Solo Versus Partner Investing in Real Estate and Which One Delivers Better Returns | Ep 75

James: Here's the question. Is it better to invest solo all by yourself? You're doing everything, or invest with a group of people and get better returns, potentially, or the question is, which one will give you the better returns? So that's the question that I want to answer. And spoiler, somewhere in there, you're gonna hear me go on a big rant on people who invest all by themselves.

Because a lot of 'em make a big mistake. Drives me crazy. It's a pet peeve of mine. We're gonna get into it this week on the Furlo Capital Real Estate Podcast, where we dive into the intricacies of passive real estate investing, and our goal is to equip people to invest wisely, whether that's whole by yourself or in a group, so that together we can build wealth while improving housing.

I'm James, and this is my wife, Jessi.

Jessi: Well, before your. A party pooper on being alone.

James: Okay.

Jessi: I've got a, you know, our kids one of our kids' birthdays is just coming up. Yeah. It's exciting. Yeah. And they, they're like collaborating really? Yes. Speaking of investing together, they, so somewhere along the way I thought it was a good idea to allow one of our kids to do a shopping spree for their birthday.

James: Yeah.

Jessi: In lieu of a party, which then turned into a party. So I don't know how they convinced me of that. Mm-hmm. But now both of them are like, we both want a shopping spree and a party. Dang. And I was like, okay. Like combined, like a big thing or is this like so low individually? Of course. Like, oh my gosh.

I'm just like, this is blowing up on me, man. That happens. I gotta set some boundaries. Yeah, well gotta figure that out. I'm like, are you sure you don't wanna be alone? Just let's just have like, just I'll take you out to dinner. This'll be good.

James: Yeah, that's fair. That's fair. Yeah. Not gonna happen. Not gonna happen.

But yeah, oftentimes it is a question, right? Is it better off to be alone? Or to be with a group of friends. And so there's those two paths, right? You got the solo investing, right? That's where you're gonna find it. You're gonna analyze it, you're gonna fund it, you're gonna manage it. You carry all the risk, and you also get all the upside for it.

Yeah. And then you have the other path, right? Path B, where you partner with an experienced investor like myself. And you are providing either equity or debt in that. So you bring the money and someone like myself brings the expertise and the systems and the deal flow, the execution, all that other stuff.

And so you have a lot less control, but you get more leverage. Mm-hmm. And so the question is, which one's better? Just from a pure return standpoint on average, because every deal is indeed different. Sure. And so so I wanna start out talking about the solo investor, right? Mm-hmm. Full stack, full risk, full return.

Yeah. Right? That person, which,

Jessi: that, it seems like that would be the better way to go. Mm-hmm.

James: Why do you think that?

Jessi: Well, 'cause you're not sharing with anybody. Oh yeah. I mean, perhaps if you are the only one providing funds, you get a. Smaller pie. Oh. But you get the whole thing. You get the whole pie, but the pie is smaller.

Get a little cupcake maybe. Maybe it's not as great. Maybe, I don't know. You don't have to deal with other people and their wants and needs and complaints and everything else.

James: Yeah. Okay. Yeah, that's true. Those are our benefits. From a peer number standpoint, I was looking up some averages. Mm-hmm. And it tends to be, and I don't actually fully agree with these numbers, that tends to be in the eight to 12% range.

Interesting. Of. People who are like purposely investing on their own. Okay. Okay. Not

Jessi: like accidental.

James: Correct. I stumbled upon this and Yeah. Or it's just like, Hey, I'm just a guy. I've gotta, like, I moved and I decided to keep this place. Mm-hmm. Or I just, I saw a good deal, so I went forward. Like it's, you're like intentionally

Jessi: investing in things.

James: Right. Right, right, right. Okay. I think that's where they get those numbers from. It's hard to tell man, the internet, you know how that is. So, you know, and part of it is your cash on cash might be in like that 10% range. Appreciation might be in the, the two to 4% range, somewhere in there. Things kinda go up and down.

Depends on if you have big repairs or not. Mm-hmm. All kind of, it all kind of demand, it all kind of depends. So. So that's kind of how those, from the solo standpoint. Now here's the reality. Okay. And this is kind of like, this is my rant early on, is that there are a lot of first time solo investors who like, they just, they overpay for deals.

Mm-hmm. Drives me bananas because I'll have people come to me and say, Hey, I'm interested in investing. Can you help me analyze this deal? And I'll look at it and be like, yeah, I wouldn't buy this in a million years. Like it's a bad deal. Mm. And then they buy it and I'm just, ah, ah, what the heck? And, and usually what they'll say.

It is like, and it's usually either like, break even cash flow. Mm. Which when you think about like, and that's like not paying for a manager or accounting for Right. Long-term expenses. You're assuming

Jessi: you're doing all of that. Yeah. Yeah, yeah.

