All Forum Posts by: Lane Kawaoka

@Gordon Cai I started investing in my home state back in 2009. A few years later, I dove into long-distance investing in turnkey markets. Between 2013 and 2015, I got heavy into OOS 11 rentals in Birmingham Atlanta and Indianapolis. It was a solid move for me back then, especially as a non-accredited investor.

But here's the thing: today, I often advise folks that if your net worth is over half a million or you're pulling in more than $150,000 annually, it might be smarter to lean into syndications and private placements. Maybe consider at MOST one or two out-of-state rental properties mostly because its not scalable. This strategy helped boost my net worth past that million-dollar mark.

Back in the day, I was getting $90,000 properties that rented for a grand monthly in decent class B areas. Now? Those same properties will be about $120,000 and might only fetch you around $1,050 in rent. The math just isn't as appealing anymore. I've noticed a lot of newbies on these forums are gravitating towards short-term rentals. I'd advise caution since it is relying on discretionary spending from the tenants.

I'm still big on investing in workforce housing and apartments. People always need a place to stay, even during economic downturns. One heads-up for out-of-state investors: watch out for property managers. When you're remote, some might take advantage and overcharge for simple repairs, like a $900 plumbing job.

If you need any advice or insights, don't hesitate to reach out. Cheers!

Looks like you have making the podcast rounds. Good i suppose but.... it's always better to connect with other purely passive accredited investors. You might discover some gems who aren't necessarily the best at online marketing. 

To answer your question, a lot depends on your income and, crucially, your net worth. If you're diving into long-term rentals and your net worth is hovering around the 250k-500k mark, it's worth considering some protective measures. An LLC structure, or even a dual-layered one with a holding company, could be a smart move.

But if you're leaning more towards syndications and private placements as a limited partner, you might want to think about this when your net worth hits a million. If you're below that threshold, you're not a prime target for lawsuits, especially when you're an LP rather than directly owning long-term rentals. Just some food for thought - not a lawyer but I do see what investors do behind the scenes!

@April Santos 

CPA doesn't necessarily have to be local. We're talking federal tax returns here, and with today's software, everything just funnels in seamlessly to the state stuff. That said, while there are many seasoned CPAs out there, I've noticed that a lot of them can be a bit rigid. In fact, about 95% of our clients end up switching to a CPA who's more, let's say, in tune with modern strategies. It's crucial to find someone who understands strategies like using passive losses to offset passive income and the nuances of real estate professional status.

But here's the thing: YOU should be the captain of your tax strategy ship, not your CPA. It's a bit unfair to expect them to know everything about your investment plans, risk profiles, or future deployment strategies. They're there to handle the technical paperwork, but you need to be the one steering the ship. Think of it this way: CPAs and lawyers are your contractors, but you (or someone you trust) need to be the architect.

One crucial document you should get from your current accountant is the Form 8582, which details your suspended passive losses. But be wary; some might withhold it to keep you from switching.

PS I'd like to offer a word of caution. Many CPAs nowadays are essentially internet marketers who white-label their services. This means another entirely different firm might be the one actually handling the tax returns and doing the work. It's become a lucrative strategy to build a brand this way, but it's essential to be aware of this as the client.

@Heather Johnston 

Back between 2012 to 2015, I was buying turnkey rentals. I intentionally steered clear of the big-name providers, you know, the ones with a massive online presence. From my research, it felt like you were just paying extra for the brand name (and implied reliability). Sometimes even an extra $5k to $20k compared to smaller turnkey providers (mom and pop house flippers).

I opted for providers who were the actual flippers, not just the marketers or brokers. This strategy got me better pricing, and I felt like I was being clever about it. Over time, I acquired five properties in Atlanta, four in Birmingham, and one in Indianapolis but it caught up with me as the real issue here is property management abuses OOS owners. I'm still on the side of having your PM not being under the roof of the TKP for a few reasons.

But as I grew and became an accredited investor, my perspective shifted. While turnkeys are a great starting point (especially for building your net worth), many accredited investors eventually transition to syndications and private placements where there is aligned interests with the GP but I would caution on working with those who have done at least 1B in assets.

Turnkey rentals are still a solid choice for starting out, especially if you're in an expensive market. I was in Seattle back then, and local properties just weren't feasible for me. Plus, with a demanding engineering job, I didn't want the hassle of managing everything hands-on and especially taking on the risk of BRRRR.

Your decision might depend on your current income and net worth. But... if you're looking to save a bit, maybe consider smaller providers over the big names. BUT if that $5k to $10k isn't a big deal for you, then go for a reputable brand for peace of mind.

@Alex Ng  

Not sure if you're local to Birmingham, Alabama, but if you're an out-of-state turnkey investor, tread carefully. I used to buy properties there from 2012 to 2015. Back then, I het a class B property for $90,000 that rented for 1k/month and my ou might be looking at $120,000 to $130,000 for the same house. I know because I sold many of my properties a few years back at those prices. But the rent? It's only nudged up by about a hundred bucks.

