9+1 Key Lessons For Real Estate Investing Success | Ep 9

James: Welcome to the Furlo Capital, Real Estate Podcast, where we dive into the intricacies of investing in real estate and our mission. It's simple. It's to equip people to invest wisely, both in properties and in people so that together we can build our web. Oh man. So together we can build our wealth and improve housing together.

I'm James who really can talk. And this is my wife, Jessi. Hi. How you doing today?

Jessi: I'm good. I just took like a two hour nap. Man, that's nice. I mean, it was Super Bowl Sunday, so.

James: Yeah, that's right. Pretty,

Jessi: pretty classic for me.

James: Yeah, that's all right. You know, it didn't end the way that I wanted, but you know what?

That's okay. Yeah. That, that happens in real estate too. You know, we have plans and hopes and dreams for how something will go and it doesn't, Always end the way that we want. So, you know, I guess it's a good, it's a good lesson in knowing, like, there's more to life than just that thing that you're looking at.

So, we are rounding the corner to our tenth episode. Now this is technically number nine. It's not number ten. In preparation for number 10, I was trying to think through like, okay, what are my top 10 lessons that I've learned? And I kind of got in a role and I didn't come up with 10. I ended up coming up with 20

Of course you did. I know. That's how I, that's exactly, that's how I go. So what I thought would be fun is we do 10. On this one, on number nine, because I'm pretty sure I, I could probably find one to cut if I had to, but I'm not going to. So this is like so we'll do ten now, and then, yeah, and then I'll come back with you next week, and we'll do part two.

So this is like the bonus ten. Yeah, I guess so. And then you get the official 10. Yeah, and what I'm going to do for this one is kind of keep it more generalized, like investing principles. And then for the second one, because I kind of grouped them, the second episode 10 will be more like, Hey, these are things that we've done to.

Automate, Simplify, Scale, or Business, just things that we've learned. That makes sense. So a little more personal, a little more tactical. This one's a little bit more high level. That makes sense. Yeah so just out of curiosity, if you had to guess what one of the lessons were, what, I know I'm going to put you on the spot here, because I have not shared these with

Jessi: you haven't shared the specifics with me, but you kind of shared the concept with me.

Yeah. So I think, I mean, I don't, I definitely can wrap my head around like some of the logistical things for sure that we've learned. Yeah. So maybe that's conversation for next week, but it's like, we learned a lot about how to screen tenants and how to, you know, have conversations with people and what that looked like.

And I think maybe big picture there's, it's that it's, we kind of knew it getting into it, but it was developed and it was. Just this idea that these are homes for people, you know, it's like, yes, it's an investment. And yes, it's a business that we're running, but it's a home, you know, so it's like,

James: how would we set up this home?

You on both of those that you just said, those are both my number three. Interesting. Yeah. So I said, number three, which will make, I guess, number one is treat tenants the way you want to be treated. He said, and it solves many problems also learn how to screen well and issues don't tend to come up as often.

Yeah. And my, and then I'm parentheses. I wrote, it's an early defense to property. If you. If you get good people in, and you treat them well, things tend to go well, and there aren't a lot of the other tools in the toolbox that you need to bring out. You don't need to get great at giving notice last second.

You don't need to get great at figuring out all the eviction rules, like all that stuff. Or a bunch of fixes

Jessi: or something,

James: you know? Yeah, just because you've got good people in. And you treated them the way that you wanted to be treated. You respected them. I remember we had this guy come in. It was this club that I was running and he's a, like a tenant advocate.

And he was like, two rules, easy, respect and communicate, respect them and communicate with them. And 99 percent of your issues will be resolved right with that. Yeah. So those are good ones. So my number one that I had was only buy properties with a clear or obvious path to profitability. Haha. And then I said, don't depend on market appreciation.

I

Jessi: am laughing because I remember. Yes, that is a lesson, and that's

James: my rule. And you'll appreciate my follow up here. It says, Positive cash flow fixes a lot of problems. It does fix a lot of problems. And I, I

Jessi: mean, I would see that one, too. It's like, that's a, that's a, an offense. An offensive, or a defensive move you, you do early.

Like, I

James: don't know. I wouldn't, I would try to get away from that particular analogy going forward. Yeah, that's true. Cause yeah, it's just, it's just smart. And our, when we very first got started, the rule that you instituted was that it had to be profitable from day one. Right. So you can see I've modified it a little bit, which is that there just needs to be a clear and obvious path.