James: Or just like, again, they're just like ignoring the maintenance side of it.

And so they're really like, they're feeding into it.

Jessi: Yeah.

James: And, and usually what they'll say is like, it's fine. I'm just investing for retirement in 30 years. This will be amazing. Maybe I, I have heard so many people tell me that. I'm just like, okay. I I hear you. But a bad investment doesn't magically become a good investment in 30 years.

Jessi: Yeah, I, that makes no sense to me. Well, what happens

James: is they're banking on appreciation.

Jessi: Well, yes, but does appreciation outweigh like your maintenance costs going up? The fact that you're gonna have to hire a property manager because in 30 years you can't actually manage it? I mean, like

James: it can, but depending on where you live.

Mm-hmm. Seems like too big of a gamble to me, but it's like the opportunity cost of it, right? Yeah. It's like, I dunno, I've talked to, okay, here's my, yeah,

Jessi: that's true. You put it in and then you wait 30 years, like, yeah. You could have been putting your money elsewhere for 30 years.

James: I've, I've talked to people where they're like they'll talk about their home investment and I, I try to be polite about it, but they'll be like, yeah, I bought this house.

My, my mom. It's usually how it works. My, you know, my parents, they bought this house 30 years ago and it's doubled in value. Mm-hmm. Such a good investment. Right. And they'll even be like, they bought it for like half a million dollars and now it's worth a million. Mm-hmm. Like you have it over 30 years, like that's a horrible investment.

Are you kidding me? I was like, dude, put that half a million in the stock market, but I get it. You gotta live somewhere. Whatever. But I'm like, you could have rented. Mm-hmm. And even with rent increases, putting that money in the stock market, you would've so much more than you do now. Again, I try not to be a jerk about it.

Yeah. And just kinda like, nah, I'll let it go. But yeah.

Jessi: Well there's, there's other requirements of investing in real estate and if you just buy house, they're not there, you know, it's easy.

James: Yeah. And that's, yeah. And oftentimes that's where people, they'll tell me like, they bought a house that they're living in, and they'll talk about how good of an investment it was.

'cause it's gone up. I'm like, dude, that was just market appreciation. Like that's not a, yeah. From a skill standpoint, there was none. There again, there's a pet peeve of mine and I, I usually do the good job of keeping it inside. I'm like, yeah, from a pure investment standpoint, no, it wasn't a good deal.

Again, you gotta live somewhere cool. That's awesome. Sure. But it's when people approach me and say, Hey, I wanna go off on my own. Help me analyze this deal. That's where I'm like, dude, like the numbers, like, be picky. Yeah, it's okay. Like, but they go, no, it's okay if it's breakeven. 'cause in a few years, rents will go up.

Mm-hmm. And it won't be breakeven anymore. Like Yeah, I know, but. Imagine if you waited around and like, or negotiated better. Yeah, a great deal, great deal. Rental will still go up. Appreciation will still happen. It's just now your leverage is even more anyways. Hmm. So my issue is most. First time solo investors, they just overpay.

Mm-hmm. It's, and it's really hard. Like we took 18 months to find our first place. 'cause we were sticklers about making sure that it was a good investment. You are welcome. Yeah. And so I think, I think that's, that's just an important piece to remember. Mm-hmm. But in theory, for people who have done it multiple times, you get in that eight to 12% range return.

So. Let's talk about the other side of it, partnering with an experienced investor like myself who has that kind of pet peeve and therefore only does good deals. And so and usually you're usually investment. It can, you can do like. You can invest in a syndication, you can do equity. Right. And that's where like, yeah, it is a syndication or joint venture, something like that.

Oftentimes you can get like a preferred return of six to 8%. There's an IRR target of 12 to 18% over three to seven years. And like an equity multiple of like one X to two x your money. Mm-hmm. It's one of those where it's, it's slightly better. Mm-hmm. It's not amazing. That's actually the other issue with a lot of the solo investing.

Like they don't actually calculate an I rrr number. They know how to do it, so they go, yeah. I made like, you know, 20% cool what timeframe? And then when you discount it, you go, oh, this was 8%. Hmm. Something like that. So anyways, those tend to be the typical returns. Now, big benefits of that one is like you're leveraging someone else's time and expertise.

You can often go after bigger projects where the math for creating value is a lot more straightforward. Mm-hmm. Huge drawback. A lot less control.

Jessi: Yeah.

James: Right. That's the, that's a big one. And oftentimes there can be a pretty high minimum bar. Mm-hmm. But it depends, right? Like in some houses, like Yeah, you actually gotta do like a down payment of like 90 grand.

