8 Critical Risks in Real Estate Deals Investors Should Never Overlook | Ep 57

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 residences so that together we can build wealth while improving housing. I'm James, and this is my wife, Jessi.

Jessi: Hey, I just heard something interesting. So I have this friend who's a You know, for New Year's, for 2025, she set this goal to go smartphone free. Okay. And yeah, so it's like they got a landline for their house so people can communicate like to the family and she's getting like a dumb phone. Oh yeah. No internet.

James: It's pretty hot trend right now. No

Jessi: camera. No, you know, I guess it texts and does phone calls. Okay. But she's kind of like the texts may or may not come through. So just call me, which is like, man, I, that is not how I typically function.

James: Yeah. It's kind of weird. Those old school phones are not designed for group texting at all.

Right. I've, I've been on once with those. And what happens is, is like, They end up sending just a single text, super confusing, super

Jessi: janky,

James: which is probably the number one reason why people don't now. So the big trend actually now is that they've created smartphones that act like dumb phones so that you still get some of the niceties.

Like, so if you want a camera, okay, you have one. If you want a text, you can do it. If you want an email, you can do it. If you want a phone call, you can do it, but you can't install any of the other stuff and oftentimes they're black and white. They might have like e ink type of screens. That kind of stuff.

Jessi: Which I, like, I totally get, you know, there's, there's different schools of thought on all of it. And, you know, she maybe is on the more extreme school of thought of, I want everything gone. I just want the very, very, very basics. Did she, did she say why she's doing this? I, I haven't talked with her yet, but I, I would like to follow up and kind of ask what her motivation is.

I, I think a lot of it is You know, you, we just create these unhealthy habits with our smartphones of reliance on for information, for photos, for, you know, just information that you can look up at any moment.

James: So you could say she's noticed some red flags in her life as a result of her smartphone usage.

Jessi: I think so.

James: And after the fact, she's now saying, Hey, you know what? This was actually, the phone was a bad investment for her. For me, and so I'm switching to a different, come on, help me out here. I see,

Jessi: I see what you're doing. I would say, yes, there were some red flags. So she's taking a pause. Okay. It's not a forever change, but it's a, but it was

James: a bad investment.

This is interesting at that time.

Jessi: Sure. And

James: so she's trying out a different investment to see if she can get a better return on her life and her time. Sure. Okay.

Jessi: There were some challenges, some interesting things that made her re evaluate.

James: I would say that. Okay. Yeah. All right. This feels like more information than we need.

So it's interesting. And what I want to talk about are red flags when it comes to real estate investing, because like a smartphone, oftentimes something can seem flashy and awesome right at the beginning, but then as you get further down it, you go, Ooh, cool. There's maybe not

Jessi: so good. Yeah.

James: This may not be all that it's cracked up to be.

Jessi: Yeah.

James: And, and so I want to talk about that and I've got a bunch of different categories, a bunch of different flags that are red that if you see these, it's not necessarily like, Hey, total stop, we're not moving forward. But it might be more of a, like, okay, I need to investigate a little bit more.

Jessi: Yeah.

James: So just out of curiosity, If you had, like, what would be red flags to you? Let's just start out with that.

Jessi: Hmm.

James: Let's see if you got any off the top of your head.

Jessi: It would, okay, is this like before I know anything about the property? Like, before I investigate or get numbers? No, no, no. Okay,

James: so someone like myself, a sponsor has come to you and said, Hey, I've got an investment.

Okay. Here's all the information. And I'm going through this information. And you're like, do I invest or not?

Jessi: Yeah. It would be a red flag to me. It's

James: all different phases. I think

Jessi: if. If after like the repairs and the fix ups and everything, it didn't make any money,

James: I'd be like,

Jessi: is this really a good deal?

Like, I don't think it was a good deal

James: for a long term hold. It's. To, to have it not have any positive cashflow is

Jessi: kind of like,

James: after the value ad has been added.

Jessi: Yeah.

James: Okay. Fair enough.

Jessi: That, that would be a red flag to me. Another red flag. Same.

James: If it's a flip, it's just the value afterwards. You're like,

Jessi: yeah, it'd be like, yeah, why?

That would be one, another one might be if information was missing, you know, if I was like, Okay, I see partial information here, but I don't have like you didn't give me the past rent rolls or Okay, you know like what the property could be worth or like like why are there gaps here? I might be like, why aren't you telling me everything?

