man, that seems really risky. What I’ve been taught is put in my 401(k) and do this and do that.” I mean, what do you tell those people when you have your first conversation with them? How do you help them understand the process or understand the benefits?
[00:21:11] LK: Well, I don’t talk to people anymore. I have them go through a bunch of automated stuff these days and it’s all free out there. The podcasts and blogs, it’s all out there. I mean, it’s all that red pill of finance, go educate yourself. If you want to just be like everybody else, we know what’s going to happen if you keep doing what you’re doing. I know without a doubt what’s going to happen if you keep investing in your 401(k) and paying down your mortgage, like my parents. The crazy thing is it works, it just takes a long time. In 40 to 50 years, yeah, you’ll pay off your house and your net worth will be somewhere around a million. But I see the financial profiles of thousands and there’s people who get it and people who don’t.
Let’s take a doctor, because everybody kind of knows how much they make, and most times they are kind of bad with their money because they make so much money, so there’s a lot of holes in their game. But doctors, typically, if they’re not alternate investing, using all the strategies of the wealthy, they’re probably net worth around 1, 1.5, maybe $2 million, if they’re really like white knuckle, like frugal, like cheapo kind of guy. But the guys doing this the right way, their net worth are all for 4, 8, $12 million and above. It is night and day.
[00:22:28] KR: You have given proof points on like, here’s one strategy, and here’s the other and here’s our one guy, and here’s where the other guy is.
[00:22:35] LK: Yeah, I guess you’re right. I’m tired of it all. Look, everyone’s like, “Oh, I got my financial planner. My dad told me how to do this.” Well, good job for you. I think that’s the golden rule. Don’t take any financial advice from somebody who hasn’t done it before and who is not financially free. Why would you want to take financial advice from the old guy at work, Cliff and Larry, on how do you sharp shoot your 401(k)? That’s like the absolute worst person I would take advice from. I mean, maybe I’m jaded because I don’t work in that. I don’t work around those types of people. I don’t interact with those types of people anymore. There’s so much bad information out there. Golden rule, don’t take financial advice from people who are not financially free.
[00:23:21] KR: Well, and I’ll take it a step further. Don’t take financial advice from people that are financially incentivized to give you certain piece of advice.
[00:23:30] LK: Like financial planners who get paid a percent commission off selling you more garbage investments.
[00:23:34] KR: Right. If you’re selling mutual funds, and you’re getting a load on the front end, that person is incentivized to put you into specific things, not necessarily the things that are going to be the best for you.
[00:23:46] LK: You kind of mentioned like the curtain pivot point for you. For me, it was like, maybe about a year or two in of this, I think this is around 2011. I had a rental property for a couple years, and I kind of saw the month to month what was happening. When you break it down, you’re making money with tenants paying down your mortgage instead of us. So, we’re getting the equity built up there. We’re getting tax benefits, we’re getting the cash flow, and the appreciation leverage.
When you add those all up, I mean, even on a crappy rental that’s not even that great, they’re making like 30% of their money. I mean, I have a like a whiteboard of when I do this if you don’t believe me, but I was kind of like, “Well, how am I making like 30% on this rental property?” Granted, not scalable, but how am I making like 8% in this 401(k) thingamajigger? Where did all my money go? And then I start to realize, well, if everybody just bought a few rentals, and yeah, paid them down after time, which I don’t necessarily agree with as the best use for your return on equity, you’ll be financially secure for like a decade, but then who would design our bridges and construct buildings and get our coffee? Society would stop.
There’s a big reason why we need people to keep investing in their 401(k) and paying down their freaking houses so that they can keep working and doing these city services for us. So, we get financially free and get checks, but hopefully make the world a little better, right? Take the money and be good stewards of it, obviously. But like most people, you gave them like a zillion dollars, they’d do nothing.
[00:25:26] KR: Yeah, if they didn’t have to work. I have this idea of like, if you’re financially free, you’re not tied to a job that you don’t like, you can go out and you can pursue whatever you want. And if everybody’s pursuing what they want, then ultimately, we’ll all be better off, right? Because it’s like your highest and best use.
[00:25:47] LK: Yeah, as the rainbows and sunshine and sheeps flying in the sky, people are going to find their passion, and it’s going to lead to the greater good because they’re so passionate and they’re good at it. I just don’t believe in that type of stuff. I think some people will, but most people will not.
[00:26:02] KR: Fair enough.
[00:26:06] LK: Yeah, you want to call me a communist, whatever, man. That’s you guys. But I just don’t believe that utopia society works. We need to create a system that creates people to kind of trade time for money.
[00:26:20] KR: The way that the system is built, it’s built in a way to make sure that people continue to stay in this mechanism, in this machine, trading time for money, and doing these things that they wouldn’t want to do if they didn’t have to work. Even if you didn’t have to work and what you wanted to do is just sit around, like you said. If you had zillion dollars.
It goes back to our point of opening up the curtain, getting off the machine, taking matters into your own hands for your own financial future, educating yourself. You’ve hit on that several times, you had to go out, you had to educate yourself, I think you and I both did that, spent a lot of time on self-education and personal growth and figuring out how all this works and networking with other people that are doing it. You got to do all those things, if you want to get to the point.
But I think, like you said, which I agree with is, if you do those things, almost anybody can be financially free in five to 10 years. If you follow the plan, and you do the process, which to contrast, again, the proof, points against the 401(k) and working for 40 years, you can get financially free there, you’re going to be 65 years old, and you’re going to be retired and you’re going to be living off of fixed income. Different paths.
