The Wealth Elevator

John Harcar (00:01.038)
All right. Hey guys, welcome back to the show. I’m here today with Lane Kawaoka. Hope I said that right. And we’re going to be talking today about the four levels of wealth building. Remember guys, at Investor Fuel, we help real estate investors, service providers, I mean, really all entrepreneurs, 2 to 5X their business. And we do that and give them the ability to build that business they want to build and allow them to live the life they’ve dreamed of. So, know, Lane, welcome to our show.

Lane Kawaoka (00:28.701)
Hey, thanks for having me. Aloha everybody.

John Harcar (00:31.182)
Yeah, I’m super excited to talk to you about the four levels of wealth building. mean, I think it’s something that we all need to know because it’s really not taught enough. But before we dive into to the main topic and whatnot, why don’t you tell our audience about your background, kind of who you know, how you got here, how you got into real estate, etc.

Lane Kawaoka (00:48.208)
Yeah, I started on this linear path, graduated college with an engineering degree, started to work for the man, didn’t really like it. I mean, who really does, right? Bought a house to live in, you know, again, all this stuff that we’re all taught to do, invest in 401k and, you know, buy a house to live in. But I was just lucky because I did this early and, you know, at the time that was kind of on the first floor of the wealth elevator, which was to

buy little rental properties. So I did that from 2009 to 2015, getting 11 of those turnkey rentals. Not super passive with those things, but you know, the great, I think a great way for new investors to get started still. And then in 2015, became a credit investor, got to that next level and started to, you know, branch out, sell the rentals and get into more syndications and private placements from there.

John Harcar (01:40.376)
Got it. Okay, so you were originally an engineer and you bought a house to live in. What spurned the turn to go towards buying more houses, buying more property and the real estate journey? How did that actually get kicked off?

Lane Kawaoka (01:54.0)
Well, I mean, very, I mean, in the first month of having that first rentals, like, holy crap, if I just keep doing this a few more times, I’ll be able to quit the rat race. And, you know, I’m a numbers guy. So it was just, just night and day. was like, wow, like this is the power of real estate. These are the tax benefits. And, you know, so I just rinse, wash, repeat about a couple other properties in Seattle, but then realize, you know, you get cashflow in.

John Harcar (02:00.526)
Right.

Lane Kawaoka (02:22.032)
More markets like Birmingham, Atlanta, Indianapolis, where I bought my other properties. But around 2015, um, you know, I had 11 rentals and you know, what it feels like to own 11 rentals. mean, it was maybe it was a few thousand dollars a passive cashflow month after all expenses, but maybe an eviction or two a year, some kind of big catastrophe that happened every quarter. It’s, it’s not that bad. I mean, I had property management.

John Harcar (02:26.615)
Right.

John Harcar (02:39.768)
Sure.

Lane Kawaoka (02:50.288)
dealing with all my headaches, but you know, most of my clients today are looking for $10,000 plus a passive cashflow a month. to get that you need 30, 40, those damn things. And that becomes a freaking job. And so that was kind of the transition period where I went from the first floor to the second floor in my, you know, what I call it in my book, you know, where I kind of separate things out in these levels. And I started to kind of haphazardly interact with more.

John Harcar (02:51.939)
Mm.

John Harcar (03:01.282)
Yeah.

Lane Kawaoka (03:17.136)
credit investors, like up until this point, my parents never owned rental properties. I didn’t know any credit investors. didn’t have a rich uncle. And I was just kind of uncovering this world all by myself, not really talking to anybody about it, right? Because you’re not supposed to talk about money and finances. If not, you’re a showboating. Yeah, we’re told not to. And even like, you know, as a credit investors, right, you have something to lose. So you want to keep your mouth shut and shut up.

John Harcar (03:21.294)
Mm-hmm.

John Harcar (03:31.765)
Right.

John Harcar (03:35.488)
We’re told you’re not supposed to but yeah

John Harcar (03:46.477)
Right.

