233: Passive Syndication Investor in 1,400 Units While Working Full-Time

233: PASSIVE SYNDICATION INVESTOR IN 1,400 UNITS WHILE WORKING FULL-TIME

Lane Kawaoka is a full-time civil engineer who wanted to become a full-time real estate investor.  Unfortunately, as he acquired more properties, he quickly realized that, although he loved the cash flow, he hated the headaches of being a landlord.  In this podcast episode, you’ll find out how Lane learned how he could have his cake and eat it too as a full-time employee and part-time passive syndication investor, enjoying the benefits of real estate investing (high ROI, strong equity pay-outs and the excitement of finding good investments) while also enjoying the security, employee benefits and steady income of a full-time W2 job.

What You Will Learn

• Are single family turn key rentals a good way to start in real estate investing?
• What are the biggest challenges of shifting from single family to apartment/multifamily investing?
• How you can get into the “good investments” without being an Accredited Investor
• What are the advantages of being a passive syndication investor vs. an active syndication investor?
• What is a Limited Partner and what are it’s advantages?
• How much time is required to be a part-time Real Estate Investor versus a full-time Real Estate Investor?
• What criteria should you look for in finding a good syndication deal?
• How to balance lifestyle, passive investing and a full-time job
• What is the “new rat race” and how can you avoid the deceptions of “financial freedom”
• Knowing when to stop building your portfolio

About Our Guest

Lane Kawaoka

Lane Kawaoka, who was an Old Dawg guest last December 26, 2016 for Episode # 061 “W2 Employee Kickin’ it with Real Estate Investing,” is the host of Simple Passive Cashflow podcast, an avid real estate investor and a full-time W2 employee as a Civil Engineer who got started young with passive real estate investing.  The last time he was on our show, he owned11 SFHs in Birmingham, Atlanta, Indiana, and Pennsylvania.   As he slowly built his Single Family Homes portfolio, Lane realized the Single Family Homes were not going to get him to his cashflow goals and he was creating a job for himself to be the manager of the managers.

Today, Lane is primarily a passive investor of limited partnerships and syndications representing 10 apartment buildings which totals to 1400 units that all happens since December 2016.

More About Lane

• When Lane got started, he was beating the drum of turn-key single family rentals.
• Lane got started with Turnkey Rentals (which he thought was a good way to start), but now is shifting away from it.
• Joined an expensive Apartment mentoring group to live his dream to have the 100-200-unit apartment buildings and syndicate all the money.
• He found that there were no good deals out there in today’s competitive environment.
• Living in Seattle, trying to find properties in the Midwest and the South, he analyzed 5 -10 deals a week, and for 18 months, he analyzed at least 150-200 deals (it takes a long time to analyze a property)
• He tried to build rapport with brokers but , unless you can meet with them in person, it’s difficult.
• He found that there were no good deals out there, no property that made any sense, and he was getting nowhere.
• Lane sold his primary residence to get liquidity and saved that money to get to a multifamily
• Having that cash just sitting there, he thought at least he could be a “limited partner” in a deal of at least 150 units with a group that does so he could get more “Street Credibility” with the brokers and add to his resume and raise credit with the brokers.
• To define a “Limited Partner,” lane uses an airplane analogy, wherein the syndication is the airplane.
  • In the airplane, the a cockpit would holds the “General Partners (GPs),”who have ultimate control.
  • GP’s have different roles, to find the deal, manage the deal, figure anything about the deal, handle the operations, establish the “boots on the ground,” sign on the loans, and are basically the first line of defense for liability.  They put in their own money and have their brand and reputations on the line.
  • The “Limited Partners” are the passengers in the coach section of the plane – that’s anybody who put in $25,000-$50,000 as a passive investor.  They sit down in coach, go to sleep and pretty much just cash their checks.
  • If the plane goes down, everyone dies
  • GPs have built-in incentives to succeed (their own money, brand and reputation is also at stake)
• The syndication deals he’s doing produce pretty decent and conservative returns between 15% – 20% a year.
• In contrast with Single Family Homes, can produce 20% – 30% a year, which may be higher but you deal with things like evictions, and other catastrophes that may happen every month if you have 20-thirty houses.
• Currently, Lane’s goal is not just 15%-20% but he doesn’t want to be a general partner with the extra headaches and decided to be a limited partner instead.
• Lane is trying to sell his Single Family Homes for the last year.  They rent for about $900 a month but it’s just taking a long time to sell them.
• He realized that if you want to be a high-network professional, don’t buy duplex, triplexes quads.  It takes longer to liquidate.
• For Lane, now is the time to take all the profits off the table today and create his lifestyle, so he decided to go back to Hawaii where he grew up, even though he makes less than he did in Seattle.
• Lane is still working as an engineer in Hawaii and is basically in less-stress jobs.  Things are slower in Hawaii.
• He is selling his single family homes and switch to syndication

