Have you thought about the different levels or financial floors you might hit as an owner of your business? Our guest today is Lane Kawaoka, who shares with us what he has learned on his ownership and investment journey.
TODAY’S WIN-WIN:
Try to find other people in a similar life and place to network with. Social relationships are the currency of the wealthy.
LINKS FROM THE EPISODE:
- This episode is sponsored by Zoho, https://www.zoho.com/franchise/
- Schedule your free franchise consultation with Big Sky Franchise Team: https://bigskyfranchiseteam.com/
- You can visit our guest’s website: https://thewealthelevator.com/
- Connect with our guest on social: LinkedIn: https://www.linkedin.com/in/lanekawaoka
ABOUT OUR GUEST:
Lane Kawaoka has been investing for over a decade and has purchased over 10,000+ units ($2.1B+ in real estate). As the founder of The Wealth Elevator, and he is the author of the book by the same name. Frustrated with the traditional wealth-building advice offered to professionals, Lane launched a Top-50 Investing podcast to teach others how to build passive income and achieve financial freedom through strategic real estate investing.scale alongside their business. His approach is practical, data-driven, and rooted in long-term partnership, not quick wins.
This episode is powered by Big Sky Franchise Team.
Big Sky Franchise Team is consistently recognized as one of the best franchise consulting firms in the world, helping entrepreneurs franchise their businesses through a proven 3-Step franchise process rooted in ethical principles, hands-on guidance, and customized deliverables.
If you are ready to talk about franchising your business you can schedule your free, no-obligation, franchise consultation online at: https://bigskyfranchiseteam.com/.
The information provided in this podcast is for informational and educational purposes only and should not be considered financial, legal, or professional advice. Always consult with a qualified professional before making any business decisions. The views and opinions expressed by guests are their own and do not necessarily reflect those of the host, Big Sky Franchise Team, or our affiliates. Additionally, this podcast may feature sponsors or advertisers, but any mention of products or services does not constitute an endorsement. Please do your own research before making any purchasing or business decisions.
TRANSCRIPT
[00:00:00] Tom DuFore: The most successful franchises share one thing in common. They’re never satisfied with where the business is today. They’re always thinking about the road ahead. That ambition is the fuel that drives growth, and Zoho’s business software is the engine that gets you there. With the right technology, your franchise won’t just run better. It’ll move faster.
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[music]
Welcome to the Multiply Your Success podcast, where each week we help growth-minded entrepreneurs and franchise leaders take the next step in their expansion journey. I’m your host, Tom DuFore, CEO of Big Sky Franchise Team, and as we open today, I’m wondering if you’ve thought about various levels of financial floors that you might hit as an owner of a business, or maybe you’re franchising your business, saying, “What’s that next floor, or level to get to?”
Well, our guest today is Lane Kawaoka, and he shares with us what he has learned on his journey of ownership and investment. Now, Lane has been investing for over a decade, and purchased over 10,000 units valued at more than $2.1 billion in real estate. He’s the founder of The Wealth Elevator and is also the author of a book by the same name called The Wealth Elevator, which we talk about in our interview.
He’s also the host of a top 50 investing podcast as well, and as a quick disclaimer, just note that this is not intended to be financial advice, or money management advice. Please seek your own counsel and professional advisors to support any kind of financial or buying decisions, so let’s go ahead and jump into my interview with Lane Kawaoka.
[00:02:33] Lane Kawaoka: Lane Kawaoka, I am an author and also investor in over $2 billion of past real estate acquisitions. People can find my podcast and book under the moniker of The Wealth Elevator.
[00:02:46] Tom DuFore: I love it. Well, thank you so much, and we’ll make sure we include all of the contact info in the show notes as well here. Part of why I was so excited to have you on with The Wealth Elevator is to start talking about this concept that you’ve described, written about, talk about, and share, so for our audience, start with maybe why you wrote The Wealth Elevator and created this concept, and then let’s dig into what it’s all about.
[00:03:12] Lane Kawaoka: Yes. I mean, the book is mainly written for accredited investors for people with a net worth of $1 million or greater, and that was, I didn’t start that way, but I’m not one of these silly stories of make it– Sleeping in my car homeless, or anything like that. I started on this linear path. My parents taught me to go to school, study hard.
I became an engineer, started to get, basically, a six-figure salary almost a couple of decades ago, and was living this linear path of investing in the 401(k), and doing all that type of stuff, which I know a lot of your listeners are gotten off of that traditional path already, I think, especially with entrepreneurship, et cetera. I bought a rental property, or actually bought a house to live in. I blindly followed all the dogma.
