I sat down with Lane Kawaoka for a grounded, honest conversation about what actually changes as real estate investors scale. We talked about why deals that used to work no longer pencil, how cash flow expectations need to evolve, and the mindset shifts required when moving from single-family rentals into larger, more passive investments. This conversation is especially relevant if you already own properties but feel like scaling has become more complicated, riskier, or harder to manage than it should be. Lane shares real-world experience, not theory, and offers insight into how seasoned investors are adapting in today’s market.
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Hey everyone, I’m Adrienne Green, and today I’m here with Lane Kawaoka. We’re diving into insights to help you create more freedom with your investing.
Lane, can you walk us through your current investing focus today and how your portfolio evolved from single-family rentals to passive investments?
Today we focus on commercial real estate, primarily apartment buildings, mostly in the B-plus to A range. We avoid luxury builds and focus on workforce housing. The reason is simple: the wealth gap is widening, and the lower middle class continues to grow. That demographic creates consistent demand.
There’s a lot to unpack there. I’m excited for you to share more insights. You started with rentals and now focus on passive investments like apartment buildings. You’ve been very intentional about prioritizing cash flow over appreciation. What clicked for you, and how did that decision change how you built your business?
When I first started, I was buying turnkey rentals from 2012 to 2015. That’s where I learned the basics. It was exciting to create income that allowed me to buy more properties. Like many investors, I then moved into small Class C apartment buildings. Over time, I graduated away from those.
Older properties from the 1950s and 1960s come with deferred maintenance you can’t predict. After 2020, taxes and insurance increased significantly. To stay in the game, you need more than a buy-and-hope strategy. You have to create value through renovations and rent increases.
The reality today is that you can’t just buy a small rental and expect it to cash flow the way it used to.
That evolution is one of the things I love about real estate. Strategies change with the market. How do you evaluate whether an investment is a good fit for your buy box today?
This might sound boring, but we use a spreadsheet similar to what institutional buyers use. These models usually have 50 to 100 inputs. We enter the profit and loss statement, rent growth assumptions, exit cap rate, and annual escalators.
Rent increases don’t happen immediately. It takes time to ramp up. Once everything is modeled, we look at projected returns. If the deal doesn’t meet our threshold, we pass. We aim for a two-times equity multiple by the end of the deal.
We underwrite every deal using the same assumptions so we can compare opportunities consistently. Some people use unrealistic assumptions, like rents increasing five percent every month. That creates a hockey-stick graph that looks great but isn’t realistic.
In multifamily investing, there are only a handful of assumptions that truly drive returns. Investors need to understand those.
I’m a spreadsheet lover myself and a big fan of the Pareto principle. For people newer to apartment investing, what foundational assumptions matter most?
The biggest one operators manipulate is the exit cap rate. That’s essentially a guess about what the market will look like in the future. Nobody knows, so you need to be conservative.
You want to underwrite deals assuming a neutral or worse market at exit, not an improving one. A good rule of thumb is to use an exit cap rate that’s higher than the current market cap rate.
For example, in Phoenix during the peak in 2022 and 2023, Class B multifamily assets traded around a five percent cap. Today, those same assets are trading closer to six and a half percent or higher.
If you’re underwriting a deal today using an exit cap lower than that, you’re setting yourself up for problems. If assets are trading around six percent today, I wouldn’t underwrite anything below six and a half percent.
That’s a great concrete example. I like to balance mindset with practical takeaways, so let’s talk about mindset shifts. When investors move from owning single-family rentals into apartment syndications, what changes?
The biggest hurdle is experience. To qualify for larger loans through Fannie Mae or Freddie Mac, you need prior experience. It’s a chicken-and-egg problem. You need experience to get a deal, but you need a deal to get experience.
That means partnering with others and coming in as a junior partner. Even if you’ve owned hundreds of properties, lenders don’t care unless you’ve signed on these loans before.
Another mindset shift is understanding how brokers work. In commercial real estate, brokers control deal flow. Their priority is closing deals, so they prefer working with experienced operators. Building those relationships can take years.
I’ve seen the same thing on the residential side. Brokers want certainty. Now, delegation becomes critical as you scale. How do you decide what to delegate?
At the beginning, you do everything: raising capital, sourcing deals, working with brokers, managing transactions, and operating properties. Over time, you start identifying where your strengths are.
Some people are operators. Others are capital raisers. Once you’ve done several deals, you should know where you add the most value. Focusing on strengths is key, especially as time becomes more limited.
Many people struggle because they believe they can learn everything. While that’s technically true, it’s not efficient. Building a team with complementary skills is far more effective.
I’ve also seen people rush into partnerships before understanding their own strengths. When both partners bring the same skills, the partnership doesn’t work.
That’s such an important point. You’ve also focused heavily on workforce housing. How did that come about?
We started with Class C properties. One early deal was about 130 units, and it wasn’t in a great area. We had high physical occupancy but low economic occupancy because many tenants didn’t pay. We eventually sold it at a profit, but it wasn’t aligned with my personality.
On the other end, Class A properties are highly competitive. Institutional investors and family offices drive pricing up, which compresses margins and limits value-add opportunities.
We landed in the middle with Class B properties, where there’s still value-add potential and more stable tenants.
Even so, deals are harder to pencil today. After interest rates rose in mid-2022, we paused acquisitions for over a year. Many deals assume rent increases that simply aren’t realistic in today’s environment.
Markets like Phoenix are overbuilt, with heavy concessions and stagnant rents. Tertiary markets are performing better right now, but that could change.
From 2009 through 2022, we benefited from near-zero interest rates. That tailwind is gone. Underwriting has to reflect that reality.
As we head into 2026, where are you finding opportunities?
Phoenix no longer works for us the way it used to. Tertiary markets with limited new supply still make sense. But the days of six to eight percent quarterly cash flow are gone.
Insurance costs have come down slightly, which helps. We’ve also had to explore new business plans, like low-income housing conversions, where rent restrictions eventually expire and allow for value creation without heavy renovations.
This approach requires patience and careful underwriting, but it’s one way to adapt.
You’ve worked with many high-income professionals using real estate to build wealth. What do people underestimate?
Taxes. Many investors don’t realize they receive depreciation and operating losses through syndications. Cost segregation allows investors to accelerate depreciation and offset income.
Over time, these passive losses stack up and can significantly reduce tax liability. Some investors reduce their effective tax rate by ten percent or more.
Real estate isn’t about get-rich-quick returns. It’s about reducing friction, especially taxes, over time.
That’s such a powerful long-term perspective. Real estate rewards patience and strategy.
Exactly. What got you here won’t get you where you want to be. Real estate is still a strong asset class, but diversification matters. I was heavily concentrated in commercial real estate and felt the impact in 2023.
Going forward, I want broader exposure across asset classes while still maintaining conviction in workforce housing.
Lane, thank you for sharing so much wisdom. For anyone who wants to connect with you, what’s the best way?
They can check out my book, The Wealth Elevator, on Amazon. If they send their receipt to team@thewealthelevator.com, we’ll send them a free PDF and MP3.
Thank you so much for joining me and sharing your experience.