Lane Kawaoka (03:46.616)
And so don’t get sued by other people who don’t have that type of money. But I started to interact in these circles and you know, one thing to learn about all the tax strategies that the wealthy were doing, dropping their AGI rep status and you know, passive losses. I realized that, yeah, they all were dumping the little run of properties once they got to this level and you know, got into more LP positions. And then thirdly.

John Harcar (04:12.195)
Yeah.

Lane Kawaoka (04:14.008)
I was like, well, I’m not lonely anymore. Right. And I’m like, I’m not crazy anymore to be buying all these rental properties. Yeah.

John Harcar (04:19.886)
Right Okay, so When you started buying these properties and just trying to give our folks some ideas of kind of what you went through Were you using hard money private money your money? And what kind of challenges in the entry part of your journey were you coming across?

Lane Kawaoka (04:42.128)
Yeah. So I was a higher paid professional. So I was able to save maybe 20, 30,000 a year in the beginning of my career. And another thing I didn’t mention for maybe like four five years there, I was able to save a hundred grand from my paycheck every year because I didn’t live anywhere. You know, when I bought that first house to live in the kind of the reason why I started renting it out was because I could just live off the company dime. Cause I was a construction supervisor traveling everywhere for work. So.

John Harcar (04:57.294)
Nice. Right.

John Harcar (05:07.182)
Mm-hmm.

John Harcar (05:11.307)
Okay

Lane Kawaoka (05:11.588)
There were like four or five years there where I was able to plow away like a tremendous amount of money into down payment. would get the normal 20 % conventional financing and I just rinse wash, repeat that again and again and again.

John Harcar (05:22.412)
Right.

John Harcar (05:27.394)
Did you run into any challenges when you first were being a landlord? You know, things that maybe mistakes that you made that you now looking back to being like, okay, this is something I need to avoid or people need to avoid.

Lane Kawaoka (05:39.824)
You know, like I’m pretty transparent about my story, right? Like I didn’t start with nothing. I had a good, you know, probably six figure paycheck is, you know, essentially, and I was, I was really good. My money, I was able to save it. So I didn’t do any flipping or wholesaling properties. Yeah. I just bottom turn key. Some people say that’s a waste of money and whatever, but you know, it got me started and I.

John Harcar (05:58.742)
Right bottom turnkey

John Harcar (06:07.224)
Mm.

Lane Kawaoka (06:08.932)
I started to realize like my highest and best use was at my day job, you know, getting promotions, working on my career, even though I wasn’t super passionate about the thing, that was effectively where my efforts went. Right. And I don’t think I was in position at the time to take on risks. Like I’m not a huge fan of the BRRR strategy on the single family home level. I think it’s too much risks, especially when you’re doing it remotely.

John Harcar (06:18.861)
Right.

John Harcar (06:31.266)
Why not?

John Harcar (06:35.704)
Well, yeah.

Lane Kawaoka (06:35.876)
You know, you’re working with lower level contractors. Today when we do like apartments, so we do ground up construction. We’re working with large contractors, right? As opposed to the small guys who tend to just run off with your money. Everybody talks about, know, how they bought it for this, it for that. And, you know, these are their costs, but nobody talks about the time that the contractor, you know, just screwed them or unforeseen conditions happened.

John Harcar (06:49.647)
Hmm

Mm-hmm

John Harcar (07:02.274)
bright.

Lane Kawaoka (07:03.904)
It’s yeah, you can make a lot, but you can also, you increase your amount of risks and yeah, more risks comes with more reward. But, you know, I think that’s why when I finally got to that syndication level, made much more sense. Cause at least that counterparty risks went away. Working with better contractors, more sound contracts, as opposed to these like back of the truck bed type of deals. you know, like, you know, like.

John Harcar (07:20.11)
Mm-hmm.

John Harcar (07:28.59)
I know what you mean

Lane Kawaoka (07:31.173)
You know, we do prof like professional ways. We manage our contracts with retain inch and, you know, bonds and insurance commercial level insurance, where you don’t get a lot of that on the lower rungs of the single family home flips, you know, and, the same in that, I don’t know it. never done it. I’ve just done construction in a different level. And when you get to that other level, it’s a lot more scalable. And, know, there’s a, there’s kind of the rule of.

