All Forum Posts by: Lane Kawaoka

@Nawab I.

If you're looking for turnkey rentals in the Midwest or cities like Pittsburgh, Michigan, or Baltimore, I've got to provide some caution. Back in 2012 to 2016, when I was just starting out, I used to buy these rental properties, and it was a great way to get my foot in the door. But here's the thing, if you're an accredited investor or have a net worth of at least a quarter million or half a million dollars, I would recommend exploring other options.

Buying these smaller rental properties might not be the best long-term strategy. They aren't very scalable, which means it's hard to grow your portfolio over 10-20 of these. Plus, they come with a lot of liabilities and headaches that you might want to avoid, like legal liability. Since 2018, prices have skyrocketed, and many turnkey providers have had to look for properties in less desirable areas like Pittsburgh.

Now, don't get me wrong, investing in turnkey rentals can still be better than getting into the short-term rental game, where income can be inconsistent especially in a recession where people stop taking recessions. But it's important to be aware that there's often nothing "turnkey" about turnkey rentals. They require ongoing management and maintenance, and most times the promised returns don't quite match up to reality.

Personally, I've moved away from buying individual rental properties and have started focusing more on syndications and private placements. These investment vehicles are better suited for higher-income earners and those with a higher net worth. 

@Edwin Ro 

Return on Equity (ROE) is a way to measure how profitable and efficient an investment is in real estate. It's important to check the ROE of rental properties to make smart investment choices. It is by taking equity, extracting out via HELOC/REFI/Sale, that you effectively grow your net worth.

When you monitor ROE, you can see which properties are doing well and which ones aren't. If a property has a low ROE, it's a sign that it's not making much money. You can then take steps like refinancing, doing a tax-deferred exchange, or selling the property to improve your investment portfolio. As the property appreciates the ROE goes down... that is when you re-leverage and sell. And then your base grows and that grows your CF.

Its simple but most investors don't do this and get caught up in paying off debt and owning properties outright which might be good in endgame (4-5M net worth) but not good in growth stage getting there.

@Lloyd F.

welcome to the world of investing! I actually started investing in Seattle but now I'm living in Hawaii, which are both known for being pretty pricey markets, not to mention the rent to value rations aren't as high as some of the Sunbelt states where I invest these days. By the way, are you an accredited investor? I wasn't one when I first started, but I managed to buy 11 rental properties, you know, those turnkey rentals you often hear about on this site.

When it comes to 1M+ net worth people. for your investments, that's where things like syndications and private placements come into play. It's like moving up a level in the investing what I call the Wealth Elevator.

But the key here is finding a group that you can connect with. I've personally found my tribe of like-minded investors, and it's been incredibly valuable. Just keep in mind that if you attend free groups, meetups, or local real estate clubs, you'll often come across a lot of house flippers or wholesalers, which are more common among non-accredited investors. From what I've seen, most accredited investors are in their late forties or fifties, busy with families, and they tend to value their privacy. So its going to be very hard to find them but keep doing so and emphasis on going deeper with the right people.

Just wanted to mention that STRs are discretionary spending items and don't do that well in recessions. We are selling a couple hotel assets in New York.

@Jason Guyton 

If you're working with around $120,000, thats not much, but there are still some options for you. However, if you have a quarter million or half a million in your 401k, then you're in a better position to possible get over the rental property phase.

With $100,000 to $200,000, your best bet is probably buying small rental properties, like what I did between 2010 and 2015. You can likely do 50k downpayment each. I had to look for properties outside of my local area, because the rent-to-value ratios just didn't make sense where I was in Seattle. So, you might need to take a chance and invest out of state, even if the prices there are higher than you'd like.

I should mention that I'm not a big fan of BRRRs. I've discussed that before in the past. Also, keep in mind that short-term rentals can be quite discretionary and tend to struggle during economic downturns.

I would not do this although I'm sure you can find a lot of CPA and registered agents to check that REP box for you. The main issue here is that it's important to have active participation in your real estate portfolio, rather than just any kind of involvement in real estate. So, unless you're actively involved in managing and growing your rental properties (even if its snapping photos), it's unlikely to qualify for the benefits mentioned. Even if you were taking photos of your properties, it would be hard to justify spending so many hours on that alone.

To put it simply, your involvement should be directly tied to your rental property portfolio in order for this strategy to work. It's about actively participating in the management. Another common one is being an LP in a bunch of syndication... that does not count either.

@Wilson Lau 

So, when it comes to short-term or mid-term rentals, you might want to use some caution. These types of rentals tend to be more discretionary spending items for people, meaning they're more likely to be cut from budgets if circumstances change. With the current state of office spaces and how companies are using them these days, things can be quite unpredictable.