Speaking of neighborhoods, many investors flocked to Center Point. I was relieved when I sold my properties there. The hassle with permits and the municipality was real. Plus, it's become mainly a renter neighborhood as more out-of-state investors poured in. Stay out of Endsley that's the worse area.

Watch out for those turnkey products. They were a good starting point for me back in the day. But if you're an accredited investor you, maybe consider moving past the landlord gig. Dive into syndications and private placements as a passive LP partner.

Birmingham was my first out-of-state investment experience, so it holds a special spot for me. Wishing you all the best on your journey!

Heloc is good for starters to allow you to access without fees, cons is that you cannot get at all the equity but again it will get you going. Next to tap more equity you go for a refi. Then when you realize owning a home is not good you sell it 😁

@James Jiang 

investing a bit more, maybe a grand or two, for your taxes.

One thing software often overlooks? Using passive losses to offset passive income. This can even help reduce some of your ordinary income. 

But a word of caution: many big CPA especially with podcast/youtube platforms use overseas staff and just white-label other firms. Need a connection to one I use who... Feel free to reach out.

Interestingly, many of the newer companies are the ones you'd want to work with. The old school CPAs who might have a good reputation... they're a bit stuck in their ways. They might not be up-to-date with strategies like using passive income to lower taxes. And, most CPAs will advise on 401ks or Roth IRAs. Personally, I think that's a bit outdated. 🤙

@Sean Haran 

Looks like you're in that high-income bracket, making over $150,000 a year. Nice! You might not be an accredited investor just yet, but I'd suggest considering syndications as a private placements LP investor.

Sure you might want to buy a turnkey rental out-of-state since LA is so pricey. That's what I did when I started out but I would be careful with that... I am sure every broker in AL, MO, TN, etc will look to sell you a property but they will be no where to be found later on after ownership and you are getting abused by property managers for ridiculous repair pricing. I was earning a similar amount as you as everyone thought I was this rich engineer from Hawaii.

Flipping houses or the BRRRR strategy? Not really the best fit for high earners like us. Jump on the passive income and rental property train ASAP.

Then, transition into syndications and private placements. It's all about scalability. You're already earning well. With a bit more focus, you could potentially double that income.

When you're diving into real estate ventures that involve bank loans, there's a catch you need the combined net worth of everyone involved needs to be at least equal to the loan amount. This is where a group of folks, known as the key principal group, step in. They sign their names as either recourse or non-recourse guarantors.

Now, if you trust the folks you're working with, it might be a good idea to sign on as a key principal. Doing so can get you a slice of the general partnership pie. But a word of caution: be wary of newer operators, especially if their net worth is under $30 million. If they're legit and successful, shouldn't they have a higher net worth? And always remember the risks. Even in non-recourse deals with those tricky “bad-boy carve outs”, things can go south if there's any shady business by the sponsors.

I'll be real with you all. I've made this mistake before. I partnered with someone less than trustworthy and put my name as the KP. When things went sideways, my entire net worth was on the line. But shout-out to the other KP who was in this mess with me. It wasn't all bad. Sometimes, even when you hit a few bumps, you find some amazing people along the way. We faced challenges, but also built some lasting connections.

Providing Earnest Money for Syndications might be another option. If you're a high net worth investor, you've got another way to get involved in real estate syndications. Think of earnest money like a deposit you make when you're buying a house. It's the same for commercial real estate. But there's a catch. If things don't go as planned, getting that money back can be tricky.

In super competitive markets, the general partnership might need to put down big bucks, like a few million, to make their offer pop. And sometimes, they might even skip the usual checks like financing and inspections. If the deal falls through, that earnest money? It's in jeopardy. So, if you're the one putting up the money, get everything in writing. Know how and when you'll get your money back.

For the newer general partners who might not have the cash to put down earnest money, this is where high net worth investors can step in. You could offer short-term funding and in return, get a piece of the general partnership. The percentage? It varies, but it can be even more than if you were a KP.

At first glance, this might seem riskier than being a KP. But you can reduce those risks. Understand the general partners' game plan, especially how they'll close the deal and where they'll get the funds if they need more for the earnest money.

Lastly, remember this: when you put up earnest money, your risk is limited to that amount and it's usually a short-term thing. But if you're a KP or loan guarantor, your entire net worth could be at risk for the duration of the project, which could be up to 10 years. Stay safe out there! I suggest just being an LP with an operator group over 1B in assets a few times before stepping up. I might have gotten the same mass email... to me that is a sign that they were doing a hail mary cause they don't have anyone who trusts them.

Definitely steer clear of Ensley in Birmingham that is dangerous.

I used to invest in Center Point, but it's become less welcoming to out-of-state owners. Extremely difficult to do permits. 

I've had a few in Hoover, a bit outside of Birmingham. It's safer, so you might want to look into it.

But as for me? I've moved on from owning properties in Birmingham. I bought from 2012 to 2015. But then, I shifted my focus to syndication and private placements. Hope this helps!