Don't Panic: The Hitchhiker's Guide to Passive Real Estate Investing | Ep 42

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, both properties and people so that together we can build wealth. While improving housing. I'm James and this is my wife, Jessi.

Jessi: I'm here, but I'm tired.

James: I'm pretty

Jessi: sure the adjustment to the school schedule is way harder for me than it is for the kids. Like, I don't know, over the summer, I, it was my sweet spot. It was like, I could sleep till eight, roll out of bed. Like, not really do anything with my brain until nine.

James: Yeah.

Jessi: Like, that's, that's pretty nice.

James: That's your speed? Yeah,

Jessi: that's my, that, like, if things started between nine and ten, the day started between nine and ten, that'd be like, yes. That'd be perfect. It would be fine, like, we could go later. I could even have, you could do like, A little siesta in the afternoon for lunch. So you could do the Spanish schedule.

I could do the Spanish schedule. I could totally do that. Yeah. It's like take a little siesta to have a late lunch and then keep working. Do the late dinner and chill. Stay up late.

James: Is that, is that what we're gonna do when we go to Spain?

Jessi: Oh, I hope so.

James: Oh, man. The Spanish schedule. Spanish schedule. Eating dinner at 10 o'clock at night.

That's gonna rock your world. I'm gonna die.

Jessi: And it's like sleeping in, you're gonna be up at 5 a. m. Be like, let's go see something. I'm gonna be like, no, no, no. I couldn't sleep

James: because I was still digesting food. And you'll just be like, this was amazing. All right. That's awesome. Cool. Well, this is, I got no transition for that.

This is episode 42

Jessi: and I had a

James: lot of different places that I could go with it, but I decided we're going to go with the hitchhiker's guide to the galaxy which we'll get to it. If you remember. 42 is the answer to a very important question. So I don't know, did you, so last year I actually read that book for the first time and then we watched the movie.

Jessi: Yeah. Have you ever read the

James: book?

Jessi: No, I have never read the book. I vaguely remember the movie.

James: Okay. So, the premise of the movie is that there's a guy, I don't remember his name, who lives on Earth and he meets up with a, one of his best friends on Earth is essentially a stranded hitchhiker and it turns out that Earth has been decided to be demolished by the Galactic Empire or whatever they're called.

And Earth does indeed get demolished and this guy and his friend who's the hitchhiker, they end up on another spaceship and and they essentially like, they go on this big, crazy adventure. It's a hilarious book. It's a super goofy book. And part of this hitchhiker's job is to help fill out this book that's called the Hitchhiker's Guide to the Galaxy.

Interesting. And so he, he was doing research on earth so that he could add some more details behind it. Yeah. And, and then in the process, like I said, it got stranded, became an issue and yeah. And it's just like, it's super goofy, but it's a story of people who are, he's just on an adventure and like his life is completely uprooted.

His home is totally, totally gone. At one point in time he ends up on a totally different planet. It's a planet that builds planets, nuts, right? And on this spaceship that is like, It works by a very crazy way. There's all sorts of fun things about the book. And if you've ever heard of a babblefish, that is a term that is created on this book.

On this, in this book where essentially you have a, it's a type of fish called a babble fish. You stick it in your ear and then it lets you on the fly interpret

Jessi: other

James: people. And so sometimes there are earbuds. Now I think Google made them where they connect to their Google translate where it will do that.

And in their keynote, they're like, yeah, it's kind of like a babble fish. So it's one of those weird, like it's a cultural book. I

Jessi: feel like I should read it just for the cultural references. Or

James: like. Someday our son will read it and he'll think it's hilarious. It's pretty quick read. Anyways, I wanted to talk about lessons from that book.

Okay. 42 of them. No, I'm kidding. How many do I have? I have five cause that seems to be a good number of, of lessons.

Jessi: Yeah.

James: So

Jessi: hopefully I can follow along.

James: Yeah. So the first one is there's a core message in Hitchhiker's Guide, which is essentially Don't panic. Like, it's like, just, just go with it.

And so the characters they're exploring is vast and chaotic universe. And in that same way, real estate investors must accept that the market is full of a bunch of unknowns and you are going into it. Even as a passive investor, there's a lot of unknowns in it. And the trick to success is don't panic.

