7 Emotional Traps That Quietly Destroy Your Real Estate Returns | Ep 78

Speaker: If you've ever wired funds and then just instantly felt a pit in your stomach, this is why we're gonna talk about that on the Furlo Capital Real Estate Podcast, where we dive into the intricacies of passive real estate investing, all the emotions that go with it. And our mission is to equip people to invest wisely, both emotionally and in actual and financially.

Speaker 2: Yeah.

Speaker: So that together we can build wealth. No wait. Invest wisely to improve both housing and man, I said it earlier, that was awesome. But our ultimate mission is to build wealth while improving housing. And tenants lives so that we can build wealth.

Speaker 3: Wow. And improve communities. And improve communities.

I mean, there's lots of ways

Speaker: you can say this Capital Real Estate Podcast where we dive into the intricacies of passive real estate investing, where our mission is to equip people. That's it. Equip people to invest wisely. I kind of skipped it because I was excited about the emotional part.

Speaker 3: You are excited.

Whew. Yeah, that was like an emotional rollercoaster all in itself. Right. Did you feel the, the anxiety? Oh, I felt, I felt, I was like, oh, where's he going with this? Okay. You can pull it back. I, I was thinking. Just having kids is like an emotional rollercoaster sometimes. It's like, yeah, wow. This is a big emotion.

Okay. That's, I was talking with a, with a friend too, about tools that we can use to like manage emotions. Mm. Yeah. You know, so it's like sometimes I, I breathe, sometimes I go for a walk. Sometimes, like there's this technique that's like, just look around the room and name things that you see. Like just switch your brain.

Speaker: Yeah. I was, I was, I was recently on a text stream where someone was asking to borrow a bicycle and and I shared with them my emotional rollercoaster that I went through with my bike. So it's summertime, so we're all riding a little bit more. Yeah. And I have a bike that I hate.

Speaker 2: Mm-hmm.

Speaker: But it technically works.

It's fine. I just hate it. And so my solution to that has been to never lock it up and just leave it out. In hopes that someday someone will steal it, it'll disappear, and then I will get to get a new bicycle. Mm-hmm. And well, my dream came true a few years ago. It was amazing. You were so excited. We got home, I think we went to church.

Like it's gone. I was, let's, yes. Thank you. I can now get a bike. I'm so excited. Like, hi. On that rollercoaster. I was. They took my bike too. But yeah, they took you too. And then. I kid you not, it was like a block later. Found my bike. Nobody else's. It's so bad. Just yours. Yeah, that they discarded it and were like, no, we actually don't want this bike.

So I was like, are you? So it was just like the dip on the emotional rollercoaster, like, oh my gosh, it's still there. Are you kidding me? Some

Speaker 3: people might say, just get rid of your bike and get a new one. But I know it's like you've made this agreement with yourself.

Speaker: It works. And I don't, you're like.

Speaker 3: As long as it works, I'll just use it.

Yeah.

Speaker: I, I tried to do the technical loophole of like, technically it was stolen. Like technically it was, so maybe I'm good to go, but I'm like, ah, I have to get rid of it somehow, and I don't feel good about giving someone else's bikes so funny. Anyways, that, that was my emotional rollercoaster. Wow. Wow. Do you ever have

Speaker 3: similar feelings?

With properties. Oh, probably. You probably had the gamut of,

Speaker: you know, I, I do, I guess when I'm buying a place that's the high, I actually, usually when I sign an agreement, I don't sleep, like, I sleep very little, I should say. The night after that happens. Yeah. And I'm just like, I'm just, I'm going.

Speaker 2: Yeah.

Speaker: And then, then like when something major breaks, it's the opposite. You're like, oh man, I gotta pay for this. Yeah, okay, here we go. Mm-hmm. And so I've learned to save for those. So it's less of a thing, but it's still, you know, when you get a $10,000 electrical issue that you weren't planning on for that year, you know, you feel it.

So yeah, I think there's emotional peace. Yeah. Yeah. For sure. For sure. So so imagine this scenario. That you've wired the money, speaking of emotional rollercoasters, and your sponsor sends an update and your stomach, it's just like, you're like, oh man, what have I done? And even sometimes it performs well, like the investment's.

Okay, but you're just terrified or scared the entire time. And, and again, it's not necessarily because of the deal, it's because of whatever emotional bra baggage you brought to the deal. Hmm. And so that's what I wanna talk about today is some of those emotions around it, some of those rollercoasters, if you will.

Speaker 2: Yeah.

Speaker: And, and, and really there're like, these are seven saboteurs mm-hmm. Of smart investing.

Speaker 3: Yeah. Traps or.

Speaker: Yeah. That might hijack otherwise smart decisions. Mm. And so so I wanna talk about, and this

Speaker 3: is, this is not necessarily like after you've decided to invest, it's like at different, different, different parts.

You know, it's as you're looking at a deal or maybe you did choose to invest or Yeah. Rethinking things, it's like,

Speaker: yeah, yeah, yeah. Exactly. So I kinda wanna go over them. I wanna identify mm-hmm. What are these seven different emotions? And just kind of what you could do about 'em or how to handle 'em.

Speaker 3: Yeah, that's

Speaker: kinda my, my thought process.

Speaker 3: I love that. So let's start with fear.

Speaker: All right. That's a big one. So this is

Speaker 3: the, the overthinker. So what is the overthinker or the fear based. A person look like in a passive investor.

