Cosmos: 

Welcome back to the show, my fellow Extra Americans. For today’s guest, we have Lane Kaoka. Lane is an entrepreneur, investor, two-time best-selling author, ex-engineer, and owner of more than 10,000 rental units. Lane’s expertise in guiding high-net-worth professionals through wealth-building in real estate investments aligns perfectly with Extra America’s focus on freedom, entrepreneurship, and business. 

Lane has raised over $200 million to purchase and control over $2.1 billion of apartments, mobile home parks, self-storage hotels, and other commercial real estate assets. Most importantly, he distributed over 45 million back to his passive investors. 

As an entrepreneur who transitioned from engineering to owning over 10,000 rental units, Lane embodies financial freedom through innovative strategies like infinite banking and advanced tax planning. He aims to divert investments from Wall Street to tangible Main Street assets. Resonates with the theme of American entrepreneurship. His insights on building passive income streams and strategic asset management offer valuable knowledge to people aspiring for financial independence. 

He has written The Wealth Elevator and The Journey to Simple Passive Cash Flow books. He’s a member of the Forbes Real Estate Council, Fast Company Executive Board, Vistage, and Entrepreneurs Organization and has guest appearances on Money Ripples, the Land Geek, Bigger Pockets, Wealth Formula, and Cash Flow Ninja. Lane is an extraordinary American and I’m honored to have him on the show. Lane, are you there?

 Lane:

 Hey, thanks for having me. Cosmos. Aloha. Everybody.

Cosmos: 

Lane, thank you so much for taking the time to do this podcast with us. Can you tell me in the audience a little bit more about yourself, your background, how you got started, and your story in general?

Lane: Yeah, I think it started. I was brought up in a middle-class family and was taught to go to school, study hard, and, you know, go to college. I eventually, you know, became an engineer. That’s what I went to school for. I started to work and then, even up until that point, was kind of brainwashed to do the old traditional 401ks.

I also bought a house to live in, which I did shortly after graduating. But it all kind of changed when I just started to rent out my home and got this taste of cash flow and realized like, wow, you know, my tenants paying down my mortgage, I’m getting these tax benefits, and you know, making a little cash flow every month. In the beginning, it was, you know, a few hundred bucks at least per month, good beer money back then for a 20-year-old kid. And that was kind of how it all started. And then a few months m went by, and I was like, wait a minute, if I kept doing this, I’d be able to, you know, quit my day job. And that was kind of where it all started back in 2009, that first rental property.

Cosmos: 

Well, Lane, not only most people, they just go to college and get a job, and then they go through life. But you went from there to where you are today. Can you tell me and the audience a bit more about your strategic vision and goal, starting from college, where you are right now, and how it has evolved?

Lane:

Yeah, initially, it was very simple, right? You put the rental property into, you know, rent it out and make a few hundred bucks per month of cash flow. 

But then I started to realize, well, if I bought in other places, you know, at that time, it was in Seattle, Washington, which is known as a primary market. So primary markets are, you know, really cool places to live, like Hawaii, San Francisco, pretty much all of California. And they don’t have the best rent-to-value ratios. So, rent-to-value ratios are when you take the monthly rental price divided by the purchase price and look for something that’s 1% or higher so that you can cash flow with bigger margins. In places like California or Hawaii, you’ll be lucky to find things that are half a percent. 

But, you know, after that first few units in Seattle, Washington, I started to catch on to the fact that I could buy properties in places like Birmingham, Atlanta, and Indianapolis that were more, what we call our secondary and tertiary markets, less sexy places, essentially, where the numbers are a lot better in terms of rent to value ratios. And that was kind of, you know, where my, you know, after the first few units in Seattle, I sold those, and I kind of had 11 rentals in 2015 in these various markets. And all the while, like, you know, doing this completely remote, right? I had property managers remotely and was still working my engineering job when I was up in Seattle full-time.

Cosmos: 

Well, Lane one, one question I want to ask for the sake of the audience is, so you were an engineer, and then you started this, on the side, right, where you started doing rental units. So my question is, how did you scale from the first rental unit to 10 to about 10,000 rental units? What is your process and strategy, and how did you go about doing that?

