Curious about real estate investing? Seasoned investor Lane Kawaoka of Simple Passive Cashflow gives his favorite tips on how to get started, from dabbling to full-blown investing!
Resources from this episode:
- SimplePassiveCashflow.com, home to Lane Kawaoka’s work as a real estate investor. You can also check out the Simple Passive Cashflow podcast on iTunes and Google Play or email Lane personally if you’re more of a credit investor and want to connect.
- Lane’s real estate investment analyzer spreadsheet, which you can download for free by subscribing to his newsletter.
- The Young Scrappy Money Academy Digital Subscription Service
- Young + Scrappy, home to Michelle’s work as a financial advisor and financial coach
- Jesse G, my editor. If you ever need audio/video editing work, give him all your love and money
INTRO: [00:00:00] Hello. And welcome to the Young Scrappy Money podcast. I’m your host, Michelle Waymire. And each week, I’ll be bringing you tips and tricks to help you take control of your finances as well as interviews with people who made big financial changes in their own lives. So join us. And we’ll help you get your financial s**t together.
MICHELLE: Hello, everybody. Welcome, welcome to another episode of the Young Scrappy Money podcast. For those of you who have been listening along, y’all know that I am admittedly balls deep in real estate business right now. Certainly not professional real estate business, but I’ve talked about this a couple times here and there, that we are actually in the process of buying our first home.
And I have super exciting news for y’all that we actually did find a place. If you’re familiar with Atlanta, we’ll be just outside of the Stone Mountain Park area, which is super exciting. Busy, stressful, a lot of paperwork involved, but suffice it to say that I have got real estate on the brain.
And I’m by no means a professional real estate investor. But now that I’ve purchased a property, I’m definitely finding myself a lot more curious about it. And I know I’ve heard from listeners that a lot of y’all have questions about this as well. And so I’m really grateful today. Um, I am joined by a real-life, bonafide real estate investor. With me is Lane Kawaoka.
Lane is a former civil engineer who invests passively in the real estate world from Honolulu, Hawaii. So he currently controls over 2,600 units in nine different states. He’s also the founder of Simple Passive Cashflow, which he started to teach others about real estate investing.
Welcome, Lane. So let’s— let’s dive into the world of real estate investing. And I want you to start by telling us a little bit more about your story. How did you get started in real estate investing?
LANE: Yeah. So none of my parents did real estate investing. They actually thought that they didn’t wanna rent out their house because the tenant would screw it up. But my path is very linear to a lot of high-paid professionals. I was told to go to school, study hard, go to college, get a good degree, and go to work for 40 years.
Um, I went to school to be an engineer. I graduated in 2007. And I went to work for a couple of years. And I ate ramen noodles a lot, lived that lifestyle of frugality and no Starbucks. And I saved enough money to buy a $350,000 home with a, you know, normal, conventional, 20% down financing Fannie Mae loan in Seattle, Washington.
And I— you know, when you’re a new worker in the work field, as engineers, you get stick— stuck out in the field. And I was never home. I was traveling all the time. So I just decided like, you know, this is dumb— like, you know, a young 20-or-something-year-old to have this big place all to myself. I was like, well, let me just try and rent it out. So I called my old landlord.
And I was— uh, got a tenant in there that paid 2,200 a month. My mortgage was 1,600 a month. And I thought— I was like, wow, that’s a lot of beer money. And, um, you know, like I said, I didn’t really enjoy my engineering job. And I realized that, you know, this whole real estate investing thing was my ticket out of the rat race.
Um, I didn’t— that Seattle property again was $350,000. It was in a really, really good area. It was an A class rental. And I didn’t know any— anything about rent to value ratios, how those good areas really aren’t the best places to invest for optimal cashflow. But I eventually devoured a bunch of podcasts and books in the next couple of years and then bought another property. And then I just started to educate myself and get a lot better at, you know, doing the whole investor thing.
MICHELLE: Yeah. So you don’t— I know you still have some, uh, spots out in Seattle. But you really branched out to other parts in the country after learning more about real estate investing. Is that correct?