Because I was traveling all over for work as a construction supervisor in my early career, I was never home, so I just decided to rent it out in my early 20s, and that was where I got this taste of entrepreneurship, and cash-flowing rental properties. Fast forward, and that was 2009. In 2015, I had 11 rental properties, and that was when I became an official accredited investor, which is nothing really special, but your net worth goes over a certain point, or some people, they just make over $200,000 a year at their day job or business, and congratulations, you’re an accredited investor.
What I started to realize is that there’s different thresholds of wealth building that you move through, and up until that point, I was just reading all this garbage, like Millionaire Next Door, right? Where they tell you to just drive a Toyota, be humble. Rich Dad Poor Dad, and Dave Ramsey, Suze Orman. I was really into all these types of– In high school, I would read Kiplinger magazine and Money magazine, how to save money, but there wasn’t really any books written for accredited investors, so that was the whole motivation behind writing The Wealth Elevator book to put my experiences on how I jumped from floor-to-floor, going from non-accredited investor status to now, accredited and beyond.
[00:05:15] Tom DuFore: Take us through The Wealth Elevator, and these different floors and concepts that you just started getting into a little bit there.
[00:05:22] Lane Kawaoka: Yes, I noticed you and I got the same furniture in the back there, so we’ll use that as a visual here. The bottom space there, we barely see it on your screen, you barely see it on mines, right? That’s the basement level in The Wealth Elevator. I talk about it, I think, for half a chapter in the book, but I think these are the books that Dave Ramsey, Suze Orman writes their books for, right?
Most people out there are in credit card debt. They barely make $50,000 per year. Don’t listen to me if you’re in that category. There’s so many other resources. Where I pick things up is when I started to, take me when I graduated college. I had a good paying job, was able to save $25,000, $50,000 or more a year, and I went and bought rental properties, so that’s the first floor of The Wealth Elevator.
Use good debt to buy cash [unintelligible 00:06:08] line properties, and it’s not a get-rich-quick scheme, because it took me a long time. From 2009 to 2015, buying 11 rental properties, it was a slow trudge at that point, but anybody who has built anything big, passed seven figures, knows that it is an asymmetric return after a certain point, and that was where I found myself in 2015 and ’16.
At this point, I had 11 rentals and I started to interact with a lot of accredited investors, and mind you, I didn’t have a rich uncle. My parents never owned rental properties. I didn’t even know what an accredited investor was at the time, but I started to hang out with these folks, and they all had the similar pedigree as me, where they had multiple rental properties. They were in this phase in their life where they’re exchanging these pain in the butt rental properties that were great to get started on the first floor of The Wealth Elevator, don’t get me wrong, but they’re just not quite scalable.
When I had 11 rental properties, I maybe had an eviction or two a year, some kind of big catastrophe that happened every quarter. Still, I had a few thousand dollars of passive cash flow every single month, which I’m not complaining, but most of my clients today, who come to our events, they’re older, they’re in their 40s and 50s and beyond, but they don’t really get excited on anything less than $10,000 to $20,000 of passive cash flow per month. That’s their goal.
Unless you want to go crazy and buy 30, 40 rental properties, and more importantly, these guys may be very aware of when your net worth goes above that first floor level, $1 million, you’re a bigger case to be sued, right? When I was in my 20s, I was broke. Great asset protection. Again, I’m not giving any asset protection strategies here. I’m not a CP, I’m not a lawyer, but if people need referrals to CPs or lawyer, please reach out.
Again, these are all the things that you learn when you’re on the journey, and things I’ve experienced myself, and this is where we started to buy large apartment complexes, started to syndicate the deals out, and we’ve done dozens and dozens of these things, is our main business is to syndicate multifamily, now private equity, and other types of investments out there outside the real estate realm, oil and gas projects too for the tax benefits.
This is where I started to realize there was this stealthy world of the wealthy out there, and how they were doing things. What I distilled it down to is these three complementary strategies: investing in alternate investments, or I know you guys are entrepreneurs; that’s a form of an alternate investment, certainly higher risk, but also higher return, but also you control your own destiny when you’re an entrepreneur, or you can invest in other people’s projects, but more directly.
I think this is the big key that I realize, like, wealthy people, they access investments through the primary markets directly. They cut out the middleman. Where my parents and everybody else are getting killed out there by all these hidden fees by going to the secondary market channel, or what we call sloppy seconds. I mean, what would you rather have?