Right. To get in. Whereas this might only be 50, which is nice. So it could be lower, but like, you know, it's still, if you're comparing it to like an FHA loan, right, for your first house. Oh yeah. 50,000 is significantly more. Mm-hmm. Than what you're looking for. So pluses and minuses. You don't get to say when to sell.

Right. You're really beholden to someone else. That's important. The other thing that you can do for investing with people is by lending money. Being a private money lender. Now, the nice part about that one is it's highly predictable, but you don't get to participate in that upside. And so it's kind of that, that balance.

Right. It's a fixed return. Mm-hmm. So essentially you get to be the bank. Yeah. Which, you know, it's kind of cool. Sure. As well. So in some ways

Jessi: there's less risk and

James: Yes, in a lot of ways there's less risk because your first money out typically, right? Just guaranteed interest. So it's exactly like it sounds.

You got someone like myself who's flipping a property, and you provide the funds to do that flip, and so your loan is secured not only by potentially a personal guarantee. Also buy the property itself. Mm-hmm. And then they just pay you a fixed amount of interest, either as a lump sum at the end or monthly over time.

What's the

Jessi: typical range for that amount of return?

James: Yes. Eight to 12%. Shocker. They're actually all very similar. Yeah. But this one's a guaranteed, like we pay 12%. And so yeah, that's that's what it could be. And so but again, like. The, you get rid of a lot of volatility mm-hmm. For that. One interesting thing about it is.

That now you're no longer just looking at the deal necessarily, you're also looking at the borrower mm-hmm. And saying like, Hey, what are the chances that you think they'll perform? Like I've got a friend he's probably listening right now. Hey there. And he, he is invested as a hard money lender, essentially.

Mm-hmm. As a private money lender. Yeah. And there's a few deals of his where like they just, they get behind. Mm-hmm. And in one of 'em, he actually. Is foreclosing on the house.

Jessi: Oh, interesting. It's, it's

James: an investment. It's not like no one's getting kicked outta their house, but Okay. But it's kind of funny, he goes, man, in some ways I actually make a lot more money when, when they stop paying.

'cause now I got this awesome collateral that it's backed by. But he's trying to balance out that, like I, I do like that I made more. But that's just, you know, there's that risk. Mm-hmm. And there's a heartache and the, the stress of having to, to go through that whole process where he is like, man, you get people like myself.

He's like, man, I just, I know it. Like there's, it's a return. Whatever you say the return is, that's what I'm gonna get. Mm-hmm. I'm like, well, yeah. 'cause I was, I just guarantee that I will, if I have to pull funds from somewhere else in order to pay, that will happen. And so there's, just try that balance there that you gotta, you gotta feel that out.

Jessi: Are there limits, to the amounts that you can lend?

No. What do you mean? Well, like if I wanted to be a hard money lender in one of your deals. Yeah. Private money lender please. Private money lender, whatever. Like, can I give you a thousand dollars? Can I give you

James: oh, 10 On the downside of it? In theory, no, there's no, there's no downside limit.

It could be a dollar, I guess.

Jessi: I mean, that'd be a

James: little weird '

Jessi: cause my return would. Be,

James: not be great. Huge, but see, my head went the other direction. Could you do a hundred million dollars? Oh, answer yes. But yeah no. In theory it could be as low as you want. That's kind of

Jessi: interesting.

James: You do, all the lenders get stacked in positions, right?

You have first, second, third, fourth, fifth makes sense. You get to a point where you're like, all right, this is getting a little, little goofy. So you gotta be careful there. Yeah, makes sense. But yeah. So yeah, I don't know. That's just kind of a quick. I, you know, I, at the end of the day, the answer is always, it depends.

Yeah. I, so here,

Jessi: here's my big takeaway is like, yeah. Each one of those scenarios that you presented, invest on your own, invest with a partner or lend.

James: Mm-hmm. Which,

Jessi: yeah, kind of,

James: I know it's kind of an ab Yeah. The same coin,

Jessi: Give you similar returns. So really it's not about the return necessarily, it's about.

The other factors and other costs involved. Mm-hmm. Yeah. Or, or perhaps different strategies that you're thinking through.

James: Yeah. And I think at the end of the day, like if you're gonna go out on your own, you still gotta do a good job underwriting. Yeah. You still gotta be picky about the deal. Value add is probably still gonna be your best type of return.

Mm-hmm. And, and that's the nice part about investing with an experienced person, like they're gonna. Factor, know all of Yeah. And optimize for all of that. Yeah. Whereas you as a solo person, like you have to do all that. Mm-hmm. And then there's just the risk of your own time. Mm-hmm. Right. I, I also, I own a property management company and I do talk with owners who.

