How We're Turning One Property Into Two — and Creating Value Ourselves | Ep 142

James
Hey, guess what? What? We bought another property.

Jessi
Yay!

James
Yeah, we did it. Uh this is pretty fun. It's always exciting.

We are It's a property with a house and a pretty big lot. We're gonna split the lot, fix up the house, and build a whole new house on the other lot. Yeah, so I want to tell you about that today on the Furlo Capital Real Estate Podcast where we dive into the intricacies of passive real estate investing.

And our mission is to equip people to invest wisely in properties like this.

Jessi
And people and people

James
So that together we can build wealth while improving housing. I'm James and this is my wife, Jessi. This is super cool.

Jessi
Yeah, yeah. I uh yeah. I love hearing about the different like I don't know, different approaches to different properties.

Because I don't know. In my brain, I'm just like the the classic is like you buy it, you fix it up, you sell it, or or you rent it. Like spur, I guess.

James
That is a strategy.

Jessi
Yeah. But but when you bring these other things and you're like, so we have this lot, we're kind of thinking, we're gonna split that, we're gonna add this, I'm just like, what? This yeah this sounds so crazy to me. Yeah yeah but then it like it all works out and I and I see the pieces of the puzzle start to come together and it's like oh That's brilliant, of course.

James
Yeah, it's pretty cool. I definitely have uh more than dipped my toe into the developer side of things by you know by building houses, I guess.

Jessi
Like find like this lot, finding a lot.

James
Yeah. Putting something on it. Creating land out of nothing. Super fun.

Jessi
Creating land, I don't know.

James
Yeah, there was one, now there's gonna be two.

Jessi
Yeah, I suppose that's I don't know.

James
Well, so I learned this lesson a hard way one year because They um I I bought a piece of land that was one and they split it up into two and then the assessor came in and reassessed and they're like the the taxes were 10x like what they were initially now. Oh that happened. Wait a sec And yeah, and the appraiser was like, well, you created new land.

And so we got to come in and do a whole new evaluation and lock it into the new market rate. And I was like, oh, that's cool, I guess. Um I got you.

Uh it was not cool.

Jessi
Prepared for that now.

James
I fell on the floor when I saw that tax statement. I was like, are you joking me? Yeah, so pretty crazy. So we bought it for $205. It's in Lebanon.

Jessi
$205,000 or $205? Uh000. Okay.

James
Yeah, yeah, yeah.

Jessi
That's a very different number.

James
Yep, yep. It's on a little over quarter acre. And yeah, it can be fit into to two parcels.

Nice. And the plan, we have a nineteen twenties home. Okay.

And it looks like it. So it's dilapidated. What's really interesting about this home is I don't want to describe it.

When you f we often joke that cat urine is the smell of money. Yes. And so when you first walk in, there's like a it's like a garage shop area.

Jessi
Okay

James
And you could tell that they had animals who live there and it just it just smells like like feces. And and just it's like something about it just instantly puts you in this like, oh, this place is garbage hole.

Jessi
Yeah.

James
Yeah. And

Jessi
Smell does a lot.

James
And then you and then you walk in and like you immediately go into it's like a little mini hallway that takes you like right past the bathroom, then you get the kitchen and the and the living room. All right. And um I was we were walking around with someone today at it.

And it's just like and that was the reaction was like, Oh, you need to gut this place. You know what I mean? Like that's just the vibe that you get.

Yeah. It just I don't know, it doesn't feel good. But then you spend a little time into it and then you go upstairs and there's two bedrooms and kind of like a middle hangout area, which we would love to figure out how to turn into a bedroom.

But Uh you're kind of up there for a bit and you're like, okay, all right. And and and our strategy is not to do a full-on flip and make it awesome. It's to make it So that it is financeable and that someone else can buy it as a fixture upper and apply their own sweat equity and make it awesome.

And so it's one of those where if this house was totally fixed up and and amazing, it'd be worth like $325.

Jessi
Okay

James
We're gonna sell it for two fifty.

Jessi
Oh. Right. Because the value you're adding is splitting the lot and having correct.

James
Well separate. And again, we bought the entire thing for two oh five. And so by us spending a little bit of money to fix up that other property.

And again, we're not going crazy. I mean We did budget like, you know, 40 grand to do it. And and that's honestly the way that we looked at it is when we're gonna spend that money.