LANE: Yeah. I mean, one of the first things I realized was, um, this thing called the rent to value ratio. It’s a quick-and-dirty way of valuing a rental property based on, you know, the numbers. Right? So you don’t buy a property without looking the numbers first. So how you do this is you take the monthly rent, and you divide it by the purchase price.
So what you’re trying to look for is a ratio that is higher than 1%. So for example, uh, you know, a $1,000 monthly rent divided by a $100,000 house, that’s 1%. And anything higher than 1% will typically, you know, be able to cashflow, where the rents will pay for the expenses, which include a professional property manager so you don’t have to be a landlord, you know, the good, old-fashioned unclogging your own toilets.
[00:04:57] And, um, it can pay for repairs. And, you know, you’ve got to replace the roof and big components from time to time. So it— you know, those are— those are really what pays that kind of stuff.
So I— you know, that Seattle rental that I first bought was 2,200 a month. And the purchase price was 350,000. That was well below the 1% rent to value ratio that I was now looking for. And when I was starting off, I didn’t know I needed this. And, um, but quickly I did. So I was kind of consciously looking for more properties that would cashflow.
MICHELLE: So what parts of the country did you find that you thought had particularly good rent to value ratios?
LANE: Yeah. So after I bought the second property in Seattle, that was a quarter of a million dollars. And it rents for 2,000. Again, that’s, um, you know, still under—
MICHELLE: So getting closer to the 1%.
LANE: Yeah, getting closer, right. Um, I bought it in not a— not as great area. It was— it’s sort of A class area with more of like an A-minus class area. So I’m getting a little closer. But still, you know, no bueno, right?
And at that point— that was 2012— the prices were going up and up and up. And I was just kind of getting priced out of— you know, there was no cashflow. And I was like, what the heck? Right?
And then I realized sophisticated investors don’t really invest, um, in primary markets. Primary markets are anywhere in California, frankly, and Seattle, Boston, New York— you know, all those really cool places you actually wanna live. Um, like Honolulu, Hawaii is another example.
Sophisticated investors invest for cashflow where the income minus expenses produces a pretty nice profit. And that’s— that allows you to outlast a market correction or a recession. Because that’s how people got killed. They were just investing for appreciation in 2008.
So I started to look for secondary markets like Birmingham, Atlanta, Indianapolis, Kansas City, Memphis, Little Rock. Um, you’ll hear about it. Like once you start to get plugged into, you know, investor groups who are kind of doing it, the same markets kind of come up in discussion. And I think that’s kind of a big step is getting plugged into sophisticated cashflow investor groups.
MICHELLE: Yeah. So one other thing that I wanna flag just to maybe take a step back and get a definition for for folks, myself included, who are not familiar with these words. So you mentioned something about like, your first property was in an A class area. And the second one was like an A-minus. So what are the— what are the rankings you’re referring to? And kind of what do those measure?
LANE: Yeah. So there’s like A class, B class, C class, D class rankings to describe the property type and then the area. So most times, you know, we’ll talk in generalities. We’ll talk about, you know, A class area, A class building. An A class building would be your luxury new builds, anything built 2005 or later.
Um, this is the cool stuff. This is where, you know, folks who are— have nice salaries want to live, um, if you will, white-collar workers. Right? Professionals. These are not the places where you’re going to find the rent to value ratios needed to cashflow. Because there’s just so many people, um, emotional buyers looking to buy their first house or, you know, want to move in a family, that they’re willing to overpay.
What you’re looking to do is find more of a B class, more C class location and property that is typically a little older, you know, maybe anywhere from the 1960s to 1990s build. Um, and these aren’t gonna be in the best areas, quite frankly. If you’re looking for the best school districts, those are gonna be in the A class neighborhoods.
But in a lot of these B class areas, it’s a good mix of— you know, B class might have a little mix of white-collar and blue-collar folks. And, uh, class C will be predominately blue-collar workers, you know, a lot of people living just around the median household income or less. Most people wouldn’t hang out in these places at night.