Lane: 

Yeah, I mean, for the first 11, I had a property manager in each location. So I think I had five in Atlanta, four in Birmingham, and another in Indianapolis. 

So, I had a property manager in those locations. It works in rental real estate by paying your property manager about 10%, sometimes the first full month’s rent or half of the first month’s rent. That’s their fee. Some people are kind of cheap and don’t want to pay for it. To me, I mean it’s well worth it. It allows you to scale. However, this was around 2015, and as I write in my new book, Wealth Elevator, there are different stages to wealth building. 

You know, my first, when I was under a million dollars in net worth, these rental properties were great. And if you’re under $1 million, especially under half a million, you must buy rental properties and go through these growing pains.

But at that point, as I became more of an accredited investor, these 11 rental properties were becoming a bit of a chore because, you know, what’s it like to own 11 rental properties? Well, the tenants, you know, they’re not the most reliable. 

They maybe had an eviction or two every year and some kind of big catastrophe or issue that happened, like a tree fallen house or flood out in the basement or something on one of the rentals, which is, you know, not the hardest thing. I mean, it’s not that out of hand, right? With 11 rentals at that exception rate. But at a few hundred dollars of cash flow per property times 11, you know, that’s about a few, few thousand dollars of cash flow per month. You know, you’re going to be grateful for that, right? That’s great. It certainly was amazing when I started, but most of my clients today are looking for 10 to $15,000 of passive cash flow a month. 

So you’re. Those 11 rentals aren’t going to cut it, right? You’re going to need 30 or 40 of these things. So you also have to multiply that exception rate, the headaches, by three or four. And that was where, in 2015, 16, I was like, “This is not scalable.” I also started to search for what accredited investors do after renting properties. So, there was a bit of a pivot at that point, just as a continuation.

Cosmos: 

What was the change in thinking or pivot that led you to take the actions that led to scaling?

Lane: 

So I started to invest in larger deals and realized that a lot of this is just like interacting with purely passive accredited investors, you know, people who had owned rental properties. But their networks have grown, and they also, you know, as sort of data points on their own, found the world of syndications and private placements. 

So, if you haven’t heard what these things are, think of it as kind of a country club deal. You are in the network of people doing these larger deals and buying large institutional assets such as apartments. Instead of buying one or four units at a time, you’re buying 100 or 300 units and starting to realize, well, this is a thing, definitely not what most people are talking about out there, which is why it’s important to network. But again, there are stages to this wealth-building journey. 

If you have a million-dollar net worth or less, all this information is great. You can check it out in my book, The Wealth Elevator. But it does not apply to where you are in the journey. Right. From 2009 to 2015, it took me 16 to get to this point, all the while plowing. At my day job, I saved 50 to $100,000 a year to put down the payments to buy more real estate in those years. 

So it took a while to mature that was, you know, started to realize like people were trading in their little rental properties for these larger placements as an investor in these larger deals and were kind of a way of, you know, getting you know, a lot more scalability in investing in this method.

Cosmos: 

So, Lane, one of the things that is admirable about you is that you’re a self-made person. Like you, you went from a middle-class background to where you are today.

 So, my question for the sake of the audience is, how did your mindset around money evolve as you went from having a net worth of less than a million dollars to multi-millions and all of that? What is the thought process and evolution? It required a lot of self-growth to handle all of that, right?

Lane: 

Yeah, I think, and I still know some, a lot of people like this who were kind of on my trajectory, and they just went and bought 20 rentals and 40 rentals. Part of the difference was the legal liability. When you own rental properties directly, you’re on the front line to getting sued. Frivolous lawsuits. Some of these slip strips are falls, and they will sue you. 

So this was when you started interacting with people with higher net worth. They’re more concerned about losing their money than making money. Right. People who don’t have much money don’t have much to lose, and they’re more interested in making a lot of money. But once you have money, it kind of flip-flops. 

So, you know, that was one mindset shift that happened. And then also the scalability, certainly, and still present for me today. I’m a part of what got me here in the early days: just being really frugal with my money. That’s how I saved up the first 20, 30 grand for the first rental property, bought the next property and the next property. 

