From Slumlord to Success: The Story Behind an 11-Unit Transformation | Ep 52

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 investors to invest wisely, both properties and residence, so that together we can build wealth while improving housing. I'm James, and this is my wife, Jessi.

Jessi: Little known fact, I can have a cup of coffee in the afternoon and sometimes the evening, and still sleep.

James: Nice. That's convenient.

Jessi: Nice. Random thought I was having. I actually could use a cup of coffee right now. I'm tired.

James: Yeah. I'll make it. That's good. That's good. And I hope you make it because I want to talk about another property that we bought.

I call this our deal of the lifetime. It is our 11 unit apartment building that went from being like a slumlord to a success.

Jessi: Yeah.

James: So.

Jessi: Quite

James: the story. I have shared on multiple occasions. the story from my perspective, but I thought it'd be fun for most people to hear your perspective on because because yeah, so yeah, we'll just kind of let it roll.

Do you remember when I first told you about it?

Jessi: I, I was trying, I was trying to think, I knew you were going to ask me that. I, I vaguely remember, I mean, we were looking at properties and so it wasn't out of the blue, like I've got a place. But it was kind of like way bigger and way different than anything we were looking at.

James: And,

Jessi: and I think I remember you telling me like, there's this apartment building, it's going to be awesome. We were just, we're going to do walkthrough. I was like, okay.

James: Do you remember the story I told about how we found out about it?

Jessi: Yeah. Which I, I didn't know that initially, you know, you had all those conversations, but I, I think a guy called you.

And he got your number from someone because he knew you managed places, and initially was like, I need help managing this place, it's a hot mess, and

James: I don't know what to do. What? In what way was it a hot mess?

Jessi: Oh, oh, oh gosh, well, it was, it was half vacant, and the people who were in it, who were occupying it, were all registered sex offenders.

Right. Right. So. There was and I mean I Later on we kind of we ended up getting the books and looking at it I that just fascinated me like looking you could see back to when it was like, okay things were pretty good It was you know, there were maybe one unit in empty, but it was pretty full and then like along the history You know, they went to one sex offender It's like and when you when you do that, you have to notify everybody and this was like shared There were some shared hallways You know, each individual unit, but shared hallways, and so it was like, there was some common area, and like, that just, you could just see, like, the mass exodus of people dropping out, and, and then, they were like, well, what do we do now?

We gotta fill it with someone, and so it was like, let's double down on sex offenders, and, I mean, it was, it, it was near the Office of Corrections, or something like that, so it was,

James: yeah,

Jessi: ish, I guess there was, technically on the same street, I guess, Yeah, it's like, I don't know, I guess maybe they were near there, and it was a place to stay, I don't know.

I guess they ended up renting one of the units to the Department of Corrections as like a halfway house ish thing. So it was, yeah, it was a mess. I mean, apart from, that was one scenario, but then, including our walkthrough, that was just, you, you tell that part so well, cause it was just like, I just remember, like, from my perspective.

We walked in, and I was like, alright, yeah, it needs a little love. You know, just in the general areas, I was like, yeah, it's run down, you know, flooring is okay, it was grody carpet, I think, or, I don't even know. And you know, it was like, yeah, it needs paint. Like office carpet. Yeah, yeah, like real thin and I was like, okay, it needs a lot of cosmetics.

I think, structurally, it seems okay, you know, at least from what I can see. Maybe there's a couple areas that are like, eh. Yeah, some leaks. It's old, like it was an old building, so I was like, yeah, it's alright. But each unit that we walked through was just like, oh my gosh. Okay, and so like in one of them,

James: like yeah, what was the first unit?

Jessi: I don't remember the order of them, but I remember like one of them had like pipes exposed in the wall. That

James: was unit two.

Jessi: And it was like, Okay, like, what happened here? You know, it was like, they tore the wall down, because obviously there was an issue. But they didn't

James: fix it.

Jessi: So it was

James: like, is it?

Jessi: Yeah. It was wet, there was an issue, there were things.