And, um, you know, even— although, you know, there’s a sweet spot in there. You wanna stay above like a war zone area where, you know, if you were the landlord, you needed a gun to go collect your rent check, and, um, you know, you gotta watch your car because it’ll be on cinder blocks. And you’ve gotta stay below the A class luxury apartment area or luxury houses area. Um, so there’s a sweet spot between the B and the C class markets. Ideally, you wanna find a C class, B class property in a B or A area, you know, because you can improve a property but not necessarily improve an area.
[00:09:51] MICHELLE: So when you— when you talk about these classifications, so to speak, I mean, this sounds informal. I assume this is not like a formal rating system but more like a vernacular that you use to describe the houses and locations.
LANE: Right, right. And, you know, one rule of thumb that I would say, like, you know, a broker will always tell you it’s a class B when really it’s a class C. You know, you don’t talk to— don’t trust brokers. Right? They’re just trying to sell you on the deal.
MICHELLE: Yeah, totally.
LANE: It really is just— you know, that’s why I’m taking folks out to, uh, your hometown Atlanta. It’s because I wanna show people, hey, this is what a C class location is. And here’s what a B class building is. Right? So people are like, oh, I get it. You know? Like, I see it. And I probably wouldn’t want my daughter walking around at nighttime out here. But, you know, I would be totally cool walking out here for five minutes out to my car and getting in my car. Nothing is written. But it is simple. Real estate is pretty simple at the end of the day to designate these grades.
MICHELLE: OK. Cool. Um, so that’s— that’s useful context. One other thing that I have a follow-up question on, I know you mentioned that you kind of made this big decision to move out of Seattle into other parts of the country. I also have the understanding that you made the decision to move towards units rather than single-family homes, so apartments and all of that good stuff. Um, what drove that particular decision?
LANE: Yeah. So when I started investing, you know, I was broke. Right? Like I had a pretty good salary as an engineer. But I wasn’t— I had to start from sort of zero net worth. Um, as I started to acquire more and more single-family homes, I got up to 11 properties in Birmingham, Atlanta, and Indianapolis. And it was great cashflow for sure.
But it wasn’t enough to quit my day job. You know, for me to do that, I needed like $5,000 to $10,000 of passive cashflow coming in every month. And normally, each of these homes would give you about $200 to $300 per month. So you’re gonna need a lot of these.
With 10, 11 properties— and that’s a pretty good sample size— I figure I had about probably one or two evictions a year and probably like three or four issues that came up, like an HVAC broke or a plumbing leak. Or, you know, there’d be some kind of big rainstorm come in, damage something. Granted, I have professional property management taking care of the day to day.
So all this comes to me in a phone call or email, and I just kind of order them and say, yeah, yeah, go fix that. So it is passive, to some extent. But, you know, you can imagine for me to quit my job, I need like 30 or 40 of these houses. And you can just do the math and multiply that yourself.
So I realized I needed to get scalability. And I found that with investing in private placements in some locations and multifamily apartments, which are a lot bigger, where I can come in as a limited partner and come in— or somebody else operates the deal and kind of commands what the property management does day to day. And then I’m passive. You know, that was the reason why I did this in the first place so I don’t have to create myself another job.
MICHELLE: Yeah. So when you were talking about the single-family homes— because I feel like whenever I talk to folks about real estate investment, single-family homes are what people naturally think of first. And I think it’s just because, you know, we as people, that’s where we tend to live. I think the idea of being a partial owner or landlord or whatever of an apartment complex sounds difficult and out of reach.
So we think, well, maybe we can invest in, you know, one or two small properties instead. But I totally see what you’re saying about the scalability. I mean, if you were managing even passively 30 or 40 of those properties, you know, you’re not really making a ton of money in the day to day besides, you know, building equity for the long term, which is great and all. But from a “quit your job, live your dream” standpoint, it’s not— it’s certainly not the cashflow that you’re looking for.
LANE: Right, right. I think— I think you hit it straight there. I mean, another reason that you go to the bigger stuff is that scalability. And you just can’t get that with the single-family homes. But, you know, people hear, oh, hey, I wanna be a passive investor in all these deals and diversify my money into dozens and dozens of apartments, maybe even different asset classes, like mobile home parks, assisted living, or self-storage facilities.
