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An 18-Unit Investment Opportunity on the Oregon Coast | Ep 16

James and Jessi doing calculations
In this episode, we examine a potential real estate investment opportunity: an 18-unit property owned by a nonprofit. We discuss the financials, challenges, and a creative financing solution to make the deal work. We also examine various aspects of the deal, such as rent subsidies, seller financing, and operational expenses.

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Show Notes

  • 00:00 Welcome
  • 03:29 Diving Into a New Multifamily Syndication Opportunity
  • 05:12 Exploring the Potential of a Unique Property
  • 09:25 Creative Financing Solutions for a Challenging Market
  • 16:38 Navigating Rent Increases and Tenant Management in Oregon
  • 19:26 Investor Considerations and Return Expectations
  • 26:39 Creative Financing and Seller Financing Strategy

Key Lessons

  1. The nonprofit's dilemma is an investor's lesson: When a nonprofit struggles with a property that doesn’t fit its mission, it reminds investors that every investment should align with their goals. If a property doesn't contribute to your portfolio's mission, reconsider its place​​.
  2. Creative financing is the spice of real estate life: Zero-interest financing from a seller might seem as rare as a unicorn, but it's all about negotiation and understanding needs. Be the investor who finds unicorns​​.
  3. When raising rents, remember it's a marathon, not a sprint: The path to increased rents and property value is a marathon filled with regulatory hurdles. Pace yourself, plan for the long run, and remember—it's about gradual growth, not a quick dash​​.
  4. Board decisions are not just about the boardroom: When a property sale involves a board, it's a reminder that behind every investment, there are people and processes. Understanding their perspectives can unlock doors to opportunities​​.
  5. In real estate, sometimes you must pay full price to uncover hidden gems: Paying the asking price based on future value is like investing in a map that leads to hidden treasure. Sometimes, the full price is just the entry ticket to a wealth of opportunity​​.

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Read the Transcript

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

Jessi: Yep.

James: Yep.

Jessi: I don't ever know what to say to that.

James: Yeah. So okay. So let's have, I listened to this other podcast radio show where they go, let's have an on air meeting. Real quick. And it's usually them talking about like, some sort of like meta thing.

Jessi: Oh, like that?

James: Yeah. Yeah. So what I do is I think of like something I wanna say ahead of time.

Oh. And then I just launch right into it. Like,

Jessi: well, yeah, but you're like running things.

James: Well, I know. So like, so all right. So let's, let's reverse it. Go ahead. Give it a shot. And I'll show you what I mean. This is going to be super fun on air. We're doing this live. Well, it's my first time

Jessi: for the intro.


James: And I

Jessi: used

James: to do this all the time because my brother used to give the intro. And so I got to practice the response to it. Yeah. Yeah. Go ahead. We'll give it a shot. Okay, go ahead. Here we

Jessi: go. Welcome to the Furlo Capital Real Estate Podcast, where we dive into the intricacies of passive real estate investing.

Our mission is to equip people to invest wisely in both properties and people so that together we can build wealth and improve housing. And I'm here with my husband, James, and we're going to do this podcast.

James: Yeah. Super excited to be here. And I'm excited that we do our, We are no longer being interrupted by our son who had just come in despite having a recording sign on it.

Yes, we are recording this while our kids are in the other room watching a show. That's He

Jessi: wanted popcorn. I mean He wanted

James: popcorn. I get it. That's mostly because it's dinnertime and he's hungry. But but it's all good. So it's gonna be a quick episode. He's happy. He's happy and we're here recording and I'm super pumped to talk about a particular property that I've been looking at.

And that's how you do that. That's how you do that. So you got to think ahead of time, like, what's my, what's my little thing? That's how, that's

Jessi: how it's done. So it doesn't have to be related to the podcast. It could just be like a, Oh, here's my response.

James: Yeah. Yeah. Here's what I'm thinking about. I do that on phone calls all the time, actually.

When I'm calling people like I, I, I don't ever call you cause well, I live with you. But like when I call one of my parents, I always have like a, I, I, I never try to lead with the, hey, how are you doing? Like, I'm always like, I just launch right into the thing. I don't know why. I just, I feel like you have better conversations when you skip the pleasantries and just like get in.

