From Top Of The World To Top Of A Building Ready To Jump, John Laine is Back W/ A View From The Top

Hey, how's it sound to work less and make more? I am talking about money and there are ways to do that through commercial real estate investing and a lot of people don't know just how easy it is to do nowadays. So this channel, Pivot to Prosperity, will show you how you can do that. It's brought to you by Pivotal Real Estate Investments, where we go find the deals and do the heavy lifting and then bring you the opportunities. So if you want to know when opportunities come available, need to register at pivotal realestate investments.com every Tuesday at 2 for about 22 minutes. We plan to bring you another video and so like share, subscribe. Hi there. This is Ginny Bowling with Pivot to Prosperity and I have with me here today John Lane. John, welcome. Thank you very much for coming.

Thank you for having me. I really appreciate it.

Yes, yes. We know each other from the same mastermind and we have a lot of things that we've found our commonality. And so this will be a terrific interview, I'm quite sure. John, why don't you tell us about yourself?

So I'm going to just do the really condensed version. I bought my first house at 19. That was my first single family home. It was my own residence. It's kind of launched me on this path in real estate. I've been in and out of real estate for 35 years now. I, we talked a little bit about how foreclosure has impacted me. My parents lost their family home, our family home, when I was a kid. And then I've had a couple of houses foreclosed on me specifically one when I was sick. Yeah, foreclosure has been kind of a big through line in my life. And then as I'm building my assets, I ended up with something north of 77 million in assets and then lost everything in 2000. As a result, in 2009 I was able to hang on a little longer, but it was this massive dominoes. So yeah.

You can't drop that without explaining what happened a little more because from what it sounds like there was not much you could have done. So elaborate please.

All right, so March of 08, so I'm building this nice little portfolio of single family reds, right. My partners and I, we're doing really, really well. We've got, we were at one point we were buying or selling a house a day for two, two and a half years. Like we were rocking. It was pretty cool. And then I got shiny object syndrome and I saw this 13 story apartment building and said, oh, that looks like fun. Let's. Let's completely change my business model and go after something I know absolutely nothing about. So March of 08, we close. We buy this 13 story apartment building financed by Lehman Brothers, and we were supposed to get a six million. Six million dollars in renovation. Three million. I'm sorry, a million dollars a month for six months. Everything is going fine. We do the. Clear out of the building, everything's going well, and all of a sudden I do the roof, right? Roof comes off with a new $200,000 roof. The cranes are going up like it's, it's a. It's becoming this real project. Right, Right. This is the Crown Jewel. I'm 40 years old. I can do nothing wrong. And then. I'm kidding, right? I'm. Yeah, the ego. At the time, my ego was stratospheric. I have learned since then that that's not an asset anyway. So, yeah, I poke fun at myself all the time. Cranes are going up and a whole bunch of. We have $300,000 worth of windows sitting in the parking lot and Lehman closes, right? We're in the middle of this 6 million dollar renovation, and Lehman, just like 45 days later, we were in receivership. 45 days after that, my business partner and his wife decide to abandon the building in the middle of the night. And I'm living 3,000 miles away, completely helpless, and no idea what to do or how to do it. And as a result, it was this giant stack of dominoes. Started with a $90,000 a month mortgage that I had no way of paying, and it bled into the other properties. And by 2009, I went from 77 in assets to $5 million in debt in nine months. Yep, that's the story.

And you and I were talking in the 1980s when I was an appraiser, we were appraising project after project, and some of them, you knew that the numbers weren't right and the loan was too big, and we could see that. But plenty of them were viable. But what happened was the RTC or the fdic, whoever came on in goes into receivership and all the funding is turned off. And people like you can't. Can't stay viable if that goes on too long. Yeah, it's. There's not much you can do, and it's so sad to see that happen, especially, you know, when, like, your story continues today. Do you, do you want to share that with the audience?

Yeah. It took me years to recover. I was suicidal. I was at the top of that building A half dozen times contemplating my own death. I ruined the lives of a couple of thousand people. Like I took on that guilt. I, I was the leader of the project. Right. I was responsible and I, I thought that it was my fault. For decade and a half I carried that guilt. Yeah.

So. And, and when you say that, it makes me wonder if you're talking more about the tenants or, and, and the, the, the folks that gave you money for raising the capital. I, I know too because you're, you just shared. I thought you were going to share that you're still paying them back.

Oh yeah, yeah.

That's what I was talking about. You didn't have to say. You're at the top of.