Yeah, I totally get where you're coming from since LTR number just aren't working these days. Still I always suggest sticking with long-term rental since they are more recession proof and they're not as glamorous, and finding those turnkey rentals that meet the 1% rent evaluation without being in a run-down area is getting harder these days, even in unexpected places like Ohio. But trust me, I've been there. I used to own 11 turnkey rentals until 2016.

Now, if you're a pharmacy owner making a solid income of around $150,000 to $200,000 per year, I'd say you're better off exploring syndications and private placements. I don't mean to offend anyone, but diving into markets like Cincinnati and Columbus, which can be a bit risky, might not be the best move as the leftovers are pawned off on the OOS folks. There are websites out there selling turnkey rentals to anyone, and you'll find new out-of-state buyers from places like Hawaii, California, and Seattle every single day. I actually did that myself, starting in 2012, because Seattle was just too expensive back then but life and learn and move on.

@Dan Riley

I used to invest in Seattle back when I lived there. I was doing pretty well as a high-compensated professional, but it really depends on your net worth to decide which way to go with real estate. When I started investing in 2009, I didn't have much, but I started buying turnkey oos rental properties between 2012 and 2016 and ended up with 11 of them. It was a good way to get started, but turnkey rentals aren't as easy as they sound. Dealing with tenants and property managers can be a headache, and they tend to think you're some rich guy in Hawaii and overcharge you for property management fees and repairs.

Eventually, I sold all my rentals, especially when I became an accredited investor, and started getting into syndications and private placements for the sake of legal liability. But again, it really depends on where you are in terms of your net worth.

If you have a busy job or a newborn, one or two turnkey rentals won't require too much effort. However, the returns are quite modest, like $400 or $500 a month in cash flow, which won't really change your life much. If you want to grow your net worth, you've got to dive into the value-add game. Now, that's where things can get risky, especially for lower net worth individuals who take on a lot of risk if you are doing the dangerous remote BRRRR game. That's why being a passive limited partner in a syndication can be nice.

Connect with other purely passive accredited investors and see what they're doing. Net worth doesn't lie, and it really determines the quality of advice or the path to take. In hindsight, I don't want to badmouth turnkey rentals, but they played a significant role in helping me become an accredited investor. But these days I seek the path of accredited investors in their 40s-60s.

@Phillip Standen

Hey, Philip! Welcome to the exciting world of real estate investing. When I first started, I picked up this book called "Millionaire Real Estate Investor" by Gary Keller, it's a great resource to get you started with the basics. Once you've read that, you'll have a solid foundation to work with, and from there, it's all about taking action and getting your feet wet and reading more books.

So, here's my story: I used to be an engineer with a decent salary, and I decided to jump into real estate investing by starting with turnkey rentals. At the time, I didn't have a huge net worth (under 200k), but I managed to acquire 11 properties through that avenue from 2010-2016. Eventually, I made the transition from being a non-accredited investor to getting involved in syndications and private placements.

In my experience, that tends to be the path for many investors who have good-paying jobs and want to grow their wealth further. House flipping and wholesaling are more commonly pursued by folks with lower net worth or those who are just starting out. The buy-rent-rehab strategy can be quite demanding and comes with its fair share of risks plus takes a lot of time.

By the way, if you're considering specific markets, Phoenix isn't a bad choice, especially with so many people moving away from California and relocating there. I target there myself.

Anyway, once again, welcome to the world of real estate investing!

HELOC and IBC banking strategies is like having two different credit cards with varying cash back rates, depending on the category you're playing in the credit card hacking game.

In the past, HELOC had a lower rate, while infinite banking usually pegged around five to five and a half percent for borrowing. However, recently HELOCs have become more expensive, sitting at around 7%. But don't worry, some banks offer great teaser rates, especially here in Hawaii, which can get you under 5% for a limited time.

Both HELOC and IBC are fantastic sources of lazy equity that can be turned into 10-15% more through value add deals and other real estate opportunities. That's what we're aiming for, right?

Personally, I use both HELOC and banking. However, I've moved beyond relying solely on a HELOC. Once you reach a certain point, it's better to either refinance the house if you plan to stay long-term or sell it and venture into more real estate and investments, rather than owning the house you live in.

The great thing about a HELOC is that there are no fees involved, unlike refinancing, where hidden fees can catch you off guard. However, one downside is that when the economy takes a little dip, banks can retract those HELOC. This is the upside to the IBC policy loans.