It's okay if it's not day one. Cause like when we bought the apartment building, it wasn't day one, it took six, seven months for it to happen. But then it did happen, and it's been a fantastic investment, and so I think that's like an example of something where it's like, yeah, it doesn't, but you have to have that clear path how to do it.

I think there are a lot of people out there who. They go, Oh, I bought this home with this rental for retirement. And, and they're like, and it breaks even in the sense that yeah, the rent for the most part brings in more than the mortgage, which is great, but they're not necessarily saving for repairs or other future stuff or vacancies.

And when that comes up, they just kind of lose out on it. But, and I've, and I've talked to people where they go, yeah, but it's okay. Cause I'm in this for the longterm. I don't actually need to make money today. This is for when I retire in 20, 30 years. And I think what they miss is. Yeah, but if you bought smart today, it would contribute to your retirement today.

You wouldn't like, you don't have to set up a break even. And so that's my, that's probably my number one rule. Number two, buildings age and need to be maintained. And so even if you're not doing the work yourself, you need to be able to recognize good craftsmanship. Kind of related to that is YouTube is my best friend for repairs.

So if you're actively investing, like. Either you got to do it or someone else has got to do it. If you're going to do it yourself, YouTube, you can learn everything. It's like one of the most amazing teaching platforms in the world. It happens to be free with ads,

Jessi: but some work should be done by professional,

James: but well, yeah, and some work has to be.

And, but I would even go as far as like, if you are going to hire people to do the work, you have to recognize. Okay. Looks like. Sure. Otherwise you get taken advantage of. I suppose you could hire a property manager and trust them to do it, but there's just something to be said about like, you need to be able to recognize what has to happen and just that like, and something will need to happen.

Buildings get old. Stuff happens. Windows break. Pan gets old. Roofs die. You know, they don't die. They get old. They get old. Yeah. Water heaters die. That kind of stuff. It happens. Especially if you're in it for the longterm. Yeah. And you know, if you're doing flips and stuff, which is totally like. Which I guess as a business, you care less about that, but yeah, that's a rule.

Well, long term maintenance, yeah.

Jessi: Yeah. I mean,

James: yeah. Yeah, oftentimes if you are flipping, you're buying it because someone didn't do that, and now you get to come in and like, catch up, essentially. Yeah, so we talked about number three, which is treat tenants nicely, and learn how to screen well. I think that's probably been our biggest secret thing.

It's just like, we got really good at screening, and I think that's helped with a lot of things. And we got good at just, Treat them like humans. I have more to say next week. Yeah. All right, number four, reducing vacancy risk with multiple units is nice. Just remember to factor it in for a single family home.

So this was something that when we first got, we have focused on multifamily units. We got a single family home, but that was because we first. Moved in for ourselves, and then we ended up renting it out later. But for the most part, we have focused on multiple tenant places, whether that is multi family, warehouses, storage, whatever.

And, and again, for us, it was a really easy way for just reducing our vacancy risk. Right. I guess, and the bigger you get, the smaller that is. It's funny, I've noticed like with the, with the storage facility, I had 70 units, and none of them were making over 200 a month. And so when one went vacant, like, I wasn't freaking out in a rush to, like, drop everything and get it filled.

Yeah, it was, like,

Jessi: spread across many.

James: Yeah, because I was like, oh, like, relative to all the others, this is negligible and I'm just going to trust the process and eventually someone's going to move in. And whereas Like when we had our duplex, which was a three bedroom type of place, it was a few thousand dollars a month.

Yeah. That was like, they gave me notice. I was like, Oh yeah, here we go. I got to get to work. I got to get someone lined up. Yeah. I guess I felt that a lot more. And even though that was a duplex, I felt it. And I know I'm going to feel that with the warehouses that we own. Right. It's like, Oh man, there's like, I have three tenants and they're three really large tenants.

And if one of them moves out. It's not that we're hoes, it's just like, it's going to be a big deal. Yeah,

Jessi: it's a significant swing in income, and I would imagine, you know, like, certain, I guess there's a market or clientele for any of those different areas, but it seems like the pool is smaller for like, that commercial large warehouse space is like, not the same as Yeah,

James: that's true.

