From Optometrist to 1,000 Doors: Zach Lemaster's Real Estate Journey

In this episode, we dive deep into the world of turnkey real estate investing with Zach Lemaster, founder of Rent2Retirement, who shares how he transitioned from optometry to owning over 1,000 doors and building a nationwide real estate empire.

All right, guys, welcome back to another episode of how to invest in commercial real estate and a couple of house cleaning items today. As you guys know, we've been pitching the Henderson portfolio of gas stations that is completely fully subscribed and we should be closing on that in the next week or so. Yeah.

Not a week. You know, last week, Brian and I went out to Chicago looking at another retail shopping center in central Chicago. And so that may be a deal we pitch by the end of the year.

If you're an active investor, then you just got all of your third quarter distribution checks, which is our favorite time of the year where we get to say thank you to our investors by returning them money into their pocket. But the exciting thing we have today is we've got a guest, Lane Kalaoka, and he is the author of the book, The Wealth Elevator. And welcome, Lane, to the show.

We'd love to have you tell our listeners a little bit about yourself and how you got into real estate. Yeah. Today, we buy and operate multifamily apartments and developments and getting into branching out into private equity, two billion dollars plus of assets owned over 10,000 units.

But I didn't always start off with that. Back in 2009, I graduated or I bought a first place to live it. And up until this point was just an engineer working my day job.

And that was kind of my first foray into just residential real estate, you know, by hope and pray strategy. Yeah. And stuck a tenant in there and I was like, whoa, this is pretty cool.

This is like in my early 20s. And that was kind of the start of this getting off the traditional investment path. Well, you're talking to a couple of engineers here, so we know why you'd want to maybe get into something a little different.

Yeah. We don't get paid very much, right? Like we're probably the smartest guys to get paid the least, I think, if there's a ratio for that. Also, real estate's a lot easier than engineering.

So no question. What were we thinking? So you bought your first house, but what was the trigger for you that said, hey, I'm going to ramp this up, I'm going to acquire more properties, I'm going to someday replace my day job? Yeah. I mean, for the first few months, it was just like, oh, this is kind of cool, right? Like I'm getting some beer money here.

The rents were, you know, $2,200 and the mortgage was $1,500. And I didn't know anything about like rent-to-value ratios or like how much money I should hold back for CapEx or reserves or anything like that. It was just, you know, pretty fun like month to month.

And I think that's, you know, whether you go to Vegas and you get some early success or you know, like real estate for me, I got kind of addicted to this thing initially, got some good success. And I was like, it took me a couple of months to realize like, wait a minute, if I just kept doing this a handful of more times, I'll be able to, you know, get out of this rat race maybe within the next decade. And so that was kind of where, you know, bought another duplex in Seattle.

And then I started to learn about, you know, buying properties and less primary markets like Seattle, Washington, you know, California, you know, places like that. You just don't cash flow and it's just too expensive. So in 2015, I had a portfolio of 11 of these little single family homes in Birmingham, Atlanta, Indianapolis, and that, you know, things were good.

I was cash flowing maybe a few thousand dollars per month. But, you know, I had professional property management in each of my markets, but it's just not scalable, right? Because I had, you know, if you do the math at home, that was only like a few thousand dollars of passive cash flow after expenses every month. You know, great.

I'm not complaining, but that was, you know, definitely not scalable and it got to be a little bit of a headache at that point. And, you know, as I write in my new book, The Wealth Elevator, there are different levels to this wealth building journey. And I didn't know any better, but I had kind of just gone from the first floor to the second floor at that point.

So I'm super interested. I started out with single family homes as well. And I thought the same thing you did is I was making a few hundred dollars a month on that first single family rental.

And then I got another one. And then I got another one. I'm like, okay, there's only, you know, I only need 15 of these things to replace my day job income.

But then as you scale single family homes, it kind of builds, you know, some tediousness in your management. And so I started to try to get into multi-family. What was that transition like for you? Because now you're over 10,000 units and this is in just the last nine years.

So what was the transition from those single family homes to scaling it into a multi-family? Yeah, I mean, it's like, you know, you guys, like we all use common sense, right? And we're like, well, this has been working, I have almost a dozen units. What does a smart lad do but go buy multi-family, which is just more, right? And then you obviously hear about the benefits of multiple properties, diversification of income, you know, if you have one tenant out, blah, blah, blah, blah, blah, right? So that's what I kind of blindly went and I kind of just started to, you know, I paid to play. I joined a lot of these kind of education groups out there and, you know, a lot of these things cost like 40, 50 grand to join.

