Don't Buy Mutual Funds - Do This Instead! | Lane Kawaoka

In this episode, Dalyn Hazell sits down with Lane Kawaoka to talk about some counterintuitive wealth rules that the rich follow such as don’t buy a house to live in,  don't buy mutual funds, don't use retirement accounts as investment vehicles and don't pay taxes.

Lane Kawaoka was an ex-civil engineer, and he owns a lot of real estates. Now he's got ownership in over seven mobile home parks, 21 apartment buildings and one assisted living facility totaling 4500 units in nine US markets. He is the CEO of Simple Passive Cash Flow. He is the host of Simple Passive Cashflow Podcast, a top-50 Investing Podcast on iTunes and has guest-hosted on 200+ other podcasts. He works with beginning investors through the 5,500 member group, Hui Deal Pipeline Club. As a group, they’ve acquired over $600M in property assets using the techniques Lane shares with podcast audiences.

Key takeaways from this episode:

-How a civil engineer becomes a real estate investor.

-The counterintuitive wealth rules that the rich follow.

-How did Lane stumble upon these rules.

-Two ways to play with money.

-Withdrawing 401k and investing in real estate.

-The secret of rich people and how they pay lower taxes.

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Connect with Guest, Lane Kawaoka:

Website: https://simplepassivecashflow.com/

Facebook: https://www.facebook.com/SimplePassiveCashFlow/

Twitter: https://twitter.com/SimplepassiveCF/

Instagram: https://www.instagram.com/simplepassivecashflow/

Connect with the Host, Dalyn Hazell:

Facebook: https://www.facebook.com/dalyn.hazell/

Instagram: https://www.instagram.com/dhazell24/

Email: dalyndhazell@gmail.com

Transcript

Introduction  0:00  

This is the real estate investing for freedom podcast where we bring on the experts to teach you the golden nuggets of real estate investing so you can escape the rat race and start living life on your terms. Now, here's your host Dalyn Hazell.

Dalyn Hazell  0:21  

Hey, and welcome back to another episode of the podcast. In today's episode, I sat down with Lane Kawaoka. He's an ex civil engineer, and he owns a lot of real estate. Now he's got ownership in over seven mobile home parks, 21 apartment buildings and one assisted living facility totaling 4500 units in nine US markets. And today we're talking about some counterintuitive wealth rules that the rich follow. We're going to be talking about things like, you know, don't buy a home to live in, don't buy mutual funds, don't use retirement accounts as investment vehicles and don't pay taxes. So we're not gonna give out financial advice. We're not your financial planner, make sure to take what we say with a grain of salt. But these are some things that Lane used to get to where he's at. He's retired now he's retired early and he's living off his passive income. He talks about that at his website, simple passive cash flow calm, you can learn more about that after the show, and he's just gonna be delivering some value to you guys. So hope you enjoy it and stick through to the end. But before all that, here's today's golden nugget of the day. Today's Golden Nugget is to make sure you vet your buyers well. So if you are wholesaling, and you know you're flipping the contract, and we've talked about that in previous episodes, you can go back and listen to episodes where we talked about wholesaling. I think that was Episode Number 10 with Lincoln Amstutz. And if you aren't doing that, make sure you're vetting your cash buyers because the worst thing that could happen is you expect to get paid on a certain day and then your buyers funds are not there. So you either have to come up with the fund yourself or you have to tell the homeowner, the original seller Hey, we can't close on your house. So that's a really sticky situation that you don't want to be in. So make sure you talk to your title company and other investors to really vet those buyers. Make sure your buyer is truly coming with cash. They're not you know, depending on other lenders, because those lenders could always fall through and make sure that they're okay and comfortable with doing major renovations because I anticipate a lot of the properties that you're wholesaling. Certainly the ones I wholesale need a lot of renovations and you need a buyer that can stick through to the end of that and has experience working with dilapidated properties. And if you are sticking the property on the MLS, a strategy I like to call wholesaling where you get it at a deep discount and then you sell it immediately on the MLS without doing any repairs. Make sure you are vetting your buyers there I learned this the hard way in the last week guys so I had a property that I was wholesaling and I got a you know too good to be true offer I knew it was too good to be true and within two days that offer came in okay so we accepted it started lining up the title work and then they had in their contract a seven day inspection contingency so that they could back out and I knew this you know was in there in the contract but I didn't think they'd really back out well sure enough, the inspection came back and they did back out. So we were left holding the bag and we had to put it back on the market. So that just looks bad for the property and everyone else. So make sure you're vetting your cash buyers and it's a little harder to do on the MLS and by that I mean it's listed on the market in there the buyer is represented by a real estate agent but you can still try to you know scope out the situation with the other agent say Hey, is this person truly going to close and make sure they're okay with all the repairs needed like I said about the wholesaling bit so it's something we can't always prevent against but that's a lesson I learned in the last week to make sure I'm betting my cash buyers correctly. So with all that being said I am going to begin our interview. This is Lane Kawaoka. Welcome to the show Lane. How are you doing today?

Lane Kawaoka  4:19  

Hey, thanks for having me. Aloha everybody.