Being a Limited Partner and Keeping a Day Job

• Lane likes to keep his day job because it puts food on the table, while Real Estate Investing is kinda more for fun.
• When things get tough, people would choose their family and putting food on the table with a W2 job than rather than taking the chance with REI.
• You have to be collateralized when you go into recession.
• But before you decide to leave your day job, you need to consider how you can get funding, especially when buying single family home, getting a loan is one thing and syndication is another.
• To get a loan, you need to have a good credit, but with syndication and being a limited partner, he doesn’t care what his credit score is.
• When investing in a commercial property, you don’t necessarily need good credit or a good debt-to-income ratio.
• Keeping his day job, Lane spends only a couple of hours every day on real estate investing, coming home from work, he doesn’t have time to watch Netflix.
• But the big chunk of time is being spent on travelling to a lot of conferences, meeting people face-to-face.
• Lane leaves everything to the general partners in terms of operation.

Hunting for Deal Hunters

• Today, Lane hunts for the deal hunters. He looks for people who are putting together the best big deals together.

• • You don’t usually find the big players at your local REIA meetings.
  • Someone who can buy a plane ticket to be i a room with a higher quality group of people.
  • You can also find Limited Partners with a dog in a race.

• Currently, Lane has a mentorship that helps him analyze deals. He is looking at:

• • A big GP or Sponsor can still analyze deals poorly.  Lane figured, he at least wants to understand how to identify a good deal, then he can look at strong GPs.
  • When you’re new, you give up a bigger chunk to your partners.  A split that is heavily skewed to the limited partner , e.g. a simple split of 90% – 10%, with 90% returns going to the limited partners and 10% going to the general partners.
  • The more experience and popularity the Lead has, the bigger cut they will give to the GPs.  Ken McElroy is a good example of one whose deals always do well, therefore, Limited Partners get a smaller cut.
  • Lane likes to do deals in the middle where it is more 50/50 split.
  • Lane has to look for 506 (b) deals that will accept sophisticated investors.
  • Lane doesn’t do crowd funding because the “middle man” takes some of the profits.  Are the deals there because they can’t get investors.
  • More experienced partners are always building their investor lists and building they popularity.
• Lane’s investors taught him how to do the numbers, but he figures that only 20% really know what they are doing, so he is just willing to bet 10% as a limited partner.
• The people who listen to Lane’s podcast, tend to follow his financial lead.
• To do it right, you really need to do it on your own, get the P&L’s, pull the rent rolls and run your own rental comps and do not rely on executive summaries.
• He wants to diversify with different partners and different asset classes.

His Approach to Financing

• For the 1^st five years, Lane was travelling a lot for his work being a construction supervisor, living in a company housing, he even did not spend $100 out of his own money.
• Now that he has money, he’s wondering why would can’t spend at least half of what he earns, like the other guys who he works with do.
• So, he is working more on finding value — not trading time for money, like he had done in the past, but now, trading money for time.
• He just remembers how his parents spent more time buying, preparing and cooking meals than spending time with the kids.  Maybe it makes more sense to pay for someone else to do that and use the free time for family.
• Lane is still using money from old funds and transferring it into syndication but he always keeps his eye on if he didn’t invest would he still be cash flow positive — if he did not invest, he still would save $10,000 – $30,000 a year.
• The key is to know how much money you can actually save at the end of the year.  This will help you determine what strategy you can employ.
• If you are saving under $10,000 – $15,000 a year, and you don’t have any rentals, you need to get a single family home or, perhaps try wholesaling, or find a better job or cut your expenses.
• But if you are saving above $30,000 a year, you are good on how you are good at saving and making money.  It is just a matter of investing in the right thing and if you are busy, you are better off investing in syndications.

Where He Sees His Business in the Future

• He’s currently in at least 10 deals
• There’s something called “the new rat race” – it means yes, you have quit you day job, but you have created this other job as an entrepreneur, and created this “alternate universe” that takes more time than your day job ever took.
• Lane would still like to maintain his day job but still create an alternate universe for himself with his investments generating great returns.
• As entrepreneur, he wants to do things as passive as he can and build up to 12 -15 syndications and wait for them to run their business plan and cash out and re-invest again.
• It is more about maintaining what he has, as opposed to doing more deals a year

How To Reach Lane

• lane@simplepassivecashflow.com
• Check out the podcast: Simple Passive Cashflow

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