Investment Spotlight: Our Second Duplex | Ep 18

James: Welcome to the Furlo Capital Real Estate Podcast, where we talk about the intricacies of passively investing in real estate. And our mission, it's simple is to help people invest wisely in not only properties, but people so that together we can build our wealth and improve housing. I'm James, and this is my wife, Jessi.

Jessi: I'm here and peace.

James: Peace.

Jessi: Yeah, that thumbnail probably makes no sense to anybody, but our son went through a phase where he would make that sign in all of his pictures and we thought he was like

James: shooting a gun. Cool.

Jessi: Like, I don't know. Yeah. He later we discovered he was like, no dude, that's a peace sign.

We were like,

James: Your thumb and index finger is a peace sign. All right. Cool. Yeah. Peace. Yeah. Kind of a weirdo, but you know, runs in the family, I guess. I guess. Nice. Oh, that's awesome. So what I want to talk about is something that we did before we had our kids.

Jessi: Yeah. Yeah. Oh, a long time ago. I

James: know. So we've already talked once about our very first purchase, our duplex.

Yeah.

Jessi: Today,

James: I'd like to talk about our second purchase. Which was a duplex! A duplex! Do you remember why we decided to buy, or what got us ready to buy that duplex?

Jessi: Not necessarily.

James: Okay, let me give you a reminder. Wake up money.

Jessi: Oh yeah. Does

James: that mean anything to you? Yeah,

Jessi: well it was the classes that Lee did for a long time.

James: Huh, who's Lee?

Jessi: Lee is the agent who helped us buy our first place. Also a good friend.

James: Yeah. Yeah

Jessi: business partner at one point Yeah,

James: you worked with him. I worked with him. Yeah. Yeah. Yeah, so he did these classes called wake up money Yeah, which I think it was like a one evening Thing yeah, I remember correctly.

It was like mostly a DVD series where we'd watch this guy and then he would Kind of working through it and the, the whole idea behind it was this concept of wake up money. I ultimately think of it as a little bit different than that, but the idea being if you invested passively, you would just get money when you woke up and he ran through a very simplistic example where he goes, what if every few years, I can't remember the exact timeline.

I think that's like, I think it was like every year or every other year, I think it was every other. You buy a house because you just, you have a job, you save, you're invested in the house. And then in 20 years, it was kind of this thing, it's like you'd have 10 houses and then you take your five oldest or maybe your five lowest performing ones, however you want to think about it.

Sell those. And use the proceeds from those sales to essentially pay down or refinance your, the remaining portfolio and just skyrocket up your cashflow. And now you have wake up money and you can retire. That's kind of his. So that was what he laid out. Lee was doing it to generate leads, people who are interested in buying investments.

And so he was going like very smart, right? Going down the education route. Let me teach people about this idea. So then they want to invest and then they'll come to me. That was the whole thing. And I know for us, we were, we took it cause we were friends and we'd already bought a place and he was like, yeah, you guys should do it.

And, and it was through that one of the promptings was like, where do you potentially have funds that are just hidden, hiding there? Right? Right. And for us, I had a Roth IRA that my parents had set up for me when I was younger, like 16. They started paying into it. And so I had a pretty good principal balance that was just sitting there.

It was like, I think it was like 40, 000 or something like that. I mean, it was significant and, and that was enough, I, or at least that was a big chunk of it. And maybe we combine it with something else. I don't fully remember now. But that was enough for us to do down payment on another property. And so we started looking and do you remember that process at all?

Jessi: For the, I remember really distinctly for the first one, for the second one, I think we, we, we looped back through like the, the same set of standards or something. That we had looked at before and it was like, okay, it's got to be, you know, make this much money It's got to be in this location, you know, we had different features or things that we were kind of looking for, but we looked at everything.

James: What's your number one criteria? Oh, it has to be cash

Jessi: flow

James: positive. Day one.

Jessi: Yeah. I, we, we went back and forth and you're like, but there's this thing called appreciation and it's okay if it's losing money, if you can, you know, If you can fix it up and then you refinance it or you sell it or

James: raise rents.

Yeah, you

Jessi: raise the rents and I was just like no, why in the world would I buy anything that loses money? That's not an investment. I love that. Which I now understand how you can Take something that is Potentially losing money and then flip it and turn it into something great, but I still don't like it.

So we don't do it.

James: That's fair. I mean, you know, kind of doing it right now, but

Jessi: well, true.

