How This Man Built His Business Empire Through Passive Income (Ep.27 Part 1/2)

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Lane: There's a saying out, so
your network is your networth. You know, the people that you hang out
them out with, you know, that's where you're going to get to know who to work
with, what deals to go into, where to invest it is, is a big network thing. But I would say until your network becomes
at least a quarter million dollars. I think you're all on your own buddy, you
just got to grind and save along the way. Sean: Hey guys. Welcome back to the show today. We have a special guest all the way
from the other side of the world, Mr. Lane Kawaoka, he is the founder of
the website,

We're going to have
that in the show notes. He is an accredited investor and
podcaster and an official member of the Forbes real estate council. He's also a writer in Forbes
invests in a lot, has over 3,500 rental units, which is amazing. And the author. Of the book, "The one that changed
everything", it is a 12-time Amazon best selling author. So you better go and check that out. Lane, thank you so much
for being here today. Lane: Hey, thanks for having me, Sean. Appreciate it. Sean: No, we are so excited
to work to, to learn from you. So actually it is me who should be
thanking you for being here on the show. So you are, you were no, you are
a licensed professional engineer. And you were doing that from early on in
your life after you graduated to one day throwing in the towel and saying, Hey,
I would rather focus on passive income because I think that makes more sense
for me, but what was the turning point? Cause a lot of people, I think
everyone wants passive income.

That's why, you know, there are scams
out there and it's easy for them to get people because the desire to
have passive income is so strong. And yet they did, you know, a lot
of people just don't throw in the towel and jump ship like you did. So I want to know what was the
turning point that made you decide. I'm just going to do it. I'm just going to focus
on this and run with it. Lane: People, everybody
wants passive income. Right. But I just got lucky that
I picked the right one. You know, people will say sell kinds
of things, essential oils, different multilevel marketing products. And they say that's passive income. That's not passive income to me. To me, it's, you know, I got the taste
of it when I bought that first rental property and I started renting it out.

The monthly rents was 2200 a month and
the mortgage payments was 1600 a month. So if you can do the math at home, that's
a few hundred bucks at the very least the pase of expenses that's cashflow right. Every month. Yeah. That was where I realized, like if
I just keep buying more and more of these things first buy more and
more of them, it takes a while.

But then eventually, quit the day job. Sean: So how many more did you buy
before you finally exploded and you know, had 3,500 rental property? Lane: Can I get one thing checked? I'm not like a wholesaler or flipper. I buy and hold properties. I put down the 20% down payment. And I could do that because I had
a good paying day job where I was able to be frugal with my money
and save it to put on down payment. I mean, I was lucky enough to
be able to say that atleast 50 grand a year to buy investments.

So, but even at that pace. It took me about seven years to get
up to 11 rental properties, you know, cause the first three years, you know,
I bought one and I had to wait a couple of years to buy the next one, not a
get rich, quick thing that's for sure. Sean: And you do a lot of homework
before you buy a certain property. What are some of the key things that
you look at in order for you to decide once you put in the down payment? That's pretty much it, right? Cause that's, you know, the
deal's done your money's there and you have to pay mortgage. So. What are some of the key things
that you look at before you finally decide, aha, this property is going
to be good, passive income for me. Lane: And I didn't know a lot of
that stuff when I first began, but the kind of the biggest
one is the rent to value ratio. We don't buy anything today – that's
not, that's under 1% rent evaluation.

So you figure this out by you
taking the monthly rent price. Dividing it by the purchase price. So for example, a hundred
thousand dollars property that rents for a thousand dollars. A month, that's a thousand
divided by a hundred grand is 1%. So a lot of places like California, you
might find a $400,000 property that rents for 2000 and 2000 divided by 400,000. That's half a percent that ain't
going to work for cashflow. You know, we can kind of find properties
that would the numbers work out that way. And of course we try not
to go into bad areas. We try and stay with good stable
tenants, good areas, but we get that the numbers where it works. Sean: So anything above 1%. Okay for you already. Lane: Yeah, it's a good starting point. Right? And then you kind of start digging in
and you start to inspect the property, but you know, numbers first, right? Cause numbers, you can verify from several
thousand miles away from your computer, then you have to deal with the contract.

