PAVE Your Way To Better Returns With A Smarter Investing Framework | Ep 82

James: Question, would you board a plane if the pilot has not done a pre-flight check? Probably not. No. And that's what we're gonna talk about on the Furlo Capital Real Estate Podcast, where we dive into the intricacies of passive real estate investing, and in this case. Piloting. Mm, yes. And our mission is to equip people to invest wisely in both properties and people so that together we can invest wisely while improving housing.

I'm James, I'm trying to ignore our dog who is chewing on something he shouldn't be. And you are Jessi.

Jessi: Perfect. You know, puppies are puppies.

James: Puppies are puppies.

Jessi: I,

Jessi: so the, that kind of reminds me our kids like to watch videos of themselves when they were super little. Yeah, like our puppy because they did ridiculous things and it was like, why did I ever do that?

She's 'cause you were little and you had no idea and now years later it's hilarious in the moment. Yes. It was like, oh my gosh, can you please

James: stop? Oh my gosh, yes. Why are you chewing that Post-it? Right. How did that post-it get there?

Jessi: How did that post-it get there. Why are you eating that?

James: You found his Kong.

So we're good to go.

Jessi: Yeah.

James: Yeah, so, so big news ish. Mm-hmm. I officially have my pilot license

Jessi: flying unmanned

James: vehicles.

Jessi: Amazing flying angle.

James: Yeah, yeah, yeah. It's

Jessi: like the, that's fine.

James: Yeah. Yeah. Yeah, no, I I got my drone pilots license. Very cool. It's UAS, but so what does

Jessi: that

James: mean exactly? I can fly drone drones to fly drones not kill.

Commercially. So previously anyone, you can fly a drone just for fun. Oh. But now I can do it for pay and not for pay for other people, that kind of stuff. Oh, yeah. Yeah. I did it. For a couple of reasons. Number one, I have a drone and I found that I was using it for my real estate business sense. So I was like, all right, I should probably legal.

So now I am. Yeah. Which is good. And I I guess technically I could do it for other people and get paid to do it. That is not my intent. Yeah, that's not really at all. But you wanna do, I don't even intend to advertise it as part of my business. Like when I get a new property management client, part of what I wanna do is go take photos of the place and give it to 'em.

Like, Hey, this is super awesome. We got pictures of the roof and your overall building. But I'm not gonna tell them that. I mean, unless you, I wanna listen to this, then you'll know. But but that's just one of those, like, I wanna have like a little, a little surprise, you know? Yeah. For them joining me that I don't wanna talk about, they go, Ooh, yeah.

Cool. Exactly.

Jessi: Yeah, that makes sense.

James: And

Jessi: yeah, just a little something. Would you say primarily you're taking the drone shots as like, oh, that's a really cool picture, or more of like. I can see things that I can't see from the

James: ground. Yes. Ideally get both. Both. Ideally it is a cool shot mm-hmm. That they don't normally, that they've never seen.

Right. That that bird's eye view is like Whoa. Neat. Yeah. Yeah. 'cause it's genuinely cool. Yeah. But at the same time I'm like, Hey, we can look at the roof and look at other systems that without having to climb up there, there you don't get a good eye poke ground. Get a good view of Yeah, sure. Exactly. I would say first and foremost is get the cool shot. That's

Jessi: your, that's number one. Yeah. Yeah. What'd you say? Whatever.

James: But yeah, so part of the class is you learn all sorts of stuff, like you learn about, mm-hmm. I mean, you learn about weather, you learn about how to read aeronautical maps, which is, which is genuinely cool.

You learn about radio communication. Mm-hmm. You learn about how lift and other stuff works. Mm-hmm. The physics of flying. Yeah. Yeah. And then the last part of it is what they call aeronautical decision making. EDM. Mm-hmm. And it's this process that. Pilots go through for, you know, it's like they systemize the process.

Yeah. And pilots are like big time in the checklist. Like that's the thing, which is great. And it just avoids them from missing stuff, which I'm like, oh man, I love checklists. I'd be a great pilot. Yeah. And so one of them though is called pave, and it is a process, it is a essentially a pre-flight checklist.

Jessi: Okay.

James: To avoid. Okay. Future problems.

Jessi: Okay.

James: Yeah. And as I'm learning this for the drone stuff, I was like, dude, this is applicable to real estate. Huh? So I wanna go through the, the PAVE acronym, the pave, which I creatively titled this one, pave Your Way to Better Returns With the Smarter Investing Framework.

That's pretty good. That's pretty good. And so so yeah, so PAVE. And you are gonna find that there's lists within lists and on one of the letters, I feel like they cheated, but that's okay. It's like the, the e at the end of the letter. Yeah. So the very first letter is a p obviously, which stands for pilot in command, or the pick is the cool kids say, oh, and this is the person.