And I, you know, luckily I wasn't married at the time too, right, and I had some cash to spare to these things. But I wouldn't say that it was incredibly valuable or worth it, but it did get me in the room with other people also making that run up. And this is, I think, 2015 and 16 when I started to make the transition.

I met a lot of new operators and sponsors and, you know, you learn by doing, right? But as I've always done it, you know, I do a test run and then see how it goes and then I move in more confidently. So I didn't sell off all my single family homes quite yet. I had enough cash to invest passively a little bit, but, you know, there were early issues like a lot of the operators that I interacted with were just new people getting started, which is why, you know, working with, you know, unproven operators and sponsors, it's really hard to tell, right? It's hard to tell by the look, unless you have a group of ecosystem, a purely passive accredited investors around you to determine who's legit.

I mean, it's extremely hard. There's like these Internet forums out there that are just, you know, you just pay to play as sponsors on there and you just, you know, it's all a little bit biased on those things. And so I was trying to get to know sponsors, get to know investors, but still jumped on some landmines there.

And I think that was kind of where this I knew that the process moving forward was to get rid of the single family homes. I knew that for a fact because I had seen other people of my pedigree, you know, other doctors, lawyers, engineers that were in their 50s and 60s do the same thing. But I just didn't know who to go through, and that was kind of where just I was like, well, damn it, I'm just going to do this myself, right? Because if I don't trust these guys, I'm just going to do this myself and be a part of the general partnership, right? Get on the other side of that, if you think of it like an airplane, you know, you've got that air wall in there, you know, get in the pilot's cockpit in a way and see what's happening on the other side.

And that was kind of my transition into the world. Yeah, there's nothing like actually pulling the trigger and actually doing it yourself. So at what point did you quit your job as an engineer? Were you able to do that? I assume you were doing this all on the side or up to a certain point.

We're doing it on the side. Yeah, yeah. There were a few years of overlap there.

I think it wasn't until maybe the third or fifth project we did until, you know, 2018 was, I think, when I finally quit my day job. But, you know, leading up to that, that time, you know, from my start of my career in 2007 when I graduated college, like my my job roles decreased in in value, not value, but like. You know, effort on my side, right, like I started in private company, you know, you learn a lot, it's low quality of life, it's high stress, but then I eventually moved to more government jobs where I could, you know, spend more time on the side gig.

And obviously the side gig became much more of a bigger thing, you know. But that was I mean, that was kind of my story and for people out there kind of doing their own thing, I mean, I I think it's smart to hold on to that day job as long as possible, especially if you're working professional, making more than one hundred thousand dollars a year. Like the real estate is a capital intensive business, especially as a passive investor.

Right. I mean, how else are you going to get money to invest? But even as a general partner, you know, you got to be putting money in as earnest money. You've got so much costs and things you have to pay for that you really need that, you know, that money.

Right. I mean, this is why wealthy people who've made it big in different businesses, you know, manufacturing or all kinds of businesses, they'll come into multifamily real estate after the fact because it will capitalize. And it quite honestly, real estate isn't the hardest operational business out there.

And it kind of runs itself. You pick the right asset. Now, that's so good.

I definitely agree with that. Listeners should should try to keep their day job as long as possible because, you know, most of us are getting into real estate without a mentor and without experience. And, you know, failure is very much a part of success in real estate.

But you need you need a little bit of capital for the mistakes. And, you know, having a day job where you're making income can keep you afloat during that early stage of learning the ups and downs of real estate. Another thing I wanted to cover, which I think is so important, is you talk about pay to play.

And, you know, some joining some of these groups were tens of thousands of dollars. People don't appreciate when they look at Lane's success on the back end, they're like, oh, yeah, sure, I would have I would have joined that group and I would have paid, you know, thirty thousand dollars to join that group. No, you wouldn't have.

No, you wouldn't have. Right. It takes an immense amount of courage early on to both work for free, spending time, learning a new business, but also putting your money down with zero guarantee of success.

And I think that's what separates Lane, your success and some of ours and other people is that they're not as sure of the outcome or they're not as committed to the dream of being a real estate investor. And so they don't take some of those monumental steps because there is no guarantee backing them up. Yeah, it's a tough step to take sometimes.

Well, we got some specific. Go ahead. Sorry.

Yeah, go ahead. Oh, yeah. I mean, I was actually it's like kind of doing like a mini free coaching for like an investor who was kind of one, he's a younger dude and he's kind of looking to go down that path.

And, you know, I think the problem is. For some people who especially when you need loan guarantors, you need the Fannie Mae, Freddie Mac agency experience, you know, to go into these types of deals, it's an unfortunate necessity to go through one of these types of ecosystems and programs. But, you know, yeah, I agree with you.