Yeah, okay Do you

James: think there's any that are a bigger deal to you than not like what if they don't have like like a market? Like here's what the markets about and maybe it depends on the type of investment. You're obviously you're thinking more like longer term,

Jessi: right? I'm thinking like longer term. Yeah You I mean,

James: or like if they don't have a, okay.

All right. How about this? They just have a construction budget line item,

Jessi: right? But they don't actually specify

James: what that is. How much of a red flag is that to you?

Jessi: It's maybe not a red, red flag, but it is a, how did you come to that? Yeah. Yeah. How does this break down a little bit further? All right.

All right.

James: Gotcha. What about the opposite direction? Like You see all the numbers and they look too good to be true.

Jessi: Oh yeah. The, yeah, that could, that could like, if I was like, you're going to make a thousand

James: percent,

Jessi: okay.

James: Over a hundred percent. We're going to, we're going to. We're going to double your money in less than a year.

Jessi: Yeah. I might be like,

James: hmm,

Jessi: tell me more. How does that actually work out? And is that the true? Is that the case for every investor or you give me a sweet deal or yeah, there's something there that's like too good to be true. That's all right. Yeah. That might. Peak my, yeah, that's my, that's my

James: very first one is just what I would call unrealistic ROI expectations.

Yeah. As a general rule, like if you're a lender, you should see interest rates. It's going to be like that 12 percent range. If you are an equity person, it's also going to be somewhere in that, like that 12 to maybe 15 percent range, it might go as high as 20, but it's more like. Special scenarios that this stuff works out.

Yay. If you see things that are a lot higher than that, or, or in very short time frames, you might be like, I don't know.

Jessi: So, other than listening to podcasts like these, or reading books, or whatever, how would I know that it's working? Outside the range.

James: Ah that's a great question. I think part of it has to do with you look at a lot of deals.

I've got a due diligence check sheet or a checklist that you can download. And in there I talk about, Hey, here's what a normal range is.

Jessi: All right.

James: I think too, if it, I think people, you just have a sense of it. You know, if I, again, if I told you it's got a 50 percent ROI.

Jessi: Yeah. I'd be like, that seems high,

James: right?

So there you go. So that's kind of, if it feels high, you just got to ask a lot of questions, what's driving that? Yeah. Yeah. And similarly related to that, it's like, there's just no stress testing, right? It's like, it's one scenario. This is it. Like. Here we go. They didn't say like, well, what if this takes longer?

What if expenses are higher? What if friends don't grow as much?

Jessi: Yeah, it would be easier to believe if they gave me some range, you know, range of ideas based on different factors that might affect the return.

James: Yeah. Yeah. There's another one that's kind of an interesting one. This one's really hard to suss out, but it's leverage risk.

So in theory. As long as the interest rate on the, on a loan is lower than say the cap rate for a longer term hold, you should lever as much as you absolutely can. Because for each more incremental loan you get the better your it's a better lever Right now Oregon's a little opposite where mortgage interest rates are higher than cap rates.

So give me a

Jessi: real number example of that.

James: Okay, I'm just gonna make this up. But let's say you got a property you're buying if you bought it for all cash Your return on investment would be like 10 percent but if you get a loan because of Whatever you gotta do a smaller down payment.

Jessi: Mm-hmm .

James: Let's you get a loan for 50% of it.

Now, all of a sudden, again, I'm making this up. Mm-hmm . Your ROI could be 15%.

Jessi: Mm.

James: But if I get a loan at 75% now my ROI is actually 20%.

Jessi: Okay.

James: And, and so, and if I had a loan at 100% my RO, I would be infinite. Yeah, because in theory I didn't put

Jessi: anything down,

James: okay, so that's kind of the interesting, it's kind of, it is kind of exponential in that regard.

And so there's things that people can do where they go, Oh my gosh, we're gonna get you a 20 percent return. But maybe there's a 90 percent of it's on a mortgage, or something like that. Which I think would be pretty slow to do it. But let's just say,

Jessi: Yeah.

James: They figure out a way to, yeah, the loan, the bank gives them this.

And then they've got other private loans coming underneath to make it. That's the kind of thing where to get that, to goose up that return. Just gotta be kind of careful that, and it might be okay where they're like, they've got good reasons and they've done the math behind it and it's fine. That's particularly important for longer term holds.