As name would suggest they're flying the drone. Yeah. They're in charge. They're in command. In command. Yes. It's, yes. And I think the equivalent is you, the investor. Okay. The person putting in the money. Yeah. Not the sponsor, but like you as the passive investor. So you

Jessi: would call the investor the pick.

James: Of your own investments.

Jessi: Okay. Right, because you're the one in control of your own monies. Mm-hmm. Deciding where they go, who you give them to.

James: Yep, yep. That makes sense. Yep. Got it. Because I, because one of the things they really make important that they emphasize in the class mm-hmm. Is that the pilot in command, like the buck off with them, they are the ultimate decision maker.

Like you can have someone else who's like, Hey, you need to do this and that. Like, interesting. Nope. It's the pick. They're in charge. Yeah. They hold responsibility. And I think that's true with like your own funds, like. You are responsible for making the investment decisions and deciding where it goes. I mean, that's a good point

Jessi: because you, I, I kind of feel like people would.

On Slum Mobile, be like, well, it's the sponsor. It's the sponsor whose I, whose deal it is. You know? Right. What do I know? But really it's like, no, this is your money. You can say yes or no. Right. And you should know what you're saying yes to. Yeah, yeah,

James: yeah. Once you make the investment, you're the equivalent of up in the air.

And now I thought this was interesting. They have what's called another acronym within this. It's a big one. It's called

Jessi: a acronym Within. An acronym. I know

James: This is called the I am Safe checklist. They love their checklist. I'm gonna try to run through it. I had to memorize this for the test. It sounds like something like a kindergartner would do.

Mm, fair enough.

Jessi: Safety school,

James: I think they have a in, on Amazon's web services, AWS mm-hmm. Their login stuff. It's just called a I am Service. So it's kind of an, that's what always makes me think of, anyways. Interesting. I am safe. Number one, illness is the eye. You know, they're like, if you're sick, don't fly.

It's kind of their whole thing. I know you would think that that should be obvious, but whatever. So for you saying, are you financially healthy? Are you in a place where like you can make the investment m medication is what that stands for. Again, if you're taking some sort of. You know, make you sleepy decongestion like you shouldn't be flying.

Yes. Again, that makes sense for pilots. So the question is like, are you under any external influences, either emotional or relational? Mm-hmm. Right? That kind of thing. Yeah. That would

Jessi: influence your decision making skills? Yes. The skills. So part of that,

James: the S for Safe, is a stress. If you're under stress, you shouldn't fly.

Yeah. Are you investing outta fear or fomo or are you just in stressed in general in life where you're like, man, I don't have time for this. Like, just whatever, like, yeah. Yeah. Alcohol yeah. The the phrase that they use is eight hours bottle to throttle. That's funny. Yeah. Yeah. Yeah. So you're you know, metaphorically, right.

Are your decisions impaired? Mm-hmm. Somehow. Sure. Maybe you're investing with a friend Yeah. Or a relative. Yeah. You know, you're not, it's just thinking clearly. Not necessarily No. But, you know, you just wanna, like, you want to be able to acknowledge that that's happening. Sure. F stands for fatigue.

Mm. Are you mentally exhausted and short cutting due diligence.

Jessi: Interesting. I mean, I could totally see that. Not necessarily like. Bodily fatigue. But if you're like financially fatigued and you're like, I gotta do a deal. Oh yeah, I just gotta do something. I don't know. Okay. Burn a hole in your pocket.

Yeah, totally. You're like totally,

James: Ugh, not good. Yeah. The E stands for eating You should eat. Yeah. Are your basic financial disciplines in order. That's kind of how I decided to I don't know, man, I'm making a stretch

Jessi: or. Does your sponsor take you out to dinner? No, I don't know.

James: That'd be sweet. I, I have a side thing about that, but lemme go down it.

But essentially what you're trying to ask is, are you in a good place to make this investment? Mm. That's what you're trying to ask. And this checklist kind of helps you think through the different aspects of your life

Jessi: That makes sense.

James: Is kind of what you're trying to do, like right. Is there anything here that would be impairing my judgment or forcing me to go faster than I want to?

Jessi: Mm-hmm.

James: Or, you know, am I just not in a place where I'm actually ready to do this right now? Yeah.

Jessi: That's actually a great analogy because I think, I

James: know, that's why I chose it.

Jessi: If you're doing something physical, it's easy to identify like, am I, am I in the right state to do this thing? I, yeah. It reminds me of the motorcycle training we did.

Mm. Where it's like, okay. Like this is a risky, there's a lot of this thing you are stepping into. Yeah. Are you mentally aware? Are you physically aware? Have you eaten? Right. Are you, like, if you're overly tired of stress, like, or do not do this. Don't drive. Yeah, yeah. Is not good. So it's like that's, that's easy to wrap our heads around.

