All Forum Posts by: Lane Kawaoka

Today is better than never or tomorrow

@Dan Tran So back in the years 2012 to 2015, I was really into turnkey rentals and managed to acquire about 11 of them. But as time went on and I became an accredited investor, I shifted my focus more towards syndications and private placements. Starting from the ground up with those turnkey rentals was quite the experience.

During that time, it was possible to find some solid rental properties in places like Atlanta, Birmingham, and Indianapolis that could generate rental to value ratio equal to or higher than 1% of the property value. However, things have changed since then, especially between 2018 and 2020, when prices started to soar and for the same assets you were buying them at 0.8-0.9% RV. It feels like that was the turning point for turnkey rentals, and now it's challenging to find good deals, especially with some turnkey marketers inflating prices significantly like 10-20k.

Nowadays, I'm noticing a trend where investors are looking at other markets like Detroit or Baltimore, Maryland - and going away from LTR to STR which is risky because STRs are discretionary spending. While the numbers may look attractive on paper, those areas often have high crime rates and overall poor conditions. So, even though the financials might seem appealing, it's important to consider the bigger picture and the tenant headaches that will happen.

The current reality is that it's becoming increasingly difficult to find properties of the same quality and affordability as we used to. The access to such opportunities has diminished over time, making it tough for newer investors to replicate the same success. It's a challenging landscape, dude, and it's only going to get tougher.

I was looking at buying an Aulani Disney timeshare in Hawaii cause I was what the heck I live in Hawaii and I need an excuse to go on a vacation instead of being a miser with my money and invest in apartments instead.

I spent about five hours trying to understand the Disney Vacation Club (DVC) thing and here's what I learned in a nutshell. When you become a DVC member, you pay a lot of money and get some benefits like discounts. But the main thing is that you receive points which you can use to book vacations at Disney resorts. The number of points you get determines how many vacations you can take.

The cost of a timeshare is usually calculated based on the price per point. For example, these days it's around $150 to $200 per point. So if you're new to timeshares, all these numbers might not make much sense at first.

Let's say we want to look at the Disney Aulani and compare it to buying a rental property. If we go with something like 200 points, the purchase price would be $40,000. On top of that, there are closing costs and annual maintenance fees of about $1,500.

Now, let's consider the benefits. If we calculate the value of staying in the Aulani using the points, let's say it's around $600 per night. With 200 points, we can stay in the resort about 6.6 times, which gives us a benefit of approximately $4,000 per year.

So the question is, is it worth paying $37,000 upfront plus the annual fees for this benefit? To compare, we can take that money and invest it in other opportunities like real estate. If we can grow our investment at a rate of 13% or higher, it makes more sense to invest in something else rather than the timeshare. Generally with value add real estate even as a passive LP you can make 14-25% a year.

There's also an aftermarket for buying timeshares from other owners. For example, you can find good deals where the price per point is lower than buying directly from Disney. The important thing is to calculate the total cost and compare it to potential investment returns.

In conclusion, I believe it's more beneficial to invest the money elsewhere rather than getting a timeshare.

@Jaime Osuna

If you are non-accredited you need to seek 506B offerings. I was there at one time when I got tired of little rentals back in 2016 and went full into private placements as a non-accredited investor at the time. You probably know this but 506Bs allow a limited number of non-accredited investors to participate. However, the general partner cannot openly advertise or market these offerings, so you might need to do some networking and digging to find them.

You can go to the SEC Edgar website. It's a great resource that provides a massive data dump of real estate deals, but be prepared for a lot of information to sift through. Most of the deals you'll find there are 506B offerings, which means they accept non-accredited investors.

On the other hand, we have 506C offerings, which are relatively new. They came about with the JOBS Act around five to six years ago. These offerings allow general partners to openly solicit their deals through various channels like billboards, podcasts, and social media. However, there's a catch: they can only accept accredited investors, not non-accredited ones.

The government introduced 506C offerings as a way to open up the market, but they wanted to protect less sophisticated investors. That's why they restrict the participation to accredited investors only. To invest in a 506C offering, you need to be accredited and provide third-party certification, which can be a bit of a hassle. You'll need a letter from your attorney, investment advisor, or CPA, which may require some billable hours or a pre-existing relationship with the professional.