Um, passive investing’s awesome, but you need money to do that. And unless you have a net worth of a quarter million dollars to a million dollars at least, you know, you’ve gotta start with the single-family homes just like how I did. So it is a progression to get there.
MICHELLE: Yeah. OK. That’s a great point. Um, so you mentioned a few things when you were talking about types of multifamily properties. So I think you mentioned syndications and apartment complexes. Um, talk to me about some of the ways that people get involved in investing in those types of things, so like not single-family homes.
[00:15:07] LANE: Yeah. So if your net worth is probably a half a million dollars or more, or you’re an accredited investor, now you have sort of access to a lot of deals. I mean, a lot of people will go to crowdfunding websites. But I personally feel like the people on those websites, the operators, they’re kind of desperate to find money. Um, and they’re not the best deals out there.
Most deals are done through a private network. So as an investor, you need to get into these deals and find these people. Essentially, though, they’re country club deals. You know, nobody really plays golf these days. I think millennials don’t have the time for that.
But, um, you know, where do you go? I mean, you might have somebody in your network to— who does these deals. And that’s who you cling on. That’s who you kind of follow the thread to find more and more of these operators and people doing these types of deals.
Um, in the beginning when you’re investing, you know, you have to do your single-family homes yourself. And you’re kind of operating in a bubble. And, yeah, you need property managers. You need brokers. But when you start to become more of an accredited investor, a more sophisticated investor, that theme comes into play more and more, unfortunately, which is, your network is your net worth.
Unless you know guys who are doing it, you’re not gonna get access to these, in my opinion, better risk-adjusted returns. If you just wanna stay on your computer all day and not get out of the house, that’s— you’re not gonna get access. Because a lot of this is done face to face, in person.
MICHELLE: Yeah. So I mean, it’s— in the long run, it’s passive cashflow. But the type of work and the type of facetime you need is anything but passive.
LANE: Right, right. Because you have to look at it this way. I mean, a lot of these deals are pretty awesome— um, great risk-adjusted returns. You’re getting cashflow. And it is a very limited supply. And the operators, they don’t wanna work with jerks. So they’re vetting their investors just as much as the investors are vetting the deal and the deal’s sponsor.
MICHELLE: Yeah, totally. I can see that, you know, if you have that kind of sweet offer for people and those great returns, you know, you don’t have to work with assholes.
LANE: Right, right.
MICHELLE: You can hire people you actually like working with.
LANE: If not, you put it on an website where it just gets whitelisted. And but you gotta pay for that. And those costs get passed on to the consumer in lower, lower returns.
MICHELLE: Yeah, for sure.
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MICHELLE: So I’m wondering if I can pick your brain a little bit more about investing in single-family properties just because I feel like a lot of listeners on this podcast, that might be a little bit more relevant to them. But then I also wanna talk about just in general some more passive investing tips for working professionals and kind of how that stuff goes down.
LANE: Sure, sure.
MICHELLE: Um, so I know that, you know, single-family homes is definitely not your cup of tea. But since you started there, I’m wondering how you started to— how you started to get into other markets. I mean, I know you mentioned like people in online communities are kind of talking about the same types of markets. So how did you get plugged into those types of communities and like maybe the deals that don’t involve a country club?
LANE: Yeah. So the— for a passive investor, your biggest thing that you can spend your time on is building a real relationship with actual real investors. Because most investors are pretty abundance mindset. They have no problem helping— helping people out, uh, with a referral to who they use or a property manager that has done good work for them.
You know, real estate’s a referral game. If, um, you know, someone’s doing good work, then I would use them. But if not, I wouldn’t even touch them. You know, so the name of the game is connecting with live investors, adding value to them.
Don’t just be a, like how I call them— an askhole and take, take, take information. I mean, buy people lunch. I mean, that’s the least you can do. You know, don’t just hit up people. Who are you using? What place are you investing in? You know?