And usually it's like off the wall. You

Jessi: do, you do that to me when you, every once in a while you'll call to tell me something. But I just thought that was like, you do that to me because like, you're not going to be like, oh, hey, babe. What's going on today? Because like, you know,

James: yeah, no, I, yeah, I try. That's so funny.

Yeah. Yeah, that's the thing. So that's how

Jessi: I do that.

James: Yeah, you typically call and you're like,

Jessi: Hey, yeah, one thing. Buh, I'm like, oh, okay.

James: Yeah, we're, I really throw people off because like when they'll call me, I will think of like, well, I'm waiting to answer it. Like, okay, what's the, okay. All right, here we go.

And he's just like super topical about like, here, here's the thing I was just doing and I'll just talk about it. And I don't know, it's weird, but that is

Jessi: not what we're talking about.

James: Exactly. Not at all. Wow. We're, that's all right. So I'm looking at another multifamily syndication property. Yes. I got so confused at one point because they were talking about it.

They were saying, oh yeah, it's in North bend. And I was like, okay, cool. And they're like, yeah, and it's, and it's near the water. And I was like, there is there's water near bend and yeah, no, I, no, no, no, not that bend. North Bend, which is near Coos Bay on the coast.

Jessi: So apparently

James: there's a coastal city named North Bend and then there's the inland one called Bend.

Good job Oregon for creative naming stuff. Well, I guess you gotta, yeah, so, but I also, I think that just speaks to honestly, like my geography skills are really bad. I, yes. I was that kid who in elementary school. They would do like, write out how many state names as you can. You got like, what, like a minute or two minutes or something like that.

And I'd top out at like 10. Like, dude, I got this. And I was like, I got California, I got Texas, I got Florida, big

Jessi: ones.

James: Now I'm like, I don't know. I didn't even have Oregon. I was like, who cares about that state up top? I might've had Washington. Cause like I, oh, I had Maine. Maine, Maine was always a giveaway.

Alaska, Hawaii. I think that's my 10. And then I was like, I don't know what, like,

Jessi: perfect.

James: I'm only slightly better now.

Jessi: Well, you don't need to know where they are necessarily. If you can look it up on a map, but this one's on the coast.

James: That's true. This one's on the coast. Yes, it is 18 units. They are asking 1.

8 million for it. And it is owned by a nonprofit. Mm hmm.

Jessi: Are the units is like, what's the setup? Is it apartment building? Is it individual unit? So it's actually, I

James: think if I remember correctly, it's motel, which I know what that is now. Yes. It's two buildings. They are apartments. One of the buildings has 12 units and they are all one ones, one bedroom, one bath.

And then the other building, they are all two twos. Interesting. Two bedrooms, two baths.

Jessi: And they're just right next to each other. Yeah, probably.

James: I haven't, I actually haven't looked at like the Google map satellite layout thing to figure it out yet. Mostly because. I don't really care until I have an actual offer on they,

Jessi: Multi story buildings?

Yeah, they look like

James: they are. And there's like garages or carports under at least one of them. It says they all have some sort of storage related to it. They spend a stupid amount of money on landscaping. And so Landscaping? Yeah, so I'm guessing there's some land that I I mean, I didn't They didn't catch my attention or anything on it.

So I don't know. I've never been there. Maybe they have a little courtyard. I think I saw it's a two hour drive, I think. I think. Yeah. From our house. And I'm just not gonna drive down there. Until. So,

Jessi: is North Bend north? South of us?

James: Yes, it is. South of us. Okay. Yes. Yeah. I thought

Jessi: it was, because Coos Bay is south and.

James: Yeah, yeah. It's like, it's, when you look it on a map, if they didn't have labels, you'd think it was just one big city.

Jessi: Okay. Interesting.

James: Yeah. So kind of, yeah. Okay. Yeah. So, it's kind of an interesting situation. They, their whole thing was to provide Low income or subsidized housing for folks and so the way that multifamilies are valued It's all based off the net operating income.

Mm hmm. So you have your rent minus your operating expenses basically everything except for interest and mortgage payments and And then that's like, that's the magic number. And then there's some magical other number that you divide by that tells you what the value of the property is going to be.