Speaker: Yeah. So there's someone who, they're always asking like, you know what if this goes wrong? Mm-hmm. Right. It manifests itself a, a few different ways.

The big one is analysis paralysis. Right. They just, they're constantly just thinking and stuck in mode Running scenarios. Yeah. Or just regularly second guessing, oh, should I do it? Should I not do it? Our son is that kid, and you know,

Speaker 3: in indecisiveness Indecisive, yeah. You're law's like,

Speaker: like, and it's not necessarily like, I think sometimes with him.

He defaults to the, no, no, I don't think I wanna do it. Yeah, you gotta like talk to him about it. And I don't know where he got that from. I know. And then oftentimes it's just, they just pass on stuff where you're just like, dude, this is a no-brainer. You should totally be doing this. You've got the funds.

You've said you wanted to do it.

Speaker 3: That's what I was thinking is what's going on most often it seems like in real life, that's how it plays out, is if someone has this fear of in, of investing, they just don't do it. They just say no. Yeah, that's true. And, and great things come along. They probably not send, say no, they just

Speaker: podcast.

Yeah. So, yeah.

Speaker 3: But I mean,

Speaker: yeah. Yeah. No, that's true. Yeah. And they miss out and Yeah. And they miss out on things like that.

Speaker 3: Yeah.

Speaker: Well, there's a few things that you can do to try to overcome. The fear piece of it. The, the first one is just get really clear about why you're investing. Like what's your, what's your reason for doing it?

Yeah. And, and using that to try to to overcome any fear you might have. Like they have a very strong why.

Speaker 3: Yeah.

Speaker: You know, what's the,

Speaker 3: that, that passion that is kind of driving you will maybe push you past the fear. Correct. 'cause you're like, okay, I, I'm, I'm afraid, but this is worth it, Uhhuh, because this is my reason for Uhhuh.

I wanna provide for my family or Right. I wanna take this really cool trip or, you know, whatever it is. Yeah. Or I

Speaker: wanna support affordable housing or whatever. Right.

Speaker 3: Yeah.

Speaker: Another thing that you can do is you can create some preset criteria. Mm-hmm. Like we do this when screening tenants. Right? Yeah. I've got like, these are my list.

If they meet all of 'em. Cool. We're good. I don't think about it anymore. I did the thinking ahead of time. Interesting. When it wasn't emotional, when it wasn't a specific deal. Yeah. And, and I've got, by the way, a really handy due diligence checklist that can help you figure out what those criteria are ahead of time.

Mm-hmm. But you might say something like. I only invest in this area. I only invest in these types of properties. I only invest when the returns are this.

Speaker 2: Yeah.

Speaker: I only do these size of deals. Yeah. I only work with these types of people. Like you can settle those criteria. Would

Speaker 3: another way of saying that be if you do your research or gather information ahead of time, then that kind of lowers your, the fear factor of things.

'cause there's less unknown. Yeah. I

Speaker: guess. Yeah. Oftentimes don't know what it is until the deal happens. Hmm. But. Yeah.

Speaker 3: Well, I guess when you're doing your due diligence. Oh, though that's, yeah, yeah, yeah. You know, not necessarily before you find the property, but

Speaker: Oh, I see. Yeah. I guess it's like for like, okay, that's a good, I see where you're going with this.

I think like when I'm screening at a tenant, I've got my criteria, right? I don't even think about it, yes or no until I work through my checklist. Yeah. And then only that's done then gathered all the information then, and for me it is, it is like a literal like. Numbers going down the side and I count them up and either it's above it or it's below it.

It's that straightforward. It's obvious. Yeah. I've taken the emotion out of it. Yeah. So maybe, I think what I'm hearing you say is instead of trying to make snap judgements and, and try to like refine your, your decision mm-hmm. Along the way, it's like, I'm not even going to decide yet. I need to take in all of this stuff.

Mm-hmm. Look at all of it, answer my set of questions, and then only then will I make a decision.

Speaker 3: Right? Yeah.

Speaker: Okay. I think also related to that is you just wanna, like, you wanna set a time limit on yourself if you're, especially if you're an analysis paralysis type of people, you know, be generous with it.

Be like, I am going to devote whatever, two, three hours to this. Yeah. It doesn't have to be 20 minutes, but like, I am going to spend the time to go into this. I will do it. And I think if you have that checklist that helps, like that helps because it's just like, I'm just gonna go through this. Yeah. And then based on that, I'll make a decision.

Speaker 2: Yeah.

Speaker: And if you find that you're still passing on good deals, then it's like. I need to evaluate my checklist. Maybe I am being a little too picky. You know, if you're like, I need to make 30% return each year, you're like, yeah, good luck with that.

Speaker 3: Yeah. Yeah. It may be helpful to meet with someone else or meet with, with another investor.

Oh, yeah. With your sponsor. That's a good one to, to kind of go through some of that and be like, okay, I'm stuck here. How do I, how do I keep moving forward? Like where am I stuck? Mm-hmm. Where do I need to adjust? Mm-hmm. Yeah. Yeah. You know, because Yeah, maybe some of those expectations are a little too high.

Speaker: Yeah. Potentially.

Speaker 3: Or just scary. Well say

Speaker: expectations are too high. It's just they're, you're afraid of too many things. Yeah. You know, what if a black hole develops and. Our seat coal and my property goes down, or there's a massive earthquake or fire. Yeah. It's like, you know, it's like, yeah, that do happen, but mm-hmm.

Yeah. So you go, there's fear.