And then do your physical inspections,
you get a third party to do that. And then you start to sharpen your pencil
on top of the person going to work. But yeah, from them,
anybody can go on Zillow. Like it's a properties in their area. Yeah, figure out what the rental comments
are going for, and then figure that. Sean: So I'm wondering now how you
manage 3,500 plus properties because you need to collect from your tenants. You need to make sure that you're able
to address some of their concerns. That's a lot of tenants
that you need to handle. How do you do it? Lane: Well, I don't do anything, man.

I mean, I just have property managers
to do it just like from the beginning. For property managers, somebody
who, you know, you pay. Usually about 10% of the rents and they
property manage, they manage the tenants. They manage the day to day. You know, the issues that happens at
night, I don't really deal with any tenant – tenants, termites or toilets as they say. Today, we're kind of more running
more of a sophisticated model where we have we bought in large apartments,
we have more sophisticated commercial property managers, and we have another
layer of staff in between there.

You know, who direct the property
managers around, you gotta be an investor, not a landlord, right? You gotta pay people good
money to do this work for you. That way you're able to scale. Most investors only have
one or two properties. Yeah. To me, that's, that's not
the way to do this business. Sean: So you have property managers,
I assume you have different property managers per different locations. That's still quite a handful. I want to know the word
accredited investor. We don't have that in our country. We just have investors or you're
either invest or you don't. And usually we, they don't teach you
anything here about investing as well.

They don't teach how to handle your money. Personal finance management
is something you learn from workshops and seminars here. So. What does that mean? I just want to know, like, how do you
become an accredited investor and why would someone want to be accredited? Lane: Accredited investor is, you
know, there's no test to take. There's not really too much
of a qualification process. It's kind of like, are
you pregnant or not? And there's no test for it
either you are, or you aren't. In America we have a lot
of – obviously you guys know we're the land of regulation, right? Where the government likes to get
involved and make all these rules in America to protect smaller investors
from investing all their money. You know, they might even only have
a few thousand bucks to invest all of it and blow their life savings.

They set up these rules where. If you're not an accredited
investor, you're very restricted in what you can invest with. So defining an accredited investor,
accredited investor is an investor who makes more than a quarter million
dollars a year, or has a net worth greater than, or equal to $1 million. Not including what's in
their primary residence. Oh, they're pretty,
they're doing pretty well. Right. And they could send to these, you
know, some money here and there and be okay where our government has now
maybe made the judgment where somebody who's not accredited should likely not
be investing in one of these types of deals because you could lose your money. You know, also most accredited
investors, sophisticated accredited investors know how to kind of mitigate
it and diversify it appropriately. But no for unsophisticated. Not accredited investors. It can be a death sentence. You know, it's just unfortunate because
most of the people in my country and everybody else, they just invest in
retail type of products like mutual funds and all these kind of, you know, from
brokerages, from financial planners, which to me, I don't do any of that
stuff because it's just written with fees and I, I kind of see the world in
terms of that's, what's robbing all these hardworking Americans in their retirement, Sean: I'm going to stem from that
and jump into one of my questions.

I saw that you don't advise people
to invest in those retirement funds or retirement accounts. You ask people to veer – you think
that people should veer away from them. They're advertised, they're marketed. And aside from being written, written with
fees, what other reasons do you have to say why people should veer away from them? Lane: I mean, I'm not saying
not to invest for your future. I think retirements have their
place because most people are able to save their money. If they had 20 grand in their
checking account, they probably blow it on some three dad or
something – car or something like that. I'm not a big fan of buying
your own house to live in. Right. But for some people who can't save
their money, which is most people, again, if they don't put their
money into their mortgage, paying down their house, they blow it too.

