The 5 Rules of Real Estate Investing (that amateurs mess up) | Ep 127

James
Today we're going over the five rules of real estate investing that most amateurs totally mess up and I've talked to a bunch of them and they reveal yourself as an amateur pretty quick if you do these. And we're going to talk about them today on the Furlo Capital Real Estate Podcast, where we dive into the intricacies of passive real estate investing. There are rules to doing it right. And our mission is to equip people to follow those rules so that We can, what can we do so that we can invest wisely in both property and residences and therefore build wealth while improving housing I'm James, and this is my wife, Jessi.

Jessi
You survived.

James
You survived.

Jessi
We did a little mini, a little mini house project. Yeah. I crawled underneath. Oh, man. I'm proud of myself. I was, I was, the first, I went under there and it was no Megusta. And I was like, Okay. I gotta wrap my head around this. It's just dark. It's cramped. I don't know if there's anything in here. There wasn't anything in here.

James
There wasn't.

Jessi
We were fine. But still. I don't know. You just, you have that sense of like something's got to be living under here.

James
Crawl spaces. That's like unnerving for sure.

Jessi
I, I, we got like part way to the back. I was like. In my head, I started thinking through: I can't get out of here fast. What if I needed to get out of here fast? What would I do? How would I like shimmy super fast?

James
So you'll appreciate this. I was once doing a project under the house. It was early in the morning before you or the kids had woken up. And I was on that back wall. So I had gone all the way through on the back wall, and I was crawling across because I had. To do something on the other edge of it. And I went between the foundation and a post and got stuck. Oh my gosh. I was just, I was too. I can't remember if it was wedged in there. It was my hips or something that got. Cut. I don't remember. Oh my word. Because I think I shimmied with my shoulders and my hips, and I was just like, oh, shoot. And I had to, like. I had to sit there and breathe and turn down on camera. And I was able to wedge myself out and keep going. But I definitely had that thought of like, oh my gosh.

Jessi
Yeah, it's a it's a very interesting space of a house to work on.

James
Yeah, yeah. It's not the worst crawl space that I've been through, but I've I've been through a bunch, but it's a thing. But you made it. I made it. And so we can talk about some rules of investing. And so, I think you're going to find these valuable. Whether you're an active investor, passive investor, whatever, these are just some universal rules. Dude, rules are great. Not even bounds free thumb. These are just straight up rules. Don't break that. Dude, that's. So let's jump in with rule number one. Okay. You're buying execution, not real estate. Execution? Execution. Okay. So the real estate, that's just the vehicle. Okay. Right. But it's the operator, which could be you, that's the thing that's going to drive the value.

Jessi
Oh.

James
Yeah, so what you're when you're underwriting it, like, yeah, you're running numbers and you're like, do these numbers make sense? But there's an inherent Piece there, which is like the it's the execution, the operations. Can you do that thing? Do you have the skills? Or does the operator have the skills to find the right tenants to actually so is it kind of like

Jessi
You're not, it's not the property in and of itself, but it's kind of like the plan that you are going to do with the property, and can you actually execute that plan?

James
Is that what you're saying? Yeah, yeah, I think so. Again, I think of it like it's not. Here's a different way to say it. You're buying a mini business.

Jessi
Sure. Okay.

James
Okay. So you're not buying a house or an apartment building or whatever. You're buying a tiny little business that's associated with that. That happens to be highly dependent on that asset, the structure. But your mindset, the rule is, is the business. And the question is. Can I run the business? Or can if I'm passively investing, can that operator run that business? Can they do the things that they said they're going to do?

Jessi
And that's the same if it's. A buy and hold, or if it's a flip, or if it's, yeah, yeah, okay, yeah, it'll make it a little bit different.

James
So that's the thing. It's like, and when you think about it that way, it creates subtle differences where, in some ways, the asset honestly becomes secondary.

Jessi
Right. Yeah. I mean, it it's still important because that that is a primary function of the business. But you're right, that you have to have that second piece figured out, otherwise Yeah, you buy something and then it's worth nothing.

James
Right. So I think the core idea behind the rule of you're buying execution, not real estate, is You're really, you're thinking about the people and the processes more than you are the property. Yeah. So, people over property.