To create access for people to get access to these same institutional quality investments is the key, and for investors to do that, you need an ecosystem, which is why we’ve created a lot– We do a lot of events with accredited investors for people to build their peer LP group, but also find deal flow out of that too. I think where this comes full cycle is, I started to meet all these wealthy people, started to learn that the tax strategies that these guys employed that went well beyond Roth IRAs and 401(k)s and the backdoor thing, the silly thing that people talk about a lot.
The wealthy people are quietly doing something very, very different. Then, they’re running it through an infinite banking, accredited investor banking plan with life insurance. This effective strategy is very powerful, but it changes as you go from that first floor of The Wealth Elevator, where I was to accredited investor status and beyond at floor two, and then, maybe now’s a good time to define floor three.
Floor three is when you get to about $3 million to $5 million net worth, and maybe you guys call this like life-changing money, where you could take that chunk of money, put it into like a T-bill, make 3% or 4% percent cash flow and chill, or T-bill and chill for the rest of your life. We didn’t get there for just sitting on our butts. We’re going to get a diversified portfolio, and still get after it with a portion of it.
I think this, you and I were talking earlier about how most of the people I work with, they’re more passive investors. We have we have maybe a third of our folks as business entrepreneurs, but we all come to this apex, this meeting of the minds, or meeting of the net worth at the third floor of The Wealth Elevator when your net worth is about $3 million to $5 million, and there’s a few inflection points on which way you would like to head.
What I also talk about in the book is what do you do after the third floor of The Wealth Elevator? Now, some people are like, “I just want to give my kids $2 million each if I have two kids, so the $4 million gets split both ways.” Yes, you pay some state taxes in the process and sell taxes, and that I think that’s the status quo, but I, by buying all these apartments, just by chance, we’ve bought all these apartments from wealthy people, like people I didn’t even know existed, like people with on the family office level with $50 million, $100 million net worths.
You don’t create that in just a generation or two, this is legacy wealth. If you start to realize the business systems, and the practices that they put together, and the infrastructure, they hire teams of underwriters, operators of investments, including all their chauffeur, and all their housekeeping, their help for their house. They create these teams on the third floor and fourth floor of The Wealth Elevator and beyond, but to give people a vision of what that looks like, because, at this point, yes, I’m in Entrepreneurs’ Organization, and some other groups like Vistage.
A lot of people that are on the same– They maybe they haven’t quite hit eight figures, $10 million net worth, but this is an important inflection point whether you want to just give each kid $2 million and call it good and cruise. Nothing wrong with that. Sometimes I want to do that, or you take you keep pushing things, not pushing the metal, but just being a good steward of your wealth and growing it, and having the kids get involved in the next generation of the family wealth management.
[00:12:42] Tom DuFore: Certainly, as you’re describing that, I think of clients we work with, we help them franchise their business, is taking this business that they’ve built, and they’re saying, “I’m ready for that next thing.” We help them go through franchising; they produce this asset. What other kinds of things, beyond this third floor? Where does it go from there then?
[00:13:02] Lane Kawaoka: Yes, it it’s a mindset thing, though, right? You work with a lot of these guys. A lot of these entrepreneurs and business owners are my peers too, and I’m in the space too. We work so hard to create this wheel, and the wheel is, it’s a flywheel. You get the momentum going, and you build up all these great relationships. You maybe even be able to build a team.
I think that’s where the ESOP comes in. Some people, they really want to create that lasting legacy for the team, so they can keep going to work, and at the same time get theirs too. I think the franchise model is definitely another option that’s very similar to that where, essentially, you get to take your chips off the table. When you’re in business, your butt’s on the line there for frivolous lawsuits, and at any point something could change.
We’ve seen with AI. I mean, it’s just unfortunate, some people are just taken out of the game. I had a buddy who was like selling Photoshop filters. It’s a whimsical– It was good money though, right? He’s like, “Yes, that came and went real quick.” [chuckles] Nothing protects any business from being obsolete. Look at Kodak. I think if you have the mindset of, “All right, let me be prudent, and take some chips off the table. Yes, I still am very confident in my business abilities, but I don’t have control over the macroeconomics.”
When we invest in an apartment, real estate is one of the easier types of investments out there, which is why so many people graduate to that, but it also is competitive too, but the business of real estate doesn’t really change. People need a place to live, which is why some people will diversify and get exposure to real estate in their portfolio. When you go through the business plan, there’s always something that could change.