That’s just not— maybe that’s just networking 101. But, you know, those are some of the soft skills required to be an investor, unless you wanna just pay— pay outrageous prices that some of these more heavy-marketed companies will have you pay.
[00:19:58] MICHELLE: Yeah. So what I’m hearing is kind of maybe use the internet to like narrow down what types of target markets you’re looking for, but then try and connect with actual investors who are already doing work in those areas to kind of get in on what— you know, what types of lenders they’re using, what types of property management companies they prefer. So that way, you kind of have the connection to the people who are doing the boots on the ground type of work that you as the passive investor would not be handling. Is that correct?
LANE: Right. I mean, I pretty much know of the smart, sophisticated cashflow investors, you know, everybody goes through the same three lenders, national lenders. Um, so that checks the box there. And everybody uses the same dozen operators in various markets. It’s a very, very small world.
And, you know, that’s— one way I started was, you know, there’s things called these turnkey rentals, where these flippers will pick up a property for maybe about 30, 40 grand that’s distressed. And they’ll put maybe 20, 30 grand of rehab into it. And they may or may not even put a tenant in there.
But you can— as an investor, you can buy it straight from them. And as the title is— implies, it’s turnkey. All the major components are ready to go. And you got that tenant in there, or you can put your own tenant in there. And it’s, you know, turnkey ready to go. And now you’re cashflowing.
And it’s a good way to get started and actually kind of learn and just step right into it as sort of the investment is in kind of full swing. And then you can kind of branch out. And, um, you know, maybe you wanna find more distressed properties or find your own broker and do it that way.
MICHELLE: OK. Um, so I wanna— I wanna talk about some of your favorite tips again for passive investing for working professionals. Because this is, you know, how you got started. And so I’m thinking, of course, of like the type of person who has a full-time job, who makes good money but isn’t necessarily Scrooge McDucking it just yet, and somebody, because they work a full-time job, this really is more of a side hustle to start. So how do you start building this portfolio if you are on a bit of a time crunch?
LANE: Yeah. I mean, to be an effective passive investor, you really don’t need to spend more than like a few hours a week, if you’re doing it the right way. And that’s the big key. You gotta do it the right way.
And part of that is having the right network or even having a mentor, right? Sometimes it’s just better to pay to play. And, you know, you’re gonna make mistakes. I’d rather just make mist— or just pay for the education is how I kind of did it initially.
So, you know, like three hours a week? Yeah, you can do it. If you’re thinking you can’t have that time, well, maybe you need to adjust your priorities or watch a little less Netflix.
LANE: Um, so that’s— that’s kind of just the standpoint from the time perspective. But a lot of this is no different than a lot of us working professionals. We have remote, you know, bosses or remote locations. You know, a lot of it is— we live in the digital age. And a lot of this stuff is second nature to us— keeping people accountable with emails, phone calls.
You know, one thing I always did as a project manager as an engineer is you always ask like, hey, what are you going to do? When are you going to do it by? And let me put it in my— you know, let me notate it here. Or, let me use like a program like followupthen.com and write myself in the future to follow up that it got done.
Now, if my property manager didn’t do that, then I fire them— simple as that. I go back into my network of my database, all my buddies who are also investors, and say, hey, this guy wasn’t working. Who else do you have? You know?
MICHELLE: Yeah. So if you think about the breakdown of like, you know, a handful of hours per week, that definitely sounds attainable. What types of tasks can you expect on an ongoing basis as part of this work?
LANE: I mean, a lot of the work is in the acquisition, um, getting a lot of documents to your lender throughout the closing process, but no different than buying your own primary residence. Um, but once the property is, you know, under yours, and the property manager has kind of taken control of the day to day, I mean, it can be pretty smooth sailing. I mean, with— like I said, with 10 properties, I maybe got an email maybe every couple weeks or every month on something that I needed to approve, like, hey, Lane, this— the tenant’s garbage disposal stopped working. Should we fix it?