It's, it's so public knowledge. Like lasted on the Internet right there. Okay. I made the papers. Like all of this stuff is easily researchable. Yeah, I, it was really bad. I ended up $5 million in debt and 15 years later, I never filed bankruptcy. I've paid most of those people back. I owe $792,000 left. I will eventually pay the rest of those people off. It's been a struggle.

That's huge. That's very honorable. It really, really is. And people need to realize that. Yeah, it's not just Monopoly here for sure.

It's a, I mean, what. So just going back to the banks failing, right? We've had a handful, four banks in the last five weeks close all the three. The sum of those three banks are bigger than the 208 banks that failed 15 years ago. The fallout is in the trillions. And I think there's a lot of, I mean there's millions of people are going to be impacted by what's happening right now. We're going into the exact same, I mean every metric that I can look at, we are absolutely going into the same. Where I had a kid, no joke, we didn't talk about this. I had a young man come, wants to invest. He's 30 something years old. The bank offered him 105% LTV HELOC. Does that sound familiar?

Oh yes.

I could not believe he got offered and this was two weeks ago, he wants to invest. He wants to take all the equity out of his house and go buy something he knows nothing about.

I had not heard that yet. I definitely have, but. So let's turn our attention to how you're containing risk today and how you gained from that experience.

So I have a very interesting investment thesis. I am a 50% or better LTV person. Right.

Meaning or lower.

Or lower. Yeah. I mean, I'm trying to build, and this is controversial, but I'm trying to build an all cash fund. The idea of as long as the bank controls your asset, the bank controls every person associated with that asset. They control the fate and future of all the investors and the tenants in that building. And so I'm trying to be hyper conservative in my business processes and I'm building in systems so that the cash flow from the building pays off the mortgage before it pays the investors. Right. So it secures the building and we're going into these transactions with a 50 year horizon and massive cash flow. That's a. There's a lot to be said about leverage. I get how important leverage is, but as long as that bank has control over your asset, you have the possibility of losing that asset. And after losing almost $80 million in 15 years of my life, I'm unwilling to take that risk anymore.

Well, I certainly understand that and I find it very, very similar to how I look at things. I like to have a very loan low to value ratio, especially in rocky times. And so yeah, it's hard to make things cash flow right now because of the high interest rates, but we do know at least with inflation the property values will go up.

But which would you rather have? Would you rather have, let's say your cap table is 20 investors at $100,000 each. Small transaction, but you're paying them an 8% preface, which is not a mortgage. Or you can Pay Wells Fargo 7 1/2% and you're leveraged at 50%, you're paying the mortgage to the bank and they have the right to foreclose. But if you worked a little bit harder and just like I'll buy them in 50% LTV, but then I just backfill the investment to get it to zero, zero leverage. I'd rather pay a little bit more to my investors and be able to have a one on one conversation. If things get rocky, then try to answer, try to get through to Lehman Brothers when they're closed or.

So you're looking for a little more unique type of an investor that's not so concerned with cash flow and, and really wants to park their money somewhere that's going to have a big bang in the end. And cash flow is important.

Everything I'm touching has a 9 or a 10 or an 11% cash on cash return. Right.

But you're, aren't you talking pay it to the bank though?

No, I'm. Well, I'm saying dump it into the asset once the Asset is owned, then it's creating this 8, 10 12% cash on cash for the next 50, 100 years. Right. So it is definitely my plan is park your money. Right. We're going to, we all know the next three years is going to be super volatile. I'm just trying to place, give you a place to park your money where it's zero risk. Right. If there's no mortgage, there's no risk and give you a long term cash flow.

So but if you do get, get a mortgage at that lower percentile or whatever, how long before you're paying any kind of distributions to the investors?

It depends on the plan. So the you and I talked about the, the condo conversion transaction I'm working up in Port Townsend. Ideally I'm getting 1031 exchange money. Right. So that's not even actual money. Right. That's not physical dollars. So 1031 exchange pays for the actual purchasing of the property. I'm buying them at 275 purchase price and then we're selling them at 2. I'm sorry at 375 sale to the new tenant and we're just collecting this $100,000 second mortgage and that becomes a lifetime stream of income. And when these clients pay out we, or sell the house, we start returning capital back to the original investors. So yeah, a couple of years, it's not a long transaction. Five years is kind of my back of the napkin.

That's a unique, that's a unique project though too and that's interesting. Do you want to share the details?

