Columbus: The Journey Begins (Plus All The Numbers)

James: Welcome to the Furlo Capital Real Estate podcast, where we dive into the intricacies of passive real estate investing. And our mission is to equip people to invest wisely in both properties and residents so that we can build our wealth and improve housing together. I'm James, and this is my wife, Jessi.

Hi, glad to be here. Yeah. I'm excited for this one. I'm excited for all of them. Yeah. But I'm excited for this one because we're going to be talking about our very first purchase today. Aww. I know. And I know people like stories. I know, it's been a while. I know. I am. And yeah, so I just kinda wanna talk about it.

So, for starters, it just like, what is the property? Do you remember? Okay,

Jessi: yeah, I gotta think back. So, it's a duplex. And I remember it was, do you, how much do you want me to tell you? You can tell me everything. Alright, well, it was a duplex, I, I think each side was a three, one? Yep. And they both had a garage.

Yep. One of them, one of them had kind of like a pretty big garage, just

James: like. Yeah, it was a two and maybe two and a half car

Jessi: garage. Yeah, two and a half car garage. And then the other one was like a one and a half, one car garage. And it was, it was next to a big old field, and so it was kind of nice, there weren't neighbors like right next door, so there was space behind, and then it was next to a mobile home park type of thing, kind of in front of it.

On a, on a fairly busy ish road, but not super busy. And it had this weird, like, concrete wall in the front. You remember that? Cause I, I think it was on the busy road, so it had like that concrete wall in the front, and then big picture windows in the front room, which were like, Those were cool. They were, they were pretty cool, and huge.

Like, our dog loved them. I remember, like, he would just sit.

James: Stare out the window. Watch. Watch people watch market all day. Yep. Oh yeah. Bark at people walking by. It's the downside of our current house. He doesn't have a huge people. He has no windows.

Jessi: Sad. So sad. Poor guy. It's quieter. . . Yeah. So that's the, the

James: duplex.

Yeah. Do you remember how long it took us to find

Jessi: it? Oh, my word. I, I don't remember. I don't remember the time frame necessarily, but I remember walking through a lot of different properties. Yeah,

James: 18 months. Okay, there you go. Yeah, yeah, I remember when we first started looking, I wanted to get an idea for the market.

And Zillow was around, but this was in like, we started in 2008. And so it was there, but it wasn't what it is today. And so we, I was like, I want to understand the market. I want to see a hundred different properties. And all multi families. Which was super

Jessi: helpful. I mean, I remember walking through, this doesn't, I mean it leads us to our first property, but I remember walking through a ton of different types of properties that were like, ooh, this is really high end, super nice, like what would we take from this type of property and put into a fixed repper?

And vice versa, some property we walked through where I was like, And we're leaving. Like, this is gross and terrible. And you were like, yes, this is the best. It's so, like, so much potential.

James: Yeah, and I think part of it too is we were just new. We like to analyze everything. And so it just took a time for us to find it.

But this was one where it came onto the market. And if I remember correctly, They were asking 230, 000 for this property at the time. Rents on it were, it was like 000 on each side.

Jessi: Alright, that's what I was going to say, it's just under

James: 1, 000? Yeah, each. And so the numbers just didn't quite math out. Which is

Jessi: nutty to think about comparing it to today's numbers, but

James: Yeah, and and so we found it in The middle of 2009, so we've been kind of looking for a year ish at that point.

And I remember I saw it, and went, the, I went, this is just too high. I was like, it's, yeah, at the end of the day I was like, it's like 30, 000 too much. And so, we ended up we passed on it, at that point, just to kind of stay on the market. And then six months later, they went and they lowered the price by 30, 000.

And so that was when we stepped in, and I didn't offer them. 200, 000 for them. I said, well, if they've in their head, they're willing to discount something by 30, 000. I'm going to make an offer that's 30, 000 less than their new thing. And so we made an offer at one 70. which they rejected and came back and said, no, no, no, it's got to be like one 80.

And so that was what we ended up buying it for. It was one 80. I think I've been telling people one 85 and I looked it up and I went, Oh, it's actually one 80. So awesome. Which then falls kind of more in line with what the rent was for that place. And yeah, I remember we We lived in one side, and then we moved into the other.

Now the way this worked

Jessi: Well, living, living in it is debatable. Maybe we'll get into

James: that. Oh. But No, but that was the plan. We were going to live in one side, move to the other. That was the plan, yes. Because we had to live in it for three years. Right. Because in 2009, there was a special program for first time homeowners where you could get 10, 000, like a refund on your taxes, but you had to live in it for three years, which is fine.