[00:27:33] LK: Right. And I talk to a lot of successful entrepreneurs, and those are the geniuses, right? The Harvard engineers, the lawyers, the doctors. Those are the geniuses, I think. This real estate stuff is probably the best risk adjusted return that you can get out there. Anybody can do this real estate stuff, especially as a passive investor. It really is an endgame strategy.
[00:27:58] KR: Yeah, absolutely. So, one of the things that I wanted you to touch on is your three rules for investing. Before I let you go, I want people to hear what are the things that you look at as you’re looking at investments.
[00:28:14] LK: So, this is kind of goes out to the people that always play Stump the Chump. What do you think about Bitcoin? What do you think about like buying basketball sports cards? Well, here are the three rules, so I don’t have to keep repeating myself. You could run it through these rules. Number one, it’s got to cash flow. Positive income on a month to month basis. Warren Buffett says something about not losing money. Well, this is how you ensure that.
Number two, it’s got to be a hard asset. So, real estate is a hard asset. It’s actually a mixed commodity, which is awesome. It’s diversified. It’s not just one asset like gold. Bitcoin, I mean, yeah, you could probably consider it a hard asset in a way. It’s kind of a currency, but it doesn’t cash flow and the third rule is like, is this something that is leverage-able? I mean, yeah, there might be a future exchange for Bitcoin and stuff like that or something like that in the future. There probably is, I just don’t care about it. But real estate hits all those three marks.
One thing is like some people, they always are jack of all trades. But I focus on one thing, not only in real estate, but in a certain sector, real estate, multifamily apartments, office space, mobile home parks. I focus and I put on the blinders. No, I don’t care about assisted living facilities. It’s just a bunch of noise to me. I focus on one thing for one sector, and I get good at it. Then I move over to the next thing.
[00:29:48] KR: Awesome. That’s the way you master anything, right? You can’t be great at everything. So, I appreciate that focus. Before I let you go, I want to hit our keys to success section. So, what is one question that every investor should be asking their deal sponsor?
[00:30:04] LK: I would say don’t talk to the sponsors. To me, it’s just a waste of time, because any sponsor can just talk to you on autopilot. They already know what you want to hear. They’re just going to tell you the damn thing. Focus your time on connecting with real passive pure investors, and the only way you’re going to do that is build organic relationships.
Nobody in this world is going to just give you the spreadsheet of all the people they work with in the past and the ROIs and who was that. Those are not going to happen. I mean, it’s going to take some time and energy to build that organic relationship.
[00:30:38] KR: Definitely, what’s one way that folks can start doing that?
[00:30:40] LK: I just know like going to the local freedom REIA meetup groups and the old free internet forums is the wrong place to go, because it’s just a bunch of broke guys on that stuff.
[00:30:51] KR: Yeah, my experiences is it’s a lot of wholesalers that wanted to sell me houses. That was who I met.
[00:30:58] LK: Just a lot of waste of freaking time.
[00:31:00] KR: So, what are you most proud of in your career?
[00:31:03] LK: I quit my day job and now I’m helping people quit theirs. I mean, it took me 12 years and I did make a lot of mistakes long way, worked with some bad people, payed down debt in the process. I could have got there a little faster. But hey, I’m here.
[00:31:18] KR: You’re there, man.
[00:31:20] LK: I learned some of the mistakes and they’re repeatable.
[00:31:23] KR: And you’re teaching others how to do it. That’s awesome. So, what books should everybody read?
[00:31:27] LK: I’m not a big fan of books. But I think they should read Millionaire Real Estate Investor by Gary Keller. There’s a lot of fundamentals of what markets to buy, or what are good tenant profiles and stuff like that. But after that, I mean, just go analyze deals.
[00:31:45] KR: Got you. And then lastly, what is your number one key to success?
[00:31:49] LK: Executing. Figuring out the next thing to do and execute it to completion. I think a lot of people, they get scatterbrain, then become jack of all trades, but end of the year, they didn’t really accomplish anything.
[00:32:02] KR: Yeah, I think that’s great advice. You can move forward a million miles in one direction, or you can move one mile in a million directions. You can’t do both.
[00:32:14] LK: What is it? Work equals force, times distance?
[00:32:17] KR: You’re the engineer. Now, you’re going above my head. I have to go back to high school for that.
[00:32:22] LK: You just think like those circles, that sort of works, I guess.
[00:32:25] KR: Yeah. Very good. Awesome. Well, Lane, thanks for sharing your knowledge today and your perspective. If people want to learn more or hear more from you, how can they get a hold of you?
[00:32:36] LK: Check out my podcast at Simple Passive Cashflow. If you guys are looking to buy rental properties, I would say the first few podcasts are about mobile rentals, but I’ve kind of moved off and talked about more accredited investor stuff lately. But yeah, email address, email@example.com.
[00:32:51] KR: Lane, once again, thank you, sir. It’s been a pleasure talking with you. I hope we get to do it again soon.
[00:32:56] LK: Yeah. Sure, Kent.
[00:32:57] KR: Have a good rest of the day.
[END OF INTERVIEW]
[00:32:59] KR: Thanks for listening to another great episode of Ritter on Real Estate. Hit the subscribe button and make sure you don’t miss out on the content that will make you a better investor. Also, visit kentritter.com for articles, videos, and tools curated just for passive investors. Until next time, this is Kent Ritter with Ritter on Real Estate. Now, go out and invest like a pro.