Epic Real Estate Investing - Lane Kawaoka - Simple Passive Cashflow | 400

Episode Date: May 31, 2018

This Thought Leader Thursday, Matt is joined by Lane Kawaoka, a real estate investor, project engineer and licensed professional civil/industrial engineer, co-owner of MFPE Investments LLC, and podcaster. Today, he shares how he transitioned from a 9-5 mindset to financial freedom, his experience switching from investing in single family homes to multifamily properties, and a common mistake multifamily investors make. Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terrio Media. I didn't really enjoy my job being an engineer. I was working as a construction supervisor at the time. And I was like, well, you know, this is like the only way I can get out of this, you know, to get that financial freedom. I'm Matt Terrio of Epic Real Estate Investing. And this is Thought Leader Thursday. So today I am joined by a passive income real estate investor who still works as a project

engineer and licensed professional civil industrial engineer. And in 2009, he was able to serve or save for an A-class rental property in Seattle by being a cheap ass, self-proclaimed cheap ass after discovering the difference between cash flow investing and appreciation investing. And so he moved his portfolio from Seattle into a dozen or so single-family rentals in Birmingham and Atlanta, Indianapolis, and Pennsylvania. And today, he is laser focused on class C&B multifamily apartments and syndicating with with other investors who like the idea of real estate investing,

but don't have the time or the experience to do so. So he believes in investing in this nation's demand for affordable housing as co-owner of MFPE Investments LLC. He currently controls five apartment buildings totaling 626 units in Houston, San Antonio, and Oklahoma City. So please help me welcome Lane, Kawaoka to Epic Real Estate Investing. Lane, welcome to the show. Hey, thanks for having me, Matt.

You bet. Did I pronounce your last name correctly? I thought it right. It must have practiced that last night. I love Japanese names. They sound exactly like they look. I wish English had so much logic inserted into its language. Not as easy.

All right, Lane, hey, before we get into your business and real estate, what were you doing just prior to getting involved in real estate? I was a college student and I just got my engineering degree and I just followed that linear path. I go into school, get a good job and kind of work the, the, the, five to nine kind of thing for a while. Five to nine. I, um, you know,

bought that first home and that, that was history, right? What was it about real estate that you found so attractive? Well, I, I kind of fell into it like as an accidental landlord. I, um, bought that single family home because that's what everybody said to do,

right, buy a primary residence, which I don't quite agree. And I know you don't, you don't agree with that one either. Right. Um, but, you know,

I rented it out because I was never home and the rents were 2200. and the mortgage was 1600. And for a young 20-year-old kid at the time, that was a lot of beer money. And I was like, dude, I got to do this again and again and again. And, you know, I didn't really enjoy my job being an engineer. I was working as a construction supervisor at the time. And I was like, well, you know, this is like the only way I can get out of this,

you know, to get that financial freedom. Right. So I just kind of read all the books, started to do all the podcasts. and, yeah, you know, that I just kind of escalated from there, buying another and buying another. Good. Cool. So that was what about, about nine years ago or so, right? Almost 10. Yeah, yeah. And, you know, I even bought one from you guys a long, long time ago. Did you really? Yeah, I came down to Burbank, but, you know, I guess you didn't like working past five and you weren't there. You had probably left already. Oh, how embarrassing.

But yeah, you guys, you guys definitely paid a big role and, you know, kind of, you know, kind of getting me to where I'm at. Oh, well, good. Yeah. Well, fantastic. Nice to, have we ever met before? No, no. I'm really embarrassed if we have. Okay, good. That's how it is when you have a podcast, right? People. Yeah. Gosh, I just threw me for a loop. I was about to start re-recording. Let me act like I've been there before. So you worked with Mercedes then? Yeah. Yeah. Okay. Yeah. Perfect. Perfect. All right. So after about, oh, or after almost 10 years or so, how has your view of real estate changed? Yeah, I mean, you know, we bought that first one in Birmingham, and then that was kind of proof of concept for me to trade my Seattle rentals, you know, those high price appreciation properties that don't really get any cash flow. And, you know, I did this.