Dalyn Hazell  4:22  

You bet and for all of you who don't know, Lane is in Hawaii. So that's why he said Aloha. How does it feel to be in Hawaii right now?

Lane Kawaoka  4:31  

It's a little rainy here today but you know live where you want invest where the numbers make sense, but I say

Dalyn Hazell  4:38  

Yeah, that's awesome. Anytime somebody mentions like they're in Hawaii, I just imagine like just on the beach, you know, sipping a drink and like nothing, nothing bad happens to you.

Lane Kawaoka  4:50  

It's a little, a little bit different when you live here, right? Yeah, that was the case I'd be an alcoholic and wouldn't get anything done. But you know when you live appears just like anywhere else you live just happens to be nice weather.

Dalyn Hazell  5:05  

Yeah, hopefully more nice weather than not nice weather. Awesome Lane. We're going to talk about counterintuitive wealth rules that the rich follow. So Lane, has a unique way of talking on this subject. And you have experienced this topic Lane. So before all that, before we get into the meat and potatoes of the show, let's talk about your past and how you got started in real estate.

Lane Kawaoka  5:30  

Yeah, so currently, I run apartment syndications which currently have over 6000 units today. But where I started from was back in 2009, when I bought my first rental property, I kind of grew up in a household where I was taught to be very frugal, go to school and get a good job, I eventually became an engineer. And because, you know, I just kind of followed this linear path, right? All this financial dogma will buy the house to live in, I did that eventually started to rent it out. And that's where I got this taste of cash flow. And I eventually bought more and more of these turnkey rentals out of state for cash flow, and then often move it

Dalyn Hazell  6:09  

awesome. Yeah, you kind of took the traditional path to becoming an engineer, what was it like to go to school for that long, and then and then kind of arrive to the realization that, you know, you weren't where you needed to be? What was that experience? Like?

Lane Kawaoka  6:23  

Yeah, I mean, you know, like, I would say, I got to my freedom number, and I was still working. And I had changed jobs a couple of times, you know, in the beginning, you know, work for a private company, I guess that's where you'd learn the most as a professional, but I kind of searched for easier jobs to work at still, so I'd have more free time to do what was really important, which is the real estate investing part of it. So I eventually created a nice lifestyle where the jobs are pretty cruise and, you know, was able to invest passively. But, you know, eventually got to a point where, you know, the stars do bigger deals start to bring other people's money involved, and therefore, you needed to, to kind of turn it into a true profession. And, you know, spent all my time doing it. And that was kind of where I finally quit my job back in 2018. I think, and never looked back since. And, but I think the hardest thing that a lot of people talk about when they make that jump is, especially if you're a high paid professional, it's like, you know, your identity is kind of wrapped up, you know, I was an engineer, introduce yourself and say you're an engineer. And part of it is the, you know, kind of that that baggage or that identity, you went to school for dozen plus years to be this profession. And you kind of feel like you're just throwing it away.

Dalyn Hazell  7:42  

Yeah, certainly, I feel that way, too. You know, I'm still in my full time job as a CPA. And when somebody asks me what you do, it's hard not to say, Oh, I'm an accountant. Oh, I'm a CPA, because I don't really know why it's just so ingrained in this, you know, we spent so much time acquiring this credential. And so we just, we want to share that. But it's, it's less popular, say, Oh, I'm a real estate investor or go into that, for some reason, I think it's the way we're just kind of brought up. Would you agree?

Lane Kawaoka  8:08  

Yeah. Because like, you know, it's like, 2021. Now, if you're an entrepreneur on your LinkedIn profile, we all know, you don't have a job, you can't find a job or, you know, you're unemployed. Um, and, you know, by having that professional title, you know, in society kind of gets you a certain amount of notoriety. I was thinking the other day, you know, I was watching a commercial on like, senior housing. And, you know, I was imagining if I was like, Woody, old, you know, what is the what do we talk about, right? But we talked about, how do you know, Jerry over there? Well, Jerry was the doctor or Barry was the engineer, right? So much is predicated on your titles of your occupation. Oh, and, you know, when you kind of, when you get to a certain point, you kind of give that up. But you know, most people get to that stage where they are financially free, they don't give a rip anymore, because they're ephi. And they don't live by normal society kind of values at that point. They're just titles and nonsense.

Dalyn Hazell  9:06  

Yeah. And it's interesting, you know, if you traveled to other countries, they're more defined by their families. So they, you know, they talk about their family name, but in America, it's like, we're identified by our occupations, and it's just different, you know, different way people identify themselves, for sure, yeah,

Lane Kawaoka  9:21  

These days. I'm kinda like, Well, you know, I am what I am. I don't care who you are. I mean, it seems kind of funny, but like, say, well, what's hard, you're you drive, right? What's your network? That's all that really matters. I mean, I know that sounds very shallow. But, you know, as a real estate investor, I mean, you need to kind of stop getting off the beaten path. Just stop caring what other people think about you.

Dalyn Hazell  9:42  

Yeah, and we could certainly dedicate the whole show to that, certainly. But today specifically, again, the counterintuitive wealth rules that the rich follow. Before we even dive into what these rules are. Why did you kind of outline this? Why did you basically discover This so early in life, like how did you stumble upon these wealth rules?