James: Yeah.

Jessi: For buying holds. If we, if you were going to buy and hold,

James: that's fair.

Jessi: I would, I would struggle.

James: Yeah, no, I, I totally agree. Yeah, so that was what we did. So at the time, since we were now friends with Lee he, I was able to, Have him essentially download all active listings in the MLS for the surrounding area and we were slowly looking at multi families.

We didn't care at all about single family homes and we were in like that, you know, two to four range. And I had some general heuristics based on all the market research that I'd done on like how much certain bedrooms would rent for. And so I set up just a real quick number that was like, okay, these many bedrooms, these In this area is going to rent for this, did the math and then did a division of the rent divided by the price and essentially did a sort by what number was highest on that ratio.

And that was, that was my starting criteria. Cause I figured that's what That's chances are it's going to be one of those up there. And I think I then looked into, it was either like the top 10 or top

Jessi: 20 of them. I think that's where I came into the process.

James: You may

Jessi: have shared the math with me, but that is long.

I don't care. Does it make money?

James: Right. And that was part of like, okay, I got to hit this ratio in order for it to make sense money wise. And if I remember correctly, there were two that popped up. There was. And I think there were two duplexes, is ultimately what they were. And so we were like, okay, let's go.

And we, I think we set up tours for both of them. And something happened for one of them where we didn't actually end up going on the tour because like it got on a contract or something. And then we walked through, The one that we ultimately bought and it looked fine. It was a fixture upper, but the ratios were great and there are already tenants in place and we weren't going to move in because we were still living at our current duplex.

And so we're like, perfect. We put on an offer like one 60 if I remember correctly. And I think they were renting out for, I think both sides were like 800 bucks each. So it was this one magical 1 percent rule where 1 percent of the monthly rent was paid out. Or the rent, the monthly rent is 1 percent of the purchase price.

And so all the numbers, it was profitable day one. Yeah. And so we bought it. Yeah. Do you remember what we did with it after we bought it?

Jessi: Not a lot.

James: Yeah, that's the answer for a

Jessi: while.

James: You're not saying you don't remember a lot. We didn't do a lot. Yeah.

Jessi: Yeah. I'm it cause it was profitable and the tenants who were in there were happy and You know, we, I think we re signed new rental lease agreements with them so that we could, maybe we didn't right away or no, we

James: did.

Cause there was some like internal changeover. Yeah. For example, in one unit, there were two dudes who were living there and one of the guys ended up moving out. Yeah. That's true. We just did the one guy and then there was a lady living in the other unit and then Lydia and her daughter. And then eventually the mom moved out and the daughter stayed and we, whatever, let her live there.

And then she had not a revolving door of, of roommates, but she had a few yeah, actually,

Jessi: you're thinking of the listing that she made for finding room.

James: Yeah. Yeah. So

Jessi: we, we found that at one point we were like, Oh my gosh, no wonder why she's, yeah, so, so she,

James: so she called me and said, Hey, I'm looking for a roommate.

But so far all I'm finding are like weirdos or like, it's just losers, whatever, but I'm looking and I was like, Oh, where are you advertising? Cause by now we'd like, we'd done this a few times. Like we knew and, and she was like, Oh, just on Craigslist. I was like, really? So I went on a Craigslist and I tried searching for it.

It was hard to find. And so I finally was like, okay, I just got to like housing and roommates, water, whatever it was. And I started going through every single listing and eventually I found the one where I was like, Oh, this is totally hers. And it was zero pictures, zero information on the place. It was just like.

Roommate needed, no weirdos. Like that was, I was like, Oh my gosh. So I called her and was like, I have some ideas if you want to make this listing better, like maybe put in how much the rent is and what it is that they'll be renting, maybe describe some of the features a little bit. Instead of saying no weirdos.

Maybe let's put this in a positive light, like what positive characters are you looking for? Yeah, it was pretty, it was awesome. Yeah, she ended up renting to a guy from work and he played video games. That was his thing and it worked out. It kind of worked. Yeah. Yeah. Yeah. It was good. Kept to themselves.

It wasn't until. I think it wasn't until the end of, like getting near the end of our ownership where we, we finally had a turnover and she ultimately moved out and I think I went into overtime for like a week. I think, I can't remember if I was still working for HP or not. I think I was. I think

Jessi: you were cause I, I remember going in and doing, I did a lot of the cleaning and then I did all the paint.