Yeah. So I mean it's pretty straightforward. We're buying it for around six. We have not. Tom. We're back at back and forth at retrading. So I don't have an exact number yet but most of the capital we're raising is 1031 exchange. So it's money that people are pulling out of their transactions already and they just want another long term place to park capital. And so in this transaction we're buying it at, I'm going to just use round number six million and. And then we're selling it at eight and a half because of that $100,000 on every transaction. And then we're converting it from apartments back into condos and we'll take, we'll basically be the bank. I talk, I tout this all the time. Byob. Build your own bank. Yeah. So trying to help people create their path to freedom. I love people like the biggest, the best investment I ever made was that first house when I was 19. And if I can help someone else get on the path to homeownership, then that's one more future person that's going to be financially stable.

Right. Right. Well, that's good. And that's project. Where'd you say this?

Port Townsend, Washington. It's in. It's in the. The Seattle metro Puget Sound area.

Okay. And it's a 506C?

Yes, ma'. Am. Yep. We're raising $6 million. We. I think we've got about 3 million already earmarked. I would like to have it 100% owned. I do not want to finance it, so I'm. I'd like to have the whole thing paid for.

Okay. So here's an opportunity to invest. He's raising capital now.

Yep. And it's. It's available to accredited investors only, just to be really, really clear. And it's. I don't know, a lifetime stream of cash flow. It's pretty. Every time somebody will refinance, we get a nice big Christmas bonus. I call them Christmas bonuses. Right. So.

And what's the minimum to buy in 50,000?

Not a big.

Are you doing cost segregation or anything? That's going to be benefit to the investors as far as write offs.

Not in this transaction because we're literally going from purchase into sale pretty quickly. It's not really going to be our asset. I talked to Yona about it. It doesn't seem like it's a cost seg transaction. I'm going to get a little bit more detail, but I'm. I don't think it is because literally going from ownership into sale in the course of a couple of days. We. We already have four different prospective buyers who are already living in the complex currently. So it's not really a cost seg situation, but it is. It is a cash flow. Yeah. About $15,000 a month with zero holding costs, zero management fees, zero exterior. We got a little bit of accounting. Pretty much it.

And how many units?

24.

Okay, interesting. Okay. Okay. So what else do you have going on there, John? Anything coming up in the next six months that you want to talk about too?

It's all about little deals for me. Right. We talked about getting back into the real estate world. So I'm not doing. I'm not biting off anything big, but I'm working with Marcelo down in San Diego. He's got. So San Diego is a really interesting market. It's super, super high rents and sale prices because San Diego is one of the coolest places on the planet to live in. This particular, we've got two transactions that are virtually identical. About a 1.5, 1.9 in purchase price on both of them. They're all small single family res. And the way San Diego works is you can put Adus, Excel accessory dwelling units, you can put accessory dwelling units on the back part of the lot. So in both cases, single family res plus what we're calling affectionately an eight pack or a 12 pack. Right. So we'll put an eight plex or 10 plex on the same property. These are small micro units, small college homes. Right. 440 square feet each stacked on top of each other to two stories high, and they rent for about $2,500 a piece like that. Cash flow is amazing. Yeah. You've got this tiny little property generating $30,000 a month. Yeah, it's pretty good.

I'm a huge believer in this. Not only because, like here in Florida where I'm at, we. Everybody has a housing shortage almost going on now. And it could really help if everybody could just do at least one unit. I know in Florida they're worried about driveways and parking, and that's true everywhere.

That's not true in San Diego, specifically with this program. If you're half an hour. I'm sorry. Well, half an hour. If you're half a mile within walking distance to a bus stop, no parking required.

Oh, wow.

Yeah. So that changes the entire play. In San Diego, you can maximize units and you don't have to build garages. I heard a statistic that there are more garages in the US Than there are cars and there are more. Yeah. I mean, I don't know if that's actually true, but the. We could edit that out. I, I think that's true. But anyway. Yeah, the building houses for cars is ridiculous. We need to build houses for people. Yeah. So I'm, I'm a big.

That's great. I didn't get a chance to tell you. I have my brother and his whole family there in San Diego too.

Oh, yeah. So every one of them who, if they own a house, they can put ADUs on in their backyard. Yeah, Yeah.

I have to let them know.

Yeah, it's a, it's a big thing they're starting to put a little bit of restrictions on. But for right now, it's literally, you can build anything that you want as long as you can get approval.