Lane Kawaoka  10:03  

Yeah, so I, you know, went out, bought a rental property and around 2015, I had 11 of these rentals. And at this point, I just was doing it all by myself at that, around 2015 was when I finally got out of my shell and started to interact and network with other pure passive, high net worth investors. And for me, it was a game changer, because now I started to really get a glimpse of what the high net worth folks do. And what I realized is a lot of what they do is very counterintuitive to what we're all taught, right by your parents, coworkers, friends. And the crazy thing is that a lot of these things work that are very attainable. There. It's not, it's not something that anybody can't do. What there's certain financial dogma out there, that totally tells us it's the wrong thing. You know, for example, not going into all this debt, you know, getting whole life insurance or, you know, buying a house to live in. I mean, we can kind of talk in more detail about these things. But you know, like, another example is like, the wealthy don't do these stinking retirement accounts. That's for suckers. I mean, it's like, in the first year that you're like, that's a stop way. You know, that's a, I can't take money out of retirement. That's an absolute sin. Right? My friends and family laugh at me. But I'm just saying, Hey, man, like that's what the wealthy do. And I'm not. I mean, I just figure out what the wealthy do and pick the best practices and make sure that it's logical, from a numbers perspective, and I just go with it.

Dalyn Hazell  11:34  

Yeah, you figure out what they do. And then you just copy it. It's not like you're reinventing the wheel, you're just copying, pasting what works. So let's dive into that. A wealth rule that the rich follow that is counterintuitive to our culture. You mentioned in one of your, on your website, don't buy a home to live in. Okay. Can you unpack that? Because that's certainly counterintuitive.

Lane Kawaoka  11:57  

Yeah. I mean, you know, let's use the archetype of like a young professional. I mean, this is who It really hurts. A house, to me, is sort of like, it's a kind of a financial drag on your finances, you put this big lump sum downpayment into a house, and it doesn't really grow for you. Conventional financial wisdom will say, well, you're putting money into this house, and it's growing equity. Well, yeah, you could put it into five houses, right. And the crazy thing is that instead of you paying money for the mortgage, and putting your heart sweat, and tears and sweat equity into there, you have five families paying this stuff for you putting their sweat equity into your wealth building. And that's the big difference. And this comes down to paradigm shifts, right? Most people listening, or most people in the world are really bad with their finances and can't seem to save money. Sometimes it has to do with their saving skills, just basic personal finances and budgets. Other times, it's, they just, quite frankly, don't make enough money. And you know, I'm kind of speaking more towards the higher paid professionals out there. But you guys make a good salary. You guys are living in a different paradigm than most of America. And most of America, if you give them $10, they're gonna spend 11. Right, they are irresponsible from a financial perspective. And not to say it, not to cast any judgment or anything like that. But for those people, certain sets of rules apply. And this is where the Suzy Orman's of the Dave Ramsey's, they, I, I don't like their advice, but their advice is good for this subset of people that aren't haven't really got a grasp on their basic finances. So for those types of people, or houses, sort of a forced savings account, right? You put money into there, and it gets their grubby hands off of it from spending. And that's the benefit to that. But if you're like, you know, a lot of my clients, they are diligent Savers, so they've maxed out their 401k guys, they save at least 30 $40,000 a year. Now, these are the people on the other side of this paradigm that should go on the offense and invest money in assets, as opposed to sink it down into their house.

Dalyn Hazell  14:12  

Yeah, you mentioned a valuable term for their offense, you know, it's a difference between defense and offense. There's two ways to play money, right? You can either go on the defense and try to save and cut your life back, which works for a lot of people who are, you know, high thrill or they just want they don't have a lot of discipline. But if you want to truly get wealthy, you have to play more offensive, which is focusing more on income than just cutting back. So tying it back to don't buy your home. Do you believe that just because it's, it's a way for you just to tie up all this money without producing income? Like what's the exact reasoning why? Maybe a 22 something that 20 something that just got a high paying job? Why should they not go buy their own home?

Lane Kawaoka  14:58  

I mean, it just comes down to numbers, right? I'm like, Well, alright, show me how the numbers grow by you sinking your money into your house, right? And it'll go up to just typically real estate and appreciation, right? And I think that's why it's such a forgiving asset class. But you know, you take that same money, and you go plunk it down in real estate properties or syndications, and you show me what in the 510 year picture how that goes. I mean, the numbers don't lie here. I mean, it's all it is. Some people will say, well, renting is like throwing money down the tube. That's the biggest bunch of baloney I've ever heard. Yes, myopically it is, but what if you're taking that money and you're making way more money on the side, in rentals or syndications, you need to look at the bigger picture. I mean, I try to model the way I mean I, I rent, my net worth is pretty decent. So I mean, I have a sort of a feeling where I don't think people should buy their primary residence, a lesser net worth is two times that lease greater than their net worth.