Jessi
This, it reminds me. Of the mindset that sometimes investors have, where they're like, oh, yeah, I'm totally going to get into real estate. It's going to be great. I'm going to put my money there. And then at some point, they realize that. People live there and they have to maintain it. And it's like, okay, that is a piece of like running the the mini business. It's like, yeah, that's unclogged toilets and property maintenance. And whether you or someone else is doing it, it has to happen. Which is not fully thought through. Yeah, I could see that. Yeah. Yeah. They're just like, oh, this is such a great deal. Like, it's going to get this return. It's like, well. What does it take to get that return?

James
Yeah. And there's things that are related to that. And there's a lot of tools to help with this. But it's also: who are those people who are going to be living there? Are those the type of people who I want to deal with? And things like that. Yep. Yeah. There's some risks. That's an important. Rule number two is the deal has to work before. I don't know, I wrote the hero story. I'm trying to think about how to think about this. It has to work before the narrative that you tell yourself. I guess. Because there's an example when I bought Baker Tower, which, for those of you with keen eyes watching the video, I've have a 3D printer and I've been experimenting with This is a mini version of the building. What is that? Super cool.

Jessi
Tower for ants.

James
Yeah.

Jessi
That's my favorite.

James
Oh, man. My favorite. At least three times this big. He's absolutely right. All right. So, uh,. Bigger Tower, it's a cool building. It's a cool story, just all on itself. It's got neat history, it's got a lot of things. But before you even think about buying it. The numbers got to make sense. That's the so it has to work before that bigger story. Ooh, I've always wanted to invest in. What's the one I've heard recently? I always want to invest in storage. Yeah, cool. It's not a guarantee that it's going to be good. The numbers still have to work before you decide to do it.

Jessi
Yeah, that makes sense, which is the same or similar. It's like, don't fall in love with this particular property, concept, idea. You still have to evaluate each individual deal for itself. Right. If it doesn't make sense, it doesn't make sense. Yeah, that makes sense. Yeah, yeah, yeah. Because you could, I could very easily see someone being like, oh, yeah, I want to get into like, Short-term rentals or apartment buildings or what and it and just getting excited and missing actually thinking through the numbers.

James
And I think a corollary to that is Does that story that you tell yourself require things to go perfectly? And does the deal survive things not going perfectly? A higher vacancy rate than you thought. Sure. Just. I don't know, repairs and maintenance costing more than what you thought. The timing taking much longer than you thought. Things like that.

Jessi
That's probably where it's helpful to have a sponsor or to have someone else who's not. Like emotionally in love with this deal, look through the numbers and give you like an honest, realistic assessment. Yeah. You know, so you're not just like, oh, yeah, but I can make that work. And it's like, no. Let's actually put some buffer in there. Yeah.

James
I would say another corollary to this that I see pretty frequently. Is Borderline just ignoring the numbers? It's like they have money and they know they want to invest. They found a property that's within their price range. Yeah. And so they do it. Yeah. And you're like, yeah, but These don't like the numbers don't work. You lose money every month. Yeah, you can afford the downpay. Or they'll say, oh, it's a break-even property. Which, what they mean by that is that the rents cover the mortgage. Right. And I usually have to step back and say, yes, you're right. Once it's filled. Assuming no maintenance. And those are two like bad assumptions. Yeah. And so I'll see that kind of thing. And you'll say, yeah, over the long term, it won't actually make money. You'll just bleed. You'll feel fine. And then every two years, you're going to have a big expense and it'll just wipe out all your profits for the last two years. You go, what? Yeah.

Jessi
So, is there ever. A situation where you're not necessarily getting like cash flow return, but

James
Over time, it builds equity, and there's a return there. I guess. Yeah. But you have to know that going into it. I mean, yeah. And depending on how much you're leveraged. appreciation. If you're if you're massively leveraged and appreciations at a reasonable rate, two percent to four percent, that translates to you're still better off to put your money in the stock market at that point. But And you're totally just dependent on the market doing its thing. You kind of, the problem with real estate is that it's not a very liquid asset. And so you got to compensate yourself for that somehow. And it requires extra work as well. It really is not a set it and forget it. Even if you have a property manager, even if you're a passive investor, there's more to it than that. And so it's just, it's. You got to get paid more for all that extra effort, is how I think about it. Makes sense. Yeah. I, yeah. Rule number three. Is you are underwriting the exit, not the entry. I actually think this was a bad. I'm going to put it in the mistake category for you and I. When we first got started, when we were amateurs, because we just didn't know. What was our rule when we first got started? We had to make money. How many days in? Day zero. Yeah. Which took us 18 months to play that first one. Yeah, it's very hard to find deals that do that. It was hard. And that was all that we cared about. Day one doesn't make money. We didn't care about the back end. We didn't care about a year from now, 10 years from now, whatever. And I think that was a mistake.