And that's just, you derive that from other comps. Essentially they will do rent, they'll do surveys, Hey, what's your N and Y? Would you buy it for? And that's how they'll figure out like what that ratio is. It's usually in Oregon. It's kind of going to be in that like five to seven percent range. And so the math is really simple.

If you want to increase the value of a property, you increase the operating income and there's a direct correlation to its value going up. I mean, that's how both banks use. That's what appraisers use for those bigger places. Not true for single family homes. That's all determined based on comps on the market.

For bigger properties, that's the deal. Yeah, so if you get a place like this where they are purposely keeping rents low their net operating income looks Horrible. Super low. And so if you were to do like the regular math for what this place would be worth, it's worth Maybe like under a million dollars.

Yeah, maybe 980. Hmm. So they're asking twice as much for what it should be Interestingly rents are not half of what they should be. They're not quite that subsidized They're like 20 percent below the market interest area. I think that's right. Let me check. I know I lied They're half they are Their current average weighted average is 676 and it could be averaging closer to a thousand.

Jessi: Wow.

James: So those one ones are getting six 24 on average and the two twos are getting seven 80 and I've got my, I've got my laptop here with all my numbers. And and so for those one ones, instead of the six 24, they could be getting nine 50, which is like a 52 percent increase and for those For the six to twos, a lot of numbers here they are getting seven 80 and it could be 1100 based on just what I saw.

Yeah. Which is like a 41 percent increase.

Jessi: And that's based on North bend numbers. Correct. For rents. Yeah. Yeah.

James: Rents in that area. Yep. So it's one of those weird deals where when you buy it, the initial numbers look horrible. Right. But there's 50%. upside on it. And so it can actually look pretty good at the end.

Here's the other problem that you have in this lending environment. Lender wouldn't touch that because when I looked at it, when I did the, the in place estimate the net operating income is not enough to cover a mortgage, which is kind of a, so as a

Jessi: nonprofit, they're, There's,

James: well, they think cash for it.

Yeah. So they don't care. Or they didn't, they bought it for like a million dollars is what they bought it for. Okay. Which honestly is, so they ran into problems. Right. They've invested a ton of money into it. Okay. But they never really increased the rents. And so guess what? It's still worth a million dollars because of the way the math works.

Right. And, which is hard, but but yeah, that's how it is. Hmm. And so, so it's a really cool organization. They help their whole goal is to help people with like mental health issues. And so not only do they provide like this housing option, but they also provide people to come in and care for them, to work with them.

They have a special say like special heart for veterans specifically who are dealing with mental trauma. And Yeah. And so that's, that's the whole model. And they've like, from what I can tell, they're really big. They're all over Oregon.

Jessi: So why are they selling this property? Yeah.

James: So they bought this one to turn it into one of those facilities.

Jessi: Okay.

James: And somewhere in the process that no longer became an option. Oh, and I don't know if it was the city or then or whatever, but now they own this building and they are not, and they can't run what they want to do. And so as a good nonprofit should do it's not part of their mission. And so like, well, let's sell it.

And they're more than likely going to go find another place that they can

Jessi: run that way.

James: Yeah. And I would not be shocked if, however we structure this deal, they then parlay that into their next thing.

Jessi: Yeah.

James: And that's what I would do. Makes sense.

Jessi: Do they, have they already started running it like that?

Facility, and then they had to. Shut it down. I know their

James: rents are low. So in that sense, it's subsidized already, but I don't think they're offering care.

Jessi: I guess I'm just thinking, I don't

James: know who the residents are. Yeah. I know a lot of them are on HUD.

Jessi: Okay.

James: I think that's why I was thinking is

Jessi: like, I know that we have experienced buying an apartment building where we had to rehome everybody based on, you know, lots of them all having a sex offense.

Yeah. And so I'm kind of like, you know, if, if you did raise rents, like you're talking about the people who are currently living there probably wouldn't be able to stay or afford it or qualify. And that is just a factor that we have to think

James: through. Yeah. And I think that'll be part of my due diligence period.

Really trying to figure out, okay, who are these 18 souls and what makes the most sense for them? They have a couple of vacancies right now, but that's it. Which it

Jessi: sounds like. If this, if this nonprofit has other places that they, they offer the same thing, perhaps that's an option for some of them. I don't know, but

James: maybe, yeah, yeah, I don't know.