Dalyn Hazell  16:02  

Okay, so the home's about their net worth needs to be two times the home's value is kind of what you're saying,

Lane Kawaoka  16:07  

right? So if they're buying a $700,000 house, their network better be, you know, 1.4. Or, to me, I mean, should be three times or more, but, right. I mean, at that point, you then you can start, you know, like a lot of this wealth building in the beginning is the most critical stage when the network is under a quarter billion or under a million dollars, you can't be screwing around and doing these, like, you know, bad financial things like buying house, right. But once you get to a certain tipping point, and it's different for everybody, once you've hit that sort of almost escape velocity, now you can take your foot off the pedal and start drinking some caviar champagne, and buy a house to live in. Or buy a nice car. I mean, that's the beautiful thing, go ahead and buy a nice car, if you have the cash flow to support it. And you're already past that critical point.

Dalyn Hazell  16:55  

Yeah, it's all about rate of return and rate of return is very important, especially early in your career, because you don't have a lot of capital to work with. So you need a higher rate of return to make the same amount of money than, say, a very wealthy person would. So what you're saying is, instead of plopping down 3050 $100,000 for a downpayment, deploy that and other cash flowing assets. And let's say you're making $2,000 a month from that would be downpayment, but then you're paying 700, and rent. Well, you're net 1300. Is that kind of what you're saying? 

Lane Kawaoka  17:26  

Pretty much that's the logic, right? But then, you know, we run into I mean, I coach and counsel, a lot of you know, folks, and eventually what it comes down to is the people that are listening to the podcast, understand what we're talking about, right? They get it, right, but they can't, they cannot convey and communicate this to their spouse, banker. And they cannot effectively take advantage and, you know, take their family to where they want to be, if that's their goal, right? Yeah, I mean, maybe that's just the kind of the stoic within me, but you know, the obstacle is the way you've got to kind of go through this, you can't just, you know, buy things that you want on a whim, like a house, right, you have to do what is necessary to get to where you're at. And if you're under a million dollars, net worth, you're broke, right? And that's kind of a derogatory term. But like, you got to do stuff that you probably don't want to do to get to a certain point to be financially free, if that's what you truly want.

Dalyn Hazell  18:24  

Yeah, you have to think counter intuitively, counter intuitively, like we're talking about on the show here. So the second pillar that you mentioned in one of your online resources is you don't buy mutual funds, or other wall street products. So you're singling out an entire type of investing here like we're talking stocks, ETFs I mean, bonds. And so why do you hold that position? Because that's, that's very, very counterintuitive.

Lane Kawaoka  18:51  

Yeah, I mean, when I started investing, I was making maybe 2030 or 20 to 30% returns on their money just with a simple rental property. People don't believe me, they go to simple classic council.com slash returns check out the video on the whole math right, but kind of just go with me on podcast land here. I mean, I am in my early 20s. And I'm like, why am I gonna put my money in this supposedly like stock market for what k mutual fund stuff when I'm only making eight to 10%? And it goes up and down like a freaking roller coaster? Right? It For Me? It was like, no clearer picture than that. Why the heck would I want to do that? If I just do take a little due diligence, and yeah, sure. I'm getting off the beaten path, but it's not that hard. It's simply passive at some point. And I can make much higher returns by doing this on my own. Why would I not want to do that? And then I started to discover, you know, the whole system is engineered to keep us investing in that garbage before when K's weren't around. You know, earlier than the 819 80s it was sort of a way to engineer things, yes, it was to get people to actually save their money, right? The people on that side of the paradigm, but it was a way for all these mutual fund companies like Fidelity or Vanguard or Charles Schwab's to get it. But all this money is sitting on the sidelines from the average Joe, because the average show wasn't able to get involved into the stock market. But now these companies are able to get at these people's money, and they take their money, huge hidden fees that carry interest. And what the average person doesn't realize is just getting robbed in their sleep, get this stuff. And nothing is not clear when I'm only making eight to 10% of that stuff. And I'm making such a big return that I'm doing it on my own right. It's like well, where did my money go? Well, I wanted those big buildings and went to these high salaries for all these you know, Ivy League grads who work in these ivory towers. I mean, if you want that stuff and you're okay with those returns cool, but I realize that the man behind the curtain, the Wizard of Oz reference, that it's this whole system is engineered to keep us in that stuff. Because if everybody said, what I'm kind of preaching, go buy a handful of rentals and eventually get into volved in syndications. You know, most people are able to get financially free in less than 10 years if they make a halfway decent salary. Right? I mean, at that point, like, who would choose to go to work and acoustic build or bridges who would play doctor for us? Who would you know, push the government paper? Nobody would write? I mean, maybe some, but I wouldn't.

Dalyn Hazell  21:33  

Yeah, it's kind of sickening. When you think about it that way, you know that there are things in place to get people to do things for long decades, and then you eventually retire underwhelmed at what you've built your life towards.

Lane Kawaoka  21:48  

So what frustrates me is like, there's so much like, you know, here's some of the dogma that kind of prevents us all to do this, right. And it's ingrained in society. Let alone all the marketing, right, which you pay for as the investor comes out in hidden fees, part of the operating budget of the mutual fund, or the broker. But like, you know, people say, Well, you don't want to take money out of your retirement, right? That's a sin, you can't do that. You're not, you can't do that. But like, you know, when I did it, to me, it made sense, I'm gonna take my money out, but I'm not gonna be a bonehead and go buy a car or jet skis with it, I'm going to keep putting it towards long term assets that I want don't intend to use for a while, right? Not taking the money out. So you can call it retirement money or not, it's still my, my asset column. And then they call like, when you take money out, they call it like a penalty. 10% penalty. But to me, I was like, Well, if I can recoup that 10% penalty, and six months, and after that, it's all gravy. Why the heck wouldn't I want to do this?

