All Forum Posts by: Lane Kawaoka

Hey everyone, just wanted to share a bit about my journey and thoughts on real estate investing. Back in 2015, I had 11 rental properties, but honestly, that wasn't enough. And I'll state the obvious that paying them off is not ideal until your net worth hits $4-5 million, it still wasn't what I'd call 'end game' or 'critical mass.'

I see wealth building in real estate as a two-phase game. Phase one is all about growth, using debt and leverage to hit that critical mass. Once you're pulling in $15-20K a month in passive income, which is pretty solid for most affluent folks, you switch gears. Then it's about paying off debt and diversifying, maybe even working with a financial planner for more traditional investments - I know he said a bad word there haha.

Again when you're in the $4-5+ million net worth range, the game changes.

Even now, I'm still in the growth phase, leveraging debt to build up assets. It's key to do this safely, with good debt service coverage ratios and cashflow. More real estate also means more tax benefits. It's a balancing act, and you need to do that until you get to that magic number which is a little different for everyone.

Get ready!

Bonus depreciation, one of the benefits of real estate investing, is being phased out.

→ 100% Bonus Depreciation (2018-2022): Under the Tax Cuts and Jobs Act (TCJA), businesses were allowed to deduct 100% of the cost of qualifying property in the year it was placed in service from 2018 to 2022.

→ 80% Bonus Depreciation (2023): For assets placed in service in 2023, the bonus depreciation is scheduled to phase out, with businesses able to deduct 80% of the cost.

→ 60% Bonus Depreciation (2024): For assets placed in service in 2024, the bonus depreciation is scheduled to further decrease to 60%.

→ 40% Bonus Depreciation (2025): For assets placed in service in 2025, the bonus depreciation is scheduled to decrease to 40%.

→ 20% Bonus Depreciation (2026): For assets placed in service in 2026, the bonus depreciation is set to reduce to 20%.

We are investing in equipment (section 179) to extract this bonus depreciation without having to recapture the losses.

Out of those Cleveland is the better IMHO. 

if you invest 500K in Syndications, how much deduction to expect in K1 ?

Speaking from my over 80-100 k1s every year as an investor... most of these involve debt/leveraging to invest in multi-family apartments from the 1960s and 2000s build.

The age of the property and the extent of value-add or construction really play a huge role in the investment outcome. Another critical facts is the aggressiveness of cost segregation and how effectively you use that study.

From my experience, the losses (PALs) can be pretty amazing. I've seen anything from 30% back in the first year to over 110%. This means on a $100k investment, you could be looking at $30,000 to $120,000 in losses in the first year. General rule is 1/3 of the building value taken as loss in first year.

About predicting interest rates, https://www.chathamfinancial.com/
is one of those financial websites that give you the Vegas odds... that said they have missed the mark a few times, especially on the magnitude of rate hikes. But, looking a year ahead, their forecasts seem solid. They're hinting that we might see rates around the mid-four percent range by next year, staying under 5%. It's like we're on the road to recovery, eventually settling at a 3.5 to 4% range.

Here's my take: I think we're heading towards a double peak in inflation. The first one hit us in 2022, and the next one? Maybe around 2025 or 2026. The Fed's trying hard to prevent this by keeping interest rates high, to stamp out inflation for good. But I'm not convinced that's going to work. We might see inflation come back with a vengeance, leading to another hike in interest rates, which could really hurt people more than this 2024 "softer landing" situation. Though, it looks like the FED may pull off a soft landing recovery, I like to be conservative and anticipate still a chance of more tough times ahead with the double inflation peak.

This makes me wonder about real estate investments. In a low-interest rate environment, real estate is fantastic because it thrives on leverage and debt. But what happens when interest rates aren't in our favor? Maybe the answer lies in buying value-add businesses (not buy-hold-pray model), like apartments or even brick-and-mortar businesses, where you can actively increase their value. I'm even considering some financial or professional service businesses.

Remember, in uncertain times, the old saying 'cashflow is king' really holds up. It's not just about paying the bills, but finding opportunities where positive cashflow combines with value addition... BUT the key is to also be doing value add for legacy wealth creation.

I recently brought up an interesting shift in the car industry in my business mastermind... Have you noticed how Mercedes Benz, traditionally a strong player in dealership franchises, is now moving towards direct online sales, the Tesla sales model.

From what I understand, the reason behind this move is pretty clear. With online sales and focused brand building, companies like Mercedes can forge a direct relationship with their customers. Not really a need for the middle man dealer.

And there's another trend, customers are really not into the whole haggling experience. This shift by Mercedes-Benz could be a sign of what's to come. They're sort of leading the charge in this new direction, and I think we might see the traditional dealership model and its commission structure start to fade away.

Of course, this change won't happen without a response. It'll be interesting to see how dealership lobbyists react to this shift. But one thing's for sure, this could be a leading indicator for other industries too, like real estate agents, to follow a similar path.

You don't really need anyone local as its only federal taxes is the thing and they can do the state fillings. Just make sure the hourly rates for the lower level staff is under 50-100 an hour and 150 an hour for a senior guy. Also stay away from these real estate CPA marketers... they just use overseas guys from what I see.

I think you have the right idea. That said I have seen 95% of CPA's will feel uncomfortable with this stuff especially when you start to talk about REP status. Best to go off referrals of those other investors have used in the past.

Just wanted to share a bit of my journey, back in 2015, I was shifting away from my turnkey rental portfolio (11 rentals) towards syndications and private placements. My initial ventures  were with people I thought I knew well. But let's be real, you never truly know someone until you've invested money with them.

As a new investor, I often found myself without accredited investor buddies to help with due diligence. This meant sometimes invest with those who are with great marketers or those with influencer connections, rather than the most solid operators. Honestly, it's a learning curve. I stumbled upon operators with less than $1 billion in assets, and lost money with a few of them. 1 out of 5 were a dud investment.

Over time, you start building valuable relationships with other passive investors, and that's when things begin to turn around. Your hit rate improves, and you gain better insights.

Now, about your idea of spreading investments across 20 deals with 5 to 10 operators: I get the logic. If you're doing a deal every quarter, that's four a year, and in about five years, that's a neat cycle of 20 deals. It's a solid pipeline. 

But managing 10 different operators - that's a lot and my guess is that you are pretty much dating everyone or putting in test bets. In my experience, most LP investors in syndications start by casting a wide net. Then, as they figure out who's really delivering, they narrow it down to fewer than five trusted operators. 

Hope this perspective helps a bit in your investing journey!

I have a couple. Just be careful of those who are the names floating around out there as they are very expensive and often overkill. Also PS they all use overseas staff these days so they are just whitelabeling services and a marketing company as the exterior.