Yeah, that's both of it. So I feel like it's kind of this weird Even with the warehouse, it's our largest vacancy risk, I guess. Which I guess makes sense. It's also the least number of tenants we have. And again, they're also the biggest, and which is, that's the game. And so, but yeah, so all this like, just recognizing that one way to solve for the vacancy risk is to buy a multifamily.

But if you buy a single family home, like, Include it, do the numbers, add a number in there and just be like, save for it, be ready for it. Sure. That's I guess the lesson there. Number five, real estate isn't a get rich quick scheme. It is a long term game. And if you're doing it yourself, be prepared to invest your time in property management repairs and keeping up with legalities.

And I got lucky. I happen to think all of those things are fun. And again, that's like, if you're managing it yourself, and even if you're not, you need to be up on those rules because you can't just rely on your property manager to do everything. I mean, they will, but it just, it won't be potentially optimized or exactly what you want because they're.

Going to lean on you. Yeah to some extent.

Jessi: Well, it was that similar point you were making with fixes It's like you've got to be able to recognize whether they're doing a good job or not. Yeah, that's not perfectly. Yeah, but You they're gonna want some feedback and buy in and how you want things in certain cases You've got to be able to give them

James: give that to them I think I'm and I think it's just continuing down that recognition of like this is a long term game.

Yeah, like it's Yes, you can get into flipping you get into wholesaling and that is more like quick turn like you're super active Yeah, that kind of stuff but just like classical real estate investing what we'd call passive income because all those things are active income Yeah, passive income. It's a long term game.

Yeah for sure and not a hundred percent passive Correct. Yeah. I would argue no investment should be, but that's, that is a different conversation. All right. Number six, sometimes you have to cancel all your plans for a few days to deal with a repair or turnover. It's tough. But it's only because it happens so infrequently.

So that's one of the things that I've learned. And like, like, our portfolio has reached big enough now where like, well, I do it full time. But it's like, I, so I had the flexibility in my schedule. Right. And so things come up. Like recently I had to replace a bathroom floor. Everything that goes with that, including putting in a couple extra joists to give it support, like everything, and I had the flexibility to do that.

The last time I did that was in 2019. You know, it just doesn't happen that often. Yeah, it's very infrequent. Yeah, and this one honestly could have been avoided if the tenants told me, but whatever. We're gonna let that go. Tenants Uninherited, how about that? And so yeah, but it's just one of those, like, When it happens, it's a pain in the butt and you have to be willing to say, I know we had plans to watch the game or to go at a friend's house, but this is a business and like I need to focus on this and you just need to do it.

And I, we've had some like. Especially when I was working for HP, it was like, I would get home from work at 5 o'clock, change as fast as I could, be over to the property by 5. 30, and come home around 2 a. m. She'd be like, this is what I'm doing, until it's done. And, and it was just how it was. But it was also one of those, for like a, for that level of, and that was one where we had inherited, the one I'm specifically thinking of was on Jackson Street.

And we had inherited these tenants. And she finally moved out after we'd owned it for like four years for that. And it was like, and it has, it just hadn't been touched and she had been living there for. Many years before that. And so I was like, all right, here's my chance to go in and redo it. So I did.

And it was just like, it was just crazy, but not oil type of stuff. And then it was done. But like that in the entire time that we owned it, that was the only turnover that we had. Yeah. And that was it. And so as a result, if you only have a few properties, you tend to not create the buffer in your schedule.

You just go on and do stuff like, Oh, I have plans Friday night. I don't know. I have things that we do on Saturday because like. If it happens once every other month or once every quarter, once every four years, like there's no reason to build that in your schedule. So that's just that recognition of there will come a point in time where I will have to cancel something and it's a pain.

In the moment, but it's okay because the reason why it's happening is because it doesn't actually happen that frequently. That's my, that's my lesson. They're trying to reframe something that feels annoying. All right. Number seven is save financial reserves. So you want to make sure that you're saving for large capital expenses and that's our heater officially turning on pretty well.

And so, they're like, I don't hear anything through the mic, and we're just like, oh man. So scraping together the down payment and the closing costs isn't quite enough. And when we first got started, that was exactly what we did, but I also had a really good job. Right. And that kind of played the role of reserves.

Sure. Because at one time we were like saving 70 percent of our income, and so I was like, eh, whatever. Yeah. We don't need it. Anyways so a good rule of thumb is to have either an extra, 1, 000 per unit in reserves, or essentially three to six months of expenses. And then what you want to do is you want to continue to save either 5 percent of your revenue or about 250 per unit each month towards bigger capital expenses, because again, Rule number two, buildings age and need to be maintained.