You want to make sure that's the case. If it's a flip. 90 percent of the time it's 100 percent leveraged. So what was the

Jessi: red flag in like normal person terms? Oh,

James: the red flag is if that loan to value number is say like higher than 80%, you just want to ask a lot of questions about the business model and just really make sure that there's enough cashflow to make it.

Cause in Oregon right now it's flipped so it doesn't work right now. But in other places, if that's just one way that that's a dial that they can turn, it's like, yeah, we're going to get this thing to be huge. That

Jessi: makes

James: sense. Yeah. Yeah. A big red flag, a newbie, someone who's never done it before and isn't partnering with someone who has done it before.

Ooh.

Jessi: All right. Yeah. I can see that

James: Yeah. Just knowing our first round, right?

Jessi: Right. Yeah. We made some mistakes. That's actually interesting.

James: I would say for every single deal that I've done, especially last year, there was always something, there was something, there was some new element of every single deal.

Right. And I'm like, Oh, I didn't. I didn't know that. And just like slowly working through it. Like the one that we talked about a couple of weeks ago was, you know, on the one that we're splitting a lot, there's just, there's a lot there in terms of like, okay, the steps that you actually have to take to do it, to make it happen.

Jessi: I mean,

James: we're, we're taking the steps and we're, And we're doing it right. But it was actually funny. We had this whole round Robin set of phone calls at one point where we were like, wait, wait, wait, is this going to work? Are we allowed to do this? Is this a thing? And like, after an hour of calling, geez, it felt like it was like eight people.

Like it came back around to like, Oh no, that very initial meeting that we had, it was the right meeting. It's the right thing. It's the right step. But they just didn't, the way it was mentioned in the meeting, it got super confusing and cause the mobile home is technically personal property. It's not.

Oh,

Jessi: yeah.

James: Because that place is zoned in such a place where you're only allowed to have one home and there's already a home on there.

Jessi: So it's

James: personal property. And and we were like, well, yeah, but we want to like, we're going to split the lot. And then the question was, oh, and because it's personal property, in theory, once that person moves.

A home has to go away because it's not a home. It's personal property and super strange. We're fine. We got an exception because they know we're going to split the lot. And then once we do that, now we have a new lot that doesn't have a home on it so we can put one on it. And so this personal property can now turn into real property.

Jessi: Weird.

James: It's super weird. It's something I've never done before, but that's like, but that's the only element of it, everything else I've

Jessi: done. And

James: so I, that's like, I'm okay with stepping out on a ledge for this one thing. And like I said, it turns out we were doing the right thing. The very first meeting we had to split the lot, it turns out like, that's just an automatic thing that happens in the process.

And when I finally looped back with them, they were like, Oh yeah, no, you're good. Like this will turn into real property.

Jessi: So you

James: get all nervous.

Jessi: So basically you're just. Saying that someone might have a red flag if they realize this is the first time you've done this type of deal. Potentially.

James: Yeah. However, like if you've had someone who's like, Oh yeah, I bought a bunch of single family homes and now I'm doing this 200 unit apartment building.

Okay. All right. That's a course of their own color. I mean, think about this, the, our storage facility that we bought, it was bought by a bunch of house flippers and they flipped the house that was on the property and looked awesome, but they had zero experience actually running the facility and they were running it into the ground.

So we got a great deal. Yeah. But they had never done that before. So it was a bad deal, which is why we scooped in and it was like, yeah, we can come in and add some systems and operations and make this thing great.

Jessi: So you as a sponsor, like you like to do new and different and interesting things. It's true.

So how do you mitigate?

James: Yeah. For me, I try to only have like one new weird thing each time. All

Jessi: right.

James: That's my, like I said, the spot, the splitting of the lot, I bought homes, I've flipped homes. I know what I'm doing there. I know that entire process like with the storage facility, I'd already owned an apartment building.

I'd run it. I revamped it. We had taken it from moving everybody out, fixing it up and totally refilling it. So with this one, it was like, okay, I know how to refill it. The only difference is the marketing plan is a little bit different now, but the rest of the process is the same.

Jessi: All right.

James: And sometimes it's a different location, right?

Like the warehouses, right? That was one where it's like, yeah, I've rented out places. Now it's to business customers. The leases are different, but the fundamental thing is the same. So that's a good

Jessi: answer. And as an investor, you should be aware of those red flags and ask about it. Yeah,

James: yeah, exactly. And there's things that you can do if they don't seem like, again, if there's I mean, they're brand new, like that's pretty obvious, but you can ask questions about the market or just their track record.