So that’s what I call the wealth elevator or the basement floor in my book. But unfortunately, a lot of people just don’t have this in their pedigree. Right. Please don’t spend money when you don’t have it. You know, don’t buy a soft drink when you’re at a restaurant. Drink some water, buddy. You know, you do that enough, and if you have a good paying job and you’re able to save five, $10,000 a year, you can buy a rental property and a short amount of time, you know, I guess if you call a year or a few years a short amount of time. 

But that’ll get you on the escalator of building wealth much more than buying your primary residence. But you know, after a while, you start to, the years pile on, and you start to get that hockey stick. That’s when you have to have these; you know, you have to make more effort for scalability. And again, this is the gradual part, and it’s somewhat esoteric, but you know, time is more valuable than money once you hit a certain point; I’m not going to say every; it’s different for everybody, but maybe half a million net worth, some people, until they hit $2 million now where they kind of finally get it right. But that’s kind of a mindset shift change.

Cosmos: 

No, totally. Time is very valuable, and you can never get it back. Like money, you can lose it, but you can never get it back with time.

But Lane, one of the questions I wanted to ask was regarding real estate and wealth building in general. What was the biggest lesson or revelation you had during your career about this industry and building wealth?

Lane: 

You’re just trying to buy assets that produce income or grow. Right. I could care less if it’s real estate. Right. But I think many people and I choose real estate because There are a few other benefits, one of which is the taxes. Right. When you have real estate, you can take a paper loss off of the building improvement value, offsetting a lot of the income that you’re making. And when you get into larger deals that do cost segregations and take advantage of more aggressive commercial real estate depreciation schedules and bonus depreciation, you know, the tax benefits can be even more powerful. 

So it’s not; it’s another concept. It’s not how much money you make but how much you keep. Right? For example, if I make 100 grand through crypto and pay half of it in taxes, crypto is not shielded by any taxes because there’s no paper loss. You know, I, I made 50 grand, but if my real estate made me a hundred grand and I was able to shield it 100% with taxes, you know, with these losses on paper, then I made 100 grand, you know, doubled up what the crypto did. Right?

Cosmos: 

No, totally.

So Lane, as a continuation of, since we’re talking about taxes, what do you, according to you, think is the one tax mitigation strategy that the wealthy would know about and understand that the middle class is not aware of?

Lane: 

It’s using real estate losses to offset other passive income. What you pay in taxes is not really dictated by how much money you have or your net worth. It’s all about your income that year. And if you guys do GPT, what is adjusted gross income or AGI? You know, an AGI schedule-like chart says how much you pay in taxes per the US Progressive Tax program every year.

 So, if you’re able to drive your adjusted income down, one of the strategies that we use is to invest in real estate, which allows us to offset or neutralize our income. This, in turn, lowers our income, which obviously in turn means we pay less taxes and have less taxable income. 

So, I’m not a CPA or a tax attorney. If people need a referral to a good one, you know, maybe reach out. Hey, this is what’s worked for me in the past. And there’s very quietly a lot of people doing this, right? Wealth whispers, you know.

Cosmos:

Yeah, I mean, understanding tax strategies at a certain level is vitally important. You know, normally, when you have people of the middle class, they see everything differently versus where the wealthy and the rich see them. It’s just a different mindset altogether around the same thing.

Lane: 

Yeah, I mean, I see it all the time. It’s kind of funny, you know; I guess nobody believes what they see in the media, right? But the, you know, the media will always say like, oh, the rich are, you know, they’re going to pay the billion dollar tax or billionaire tax or whatever. That’s not how taxes work. It doesn’t matter if you’re a billionaire; it’s what your income is that particular year, essentially.

Cosmos:

 I have one question. So, normally, many people in the middle class view inflation and debt similarly. But from your perspective, how do you view inflation and debt? Do you see debt as a strategy to acquire assets, or what is your opinion on that?

Lane: 

Yeah, debts are two double-edged swords. It can hurt you, but it can help you. And essentially, how I look at debt is like a magnifier. You know, it makes good deals better, but it makes bad deals worse. You know, you never, you know, figure out what’s happening in the market. 

So that’s what creates this element of risk. But for people who can diversify, you know, through the time lengths of markets, right? Different, you know, in kind of dollar cost average, in a way you’re able to somewhat, you know, take out the chance of, you know, you investing in the one or two bad years. For example, commercial real estate went down very heavily, 20 to 30% in 2021 to 2023. That was kind of the peak of the market. So. But if you were diversified longer than that, you would have been fine by that delta with the leverage, right? Or debt, right?