Dalyn Hazell  22:53  

Yeah, so you were basically taking money out of your 401k and investing into real estate. When did you discover this? Did you withdraw all your money from your 401k?

Lane Kawaoka  23:03  

I actually didn't do this for quite a while, like, you know, I was just I was worse off than probably some of the listeners. I was always taught you never touch your retirement funds, which is complete baloney. So it took me I mean, I had bought several renter's rentals. Up until that point, I finally pulled the plug on the retirement funds. Oh, I wish I would have done it a lot sooner. But you know, I mean, I was like, Good boy. Right. I was like, you don't do that side by step, right, you know, your retirement fund, and take a 10% penalty, you know, like, that's just stuff you're not, you're not, like conditioned to do. And yeah, I'm the person that preaches, like, do you run your numbers, right, and I'm the only one that I saw the numbers, but I didn't do it for such a long time. But you know, so I get it. I know how hard it is for people to kind of get off the beaten path and think, alternatively, but, you know, think for yourself, do the numbers yourself. numbers don't lie.

Dalyn Hazell  23:58  

And on the positive side, if you are a person who has worked for 10 2030 years by now and you have a sizable 401k balance, go ahead and try to tap into that through self directed IRA certain options that, you know, I'm not qualified to speak on. But there are ways to tap into those funds and divert them into real estate or syndications. Like you're involved in getting that higher return. So if you're earning eight to 10, maybe you can get 20 to 30. So yeah,

Lane Kawaoka  24:24  

Let's talk about that a little bit, right. Like, I think one thing is like getting out of the retail types of options. So the analogy I like to use is like, you know, when you're investing in these brokerages, it's kind of like the cafeteria in high school, or at least at my high school, right? You have, you're stuck with the school lunch. You've got only two options that they have and typically it's crappy food and it was really expensive. But what do you do when you get your off campus pass right, which is synonymous with investing outside of these brokerages and investing in KOSPI real estate on your own. In a year out of there, you got your car, you went out to Burger King and McDonald's KFC. Right, it's cheaper food it tastes better I mean the one thing about this is an analogy where it kind of breaks down it's like it's not healthy right? But you know I think people get the analogy right like when you get out of your money out of that retirement fund stuff out of the mutual fund stuff now you can go invest in actually good investments where people aren't robbing you blind with all fees and stuff like that. So you're going from retail investments to non retail right? It's kind of like people that buy stuff at Saks Fifth. It was like I got a shirt there for like 3040 bucks cuz I had a gift certificate, but I can get that same shirt elsewhere on Amazon for like five bucks. It's crazy why anybody shops there, but that's how most people invest. That's how a lot of people shop. Right? But now we're talking about Alright, so you can invest the money through a self directed retirement system. So yeah, you could still keep it in the qualified retirement plan retirement money sector, but invest in things outside the garbage cafeteria investments such as real estate. But one thing I kind of help clients is like, you know, every situation is different. So a retirement plan typically is not the way to go because when you start investing in you know, larger deals, you can get the tax benefits of passive activity losses, you can't use the passive activity losses to offset your passive income or your passive or your ordinary income, which is a big strategy for the high net worth high income earners. So when you're investing in this retirement plan construct so for a lot of those guys the best plan is to get it out of there and invest cash so you can take advantage of the tax benefits of those

Dalyn Hazell  26:42  

right on Yeah, yeah, thanks for sharing that and kind of back to your analogy I just want to add you know, where the marketing dollars are, that's where most people will be. Okay, so like the fidelity the Vanguard's they have the biggest marketing budgets and so that's where most people invest if you take for example in the grocery store that the biggest food companies have the largest marketing budgets so that's where most people will shop It doesn't mean it's the best food for you or it's the best investment product for you it's just where those companies have invested so once you get out of that realm and you can kind of see the horizon the all your options as they are then you start to realize like what a lie you've been sold on you know, this whole time so

Lane Kawaoka  27:27  

All this like marketing kind of makes it where it's like really this whole investing thing is really complicated right to scare the crap out of you. And I tell people investing is not that hard especially when it's real estate right? Where you're investing in a commodity such as a house, if people rent it with simple, simple passive cash flow what like these brokerages and all the investing dogma make tries they try and make this stuff really complicated. And investing in stocks is kind of complicated in my opinion, which is why I don't do it. And I think that's where a lot of people get intimidated, right? They're like, Oh, I don't understand math or understand the stock stuff. So I'm just gonna give it to the guy in the suit that seems to know what the heck he's doing. Right? And that's exactly what they want. So I think my message is like, Hey, guys, isn't that complicated? Right, don't get bamboozled into thinking you need to go with these seemingly smart people, right? Like your financial planners, financial planners just get paid off commission. Right? I haven't found one financial planner that actually has made their wealth outside of selling people's being a salesman actually have and they invest in real estate, you know, hit back doorway.