What are they done? What have they learned? And they should like lay out like, yeah, here are the risks that I see. Yeah. Cause I thought of it. Okay. You've kind of, we kind of alluded to this one earlier, but essentially like some red flags would be. Just like vague plans, like not really saying here's the exit plan.

Jessi: Yeah, that would totally be a red flag to me

James: if

Jessi: I'm looking through things. And I, and I come up with more questions than answers. That'd be like, okay, like help me out here. Yeah. You know, if, if I'm asking these questions, you definitely should be asking. Well, it was very

James: different between saying like, we're going to sell this place, but if we can't reach the number that we want, we will then rent it until it grows to the point that we have versus saying.

Well, you know, we might sell it, we might rent it. We'll see, it depends. Yeah. You should always follow up on, it depends on what, yeah. Same thing with the construction plan. Right. Where they're like, so we're going to fix it up. Cool. Like give

Jessi: me some parameters.

James: Yeah. How much, how you know, these are the things to fix, you know, those kinds of things.

Yeah. Or if there's like, it's a strong market. Dude, what was it? It's in the Martian, right? Where, where they're like saying you'll be the fastest man alive. And he goes, fast is not a word that was a scientist or physicists use. He goes to describe speed. They're only saying that because they think I will, I won't notice.

And I think it sounds cool. I do think it sounds cool. Yeah. Yeah. So you just want to, you want to watch out for those kind of like superlative qualitative types of comments on things that are kind of inherently quantitative. It makes sense. Yeah. There's some other things where, I don't know, like, They're just, it doesn't seem like they're planning for things.

Like they don't have a reserve fund, for example, like for us, we, every single deal we set aside 10 percent to do it. In addition to just being all the conservativeness that we have. Yeah. That that's a big one or very aggressive ARVs. So like we had, we actually had a recent. Same property this one on Thornton Avenue where we we went in and said, okay, here's what we think the value is going to be when it's all done.

And then part of the lending is we got what was called a BPO, which is a broker, something, something. Broker price opinion. Boom, pulled that out, pulled

Jessi: that out.

James: Essentially another, someone else who's doesn't care, doesn't care. It's the party comes in and says, this is what I think the value is. And they gave a report and thankfully our number was less than their number.

So they were like, no, I think this is worth more than you thought. I'm like, yes. So so that's good. So, but like. You could have the opposite of that. And you just got to watch out for that kind of stuff. That's kind of, honestly, that's my, that's my, that's my move. I, I get conservative a little bit everywhere, which makes it really conservative by the end.

And so it always, it not always, but it's a classic under promise over deliver type of thing. And that just, that works for me. And that makes it so I honestly can be like, well, I don't have to be perfectly exact on everything. Cause as long as I always bias myself down. Yeah. Okay. Well, and

Jessi: as an investor, you've got to evaluate for that.

Evaluate that for yourself as well. You know, what are, what am I comfortable with? How conservative, how much buffer do I need in a plan to be able to be like, Yeah, I'm good with this. I think, you know, I trust it. Let's go.

James: Yeah, I think another round of risks has to do with like investor protections. Hmm, like for example So a waterfall is what they call how things get paid out.

Okay, we're gonna wish people get paid Sometimes a sponsor will set it up or like they get paid first and then only if there's leftovers everyone else gets paid Like that's not great. You should be opposite. That's what ours is Our investors always get paid first and then I get paid first And or they're just not transparent about it and just kind of like,

Jessi: yeah,

James: yeah.

That's a problem. So it's kind of an interesting one. No skin in the game. Oh yeah. Yeah. So you want them putting some in, this is probably the place if I'm just, Being honest that I'm the weakest at, I don't tend to put a lot of skin in the game. Cause we've got it in other places. I think for things like flips, it's, it's, it's less important versus say like a longer term thing, cause the longer ones, It would like flips.

It's like we got a game plan. We're working the game plan. Here goes the game plan. It's short. Whereas like longer term ones you're like, you really want to make sure incentives are aligned. And if that other person's invested, they're aligned. I tend to, at least do whatever the earnest money down is.

But, but yeah, flips are a little weird too, because you're raising way more than you need cause you're doing repairs and everything too. But yeah. And that's probably something over time that I will working on. On adjusting.

Jessi: And when you say, when you say skin in the game, you just mean like your sponsor as well.