It's like, well, duh, if you were super tired, you definitely wouldn't get in a plane and fly it or hop on a motorcycle. So it's like, okay. Yeah. If you weren't financially healthy, you wouldn't. Do this investment. Right?

James: Financially, mentally, forever. Yeah, mentally, emotionally. Yeah, so, exactly. Totally makes sense.

You go, that's the P pilot in command we pick. All right. A wanna guess what that stands for, but you can pick it out.

Jessi: A awesome

James: thinking. Nope. Think pilots, right? Like that's their initial A. You're halfway there aircraft. Yeah. So aircraft is a second one. Right. And so for us, I think it would be like the deal itself.

Jessi: Mm-hmm. It's kind

James: of that equivalent thing. Sure. It's that vehicle that's Yeah. Getting you to where you wanna doing the thing you wanna do. Exactly. So you just wanna understand the fundamentals of the deal. Mm-hmm. Right. Just in the same way you wanna understand is the aircraft in good working order?

Yep. You know. All that fun stuff. Are there wings on it? Right? Right. Does it have gas? When's the last maintenance? Sure. You know, are there the proper lighting and stuff on it? Yeah. So you wanna ask that same question, right? What's the business plan? Worst case scenario, are you familiar with the asset class?

Stuff like that. I also think it's really important, and this is important for aircraft, like you gotta know what's its limitations, right? How much weight can it carry? Where is the center of gravity? Stuff like that. So you wanna know things like the leverage ratio, exit strategy, market sensitivity.

Speaker 2: Mm.

James: You wanna know the big measures like.

Irr. Mm-hmm. And cash on cash average annual return and like you know, those kinda shows. Okay. I think are important to know. And so you don't just like, you don't just go, Hey, that's a nice looking pitch deck. Right? Like, you wanna know the aircraft the investment before.

Jessi: So good. Could that be like saying like, you're not just looking at like the paint job on the aircraft.

Okay. You're actually like checking the spark plug fuse. Yeah. Planes have

James: spark plugs. Sure. Sounds like a thing. They have engines, onions on smart plugs,

Jessi: I don't know, engines or the controls or the, the lights and or how everything is actually working and functioning. Yeah, yeah. Yep.

James: That's a good way to say it.

Okay. Ready for the cheater? For pave. You're never gonna guess what this one is. The V is, I don't have no idea

Jessi: velocity. If

James: it was me, I would've chosen the word vicinity.

Jessi: Vicinity.

James: They did not, they chose environment. I told you it's cheating. I told you man.

Jessi: Environment.

James: Yeah. Sound like you're that's an e That sounds like Hermione environment, I mean, or no.

It sounds like Ron making fun of Hermione environment.

Jessi: I mean, I kind of get it 'cause you wanted to say pave not pay. No, I,

James: I, I get it again. I would've chosen vicinity, but whatever. Yeah. So they talk about environment. I think that equals like the market. Right. That's kind of that, that equivalent, right?

Yeah. For surroundings. Yeah. Something like good. The investment itself might look good, but how, what are the local market? What are the local market trends? You know, any economic indicators, any regulatory things. Right. So you're looking at job growth, population trends, maybe some rent control. Yeah. Or landlord laws, stuff like that.

Right?

Jessi: Yeah. Other things that might be affecting. This investment.

James: Yep. Yep. Exactly. So you wanna think about the environment? Sure. And like if

Jessi: there's a flock of birds in front of your aircraft,

James: right? Yeah. What do you do about that? Well, that's like a side note. I don't know if there's too many birds.

You actually shouldn't fly a drone, is the rule. 'cause birds like to attack drones, so you, oh yeah. And how do you know, how do I know what that birds like to attack drones? No.

Jessi: No. How do you know if there's a bunch of birds? Like you just look up.

James: Yeah, it's actually, okay, so interesting. We'll go, this is like a tangent, but we'll side quest this for a little bit.

They actually tell you when you're looking, what you do is you pick a spot and you look at it for like two to three seconds, and then you shift your gaze, and then you shift your gaze, and then you shift your gaze because what they talk about is you have to stare at a spot for a little bit to see movement.

Because if all you're doing is a sweeping look, you'll never see the movement. That's interesting. And that's what you're looking for.

Jessi: That's actually what they teach you in lifeguarding. Oh. You know? 'cause it's, if you're just sweeping, you could look over something really quickly. So it's like, you look, you shift.

Yeah. You shift and you're, you're looking for distinct. Movement or lack of movement in Yeah, yeah. That case, but yeah, yeah, yeah,

James: yeah. No, no, exactly. So, and, and again, for a flying, it's like you're thinking weather type of stuff and, and you're looking up all the apps to go, Hey, is there rain coming? Is there fog?