That's a good question. So that's so yeah, so that's kind of the, the overall situation. And, and again, what makes this really hard is they're asking 1. 8 million, which is not a small amount of money, but you can't go get traditional financing on this thing, because it just. The numbers just don't work for something like that.

And that's like, you can make the argument. Well, that's because of higher interest rates. Well, that doesn't help. But even in like low interest rate days, like this just didn't work. And so so I tried to structure something that would make sense. Oh I also learned that they did get a couple really low ball, like cash offers, which just means they bring their own financing.

Yeah. And my guess is, yeah, it was like 2 range. That's like, not knowing, but having known the numbers, that's kind of like that 1. 2 was right about where, like, things started to break even. And you go, okay, that makes sense. So, I am offering them 1. 8 million dollars for it.

Jessi: Okay. I mean, that's what they want, so.

Yeah, so

James: why not? Do you make money? Oh, that thing. Yeah. So one of my, one of my skills, I think, as an investor, is besides having awesome spreadsheet skills, is I'm, I'm willing to be creative and think things through. Mm

Jessi: hmm.

James: And I'm not. Like I'm willing to be creative and, and enter into a seemingly messy deal and have a lot of moving parts and try to figure out how to, how to make them all fit together.

And we got another deal that we should be closing on tomorrow. And and that is like the messiest of messy deals. We're not gonna talk about that right now. We'll, I'll do an update on that one. It's actually, we talked about it in the previous episode, so you can catch up on it on that one. And and we'll do an update at some point, but the plan is to do 20 percent down and I will raise those funds from past investors and then have them give me a note for the remaining 80%.

So Quick math for you here. So I'll do 360, 000 down and then they'll give me a loan for 1. 44 million.

Jessi: It

James: is kind of the idea. Now here's how we make this interesting is I think I got to update a number here. If they're a nonprofit, it's weird. Like the rules around accepting interest payments are weird.

Hmm. For some reason, and I honestly haven't looked a lot into this. And so what I'm about to say may be slightly wrong, but this is how they came at it, where they essentially were like, we don't want to do, they're willing to do a seller note, but they don't want to do interest. Great. Yeah. Because it can, it can cause some sort of issues with it.

And so there's things you can do to get around it, but essentially it's like, all right, cool. Yeah. 0 percent interest. Let's do principal payments only. I want to do it as if it's a 25 year term, but it's a, it's a, it's amortized as if it were a 25 year loan. But there's a balloon payment in 10 years, so I'll make a bunch of payments.

And then 10 years, boom, we'll write him a massive check. That essentially be a refinance at that point. And that's the plan. And yes, I will absolutely lose money for the first six to seven months on this deal. And so part of what I need to do, I'm not going to raise 360, 000. I'm going to raise 600, 000 partly because I think there's some additional repairs, like a hundred thousand dollars.

You need the repairs that will need to happen. Like I would like to repaint the buildings for one, like a pink color. They're okay. But you know, I think that could be modernized a little bit. And there are like, I think four units remaining that they haven't flipped yet. So we've got to save some money for that.

And but I'm going to raise 600, 000 and part of that is to help bridge the gap from that like, Hey, we're going to be like losing money for those first few months until we can get some of those unit rents up. And part of what I need to do

Jessi: Like, just to clarify, the reason that it's losing money is because the rents are so subsidized.

They kept them so low, they're not even making enough to pay the mortgage.

James: Well, they don't have a mortgage.

Jessi: If, if they Yeah, if they had

James: one. Yeah. Which is why they pay cash for it. So they could So they're just, they're not

Jessi: making very much money. I

James: mean, I've got to assume that they're getting some sort of donations as well.

Okay. Coming in, so that's also a pain. To keep

Jessi: this thing running.

James: Yeah, that's my guess.

Jessi: But as the investor, you would be losing money because the rents are so low.

James: Yes, correct. Yes.

Jessi: Yes. And you can't just, I mean, you could, I suppose, just kick everybody out and raise them all.

James: No, not in Oregon.

Jessi: Oh, that's right.

That's right.

James: So part of what I need to do for my due diligence is actually get my hands on a rent roll, figure out how many people have been there, when was the last time they received a rent increase, and then and then make some like actual detail out the plans. Okay. So right now I have it. I'd like.