 People use debt because banks love commercial real estate or real estate in general, even rental properties, right? Because it’s a hard, tangible asset. The business of renting stuff to people isn’t going to change, right? It’s not, you know, like a tech startup or anything like that.

 So it’s very bankable for banks to lend money. The other thing is, like, you know, it also magnifies your tax benefits, right? It allows you, with the same dollar, to buy maybe four or five times the amount of real estate to get four times the amount of tax benefits. But I think, you know, overall, you know, like the tax benefits, which I think is a big thing there.

You know, I think the other thing that you mentioned is other than debt. Right. What was the other thing other than the debt you mentioned?

Cosmos:

Inflation.

Lane: 

Yeah. So, inflation increases. You know, the way to think about inflation is if you’re an investor and own assets, such as real estate, for example, inflation is your friend. Inflation is a kind of tax for the poor man because the poor man has no assets. 

And he gets kind of screwed because, you know, necessities go up in costs, but his assets don’t go up. So, when inflation is high, it kind of helps us. Right. Because rents go up, the prices of properties go up. 

So it’s kind of, that’s one of those insidious things that I think a little unfortunate. So, I think people, I’m not a big conspiracy theorist, but in a way, it is like, you know, people are like, well, it’s the wealth transfer, right? It’s the rich getting richer. Right. Well, I understand the game. The rich buy assets with or without debt, but they buy assets to go up with the pace of inflation and keep up with the pace of inflation. That’s how the world works. That’s how the game works. Play the game.

I want to talk about inflation and also debt

Cosmos: 

Leah, I’m so glad you’re mentioning this because many people need to know how the rich view inflation and debt. 

So one of the things I learned during my time is that there’s consumer debt, and then there’s strategic debt where, as you acquire, where you create, you get the debt to acquire assets that increase in value over time. And that was a game changer. That was a mental shift for me. But normally, when people think of debt, they think of it as negative. But for the rich, it can be an asset, and it’s a good thing. So that’s something that I want to mention.

Lane: 

Yeah, the devil’s in the details, right? Unfortunately, people don’t go much past a one-minute YouTube video or TikTok in terms of knowledge. Right. We use infinite banking policies as one of our strategies. 

And he uses whole life insurance. Well, you can. You can use whole life insurance with very high commissions, and it’s pretty much a scam. Or you can configure it correctly with very low and low commissions. Still, whole life insurance. Right. 

But you must dive into the details—the same applies to debt. You can have crappy consumer debt when you go to the money tree store, or you get 20, 30% credit card interest rates to buy something you don’t need. Or you can get 5 or 6% debt to buy a commercial property that puts money in your pocket. Both are debt, but the devil’s in the nuances, right?

Cosmos:

Lane, you mentioned infinite banking. Can you tell the audience a little bit more about it so they can get a general idea of it?

Lane: 

Yeah, I’d say it’s more for people with a net worth of a million or greater. But essentially, you’re using a little loophole with the life insurance where it doesn’t really get taxed, and you people use it as a way of. They buy an asset, which in this case is a life insurance contract, and they overfund it and throw money into the policy for it to be their own bank. 

And this is if people have heard the term “be your bank.” You’re essentially being your bank and privatizing your bank there while making a nice safe yield and getting the tax advantages of that. You know, it’s kind of confusing to a lot of people. It cannot be very easy. 

But if your net worth is under half a million, don’t worry about it. Focus on buying a rental property first. And that’s what I talk about in my new book, right? I learned all these cool strategies from all these wealthy people, you know, accredited people, between 1 to $10 million in net worth back in 2016, 20, and 20. And I was like, wow, these are really easy strategies, right? It’s very different than what we’re all taught by our parents or society. And I realized, well, when do you implement these strategies, right?

 As I mentioned, infinite banking doesn’t even mess with you until your net worth goes over a million, you know, or you know, people kind of get duped into these like real estate education programs, right? Buy big apartments, right? I mean, that’s what we do today, right? We syndicate large deals. But if your net worth is under a quarter million or even under a million dollars, that’s not where you’re at. 