And so this is where number seven is like, you want to have those financial reserves. And I think that for us, there was this transition, like, again, our reserves was, Oh, I have a job and I make plenty of money, so I can always play catch up. But that was something we had to learn when I left my job, like, Oh yeah, no, actually like those reserves matter.

We have to have those. We got to make sure we have enough for everything. Yeah. And yeah, there's some. Economy is a scale that you can get when you have a lot of properties because you don't necessarily need to have all the money saved up for everything going down because the chances of that happening are very narrow.

So there's some savings, like some things there but but yeah, no, you want to have some reserves. Yeah. Yeah. I like reserves. You're like, that's a good rule. I'm all about buffers. All about the buffers. I don't like playing things for both. So that's good advice. I understand. Good thing to learn.

Number eight, learn the legal stuff. Investing in real estate involves contracts and tenant landlord laws and understanding these intricacies is crucial to avoid costly mistakes. And yeah, I think that's true. Even if you have a property manager, again, like there's just certain things that it's good to know about.

And, and if you're a passive investor and there are certain laws as a passive investor that it's important to know, like you cannot participate in the daily. Management of things like that's important though. And if you do that, that potentially makes you no longer limited, which has certain potential liability implications behind it.

So there's things to learn on the legal side. And, and there's certain states like Oregon that continue to get more and more restrict on landlords, which just makes it that much harder to be a landlord, especially if you're not going to screen well at the front end. Yeah. And so it's It's just something you gotta think carefully about.

And so if you have a property manager, again, or you have a sponsor who's investing for you, you don't have to know as much, but you do kinda need to know the broad strokes of what can happen. Yeah. Learn the legal stuff. It's important. Number nine. The real estate market is always changing. So you need to stay ahead of the curve by understanding local trends, property values, and potential growth areas.

I'm sure there's a lot more there too. But so just like, yeah, the market is constantly going up. We're flat in this area and some places it's going down and there's even places in town where you go, Oh yeah, this is on the rise or not. And especially if you're continuing to acquire, I think that's important.

And I think that was, that was ultimately what led us to sell three of our properties and flip those or 1031 them into the warehouse. This was, I was paying attention to the market. I was like, Oh man, they're like, I would, I think everybody was at the time. I was like, Oh man, this is getting crazy. Started to do some math and was like, Okay, I think it's time for me to sell these guys.

So you just gotta stay on top of it. Yes, holding on to a property for 30 years might be the answer. But maybe not. And it's just worth paying attention to what your options are. Alright, you're gonna like this one. This is my last one. Real estate takes emotional resilience. There will be setbacks and challenges.

Being mentally prepared to handle them is as important as the financial aspect. You will have tenants lie to your face. Some will move out without paying last month's rent and you will have unexpected, expensive repairs. And you gotta like, you gotta be ready for it. I've told the story of, at our apartment building, there was like a windstorm or something that ended up blowing half of the electrical line off the building.

We're like, I guess there were two lines coming in. Technically there's four. There's first floor, second floor, and the second floor. There were two lines coming in and one of them broke. So one of them was working. So it was really interesting because the outlets kind of worked. But none of the appliances

Jessi: did.

Because the electricity was shared across both.

James: I don't know enough about electricity. I feel like it was as if it was a 220 coming in, and then it kind of turned it into a 110, so the outlets would work, but the appliances wouldn't, or something. It probably, I was probably completely wrong about how it

Jessi: works.

Electricians around the

James: world are laughing. They're like, what are you talking about? I don't know. Who knows. But it was like, yeah, it semi worked. And I remember I called, My electrician guy, one man shop, he's awesome. He dropped everything, came over, looked at it, and he was like, this is a big project, this is beyond my scope.

I'm like, oh great, who do you recommend? He called someone, and they're like, yeah, we can come in here and we can do it, and like, and they did. But it's just like. It took time because part of it was the work with the city to get things right. They had to talk with the city to say, if we do this, will this make you happy?

Because for whatever reason, the city wouldn't just plug it back in because of where it snapped off. They're like, we're going to have to go down and get it. And so you need a new wire. And the second they looked at the wire and what it was leading to, they went, the box that you have is now old. This is like, it just quickly became a thing.