Yes. I mean money, but I know money, but you mean as a sponsor, like your, your company is funding some of the deal. Yes,

James: correct.

Jessi: You're not talking about like you personally are also part of this investment. I mean, you are, but yeah,

James: I think I, and for me, honestly, like a big piece for me is reputation too.

Right. Put my name on it. Yeah. That's a big deal to me because I can only, I can only mess up once. So that's a, that's a big part of the skin that I have in the game. So I'm like, yeah, no, I'm out here. I'm talking about it. talking about it. And that's a big thing, you know, in some ways it's, yeah, making public commitments.

We're going to flip this thing. It's going to be awesome. Businesses are gonna make money. Yeah. Duh, let's see here. Oh there might be some like market red flags that you gotta look out for. Just like weak market fundamentals, you know, like, This is probably one of the things that Oregon struggles with.

Like I said, cap rates are really low right now, which means prices, especially for multifamily is are high relative to the cashflow that they provide. And so that's, that's a red flag for any investment. And, and so trying to say like, yeah, we're going to have something like, so if. If you know, which, cause you listen to things like this, you now know about Oregon's market.

If you could offer it a deal where they go, Hey, the cash on cash, the month, the month of cashflow is going to be awesome. You know, really,

Jessi: how is that going to

James: happen? Like, tell me more. Cause that's not normal. There might be some regulatory things. Right. Like for example, again, in Oregon for the longer term hold stuff, we've got rent controls, so you can't just say, we're going to go and improve everything and make it awesome.

Now what's cool about a property that I'm refinancing right now, it's a student housing and it's new leases every single year, which is awesome because it means every single year, boom, we get the reset, which is what we did for spotted and we didn't have to wait and do the slow incremental stuff, which is really nice.

But that's not the case for a lot of multifamilies. So that's one of those, like, it's not necessarily a red flag. But you want to pay attention to how fast they're saying they're going to ramp this thing. Cause if they're like, honestly, anything, it depends on how low it is, I guess. But you just got to like

Jessi: flag would be if the sponsor is making promises that you know, they couldn't keep.

Yeah. That's like, another one

James: that's not necessarily a red flag, but one that is It's dependent on a certain like business plan.

Jessi: So

James: like, I'm thinking like short term or vacation rentals, right? Again, it's not a red flag, but if, if what they're doing is that more niche type of thing, again, you just want to make sure they have experience in that area and it's always worth asking a question while that doesn't work, what do we have a

Jessi: plan?

James: There's a guy who I follow online. He does a lot of creative finance stuff and he always underwrites his things for longterm rentals. But if I can turn it into a vacation rental and make more sweet, if I can rent it out by the room and make more sweet, but the deal has to make sense as a longterm rental.

Cause that's the lowest return it'll possibly get. And he goes, yeah, worst case scenario. I play somebody, I walk away, I'm done.

Jessi: Yeah. That's kind of an interesting way to approach that.

James: Yeah. It's a smart way of approaching

Jessi: hedging your bets a little bit.

James: Yeah, yeah, yeah, exactly. And now he walks in saying, I'm going to try to do the highest and best use.

Jessi: But I can always fall back on it. Yeah, there's other options. Yeah, which I

James: think also helps on the negotiation side of things. Look, I'd love to pay more, but man, as a long term rental, this is all I'm getting. Help me out. Yeah, I like that. Okay execution issues? Flags, potentially? Timelines? You know, if they're like, we're gonna get this thing done in two months.

No, you're not. A lot of our projects are in that six month range. And honestly, we're That's an average. Some cases we actually go over in some cases we're way under. Okay. I have a question. Okay.

Jessi: This to me sounds like. If there's execution red flags, you're already in it. Sometimes you're you've committed, you're moving forward.

What would you recommend someone does if they're like, man, I thought everything looked good, but now like they told me six months and they haven't done it. They haven't returned anything. They, they didn't match their timeline. Their numbers didn't match what they said.

James: Are they communicating with you?

Jessi: Yes, I'm okay with that.

I would say in one scenario. Yes. In another scenario. No, that's, that's your tipping point. Okay. Yeah, the red flag is if they stop communicating all together. Yeah, something's gone wrong.

James: Yeah, I think so,

Jessi: huh?

James: Cuz there's reasons Sure. Yeah, as long as they're communicating I mean, all right Well, what would

Jessi: you tell someone if you were in that situation as the as the sponsor like you communicate to them?