Speaker 3: Okay, so let's talk about greed. Greed. The person who is motivated by greed or the jackpot chaser, and how do they sabotage their own success?

Speaker: Yeah. I, yeah. And I gotta be careful sometimes that I'm not this guy. Mm. 'cause I, I like big numbers. Yeah. You know me. So oftentimes, you know, these are the guys where what they're gonna tell you is like, these returns are insane.

You know, that kind of thing. Yeah. Right. And, and so they're just like. Potentially like a red flag or a sign of them. An indicator is that they are ignoring red flags, like unreasonably high. I IRRs. Like again, if you've see an IRR, like 34%, you should be asking a whole lot of questions, right? Instead of being like, oh, this is great.

This will be amazing. I'm gonna, you know, quadruple my money in four years. So, awesome. Yeah. If it sounds too

Speaker 3: good, maybe check to make sure you're not just. Jumping in because it sounds really good. Yeah, yeah, exactly.

Speaker: Or, and this is something I've had to fight. If you have a home run deal, comparing everything to that and being like, man, I, I want the, you know, like ours, I want the 144% average annual return.

'cause we've got one of those and it's amazing.

Speaker 3: Yeah. So. Because you have this comparison, you look at other deals and nothing is good enough. Correct. Or just, or, or you're

Speaker: trying to do things to tweak the knobs to make it that deal. Right. Which is like, eh, yeah. Yeah. Sometimes that, that works or you're getting disappointed because it doesn't Yeah.

You're like, oh, geez, I only made 20% on this one, which everyone else is like, that's, no, but I had this other one where I doubled my money. Like, interesting. Yeah. Okay. Like,

Speaker 3: yeah, I could see someone if, if they were motivated by the numbers or by gre, there was chasing numbers. They pass on a lot of things that you're like, that, that is good.

Like that is good enough. It is great. You know? Yeah. And they just hold out and wait. Mm-hmm. And miss a lot of great opportunity. Yeah.

Speaker: Yep. Another one is they just over allocate towards aggressive investments they're doing. Maybe they're doing a lot, maybe more high risk development projects. More high risk because they're trying to get higher returns.

Those bigger returns. Yeah. And, you know, you gotta try to decide what your,

Speaker 3: so there's this line then between like. Ambition and greed. 'cause if you were like, just getting after it and finding great deals, like that's not necessarily bad. So where's that line? Well, I mean, as

Speaker: a passive investor again, it's, it's, it's this emotion.

It's your mindset, right? Mm-hmm. You're like, oh, I just, I wanna earn a little bit more. I'm not earning enough. I've like, this one's not good enough. Like, that's what we're trying to address. Hmm. And so I think it's like, yeah, it's great to keep looking for deals. Yeah. And, and I've passed on, I passed on more than I.

I don't, obviously, and part of it is I go, man, I got a standard and it's not gonna hit it. Which is part of, it's a little bit greedy, but I'm okay with that.

Speaker 2: Yeah.

Speaker: You know, and so I think that's okay. Yeah. So things you can do to try to overcome the feeling of greed. The first one is you just gotta focus on those risk adjusted returns, which in a lot of ways is like, yes, you have your top line numbers, but like, you gotta pay attention to some of those other numbers.

Right. What are the vacancy rate assumptions that they're doing? Mm-hmm. Are they doing, are they dependent upon? Refinance to pull this off. And what are the assumptions around that? I think you gotta look at some of those, like what are they assuming for ongoing like inflation Mm. For both rents and for expenses.

Like, I think there's things like that mm-hmm. That you just, you wanna pay attention to some of those things to not get caught up in those big awesome numbers. Yeah. Ask more questions. You also wanna ask like what's likely to happen, not what could happen. And I know I've run into this trap, I'm like, oh my gosh, this thing could pop and be huge.

I love it. But it's like,

Speaker 3: yeah, actually grounding it in some reality.

Speaker: Yeah, I think that's, I think that's super important. And, and I also think, and this is another one I struggle with, is like, you can't chase deals.

Speaker 2: Mm.

Speaker: You can't, like I've, I've pushed to try to make stuff work because on paper it seems like a great deal.

Mm-hmm. And I will, I will work and try to do it and, and yeah. And like start. It, it never really gets a super complicated deal.

Speaker 3: Okay.

Speaker: And, and my experience has been like, yeah, I'm, that's me chasing it.

Speaker 3: Yeah.

Speaker: Trying to get this awesome return. So

Speaker 3: your greed can often get you in, in trapped in this position that you're like, oh, I made this more complicated than it needs to be.

And there's, it's, it's now not a great deal because

Speaker: Yeah, yeah. I pushed it and you, you gotta have that. Like, no, I'm just vetting them. It's just coming my way and I got my standard. As if it's great. If it doesn't, cool. We'll let it go. Yeah, yeah, yeah. Exactly. Alright. Yeah, I'm at I'm, look, we're looking at something right now that has that potential for, to be chasing it because on paper it seems like it could be really cool.

Mm-hmm. But, and it's trying to have that, like, just that mindset of like, nah, like, we'll, we'll make our offer for what makes sense. Mm-hmm. But. Don't force it to make it worse. I'm not gonna try, I'll force a little bit 'cause that's who I'm, but but yeah, but trying to find that balance, I guess. Okay. Yeah.