Taking a year to do all those repairs and fixes, and then in that amount of time also, like, increase some of the rents. But, no, it's gonna like, going from, going from 624 to 950, like, that's no joke. take some time. And so that's part of like, this will be a longer term hold, and it'll, again, I think we'll have enough other things that change where we'll break even, like, midway through the year.

Jessi: If you are thinking about that. That amount of rent increase and the amount that you can increase per year in Oregon or per person or how, you know, however that works. What's your projected timeframe for when you would like break even and then make money?

James: Oh yeah. Kind of hinted at it. And I don't, I don't fully know the answer to be honest.

I, you'd have to, that's what you were just talking about. You got to do the math. Yeah. Yeah. It's one of those where I, my guess is. Like, if no one ever moved out, it's going to take three years. That's my guess. But someone always moves out. And so it'll, and there's people who have just recently moved in.

And so there will be some early opportunities to to change it up. And I think you go to like some of those newer people. And it depends, like, hopefully they're all on month to month. If they signed a year long lease, I guess I'm hosed. But, actually, I just wouldn't mind if they signed a year long lease.

Because then we could just say, Hey let's create, we're gonna create a new lease, and it's at the, at the new rent rate. If it's month to month, that's a little harder. And so, essentially, what I'll have to do is, And so like it depends. But like one option is to say, Hey, I'm giving you a 90 days notice to move out, or you can accept the new rent.

Which one would you like to do? Just kind of, you know, let them choose which one. How is

Jessi: that different than just kicking them out and raising their rent?

James: Well, you can't do that for everyone. If someone's been there for longer than a year, you don't have a choice. Like, you have to, you can't just kick them out to kick them out.


Jessi: can't give

James: them 90

Jessi: days

James: notice. Correct. Yeah, it has to be forecaused. They have to have done something. Yeah, is kind of the idea behind it. If they are on leases, then when that lease resets, you can renegotiate a lease. And just say, no, I'm not going to renew it unless unless you do that. Right.

Jessi: I understand.

James: Yeah. It's kind of an interesting, there's pluses and minuses to just having a lease. Yeah. Yeah.

Jessi: Okay. Yeah.

James: Or do a month there's pluses and minuses to a lease and to do a month a month. I

Jessi: have another question. So as an investor you're telling me that I would invest my money so that you could do some repairs.

And float the property for a little bit until you were able to raise the rents, get things fixed and raise the rents so that it was at market value and cash flowing. What is the return that someone might get? What is the return

James: that

Jessi: someone

James: might get? Oh I have a couple other assumptions in here that I think are important to point out first.

And then

Jessi: you're going to calculate also, like, how long they'd have to pay. Keep their money in the deal. Yeah, I've got it. I've got it at

James: five years right now. Okay. Yeah, but.

Jessi: Is that just like, you set a time, and then you do the math, and you nuance it, and you're like, Actually, it'd be more like three years before I can start paying things out.

James: I actually have a really cool, well, okay, you're saying a couple things here.

Jessi: Yeah, I know I asked a bunch of questions.

James: No no, it's all good. The payouts will start relatively soon. They'll start within that first year, but we won't sell it for five years. So those are two different things. And I actually, I have a really cool sensitivity analysis thing that tells you like here's the optimal time to sell and or refinance also with that, which by the way, the answer is always like the second you finish, the second you hit whatever your goal is, sell it.

That's always the answer. So if you say like this thing will take two years, like sell it in two years. I always say five cause you're like, well, like. These things just take time and we've got to build that kind of flexibility into it. But yeah, as a general rule, it's like, no, the best time to do it actually.

Yeah. The time for this one would be to, to do all this stuff. And then it actually says to refinance it. Cause that would goose all the, cause that would just return a bunch of money really quickly upfront. And so that gives that maximizes the return to everyone. Cause then they can go into their cash for other stuff.

And then from there, it's like, man, how long can you hold onto it? I mean, it takes it from like a 16 percent return to like a 35 percent return. If you're able to refinance it after doing all those changes and repairs. And again, the only reason why is because you return a chunk of money back to the investors and, and the way that the returns like.