Let's you miscalculated hugely. Okay, and you're like, dude, I Okay, you wouldn't call them dude, maybe Investor, man. I thought that this project was going to be, you know, 70, 000 to do all these repairs, but we found something while we were going through there and it's actually significantly more. 150, 000.

Yeah. Yeah. You just got to tell them. The timeline has to shift. You just, you just tell them.

James: And

Jessi: you don't think that would be a red flag. Oh, it's a huge red

James: flag.

Jessi: Oh, it is a huge red flag.

James: But I mean, what are you going to do at that point in time? You can, you're what you need to tell them is, Hey, we messed up on the underwriting, the plan isn't going to work.

So we went back to the drawing board. We did these four, whatever, three to five different scenarios. None of them are good. This one is the least worst. So we're going to go here, no matter what, we're going to return the money that we promised that we would get you. We'll figure it out. Even if it means I have to sell this other place to make it happen.

Interesting. This didn't work. Here's what I've learned. Here's what I'll do differently next time. So this doesn't happen. I mean,

Jessi: that's all you can do.

James: Yeah. I mean, how

Jessi: often does that happen that there's like a big surprise like that in a deal? Yeah.

James: Depends on the experience of the person, you know I I don't know.

Jessi: I don't I mean just in the in the set of deals think of all the cumulative deals that you've done what percentage of those had a That wasn't what I thought

James: so I think by this one that we're that we did it's a single family home in Lebanon It was a total gut start over.

Yeah, and anytime you do that, you're gonna have you're gonna have yeah, exactly Yep, but we padded the budget enough and we had some nice things that we wanted to do and we we did some shifting Like there's a bunch of work that we want to do in the garage and ultimately went, you know, what?

Jessi: Yeah.

James: I don't think we're going to do that.

We're just going to do the basics. We're the garage. Yep. And it's okay.

Jessi: Yep.

James: And and it was because there was a whole bunch of stuff with like the water and the, and the the well that it was on, it just, it was garbage once we really started looking into it. Yeah. We're like, ah, this is going to require a whole new thing.

And so there were like four or five of those types of things. Things that happened in the project, but again, we had a 10 percent buffer on this a hundred thousand dollar project. So we have 10 grand extra to play with. And some of that stuff was like, okay, we can, we can rob from over here to take care of this.

Cause this thing's more important. I was the closest we got to it. All the projects, one of our strategies is we try not to take things to studs and start all over. We instead focus on like, okay, what do we got to do to get this thing so that someone else can, what do we got to do to turn this into a lendable value add property for somebody else?

And that reduces a whole lot of risk on our end because we're not tearing into stuff. We're not trying to redo things. Instead we're putting that risk on the homeowner who has a lot more flexibility, a lot more budget to say, well, I'll just take care of this myself. I'm not going to say hire someone to do

Jessi: it and a lot more time to invest in it.

And yeah.

James: And so that's one of the things that we do to mitigate it. But yeah, no, at the end of the day, I think it's, it's not good enough just to say, Hey, we messed up. You got to come bearing solutions and it's the classic one, three, one, right? One problem, three solutions, one recommendation. And so that's the kind of thing that you come to people with and depending on the structure of the, the entity might even talk to people and say, Hey guys, what do we want to do?

We can, like, for example, you might say, Hey, this project, it's not what we thought it was. We can cut bait right now and. We're all going to either break even or lose a little bit of money, but we know it. Or if you're all willing to contribute 20 percent more, we can move forward. And we still think this thing will be profitable two years later than what we initially thought.

So we thought five years now at seven years, but if we can get over this hurdle, we think we'll get there. Or I don't know. We thought we would double your money, but if you contribute 20 percent more, so we can get over this speed bump, you're not going to double it, but you'll still get 50 percent or, you know, 150%, whatever.

And you might put it out to a vote. Hey, what do you guys want to do? And you'll have some people go, dude, I don't have the cash for this. You go, all right, cool. Now we've got decisions to make. And, and maybe you got to readjust the cap table, which is a pain in the butt, but you know, there's things like that that you can do.

Yeah.

Jessi: As an investor, you probably wouldn't get me to do that more than once

James: contribute.

Jessi: I might contribute with one adjustment to the plan. Yeah. If you had to come back and do it a second time, I'd be like, Nope.

James: That would be,

Jessi: we're done.