A lot of times, the property managers don’t wanna email you. There’ll be some kind of contract provision where anything less than $200, they just go ahead and fix it. And they never have to bother you and, you know, take the extra time. But, um, it’s pretty— I mean, that’s what the property managers are there for. And that’s why you pay them like 10% of the income.
[00:25:00] MICHELLE: Yeah.
LANE: And that’s why you have enough cashflow in the property to pay these people to do it. Because I’m a big advocate for being an investor, not a landlord.
MICHELLE: Mmm. Yeah. I think that’s such an important distinction.
LANE: Right, right. I mean, I think too often, you know, you’ll hear about people owning a couple properties. And they’re not effectively leveraging their money. And they’re burnt out because they’re doing all the management.
They’re going there and unclogging the toilets. They’re, uh, working with the termites and all this other s**t. They’re kind of actually physically getting checks, you know. I mean, we’re in the digital age. Just use ACH at this point.
MICHELLE: Yeah. Yeah, totally. So given sort of the, um, constraints of, you know, maybe having to start with single-family houses, how do you recommend people best use their money to start investing?
LANE: Yeah. So a lot of the properties that I’ve bought I try and target homes that are about 80% of the median house. They usually allow the secondary markets— well, take Atlanta, for example, since you live there. I’ll usually target a house anywhere from $80,000 to $100,000 because what I’m really targeting is that renter who’s gonna pay $900 to $1,100 per month.
I don’t wanna go any less than 800, 850 because the classic tenant just gets a little bit hairy at that point, even though my returns might be better. Again, I’m trying to build a more sustainable portfolio. So I’m willing to take a little less returns. But I still want my rent to value ratios to be 1% or higher. There’s not a black and white here. It’s sort of a sliding scale.
But, you know, to pick up a property that’s $100,000, you need a 20% down payment and a few grand for closing costs. So we’re talking about needing anywhere from, you know, $20,000, $25,000, maybe an extra five grand in cash reserves in case something, an issue, happens. So, you know, it’s really not that much money. Right? For a lot of us who are responsible with our cash.
MICHELLE: Yeah. That’s a great point. Because I feel like real estate investing has this reputation of only being for people with extremely high net worth. But it— it has gotten so much more accessible, or it’s more accessible than people think.
LANE: Right, right. I mean, I think most investors are unsophisticated and invest for appreciation in primary markets. Therefore, the buy-in to those places are a lot, lot higher. So people never really get in the game. Again, you don’t wanna buy those types of properties because they don’t cashflow. I think they’re more of a riskier play.
LANE: But for a cashflow investor buying these, you know, class B and C houses, then it’s pretty easy to buy one. And then you— maybe you can save 10 grand, 20 grand a year, and you can buy one every other year. And you can see how this can quickly compound. And then maybe in three or four years, you start to use the money out of your 401(k) because you realize with these rental properties you’re making 20% to 30% on your money, where your paper assets are just making 8% to 10%.
MICHELLE: Yeah. That’s a neat concept. I like that. Because coming from the investment world, I’m definitely more familiar with traditional market returns and investment portfolios. Like the whole 401(k) world is kind of where I come from.
And so real estate investing is always one of those things that’s been a little bit, um— like I just don’t understand it particularly well. And so I think we tend to fear what we don’t understand. But I think you’re definitely laying out a vision that’s a lot more, um, strategic and a lot less speculative than what I normally associate with real estate investing. So that’s super cool.
LANE: Right. And that’s the unfortunate thing. Most people associate real estate investing as the HGTV, let’s just buy this house, and let’s hope it sells for X after we put in 50 grand or 100 grand. That’s like the complete opposite of what I’m trying to do here as a cashflow investor.
Um, and me personally, I mean, I don’t have any paper assets. I cashed out my 401(k) years ago. And but— you know, I mean, real estate’s a good way— you know, you pick your own— this is a cafeteria. You can pick how you want your portfolio.
And the nice thing about real estate is it’s stable cashflow. It’s leverage with Fannie Mae government-subsidized loans. And it’s a hard asset at the end of the day.