Like, they have great intentions, but like, dude, I have a full-time job. I don't have time for this. Yeah. And they're just even like, just finding tenants is too much work. Mm-hmm. Like, all right. Yeah. No, I totally get that. Mm-hmm. And, and so like that's, that's part of that factor. Mm-hmm. Which now is like, there's this other cost here, cost of time, which is a thing.

And as a result you tend to be like, yeah, I dunno, you just fall in love with the property man, not the deal. Mm-hmm. And that's, that's hard. Interesting. And so you, you do tend to overpay Yeah. For our first time. 'cause you just don't know any better. Mm-hmm. And 'cause like I've underwritten. Hundreds of deals at this point.

Mm-hmm. I've looked at a lot. I know what good deals look like. Yeah. And I know how to structure things in such a way that they work. Mm-hmm. Whereas like, man, if you're trying to do it on your own, it's just, it's hard to to think through all those things and eventually you would get

Jessi: to that point.

Yeah. Yeah. Yeah. I mean, yeah,

James: I did, but yeah, he will. Mm-hmm. Yeah. So it's just, it's just harder I think. I think that eight to 12% honestly is optimistic in terms of returns, just because I think there's so many other people out there who who like, they're, they're accidental or whatever. They're not as purposeful or they just been lucky.

You know, that's the other, they didn't purpose find something if you were interested

Jessi: in going out on your own. Yeah. Would you recommend that someone kind of work with a partner first, do a few deals and then maybe try some on your own? Or is that just like. No. You might as well keep investing with other people.

James: Yeah. Usually it's the other way around, right? They're like, well, first I'll do some on my own, and then once I've acquired some wealth, yeah, some capital, I'll put it in. Then I'll invest with other people.

Jessi: Huh?

James: It's like, yeah, you might actually think about doing it the opposite direction, like, get done, see how it's done.

Ask a lot of questions, right. See the underwriting models and then decide, okay, I'm gonna go off on my own and do stuff. That's probably a better way to approach it, just 'cause you learn so much. Right. Yeah, it makes sense if you ask. Right? If you never ask, if you just give them money and walk and like, go, good luck.

Tell me how it works out. Like yeah, that's, you're not gonna learn anything. Right.

Jessi: But if you're, if you're wanting to learn and grow, like it makes sense. Find an expert and

James: Yeah, yeah, yeah. Shadow them.

Jessi: Figure it out.

James: Yeah. And I think I. In theory, if you do it on your own. I, the other issue too is just like, you just can't go after bigger deals.

Mm. Like you're really, you're stuck in that mm-hmm. That small residential area for a long time. That's true. 'cause the capital amounts so much. Yeah. And it's just, it's harder, it's not impossible, but it's just harder to get those returns. Mm. And so, like I talked to a lot of people where they're like, I got one guy in particular who he would love to buy, like to do a fix and flip.

Mm-hmm. But he's also like, dang, that's a lot of money. 'cause I'm like, yeah, 'cause you gotta pay cash for this thing. Yeah. He's like, I don't have that kind of money. And you can't do that kind of deal. Yeah. Whereas like for me, because I'm pooling into funds, I'm like, yes I can. Mm-hmm. And I do. And like we're looking at a property right now it's, it's a piece of land.

Mm-hmm. Actually, and and we'll probably talk more about this in another podcast. Mm. But we're gonna develop, we're gonna like build a house on it. Yeah. It's like, 'cause we can, and. 'cause we've got the funds from pooling it to go off and do it. Mm-hmm. Whereas like a solo person, man ass. Right.

That's a big ass, that's super hard. Yeah. And like official, like hard money lenders. Like lender type folks. Yeah. They don't like. Giving money to them. 'cause like you don't have any experience, you don't know what you're doing. Like that's a lot of risk. Yep. You know, or it's like someone like me, like, oh yeah, yeah, no, we get you.

Mm-hmm. You've done this, you've proven yourself, so you're fine. Hmm. We'll we will like, yeah. So I have, I have access to capital markets that other people don't just 'cause of my experience. Interesting. But yeah. There you go. There you go. I feel like I want kind of a tighter conclusion on that, but that's okay.

That's the nature of the game, I guess, and

Jessi: therefore you should invest with Furlo capital.

James: Yeah, there you go. Because your returns will be better, your stress will be less, you won't feel low. Your risk is a different profile. Yeah. Man. Sure. There you go. I don't know. Love it. Awesome. Well, what I do know is that I would love to invest with you and if you are interested in learning more about us and our investment thesis and that amazing track record that I alluded to, you can check us out at Furlo.com.

And so yeah, we would love to, love to connect and learn more about your goals and how we can partner together to help you reach those. Thanks for watching, listening and interpreting. Oh, no, I feel like I needed a, a triple there. Anyways, have a great day.