That's the idea. And so I've got a, I've got a couple of thoughts around this. Now that I'm reading it, I'm like, Oh man, I wrote way too much for this, but that's okay. So the idea behind it is and it's actually very similar, I guess, to what we were talking about last week, but you don't want to rewrap, you don't want to react emotionally to things.

Instead, you want to focus on like long term trends, like population growth, unemployment rates, housing demand, things that like, Like if you focus on the big trends, it helps you get over the short term ups and downs that you are experiencing. And just remembering it's a longterm game, right? Like you're in it for the long haul.

Yes. You might have ups and downs. Don't panic. I think my mom, she was a real estate no, she was a retirement specialist. She would help people set their retirement accounts and, and she would get people who would call him like the market dropped. She's like, great. Don't panic. Don't panic. Buy more.

That was always her thing. And and my other thing that like that, that helps you not to panic is that education piece to realize, oh yeah, these aren't forever ups and downs. These are cycles. So by just better understanding those it helps you not panic because you know what's going on. So listening to podcasts like this, perfect.

Do things like that. Understand the game a little bit better and you won't panic.

Jessi: That's the first one. That's good advice. I think in most circumstances,

James: yeah, that's true. Don't panic. Don't panic. Get deep breath. Educate yourself. Yeah. Yeah. That makes sense. All right. So there's a weird thing in the book.

This next lesson is know where your towel is. And so be financially prepared for anything. So the book is a little bit goofy. Because this is like the towel is the thing that a hitchhiker should have. It's like the like Any good hitchhiker carries a towel with them.

Jessi: Interesting. Weird

James: thing it, and they list out a lot of stuff, like many practical and imaginative uses, like from keeping warm to signaling for help, stuff like that.

But ultimately this towel symbolizes preparedness. So if you have your towel. You're seen as someone who's organized, resourceful, and ready for anything, even in unpredictable events. There you go. That's another one. That's a really subtle, like, call out. People say, like, I got my towel. They're like, did you bring your towel?

Like, it's a, it's a nod to this book. I mean,

Jessi: it's true for camp. Like, a lot of problems are solved if you just have a towel.

James: See? The guy gets it.

Jessi: It's true.

James: Yeah. So and I think part of being prepared is paying attention to all the metrics. Absolutely. Absolutely. Absolutely. You know, your cap rates, your internal returns, your average annual returns and then other like market types of things like occupancy trends, financing conditions, things like that.

Like knowing those things is part of the being prepared before you invest as this part of your towel. And furthermore, I think being able to stress test your portfolio or making sure your sponsor does it is another part of being prepared. What if. Rents don't even just go flat. What if they decrease by 2%?

What does that look like? What happens? Can we survive if a tree hits this thing? Which the answer is, yeah, we got insurance. It's fine. But still, like you want to stress test some of those things. What if interest rates rise significantly? We need to refinance in two years. What are our options there? Like those kinds of things.

That's part of being prepared.

Jessi: And is Like, there's a balance there if you're a passive investor, you know, you, you don't necessarily need to put in hours and hours and hours of learning all those metrics and knowing how it works and understanding it. Like you need to put in hours knowing your sponsor and asking them particular questions and making sure they fully understand all of those metrics and the ins and outs.

But there's, there's a balance there, right?

James: Yeah. I, and I would, the way I would say it is there's. Extra value in spending, or there's just value in spending the extra effort to get prepared today to set you up for tomorrow. So, especially when you're at the beginning part of an investment, due diligence, that's the thing.

Spend the time doing it. That is also like, that's kind of the big umbrella of like, be prepared. That's your towel.

Jessi: And you're saying for the sponsor and for the passive investor. Yes. Yes.

James: Yeah, yeah, yeah, exactly. Yep. Yep. Yep. So know where your towel is. That's important. Got my towel. All right. Number three, the value of asking the right questions.

Okay. And so that's part of the due diligence for passive investors. So there is this quest for the ultimate question in the Hitchhiker's Guide, and that mirrors how investors should also be asking the right questions about deals. I actually think I referenced it later. Yeah. So it's so. But so you give an answer and they ultimately are like, that's a really random like answer.

He goes, well, yeah, it kind of depends on the, that is the right answer, but we don't know the question that's being asked. And so like, what was the question? It's like, well, I need to spend more time. That's actually the big thing you learn is that the they created this machine to no, spoiler alert.

