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Tom DuFore 0:00

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Why Financial Floors Matter

Tom DuFore 1:14

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 Dufour, 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, kind of, 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.

Lane’s Path From Engineer To Investor

Lane Kawaoka 2:33

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.

Tom DuFore 2:46

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.

Lane Kawaoka 3:12

Yeah. I mean, the book is mainly written for accredit investors for people with a net worth of $1 million or greater. And that was, I mean, I didn't start that way, but I was, you know, I'm not one of these silly stories of make it, you know, sleep, sleeping in my car home less or anything like that. I kind of started on this linear path. My parents taught me to go to school, study hard. I became an engineer, started to get, you know, a basically a six-figure salary almost a couple of decades ago, and was living this linear path of investing in the 401k and, you know, doing all that type of stuff, which I know you're a lot of your listeners are kind of gotten off of that traditional path already, I think, um, especially with entrepreneurship, et cetera. But I bought a rental property or actually bought a house to live in, right? I followed blindly followed all the dogma. And because I was traveling all over for work as a construction supervisor in my early career, I was never home. So I just kind of decided to rent it out in my early 20s. And that was kind of 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 kind of when I became an official accredited investor, which is nothing really special, but your net worth goes over a certain point. Or, you know, some people they just make over $200,000 a year at their day job or business. And congratulations, you're an accredited investor. So 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 real millionaire next door, right? They where they tell you to just drive a Toyota, be humble. Rich Dad, Poor Dad, and Dave Ramsey, Susie Orman. Like I was really into all these types of, you know, in high school I would read Kiplinger magazine and Money Magazine, how to save money. But there wasn't really any books written for accredit investors. So that was kind of the whole motivation behind writing the wealth elevator book to put my experiences on how I kind of jumped from floor to floor, going from non-accredited investor status to now, you know, accredited and beyond.

The Wealth Elevator Floors Explained

Tom DuFore 5:14

Take us through the wealth elevator and these different floors and concepts that you just started getting into a little bit there.

Lane Kawaoka 5:22

Yeah, I noticed you and I got the same uh furniture in the back there. So we'll kind of use that as a visual here. The bottom space there, we barely see it on your screen, you barely see it on lines, right? So that, but that's the basement level in the wealth elevator. I talk about it, I think, for like half a chapter in the book, but you know, I think these are the books that Dave Ramsey CZ Orman writes their books for, right? Most people out there are in credit card debt. They barely make 50 grand per year. Don't listen to me if you're in that category, right? There's so many other resources. Where I kind of pick things up is when I started to, you know, 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. You know, use good debt to buy cash line properties. And it's not a get rich quick scheme because it took me a long time, right? From 2009 to 2015 buying 11 rental properties. It was kind of a slow trudge at that point. But anybody who's built anything big, you know, past seven figures, knows that it is an asymmetric return after a certain point. And that was where I kind of 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 my new, 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, right? And 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. You know, 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, you know, a few thousand dollars of passive cash flow every single month, which I'm not complaining. But most of my clients today, who don't who come to our events, you know, they're they're older, right? They're in their 40s and 50s and beyond. But they don't really get excited, you know, on anything less than $10,000 to $20,000 of passive cash flow per month, right? That's their kind of their goal. So unless you want to go crazy and buy like 30, 40 rental properties, and more importantly, these guys may be very aware of like when you're when your net worth goes above that first floor level, $1 million, your bigger case to be sued, right? When 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, the CPs are lawyer, please reach out. But you know, that was again, these are all the things that you learn when you're on the journey and things I've experienced myself. And this is kind of where we started to buy large apartment complexes, started to syndicate the deals out. And, you know, we've done dozens and dozens of these things is kind of 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. But this is where I started to realize there was like this stealthy world of the wealthy out there and how they were doing things. And what I distilled it down to is these three complementary strategies: investing in alternate investments. Or I know you guys are entrepreneurs, right? That's a form of an alternate investment, you know, 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. And I think this is the big key that I realize like, you know, wealthy people, they access investments through the primary markets directly. 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? So to create access for people to get access to these same institutional quality investments is kind of the key. And for investors to do that, you need an ecosystem, which is why we've created, you know, a lot, we do a lot of events with the credit investors for people to build their peer LP group, but also find deal flow out of that too. But you know, I think where this kind of 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 401ks and the backdoor thing, the silly thing that people talk about a lot. Like the wealthy people are quietly doing something very, very different. And then they're doing running it through an infinite banking, a credit investor banking plan with life insurance, right? Like this effective strategy is very powerful. And but it kind of changes as you go from that first floor of the wealth elevator where I was to a credit investor status and beyond at floor two. And then, you know, maybe now's a good time to define floor three. Floor three is when you get to about three to five million dollars net worth. And maybe you guys call this like life-changing money, right? Where you could take that chunk of money, put it into like a T-bill, make three or four percent, and you know, cash flow and chill or T-bill and chill for the rest of your life. But, you know, we didn't get there for just sitting on our butts, right? We're we're gonna get a diversified portfolio and still get after it with a portion of it. But you know, this, I think this, you know, I think you and I are talking earlier about like how most of the people I work with are 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 three to five million dollars, and you there's a few inflection points on which way you would like to head. And 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 two million dollars each if I have two kids. So the four million dollars gets split both ways. Yeah, you pay some tax state taxes in the process and sell taxes. But and that I think that's the status quo. But I, you know, by buying all these apartments, you know, kind of just by chance, we we've bought all these apartments from wealthy people, like people I didn't even know existed, like, you know, people with on the family office level with $50, $100 million net worth. And you don't create that in just a generation or two. This is legacy wealth. And if you start to realize the business systems and the practices that they put together in the infrastructure, right, they hire teams of underwriters, operators of investments, including all their chauffeur and all their, you know, their housekeeping, their help, their, you know, for their house, you know, 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, you know, like yeah, I'm in entrepreneurs organization and some other groups like Vistage, right? 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 you know, cruise. Nothing wrong with that. You know, sometimes I I want to do that, right? Or you take you kind of keep pushing things, not pushing the metal, right? But kind of just being a good steward of your wealth and kind of growing it and having the kids get involved in the next generation of the family wealth management.