So that's a, yeah. The old Jackpot Chaser. The

Speaker 3: Jackpot Chaser. I, I feel like this next one has the same sorts of undertones, kind of, but it's the veteran. So you skip a briefing, the veteran who skips the briefing, you know, it's the overly confident. Yeah, I know what, I know what to look for. I know what I need to find.

I don't need to research this. And there's

Speaker: an

Speaker 3: arrogance there. Yeah. Yeah. That's arrogance. So tell us more about this type of mentality or this emotion that could get in the way of investing.

Speaker: Yeah, so someone like this, they're gonna skip over reading all the legal stuff because they're like, whatever, I seen these.

It's funny. So we, we actually we bought a place and and even our title person was like, you've seen all this stuff. I'm like, yeah, yeah, yeah, I have. But that's part of that. Like, but for that stuff, I've already looked at everything and so that part's fine, but yeah. But it's having that, you know, just like, oh, I don't need whatever.

I get this. Mm-hmm. I think there's things where they're, like you said, it's very similar, where they're, they're overlooking some underwriting assumptions. Like they're not even, there's a difference, like on the greed person, they're, they're kind of ignoring them. In the sense that like, like, oh yeah, yeah, it's fine.

Like, but look at the return.

Speaker 2: Mm-hmm.

Speaker: You know, and they're looking at like what could be the outcome. Yeah. Whereas this one, like, they're not even looking at it, right. They're just like, yeah, it's fine. Yeah. They

Speaker 3: just look at the basics and assume,

Speaker: yeah, that it looks great. And maybe they're taking some shortcuts on a sponsor vetting.

Now, I'll admit me as a sponsor, I like that. That's what I try to do. I try to get to a point where they go, it's. They go, I don't even care about the deal. If you like it, I like it.

Speaker 3: Mm.

Speaker: You know, and I try to build that kind of trust with my investors. Right. And I have that with a few people.

Speaker 3: But not because you're taking this mentality.

Oh yeah. Right. It's because you're, you're working hard and actually, and again,

Speaker: that's like, and to some degree don't want them to take that mentality because if things do go sideways, I don't want them to be surprised. Sure, yeah. But at the same time, I do want them to have that like, nah, I'm gonna give Jen the benefit of the doubt that he's done.

Yeah. All the work

Speaker 3: you want them to be confident in yours. Because I've proven

Speaker: the track record, so it's kind of a weird. Yeah. Big deal. Yeah. So you know, and so in some ways what it's done is it's, it's killed your curiosity. Mm. Right. Because of past successes.

Speaker 2: Mm-hmm.

Speaker: And, and so some things to, to overcome that right?

Is you want every deal to feel fresh, right? You do want to go through the checklist like we talked about. Every single time, like I have that with tenant screening. I've gotten to a point now where I can have a 10 minute conversation. I'm

Speaker 2: like,

Speaker: I'm pretty certain I know. Mm-hmm. Whether it's gonna be a good fit or not.

Yeah. And then I walk through the checklist and I order the reports, and I do the numbers and I do the math.

Speaker 2: Mm-hmm.

Speaker: And. You know, 99% of the time I go, yep. This is what I thought.

Speaker 2: Mm.

Speaker: I get it, but I run through it every time. Mm. Part of it's for, for me, it's for a liability standpoint. Sure. I wanna be able to say like, no, everyone went through the same process.

Mm-hmm. Like, I wasn't trying, it was this external objective thing, but but that's part of it. And yeah. And like I said, you, you just wanna have that beginner's mindset. Mm. As much as you can. I mean, you wanna be sophisticated about it, but. And ask the complicated questions, but the beginner's mindset in that, like you just wanna have that curiosity.

I do wanna look into this and look at it with fresh eyes.

Speaker 3: Yeah. So you can avoid skipping over some, some details by just continuing to be inquisitive, asking questions, wanting to know.

Speaker: Yeah. Yeah.

Speaker 3: Even though you think you might know the answer. Still ask.

Speaker: Yeah. Wouldn't it be nice to be in that kind of spot where you're like, man, I just do so many deals.

Like I don't have time to fully vet these things. I just don't worry about it. Just fighters pass em

Speaker 3: through.

Speaker: I'm not there. Every deal, for me is different and weird and interesting. Sure. But

Speaker 3: I,

Speaker: yeah, I don't, yeah.

Speaker 3: I don't know. I, I like knowing the ins and outs of things. 'cause then you are not surprised either.

Yeah. You know, you've run through different scenarios Totally. And thought through it. It's, it's not just this, oh yeah. It'll be fine. I'm totally con I've seen this before. Yeah. You know, and then you are sideswiped as a sponsor too. Like, oh,

Speaker: I, I love it when I'm talking with investors for my deals and, and they start asking questions.

I'm like, oh, okay. You read this. Like, I, you saw what I saw. Yeah. And you're, now, you're honing in on it. Right. And like, and I, I try really hard not to get defensive and I go, yeah, no, that's totally a risk.

Speaker 2: Mm.

Speaker: Here's what I'm doing to mitigate it. Yes, a hundred percent. I see what you saw. Yeah. And it's, I, it's, it happens, it's rare, but it happens when someone sees something where I go, oh, hmm.

I hadn't really thought about that part of it. And it doesn't happen a lot, but definitely like it's there and I'm part of me's like, dude, I'm glad that you saw that and caught it. You know, it's not for me like back to Formula as a Spider-Man one reference but you know, is a. Yeah, I, I, it's a, okay, let's incorporate this.