What's the cloud ceiling? 'cause there's certain rules on how close a drone can be to clouds. You know, are there other obstacles? Right. Tele, you know, wires, those are the big ones. Yeah. That you need to be aware of. Mm-hmm. And so things like that. So yeah. Again, mm-hmm. Just looking at the local market, trying to figure out like, does this investment, and, and I've, and I've told stories in the past on other episodes, and I'm assuming you'd listen to every single one.

But but the, if you haven't, you can go back and listen. Boom. Yeah. They're all there. All however many eighties, more of them. But, I looked at this one investment that was in Ohio. Mm-hmm. And the investment itself, like it was a cool idea. I mean, outside the fact that it was a brand new contractor biting off a multimillion dollar project, that was not cool.

But my biggest concern was that they were taking this from like a C class to an A class in a B class area. And I was like, yeah, I feel like you're over fixing this. Quite makes sense. So you just wanna take all that into account? Hmm. V environment. Oh, I know. The last one e stands for external pressures.

Yeah. I would not have guessed that either. Yeah, I know. Which is fine. And in the flying world, it's like, hey, do you, are you working for a client who's like, you gotta get this done today, or. You're just with friends, right? And they're like, do this cool loopty loop, which my drone into, but I don't know.

Hire Yeah. Just break the rules. It's fine. Whatever. Those kind of things. Yeah. So I think so I think you can get those same type of external pressures when it comes to investing like the sponsor, right? They're like, Hey, let's do it. We gotta move down. Deal. Right? That could be one of 'em. Yep. Maybe there's end of year tax return or tax motivations.

Sure. That you're trying to get to maybe there is their peer pressure, like, Hey, everyone else is doing it. Or I, I don't know why I wrote this. It's like the same one, a sign sensitive offer that requires a quick decision. Mm-hmm. And so again, you wanna have kind of a, in order to mitigate this one you wanna have an investment policy.

Mm-hmm. Like, here's what I'm looking for, here's what I'm doing, and you just wanna know your criteria and stick to 'em. So that's the pave. I thought I was like pave again. I was like. I'm, I'm taking this class, learning it. I'm like, oh dude. Like this is

Jessi: super applicable to, this is

James: great real estate. Yeah.

Simple checklist. Mine's like eight different categories. They figured out how to do it in four.

Jessi: I mean,

James: I guess unless you include the I am safe, then you're like, holy cow.

Jessi: Right. See, I feel like that's a little cheater. Cheaty. Yeah. Yeah. Yeah. It should been like, I think I, I have a sponsor something there, but PV or you know, I

James: know,

Jessi: but that doesn't make, that sounds cool.

Hand

James: safe, I dunno. Not as cool. Whatever. Yeah. So I think a lot of it too is, I mean, this is very similar to our previous podcast in the sense that what you're not looking for is necessarily ways to say no, but you're just looking for like, what's that Right. Deal for me? Yeah. What, like, you know, 'cause pilots, they wanna fly, like, we wanna get up there.

Sure. Like that's the goal and. You can have hazards and you can have issues. It's just being aware of them and figuring out ways, how do I mitigate whatever this potential shortcoming is? Like maybe you are in a small market or when that's not growing. Mm-hmm. Like, okay, fine.

Speaker 2: Yeah.

James: Like what are you gonna do to mitigate that?

Mm-hmm. That's cool. Maybe it is an older building. Fine. Like what kind of repair plan are you gonna have in place to make sure that we account for the fact that it's an older building? Like those things are okay. Yeah. It's just like part of the, this process is to just be walking in eyes wide open. Sure.

And ideally the sponsor's done some of this, but you as a passive investor, you also want to

Speaker 2: mm-hmm.

James: Have those things. And again, I think it's really important to remember like, man, you're, you're the pilot of command. Like yeah. You're the one making this decision to invest or not invest.

Speaker 2: Mm-hmm.

James: And if you want help doing that, I have an awesome guide.

It's 196 questions. Nice. That actually cover eight different areas, including like these four are kind of all embedded in it. They talk about all sorts of things like including the sponsor and the property manager and the deal itself and the construction plan and financing and paperwork and all this stuff.

It's really good, it's comprehensive. And I go through and I actually highlight like the 42 that you really should ask them 'cause I think they're really important. And so you can check that out at furlo.com. It's called Good Deals Only. 'cause that's the goal is to invest only in good deals. And so, yeah, and if you wanna learn more about us and our investment thesis, you can totally do it.

And so hopefully. If that was helpful and fun, I'm excited. Yeah. 'cause the weather's nice, which means I can fly and I can do it all day. Legally. It makes me wanna go fly something. That was really good dude, right? Yeah. It is fun. No, I'm gonna get out and take a bunch of photos for different properties, which will be fun.

That's awesome. So yeah, again, everyone, thanks for listening.

Speaker 2: Have a great day.