Well, and it's, it's a changing world as far as that goes there. There's such a housing shortage in Florida too, that like, we were talking about, I think that, that it's really wise for government to open their minds up and get a little more creative now. They're. Right now if you're doing affordable housing and in, in the state of Florida, if you've got 40% that are considered affordable, you can use it. The apartments become a permitted, automatically permitted use on commercial industrial property, which wasn't the case before in all zoning categories. Some of them had some flexibility like that, but not too many. So yeah, it's. They need to talk to each other. These governments that are a little more progressive on some of that. They, they're trying it out and if it works well, then it might be wise to share the knowledge. Right.

They're looking at doing away with all single family res zoning in Oregon and Washington. Just abolish it. Like get rid of it entirely. And, and that's going to be really interesting. I'm not sure if I like it or hate it. I have to do a little bit of more research on that. But both states are considering in their large metro areas getting rid of single family zoning entirely. You have to build small multifamily, which I think is brilliant.

Yeah, yeah.

It's going to make the single family res market bloom. But I think it's probably good for a lot of people. What's the homeless situation where you are out there? What's that, what's the homeless situation in Florida?

It's pretty high. It's pretty high and getting worse. I don't know if you can hear. I have rain going on. Can you hear that? I hope that you're not getting drowned out by the speakers here. But yeah, it's, it is pretty bad. And so there's, there's a lot of, A lot of effort going into that with, you know, trying to be creative problem solvers.

But lowering rents would help. If we can create, if we can create more units, the price of rents go down and now it's a lot more affordable. Yeah. We have a huge homeless problem. I'm in Portland. Right. People's Republic of Oregon. See, I saw that. Look, everybody gives me a hard time for living in Portland, but it's a beautiful city. We have a horrible homeless problem and a lot of that is because the prices are just too darn high.

Right, right. Well, so I'm worried about that. You're not going to be heard with how loud this is out here.

Really. Wow. I have this weird speech impediment that it stops my brain. My brain will be like engaging and then I have this Tic that I will just stop talking in the middle of a sentence. I can't really control it, but I'm trying to be loud. Is it loud enough?

I'm not sure. I'm not sure, but. So we'll go ahead and wrap it up to be on the safe side. And I never would have guessed you had a speech impediment done.

It was part of the brain tumor. There's still like lingering issues with that. They stick sharp pointy objects into the, into the nose and scramble stuff around. Believe me, you'll end up with a tick. I, I definitely have a weird little speech process. Yeah.

But I, I was that over the last 15 years too.

It was 20, 22 years ago now. April of 2001. Yeah.

But you're okay. They got it all.

Yeah, yeah, yeah, yeah. I've, I've got residual issues from it, but it's the, the old Monty Python. Are you Monty Python person. I, I'm much better now. Right. He gets his arms shot. Yeah, I'm much better now. Yeah. It's weird to talk about, but it was, it was a, it was an experience.

Well, why don't you tell our listeners how to reach you?

Okay. I am John, John Lane. You can reach me at John at rat race rescue.net. our website is super cheesy, just like me. Rat Race Rescue.net I really want to help people transition that first 2530 something person buying their first house, getting their first investment, moving cash from their 401k into something that's safer. We work with a lot of younger people. You see all the kids, right? They're all. Yeah. So ratracerescue.net, we like to help people get started. Yeah.

And tell us about that. You also have the green cottages, right?

Oh yeah. So Green Cottage Homes is. We have two businesses. Rat Race Rescue and then Green Cottage Homes. I am in. I'm trying to build a better future. I'm trying to build what are called colleges. Single family res on thousand square feet with 800 square feet of home. Right. And they're subdividable. They're not condos, they're individual homes. And I'm trying to build that here in Vancouver. There's a couple of different places I'm trying to. But yeah, I'm a big proponent in helping people get started. When the median house is 550. We're trying to sell our houses at the 350 range. Right. Substantially less. I mean they're smaller, Right. Cottage. They're smaller, but they're just as good as every other house. They're stick built, they're not modular. Yeah, I'm, that's, those are the things I'm passionate about.

Yeah, I think that's cool. And energy efficient.

Yes, absolutely. And I, so I have this Skyler building. The building that I lost was supposed to have 44,000 square feet of old solar panels and 92 heat sinks. Right. So it was at the time I was re developing it, it would have been the cleanest, most, most energy building on the east coast. Certainly in, in South Carolina we had a thousand, I'm sorry, a hundred thousand gallon water catchment system that would have reduced our water by a hundred percent like the whole building. So I'm very into the green building, ecological. I'm from Portland. I mean. Yeah. So yeah, that's kind of what I do.