MICHELLE: Yeah. Yeah. That’s super neat. Um, so you— you also mentioned— like we talked about the rent to value ratio. And we talked about the benchmark of 80% housing price relative to the median housing price in the area. Are there any other neat like quantitative rules of thumb that you think about when making these purchases?
[00:30:00] LANE: Yeah. I mean, another good rule of thumb that we like to use is the 50% rule on expenses. So when you’re looking at a property that, say, rents for $1,000 a month, I wanna be conservative. And I want to assume that 50% of that, or $500, will go to expenses. And expenses are repairs, paying that property manager, putting money aside for big capex issues that happen, anything other— you know, other expenses that could pop up, you know, LLC fees, etc.
So and then you have to pay your PITI, your mortgage. And that is how you come up with your real cashflow number. You know, I think a lot— the mistake is, you know, people will say, well, my rent’s $1,000. And my mortgage is 500. I’m cashflowing 500. Right?
And they don’t account for any of these expenses that are very, um— they’re not fixed. They’re not every month. Um, that’s really how you underwrite a property. I mean, if people wanna get a hold of my free analyzer on my website, it’s simplepassivecashflow.com/analyser.
You can download that, and it has— it just shows it out in each row how much are each expense. And you can kind of drill down into really understanding how, you know, you might make $1,000, but you’re not gonna get it all. This is sort of a business. But it is a passive business.
MICHELLE: Yeah. OK. That’s great. And if you are checking out the show notes on youngandscrappy.com, on my website, I’ll definitely make sure to put that analyzer in there. All of the resources that we’ve kind of talked about, those’ll— those will definitely make it in there. So be on the lookout for those links.
Um, you mentioned too that you have property managers wherever you have properties, which I think is, like you said, a great way to make sure that you’re actually an investor and not a manager yourself. What are some other best practices you wanna share for managing properties remotely?
LANE: Yeah. I mean, one thing is just stemming from— you know, you’re the boss. Unfortunately, property managers, their compensation scheme is not really in parallel to what you want as an owner. They get paid a fixed cost, usually about 8% to 10% of the monthly rents. And when the property goes vacant, and they put a new tenant in there, they will usually get compensated a full month’s rent or half a month’s rent.
Um, so you can see it sort of— it sort of behooves them to kind of keep your home a revolving door so they can get paid that nice little lease up fee. And also, when there’s repairs, they are really not inclined to get you the best price. You know, they’re more, hey, this is somebody else’s money— “Let’s just get it done, get it out of my inbox” attitude.
So as a passive investor, from the owner’s perspective, you need to sort of keep them accountable and keep them honest. So with the— with the repairs, you know, if you get like a big plumbing bill, maybe you might wanna run and make sure that, hey, did you get more bids? Or maybe you might wanna go get some bids on your own and kind of take up that role, depending if it’s, you know, a large enough purchase. You know, like if they go get another washer-dryer, maybe fact-check them, right?
Um, of course, you know, you always gotta be careful that, you know, the people you’re working with are reputable, and they’re not embezzling your money. You know, that’s a very small chance of happening, but it’s something to be aware of and just kind of being aware of that and kind of looking out for that.
MICHELLE: Yeah. That’s a great point. I didn’t even think about the fact that there would be sort of a misalignment of incentives. Your incentive, as the investor, is to get cashflow. But their incentive, as the property manager, is also to get cashflow. So from that standpoint, you know, purchases that have to be made that kind of have to come out of somebody’s pocket, I think it’s a great point that, you know, you’re not always necessarily sitting on the same side of the table as your property managers, even if technically you’re supposed to be on the same team.
LANE: Right, right. But you have to have the big picture. I mean, you overpay 50 bucks for a washer-dryer. I mean, you know, it’s no big deal. Right? Sometimes it’s the relationship with that property manager so when there’s a big issue, they really come and help you out and, you know, do you right.
LANE: And it’s a business, you know? You’re gonna, you know, lose some— you’re gonna have some inefficiencies here or there. But at the end of the day, I mean, you should be able to make a pretty nice return.