John Harcar (07:46.68)
Yeah.

John Harcar (07:50.915)
Right.

Lane Kawaoka (08:01.508)
Buying property is under $5 million. You’re just so competitive. Prices are so terrible in that run because every Tom, Dick, Jane, and Harry are buying little single-family homes.

John Harcar (08:12.704)
Yeah. Easier barrier to entry than the bigger things. So at what point did you go full time, full swing into this and ditch the other, the W2, the job?

Lane Kawaoka (08:23.662)
Yeah, I mean, I kind of turned this into a business after a while. Like my first 15 deals I was in as an investor. I was also on the GP side too, in the beginning. I just, you know, a few people just, they weren’t the right people. And a lot of like, that’s the hard part of being a passive investor. When you’re first getting into this world, you just have access to garbage operators. You know, the fake it till you make it guys who are just getting started under $1 billion of deals.

John Harcar (08:49.089)
Right.

John Harcar (08:52.728)
Yeah.

Lane Kawaoka (08:53.762)
And you know, that’s, I think that’s the hard part, right? Like, I mean, that was the growing pains that I went through, you know, working. I mean, I could pick the right deal, but the operators, I just didn’t have access to them. You know, today we kind of work with more family office type of level, better operators. And, but it took a lot to get there.

John Harcar (09:10.165)
Mm-hmm.

John Harcar (09:14.018)
Yeah, I’d say what did you have to do to get to that level to where you were finding the right people? Like what steps did you have to take?

Lane Kawaoka (09:19.822)
I mean, like some people are like, well, what are the steps? It’s like to me at the end of the day, just like employees or like, you know, your spouse, you just have to date people and get into bed with them. Cause until things start to go wrong or you go through adversity, you don’t know how people’s true colors are. and

John Harcar (09:30.623)
You

John Harcar (09:35.374)
Right. That’s 100 % true. Yeah, you know, mean, on the the face to face meeting at the beginning, everything looks rosy. But then when you get into the when the you know what hits the fan, how do they deal, you know?

Lane Kawaoka (09:49.752)
Yeah, so it’s kind of a game of attrition over the years and we’ve probably worked with well over a dozen different operators and partners and people come and go and see who’s left at the end of the day.

John Harcar (09:53.794)
Right.

John Harcar (10:01.538)
Right. So what is your, what does your business look like now? Like, do you have a team? Is it just you? What do do?

Lane Kawaoka (10:07.214)
Yeah. yeah. So I think in the beginning, I mean, we would just do little 50 unit, a hundred unit apartments in larger general partnerships. And that’s how you have to do the deals when you’re small and you’re getting started. And, but then, you know, what you start to realize, especially when you go through some of these like guru groups, like a lot of people in those GPs don’t do anything and they’re useless. So the people who actually do things and add value tend to just team up and do the own deals.

John Harcar (10:30.403)
Right.

Lane Kawaoka (10:37.092)
by themselves. So this is kind of how I developed a lot of my earlier partnerships and you know, some, some stuck, some didn’t, through the years. You know, we, in 2020, I think that’s where we really hit our stride when we went over $1 billion of deals, but still it’s so competitive. Like a lot of people think that they can go, you know, invest in real estate for a few years and then go buy a 300 unit apartment complex. So in 2020, we started to develop ground up.

John Harcar (10:38.222)
Mm-hmm.

Lane Kawaoka (11:04.132)
just to differentiate ourselves and because it’s harder bear to entry again, you know, with Tobiah department, technically you just need a few guys with their net worth greater than or equal to the loan and you’re off and rolling and you maybe have a co-signer on it. a co-sponsor who’s done it before, who may or may not have done it before just happened to sign on the debt, right? That’s kind of how that world works. But in the construction world, you actually need to have the legitimate experience to take a project.

John Harcar (11:06.104)
Yeah.

John Harcar (11:16.792)
Yep. Right.

John Harcar (11:25.698)
Mm-hmm.