So they had to essentially abandon the top level system and then build up a whole new thing. It was it was a thing. Yeah, and and it was one of those like the bill started at like 10 grand to fix this thing You're like, oh, that's awesome.

Jessi: Which is like kind of like your reserves. Yeah,

James: it wasn't kind of save That's all of your reserves.

Jessi: Yeah, you know, it was

James: a chunk. I did not enjoy writing that check But yes, like you're your last but here's the thing emotionally. So that was that but at the same time I had tenants texting me being upset that we didn't have electricity. And I remember I had one, it was like, it was like five in the morning.

I don't know why I was up. But she was up and I was watching like her texts come in. Like she was talking about how like things in her freezer were melting and she was supposed to have a dinner party at her house, at her place. And like, it was just like, she was super up. And I got, I was just watching the ding, ding, ding, ding.

And I was like, oh man, this tenant's like. She's clearly just really upset right now. And so I actually just called her right there on the spot. I was like, Hey, got your text messages. I'm so sorry. And the second I got on the phone, like she backed off, she calmed down, but it was like, Like, that was, that had to be a response.

Like, man, I'm so sorry. Like, this is a pain. I totally get it. I'm sorry. And that requires that emotional resilience, right? Or the emotional intelligence, I guess. Ha ha ha. I always claim I have low emotional intelligence. So I do it right. And on that case, so We all have areas we can grow. But yeah, and I just kind of gave her an update.

It's like, hey, here's what's going on. Here's the plan. We're moving forward. Which I had been communicating those things, but it was just good to talk about it in person. But yeah, it was, that, like, that's just an example of something where it was like, yeah man, wasn't easy. But, and it also wasn't life threatening, so it was Okay.

Mm-Hmm. , we've had some other stuff. Mm-Hmm. and I haven't shared this story super broadly, but yeah. We had a, a tenant at a property we weren't managing. Mm-Hmm. Take his life. Mm-Hmm. . And it was like, oh, that's a thing. That's,

Jessi: yeah.

James: That was intense, intense, heavy. That was, it was like, I didn't, it was weird because I had a property manager, didn't actually know the tenant's name.

Mm-Hmm. didn't know anything about him. Mm-Hmm. . And but yeah, I still felt the weight. Like, oh man, this was one of our. Yeah, it was, it was tough. So yeah, it takes emotional resilience to do it because you'll have setbacks and other stuff that happened.

Jessi: I would imagine most most fields where you're working with people take that sort of strength and, you know, there's ebbs and flows and in relationship and some of that can be hard.

And. Often, probably, people don't associate that with investing in real

James: estate. Yeah, that's fair. Yeah, okay. That's fair. Because I remember I had a summer job once. Oh, you're just managing things. Yeah. I had a summer job once where I was working for the high school helping to repair textbooks because they would lend them out to students during the year and then we'd get it back and we just like, we used to have stacks of them and the job was to go through and fix broken pages.

Tape all the edges. Tape all the edges. All that stuff. And then what we would have. would like some kids who don't return their books, like our kids. It's kind of annoying, but whatever. And, and there would be a couple of cases like you don't get your diploma if you still have outstanding books or book finds, and there would be a couple of senior parents who would come in.

And just yell at us and be so upset because we were stopping their kid from graduating. Which was like, I don't know, I don't want to tell you. I'm just some kid. Yeah, super interesting. That was probably my first exposure to the helicopter parent concept. I didn't know it at the time, that's what was happening.

But Yeah, and it's like they would just call and just be irate and I just was like, I don't know whatever you take it Okay, I'm gonna pass you off to my boss now You just cussed me out. Yeah, as a parent It's kind of crazy. But anyways, those are probably the ten things that I've learned. I'm sure there are a lot more as a matter of fact I'll share ten more in the next episode, but I think those are like ten good like high level general Truisms, things that we've learned, that if you keep some of those rules in mind, especially that first one, just buy a property, a profitable property, it solves a lot of problems.

It's true. I think I think there's some good rules. So there you go. Do you have any one where you're like, this is my favorite, I like, yes, definitely do that one.

Jessi: Probably the tenant

James: one. Oh, okay. Yeah. Oh, you're gonna love next week. It's a people business. I'm such a teaser. You're gonna love next week.

Yay. I promise. Cool. Awesome. Well, with that, if you enjoyed this podcast, we would appreciate it if you left a rating or a thumbs up or however it works wherever you listen to your podcasts, that would be awesome. So thanks again for listening and have a great day.