The returns are calculated in a way that's time sensitive. So money sooner is a lot more valuable than money later, even if they're the exact same number. So weird. So yeah back to your other question about what are the returns, even though I kind of just told you there are like, when I was underwriting it, there were a couple other things that caught my eye.

And so some assumptions that I have in here, for example, one of their things was that their insurance is like almost 10 grand a year, which you don't know this, but our 11 unit apartment building is. It's 3, 000 a year.

Jessi: Oh, that's a big difference. That

James: is a huge difference. Yeah. I don't know why. And that's something that I would have to find out.

But for now, I went, well, let's, let's adjust the assumption, instead of it being 10 grand, I'm going to say it's only five grand. And it could be one of those weird, like, they're a nonprofit and that somehow matters. I don't know. Could be in a floodplain for all I know, in which case, well, my number's way off and we'll have to revisit this with them.

I don't know. Another one is they did not have any repairs or maintenance. Oh,

Jessi: nothing set aside,

James: nothing in there in the P and L that they shared. So I had to, so essentially I took the five grand from that and I put it into that into repairs and maintenance. All right, we're break even now. And then the other one, which I thought was really interesting is they had a garbage number that was really, really high.

And so I don't know why but essentially like for, For our trashcan, we pay 280 a month

Jessi: for

James: our trashcan for 11 units.

Jessi: Oh, for the apartments.

James: Yeah, for the apartments. And so I just doubled it.

Jessi: I'm like, man,

James: why not? Which comes out to 6, 700. They're currently paying 12, 400. A year. Yeah. Maybe they have four trashcans?


Jessi: a lot of garbage.

James: I don't know. I, it could be a different garbage person, again it could be the coast, I don't know. I mean, I guess there's

Jessi: 11 units versus 18,

James: so. Yeah, but my single trash works for 11 easily, so I feel like 2 would cover it just fine. Yeah. So, I don't know. Huh. So, those are some of the, oh, but then, but then, but wait they are also paying and I gotta, like,

He's just interesting numbers. They are paying a lot for water and sewer. And so I put it in there where we're going to transfer some, we're going to do the rubs system with them. And so which stands for ratio utility billing system. And so I've got a portion of that going. being billed back to them.

Which I just think we'll have to stop. Which, by the way, is totally separate from a rent increase.

Jessi: That's what I was going to ask, was does that count towards the rent increase number? No, it does not. It just changes the structure.

James: Yep, yeah, you're essentially changing the terms of the agreement.

Jessi: So, does it actually, like the overall rent Does it affect that number?

Like, would you adjust the rent down because now you're charging them No. For utilities I wouldn't. Interesting. No. So those rents, market rents and comparisons are assuming that tenants are paying their own utilities?

James: I don't know actually. Some of 'em do. Some of 'em don't. Huh. But they will here

Interesting. Yeah, it's kind of weird. Yeah, it's, well, that's like that, like you know how when you go onto a a, a F. An airplane portal to look up plane flights and they'll all have their numbers listed, but some of them include a baggage fee. Some of them don't. Some of them make you choose a different spot than whatever, and some of them charge for like breathing, all that stuff.

But, and the goal is they, they disaggregate a bunch of those numbers so that when it's all in a list, you see the lowest and there's all sorts of pricing psychology around it, which I find. It's like unbelievably fascinating and you get annoyed by some of that happens here too. So I think there's people who have a rent number and to get it to look as low as possible, they don't include any of the utilities and some who do just cause like whatever, like it's just included.

It's what it is.

Jessi: Interesting.

James: And so you got to kind of read the, read some examples of that. So I don't know. It's probably mixed. It's my guess. A lot of it probably depends. Like if it's a single family home, do they're paying all the utilities? No question about it. Everyone's paying electricity. My guess is everyone's going to pay gas depending on the type of gas.

My guess is waters and garbage are ones that like the landlord is actually paying. And now it's just a question of are they billing it back or not? And it's one of those things where the software is finally caught up where it's pretty easy to do it. So I think a lot of. It makes sense. Like for example, when we did it on 14th Avenue, that was her first time ever doing it.

She was like, Oh, I don't know how to do this. It turns out it was built into Appolio. I was like, and I just, I looked it up for her. I was like, Oh yeah, it's super easy. Here's how you do it. And she was like, Oh yeah, that was super easy. And so now she's starting to implement it in other places cause she was like, Oh yeah, this is really easy to manage.