I'm just some, people are. But for those of people who are
financially responsible, you're going to pay taxes on the money sooner or later,
I personally would rather pay taxes on it sooner for a variety of reasons. Three mainly, first; your taxes is going
to be more now than in the future, because I plan on making more money in the future. Therefore, I'm going to be climbing in
the higher tax brackets in the future. Secondly, the United States
has been creating pretty much creating all this money.


I don't know if, what you guys have seen. You guys in, we print it,
like it's going out of style. Right? How else are we going to pay for all
these government entitlement programs to increase the tax brackets in the
future, again, pay your taxes now. Right? Get out of it. That some people in my group are a
little facetious and they say by keeping your money in a retirement account. The government is actually – has
a lien on all your stuff in tax andwhatever they want. And then lastly, you know, the nice thing
about investing in real estate as an asset class is you get all these nice benefits. And when you invest outside in
your retirement account, you don't get all those nice sweet benefits. So I want to invest cash so I
can get those tax benefits today. Sean: I want to rewind a little bit and
so, just for you guys to know all of you listeners Lane is a 34 year old guy. He's 34 years old and has
built his passive income.

I dare say his empire on real
estate, which means, you know, it's not too late, it's not too early. You can do it. You just have to invest in what you know,
and Lane you have invested based on your portfolio, somewhere in the $60,000. And here in the Philippines,
it's like 3 million pesos. That's pretty big for a lot of people
and you invested in your education. Can you tell us more about that? Lane: I mean, my first six, seven
years, I just invested on by myself where I would just save my
money and like a little turtle.

After a couple of years, I
would able to buy a house. And then I just did it again. Rinse wash, repeat six years,
seven years went by, I got myself up to 11 rental properties. It was a grind to get there, but until
I started to join different masterminds and get educated and I had to pay for
that, I wasn't able to get into different groups of higher level investors who
were doing things very differently. It's no mistake that the wealthy
do – do things differently. Yet, it's not that her
shattering or anything like that. A lot of this stuff, like I mentioned,
we don't do retirement accounts. It's just a fuddle to most people,
but we have, that's what the rich do and that's the twist on it. So that's just one of many things
that a lot of accredited and more affluent investors will do, you know,
a series of different strategies. So I wouldn't, you know, I didn't. I didn't really grow up with money.

My parents never owned rental properties. How else would I get access to those
types of people with the tactics? And that's after some point
there's a saying out "So your network is your networth". You know, the people that you hang out
out with, that's where you're going to get to know who to work with, what
deals to go into, where to invest it is, is a big network of thing. But I would see until your network becomes
at least a quarter million dollars. I think you're all on your own, buddy. You just got to grind
and save along the way. Sean: Is that the bracket where you,
where the governments government just says, okay, you can become
an accredited investor or no? It is 1 million, right? You mentioned earlier. Lane: Yeah. But the truth is like, you don't
need to be an accredited investor to invest in these types of deals. These types of deals
are country club deals. You just need to know the person just
in you – you can, you can be lucky and just happen to build the right person.

Highly unlikely though. Right? If you're a broke guy, you
probably have broke friends. Let's just be honest. You have to level up your peer network. The only way to do that most
times it's just work on yourself. Sean: Again, rewind back a little
bit and ask you, you mentioned the first six, seven years were a grind. How long have you been doing this? Lane: I bought my first
rental property in 2009. So a little over 10 years ago. Sean: Would you say that in that
seventh, seventh year towards the eighth year, things just
exploded because from 11 to 3,500. That's like, there's a huge
discrepancy right there.

I couldn't, I couldn't
reconcile that number. Can you tell me the story in
between I'm missing something? Lane: Yeah. I mean, we just start picking
up apartment buildings, right? I mean, but you know, I don't know
how useful that is to your audience. Right? It's a great story. But when I used to listen to podcasts,
I'm like, shit, that does not help me. Right. For the guy listening right
now, your goal is to save a thousand dollars, to save 5,000. To save 10, to save 20. So you can finally go and buy
that first one rental property. Right. So you can, we'll get, you get save
up you're downpayment so you can buy that first rental property. Guess what? You gotta do that again, and
then you gotta do it again and then you gotta do it again. But then after awhile, you know, maybe
you can buy two properties a year. Right. Sean: So it is a matter of being able
to set aside something so that you're able to invest in more properties.