How can I do to mitigate it? Let me update the numbers, that kind of stuff. Yeah. Which is important. 'cause I'm like, yeah. It's good to know. Mm-hmm. Yeah. So I like it when people catch stuff and tell me about it. I'm totally okay with it. Like, I don't wanna lose money. Yeah. Then I'd rather find out about it before the deal happens.

Yeah. Absolutely. Yeah, for sure.

Speaker 3: Let's move on to this next one. Mm. Impatience. Ah, so. This one is called the deal Drifter

Speaker: Uhhuh.

Speaker 3: Why is this so dangerous in real estate investment?

Speaker: Yeah. I, I could have also like, named this as the the shiny object guy. Yeah. So always just, just jumping. Yeah. Well, and it's, I was talking with a friend earlier this week and he's kind of in this mm-hmm.

Where he is just like. I just, what's next? Yeah. It was actually really interesting talking with him. 'cause he is like, I don't think I'm behind, but I feel like I'm behind that I need to move a lot faster. Interesting. He's like, and he's like, I look at someone like you and it's like, and you're so far ahead.

I'm like, I'm also 10 years older than you. He's like, yeah, but like, he goes, I don't even have line of sight to get to where you're at. And, and he's like, I don't even know how to, like, I gotta go faster. Like, I feel that pressure. Interesting. We talked about it and ultimately I was like, yeah, it's okay, man.

Like, like it's your own race. It's fine. Yeah. And but. There's someone who like, they just, money's rolling a hole in their pocket. They wanna make some progress. So what this looks like is they just, they start jumping at weak deals. Mm-hmm. Because they're like, well, it's better than my capital sitting there doing nothing.

Right. You know? And you're like. It's not. Yeah. But that's the, that's the issue, right? They're like, I'm earning whatever, 4% in my high yield savings account or something. I gotta put more into, they're rushing through due diligence. Mm-hmm. That's another one. 'cause they just like, I just wanna, I just wanna go.

Yeah. And they're more excited about just going as opposed to walking through the process.

Speaker 3: Yeah. So I guess it might be a good deal, you know, that they're kind of throwing their money into, but is the risk that. Had they waited, you know, a couple months and another deal came along. Now their capital's tied up in this and they don't have it anymore.

Yeah. Mm-hmm. You know, so they've missed maybe a better deal. I think

Speaker: it's, I'm, it's almost like it's the wrong mindset, you know, of, of even that it's, it's more of a, you know, when a, when a quote good deal comes along mm-hmm. Like, that's like. You do it, you know, and it's, and it's all the previous stuff.

Like you want to have the criteria, you want to have thought it through. You wanna have your reason. And so when something comes along that matches it. Awesome. Like, so is this

Speaker 3: person not using those criteria in anything? They're just like, the next deal, they're jumping at it.

Speaker: Well, it's, it's more like, I'm gonna keep going back to the tenant screening thing.

'cause I think that's a good, it feels like a, it's a tangible analogy. Mm. Is you got a place that's sitting in vacant, you're losing money. Mm-hmm. And someone applies. Mm-hmm. And you're just like, thank you. Someone applied, let's go. Yeah. And you're like, whoa, don't you wanna run a background check? Like, no, I want them moving in tomorrow.

Like, I'm losing rent. It's costing me whatever, you know, $200 a day. Mm. Like they need to move in. Yeah. Like I don't have time to call their landlords or run a background check or do a tour.

Speaker 3: Yeah. So you're not really, it's that kind of fully assessing risks and. All the ins and outs. 'cause you just, you just wanna move forward.

Right? You wanna go, right.

Speaker: You're like, I'll get the return. It's better. I'll take the risk. You know, I'll, I'll do the defense on the late stage, which is not smart, but Yeah. Yeah, that's kind of the, the thought. And then for me as a sponsor, you might like, they might give me like pressures for some fast returns.

Like, Hey, let's return some capital. Let's do this, let's, you know. Yeah. Okay. Let's do ing finance sooner rather than later. Sure. I think, I think for a lot of these things, like, man, it's a, you gotta have patience mm-hmm. With it. Which is obviously why this won so bad. So

Speaker 3: when you're in between deals or you're kind of waiting for that next thing to come along for James to get his act together, what, what should investors do with their downtime when they're just kind of twiddling their thumbs?

Yeah,

Speaker: that's a

Speaker 3: good

Speaker: question. Listen to this podcast for one, recommend your friends listen to this podcast. Yeah. All right. We actually, we had we had a we had a podcast episode that aired back at the end of May. That was talking about investing with your friends. Mm. I'll legally do that. Yeah.

And one of the suggestions was to create an investing investment club.

Speaker 3: There you go. And

Speaker: part of what you do in the club is you would like there'd be like three legs to it. There's an education piece, there's an analysis piece, and then there's actually like the investing piece to it. Mm-hmm. And so I think it's the, like there's an education side Yeah.

That you can either do with friends or individually. Again, listen to this podcast just kind of learning. I maybe there's some networking that has to happen too, where like, you know, if you only connected to one person and you're like, man, they're taking forever to get the deal done. Mm-hmm. There's a lot of us out there.

Speaker 3: Interesting.

Speaker: You know, and, and really get connected with three or four,

Speaker 3: probably a lot of it, like, like you've said multiple times, is working on changing your mindset to. In this particular case to say these activities are moving me forward. I don't have to be, yeah, putting my money into a deal right now.

If I'm educating myself, taking my time, learning what criteria I want to follow, finding a good sponsor that is moving me forward and I'm gonna be in a better place.