What was another one? Another one was cat, just cat.

James: That was Unified.

Jessi: Yeah, it was bad. I was surprised you couldn't smell it in the hallway. It was just like Cat urine,

James: man, it's the smell of money.

Jessi: Yeah, yeah there was that, there was, there was Was there bedbugs in one of them? Yep, that was Unit 1. At one point?

James: Yep. Which

Jessi: was just like, oh my gosh, like, you've gotta be kidding me. And then the halfway house ish one was just like a locker room.

James: There

Jessi: was just like, a few dudes in there, and sweaty, and lived in.

James: Yeah, yeah. Do you remember Unit 3? That was when you walk into a building and you go straight and then a little bit to the, to the right.

Jessi: I, I, that was the, oh, I think it was the smoke. Yep. It, it just nicotine everywhere and Yeah. Yeah. It was just, that's the first floor, by the way. One after other. Those are all the floor, right? . Yeah. I, I just, I remember thinking like, okay, like, are we, like, do we need to see the second floor? And I, I think my perspective was like, yeah, we're done.

Like we don't need to see the second floor . And you were thinking like,

James: oh, I was getting more, more excited. Oh man.

Jessi: Yeah, like I, I don't think we need to see it because we're, we're, we're ready. Let's go. Let's buy this thing. And I'm just like, oh my gosh, like what is happening right now? Like, this is so bad.

And so, yeah. Do you

James: remember what we offered? I

Jessi: don't remember a specific number. In fact, it was a super low ball. Because we, I mean, initially, we came back and talked and I was just like, this is ridiculous. Like, it's gonna take a bunch of money to fix up. Like, I don't, I don't. Like, are we gonna hold it?

Are people actually gonna live in it once we get it fixed up? Like, I don't see, I don't see how this is gonna work. And you're just like, well, I mean, let's make an offer. He, you know, maybe he'll say yes. And, and so I remember thinking like, okay, whatever, like, offer the lowest you possibly are willing to

James: pay.

He had initially thrown out a number 450.

Jessi: Yeah.

James: Which was already pretty low, because he knew, right, that the situation was, yeah, yeah. So I came back at 400. And he counted at 425, which we agreed on, but then after the tour, I came back and said, yeah, it's 400. Yeah. Yeah, after we did inspections and

Jessi: stuff.

The second floor was not nearly as bad. That's true. There were, there were a lot of, there were bigger units on the second floor more decent. There were, there was one hoarder

James: tenant. Yeah, there was the hoarder tenant. I just remember all the E. T. dolls. That was for whatever reason. I just remember shampoo bottles.

There were a lot of shampoo bottles. Why? There were a lot of plates as well. Yeah. I mean, they could have fed 60 people. Oh, yeah. Just with the plates. Just with the plates, yeah. Yeah. The shampoo bottles were all empty, right? I think so? Yeah, or at least very partially used. Yeah, I

Jessi: don't know. That was a lot.

There I

James: just remember all these tea bottles that were all stacked around, stacked around the Oh, yeah. It was just, it was just piles. Just piles of things. You had to, like, weave through them. Yeah, it was your classics. Oh yeah. Order situation, for sure. Do you remember the countertops from a couple of the, the different units?

Unit six and nine?

Jessi: I remember taking out, like, redoing the entire kitchen.

James: Yeah, cause the, the, the shelves, the, the cabinets.

Jessi: I do remember. It was like, it was like, the drawers and the cabinets, like, didn't, they just didn't work. They didn't fit. Yeah, well

James: the cabinets were like 14 inch cabinets. Yeah. And the countertops were 24 inch countertops.

Yeah. So they overhung by 10 inches. When all the top drawers, when you opened them, you couldn't actually get into actually, yeah. So we ended up redoing that. Yeah, it was a lot. Yeah, so we got it under contract. We ended up buying it. And then, do you remember what we ended up doing with the tenants?