That's cool. And another resounding thing that I should mention because these, these podcasts are to try to help people understand what others are doing in the space. You have to, you, you get kicked to the ground and you got to get back up and, and that's the thing you learn. You fought. We. What we all kid about in the mastermind is hurry up and fail forward so that you can get back up and make it work. Right.

No, you're gonna. Real estate is tough. You're gonna make mistakes. Don't worry about it. Just keep going right. It's. None of the mistakes you make are gonna kill you. That's really the truth and it took me a long time to figure that out. But make mistakes, it's okay. You're everybody's good. This is a hard business. Seriously. It's a hard business to learn. It's a hard business to make mistakes in. But find yourself someone like you, someone like me that can actually walk you through the process. Do it passively.

That's the thing. If you do it passively, it's way easier to concentrate on what you really want to be doing. You don't have to go learn real estate. You can learn what to look for, set it and forget it.

What are you raising for? Have you kind of got a buy box? What do you like to raise for?

So I really like multi family. I am in central Florida where we've got a phenomenal housing shortage. So my thing has been I'm, I'm more conservative than many because I have an appraisal background and I had felt that the market was getting a little out of hand and so I haven't won any contracts for the last couple of years. But the market is correcting, I think. And so I'm expecting that there will be some multifamily and mixed use deals coming up. I also keep an eye out for medical offices and mobile home parks and I have this way of coming across assisted living facilities over and over, it seems like. And there's a lot of us boomers that are going to need it.

Yeah, I mean, you're in the right spot for medical. Yeah, that's a pretty good market. Wow.

I don't want to operate them, but yes, I would like to own one.

My mother in law moved into an assisted care. It's an apartment. There's nothing special about this place. She went from her own house, paid off in full to, to live in a $4,500 a month apartment. Right. And I'm like, wait, you could get an apartment for 1200 bucks? Like what makes this so much better? Yeah, assisted care. That's where some real money is.

Yeah, those. I've seen that model too. That's not so much what I'm looking at, but yeah, it's a brave new world out there for sure.

Yes, I like.

Yeah. John, thank you so much for coming on. I appreciate you taking the time. I think that there is lots of little golden nuggets and what we were talking about.

I, I appreciate your time, Jenny. I'm, I, I often wonder like, what did. Was that good? Was it helpful?

Yeah, oh yeah, I think, I think just, just knowing for instance, seeing somebody that's been through a really down down experience, I mean that's devastating to have big, not only a big project, but those kinds of assets disappear because of your. Largely because there's, you're, you're taking it to an extreme to be accountable in fact too. So I think that there's a lot to be said for integrity and not everybody has it, but, but you obviously do. And I can tell you there's not anything you can do when a bank gets taken over by the feds. I, I thought that they had learned not to empty the buildings though, from back in the 80s.

Yeah, mine was, mine was empty. Mine was empty before it got. Yeah, I did that myself. It was a rough time. I think we're going back into it. Everything that I've seen, I think we're going back into it and I hope people store the cash, put it in a hard asset that, you know, is. I really think we're going back into that world and I'm.

Well, I'm hoping that they're gobbling each other up and conducting business. Smarter, better, but jury's out.

Let's see, you've been to the RTC thing through the 80s, the 90s, the 2008, and now we're at 2023. You've walked into four different major recessions. I've been a part of three of those. I was 16 when, when my family lost our house. So I've been a part of three. And I'm telling you, I don't think anybody's learning a lesson. I think we are seeing the same thing happen again. I was dumbfounded when this young man told me that they offered him 105% HELOC.

Like, what bank was that? Do you know?

You know, I don't. He's in arguably one of the best markets in the country. He's in Utah. And they have a booming economy. So I, I don't know which bank it was. I should ask. I will follow up with him because I, I, I thought we had learned our, as a society, I thought we had learned our lesson about that, but maybe not.

Every 20 years you got a new generation, right?

Yeah, it's crazy. Okay, well, thank you. This was a lot of fun. I really appreciate it. Let me know if I can help. I would love to interview you on our podcast. So, yeah, we'll, we'll schedule that.

We'll do that. Yeah. Yeah. Well, thank you very much. Well, I hope you enjoyed that. If you did, please, like, share. And most important importantly, if you want to know when an opportunity comes available, do register on pivotalrealestateinvestments.com so we can get in touch with you. It's important to have a conversation. Likewise, follow us on Facebook and Instagram. We'll have brief things we pass out time to time. Thank you.