You didn't do all the

James: paint, I painted. You

Jessi: painted, I did all the edge work. Cause I remember you were like, should we spray, should we not? And I was like, no, no, no, it's not a big deal. Like, I don't like to tape anything, I'm just gonna do it. And it took forever.

James: It takes forever either way. So I've timed it.

I've gone like the same unit. And I've rolled once the entire time. And I've sprayed once the entire time. And it was like, it was uncanny. It was almost the exact same amount of time to do both. The difference with spraying is You're spending all your time, like you're spending 99 percent of your time putting up tape and prepping and get it all set.

And then it's like one day, one hour, boom, spray, take everything off. You're done. Whereas with rolling, like it's very little prep time, but you are rolling the entire time. And I think, I don't know, pluses and minuses to both ultimately. Yeah. So I remember how we did that turnover and it was, I just, I just remember working and I was like,

Jessi: you worked evenings and weekends.

Oh yeah.

James: I would finish at HP and then like get like a to go type of dinner, like peanut butter jelly sandwich type of like what's quick eat while driving over to the unit. And I would work from like, say like five 30, maybe even six o'clock until around like 1 a. m. And then I would drive home, hit the pillow by like 1 30 a.

m. And then, and then I pushed the bounds, like work started at eight. And so I was usually like, I'd sleep until like seven, seven 30, something like that. So I was getting like. It was good sleep, but man, it was, and then I remember I had new tenants scheduled to move in and it was like, it had to finish that night because they were moving in that next day.

And I remember I hadn't finished until like two or 3 AM and I was, and, and it was one of those, like I finished. And then I had to pack everything, at the time I didn't have my van, so I had to pack all of my tools and everything into the Jeep. And I just, I stacked, I packed that little thing to the brim.

Didn't even unpack it. I just got home. I was like, whatever. And they could steal this for all I care. I'm tired. And yeah, that was, that was a lot. That was a lot. That's what that was. But that was like, that was it. That was like the most amount of work that we ever put into that place. I was all consolidated into a week.

Which is nuts. Yeah. But that's one of those things. Yeah,

Jessi: it was a great place. And, and it was through that.

James: Yeah, I agree. It was through that that I came up with It's not a concept. It's a, I don't want to call it. So you have wake up money and then you have passive passive income. Like I have these terms for me, the one that resonated the most was what I started calling gyroscopic cashflow was the idea.

So you know, like you've seen those things where like the plate spin on a pole and I got to do one at Disneyland and they had me participate and it was super fun. And so the idea is it spins and once you get enough angular momentum going, it kind of keeps spinning. And then it might start to falter and you got

Jessi: to give it another twist,

James: give it another twist.

And so what I like to think about is like, so there's a lot of initial effort, which is the finding the property, underwriting it, getting all the funding, doing all that stuff. And then for this one, it was just kind of like, it just spun and it happened to spin. It was like once a month, right? I have to get the funds or mow the lawn.

And it was just like a little, this little

Jessi: spin,

James: little, little, little sun sun. And then. And every once in a while, like that one week thing, it was like double handed, full focused, okay, here we go. And really just like got it spinning fast again and spinning in better than it was previously because we were able to raise the rents on it, which was great.

And and then, yeah, so that was like, to me, that epitomized the idea of gyroscopic cashflow. And that's, if you're actively investing in real estate, that's really what it's like. There's probably a lot of work up front. And then not a whole lot, but it's not passive. You don't just get to walk away and never do anything.

There's maintain. Okay. Let me, let me do this. Now we do have passive investors now, and those are people who, you know, lend us invest with us alongside to go to other stuff. And so there's a little bit of spinning. At the very beginning, where they gotta look into the investment, they gotta figure out if it makes sense.

There's not a whole lot during the whole period outside of sent emails, and that's just kind of that little, little, little something. And then at the end, there's stuff that has to happen. And there's a little bit more work, too, at tax time, because it's a little bit more complicated than normal. Which, that's all

Jessi: you doing the spinning.

James: No, I'm saying, like, when I send them an email, they gotta read it.

Jessi: That's a little spin. I understand.

James: When it comes to taxes, I will send them, if they're equity holders, a K 1, if they're giving us a note, it's a 1099 and they got to do something with that. Yeah. It's not hard, but it's a little bit more than normal.