I traded those two properties for nine properties via 1031 exchange, which, you know, I have my mixed feelings about the 1031 exchange. I kind of believe you got to pay your taxes at some point and you can't, you know, you can't really buy very good assets being a distress buyer. doing that but you know it got me into this double digits and got me fanny made out um you know definitely got me got me out of that that scarcity mindset and i was like wow you know i'm really going to get financially free doing this stuff you know then i kind of just it became more of a business right for me at that point essentially got myself out of the rat race right well good try to get it make it bigger so you you've you're in these you got these what nine or ten single families and then you moved into multifamily is what I'm reading right right right right I mean I

still have them today and I'm trying to sell them off one by one but it's a it's kind of slow going but the single family you're trying to sell off right right right right I realized right I realized that you know the single families are a great way to get started you know for a guy at the time I lived in Seattle now I live in Hawaii I mean a lot of people in primary markets we just have no access to cash flow and it's just super risky investing in these appreciation kind of markets. Right now with 10 properties, I usually get a couple, you know, one or two evictions a year. Not bad, but, you know, four big events that happen, like an HVAC goes out or a plumbing issue.

And, you know, just kind of do the math. You're going to need damn near like 30 of these things to get yourself financially free. I mean, there's pros and cons to both single family and multifamily, but it's the maintenance that kind of kills you with the single families, right? Right. That HVAC unit has to be spread over one unit when on a multifamily. It could be spread over multiple units. Right.

I mean, that can be modeled, but I think the big thing is, like, the turnovers, that kind of kills you. Mm-hmm. You know, I had some bad problems with that. Yeah, it can be. The, so you're in the multifamily now. So what you're saying is you're not finding that type of turnover into the multifamily? Well, I mean, it's just a little different. The turnover costs that I'm thinking are, you know, these guys move out.

they either just skip town and then they just totally trash the property. You know, at single family homes, you've got the inside interior, one, two, three, four, five, six walls and then the ones on the outside. So I don't know how many walls that is, 10 or 12. But the apartment space, you know, you've only got the interior of that that they really can screw up. And there's just a little bit of different a mindset between the apartment tenant and the single family home tenant.

The single family home tenant has a little bit more entitled mindset, that even though it's like, dude, you're still renting, you know, but they just feel a little bit, like that's their home. Right, right. A little bit of more emotions at play. Right. When things don't go right, for sure. Exactly.

All right. So I just learned how you found your single family properties. How are you finding your multifamily? Yeah, multifamily. I mean, I kind of did what everybody else did and, you know, just call brokers. Because in single family world, you know, as you get up to the more distress assets, the more value add properties, 80% of them are supposed to come non-MLS. But in the multifamily world, it's kind of the opposite.

80% of the properties come via broker. Because in the multifamily world, the brokers actually do their job, which is call sellers and try and talk sellers into selling to buyers. So it's mostly through brokers, building relationships of brokers, going out, flying out to these places, taking them out to lunch, and just give him good feedback because everybody's like, hey man, I want to buy a multifamily. I want to buy an apartment. Well, cool.

Get in line, right? You've got to distinguish yourself as a buyer. So when you're going out and you're looking at these properties, you're talking to these brokers, what are the main things that you are looking for in a multifamily property? Yeah, I think a lot of people are looking at market. You know, it's good to buy in a good job market, job growth, yada, yada, or be here at all the time. but the things that I mostly look at are undervalued rents, which is an undervalued property because it's all based on the NOI in the commercial. So, I mean, as far as I'm concerned,

that's usually going to come from an unsophisticated seller that maybe they just aren't caught up on the best practices or they're undercapitalized. Like they're unable to put in that $1 or $2,000 of minor repairs into each unit to bump them up $100 a month. Mm-hmm. Got it. So you're looking for underperforming, basically, right?