The house is essentially a break-even deal for us, which is totally cool, because that means we get the lot for free And then we build that house and like and that's roll up, you know, we're essentially we're rolling it into another one. Sure. And um What do the numbers look like?

Jessi
This maybe is a sign tag, but what what do the numbers look like for a new build like that? So essentially you got the lot for free. Uh huh. What's the cost to build and the return for an for a new build?

James
So there's a lot of different pieces to it. And um So there's work that we have to do to and paint for it. Yeah, like we gotta do site work.

They don't do anything outside, so we even paint The house and there's certain other things that that we are responsible for. This particular builder is that yes, this particular builder. And then they have their here's much you buy the house for cost, which is kind of locked in, which is nice And then we also have holding costs, right?

Like it costs a certain amount. So for us, that total out the door number is 280.

Jessi
Okay.

James
And that includes everything that the builder does, everything that we have to do, and the holding costs. That's everything

Jessi
Okay.

James
Yeah. And again, we're gonna sell the brand new house for like, what did I make sure I get my number. I wanna make sure I say the right Number for selling the house.

Where are you, house? Um that's what we're gonna spend on it. I got a lot of financial numbers in here.

Um there's that purchase. Uh we're gonna sell it for 380.

Jessi
Okay.

James
Yeah.

Jessi
It's a decent product.

James
I mean that's yeah.

Jessi
Yeah.

James
And so um, yes, that's the idea. Now again, we're gonna We're gonna technically we're gonna lose money on the on that first house, right? Because we bought it for two oh five.

We're gonna spend Uh 40. We're gonna spend like 42 grand fixing it up. And we think we'll ultimately sell it for 240.

And so there's your math. Small hole, but again, like we're okay with it. And it provides a house for someone at an affordable rate And you and you might be sitting there saying, well, James, why don't you fix it all the way up and then sell it for the $325?

Like, why why do the half measure? Well, because it would cost us another $50,000 to fully fix it up all the way And there's a whole lot of unknowns the second you start to do a whole lot more. And if you're doing quick math, the profit's about the same.

Jessi
So you're like, Yeah.

James
All right.

Jessi
And now you have two homes instead of just the one. Which is great.

James
Right. Yeah. Well, I'm just saying we could still split the lot and then just fix up that fr initial home all the way.

Jessi
And do the new build.

James
Yes. Well we could do both. But honestly, the the profit amount is uh is very similar and there's just a lot more risk because you start opening stuff up and the house is no longer in that affordable range.

I mean it was funny this with the person we were walking through, she was like, Man, I might know someone who would be interested in this at at that like that two fifty price range. Right. Like 'cause he he could do he was looking for a fixer upper that he can do himself.

Like, yeah, I know. That's why it's a brilliant plan. Sure.

And then new homes are just kind of awesome.

Jessi
Makes sense. Yeah, it's a different a different type of buyer, but it makes sense. Yeah. Yeah.

James
Yeah. No, totally. It's not the classic flipper strategy, which is Which is okay.

But yeah, and so timing wise, like I said, we've we've already we're working with uh with an engineering team who's gonna be They will actually do the lot split work for us. Like they'll do the surveys, do all the measures, submit the paperwork to the city. The city's actually pretty fast at approving that kind of stuff, which is nice.

They're different than say Albany or Corrales. And um they actually want you to develop a build, which is fantastic. And um and then we already bought the the house essentially.

Uh we put down the down payment with the builder and picked out all the cool features and everything that we want. So pretty fun. I took the kids with me because they have a house that's like a model house where each door is a different finish of a door.

Right. So like would you want that door or that door or that door The can the cabinets are all different and they have samples of everything and so we had we discussions like, well which kind of faucet do you like? And you know, they would go around looking at all of 'em.

Hey, look who figured out how to get into the garage. Oh boy. This is about to get crazy.

All right. Um so yeah, we um there's a reason why we block him out, but that's right. Um yeah, so we bought uh yeah, so we got it.

And we anticipate this project taking about a year. I guess what we're gonna do. For all of it.

New build. Correct. Yeah.

Selling and all of it. What's interesting, this guy Um for those of you longtime listeners, he used to join us. Oh, you're gonna have to stand up and make sure that's in the right spot.

Uh for those of you longtime listeners, uh he used to join us and we have since kicked him out. Because he causes a problem by knocking over cameras and stuff. But somehow he figured out how to get outside.