You need you need to have some fortitude to do this and you got to put down some coin for sure. But you also need to be a little stupid because like the success rate of these groups is like one to three percent. It's ridiculous, it's like, I mean, now I understand, like if I look at college, I'm like, wow, college has actually got a pretty good success rate, if you think about it.

Right. I mean, all in all, but yeah, like joining one of these programs. I mean, it's it might be a necessity, but when you look at the success rate of the people going in, I mean, it's dismal for sure.

Well, Lane, let me ask you, you touched on this briefly, I'm guessing from the title of your book, The Wealth Elevator, you were talking about getting from the first floor to the second floor. Can you just give us a brief summary of what those floors are in your wealth elevator book? Yeah, I mean, it starts with the basement, which I don't talk about too, too much because I mean, Dave Ramsey, Susie Orman, Rich Dad, Poor Dad, they beat the hell out of that floor. Right.

They're all talking to the masses, the people who make less than fifty thousand dollars a year at a day job and are under a quarter million, half a million dollars of net worth. Right. That's where the majority of people are.

And so the wealth elevator is a construct mostly focusing on accredited investors. But that first floor is, you know, like when I started and, you know, just out of college, you know, I quickly paid off my student loans, but, you know, had zero. But I had a decent salary, right? I mean, engineers don't get paid too badly.

We don't get paid great, but, you know, it's not like we're broke or anything like that. So in that first floor, the name of the game is just picking up little single family homes until you hit a sort of a critical mass of half a million, million dollars net worth where it's not scalable. And that's where you get to the second floor, where the name of the game is, you know, getting into more scalable investments and diversifying across different geographic areas and even asset classes.

And how do you do that? Well, that's where syndications and private placements come in as a passive investor. And then, you know, the third floor after that, you know, once people get to about two and a half to four million dollars, you've got momentum on your side. So there's a mindsets and tax strategies sort of change at that point.

But that's kind of the ascent to what I call endgame, which is four to five million dollars net worth. Why? Why that number? Well, for most people with a family of four, you know, to hit that level, you know, you could if you wanted to, you could put it in cruise control at that point and you could sort of cash flow it in, you know, T-bills or life insurance and live a decent life. Right.

I think most of us who get there are going to keep accelerated to the penthouse floor and beyond and eventually get over eight figures. But, you know, in my book, there's like a chart of all these floors and then different kind of mindsets and strategies that you kind of go when you go through these thresholds. And that's what something I didn't realize, you know, going through it was like, you know, people tell you all sorts of things, but it all matters where the heck you are in this journey.

Yeah. There's another thing I wanted to ask you about, because we talk about this a lot or we have talked about it on our show. You talk about the myth of traditional 401k.

What do you what do you mean about the myth of the traditional 401k? Yeah, I mean, it kind of goes along with the whole investing in Wall Street, where, you know, one of the big reasons I don't like it is it's very heavy in fees. And ultimately, you know, a fraction goes to the investor who takes in all the risk. I mean, this is why, you know, we advocate more for investing more directly, right? To cut out the middlemen, cut out the financial planners, cut out the guys don't really add value.

That's just pretty packaging, whether that's buying a single family home on your own, right? Where you're the guy, you're you're the direct guy and also the liability taking on all that. But, you know, when you're able to invest directly with the sponsor operator, right, you're cutting out all these middlemen and you're if the deal performs, you're getting most of those returns. And that's kind of mean, you know, when I look at it, there's a lot of hardworking people in the shrinking middle class, my parents included, that just worked really, really hard, did everything that they were supposed to invest in the 401k.

But where did all their money go? You know, like when I when I first bought my single family home rental, it was a buy, hope and pray model. And I didn't really know too much, but I was able to make 20, 30 percent returns on my money in the first several years every year. And that was where it quickly like I had that realization where it's like, why doesn't everybody do this? And why am I putting money in my 401k where I'm only supposedly getting like 68 percent that goes up and down like a roller coaster, right? Like who who stole my cheese, you know, took my money.

Yeah, that's really fascinating because in order to get 30 to 40 percent on your money in the stock market, you have to be a world renowned expert trader, you know, you know, because what is it? Over half of fund managers don't even beat the S&P index. And so but in real estate, you can be a beginner and you can make 30 percent on your money. I don't know another investing strategy that allows that.

Not that there's not risk, but if you're going to get 30, 40 percent stocks, you're going to have to take some massive risks. And so real estate is just a great avenue for that. You get 30 or 40 percent every year, that's for sure.

So while he's looking for the next question, I was just going to ask you, is there a return profile that you now that you have a significant portfolio that you target and say, OK, for me to get involved in the next apartment complex, you know, I need to make this cash on cash. I'm shooting for this IRR. I need to get my investors this this number that you can share with us.