Speaker: Yeah. I was talking with someone earlier this week and we were talking about, like, he made the comment, he goes, if I. Before I enter into something, he goes, I wanna have a really high percentage probability that I'm, that I'm going to succeed.

Speaker 2: Mm.

Speaker: He's like, I want 90% or more chance of success. Yeah. He's like, otherwise, I just, and if I don't think I will get that, I don't do it. Yeah. And, and, and I had to stop and be like, well, depending on how you defined its success. Mm-hmm. Right. If it's about learning, there's a hundred percent chance that that's gonna happen.

Speaker 2: Yeah.

Speaker: So do it, you know, depending on what it is. Right? Sure. And I was like, but if you narrowly define it as this one return, I'm like, yeah, I get how you're gonna struggle to jump. And so I think that's part of the impatience. Mm-hmm. Or that's how, that's part of the fix is how do you expand that definition of a win.

Mm-hmm. You know, part of me is like, okay, if you got the money sitting there and you're not looking at deals, like what can you do, be doing to a, get more deals to look at.

Speaker 2: Mm-hmm.

Speaker: B, get better at evaluating those deals. Or C Yeah, or C, like work on it. Just improving my own personal skills to increase my income so I have more funds to put towards deals when they eventually come.

Yeah. You know, I think those are things you can do and just kind of embrace the fact that yeah, that don't happen all the time. That's okay.

Speaker 3: Yep. Those are great things. Next let's talk about the fomo. Oh, the fomo. So hard. We've all felt fomo. And I wanna know, how does it show up in real estate? Through the crowd follower?

Speaker: Yeah. So there are people who, it's like, Hey, all my friends are investing. I'm gonna get in and do it. You know, classic, I, I gotta do it. They're all jumping off the bridge, I'm jumping. Yep. That kind of thing. I think it's also they they'll overly rely on testimonials from other people instead of the metrics.

Sure. You know, which honestly, sponsors like myself, we. We do webinars to announce deals because you get this type of, oh man, look at all the people who are on, I want to get in. Mm-hmm. And they've, and they've. They get wrapped up in the narrative instead of the numbers. Interesting. Which again, like for me, I'm like, yeah, I kind of half want that.

You know? I mean, I try to pick a deal that the good numbers are good. Right. And then I use all the, the, the, the emotional triggers I can to get people to act. Yeah. 'Cause I'm like, dude, this is a good deal. And, or, but

Speaker 3: that's the foundation of it. It's a good deal. You're not just signing people up to

Speaker: sign 'em up.

Right, right, right. Or the other one. And again. I do this, they jump in a deal because they feel like it's filling up.

Speaker 3: Oh, okay. Yeah. And I, and

Speaker: I, and I actually will say like, Hey, we're 50% failed. Subscribe. Interesting. Yeah. We're 75%, we're 90% whatever. It's Right. So their

Speaker 3: opportunity to invest is like, ah, yeah, it's, it's going down.

I gotta move, which part? This is

Speaker: real. I need to let you know, like, sure. They need make a decision sooner rather than later. Yeah. But you know what also, and, and my whole thing is like, I just gotta get 'em off the fence. Get them away from the analysis side. And, you know, and employ little fomo. So you're kind

Speaker 3: of, yeah.

It, it, it's super interesting the people who, who don't necessarily have that, who have some of these other things going on. Like, ah, I'm afraid I don't, I don't really know. You know, you want to increase some of, a little bit of that feeling? Yeah. No, get in now. This is a great deal.

Speaker: Yep, yep. So it

Speaker 3: can, that can be a good thing, a good motivation.

Speaker: So I think. I think there's a couple things that you can do to fix this. Hmm. Surprise, surprise. My due diligence checklist is amazing because what it does is it goes, yeah, create your own process. Create your rubric. And run through it every single time, regardless of what anyone else does. Even ask yourself, man, if none of my, if no one else was investing in this, who I knew or whatever, yeah.

Like, would I do it? Yeah. And I, I think that's like, that's the fix to the FOMO piece,

Speaker 3: right? You don't base it on what everybody else is doing. Correct. It's based on your own system, your own criteria. Yep. Yeah. Your own why. Yep. Mm-hmm. That totally makes sense. Mm-hmm. Mm-hmm. So. Is there ever a time where it's smart to follow other people?

Speaker: I mean, if you're following smart people that helps.

Speaker 3: Yeah. What, what's the Ford quote? Isn't there a Ford quote where he is like, I just, I surround myself with smart people. There's something, there's of my tongue,

Speaker: there's a story where they're like interviewing him, asking him questions, and he kept bringing in his, like, his, oh, his teammates to answer the questions.

And they're like, dude, four's not that smart. He was like, no, I just surround myself by smart people.

Speaker 3: Right.

Speaker: And you know, and that was his whole, like, your goal isn't to be the smartest person in the room. That's

Speaker 3: the quote.

Speaker: Yeah. Yeah. And so yeah, I think there's a part of that. I think it's good to, like, if you're, if you feel yourself doing that, take the deal to someone else who you do trust and be like, Hey, can you look at this?

What do you think? Oh, that's a

Speaker 3: good idea. Again, to

Speaker: stick with the tenant analogy we've been doing this entire time, like I'll have people come with me like, Hey, I'm looking at this tenant. What do you think?

Speaker 3: Okay.