Jessi
There's gonna be a hole in our screen door.

James
And therefore was able to get in the side door and figure it out Ingenious, just like this deal. Ingenious. So here's one of the fun things that that we've done.

He is 100% gonna knock something over again. It's all right. You just gotta pen him.

He'll love it. Um one of the One of the things about this deal, which is kind of fun, is that we've done all of the pieces before in like individually. So we've done a deal where we did a lot split and that was it.

There were already two homes on it. And then you sold the lots. Yeah, and then we just sold the lots.

Jessi
Or okay. You just sold you there were homes on it, you sold the homes.

James
Yes, yes, yeah. So we've done that deal. We've done another deal where we bought uh just a piece of land And we built a the brand new house with the same builder.

We've worked with them, we've gone through that process, we know what we need to do. And so we have done that. We have also bought houses that were in a lot of need of repair and just fixed them up.

To make them lendable. To make them lendable and then sell them as fixed rubbers. Totally worked.

And so we've done that. And so this one is really in some ways it's the columnation of a bunch of those different strategies. combined together.

Jessi
Yeah.

James
And so the hope is by doing that, yeah, we also see some some pretty big gains in the in the returns as well because we're stacking value on top of it. 'Cause it's like, yeah, we gotta do a lot split, which has never been done. We gotta build a house, which has never been done.

We gotta we're gonna fix this one up. So um yeah, it's uh it's kinda fun um doing a project like this. And that is cool.

Yeah, it's it's very fun. Um I would say if this was the first deal that we were trying to do, it'd be super risky.

Jessi
But I could see that if you'd if you hadn't done All these types of deals or investments, that would be risky.

James
Mm-hmm. Mm-hmm. But you have experience in all of them. Yes, right. Yeah, exactly.

Jessi
You kind of know how it will turn out

James
Uh yeah, yeah. We feel pretty good about it. Yeah.

Yeah. Well there's like there's little things where we have already submitted the work order with the city to get the electrical. to where this new lot's gonna be.

Because we know that it takes a few months.

Jessi
Yeah.

James
And by then we'll have the lot split and so to work. Yeah. Instead of waiting until the lot split and then waiting a couple more months so we're learning to to do things in parallel.

And um yeah. So there's little things like that that we're that we're getting better about. Um yeah, I'm trying to think what else is important.

I think that's like ooh. Yeah. So just kind of a fun project Uh this was one where we um so we got investors for it's two different phases.

So that first phase was hey we're just buying it and we're fixing up that house. And it's so it's enough to fix up the house. and do the lot split.

And then we're going to do another phase where we bring in more investors to actually do the house build itself. Yeah, so that's the plan. We'll need funds to do that.

And so um, yes, that's how we're gonna that's how we split it up and I thought it pretty quick, which is always good. And um yeah, so the way that you find out about that is you get on the old email list and I send out an email telling you about the deal. I've got a really cool website that I put together.

Uh it's just well webpage I guess that I put together that gives you all the details around numbers. what those numbers are, how it works, what the plan is. We talked about risks and how we're going to mitigate it.

All of that stuff is included in it. And so if you head over to Furlo. com, that's where You can sign up and get on the list, learn more about it, and join us.

And in this particular case, what we're doing is um loans. So we're giving it our investors, we're paying them 12% for it. And um yeah.

And so that's how we're doing it. So it's not really an equity stake. It's just you're like a lender.

Um which in some ways it means you get a guaranteed return, which is super nice, or guaranteed interest rate, I should say. Yep. Return.

Jessi
And um relatively short. Time frame.

James
It also makes taxes really easy because at the end of the year we just send out a 1099 INT form and that's it. You're not we're not worrying about K1s or anything like that, which is also really nice for short-term stuff. And so yeah, it's a cool, cool deal.

Would love to do more of them. That's the goal. Yeah.

Is it would love to get to where we're doing like one a month, which We're not there yet, but um that'd be the goal to scale it to that. So, uh yeah, man. There's steel.

Looking forward to doing more. He's finally calmed down. Crazy.

Um that's right. You know, sometimes you gotta have curveballs thrown at you It's all good. That's part of the investing.

Just keep going. Piece of it. That's uh like with this property here.

We okay. I'm gonna sign off because he's about to knock that camera right over. So again, thanks for listening.

We appreciate it Uh, have a great day.