Alternate Investments And Direct Access

Tom DuFore 12:41

Certainly, as you're describing that, I think of clients we work with, we help them franchise their business is kind of taking this business that they've built, and they're saying, I'm ready for kind of that next thing. We help them go through franchising, they produce this asset. What other kinds of things, you know, beyond this third floor? Where does it go from there then?

Lane Kawaoka 13:01

Yeah, I mean, it it's a mindset thing, though, right? Like, I mean, you work with a lot of these guys, these a lot of these entrepreneurs and business owners are my peers too. And I'm in the space too, right? Like we work so hard to create this wheel, and the wheel is it's a flywheel. You get the momentum going and you you build up all these great relationships. You you maybe even be able to build a team, right? I think that's where I think the e-sop comes in, right? Some people they really want to kind of create that that lasting legacy for the team so they can keep going the work and at the same time get theirs too. I 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, right? When when you're in business, I mean your butts on the line there, right? Like for frivolous lawsuits, you know, and at any point something could change. I mean, we've seen with AI, right? That just I mean, it's just unfortunate. Some people are just taken out of the game. I had a buddy who was like selling uh Photoshop filters, right? You know, it's kind of a whimsical, I mean, it was good money though, right? And he's like, yeah, that came and went real quick, you know. And and nothing protects any business from being obsolete. Look at Kodak, right? So 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, right? Like when we when we invest in an apartment, I mean, real estate is one of the easier types of investments out there, which is why so many people graduate to that, but it's also kind of competitive too. But the business of real estate doesn't really change. People need a place to live, which is why some people want will diversify and get exposure to real estate in their portfolio. But, you know, when you go through the business plan, there's always something that could change, right? You know, and a big employer moves out. I mean, I think you're seeing, I was looking in Seattle recently where Starbucks is moving. Like, you know, these are things that 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. So, but I think if in your mind, you're kind of like, I mean, most of us business owners are we're lions, right? We're gonna fight. But it is also a good self-awareness to that, yeah, you can fight, but there are things outside your control, like macroeconomics. You know, we we're in the oil and gas space. So, you know, that's something that's definitely outside your control with wars and you know, 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 it's great, right? But that can change at any moment's time. So 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. And yes, I need to move away from, yeah, they told me to always bet on myself, educate, you know, bet on myself. That's where you can get your highest ROI. But at some point, I 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 kind of help you figure out where exactly you fall.

Tom DuFore 16:03

Lane, this is a great time here to share, you know, where can someone get a copy of the book? How can they get in touch with you and make a connection point?

Lane Kawaoka 16:12

Yeah. So if they want to check out the book, they can go on Amazon, the Wealth Elevator.

Tom DuFore 16:17

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?

Lane Kawaoka 16:27

Yeah, I would say, I mean, multiple misses. I would say pretty early. And I know we're talking about like transitions going through these transition gates. When I was going from the first floor to the second floor of the wealth elevator, I mean, I probably shouldn't have bought eleven properties. I should have just bought a few or four and then moved on to large apartment deals, more institutional quality assets, and just, you know, because the people I met