Lane Kawaoka (11:33.296)
cycle to doing, you know, to getting the loan. So much bigger bear to entry. Um, and then, you know, like 2021, 2023, that was the peak of the market. You know, commercial real estate came down 20, 30%. We were, you know, victims ourselves. Luckily we were established before that. we’ll, we’ll make it, obviously make it through. But I think, you know, long-term, mean,

John Harcar (11:44.706)
Mm-hmm.

Lane Kawaoka (11:58.64)
I’m a real estate guy. get me wrong, but you know, interest rates aren’t going to be, you know, the fed rate is what I’m talking about. Aren’t going to be under three, 4 % in the next five, 10 years. So one would say, you know, real estate loss, a big trade win that was behind their backs for the longest of time. Certainly helped me out, but that’s, this is kind of where, you know, I think I made the mistake of having 80, 90 % plus of my personal net worth into real estate. And, you know,

John Harcar (12:04.524)
Mm-hmm. No.

Lane Kawaoka (12:27.308)
Now that my net worth is higher, think diversification for me, but I’m not saying that that’s for the person listening. I don’t know where y’all are at, right?

John Harcar (12:32.864)
I was gonna, yeah.

Right, right, right. So is that kind of a trend that you’re seeing now is because we’re not going to see what we saw in the past now. I diversification is really an important thing to do with your, with your money.

Lane Kawaoka (12:48.848)
I mean, think the diversification speak, I mean, we’ll talk about the four levels of the, you know, the, the financial journey later on. think it plays more into like what your net worth is at. Right. Like, I mean, to me, I don’t think you can build substantial net worth over a few million unless you somewhat concentrate. You know, once you get to a certain level, four or five million plus, then I think you can start to talk about the D word a little bit. But I think if anything, it’s there’s a game of.

John Harcar (13:08.066)
Hmm.

Lane Kawaoka (13:18.512)
You know, there’s different asset classes out there. And even in the asset class of real estate, there’s certain sectors or sub markets and, sub asset classes. Some are hot, some are cold. There’s different market cycles, the ability for you to figure out what is the thing that’s been beat up and go into it and have that testicular fortitude to do that when everybody else is running the other way or on. Yeah. I mean, that’s the Buffett quote, right? When things are uncertain and fearful, that’s when you need to get greedy.

John Harcar (13:39.015)
Mm-hmm. Stick the chorus when everybody’s running,

John Harcar (13:48.654)
Mm-mm.

Lane Kawaoka (13:48.91)
As opposed to like right now, stock market is all time highs, right? That’s when you need to get away from it in theory. Yeah, but that’s a complete opposite of what retail investors do. I mean, I’m sure I, I’ve succumbed to it myself, right? You look at past before what’s been hot these last couple of years. Let me go into that, right? Cause I want a surety, but that’s not what you need to be doing. So to answer your question, right? Like,

John Harcar (13:55.244)
Get away from the greedy, yeah.

John Harcar (14:05.262)
Mm-hmm.

John Harcar (14:10.958)
Sure.

Lane Kawaoka (14:16.334)
We kind of identify, like, I think we rode this nice wave of apartment investing for a while. I still think the long-term prospects look great, right? Like population is increasing, especially in the workforce housing sector. People are having a harder time buying houses, affordability. So I think that’s there, but you know, like even with prices coming down 20, 30%, which I think is, you know, I think one big part of it.

John Harcar (14:32.557)
Yeah.

Lane Kawaoka (14:43.108)
The interest rates is the second party. So you need to combo the debt with the price to make the deal work. If not no bueno, the deal doesn’t work. And if you’re not, if the feds not dropping rates, the LTVs aren’t going to come back, you know, so it’s just like, when are these deals actually going to pencil? And so like, I’m just, again, like when I followed the trend to seeing other credit investors, my peers around me going from.

John Harcar (14:47.266)
Mm-hmm.

Yeah, I about said.

Lane Kawaoka (15:07.748)
dumping their rental property portfolios and going into syndications. I’ve seen the same people that I grew up with or were a little ahead of me, you know, take a part of their real estate portfolio and put it into private equity, buying businesses, you know.