I'm not gonna say it. Well, you gotta read it if you

Jessi: want to find out. But

James: anyways, there's the answer. is is 42 ultimately, and they're like, sweet, that's a great answer. What does it mean? What? It's an answer to the question. They're like, well, what's the question? He goes, I don't know. And so so they have to figure out what the question is and yeah, super interesting.

And so the whole point of it is you got to ask the right questions. Otherwise you get answers that don't mean anything or aren't valuable to you. So that again, it just comes back down to due diligence asking. I've got eight different areas that you should look into. You should ask about the sponsor, the property manager, the projections and business plan, the property itself, the surrounding market.

You want to know about the legal documents you want to know about the lending and you want to know about one other thing that I can't remember, but you want to know all those things. I think I, I think it's the construction plan is the last one. And so like, so you want to know about all those things and you want to ask about them and like, and those are really important because if all you ask is like, is this a good deal?

I'm like, yes,

Jessi: according to some standards, a good deal for the sponsor, but isn't

James: a good deal for you as a passive investor. I don't know. Is it a good deal for tenants? Maybe. Maybe. Is it a good deal for the lender? Probably. So yeah that's just really important that you're asking a lot of good questions and yeah, which is again, it's part of the, a big part of the premise of, I would say like the second half of the book.

It's kind of all around like what's up with this weird question and people are trying to figure it out. Yeah. Which ultimately answers the question for why earth exists. What? Okay. That's a semi spoiler. That's a, that's a teaser. That's a teaser alert. You don't, If you don't know you don't know what that means, but there you go.

All right number four

Jessi: just don't spoiler alert follow the crowd

James: Avoid market fads in real estate. So there's this character Zaphod Beeblebrox He's like he's the intergalactic Emperor at some point and then and then he's like getting up to give a speech about this new, amazing ship that they created.

And and he's supposed to like christen it and he said he steals it. No. And then goes off on a galaxy and has an adventure and that's where he picks up these two other guys and they, they continue on. Nice. So he's an eccentric decisions and sometimes it seems reckless, but it often can lead to success in unique ways, which ultimately.

It did lead him down another path that was super interesting and got him to a place that like he shouldn't be able to get to super interesting. And so the idea is like, yeah, don't just follow the crowds stick with fundamentals. And I think if you. If you do a good job of understanding the macroeconomic view of things, that helps you keep that long term perspective, and potentially do things that seem counterintuitive, which is like, no, man, I'm watching supply and demand curves.

This is the way this should this is the way this should fall. Yeah, so you want to look at things like employment, housing demand, long term economic growth. And just cause everyone, I, I'm having fun beating up on short term rentals right now. Cause that seems to be the fad. Yeah. So it's interesting.

What a lot of people will do is they'll buy, they might overpay for a rental and so it doesn't make sense as a longterm, but they go, it's okay, I'll turn it into a short term. And you actually do make more money per month, operating costs are higher, but like your profits are higher. And but so it's like, it's become the fad cause everyone's like, Oh gee, you could totally make a lot off of this.

But. Kind of depends, you know, like it's, it's a, it's a little more boom and bust. It's the way I would describe it.

Jessi: So it's not always a first year deal to do a short term retract.

James: Yeah. Or it is during the summer.

Jessi: Oh.

James: Or something like that.

Jessi: Well, depending on your market. Yeah, and

James: where you're at. It's very, very interesting.

Yeah. But yeah. So you want to follow the data, not just follow the trends. And sometimes doing, sometimes doing the boring thing. Is the way to go. That is not following the crowds. It's also one of those, man, if everyone's like trying to buy right now, I don't know, man, maybe that's the time to sell to the opposite, things like that.

Interesting. I think it's a, but good. But yeah, I'm just remembering like, yeah, there's this character. He was nuts, but he hadn't, he had a good attitude. He kept moving forward and it kept working out and I don't know, man, sometimes. You're like, yeah, I get no one would buy this property or no one would invest in this, but I see something else here.

There's some other insight that makes this make sense for my individual situation. I saw a property earlier today. It was in Florida. I live in Florida, so it's a bad deal for me. But like I was like, man, for someone else, this is a great deal. So I think it's like understanding what makes sense for you and where you're at in your location.