Yeah. And so, cause we were going to fix it up. Well, it was longer than I wanted to, because I was like, man, let's do like the 10, 11 months and move on. Yeah. But it's hard to say no to 10 grand. So so we, so we stayed there and I think it was good. Yeah. We, do you remember our very first night?

Jessi: I remember we, yeah, that, that was like the place.

Because it was our first place. We started a tradition where we eat dinner there. Yeah, like the first night there's nothing in it. Yeah, there was no beds. No anything, but we we brought sleeping bags and blankets We're gonna sleep there and have dinner and I had mac and cheese. Yep, and I just oh, I just remember we had dinner and I started walking around the place and just being like this is a dump like We bought a dump.

What did we do? Like, we spent over 100, 000, almost 200, 000, on a dump. Like, what is going on? And I, yeah, I remember just being in tears and being like This is really bad. What happened? You were like, no, no, don't worry. Like, let me, like, there's potential here and we're gonna rent it and it's gonna be fine and, like, I recovered, but that first night I was a little worried.

James: Yeah, and, and then I remember too, shortly after that, The, there were two tenants on the other side and they gave us a 30 day notice. It was like, we went over to review the lease agreement, like, hey, just want to make sure we're all on the same page. And they're like, here, awesome. Here's our 30 day notice.

Yeah. Oh. Oh. Okay. And that was, and that was the point. I mean, it was literally like, I think it was like the next day. Yeah. It was,

Jessi: it was very

James: quickly. Yeah. So we hadn't moved in yet to the other side. Right. And that was where I had the brilliant plan of, okay, what if we don't actually move into this side?

We move into the garage and move just a couple things into the main house. We fix up this whole side, make it look nice, and then once they move out, we'll jump over to the other side, and we'll live there for three years. It was my, it was my brilliant plan in October. Walking into November. And it gets a little cold here in Oregon, and yeah And there was that wasn't quite as straightforward as you want, because there were these two single moms who were living together.

One of them, she moved out like the next week, no big deal. The other one just kind of disappeared, and we never saw anything, and I was like now what? Couldn't get a hold of her, she wouldn't return any messages, and I, just not knowing any better, we ended up going through the eviction process, because I was like, I guess this is what we do?

And so that was what we did. And I remember We, I, I was super excited to go to court. I was like, I'd never been inside of a real courtroom before and then seen like a judge do his thing. I was like, Oh, this is going to be awesome. I mean, horrible circumstance, but like super excited to try it out. And and I remember I get there, there's a whole bunch of people, I'm super pumped and I'm the very first person he calls up.

I'm like, Oh, okay. So it's, you know. James versus this person. I'm like, yeah, and I stand up and he goes, is the other person here? I went, nope. He goes, boom, done. You win. Take your paperwork, head on out, and go there. I was like, wait, I didn't, I didn't see anything. There's no court stuff. Nothing happened. Part of me was like, can I?

Can I hang out? Can I watch? Yeah, it was, it was a bummer. That's what it was. And later on, I did my civic duty, I got on, I got jury duty, and I got selected on a jury, and I got to see the whole thing. And it was awesome. And yeah, if you ever get a chance to do jury duty, like, I highly, highly, highly recommend

Jessi: it.

It's super fun. Strangely enough, I've never even been summoned.

James: I feel like that's odd, like there's something wrong. There's some

Jessi: paperwork missing somewhere, that's like, right? That's doesn't sound right. Maybe I'm like flagged or blacklisted or something, like, don't

James: call her. She's trouble. Yeah. Yeah. I don't know.

So, so anyways, eventually. So, that whole process took a few weeks longer than we wanted to, then we moved over to the other side after we fixed up that first side and, and then that was where I would say like troubles began, I guess we, we were brand new and I think we read a whole bunch of books on like screening tenants and stuff and we kind of had our criteria, but it was a three bedroom, one bath and we had fixed it up.

So we were a little bit higher rent wise on the market. And I will admit I did not have an abundance mindset at that point. I was very fearful. Like we'll never get this thing rented. We got to come up with the rent on this thing. It's already been two weeks longer than I wanted it to be like that kind of thing.

And so we had someone apply who didn't qualify, didn't have a job. He was unemployed. And yeah, and, and if you remember during the tour, their kid

Jessi: was just, oh my goodness, their kids were wild. I do. I remember those kids. Yeah. Yeah. They were, they were jumping off the walls.