So, in my book, I have this kind of floor of the wealth-building journey. And you know, I don’t. I’m not a financial planner. Certified financial planners are just guys who sell you the commission products, right? That’s how it works in the traditional investment world. But these are just my own experiences, shares of going through this process, process on my own, of a guy who was kind of duped into the traditional investments, the 401ks, Roths, all this stuff that we thought we were supposed to do, buying a house to live in, but then slowly discovering, you know, what do the wealthy do? 

And then what do you? In the book, I break down these stages, these paradigms, and floors. And, depending on where you’re at, you know, there’s a different strategy that you should be doing at that time.

The idea is to buy rental properties until your net worth grows

Cosmos:

So, Lane, let’s say somebody wants to follow in your footsteps, right? They just graduated from college, and then, they wanted to, they want to do real estate investing, and they want to do rental properties. What advice would you have for somebody wanting to do that, and how should they do it?

Lane: 

I mean, check out my book to get the high level and ensure they truly are on that. We call it the first floor of the wealth elevator. So, the idea is to buy rental properties until your net worth is half a million to a million. If that’s the case, go to Thewealthelevator.com turnkey. We give away all that information for free, but some people will charge 20 grand for it.

You know, start to learn the numbers. We have a spreadsheet analyzer on how to underwrite some rental properties. Start there and just start buying stuff, you know, and growing your net worth. You know, that’s kind of the first step.

Cosmos: 

Totally.

America is the land of the free and the place where dreams are made

I was going to briefly ask you about the wealth elevator. But. But, before that, I wanted to get your opinion, like, you know, that America is the land of the free and the place where dreams are made. Do you agree or disagree with that?

Lane: 

Yeah, sure. But, you know, it is hard for people to get started, that’s for sure. When I first bought rental properties, I was buying, you know, in Birmingham, Atlanta. I bought it for maybe 70, 80 grand per unit, and it was renting for $900. Nowadays, that same property would be, you pay 130,000, and it would rent for a thousand. 

So, the numbers are just getting harder and harder to come by. You know, I guess they say that about college, right? College is getting much more expensive and supposedly less effective at getting a good job. Unfortunately, that’s the slippery slope, right? I mean, sure, America is the land of the free. It probably has much more opportunity than other more oppressive countries. But it’s getting harder. I mean, it’s hard.

From your perspective, what is the biggest hurdle that Americans have when attaining the American dream?

Cosmos: 

From your perspective, what is the biggest hurdle Americans have when attaining the American dream? Or just being financially free and, you know, living in that ultimate mansion and all of that stuff?

Lane: 

I mean, you hear it a lot in our circles. The hardest part is the first hundred thousand dollars of the network, right? To do that, you have to demonstrate personal finance skills, keep a fricking budget, and not spend more than you make. And maybe if I were to break that down even more, it would be just saving $5,000 a year and $500 a month. You know, if you’re not to that point, I’m probably not the person who doesn’t read my book. Right.

I’m not the person to follow, you know. There’s a lot of other information out there for people like that, like Stuzy Warman, Dave Ramsey, and the plethora of personal finance blogs that tell you not to have your $5 lock day every day and stay away from consumer credit card debt. 

But you know, the people who I kind of work with and where I started myself is, you know, people who are frugal with their money. They have a good paying job, and they’re able to save, you know, most of our, I mean, most of our younger clients, you know, save 20, 50 grand per year from their paycheck, and then they can get on the escalated wealth building, and you know, starting to buy assets such as real estate that have great tax benefits. But this is not a get-rich-quick scheme. I mean, look what I did. I mean, I bought my first rental in 2009. Getting to double digits and properties took me six or seven years.

Cosmos:

Totally. Of course, it’s not. There’s nothing like a get-rich-quick scheme. You have to do the work, and you have to be smart at it as well.

Lane: 

Yeah, there is, but it’s gambling, crypto, and altcoins. I don’t know if you are considering doing an e-commerce business. To me, the only way you make money is by selling other people programs to do that type of stuff. You know, if it were easy, then everybody would be doing it.

Cosmos: 

No, I didn’t. I didn’t have gambling in mind. I was just thinking about doing business the proper way, investing, and all of that. Yeah.