James: That would be bad. Yeah. I would try to like asking for a, doing a capital call is what that's called.

Okay. You want to try everything else before you do that one. It makes

Jessi: sense because it's like, it kind of indicates that you messed something up, didn't quite ask for the right number in the first place.

James: Sometimes what happens. And this can be super annoying. Let's say that you've got a project that you're doing.

Like you started it five years ago when interest rates were nice and low and you do all this stuff. And part of the exit plan was we're going to refinance this thing, return everybody's money, and then we're just going to hold onto it and enjoy the cashflow. And then in 20 years from now, we'll sell it or something like that.

And that's the plan where you go to do that. Well now, because interest rates are so much higher, turns out you can't, not only can you not refinance out everybody's money, You're actually gonna need to bring some money to the table in order to actually refinance this thing. And so now the question, and now that things get tricky, right?

You go, okay. So in order for us to refi, everyone needs to bring, I don't know, five grand, but we, in theory, we'll still make some cashflow as it goes on. And in the future we will be able to sell it and you will make a profit more than whatever, you know, or. Do we just sell it and, you know, and say, no, one's going to contribute.

We're all going to make a whole lot less money though, because, because the interest rates, because what you might be saying is because interest rates are higher, we're not gonna be able to sell it for as much as we want it to, because the next buyer is going to come in and not be able to qualify for as big of a loan.

Or we wait this out and we see if interest rates will lower in which case we will be able to sell it for more because people will be able to pay more.

Jessi: Right.

James: Oh, which is like, Oh,

Jessi: it could be a long time. Yeah.

James: Yeah.

Jessi: Yeah. It

James: could

Jessi: be. Huh? Interesting.

James: So those are the kind of conversations that you try to have.

That's one of the risks with the. Actually right now. Like if you can find a, a bigger deal that's long term in these interest rate environments, like that's amazing. Mm. Because chances of 'em skyrocketing. Right. I'm gonna knock on real quick. It's pretty low. And so if they do lower in the future, do it's like just a double win.

Yeah. It is indeed. Indeed. Indeed. Let's see here. I, we talked about the other stuff. Kinda hit 'em up like unclear communication was one of 'em. Mm-hmm . Oh, another red flag. This one's a good one to end on pressure to invest quickly.

Jessi: Ooh. Yeah. That would rub me the wrong way.

James: Yeah. I mean, I know for my stuff, I usually, I present good deals to a lot of people.

And so they feel fast, which it's like, yeah, you got to act fast. But

Jessi: well, but that's not you saying you've got to do this today. Otherwise, it's correct leaving your inbox That's just you saying here's the deal and there's multiple people being interested. So yeah, that's a little different.

James: Yeah. No, it's true Yeah, but that's like yeah, someone's saying like are you in or you out right now?

This is 11 style

Jessi: So that's all those spam calls. Oh my gosh. Yeah, I've had so many recently that like they are Capital type things like we've got money on the table for you today But you have to give us a call back within the next like 12 hours. Just like oh my gosh, by

James: the way, somehow no And so I was applying for a loan I'm on some document

Jessi: somewhere actually yours wasn't

James: bad I think one of my first day I think I got 60 phone calls and then I was down to 40.

I know it wasn't bad I think I only got like 15 or 16 I'm down to like

Jessi: two

James: a day. I'm excited for when that, when I finally drop off the list and they just said, I'm a cold lead, I'm not there yet. Block, block, block. It's pretty bad, but, but yeah. So anyways, those are red flags. I think all of those are important.

I think they're good to look at. And when you're evaluating deals in that moment you want to kind of keep those things in line and there's a whole bunch of them. Again, I've got a whole due diligence checklist. You may not need all. Of them, but it's worth the read through, keep them top of mind and maybe even pick out like, yeah, these are the things that I care most about.

They seem important to me. You can

Jessi: I think too, that's what I was going to say is make your own list of red flags that you're like, these are the things maybe based on yours, but also just from your gut. Like these are the things that matter to me the most. Yeah. You know, and when you're looking at deals, review those, make sure you're looking out for them.

James: Yeah. Yeah. Yeah, exactly. And if you want to check out mine, you can get it at furlo.com and you can also learn all about more about us and our investing philosophy and how things work. And so with that, I'll Thank you for listening. If you love this, would love it. If you gave it a like a review, wherever it is that you listen.

And with that, have a great day.