Dalyn Hazell  28:39  

Yeah, I heard once that the average, you know, salary for a financial planner is 70 or 80,000. But yet, we're putting all of our eggs in one basket too, for them to teach us how to get rich and it just doesn't make sense. So definitely, you have to follow who you have to watch who you are following who you're getting your advice from. And if you're getting advice from somebody who's making money off you via commissions, that's probably a bad sign. And that's what we see a lot in Wall Street in those Wall Street products. So that's why we kind of caution you towards that

Lane Kawaoka  29:12  

100 percent. You only take financial advice to people who are not financially free. Unfortunately, this is not your parents, this is not your co workers, especially the coworker that's been there for 30 years plus right you don't want to take financial advice from that sucker. He's been stuck there. Right and and sometimes this can carry forward to CPAs lawyers, right? Like I mean, probably should have said the whole disclaimer or we're not CPAs are not lawyers, but look, I left my day job doing this stuff, and figured this stuff out. A lot of CPAs and a lot of lawyers, they're still stuck in the day job. They're still working trading time for their money. Right. There's very few, you know, financial professionals that have actually done this.

Dalyn Hazell  29:54  

Yeah, totally. And, you know, CPAs know the tax rules, but then they keep earning money the wrong Way, and that is heavily taxed. The lawyers know the legal rules, but then they don't, you know, take advantage of them or implement them. So it's kind of like, you know, you have to really be humble and maybe not come from that type of background to achieve wealth. Because if you know, the tax rules up and down, or you know, the law up and down, sometimes you just take it for granted, and you don't use it to get wealthy. So I definitely agree with that. Um, let's get to the final point of this, the final counterintuitive way that the rich get wealthy, I want to talk about taxes. So you're saying that, generally speaking, the rich don't pay taxes, I assume they may pay some taxes, but they don't pay as high of a percentage in taxes as, for example, an employee or a self employed person? Why is that? And how do they do that?

Lane Kawaoka  30:52  

Yeah, I mean, they're investing in real estate as their primary weapon to lower their taxes. So real estate is cool, because it's the one asset class out there that you can deduct the price of the improvement over, you know, if you have a rental property, 27 years, so you can take that paper loss or Phantom loss off of your passive income, which is cool, where you kind of, you know, put this on steroids is in, you know, larger deals that can do a cost segregation, which kind of itemizes all the pieces of the building, at the end of it, you can deduct a third of the building value and the first year, right, which now gives investors a huge amount of passive losses, to now play different levers on their taxes, the passive losses can be used to offset passive income, often, you know, that more than, like, offsets the income for that year, but also can create a surplus of losses, which is a good thing. No, we've kind of worked with clients to, you know, like a lot of people will might implement, you'll see professional status, which has a lot of things, you know, moving parts within, we're not going to kind of get into it, but now you can possibly unlock the passive losses to lower your ordinary income. And you know, that's just one strategy, right? And there's different types of deals, you can go in, you know, basically, you're, you're going and you're following the incentives that the IRS had put into the tax code, the government wants us to invest our money and put our money in certain places, right? It's our job and with the help of our professionals to figure out what those are, are, and also the best practices from our community, your mastermind. So, you know, like, this is what the wealthy do, right? They figure out what these things that the IRS wants us to invest in, put our money there, and we can drive our Adjusted Gross Income down or get different tax credits. I mean, if people want to go look at my taxes, they can go to simple passive cash flow, calm slash tax, and, you know, see how much I've been paying the last several years every year. Some people think that's messed up, right? I mean, to me, I mean, I'm just doing what the government wants me to do, and, you know, like it, and I'm the one putting my money into a lot of these apartment deals for workforce housing, this is what the government wants, right? You know, government housing for this type of stuff. They want investors such as myself to put money into this stuff, and then, therefore, they get the great tax benefits from it. Whereas if you're somebody who just puts your money into stocks, mutual funds, you're gonna have to pay taxes on that, because you're not investing with how the government wants you to do it. Right? Everybody needs to pull their weight here. If you don't, you're not putting your money in the right stuff that they want you to do, then you have to pay taxes, bro. Right. And unfortunately, it's the people, the high income earners are getting killed by this stuff. It's not the wealthy, it's not the low, the lower end. It's that shrinking middle class that are getting killed with this stuff, because they're not following the breadcrumbs.

Dalyn Hazell  33:48  

Yeah, it's surprising that more people don't talk about taxes. And, you know, they, they just, they get their tax return, and they pay what it says on it. And they don't really think about how to lower that because it's just become so big a part of our life. And you know, if you think about 100 years ago, there wasn't even an income tax a little over 100 years ago. So how we've allowed the government to step in and encroach so much, but for wise investors, like you, who know how to kind of, not cheat the system, but legally, take advantage of it, then you're just going to be in the top, you know, 535 percent of people that pay little to no tax relative to their income. So it's very powerful if you can, if you can save 40% which is you know, some people pay 40% taxes if you can save that, then that's just more you can circulate back into investments. So you just earn that all compounds.