MICHELLE: Yeah. So I want you to tell us a little bit more about your work at Simple Passive Cashflow. Because, you know, we’re very grateful to have you sort of opening up your brain and showing us all of your real estate knowledge. But talk to us about what you do as part of your blog website. And talk to us about your mastermind group.
[00:35:08] LANE: Yeah. So I started my podcast in 2016 because a lot of my buddies were asking me like, hey, how are you buying these like turnkey rentals or properties out of state, and like you don’t even visit them? People thought I was crazy. So I would kind of explain to them like kind of what we went over the last 30 minutes.
And inevitably, people would never do anything. So I thought I was kind of talking to a wall. So what does any other millennial do but make a blog or podcast? So—
MICHELLE: Yep, I feel that.
LANE: Yeah. And I’m sure you know this. A lot of this stuff you talk about, I’d forgotten. Um, like my first 20 podcasts are all about buying a turnkey rental out of state in a cashflow market.
Sometimes I’ll listen to them, and I’ll be like, wow, that was some— I’d totally forgot about that. But, you know, it’s there. Um, my podcast is more kind of a follow my journey. I’m thinking about the episode, like 150 or 160.
The tune of advice has kind of changed over time. But it’s kind of interesting. I mean, it’s— you just kind of follow— gotta follow the progression. As your net worth increases, the strategies change.
Um, so that’s what I do. And you can find it on iTunes and Google Play. Simple Passive Cashflow’s what it’s called. And then I also write a lot of stuff. I’m just kind of all over the place these days.
I mean, I quit my job four months ago. And I just enjoy sort of like spreading the good word and real financial advice. Because, you know, nobody ever taught us this stuff. And there’s a lot of mis— misnomers and bad advice out there.
MICHELLE: Yeah, totally. I do have a— a question. So normally, I think when somebody quits their job, they go someplace cool to celebrate. What do you do if you already live in Hawaii when you quit your job? Like is there any place cooler for you to go left out there?
LANE: Um, I’m not gonna lie. It’s a great place to live. I mean, but I just came back from like three weeks of— two weeks, I was checking out deals to invest in. And the last week I was, you know, doing a little vacation in Seattle to get out of the heat here.
But that’s something that’s really changed in my life. I mean, not— now I don’t have to burn up vacation, very limited vacation, to go check out deals or actually take a break from work. You know? Um, I think it’s all part of that how you design your lifestyle. And so to answer your question, I take vacations away from here and go to cool places.
MICHELLE: Yeah. That’s awesome. I say that with only the slightest bit of jealousy in my voice. Having never been to Hawaii, it’s definitely on my list.
LANE: Yeah. It’s a great place to live for sure. I mean, people are very frugal out here. The cost of living is very high. So it’s, uh— it’s a great place to— you know, if you’re kind of into that lifestyle. But if you wanna drive around in your Corvettes and your— talk about your Tesla, um, then it’s probably not the best place to live.
MICHELLE: Yeah. So you talked about your podcast. How else can people get in touch with you if they wanna learn more about your work?
LANE: Yeah. I would say if you’re interested in, you know, picking up your first few properties, I would say listen to the first 20 podcasts. Check out my website, simplepassivecashflow.com. If you’re more of a credit investor, let’s talk. Um, my email is firstname.lastname@example.org.
And I’ve got a mastermind with— it’s more of an incubator of passive investors. So like I said, the biggest way to growing your network is to get around people who are like-minded. And there’s no other better place than this group that I’ve created.
MICHELLE: Rad. Well, I’ll definitely keep spreading the word about your work. This was super awesome. I appreciate you definitely demystifying this world for me personally and, uh, debunking a lot of the myths as— you know, I as a traditional financial advisor have about real estate. So that was awesome.
LANE: Yeah. Thanks for having me, Michelle.
MICHELLE: Thank you.
END CREDITS: I hope you enjoyed this episode of the Young Scrappy Money podcast. If you want to read about my work as a financial advisor and financial coach, you can do so at www.youngandscrappy.com. That’s www.youngandscrappy.com. Thanks again for listening.
Made with love by Jesse in Atlanta. [SMOOCHING SOUND]