A big employer moves out. I think you’re seeing– I was looking in Seattle recently where Starbucks is moving. These are things that are outside your control, and sometimes it’s very prudent to take yourself out of your own game, or diversify, like you say, take some chips off the table. I think, if in your mind, you’re like, “I mean, most of us business owners are, we’re lions. We’re going to fight,” but it is also a good self-awareness to that, yes, you can fight, but there are things outside your control like macroeconomics.
We’re in the oil and gas space, so that’s something that’s definitely outside your control with wars, and Middle East conflicts that just impact your business quite a bit. At $60 a barrel or less, it doesn’t make sense for us to drill, but right now it’s great, but that can change at any moment’s time. I just mentioned these things that maybe that might unlock some vulnerabilities in people’s heads to start to realize like, “Well, maybe I should start to diversify my portfolio. Yes, I need to move away from– Yes, they told me to always bet on myself, educate, bet on myself.”
That’s where you get your highest ROI, but at some point, and I think when you hit that third floor of The Wealth Elevator, which I mean, read the book, we have a little chart that help you figure out where exactly you fall.
[00:16:04] Tom DuFore: Lane, this is a great time here to share, where can someone get a copy of the book? How can they get in touch with you, and make a connection point?
[00:16:13] Lane Kawaoka: Yes, so if they want to check out the book, they can go on Amazon, The Wealth Elevator.
[00:16:17] Tom DuFore: One of the things I always like to do is make a transition, and ask our guests the same four questions before they go, and the first question is, have you had a miss or two on your journey, and something you learned from it?
[00:16:28] Lane Kawaoka: Yes, I would say I made multiple misses. I would say pretty early, and I know we’re talking about transitions, going through these transition gates. When I was going from the first floor to the second floor of The Wealth Elevator, I probably shouldn’t have bought a lot of rental properties. I should have just bought a few, or four, and then moved on to large apartment deals, more institutional quality assets, and just because the people I met, the single family homes, the brokers, insurance guys, and you just leave them behind.
Like when you go to college, you don’t talk to your high school friends, buddies, those types of people anymore. You just move on, and I just wasted time there. I also realized, like, majority of my net worth when I was on the second floor of The Wealth Elevator was commercial real estate, maybe 80% to 90% of it. If you’ve been following commercial real estate, you have the buying moment of the, I will say, half a century at this point.
Values in commercial real estate have gone down more than in 2008, right? I got hurt really bad by that, because I was not diversified. I still argue that, I think, do you think you need to concentrate your wealth, and put all your eggs in one basket to some extent. As I’m talking to the business owners out there, because that’s exactly what you guys are doing. You guys are putting all your eggs in your business and growing that, watching that thing like a damn hawk, and growing that thing, but I did the same thing.
I think at some point you got to figure out, like, “All right, once I’ve hit a certain critical mass or inflection point, that’s when you need to diversify into other things.” It’s important to– It’s all in the dosage, or when you make that mental shift. They tell people like, “Oh, who have no money to diversify.” To me, that’s silly. Of course, I’m not a financial planner. Don’t sell marketable securities, so what do I know? This is just my observation of talking to a lot of more peer wealthy people.
You don’t find anybody in TIGER 21 with under $10 million in net worth, who didn’t create it themselves without them concentrating to some extent. Yes, you got the lucky guys who, I guess, they concentrated in Bitcoin, or some altcoin and got lucky, but you don’t find anybody who created real value in a business, or who weren’t gambling on doing this in the beginning stages with just betting on everything. You have to concentrate in a certain thing, ideally, something in your business where you get outside leverage on.
[00:18:54] Tom DuFore: Well, let’s talk about a make, or a highlight or two that you’d like to share.
[00:18:59] Lane Kawaoka: I think, for me, the critical part came in 2016 when I started to interact with other accredited investors. My eyes were open to these other strategies, and there was a– I thought I was hot stuff by having a handful of rental properties, because, who has more than one? That’s crazy. This is why, part of our group, what we do is we host accredited investor events, so if you guys are looking for people who’ve crossed over the rainbow to some extent, multiple million-dollar net worth accredited investors, typically, in their late 40s, 50s and beyond, maybe check us out, shoot me email at la**@***************or.com.
I like to get to know everybody who’s coming to make sure it’s a good fit, but we do these events, and it allows them to finally interact with other passive accredited investors who are in that family office mindset at that point. What’s cool about that, especially with most of us being first generation multi-millionaires who created the wealth, you have a lot of entrepreneur-minded people who were in were in the trenches for a decade or two cultivating that equity, so a lot of similar value sets there.