Jessi: Yeah, I, I, that was one thing that I was like, It seems horrible to just kick everybody out. Like, I don't, Feel good about doing that. So we, we talked back and forth and it was like, well, and, and we realized that they

James: were in effect. Right, right. It was a possibility that we

Jessi: could give notice, rehab, to rehab the place, and give them, you know, their properties to move out.

Though we did, I guess

James: technically we could still do it today because we fixed them all up enough where it was not habitable. Right. So it was, we could have got away with it, but. Yeah. Anyways, we didn't have to at the time. We could just give a non reason. Sure.

Jessi: But we, yeah, we, we approached them, we gave them notice, and I, like, we, we had talked already, realizing that they were in a situation where they couldn't just, for many of them, they couldn't just go out and get another place, you know, they may not qualify.

And so, I was kind of like, well, let me do some research and figure out, like, what are some properties where they would qualify, that would, that would accept them as, as registered sex offenders, and, Let's help them to like land somewhere. Yeah, let's not just kick them out and be like good luck and So we we did we gave them all that information and then you actually offered you were like, you know We're not we're gonna redo everything so we don't need your deposit We'll just give you that back and then I think you even offered a month's rent or something, you know Yeah, if

James: you

Jessi: could get be out by

James: a certain date.

Yeah, we gave them notice on the 10th of the month I told them And if they could be out by the end of the month, I would reimburse them that previous month's rent. And this is called a cash for keys strategy and, and I, like, I had a physical envelope with cash in it. And so I would sit there and tell them like, Hey, no matter what, you're going to get your deposit, which is like 400 bucks.

Like a one, two, three, four. And I'd show them 400. Like you get this no matter what, when you move out. And I would say, but if you're able to move out by the 10th, the rent was like 500. I got another five, one, two, three, four, five, and I had 900 in my hand and go, this is yours. If you're able to move out by the end of the month, which, like, Which, the majority of them did, I think.

All of them. Yeah. There was one that didn't take us, I guess there was one who didn't take us up on it. That was on orders. And, and they had 60 days to move anyways, and we had 10 other units to work on. So, I was like, fine, whatever. Yeah. I'll save the money.

Jessi: Oh, I thought, yeah, it was hard. I think, I think there was some other, like, mental health challenges and things in that case, and they were like, this is hard.

James: Yeah.

Jessi: But,

Yeah. Yeah. Yeah. But I, I, it, it worked out well. How did that

James: feel during that process, doing it?

Jessi: Hard. There were a couple, like, after we cried, because it was just like, oh, that was a really difficult conversation. And we realized, like, this is their home, even if it's not in, in great condition currently, like, they have a, a place.

So that was hard, but, but it was good in the long run, and like, hearing where a couple of them ended up, and they were like, this is actually way better, you know. Yeah. Yeah. One guy bought a trailer, I think. Like, one guy reconciled with his family, like there, there were good things that came out of it. Yeah.

And there were good things with the apartment building because we were able to fix everything that needed fixing and get it all rinsed out. And so.

James: Yeah. Do you remember what my schedule was during that weekend?

Jessi: I do remember you had like a card table. Or this is how I set it

James: up like, yeah, yeah, yeah.

You

Jessi: had a, you had a card table. You set up wifi initially and you set up a card table at the apartment so that you could oversee. I think you got there. Do you remember who I hired? Yeah, it was, it was like guys from a temp agency.

James: Yeah, kind of all star labor.

Jessi: Yeah, labor, labor guys, which both of them kind of had rough pasts, but that was another cool opportunity.

We went through a couple, a couple different people, I think, but once we landed on it, on these couple guys who were consistent and showed up and like skilled enough to do what we're asking them to do, it was a great relationship and they were super appreciative. Yeah. Of the work, the consistent work and.

We gave them great recommendations and stuff.

James: But that was part of the deal, right? I told them, like, look, you guys are going to earn minimum wage, is what it is, but this isn't forever. This is just a project, and you are gaining experience, and so I actually gave them a letter of recommendation describing all the different skills that they had learned to go get permanent jobs, which is what both of them ended up doing.