Everything that's going on in your life. You know, for you and I, it doesn't make sense necessarily the house sec anymore to go buy a duplex and move into one side. Like that doesn't make sense. But for someone else it might. Totally.

Jessi: Yeah.

James: So it's just understanding where you're at. All right. The fifth one, 42 is the answer, but what is the question?

Right. So we kind of, we're talking about that a little bit before. And so you want to know your why in real estate is what this one's getting to. And so 42 so passive investors. Need to know their ultimate goal, which could be financial independence. It could be legacy. It could be passive income.

You want to know your why and then your why is what dictates your investment strategy. And so if it is like passive income, yeah, you're doing cashflow type of stuff. If it's about a legacy, it might be more appreciation type of stuff and just building up a big portfolio to hand off to your kids maybe or something like that.

But you want to know what that is. Just like. Knowing the answer, knowing the question to the answer 42, you want to know the answer, you want to know the question as to why you are investing in real estate. Yeah. And you passively or actively. I

Jessi: would say to you, you want to make sure that aligns with your sponsors.

Why? If you're investing with someone else.

James: Yeah.

Jessi: If you're, if you have this like, Oh, that's fair. Oh, I want to head this direction. Yeah. I'll give you all my money. And they're like, we're going to do this other crazy thing. That's like, ah,

James: right.

Jessi: There's a disconnect there.

James: Yeah. Or just even things like.

Your big investment goal might be the same. Hey, we're all going for appreciation, but maybe there's an investor who or a sponsor who's like, we're going to build the best. We will fix everything. No matter what we come across, we will fix it. And that may not be, you might be like, dude, I just want my money back.

Like, don't keep spending my money, be

Jessi: more important to you. Just do

James: what needs to be done. Get it to a acceptable level and then sell it.

Jessi: Yeah.

James: And they might be like, no, no, no, I can't do that. I talked to a lot of flippers where they will admit that like, we over fix stuff. Hmm. Like they just can't help it.

Yeah. Like, I see something that's wrong. Want, they want it to be nice, I fix it and it's super hard. Which that might be awesome. You as a passive investor might be like, yeah, I want something that I can be fully proud of that I would choose to live in. Mm-Hmm. . Which is totally cool. And or you may not

Jessi: Mm-Hmm.

you know, but

James: like, yeah. I, I lost out on some appreciation as a result of it. Yeah. 'cause I spent a lot of it. But maybe that's okay.

Jessi: Hmm.

James: But you gotta have your why. That's important. Yeah. Cause that definitely helps you pick out sponsors as well. Yeah. I think it's, I think it's important. So it's a good book.

I highly recommend reading it. It's a very goofy book, but it's also a fast read, which is nice. And I think there's some things that passive investors can take from it. I think the big one is it's kind of twofold. It's a don't panic

Jessi: and,

James: and it's kind of, it all comes together, right? So it's don't panic.

And you do that by having a longer term view and by understanding where it is that you want to go. Which I think also relates to the like, and you got to have your, your own, why answered. You got to have your question to the big answer of why you're doing this to begin with, because that helps you stick with it over the longterm.

I think those are probably the really big ones. And then. The way that you minimize

disruptions or issues in the short run is by having your towel by preparing. And, and you do that primarily through education, just general education and due diligence to have, educate yourself on that specific deal. Nice. I'm going to get to make sure it aligns with that big goal so you don't panic.

Awesome. Yeah, that's my, it's a good book. I highly recommend it. And yeah, just be kind of fun since it's episode 42 and now, you know, I'm a nerd. That's the other

Jessi: well, that's what popped into my head. Initially. It was like you went there nerdy route. Okay, this is good

James: Did I chose not to the sports route chose not to do Jackie Robinson?

Yeah.

Jessi: Yeah,

James: it's okay Probably

Jessi: some great life lessons there as well, but

James: probably Stand up in adversity. Oh, yeah Persistent good ones. Yeah persistence. Yeah. Yeah work hard. Yeah, those are probably all good ones Yeah, but that's right. So, okay. There'll be, there'll be other opportunities. I'm sure for me to do thematic stuff.

Awesome. So thank you so much for listening. Hopefully you enjoyed nerding out with me on that as well. And we would appreciate a rating or review anywhere that it is that you listen to podcasts. And if you are interested in investing with us, we would love for you to come check us out at furlo.com.

Thanks again for listening and have a great day.