Lane Kawaoka  34:45  

Yeah. And this is like kind of going up to the higher income earners and a higher net worth people like had a case where a doctor wanted to like you know, they make pretty high salaries like $600,000 AGI, and by doing A few maneuvers, we'll see professional status coming into some deals with larger bonus losses, we can have able to lower them from 600 Grand 400 grand, I'm just saying using these round numbers, right? And that affects the save them 100 grand, yet they're wasting their time trying to learn some kind of short term rental strategy where they invest, they could make $5,000 - $10,000 a year. Right? So, and this is, I think, where people like they get confused, right? Because they see all these investing strategies, right, but they don't really understand the high level of what's really going to move the needle, what's the 8020? Here? Right? So for higher income earners, it's more of a tax game. Right? If that's exactly what you said, like if we could just move on from 600 grand to 400 grand, which is sheltered, we just saved maybe $100,000 of taxes right there. Who cares if they would have had 10 rental properties or 20 rental properties, in fact, right? Like it's, it's more kind of what moves the needle in terms of dollars, and what you get at the end of the year. And this is how the game transitions from a lower net worth investor to a higher net worth investor.

Dalyn Hazell  36:06  

Yeah, and I know you focus a lot towards your working highly paid professionals, there's certain things that people need to focus on in different parts of their career. For example, if you make 50,000 a year, try to get that up. Obviously, if you're making 600,000 a year, you need to focus on getting that up, but also focus on getting your tax down. So there's different goals that you need to take stock of as an individual. But I think the highest priority, you would probably agree, is economic independence is getting your rate of return really high, and getting your net worth to that million plus mark to where you can really start to make massive moves.

Lane Kawaoka  36:45  

And you're right, like things really start to move. And these strategies really start to make sense once your network goes over half a million. I mean, if you're under there, you know, do what I did. I mean, when I graduated college, I didn't have very much money, and I had to just like, you know, buy rental properties. So from 2009 to 2015. I was just picking up these turnkey boats, myself. Yeah. So again, you know, we're kind of talking about different advice for different wrongs, right? So to me, like the split is anywhere from under half a million dollars to over half a million dollars network. If you're over half a million dollars in net worth, like you said, you know, a lot more of it is taxes, of course, you still have to invest right in the right assets. But when you're below that, you know, that's where I was, I was between 2009 to 2015. I had a good paying job, but I didn't have any net worth at the time. So what did I do, I just picked up rentals diligently and saved my money. I was able to accelerate through this pretty quickly because I was able to save anywhere from like 50 to $80,000. From my day job. I was kind of an extreme saver. But you know, this is where I just kind of picked up assets and one turnkey rental after next after the next after the next and I think a lot of people don't realize, like wealth building isn't a get rich quick thing. You know, from 2009 to 2015, that was a long freaking time. And you know, people expect to kind of just go to the big stuff and skip over that. But you know, the crazy thing about this, like real estate investing and wealth building is it kind of goes exponentially. But yeah, you have to cut up, put in, put in the effort in the beginning, and a lot of it is just building your network up slowly. And then at some point it takes off.

Dalyn Hazell  38:28  

Yeah, it's that compound effect. Certainly. For example, you know, you read books like side edge, or the compound effect. And they talk about how, you know, get up a little bit earlier one day or go to the gym one day, or read 10 pages of a nonfiction book, you're not going to see the impact of that and the first day a month, even here, but you are going to see that impact in five, seven to 10 years like you saw in your financial life.

Lane Kawaoka  38:53  

Right, right. I mean, in the beginning, this is all new to you, right? you kind of don't you definitely don't trust it. So you go buy a rental property. But after that, you know, you've got to kind of find where all your other lazy equity is and that could be in your primary residence. So take a keylock at a cash out refinance, deploy the funds, it's more assets than money in your retirement funds, you know, put that to good work, or just you're just sitting on cash. You know, once you've got proof of concept to me, that's where you have to kind of invest more heavily and get more involved. Because a classic example is like a guy invests $150,000, and he's like, why am I not to financial freedom? Well, dude, you need to invest more, right? This is not magic, right? It's just a certain rate of return times how much money you invested. You know, the rate of return doesn't go up and down very much unless you want to take a lot of risk, which I don't recommend. Therefore, you just have to invest more and if you don't have the money, then you have to save more and it's going to take more time but at some point you gotta start kind of like in your mind IV like pulling the goalie right or taking money out of the 401k.