Right. Not distressed, but probably not optimized in terms of management. Mm-hmm. Okay. So when you are looking at that and you're looking at something that could be bumped up in rent, you're just looking at comparables or what data are you looking at to decide whether or not it's underperforming? Yeah, so that's like kind of the first thing. When you get like these nice pitch sheets from these brookies.

from these brokers, these shiny PDFs, that's the first thing I throw out, like the comparable sales. That's pretty much absolute garbage. You want to be looking at the price per square foot on a lot of these and, you know, kind of break it down to one bedrooms, two bedrooms and studios.

You know, sometimes bigger, some buildings have larger one bedroom, some have smaller, so you've got to kind of take a look at that and, you know, don't just look at the numbers on a graph. But, you know, then you want to get into the city and go and tour that next property that good comp, right? You don't want to take like a three-star building and compare it to your two-star building. It's just going to be different. You want to try and find a property that's near your area and it's very similar to make.

Go put on a hoodie and jeans and go pose as a tenant and go see what they're renting that thing out. Mm-hmm. I mean, that's really the best way you're going to figure out what these comps are. Got it. Got it. Cool. So what's a common mistake? I don't know if you've worked with a lot of other people. Maybe this is only your personal experience. But what's a common mistake that you see people make when they're investing in multifamily properties? I think a lot of guys, they have this mom-paw investor mentality where, you know, I've done single family, maybe done a quadplex and I'm going to jump up to the 8, 16, 24.

a lot of people feel like they do that. And maybe it becomes from a mindset of like they don't like to work with others. They don't trust anybody. But it's kind of a flawed path to go down because in that space, you got the worst lending. You know, one of the reasons I went to much larger syndications is because we can take advantage of non-recourse Fannie Mae, Freddie Mac, agency debt. And that's non-recourse loan. So if anything happens, you know, things do go back. we just walk away from the property to lose our down payment.

But if it's a recourse loan, you know, now they come after you for everything that you owe. And then, you know, I looked at some of the smaller properties. It just seems like a lot less, a lot worse pricing in that area. Just so too many mom-paw unsophisticated buyers just bidding stuff up in that area. Right, right. And what do you see? The cutoff point being kind of like you won't go above or won't go below a certain number.

Well, in the grand scheme of things, you know, as a still, you know, we're still mom upon investors at the end of the day. You know, we try and stay up below the institutional buyers. They're kind of hovering at that $10 million zone, you know, plus or minus 20, 30 percent. But we try and stay above that million dollar mark to, again, get that Fannie Mae debt, the non-recourse Fannie Mae debt, a lot of times their minimums are a million dollar loan size. And then also we try and go like 60 units above because that's about the time where you have a property manager on site on property. So, you know, they're butts in the seats.

They're held accountable as opposed to, you know, they got that good excuse. Oh, I'm floating around to several properties, right? So, you know, usually about the $1 million price tag and up or 60 units is kind of the cutoff. Right. Got it. You know, then I can tell that you're talking from experience, which is always really clear. So congratulations on your success and the progress that you've made. If someone wanted to get in contact with you or learn more about what you're doing,

what would be the best way for them to do that? Yeah, they can check out my podcast, Simple Passive Cashflow, found iTunes, Google Play, all those. Got the YouTube channel too. And then, you know, check me out SimplePassivecashful.com. Always looking to, you know, get on the phone with people or, you know, chat via email. So SimplePassivecashflow.com.

Yeah. Perfect. And the podcast is of the same name. Yeah, I was lucky enough to get them both. That's good. I know it's difficult these days. There's a lot of epic things out there, right? I got a bunch of those, yeah.

Super. Well, Lane, thanks. Let's do this again. It's been a pleasure. Yeah, let's stay in touch. Yeah. Back to them, man. Cool, you bet.

All righty. So that's it for the epic real estate investing show today. I'll see you next week for another episode of Thought Leader Thursday. Take care. This podcast is a part of the C-suite radio network. For more top business podcasts, visit c-sweetradio.com.