Insights Into Real Estate Investment and Passive Cash Flow with Lane Kawaoka
Jan 12, 2021
Have you ever considered getting into real estate investment? Or do you already have some properties but don’t know how to grow your portfolio? There are many real estate education programs out there, but they may not be enough to comprehensively understand the market.
In this episode, accredited investor Lane Kawaoka joins us to share his real estate investment experience and identify the critical factors to consider before starting. He also discusses where and how to find the right property. Lane emphasizes that understanding the business is crucial to growing your portfolio — do your research.
If you want to know more about growing or starting your real estate investments, then this episode is for you!
Here are three reasons why you should listen to this episode
- Know the important factors when going into real estate investment.
- What determines the right property, and where can you find them?
- Why is hiring people not enough — what is the value of understanding the process?
How Lane Started with Real Estate Investment
- Lane used to be a professional engineer.
- He used to think that he was on a linear path in that industry until he started real estate investments.
- After more than 10 years of growing his real estate portfolio, he got out of his engineering career and focused on real estate investment.
- He teaches people about real estate investment through his podcast and blog, Simple Passive Cash Flow.
- Lane realized that his highest and best use is in real estate. Listen to the full episode to hear Lane’s realizations about his career!
Essential Factors to Consider Before Investing
- There are two significant factors to consider: net worth and money from your day job.
- If you’re under a certain threshold of net worth, you should not bother with syndications at this point.
- Growing your portfolio with buy and hold properties is not a get rich scheme. It takes time.
- For Lane, house flipping costs a lot more.
- Listen to the full episode for an in-depth discussion on these two factors.
Basics of Real Estate Investing
- Lane does not focus on primary markets. Instead, he focuses on secondary and tertiary markets.
- His main criteria are to look for properties with rent to value ratios of 1% or higher.
Lane: “We’ll use that, $100,000 purchase price, right? So the way it kind of works is we're looking for properties that are 1% or higher, in terms of rent to value ratio. So you figure out the rent’s evaluation by taking the monthly rent divided by that purchase price. So we're not buying anything in this scenario where it's $100,000 house that rents for less than $1,000.”
- Rent to value ratio is the preliminary analysis for properties.
- Keep it simple in the first stage.
- You can use Lane’s free analyzer on his website!
Determining Rentals and the 50% Rule
- When estimating rentals, you can use platforms like Zillow and Facebook Marketplace.
- Usually, you can expect a range of plus or minus 10–20%
- Take note of the 50% rule, which states that half of the rent will be used for repairs, maintenance, property managers, taxes, and several other expenses.
- Make sure you listen to the full episode to understand the mechanics of cost!
- If your net worth is very high, you may not find it profitable to invest in single homes. Instead, passive sources like syndications will be a better fit.
- Managing property takes a lot of effort and time.
- Always know your highest and best use. It will help you determine what kind of investment is best for you.
- Everyone has different time commitments.
Location and Type of a Prospect Rental
- Lane prefers Class B to C properties since the majority of the American population is in the middle-class.
Lane: “There's a sweet spot in the middle. In the sweet spot is where the majority of America [is]. If you were to draw a bell curve and where the most population is — it's in the middle.”
- Some areas may be primary markets because they’re a few hours drive from the main primary market.
- Listen to the full episode to gain valuable insights on finding an excellent rental property!
Features of a Good Rental and Investor
- The main feature of the right rental is an increasing population and some economic driver.
- Remember that Class B or C properties may not be in the best school district or the safest area.
- Not everyone is cut out for real estate investment. It requires a lot of relationship building.
Assumptions and Expenses
Lane: “Rental properties — things go up and down, right? You have good months, you have bad months, and this is where it's not for everybody, right? There's somewhat of a risk involved with it.”
- You can use Lane’s free analyzer for your properties.
- It includes taxes, management expenses, listing fees, among others.
- Listen to the full episode to understand how to use the analyzer!
Lane: “A lot of new investors drive me crazy. They're like, ‘Oh, my mortgage is $500, and my rents are $1,000. I'm cash flowing 500.’ No, that's not how you do it. You have to take out all your taxes, insurance, property management, vacancy, repairs, CapEx, and anything else you're paying for.”
Why You Need to Research
- When you go into investment, you have to do a lot of research and understand the market.
- Know the tax code. Your number one expense is taxes.
- Your accountant will complete your forms but will not know how much losses you will get from deals.
Lane: “Most tax guys and most lawyers don't have a clue what they're doing in terms of this real estate stuff, which is why they still have a day job and why I left mine a few years ago . . . I tell my investors in my mastermind, that you guys need to empower yourselves to know the tax code. It's your job to understand that as an investor, I mean your number one expense is taxes. Your CPA — their job is just to do the forms.”
Moshe: “You really have to think in advance of what your overall plan is, and understand the nuances of the law of what you're going to come across later to position yourself properly from the get go. So you don't want to take any of this for granted. You want to make sure that you're doing it right.”
Real Estate Syndicate Investments
- Syndication means pulling your money together with other investors.
- If your net worth is low, this is not a good investment deal.
- It’s challenging to pull out of a syndicate deal.
- This passive nature of syndication may make it difficult to gain a real estate professional status.
- Listen to the full episode for Lane’s recommendations for syndicate investments!
Lane: “My general rule is not to put any more than 5% of your net worth to any one opportunity just in case the plane goes down.”
Lane’s Call to Action
- Know and understand what works for you.
- Grow your investments over the years.
Lane: “Figure out what's your highest and best uses. I think real estate is a great end game and side gig. Especially from the way I do it, the passive investing kind of standpoint. For some of my guys, they're doing like a start-up . . . And then once you make a whole bunch of money, or you're good in terms of your operating budget in your business, then put it in as much as you can into real estate and grow it slowly over the years.”
Lane Kawaoka is an accredited investor, real estate syndicator, and best selling author. He is passionate about wealth creation and passive income.
With his blog and podcast, Simple Passive Cashflow, his mission is to help regular people get good deals that used to be accessible only to the rich. His frustrations brought about this platform over real estate education programs that don’t benefit anyone. His website is chock full of information, courses, downloadables — many of which are provided for free!
However, his success was not a linear path. Before investing, he used to work as a licensed professional Civil / Industrial Engineer for over 12 years. His current 4,200 rentals were built on the initial 11 rentals. It took him years to get to where he is.
Interested in Lane’s work? You can follow him on Simple Passive Cashflow, Youtube, LinkedIn, and Twitter.
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