And that is the way you did it to build it
up all the way to where you are right now. Lane: Some books will say you have to
save at least 10% of what you make. Yeah. Put two assets that produce income. Sean: And you agree
with, with, with the 10%. Lane: Yeah. If you want to, if you want to kind of
do it in 20 years, so you got to do it. You got to put it more. What I'm saying. I mean, you got to everything that is
not essential, especially when you're, when you're starting off, you have to
put buying, putting to your business. Sean: So I read about your rule
and – rule off investment. You mentioned network-netrworth earlier. You say a maximum 5% of your net
worth, that is your rule of investment. Can you tell us more about that? Lane: For accredited investors? You know, they're typically investing
minimums of $50,000 into each investment. So that's where the 5% kind of comes from. But you know, when your networth
is 50 to a hundred grand, you can't buy anything with that.

So you're going to have to break
that rule in the beginning, but just know that that's something you're
kind of, you're kind of going to. Essentially, but you know, maybe I'm going
to, I'm going to kind of try to redirect the conversation because you know, people
will follow guys like Richard Branson. I don't care what Richard Branson
or Warren Buffett's doing.

They're light years ahead of me. When I look, I look up one step
ahead of where I am going to be. Right. And for the person listening
right now, that's right. You even save thousands of
dollars or 10 or 100 grand, right? That's the goal at hand, maybe we can
talk about like the rules of investing. Like why do I pick real estate? First of its it's only thing,
you know, it cashflows. So on a monthly basis, the
income pays the expenses. Secondly, it's hard asset. It's a real asset. All these kids outthere are playing
around with Bitcoin or some kind of stock that is a fake asset. It is not real. And thirdly, Real estate
you can leverage it.

Here in America we get
these nice loans to buy it. I mean, it's almost a no no-brainer
real estate is the, one of the few things to hit all three of those things. People invest in gold. Yes. It's a hard asset, but does
not produce income, right? Stocks are not real assets. They could produce income. But most of them are more appreciation. Say Apple stock is not a real asset. Sean: I'm just curious. Do you personally invest in just
real estate or do you have other investments such as these things? Lane: I kind of stay in my lane. I mean, I focus on one thing. I know apartment buildings
and workforce housing. That is what I stick to. I've done 0.1% in some agriculture
stuff, but 99.9% of my stuff is workforce housing real estate. Sean: A lot of the real estate that's
being pushed here in, in our country at least, are condominium units. Not really, just not really
hous and lots actually.

Lane: What did they, what did they
rent for and what is the purchase price Sean: Purchase price for maybe a
four bedroom, 192 square meters in ACBD here, central business district. Would go for like anywhere
15 to 25 million pesos. That's like 50 – 500,000 US, 25 million. Lane: 500,000 US. And what would you, what would be
your, your rent that somebody would pay you to stay there for a month? Sean: It would be a hundred thousand,
150,000 Pesos it's like 3000 US. Lane: 3,000 divided by 500,000
thousand is 0.6% rent to value ratio. Is not going to work. Yeah. I mean, you're going to have to go
out maybe to the rural area, but then it's going to be hard to find tenant. Maybe it's just not going to
work in your guys' country.

I know a lot of, I mean, that's,
what's the nice thing about America. We have some places where it's even twice
as good as the 1% rent to value ratio. Some even three times
is a bit, pretty much. I mean, I'm not, I didn't know too
much about the Philippines but I knew China, Japan, Europe, very,
very low rent to value ratio. And I think you guys
don't have as good loans. America is very good like we have,
we don't need to put down 20% downpayment and then we get like
5%, 4%, actually 4% or less today. And its amateurize over 30 years. Sean: Yeah. I don't think we have that here. So. It's very different. The game is very different. Usually you don't look
at housing lots here. You look at condo units as well. It's being pushed.

That's what we have a lot of stock of..

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