So that's happening. Yeah, a lot easier. You're welcome, Morgan, for helping your rent price go up, because I taught a real estate property manager

Jessi: how to do it.

James: Wow. So, so

Jessi: it sounds like you have a lot of assumptions still.

James: Yeah.

Jessi: And need to do some due diligence. Yeah, still

James: very early on on this.

Jessi: Their numbers actually are, or could be.

Yep. And, yeah. Why, why are you offering them the full price ?

James: I mean,

Jessi: if you don't think it's worth that, why pay that?

James: I, I think it is in the long term. So my return to investors is still gonna be 16% IRR. It's still gonna be like cash. Cash. I, what am I

Jessi: missing? Like. You're paying asking price.

James: I am paying asking price for what the value of the property will be two years from now That's what I'm doing,

Jessi: but it's not worth that right now.

James: Not right now. So you're

Jessi: gonna lose money initially

James: and part of what helps this all make sense is If they are willing to accept seller financing with zero interest, it's almost as if I'm paying cash for it The debt is so cheap That it helps the numbers make sense. Actually I made them, made them a video to go with my letter of intent.

And and in this video it was like a little three minute thing. Mm. I explained to them, I said, Hey, look, I've, because I generally, like they have a really cool mission Mm-Hmm. And I like them to get enough funds to continue to go on. Mm-Hmm. And so that was kind of the hat that I put on. It's like, okay, how do I get them the full 1.8 mm-Hmm.

And you know, 'cause I'm on a board of directors at a nonprofit. They actually sold the building. and now have getting funds coming in for a few years. And it's honestly, it's been awesome for the organization. And so so that was kind of where my hat was like, or my thinking was like, okay, how do I get them that max amount?

And so by them doing the seller financing and structuring it this way, it gives them the full 1. 8 eventually. And, and at the same time, it allows my investors to make returns. And I told him, and what I said in the video was like, there's kind of this, there's this balance here. Like, I can't just pay you whatever you want.

Cause I have to raise money to do this and my investors need to make money as well. And so it's like finding that happy ground. And I think that was part of my, like, I'm creative enough where I feel like at least right now, given the assumptions that I have, I feel like I threaded that needle for like, okay, I can get them what they want and I can get investors a good return that they'll be interested in investing in this property.

And yeah, there's a little bit of risk there in the sense of like, yeah, it's losing money initially. But from what I've liked, from what I've seen, it's a really simple plan. It's. The building itself is in good shape. They've invested half a million dollars in fixing this thing up already. Like it's got new roofs.

They've already turned whatever it is well, 14 units. Is that right? Yeah. 14 units. And so I can do math. Dude, we were doing something with the kids earlier today where they were asking me questions and I was just like, I was so far off. It wasn't even funny. And even Samson was like, man, I thought the answer was like 1600.

And I was like, cause I told him like 1. 6 million. And he was like, huh? He goes, it wasn't 1600. And I went, Oh no, totally 1600. I added so many zeros. I'm sorry, buddy. Like you totally are right on this one. And that's where Eleanor, she was like, dad, you got to do better at math. Oh dude. No doubt. No doubt. I'm like, that's why I have Excel.

Double check, triple check everything. I thought you do like more advanced math than this. Like, well, like. Not on my head, but yeah, it's pretty funny but yeah, so that's so that's how I was. So there's some risk in at the upfront that like, okay, well, well, what if I can't increase rents that much?

Which is why if you listened to the previous episode, we were talking about how to talk to and look at a property manager. Like that is why that is so important because I have to have confidence that whoever I'm working with that they're on board, they go, yes, you can do this. We have a plan. Here's how it's going to work.

That's why that's really important. I also. Have a plan with the rubs and, and saying like, okay, we can do this to get the, to get the increase, the rent up. Thankfully, there's not a huge rehab component to this, at least from what I can tell now I'll get there and I'll walk through and I may change my mind based on what I see because it is on the coast.

And, but I mean, the pictures look pretty good. So so yeah, that's kind of the, that's how I can offer them what they're asking and through it's, It's a form of creative financing, though it seems really straightforward able to say like, yes, we can make this work by essentially ballooning this until the property value has gone up enough that it actually is worth 1.