Dalyn Hazell  40:01  

There's hope for those people who have bought into the traditional beliefs of buying your home, investing in Wall Street products, because you can always get those out through a self directed IRA, simply cashing out your retirement account, doing a HELOC on the personal residence. So there's the world's financial worlds pretty forgiving in that you can tap into these lazy equity items that you mentioned, that's a great term for it lazy equity, and turn it into high producing equity for you. Yeah,

Lane Kawaoka  40:33  

yeah, well, I mean that like that there are certain things that are reversible, right, that I would recommend for new new people that are falling apart the healer, like you said, or taking loans for your 401k or taking withdrawals from your Roth IRA, right, your contributions, you can take out tax free, because you've already paid your taxes, you can take that out penalty free. So do that first. But once you've got proof of concept, now you need to start to look at the reversible things like maybe you have a rental property, maybe you have a primary residence that you should unload itself. Or maybe you just want to keep living there. So you do a cash out refinance, cash out refinances, you pay fees for right, but it probably will make sense it's about the equity and now invested elsewhere. Other irreversible things would be taking money out of your 401k or retirement, but you can't really put it back. I mean, you can but only at a certain pace. And I don't know why you want to put any more money in, once you're taking it out to me, it makes no sense. But you know, they are kind of the two rocks. So you know, if this is all new to you, focus on the reversible stuff. And then once you've got proof of concept, now you kind of go all in on this stuff.

Dalyn Hazell  41:43  

Yeah. And that's a great way to wrap it up here. But first, before we let you go Lane, I want to introduce the last portion of our show, which is the triple threat. And it's the same three questions I ask each guest. So the first one is what has been the app or resource that has been the biggest game changer for your business? Oh,

Lane Kawaoka  42:03  

I mean, I like Google Docs and Gmail. I mean, it's just nothing, nothing special. I guess.

Dalyn Hazell  42:12  

Yeah. Those are great tools for sure. I use them every day. The second question is, what has been the biggest lesson for you in the last year? And why do you think that happened?

Lane Kawaoka  42:24  

Oh, I guess I like going to the pandemic. I mean, we kind of showed how multifamily apartments survive this stuff. It's a basic necessity. And it kind of I did it, I was a little worried, in April, May 2020, how all this stuff that happened I've ever been through before. And I was kind of worried about how collections would go. But you know, collections came pretty well. And, you know, occupancy did drop maybe a few percent points. But you know, at the end of the day, we still have the cash flow we keep, you know, more than 50-60% of the people have hits in bed. So we're cool. And now I'm probably even more confident in the strategy of going after workforce housing. Because you know, at the end of the day, people need a place to live, population is going up, immigration is up. And you know, it's the shrinking middle class or falling back to the lower middle class into these more value based housing options. It's what's more in demand for sure there's more cool ways to make money and like hotels or you know, hospitality type of stuff. But I think we're all reminded why that stuff is worth discretionary spending. And it gets killed in situations like this.

Dalyn Hazell  43:41  

Yeah, yeah. So absolutely, you went through COVID. But you just have to trust in your assets, trust in your, your underwriting, and guarantee that it will carry you through the storm? For sure. Question number three is our podcast is all about helping others achieve freedom with real estate investing, whether that's financial, lifestyle or otherwise. So what does freedom mean to you?

Lane Kawaoka  44:04  

Freedom is to do what you want where you want, it told me why I think something I've learned is, there's kind of two people going through life and most people are the people who are trading their time for money. They're going to a job every day and everything is kind of, you know, when they go home to kind of rest, recover, and go back to work trading their time, once again, until you've you've reached that point of real retirement. People get to retire but they don't have enough money. At that point. They're just kind of eating off their, their, their pile of cash. But people who've kind of achieved that escape velocity, the critical mass to have enough money that regenerates and girls, whether they do anything or not those people have truly gotten to that co g scenario. And for people finally, lucky enough to get to that point before the age of normal retirement age. Those people are get to a point in life that not many people get where they get the options to kind of design their lifestyle and figure out what impact they want to make in the world if that's what they so choose but yeah I mean until you to me are like 30 doesn't start at show you can like not have to go to a day job every day

Dalyn Hazell  45:23  

yeah yeah i mean that's that's definitely true for me you know your life doesn't really begin until you have ultimate choice over what you do with your time. I don't know if a lot of people would agree with that maybe you'd like your job or otherwise but uh, I think it's definitely something that we should all strive for and should be in the back of our mind at all times too because that's how we're going to achieve our higher purpose or higher higher calling is when we have choices we can right time for sure.

Lane Kawaoka  45:51  

right i mean nowadays I understand why old people are kind of grumpy but they don't have to put up with all this type of nonsense and sorry my kid is crying that with you with that but you know like people who are financially free they can say no and they do say no a lot to things that you know they don't want to do and that doesn't really meet their calling and not aligned with their values and great things happen when you can say no most of the time

Dalyn Hazell  46:20  

Yeah well that's a good way to end it This has been a great episode on you know the counterintuitive ways that the rich get that way. So I have appreciated your time and your expertise Lane and I hope the listeners got a lot out of this episode. Where can people learn more about you if they are interested? I know that you mentioned website simple simple passive cash flow calm I believe. Yeah,

Lane Kawaoka  46:47  

So they can check out my podcast: simple passive cash flow, passive real estate investing. In the beginning, I would talk a lot about rental real estate. But as it became more of a credit investor, the topics have kind of changed to syndication taxes, that type of stuff, infinite banking, or they can check out my website's simplepassivecashflow.com.

Dalyn Hazell  47:09  

Alright, thanks Lane. See you!

Lane Kawaoka  47:10  

Okay.

Outro  47:12  

Thank you for listening to the real estate investing for freedom podcast. If you enjoyed the show, please subscribe and leave us a review and tune in next week for the next episode.