Yeah, maybe. I mean, maybe a little bit context. I mean, you know, when we first started, we would buy a lot of these like smaller, crappier, classy assets that are big headache.

You know, a lot of these assets, people don't realize that when you're going to the value add process, kicking out the old riffraff, you know, putting in like much better clientele, you know, the collections are like pretty poor, you know, at best maybe 80 percent. So, you know, out of a 50 unit building, 40 of them are the only ones paying 10 percent, 10, you know, 10 people are just consistently not paying. And that can get very tiring.

You can make a lot of great money doing this. But, you know, what we've kind of realized is like we try to trend more towards better clientele, right? Because like we just don't like the people variable. And then, you know, obviously we've kind of learned through this past market cycle, right? 2021, 22 was, you know, you bought a property in there, you got killed, right? You got killed with that stuff because the basis was just, you know, 20, 30 percent higher than it is now.

And, you know, so, you know, you've got a couple generally you've got a couple types of deals out there, right? If you're sort of a sophisticated investor and you can read between the lines, you got deal one where or deal a where you are taking on variable mortgage or even fix, right? Fixed rate doesn't even matter. The biggest thing is like the term of the loan. Is it a bridge loan or is it a long term agency financing? You're taking on a bridge note.

It's a little bit more of an aggressive strategy. And if the market comes down 20 to 30 percent, you're somewhat exposed in that rare case, which tends to happen every seven to 12 years or so. But in this case, you know, you're able to make great IRs, you know, maybe 20, 25 percent IR or better.

Whereas if you go in with five, eight year plus long term debt, it's obviously a lot more conservative strategy. And if a dip in the economy happens, you know, you can probably bridge through it and be unscathed. But your return profile comes down.

You know, now you're talking more 15 to 20 percent IRs if things go well. So I think what I'm looking at that that kind of that bridge note deal a, you know, a that I'm kind of referring to. I'm personally not going to be doing that too much.

I think right now prices are are amazing that you can do kind of that deal be the long term agency financing type of project. Not saying one is better than the other. Right.

I think if I'm going to go for higher alpha, I'm just going to go outside of real estate and buy businesses and do private equity. Right. But if you don't have access to that, you know, I know you guys do like the gas stations in a way that's kind of like private equity.

That's how you can get higher alpha. But if you don't have access to that and you're looking for higher alpha or for part of your portfolio for that, then, yeah, the, you know, bridge notes, turn them and burn them. You know, great business plan makes a lot of sense.

But I think it depends on what deals you have to choose from. And I like the real estate that deal be where it's kind of that boring long term play because of the tax benefits today, too. So that's how I kind of look at it.

In a way, people have heard this barbell metaphor. They can just Google like barbell investing, right, where you have things on the two opposite ends of the spectrum. But the weighted average is kind of in the middle.

It's kind of the concept. Now, I just want to go explain a little bit what you were talking about. We had an amazing run in multifamily from 2009 after the crash through COVID.

And everybody thought the interest rates were going to go up and prices were finally going to come down. And then COVID hit and interest rates dropped to zero, basically. And that kind of surge spiked the multifamily.

And of course, the stimulus and all the trillions of dollars ended up in asset classes. And so then anybody buying in 21 or 22, they're paying top of the market prices. And if they didn't get a fixed rate mortgage like you're talking about for 10 years and they got bridge debt and that bridge debt exploded on them, well, now the deal doesn't work and they get underwater pretty fast.

If you get a 10 year fixed deal, it really doesn't matter because in 10 years, prices are going to be higher than they are today just through inflation. So that's that was a good point that you made. And we we were trying to get into multifamily and we missed our opportunity.

But I'm really glad we didn't jump in and 21 and 22. What else do we have for him? We're kind of getting close to. I think that's everything I got.

OK, so Lane, how do our investors get a copy of your book? Yeah, they can either shoot you guys an email or just email my team team at the wealth elevator dot com, let us know if you guys are interested in the PDF, if you're old school like that or you want the more modern audio book so you can do chores for your family while you're listening. Yeah, they can shoot us an email team at the wealth elevator dot com. Or if they want to interact with myself, Lane at the wealth elevator dot com.

OK, team at the wealth elevator dot com or Lane at the wealth elevator dot com. I'm definitely going to check out the audio version of that book. My favorite thing is to learn while I'm driving around.

Lane, congrats on the success. Hopefully we can collaborate on something in the future. And I really hope all of our listeners will go and check out Lane's new book, The Wealth Elevator.

Lane, thanks for coming on. Yeah, thanks, guys. I really appreciate it.

All right. And we'll catch you guys next time on how to invest in commercial real estate.

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