8. And now I can pay that off. And at that point in time, we're either selling or refinancing and, you know, the market will kind of determine. What we do there. That's that's kind of the deal. That was

Jessi: super helpful. It was a great description.

James: Yeah. So I'm excited about it. It's fun. There haven't been a lot of opportunities in Oregon at the so far this year.

So this is one where it's funny. I initially actually looked at it initially and I was just like, Oh, I don't know, man. These numbers like they won't, I was, I had that initial action like, Oh, they won't wait too much. It's only worth like 1. Yep. But then I started diving into like, okay, well, what about this?

What about this? And I was looking at numbers. And then when I landed on like, okay, they're willing to sell a carry. If we can structure it this way, I can actually get them what they want. And cause I don't know. I, I feel like I would have to come with my own financing. If, and, and even then like 1. 2, I don't think they'd want that they've invested.

So like they bought it for a million, they put half a million into it. Like they want at least 1. for it. Like that to me makes a lot of sense. Yeah. And so at that rate and the numbers just don't, Yeah. Work because they don't have the NOI to support that. Yeah for a while Yep And so if I can structure the debt in such a way where I'm giving them the money instead of a bank Like that to me I go that's a win.

Yeah, and so that's the that's the hope but we'll see like I haven't Yeah, I haven't heard back I've got the draft. We'll probably send it either tonight or tomorrow morning is the plan. And yeah. For the

Jessi: offer.

James: For the offer, yes. Yes. Because you

Jessi: did a letter of intent.

James: No, that's what I'm sending them.

Oh, oh. It's a letter of intent. Got it. Yeah, so when you get into a bigger property, you can just do a purchase and sale agreement, just like normal, right out the gate. But oftentimes you'll just start with a letter of intent because it's just a lot easier and you just could like real quickly see all the terms how they're laid out.

The other interesting part about this one is it is run by a board. And, and my experience has been not everyone's a number one. We're not talking about typical investors here. Now, from what I understand, like their whole business model is buying these buildings, doing these things. So they're going to be more sophisticated on real estate than normal, or at the very least, They've got a really good advisor who, someone who is.

Yeah. But part of the reason why we did it the way we did it was that so everyone on the board could read it and ideally go, yeah, okay. I understand what he's proposing. You

Jessi: wrote it for me.

James: I wrote it for you, .

Jessi: Yeah.

James: That's the

Jessi: premise

James: of this podcast. You read it, I guess, to make sure that it made sense. Oh.

It's alright. No, it's all good. I'm It's fine. Yeah. I'm sure it'd be all right. I don't know. I've read enough of your things. We'll see. Or we may never talk about this again because they said no, that's that's how this will go. And then I should have read it. Ah, yeah. That's all right. That's all good.

So there you go. That's the property. And thank you so much for listening to us go down those rabbit trail, rabbit trails, especially at the beginning. And so we would really appreciate it if wherever it is that you listen to podcasts, you leave us a quick rating. And, and maybe even review, let's get crazy.

Yeah. So again, thank you so much for listening and have a great day.

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Furlo Capital Podcast

Furlo Capital
Real Estate Podcast

A conversational podcast between James and Jessi Furlo that dives into the intricacies of passive real estate investing. Our mission is to equip people to invest wisely in both property and residents so that, together, we can build wealth and improve housing.

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Let's build your wealth and improve housing, together

Passive Income

Tenants pay monthly rent, which covers expenses and generates a profit for investors. Plus, multifamilies appreciate and usually sell for a significant profit.

Consistent Above-Average Returns

Real estate is less volatile and historically outperformed the S&P 500 by routinely generating average annual returns of at least 10% after fees, inflation, and taxes.

Revitalize Local Communities

We give people a great, safe place to call home. This doesn’t hit the spreadsheet, but every property is managed and maintained with the residents as a top priority.

Extraordinary Tax Benefits

Your income is taxed much lower because of depreciation and because it’s taxed at a lower capital gains rate.

Below-Average Risk

More units mean less vacancy sensitivity. Plus, costs are distributed across a larger number of units, which also allows us to hire a professional property manager.


Unlike stocks, lenders like to finance multifamilies and the loans are tied to the property, not the person. This accelerates wealth building.