In this episode, Lane Kawaoka explains how important it is to take time for due diligence when looking for investment opportunities. Anyone looking to grow their wealth will benefit from this episode!
Based in Hawaii, Lane Kawaoka still works his day job as an engineer, but he is quickly growing passive income streams via multifamily investing. After graduating from college with a degree in engineering, he got a job in construction management that required a lot of travel. In 2009, Lane bought a primary residence in Seattle—but he was never there. He decided to rent out his A-class property, and the cashflow generated from that enterprise inspired him to purchase more. Lane journals his experiences in the Simple Passive Cashflow podcast.
Time Stamped Show Notes
[3:20] Lane has found that investors in Hawaii are more conservative and focus more on the relationships to start with and not in the numbers
[4:42] There are lots of foreign investors in Hawaii, where housing is very expensive. That has pushed to have multiple families living in one house.
[5:30] Everything is older. An A class house in Hawaii was built in the 1980’s, compared to an A class house in other states that has to be built around 2010 to be considered that.
[6:44] Lane had $45,000 saved in his Roth IRA and wanted to do something with it, having a couple of rentals in Seattle, he thought real estate was the way to go.
[8:45] After calling several self-directed IRA custodians, he went with a recommended deal of a note with 9% monthly and a 50/50 split at the end. Although the website looked terrible he went with it.
[10:00] Closed the deal and after a couple of months getting his 9% check, Lane asked around about the man he was dealing with to later hear that he was a scam artist. He could only hope that he wouldn’t be yet another victim.
[12:15] A friend of Lane had his portfolio in another market and the scam artists suddenly folded shielded by their LLC. It was now just a matter of time for Lane to experience that.
[13:20] Their way of milking money was by not paying taxes on the property.
[15:39] When Lane received a letter of debt his only viable option was to give the property back with the deed in lieu so he did just that.
[16:36] To his surprise, after receiving that letter, the once good tenants trashed the house. Lane had no money left in the IRA so he made the decision to walk away with $8,000 out of the $43,000 he had invested in the property.
[17:40] Looking on the bright side, that cleared the space for new deals and he learned the lesson to choosing the right people to work with.
[21:30] Failing Forward Segment
- Why did this failure experience happen to you? – “I invested with the wrong person. At the time I didn’t have have the rule of no like and trust. I didn’t really know him, never met the guy and certainly didn’t trust him. And the other rule of 1 degree of separation, I didn’t know anybody who I could contact and ask about their previous track record or their character and that’s something I put a lot of my due diligence on these days.”
- What is the single most important lesson you learned from this? – “Putting together a system of due diligence. I have systems cause there’s things I forget.”
- How do you protect yourself from failing in this way again? – “I don’t force too many things.”
- Who do you turn to when you need help? – “I have my close network of other investors and we all know who each other are and I don’t need to branch out to the 2nd degree of separation.”
- What advice would you give to someone in a similar position? – “When things like this happen is like a seminar. Bad things will happen and you just have to deal with it.”