Floor Three Choices And Legacy Planning

Lane Kawaoka 16:49

at the single family homes, the brokers, insurance guys, like, and you just leave them behind. Kind of like when you go to college, you don't talk to your high school friends, buddies, those types of people anymore. Um, you kind of just move on. And I just wasted time there. I also realized, like, you know, majority of my net worth when I was on the second floor of the wealth elevator was commercial real estate, maybe 80 to 90 percent of it. And if you've been following commercial real estate, you have like the buying moment of the I would say half a century at this point. Values in commercial real estate have gone down more than in 20 uh 2008, right? So 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. And as I'm talking to the business owners out there because that's exactly what you guys are doing, right? You guys are putting all your eggs in your business and growing that, watching that thing like a damn hawk and growing that thing. So I but I did the same thing, right? But I think at some point you gotta figure out like, all right, once I've hit a certain critical mass or inflection point, that's when you need to kind of diversify into other things, right? But it's important to like it's you know, it's all in the dosage or like when you make that mental shift. You know, like I mean, they tell people like, oh, who have no money to diversify. Like, to me, that's silly, right? Of course, I'm not a financial planner, right? Don't sell marketable securities. So what do I know? But this is just my observation of you know, talking to a lot of more peer wealthy people, right? I mean, you don't find anybody in Tiger 21 or, you know, with under $10 million in net worth who didn't create it themselves without them concentrating to some extent. Yeah, you got the lucky guys who I guess they concentrated in like Bitcoin or some altcoin and got lucky, but you didn't you don't find anybody who kind of created real value in a business or who weren't gambling on doing this in you know in the beginning stages with just betting on everything, right? That you have to concentrate in a certain thing, ideally something in your business where you get outside leverage on.

Tom DuFore 18:54

Well, let's talk about a make or a highlight or two that you'd like to share.

Lane Kawaoka 18:59

I think for me, the critical part came in 2016 when I started to interact with other credit investors. My eyes were open to these other strategies. And there was a, you know, I thought I was hot stuff by having, you know, a handful of rental properties, right? Because who has more than one? Right? That's crazy. And this is kind of why, you know, part of our group, what we do is we host uh credit investor events. So if you guys, you know, looking for people who've kind of crossed over the rainbow to some extent, you know, multiple million dollar net worth of credit investors, typically in their late 40s, 50s and beyond, you know, maybe check us out on shoot me emailane at the wealthelevator.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 accredit investors who are kind of 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 you know, entrepreneur-minded people who kind of, you know, were in were in the trenches for a decade or two cultivating that equity, right? So a lot of similar value sets there.

Tom DuFore 20:04

The next question we ask is have you used a multiplier to multiply yourself personally, professionally, or organizations you've run?

Lane Kawaoka 20:12

I've heard this term like every business needs leverage, whether it's people, money, or

Misses Wins Leverage And Success

Lane Kawaoka 20:17

technology or something else, right? What we'll do is we'll syndicate capital from investors and you know, 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 yeah, I mean, I think we're a poster boy from utilizing that money as a leverage tool.

Tom DuFore 20:37

Well, and Lane, the final question we ask every guest is what does success mean to you?

Lane Kawaoka 20:42

Well, let's say, you know, first hitting that third floor of the wealth elevator, three to five million dollars net worth where you've got that critical mass, so you don't have to trade time for money, and your money grows, you know, 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, you know. And and I say that very humbly. If you just want to give your kids $2 million and just, you know, live a simple life, that's totally fine. Like that's where I think you I think that's the essence of the question is you define your own terms of after that point, right? But you gotta get to the certain number first, and then you define what comes after. Now, personally, me, you know, I I I still find this fun and challenging. So I'm gonna kind of keep keep moving along on my journey on this 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 like a rather cheaper area in Idaho, and I think he only needs like three million dollars net worth out there because their expenses are rather low. And and you know, more power to him. That's what he wants to do. I s I think he's gonna get bored though. I think he was gonna get bored. But if that's what you want to do, then go ahead, right? You define your your own end game with the what the you know, you you define the the rules of engagement. Engagement of when there is a winner. But I think most of us listening here, especially the business owners, we're kind of sick in the head where we always kind of want to constantly challenge ourselves and going more and more. But I would say that at once you especially once you hit this level, right? And we talk about this in the book, right? There are certain strategies you probably should put into place to just make sure you don't, you know, fall all the way back down the mountain, right? Like if you're trying to scale a mountain, you tie off at certain checkpoints, different legal strategies, right? I mean, that's kind of where we will have a lot of folks like yourself, a lot of their lawyers on my podcast and discuss more of these advanced legal strategies. To, you know, you've worked hard for your money. So you got to protect it, right?

Tom DuFore 22:41

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

Relationships Takeaways And How To Connect

Tom DuFore 22:46

yet?

Lane Kawaoka 22:46

You know, on unfortunate, I think what's what's unfortunate is like 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 like we always say, like try and find at least five people that similar net worth, similar trajectory as you. I mean, you you guys might go to the country club, but you know, those are mostly second, third generation wealthy people. They're not the founder class. But try and find people that are kind of similar trajectories to your point. You 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, you know, for the wealthy, the you know, you talk about money, but you know, social relationships are the currency of the wealthy.

Tom DuFore 23:34

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 kind of that net worth of the three to five million range. And he said that's the floor where people usually make that decision. What do I do here? Do I kind of settle in or do I push through this? I thought that was an interesting note there. And now it's time for today's win-win. So 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. And 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. So I thought that was a great, great takeaway there. And so 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 you know might be ready to franchise your business or take their franchise company to the next level, please connect with us at BigSkyFranchise Team.com where you can schedule your free no obligation consultation. Thanks for tuning in, and we look forward to having you back next week.