John Harcar (15:20.918)
Yeah. Yeah. Well, let’s, let’s transition to what our topic was. And that was the four levels of wealth building that, and you have a book.

Lane Kawaoka (15:31.876)
Yeah. I mean, I think everybody knows the old purple book, right? But, doesn’t really tell you what the hell to do, right? Just fills up your head with a lot of motivation and mindset, which I think is great, right? Take for starters, but I always thought that there was different paradigms to this wealth building journey. Looking back at, you know, my timeline, the stuff I did up until 2015 is very different than what I did to up until 2022.

John Harcar (15:35.067)
of course.

John Harcar (16:01.24)
Mm-hmm. Right.

Lane Kawaoka (16:01.56)
And then now today, there are pretty defined moments. So the first level is like the basement level. These are the guys who need to listen to Susie Orman, Dave Ramsey, and maybe pick up the rich dad, poor dad book and also get a better freaking job. Right? These are the guys who make under $60,000 a year, able to save most importantly, less than $10,000 per year. Right? That this is personal finance level.

John Harcar (16:14.808)
Mm-hmm.

Lane Kawaoka (16:28.144)
I think most of the people listening here are probably on the first floor or higher, right? And that’s where I started with, you know, as a young professional, able to put away, you know, multiple six, five figures from, know, to, plow that away. And the name of the game was just to get up to a credit set, a credit investor status just by buying little rental properties. So it took me to, you know, buy 11 of them. You asked me earlier, what would I

do today that’d be little bit different. I probably would not buy 11 rental properties because they’re a pain in the butt to sell. But, maybe I would have bought a handful and, you know, got it up to closer to a credit investor’s debt and then make the jump up to the second floor of the wealth elevator. So my book, have all this kind of in charts, but the game changes and the same goes where, you know, what got you here isn’t going to get you the next level. And then what didn’t get you the next level beyond that.

John Harcar (16:59.118)
Right.

Lane Kawaoka (17:24.248)
In our case, the third level, like, know, once you get to like end game. So end game is what I define as four to 5 million, because at that point you can just put your money in T bills and chill and life insurance and get four or 5%. And.

John Harcar (17:24.408)
Mm-hmm.

John Harcar (17:38.06)
Yeah, so we have what can we you know, let’s just talk about each level though for level one He said is the basement right and and what’s level two?

Lane Kawaoka (17:47.032)
the first level is the basement. The basement doesn’t get a lower number. the first floor is yeah. Level one, after the basement would be, you know, not a credit investor status level, buying little rental properties. may have to flip wholesale if you don’t have a good job, you know, but that’s kind of that level there. After that, the second floor, you’ve got more substantial net worth. So legal liability is a big thing, right?

John Harcar (17:50.91)
Okay, what I say that would die at level one, right? Or just

John Harcar (17:58.786)
Got it. Okay.

John Harcar (18:07.95)
Okay, and the next.

Lane Kawaoka (18:15.936)
And because you’re actually a target to get sued because you have a million dollar net worth and greater. So this is where the transition to being more of an LP limited partner comes into play. And then now you’re able to diversify into different asset classes, different geographic markets to kind of play this game of jumping sectors or asset classes. And if you were akin to where the market cycles are in each asset class.

And just kind of, you know, this is, but all these stages takes a long time. Right.

John Harcar (18:48.482)
Sure, yeah, it’s not overnight by no means.

Lane Kawaoka (18:51.192)
Yeah. Yeah. It’s not a get rich quick scheme, but you know, I think a lot of people who are able to see most of my clients are able to save $50,000 per year. And if they diligently do this over a decade, they typically find themselves getting to that end game level and being able to retire, after being in the game for about a decade. And at that point, you know, I think if you want to just.

John Harcar (19:13.752)
Mmm.