So I was like, yeah, dude, that's like, I essentially was like, think of this like an internship. Yeah. That's how you got to think about this. And

Jessi: they did, they did a great job. I think, I remember you, you would go early, you'd meet them early, like before meetings and stuff. And kind of do like a run through of the day, like here's your project list, here's the materials, here's what you need, like, and then you'd go to meetings for, cause at the time you were working at Hewlett Packard still, so you would do meetings, on my card table, on your card table there, they'd be working, you know, doing flooring, painting, whatever, refinishing, putting cabinets, like all the things, and and you'd check in, I think at lunch or something.

Huh,

James: yup.

Jessi: See if they need any more materials,

James: or Yep, answer questions. Do a run,

Jessi: answer questions, and then You go back to work, they go back to work. And then I, and then, in the evening it was like, you would take stock again of all the projects they'd done, where you were at, and you'd go to Home Depot or get Yeah, so

James: I would tell them, don't clean up, I'll do that part.

Yeah. And then in my process of, I would clean up and get them set up. Get it staged for the next day. Yeah. So when they showed up, we just had to talk about what to do and they had to go do it. So I was trying to save on that.

Jessi: I remember, I guess I remember being super bummed during that phase of the process.

'cause it, because we found out I was pregnant. Yeah, that's right. Pretty around the same time that we were kind of making offers and, and getting it and everything. And I, and we determined it was not really a great place for. For me to be hanging out while I was pregnant, you know, whatever.

James: Well, the hard part was I was actually going to quit my job and live off that revenue.

And you ended up quitting your job instead. Oh

Jessi: yeah, it worked out. It was

James: fine. Yeah,

Jessi: no, it was,

James: it was good.

Jessi: And

James: I think I put you in charge of finding all the tenants, right? Yeah.

Jessi: I, yep. After, or at a certain point, construction was far enough along that we could start Accepting applications, showing units, and yeah, you put me in charge of all that kind of stuff, and talk to so many different people.

That, that, we learned a lot, I feel like, in that process, that it, it just helped the process to, to grow, and get better. You know, cause we used to do showings, and have a bunch of people come through, and it was like, we learned, at some point, like, half these people don't even qualify based on our criteria, like, why are we showing it to them?

And, and so we, we tweaked things along the way, and oh, there were some hard conversations there too. Yeah,

James: because how many rentals did we have before this 11 units? Remember?

Jessi: Two?

James: Nope. I mean, we had two buildings, but how many rentals?

Jessi: Oh four. Yeah. Yeah. Yeah. Four units, I guess. So, yeah. Not a lot. It, it

James: more than doubled, tripled our number of units.

Fifteen, I guess.

Jessi: Yeah.

James: Pretty much overnight. Yeah. Yeah. Which, that was what was hard for me, was, All of a sudden, all the numbers are all ten times bigger than they had in the past. Oh my gosh. That's a lot. That's intense. But I do want to talk about numbers a little bit. I know you may not remember this, but do you remember what year we bought it in?

Well,

Jessi: 2014. Yeah. Because Eleanor was born in 15, so. Okay,

James: there you go. Yep, we bought it in 2014. Do you remember how much money we put down on this building? 4,

Jessi: 000 pops into my head for some reason. Oh, that's too high. Really? Oh my goodness. Yeah,

James: it was a little over three grand.

Jessi: Okay. Okay.

James: Yeah, so three grand.

Jessi: It's just wild. Yeah, so

James: what we ended up doing was the lender gave us a loan for three quarters of it, so three hundred. And then the seller gave us another loan for the remaining hundred, so I had to pay the closing cost of three grand. And then do you remember how much we spent on the rehab?

Which today sounds laughably low, but okay.

Jessi: Fifty?

James: Yeah, fifty grand.

Jessi: I think it was around fifty, which yeah, that does seem laughably low.

James: I mean, all we were doing. If you think about it, we went through, we redid we fixed, like, different, we fixed things that were done with, like, that one pipe that was broken, we fixed that, we redid the wall.