The Wealth Elevator is a symbolic construct of scaling a building

But, speaking of that, Lane, can you tell me and the audience A Little bit more about the Wealth Elevator, the book you wrote, and the premise of how you got started and what it’s about?

Lane: 

Yeah, it’s just, I mean, what I started to realize, I started to look backward. All the steps I went through certainly defined paradigms, and I used this as a symbolic construct of scaling a building. Right. You have different floors in this building. And what I’ve tried to do is, you know, talk about the strategies and best practices or the cheat code. Right. 

The elevator gets you quickly from one floor to another as quickly as possible. You’ll still have to scale the building and go through each floor. But, you know, if you’re good with your money and can save five or ten grand per month, it’ll get you up to that second and third floor much faster. You know, certainly, like, you know, if I would have done it again, I maybe wouldn’t have bought a fifth, sixth, seventh rental. I would have gone right into syndications and private placements. And that’s the whole idea, like finding the blueprint and then trying to emulate it. 

But what I would kind of urge people to do is figure out where you are first based on where you’re at. That’s what you should follow. So, like, I mean, I’m not seven feet tall. I won’t follow what’s in the Michael Jordan-like book. That doesn’t apply to me. Right. Same thing with money. If you’re a million, if you got, if you don’t have a hundred thousand dollars, infinite banking’s not for you. That’s a waste of your time. But in the same way, if you’ve got $5 million, then rental properties won’t be scalable. And high liability in terms of legal liabilities. No, totally.

One thing people need to understand about cash flow is importance

Cosmos: 

So, if you had to advise somebody on the one thing they need to understand about cash flow, what would that be?

Lane: 

What about cash flow?

Cosmos: 

Just how cash flow works because many people think they know how it works, but they don’t. If everybody knew that, everybody would.

Lane: 

Be rich, you know, you’re making investments; it can cash flow and can’t. It doesn’t need to. I mean, it is no different than buying stocks. Buy low so high you’re not cash flowing in that time. But I think the nice thing and what attracts people to real estate is you can get into an asset that, you know, you’re renting out units and covering your monthly expenses in that interim.

 So it makes it kind of, in a way, like dividend stock, right? You’re in it for the long-term appreciation that you’re. Eventually, you’ll sell, but you’ll make some cash flow in the hold period. So that’s kind of the beauty of cash flow. But I’ve learned that very wealthy people don’t care about cash flow because they have a lot of money, right? They got cash flow coming from other investments. 

So it’s not what they’re looking for per se. And they’re looking more for long-term equity growth and net worth stabilization in the long term. So I think there’s a, ah, at least what I’ve learned the last few years is that there’s a little disconnect. You know, people, we all talk about the allure of passive cash flow, right? And that’s great. 

That’s what I initially focused on when I wanted to quit my day job and replace my W2 salary as an engineer. But you can get there in a couple of ways. You can get there with cash flow, or you can get there with pure appreciation. There are many investments that do a little bit of both. And you have to build your portfolio with dozens and dozens of different holdings out there.

Cosmos: 

No, I mean, you’re right about that. I want the audience to look at your books, like The Wealth Elevator and your other book about simple cash flow, to understand better how money works and how it can attain success.

Lane: 

Yeah, yeah. Check out my book, The Wealth Elevator, on Amazon. I’ve also got a podcast called The Wealth Elevator. But yeah, thanks for having me on Cosmos. It’s good to talk to you, Lane.

Cosmos: 

How would somebody connect with you and learn more about your work and everything else that you’re doing, including your part, including a podcast?

Lane: 

Podcast. You can go on iTunes or Google Play and type in the Wealth Elevator. And then, if you go on Amazon, you can type in the Wealth Elevator; it’ll be sure to come up.

Cosmos: 

Lane, I’m so grateful that you took the time to come on this podcast and share your wisdom. I appreciate it, and I definitely hope that you’ll come back to the show later.

Lane: 

Yeah, thanks for having me. Aloha, everybody.

Cosmos: 

Thank you, Lane.

There’s an extraordinary within every one of us.

And I want to conclude this episode by letting my fellow extraordinary Americans know that. Hey, look. There’s an extraordinary within every one of us. We must awaken it and unleash it. Until next time. Bye for now.