James: Yeah. And they smoked. Yeah. And, and I remember it.

We were just like, they don't meet our criteria, but again, I was kind of fearful. And when I called him to tell him, sorry, you don't qualify he, I let him talk me into letting him rent. He's like, don't worry. I'm going to find a job. Cause I've got a poppy. Like I've got an in demand skill, so it's going to be fine and we're not going to smoke in the house.

We'll smoke outside. And like the kids are under control and eventually my wife's going to get a job too. And so it'll all be great. And it wasn't. And yeah. That was, that was miserable. I don't remember exactly how long that lasted, but it lasted a long time. And eventually they started doing partial payments, and I was accepting those.

It was just like, man, I hated, like every time I might see him, it was like, Hey man, like how's it going? And they got over 3, 000 behind on their rent doing these partial payments. And it was just trouble. And, and I remember Eventually, they got their tax return back and they got enough money to catch up on the rent.

And so they did. And this is one of those, like, I'm super grateful in retrospect that that happened because you and I learned a lot about what we don't accept and what we're not going to put up with. And so that was when we I went to him and said, Hey, this is awesome. I'm super happy. This whole interaction between you and me was not fun.

I didn't like it. I don't think you liked it. I will not let it happen again. Therefore, I will no longer accept partial payments. Either you have the full rent, or you don't. And he was like, oh yeah, yeah, that totally makes sense. I didn't like it either. And it was like, that next month, the fifth came, and On, I think it was like the 6th, he gave his 30 day notice to move out.

I was like, alright, well, I mean, cool. Figured out the game, and, and then we didn't get paid rent that month either. I think at that point in time too, I finally settled into like, you know what, we have enough income, we can survive without a tenant. It's okay. And they moved out without a problem, which was, which was nice.

Jessi: They moved

James: out without a problem. Like, within 30 days, we didn't have to do a bid time or anything like that. The

Jessi: condition of the property was

James: awesome. Awful. Yeah, I want to describe that a little bit.

Jessi: Oh, I remember finding crayon Everywhere like like the plugs the outlets and the walls were colored on like crayons stuffed in the colors and all over the stove The refrigerator like the cutting board was all scratched up They're, yeah, it was, and filthy, just kind of dirty.

Yeah.

James: You know? I think the thing that annoyed me the most is that outside to them equaled the garage for smoking. Oh yeah. It was, it smelled really bad. We ended up having to replace the carpet. We did a couple other projects while we were there, like we had to repaint everything. It was, it was a real pain.

It was expensive. It was expensive and a pain, yeah.

Jessi: We learned, like you said though, we learned a ton about the value of having criteria and being firm on them. And, and I don't know if we would have learned that if we hadn't had someone who broke all the rules. Yeah,

James: I agree. So, it was valuable. It made it so that we didn't get ourselves into massive trouble when we had.

20 different tenants and we were just kind of just trading on getting lucky. I think it also,

Jessi: like there was this component to me during that phase as well that I remember, I remember thinking like, how can we, how can we help people learn how to. Be able to afford a place? Cause it, it just, you know, there was a scenario like where their cat got sick.

And they took, they, they made a choice, you know, it was like, we can take the cat to the, to the vet or we can pay our rent and like, they took care of the cat. Yeah. And it was just like. Okay, like, there's so many layers to this that I'm just like, alright, how can we help, like, teach people how to increase income, or how to balance budgets better, or how to make those hard decisions when it comes down to it, or how to, like, create a savings account?

So it's like, here's how you pay for your pet, or here's how you can pay for your rent. Or like, another example of that was like they couldn't pay the rent, chose not to pay the rent, but had super expensive internet and phones and video games, and it was like, Okay, like yeah, there's some priorities here that are out of balance.

And so we we learned as well this kind of compassion for people but also a passion to be like Alright, how do you manage your finance as well? And what does that look like? Yeah. And we have a vested interest if you're paying us rent. Yeah. But, we actually care about you succeeding in life as well. So, that was, that was hugely valuable to me to see that.

And realize like, we can help here. Yeah, yeah. In a

James: different way. Eventually, we, three years passed. We bought another place. We moved out. That's a whole nother story. I want to share just some, some numbers. Cause I know, cause I like numbers. You do like numbers. So again, we bought it for 180, 000. During the time that we owned it, our net cash flow during it looks like it was 11 years, was 11, 000.