Speaker: Like, I'm,

Speaker 3: yeah. They're like, I, I wanna fill it. And I'm like, I've got this feeling of like, ah, I feel like I just need to go, I need to jump on this, but is this really good?

Yeah. Like, talk me off the ledge. Yeah. Just give me, give me a dose of reality. Mm-hmm. To really mm-hmm. Make a good decision. That's smart.

Speaker: Yeah. So I think that's, yeah.

Speaker 3: All right. Don't be a leming don

Speaker 2: to a degree.

Speaker 3: Do it to a degree. Alright. This next one. Probably hits close to home for a lot of people is guilt.

So the people pleaser investor, ah, yes. It's okay. Yeah, I'll, I'll give you everything.

Speaker: Or it's, they had an hour long meeting with me

Speaker 3: and, oh, now that, now I feel bad and they were

Speaker: on the phone and I committed so much time to James. Man, I, yeah, I really, I think the only reason why he committed time with me was.

Because he thought I was gonna invest. And now if I say no, it was like wasting his time. And I feel bad about that.

Speaker 3: Oh, that's a bad feeling.

Speaker: They're investing outta politeness in that situation. They avoid asking the hard questions 'cause they don't wanna ruffle any too many feathers. Or how about this one?

They back weak deals to quote, support the sponsor. James is a friend. I'm investing in James, not the interesting deal, which I've, I've heard, but. I, I do strong deals, so it doesn't matter. Hmm. But but yeah, that's

Speaker 3: mm-hmm.

Speaker: That's the, yeah. Viola, the old people pleaser.

Speaker 3: Yeah. I could see how that could cause a problem.

And so, I mean, the fundamental core of this is like the relationship clouding your judgment. Mm-hmm. Right? Mm-hmm. So explain more about like, how you might get into a situation that you don't even realize that's happening. Is that just like you're, you're investing with friends or what, like you're saying it is someone you know, so maybe you don't have all the answers or the idea around investing in real estate and what that, what that means.

Well, it's

Speaker: sound like a broken record here. I think you can get yourself trapped if you don't have a process. There you go. For evaluating deals process again. I, because now you're, because, because if you don't. Now you're trying to rely on other signals to figure it out. I remember when we were at the Louv in Paris.

Mm-hmm. And remember we saw that one photo where there was like a set of paintings of people who had like fruit Yeah. Making up their heads. Yep. And there was, everyone was just walking by 'em. Mm-hmm. And we were like, these look cool. And so we took a photo. In front of him. And then by the time that happened, there was a small crowd of people who were also like, oh, I gotta take a photo.

And like when we got to the other end of the hall, like there was a crowd of people around these photos. 'cause we're trend centers. That's why. But no, like it was in the absence of any other information. You're taking cues from other people.

Speaker 2: Mm-hmm.

Speaker: And so in the absence of having a process for evaluating deals, you take cues from anywhere else you can.

Mm-hmm. And one of them is going to be, well, are other people doing it? Was this person nice to me?

Speaker 2: Yeah.

Speaker: And I think you can especially run into problems with, like, if you're investing with family mm-hmm. You're gonna ignore some of the numbers 'cause you wanna support the person and the relationship. Yeah.

And you're, and you're really relying heavily on that. So would you record, which by the way to date, I don't think I've had any family members. Yeah. I mean, that

Speaker 3: was kinda my next question was would you family recommend people to invest with family members? Ooh. Because of these types of, so

Speaker: I'm gonna take it from a, you know, if you are investing passively in a deal mm-hmm.

That you like, and then other, like, maybe you have a family member who's invested and they're like, Hey, I think this is being an investment. Okay. You should do it too. Okay. Like, that's the Yeah, that's how I would think. You wanna think about it? I like, I mean. If you do, you have to pretend like, okay, if they weren't invested, would I do this on my own?

Okay. Yes, they brought me to it. Awesome, thanks. But I don't want to, you know, or, and hopefully they don't say something like, Hey, I'm invested in this deal, but we can only close if we bring another 30 grand to the table. Mm-hmm. Can you help us close? Mm-hmm. You know, that's a hard conversation.

Speaker 2: Yeah.

Speaker: I've had ones where.

And again, the way I get around it is I've had people approach me mm-hmm. Of like, Hey James, you have a bunch of investors. Do you wanna essentially create this fund of funds and like, and be a big investor by pooling other stuff together mm-hmm. Into this one. And as people who I know and who I like.

Mm-hmm. And, and again, the way I've gotten around it was like, yeah, it sounds great. I want to know these 10 things. Mm-hmm. And they don't give it to me. I don't invest. I don't even, yeah. I don't even look at it. So having that process I think is really important.

Speaker 2: Mm-hmm.

Speaker 3: That totally makes sense. So number seven.

Speaker: Number seven, this is it. Number

Speaker 3: seven. This is the last,

Speaker: this is all the emotions, emotional. We have covered all but one emotion that are physically possible

Speaker 4: No,

Speaker 3: just in the, in the realm of what we're talking about. But the last one is the nostalgic investor. Ah, yes. And what recency, noia ency bias looks like in this space.

So. The feels, this is like the feels for which in some ways

Speaker: is combining a few other ones, right? Where it's the guy's like, Hey, the last deal I did was great, so like, this one should be too Yeah. There's that

Speaker 3: aspect of it,

Speaker: you know? Yeah. Yeah. It's a bit of an emotion. You're chase, but you're chasing this.