In contrast, 506B offerings do not require third-party certification. You simply self-certify by checking a box stating whether you're accredited or non-accredited. If you're investing in a 506B offering as a non-accredited investor, you just need to mark the box stating that you're a sophisticated investor.

Keep in mind that the majority of deals out there actually accept non-accredited investors. It's the 506C offerings that are the minority. Sometimes people get fixated on becoming an accredited investor and feel disappointed that they can't participate in those deals. However, there are plenty of opportunities available for non-accredited investors if you network and connect with reputable sponsors.

Remember, building a secure network is key in this industry. Attend events, meet past investors, and get involved in communities where you can learn from others and find good sponsors. This way, you'll have access to a wide range of investment options that suit your needs. As you venture out I would constantly trying to size up the participants and seeing where their net worth is. Most meetups and real estate clubs are not the place to be as they are lower net worth houseflippers... its even tough to find those buying OOS.

Back in 2012, I started investing in turnkey rentals in Birmingham, and I even ventured into Indianapolis, Atlanta, and Pennsylvania. At one point, I owned four properties in Birmingham, but I eventually sold them between 2016 and 2019. During that time, I began exploring syndications and private placements, focusing on buying apartments in Huntsville, Alabama. Bham was good to start to buying rentals for beginning investors.

Now, Huntsville may have been smaller in terms of population back then, but things have drastically changed. It has actually surpassed Birmingham in terms of population growth, which is quite impressive. Initially, around 2015, people predicted that Huntsville would reach that milestone around 2025 or 2030. The city's rapid development can be attributed to the abundance of white-collar jobs, and it's often said that they have the highest per capita number of engineers or individuals with higher-level degrees. It's like the Austin, Texas of Alabama, if you will, but on a smaller scale.

Regarding Montgomery, Alabama, I don't have much information about the city's real estate market. It is the capital, but I've heard that rental evaluations aren't as strong there compared to Huntsville or Birmingham. As for my own investments, I also purchased some properties near Mobile, Alabama. We even bought a couple of apartments in Gulfport, Mississippi, and ventured into mobile home parks in Gulf Shores, Alabama. However, I would advise staying away from anything located a hundred miles south of Birmingham due to the risks associated with the Gulf area, including parts of Louisiana, southern Mississippi, and southern Alabama. Trust me on this one, just take a look at the skyrocketing insurance rates in those regions.

It looks like you've hit a bit of a plateau there. Back in 2012, when I was in my late twenties, I had three rental units in Seattle, Washington. I'm not sure if you're into rental properties or if they're local to you in New York, but they can definitely build up some equity like how it looks like.

After that, I personally sold those rental properties in Seattle and did a 1031 exchange to buy 11 more rental properties. A lot of them were turnkey rentals priced at around a hundred thousand dollars each. But honestly, the buying those unscalable assets being the turnkeys and doing the 1031 exchange was a mistake.

1031s is not what really what accredited passive investors do for many reasons. Once you start accumulating passive activity losses from syndications and dealing with the headaches of managing multiple rental properties, you use the PALs to offset those capital gains and repreciation recapture. And when you become an accredited investor, the legal liability of owning all those properties and the potential for lawsuits doesn't really make up for the extra money you might make. It sounds like you have a W2 day job, just like me as an engineer, so going the passive LP investor route from here would probably be better for you.

I wouldn't recommend the turnkey stuff either. It's definitely not for you. I do think there's a place for it if someone has a net worth under half a million dollars.

Instead, at this stage, you could consider investing in vacation rentals, but that might be more of an aspirational purchase once your net worth is above a few million dollars. Lastly, about REITs... They're institutional products that involve a lot of middlemen. While you do invest in real estate and get some tax benefits, it's better to stick to more direct investments, either with yourself or directly with an operator, rather than going through a crowdfunding website which is a broker dealer middleman.

When we first started investing as a group, we focused on buying smaller class C multi-family properties, like 50 or 60-unit buildings. It was quite a hassle dealing with lower-end tenants, but we learned a lot along the way and honestly all we could afford! As we grew, we transitioned to larger class B apartments with better quality tenants, but the competition in the value-add game became intense, and it made finding good deals more challenging.