So we averaged about 1, 000 a year, so a little less than 100 a month. Now again, we lived in one side for three of those 11 years. So it, it's okay that it's a little low, I guess. Having said all that, our cash on cash return during that time was still 7. 6%, which In Oregon, like, you can't, it's very hard to get that these days.

So it was good from that standpoint. We eventually decided to sell the place. And that was because the market was doing what the market did, it went crazy. So we sold it for 354, 000. And after you take into account just closing fees and all that other stuff. Oh, I should also say, when we bought it, we put 11, 000 into the property.

Yeah, yeah, that was our, that was our down payment. Down payment. Plus some of those initial repairs. Which didn't get offset by the The refund. By the refund. Yeah. Piece of it. But yeah, so, that was the other component why our cash flow wasn't huge. It's because we had a very small down payment. Yeah.

Because we were just, we were highly leveraged. And it was all good. And oh yeah, so we sold it for 345. When it was all said and done, our net Money that we got out from it, which we did a 10 31 into an excuse me, into another property was 205, 000 for it. So bought it for one 80, put 11, 000 into it, got another A little less than 11, 000 while we owned it.

And then we got a nice big check for 205, 000. And that was where I kind of went like, Alright, cash flow's cool, but that was pretty cool too. And, and that was kind of got me onto the whole like, Okay, what does it look like to buy properties that are distressed, need some help, fix it up, and maybe you don't want to hold onto it forever.

And that was where I went down the path of like, Okay, I'll fix some flip or a burr. Or do something bigger because I have these data analysis skills and management skills, and that kind of was what put me into the syndication path. And so that was kind of a catalyst, ultimately selling this place to go like, Oh, you know what?

Like there's something to be said about those capital types of gains. And we did, we put it into a bigger property. The interesting part about is that like the. The returns are slightly lower, but because it's such a bigger property, like, the absolute dollars are bigger. Yeah. And which is nice. Another couple of ways to measure it.

There is an average annual return, which essentially says you take how much money you put in, and all that money that you got for the, you know, from a cash flow and for selling standpoint. That was 144%. Ooh. It was

Jessi: huge. That's a good number. Yeah.

James: Ha ha ha. Yeah. What's a

Jessi: typical number, just to put it in

James: perspective?

10 to 15, maybe 20. Yeah, no, it was. And the reason why that number is so huge is because we had the small down payment. And so it made for not a lot of extra cash flow, just it skyrocketed in the value of it rose so much, which honestly. You and I didn't have much to do with it, that was just kind of the market.

Outside of, we did a bunch of things to fix that up and make it nicer and genuinely increase its value. And then my favorite measure is the internal rate of return, which takes into account the value of time. So it's saying a dollar you get today is worth more than a dollar you get ten years from now.

So that is only a 23 percent return. And part of that is, is because that 205, 000 at the, at the end, 11 years later, it was 11 years later. It came so late that it had a heavy discount on it. And but in IRR, anything over 15 is worthy of getting excited about. And so this was 23%, so it was great. So overall.

A fantastic investment and I think even more than just the numbers piece of it, it was something where you and I, we learned a ton both about what it means to be a landlord, how to manage, just seeing that entire cycle of a property go through.

Jessi: I think on, on that property as well, both of us were injured at different points and so we learned how to work safely and use appropriate tools.

James: Yeah. I remember there was, it was a Thanksgiving. I had just turned 30. And, and it was over Thanksgiving, we were going to redo all the cabinets, because I think we were starting to get that point where like, okay, we're going to start, we're going to move on. So we want to start getting our place nice. And it was like Wednesday night.

So it was the night before Thanksgiving before this four day weekend, I was doing some work and I was using a tool that was semi broken, but I was making it work and ended up. And I had to go get stitches. And so I sat on the couch all of Thanksgiving weekend. Taking medications. You stripped cabinets.

I grappled with the fact that I was no longer invincible. Huh. And that like I was actually immortal. And that was really hard. That was like a That was a hard moment for me. But the cabinets looked really nice. I actually liked it. They were, for a while we kept them open. And it looks more cluttered.

But I like, I did like that open feel as well. But yeah, no, we ultimately painted them and they looked awesome. It was all said and done. We got some awesome tenants in after we moved out. And, yeah, overall it was great. So, there you go. Anything else you want to add about this particular property or purchase?

Okay. Yeah, that's good. Good place. Good memories. Yeah, it was awesome. It was good. And if you enjoyed this podcast, we would love it if you would either like it or leave a review on whatever, wherever you listen to this podcast. And so thank you so much for listening. Have a great day.