Lane Kawaoka (19:18.256)
do nothing and hang out with four or five mil. I think no qualms against that. But I will say that if you want to go after legacy wealth, you know, now we’re talking, we got to get over eight figures, but it’s not that hard to do. I mean, you just have to stay in it a little bit more. Um, yeah. And that’s what we kind of call the penthouse level where now you’re creating a more family dynasty.

John Harcar (19:35.37)
stay the course.

Lane Kawaoka (19:42.628)
Four or $5 million is enough for you to live on, but if you’re going to give it to a couple of your kids, they’re just going to blow it over the time. And especially when it gets to generation three, know, most, most of our clients, their kids go to nice colleges or good contributors to society’s working professionals, but it’s a third generation. They’re kind of going to blow it more than likely unless the kids get around other people. And that’s why we, you know, we put on a community for them to bring their kids around and,

John Harcar (19:49.223)
Mmm. Yes.

John Harcar (20:00.609)
Right, right, right.

John Harcar (20:05.751)
That’s true.

Lane Kawaoka (20:12.493)
at that point, your network is bigger part of things.

John Harcar (20:16.298)
Yeah, yeah, you learn you can learn a lot more from the people that you’re around. Well, that’s awesome. So what advice would you give to someone that’s looking to get into the game, whether it’s real estate, whether it’s anything?

Lane Kawaoka (20:26.544)
Well, John, who, what floor are they on? That’s the biggest thing. That’s the biggest thing. You’re like, if you’re in the basement, don’t, don’t listen to me. I’m not the guy. There’s a lot of other people that have, you know, Susie Orman, Dave Ramsey, and a gazillion of other podcasters and house flippers out there. Go listen to them. Right. But if you’re a working professional or successful business owner and a credit investor, right. That’s where kind of, think we pick up from there and take them to the next level.

John Harcar (20:29.742)
They’re at the basement, man. They’re at the basement. They’re on the bottom.

You

John Harcar (20:54.126)
Okay, and so what can you do to help them get to that next level? What advice would you give them to get to that next level?

Lane Kawaoka (21:00.376)
Well, I think the first thing is self-awareness. Where are you at? Right? What’s your cattle grade? What level of the wealth elevator you’re at? So go pick up my book and go look at the chart and figure that out. I’ll give you a hint. A lot of it starts where your net worth is. Right? That’s the score. At the end of the day, that dictates your next strategy path moving forward. And so it’s almost like if you’re in warfare, you know, against countries, it’s like, well, what’s my next step?

Are you Somalia, United States or your Russia? Like, where are you bro? Right? Which level are you at? Right. And that was always my frustration is like, everybody thinks it’s a one size fits all solution. No, it’s, it’s there’s, there are four different silos here and you got to figure out which one you’re in first and then appropriately move on from there. And I think that like everybody like, listen, the warm buff, mean, why would you take advice from a guy like that?

John Harcar (21:30.03)
Yeah, what kind of assets do you have? Yeah.

Lane Kawaoka (21:56.878)
Right. You need to figure out where you are at now and what’s the next half step up from you and follow that formula and then know that there’s a next formula after that. So like in my book, like we teach that stuff. That’s two floors above where you are now, which may not be pertinent to where it is today, but I think it helps cut corners for sure.

John Harcar (22:07.31)
Yeah, also.

John Harcar (22:19.95)
Well, I mean, that’s also good advice. And if folks want to get a hold of you and talk to you about all this, and maybe get your book, how do they find it?

Lane Kawaoka (22:27.482)
Yeah, they can go on Amazon, and the wealth elevator. then if they like podcasts, they can check out the wealth elevator podcasts. they pick up a book, they can, and they leave a review and send us a screenshot. we’ll hook them up with the audio and the electronic version. They can just email myself, lane at the wealth elevator.com.

John Harcar (22:49.39)
All right, you guys. I hope you guys have picked up some good nuggets took some good notes on this lane Thank you much for coming by and sharing all this and you guys folks reach out You know if you’re on that higher level of the of the elevator a higher floor I guess I should say reach out and I’m sure lane can help you help you with your business guys. Thank you for joining us Hope you enjoyed the episode. We’ll see you on the next one. Cheers

Perfect time, right about 23.