So it was much of drywall repair. Then we painted so new paint, new flooring, we did new fixtures everywhere, and like, that was essentially it. Like, we didn't go crazy on

Jessi: it, and

James: so, as a result, it just actually wasn't a lot, and then I did a lot of work myself. I think if you include what I paid myself to do it, I would probably would have doubled in price.

That's my guess. Yeah. Cause I just don't know. Cause I would work, I did other work pretty much every single weekend

Jessi: and

James: week. Most

Jessi: evenings and weekends you, yeah, you were there. Yeah.

James: And, and I was, cause I was like, these guys were unskilled laborers and so I did all the skilled stuff. So I actually set all the cabinets, got all that flat, did all the nice finish work and stuff.

Yeah. But yeah we ended up refinance. So we put 450, 000 into it and we refinanced it a few years later at 650, 000 value, which meant we got to take some money out and we use those funds to then go out and buy our five unit place in Sweden and eventually it helped also fund part of our shortage facility, which was cool.

Our average annual return. Is 141 percent on this thing.

Jessi: It's pretty stellar. And

James: we haven't even sold it yet. If we were to sell it and take the cash that's currently sitting in there in terms of equity that number would be massive. I don't know if it would be quadruple dividends. It's like, I don't have enough with a thousand, but like, we're in that kind of range for a return, just, just humongous.

Our our annual cash on cash is about 24%. Hmm. So so yeah, that's those are some of the numbers there just in terms of just basic returns. So it's been a fantastic investment and one of our best, and I think about next steps. It's probably one of those where like, I think if the right opportunity came along, I'd probably sell it, but I find out another value add deal would be hard like that, but again, we've already added all the value for this one.

So. Now we're just, now what's happening is every single year that average annual return is just kind of going down because now we're just growing with inflation. Yeah, that's it. And so that's why it makes sense to do deals, add the value, and then move on and do it. Part of our issue is we live off that cash flow.

Yeah. So I'm not quite ready to give it up yet. Even though I know in theory we'll roll it into something else, but.

Jessi: There's a transition. But yeah,

James: that's part of our, like, trying to think through what the next step is. Yeah yeah, thanks for sharing. Oh, yeah. What was that project? When I tell the story it takes an hour.

But. You have lots of details. Yeah, yeah. But yeah, no, it was it was fun. It was probably one of the harder ones that we did as well. It, it took a long time. Yeah, I don't

Jessi: remember the, the timeline of when we started versus when it was all rented out and done.

James: Was it a full year? Well, I remember specifically being there during Veterans Day.

Because Albany has the Veterans Day Parade. Yeah. And I remember watching it because this is like right on downtown Strip. I watched the parade go by. So that's in November. So I have a hunch we took it down. I, I have a hunch we bought it end of summer and then worked on it through the middle of winter.

That's my guess. I don't fully remember, but I'm sure I can look it up. But, but yeah, no, super fun project. Like I said, it was a deal of a lifetime, man. It was, it was pretty wild. I've talked to other lenders after the fact and they're like, dude, you should not have gotten that. Oh yeah. The numbers made sense.

There

Jessi: were other things that, that lined up, you know, I think. Yeah. Things were, we're working in our favor and with who owned, who had the loan and, you know, other properties that we had and it, together, you're right. It doesn't typically work that way, but. Correct. Yeah. The Lord has been very good to us.

James: Yes, that is true. That is true. I think that's everything I want to talk about. So yeah, that's a, that was a property. Great purchase. Like I said it's been good. We're still on it and so going strong. So yeah, if you are if you'd like that and would like to be involved in other stories, similar to that, where we are like doing deals and making some cool stuff happen, we have them come up fairly regularly, trying to make it even more regular, but at the moment fairly regularly.

And so if you're interested in learning even about investing more with us and what our investment thesis looks like and our overall investment philosophy, you can check us out at furlo.com. So with that, thanks for listening and have a great day.