And so so yeah, that's the, that's the idea. And it was really this property got me thinking down that path of like, okay, what, what is it really like? Cause it's not passive. And. At least for us it wasn't this wake up money idea, though they both have some truths in it. But for me it was just this gyroscopic income.

I was like, yeah, that's what this is about. And that was what got us really excited about it. And for some reason on this page I have a picture of my lawnmower on the back of our Jeep. So I remember, yeah, cause I mowed the lawns.

Jessi: Yeah, we, we had our own property that you did the lawn for and we didn't have to go anywhere, but you were like, Oh, yeah, Now if I have to do maintenance, like I gotta take the lawnmower and I don't have a trailer.

Yeah. Like how am I get the lawnmower to a different house.

James: Yeah. And so I ended up buying one of those like old person scooter Yeah. Trailers, that had a little ramp on it. It's a little

Jessi: ramp.

James: I would put it worked great. Put the mower on it and go mow and leave and yeah, it worked. Awesome. So I was, yeah, every once in a while I would would jump in

Jessi: and do the lawn mowing.

James: Yeah, yeah. Not often. And I remember how glorious it was when we finally hired someone to do the lines because I was like, this is so, so much work. And yeah, that was great. That was,

Jessi: that was worth it. It, it looks so much nicer and we didn't have to do it. What to say, ? Well, I mean it

James: was just, they

Jessi: just, they have all the tools, you know, we have the long mower's, but they have edgers and blowers and you know, whatever.

Yeah. You get the diagonals, right? They do. Yeah. They just, I

James: was not

Jessi: just cut it.

James: I don't have that cut Grass time and patience.

Jessi: Right. . Exactly.

James: Yeah. No, that's true. But yeah, that was a great, like, that was a great investment. It was one where we bought it for, see if I can do the math here. We bought it for one 60 mm-Hmm.

And, I wish I, did I write down what year we bought it? No, it was a couple years. It would have been

Jessi: 2010? I was going to say 10

James: or 11. Because we bought our first place in 09. So I thought it would be 11. That's what it was. And, like I said, we were positive cash flow day one. On this place. And then,

Jessi: we ended up

James: selling it 10 years later.

In 2021. And we ended up selling it for 360 was what it was. That's a pretty decent return. And yeah, we were able to

Jessi: roll that. That was part of the 10 31 exchange. We did.

James: Yeah. That was part of what got us into the storage, not storage the warehouses. Yeah. It was that one, the other duplex and the single family home that during this time that we were just talking about, we were living there, but yeah, that's that's what we did.

It was. Yeah. That's a good investment. That one worked out really well. And that was like, just grabs a spreadsheet of everything available and did the math. It's harder to find those kinds of ratios now, but at the time I remember at the time that was like Albany always had one, maybe two a month that kind of met that magic ratio that would make it profitable.

Corvallis never did. Lebanon had them, had a bunch. But it was also like, I didn't want to head out in that direction. And so I knew if I got the spreadsheet, I'd find one. And there was like, yeah, there were, there were genuinely like, you know, five to 10 that were pretty close. And then you dive in a little further and like, Oh wait, this is weirdness here.

And so yeah, it was a good investment. So that was our second one. It was like, it's his hands off. It's probably the most hands off property we've bought. Is that a fair, Me, personally. I know a lot of them feel hands off to you.

Jessi: As opposed, the warehouses kind of fall in that camp. Oh,

James: okay. So does the 15 bedroom, I, I guess.

I, I guess I, so I kind of,

Jessi: I

James: think about our investments in terms of phases. I have like, I'm, I'm very like Marvel esque, I guess. So phase one was the, I had a job, phase. And that's the duplex, duplex, single family home, apartment, like all those. Mm hmm. But flip the piece of land about the place here. And then I have like phase two, I guess, which I think of as the, yeah, the, the warehouse and then the 15 bedroom and now, and I, I don't know if I'm stepping into a phase three yet with this flip.

It's just, cause it's just so different, but that's kind of how I'm and for the flip I raised funds. So that's kind of like, I'm like, it's, it just feels different. Maybe that's phase three. I don't know. But but yeah, this Yeah, this was by far the easiest, most hands off one like we've ever done.

It's yeah, even today, I think so, but yes, we're good. So there you go. Thanks for listening. Hopefully you found that interesting and just a little bit more about how we think about it and how we got into it. And so we would totally appreciate it. If wherever it is that you listen to podcasts, you leave us a quick rating.

That'd be awesome. And we hope that you have a great day.