Like, you know, like if you had a great la, like if you had a home run deal. Mm-hmm. It's like, so it's a little bit of like, there's a little bit of the greed. Sure. There's a little bit of the overconfidence. Mm-hmm. A little bit of the fomo, that kind of stuff. So so again, part of it is like they're, the way it shows up is they're assuming that previous success will repeat itself.

Yeah. You know, and just not worrying about it. Which again, like again, as a sponsor. I tout my track record. Right. 'cause I want you to be like, oh yeah, he's done this multiple times. Mm-hmm. He can do it again.

Speaker 3: Well, and it's kind of like, you know, it is tempting to say that future success is going to, is based on this past track record, but to some extent it is.

Oh yeah. No, it's 'cause you have a process and you're following it and you're finding details. Well, I think that's, and I think,

Speaker: I think this might have been something you were trying to hit on earlier, and I'm just putting it together now. Like all these emotions are there and in and in a balanced way.

They're all really healthy. Sure. You know, you want to have some sense of, I want more, you want to have a healthy level of fear. Mm-hmm. You want to have a healthy level of impatience. Sure. And of the fomo. Mm-hmm. And of being a people pleaser and what's the other one I'm missing? You know, and having acting like that, that veteran with the overconfidence, you want to have, maybe not that one, but you, you know, but to that degree of like, you want confidence?

Yeah. Yeah. Of. Yeah. Of you wanna have some of that. I think that's important.

Speaker 3: Yeah. But there's a balance there. There's a balance. It's not balance. That's not the really, the only thing you're basing it off of.

Speaker: Yeah. It's letting one of these just really over index and guide your decision making process.

That's where you get into a problem.

Speaker 3: Okay.

Speaker: Right. So again, these are, these are another one who's like the nostalgic, maybe they're ignoring some significant macroeconomic changes mm-hmm. Because they're just going, Hey, it's static, it's all the same. This worked out last time. It'll work again. That's one of the reasons why I now do flips.

Mm. Because our macroeconomic environment changed. I was like, okay, yeah. You've got to do something different. Can't just do this one thing. I gotta change up. Yeah. The model a little bit. Add some variety. Like that's important. So is

Speaker 3: this kind of like, I think this, this relates a little bit to a conversation we had a while ago about a property that was used for particular use and, okay.

It's, it's, I feel like it, this plays into this a little bit where it's like a sponsor maybe only does certain deals.

Speaker: Yeah.

Speaker 3: Because that's what they've always done. That's what they love, you know? And this guy was selling, he wants to sell his business, wants to sell his property, whatever, but can't because it's like, I want it to be used this one particular way.

Oh.

Speaker: Oh, okay. I know

Speaker 3: where you're going with this. Okay. You know, and it's just like. Okay. But like, like you're saying, the market changed. The numbers don't make sense. Yeah. So I get that all you wanna buy is houses that look like little house on the prairie houses, but nobody's buying those and nobody wants those.

There's not a market for it. Right. You know, so you shift, you don't have this nostalgia or recency bias or Right. You know, you do each deal, which again, based on your criteria, I,

Speaker: it's good to have some of it, like for this one to say, Hey, I'm passionate about this thing. I get that it's not as profitable as it used to be.

I don't care. Yeah. You know, honest about that. Love it. Sure. No, that's, that's okay. That makes sense. Yeah. So the ways you, you can fix, if you're, you know, being too nostalgic I guess is, I bet you can guess. You gotta judge each, have a process po on its own merit, stick with that criteria, and sometimes you gotta change that criteria.

Sure. And that's okay. And I think it's good to look at a sponsor's track record.

Speaker 2: Mm-hmm.

Speaker: At the same time, separate that from the risks and opportunities in a specific deal. Alright. Like you gotta go through the whole process. That's the, yep, that's the lesson here.

Speaker 3: Process, process, process. Which

Speaker: if you want to do that, oh my gosh, I've got this awesome due diligence checklist.

It's, I don't even remember now how many, it's like 179 questions. Something like that around there. Yeah. It's a lot. It's a lot. Maybe like 93, whatever. It's a lot of questions and and, and I break it down through eight different areas of the investment, looking at the sponsor, the property manager, the property itself, the market.

Mm-hmm. The financials, the legal stuff, like all of the things. Yep. And I've even highlighted the ones that are specifically important. There's like 40 of those. Mm-hmm. We've, and

Speaker 3: done podcasts diving into each of those sections.

Speaker: Yes, we have. So I think we still got one to go, but, oh, there you go. Yes. Teaser man.

And so so, but like, that's the like that's the thing that I've created to try to help you offset over, like overreliant on some of these other emotions. Yeah. So, 'cause it's really important because I think you either a. We'll invest in a bad deal. Mm-hmm. Or you'll just never invest. Yeah. 'cause you don't have a process to do it.

Yeah. And I think that that's really important. So you can check that out at furlo.com and you can also see our investment thesis. You can see my track record and how awesome I'm doing and let yourself get emotionally excited about what I'm doing. But yeah, and honestly, you might also have some questions about what's going on and, and you know, what you're seeing and I would love to have that conversation.

So there's a spot where you can reach out to me and, and then you'll feel obligated to invest and you'll feel obligated. So you will. Exactly. So there you go. All so make that call all sorts of, yeah, exactly. Yeah. So yeah, so those are those those are those emotions. I think all of them are very powerful and if you're not careful, they can overwhelm you.

But there's one very specific tool that can help and a whole bunch another, a little fixes. So there you go. Thanks for listening and have a good day.