The market for multifamily syndication is crowded, with many people attending weekend boot camps and diving into the game. It puts pressure on your financial analysis and makes finding safe and profitable deals much harder. At some point, we realized that building new class A workforce housing might be a better option than buying old properties and dealing with renovations. If we can construct something new for the same price as buying an outdated property with a lot of stuff wrong (big capex plan), why not build it new?

Of course a limiting factor is, not everyone has the expertise or track record to secure a construction loan from a bank for such projects. It took time for us to build up our experience and reputation, allowing us to swim upstream and frankly get away from having to deal with the risks associated with lower-class tenants. The goal was to move towards a more controlled and predictable environment with higher-quality tenants.

New Construction Properties:

Pros:
- Modern designs and updated amenities
- Higher property appreciation potential
- Lower initial maintenance and repair costs

Cons:
- Higher purchase price compared to existing properties
- Limited availability in certain areas
- Potential delays in construction or completion

Existing Properties:

Pros:
- More affordable acquisition cost
- Convenient locations with established amenities
- Steady rental demand and potential for immediate cash flow

Cons:
- Higher maintenance and repair costs in the early years
- Limited customization options compared to new construction
- Potential for outdated features or infrastructure

@Nathan Lacey Syndications and private placements, are basically deals that are more geared towards accredited investors where a GP sponsor takes the wheel of the deal - typically they are a professional. I personally got into it when my net worth hit around half a million dollars back in 2015. At that time, I had 11 rental properties, but I realized it wasn't really scalable, especially as your net worth grows and have more assets, you become a bigger target for litigation. That's when I started exploring the option of being a limited partner (LP) and a passive investor in syndications and private placements. It just made more sense and was a lot more scalable. Plus, I got to meet a ton of other passive investors in that space and moved away from the DIY (do-it-yourself) world.

Sure, there's a potential to make more money by doing those "buy, rehab, refinance" deals, but boy, is it risky! There is a paradigm shift that occurs when you're making a decent income, maybe a hundred or a couple hundred thousand dollars a year at your day job, and you become more aligned with being an accredited, passive investor.

It's different for those who are below that threshold or need to build up a portfolio of rental properties or investments to achieve that same level of cash flow plus their day job income. But eventually, everyone reaches a point where time becomes more valuable than money, and you shift away from the DIY route and embrace a more passive approach.

Haha! 

I totally agree with what's been said here. It's no secret that some people hop onto forums just to boost their stats and get attention with a flashy signature line. Honestly, I never really thought about it that way, but I guess it makes sense to keep answers concise to boost ones stats just for the vanity metrics.

But you know what bugs me? It's when people ask the same old questions or ones they could easily find answers to with a bit of research. You've probably seen it too, like those posts asking about turnkey rentals or whether to buy a house next door without doing any groundwork.

There's a famous saying that goes, "The quality of your answers is directly related to the quality of your questions." And I totally get that, except for questions that have been asked a zillion times before. Still, I think it would be better if we had more back-and-forth discussions here instead of just one-off questions and quick tips. I'll always open to help just as long as someone has done the homework and asking specific questions... the question after the first question basically.

I've been a passive LP investor a few times in this situation, it can sometimes feel like a scene out of "Lord of the Flies." You know, where the kids take over the island and stage a mutiny. In a similar fashion, within the LPs, there's usually a handful of individuals who step up and lead the charge. These leaders often engage a lawyer and start the process of subpoenaing the investor list to then rally everyone to pitch in for the legal expenses. However, I'd like to point out that being one of those ring leaders requires a tremendous amount of effort - which is why I was never that person. Consider if taking on that role is truly the best and highest use of your time and energy. If you're simply looking for representation for yourself, it might be wiser to hang back and wait for the LP mutiny to develop naturally. After all, what can a lawyer really do in this situation other than rack up billable hours? Now, let me be clear—I'm not offering any legal advice here. I'm just sharing my personal perspective. In my opinion, waiting for the LP mutiny to unfold might save you unnecessary expenses and hassle in what sounds like there is not much you can do. What is the reasonable cause other than LP hearsay?

In most cases, the Private Placement Memorandum (PPM) will protect the general partner against gross negligence, which includes cases of regular negligence - possibly applicable here. Ultimately, for your peace of mind, you have to trust that the GP has just as much at stake, considering their position as a key principal or loan guarantor, as well as the potential damage to their reputation. While emotions may be affected now, the GP should still have the best interests of everyone in mind.