[00:20:05] Tom DuFore: The next question we ask is, have you used a multiplier to multiply yourself personally, professionally, or organizations you’ve run?
[00:20:12] Lane Kawaoka: I’ve heard this term, like, every business needs leverage, whether it’s people, money, or technology, or something else. What we’ll do is, we’ll syndicate capital from investors, and we’ll together now go buy a 300-unit apartment complex where one, two, or five of us could have never dreamt of getting access to that type of asset, so, yes, I think we’re a poster boy from utilizing that money as a leverage tool.
[00:20:38] Tom DuFore: Well, and Lane, the final question we ask every guest is what does success mean to you?
[00:20:42] Lane Kawaoka: Well, let’s say, first hitting that third floor of The Wealth Elevator, $3 million to $5 million net worth, where you’ve got that critical mass, so you don’t have to trade time for money, and your money grows, even if you put it into something lame like a T-bill. After that, you’re playing the game to see how much you can pump the score up. I think, and I say that very humbly.
If you just want to give your kids $2 million and just live a simple life, that’s totally fine. I think that’s the essence of the question is, you define your own terms of after that point, but you got to get to the certain number first, and then you define what comes after. Now, personally, me, I still find this fun and challenging, so I’m going to keep moving along on my journey on this path.
I’ve met a lot of investors that I’m just talking to one the other day, and he hit his number, and he lives in a rather cheaper area in Idaho. I think he only needs $3 million net worth out there, because their expenses are rather low, and more power to him. That’s what he wants to do. I think he’s going to get bored though. If that’s what you want to do, then go ahead.
You define your own end game what the– You define the rules of engagement of when there is a winner, but I think most of us listening here, especially the business owners, we’re sick in the head, where we always want to constantly challenge ourselves, and going more and more, but I would say that especially once you hit this level. We talk about this in the book, there are certain strategies you probably should put into place to just make sure you don’t fall all the way back down the mountain.
If you’re trying to scale a mountain, you tie off at certain checkpoints, different legal strategies, right? I mean, that’s where we will have a lot of folks like yourself, a lot of the lawyers on my podcast, and discuss more of these advanced legal strategies to, you’ve worked hard for your money, so you got to protect it.
[00:22:41] Tom DuFore: As we bring this to a close, is there anything you’re hoping to share or get across that you haven’t had a chance to yet?
[00:22:47] Lane Kawaoka: I think what’s unfortunate is, when you’re growing your net worth the way you guys are, it is a little bit of a lonely journey, so I think if you can try and find other– We always say, “Try and find at least five people that, similar net worth, similar trajectory as you.” You guys might go to the country club, but those are mostly second, third generation wealthy people. They’re not the founder class, but try and find people that are similar trajectories to your point.
A lot of times, as I’ve seen, you got to pay to play to get access. I think you have to join different groups out there, but I would say, for the wealthy, you talk about money, but social relationships are the currency of the wealthy.
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[00:23:34] Tom DuFore: Lane, thanks so much for your time and for your interview today, and let’s go ahead and jump into today’s three key takeaways, so, takeaway number one is when Lane shared about The Wealth Elevator concepts and ideas in general, and these different floors and breaking that down, I thought that was an interesting approach to share.
Takeaway number two is when he shared about a multiplier, and he said he’s found that people, money, and technology help multiply.
Takeaway number three is when he talked about hitting this third floor in his Wealth Elevator concept. It’s that net worth of the $3 million to $5 million range, and he said that’s the floor where people usually make that decision. “What do I do here? Do I settle in, or do I push through this?” I thought that was an interesting note there.
Now, it’s time for today’s win-win. Today’s win-win came at the end of the episode when Lane talked about the currency of the wealthy, and he said, “Social relationships are the currency of the wealthy.” I thought, “Well, most entrepreneurs and successful owners I know understand that concept, and idea as well. It’s your relationships with other individuals, other people that you work with.” I thought that was a great, great takeaway there.
That’s the episode today, folks. Please make sure you subscribe to our podcast, and give us a review, and remember, if you or anyone might be ready to franchise your business, or take their franchise company to the next level, please connect with us at bigskyfranchiseteam.com, where you can schedule your free, no obligation consultation. Thanks for tuning in, and we look forward to having you back next week.
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[00:25:26] [END OF AUDIO]