Jessi
Now, because we were doesn't that counteract what you just said?

James
What do you mean?

Jessi
But you're saying you got to run the numbers and it has to make sense. But oh, I see what you're saying. You got to run the numbers. It has to make sense. It doesn't necessarily have to be profitable day one, but you have to have a plan for it to become profitable. Is that what you're saying?

James
Um correct? That wasn't quite what I was saying. I mean, what you said is true, and I'm okay with that. No, what I was saying is usually when you're underwriting it, you're just saying, oh, can it will this thing cash flow? Will it make sense? I'm like, yes, that does matter. But you want to be like, okay, well, once I'm done doing whatever I'm going to do with this thing, am I cool with it? Which the answer might be: my plan is to hold on to this forever. And so it needs to be cash flow positive when I account for all the other capex and maintenance expenses and management and blah, blah, blah. It needs to be profitable. And my plan is to hold on to it for a very long time and then pass it on to my kids someday. Sure. Maybe. Or are you saying I have the optionality? I could do these three or four things. Like, but that's the rule. It's you really want to keep the end in mind. Am I going to refinance this thing? Am I just going to hold on to it? Am I going to sell it? And am I going to hold on to it for my kids? When I sell it, am I going to tend? 31. This thing. That's the stuff you got to think about. And I think that's especially important when you're investing in smaller markets. Because if you're, I mean, if you're big markets. Portland, even like Eugene, Salem, those bigger markets, it's fine. There's going to be a buyer. There's going to be someone out there who wants to get what you're getting.

Jessi
Yeah, it's more competitive. So

James
Yeah, there's probably going to be another way to think of it: if it's a funky property, sure, the numbers make sense, but is someone else going to want to buy that funky property? We got a friend. Here's an example. He owned, he bought this investment. It's three houses on a really weird lot in a weird area. And honestly, for him, it was super hard to get financing because everyone was like, Wait, is this commercial? Is it residential? What is this? Like, how do I think about this? And it was very difficult. Whenever he goes to sell it, it's going to have the exact same problem. And I would argue. As lending becomes even more sophisticated and more stringent, it's going to be even harder.

Jessi
Yeah.

James
Especially if he's fixed it up and there's no. Upside potential for somebody, it'll be difficult. Now, in theory, he's figured out the lending thing and he can pass that on. But that's the kind of thing you got to keep in mind when you're going into it. This was something going back to Baker Tower. Right. I was like, cool, small market, 12,000 people. Awesome, epic building. Who in the world would you say? Who's going to buy this? Which, once I had it under contract and was going through the due diligence, I actually had a bunch of people who were like, dude, I missed that. I wanted into it. Which for me was confirming, oh, okay, when I'm ready to sell, there's people out there who are ready to buy this. I just got to. I need to know it. But again, that's what you want to keep in mind.

Jessi
How do you not knowing where the market's going to go, not knowing if there will be a buyer, how do you know some of those things? Oh, so they're, how do you.

James
Underwrite for them, I guess. There's mathematical things you can do to make to help, I should say. So, um, all right, I'm gonna try to I'll give you the technical answer and then I will explain what it means to a normal person. Okay. Basically, what you do is you forecast an increase in cap rate. Into the future for when you sell.

Jessi
Okay. Okay.

James
What does that mean? So there's ways to a cap rate, is your capitalization rate, which is a fancy way of saying it's the ratio of. of how much it costs to buy the cash flow of the building. So you have your revenue, then you have your operating expenses, you have a leftover number, your net operating income. You take that number and you divide it by the price of the building. Okay. Okay. So, how much money are you making divided by the price of the building? A lower. Am I doing this right? Yes. A what a what would a and that number that ratio is called a capitalization rate or a cap rate. Now, so let's say it's five, just five percent, okay? Just throw it out. If it goes down, if that capitalization rate goes down. What that essentially means is that either the price has gone up or the net operating revenue has gone down. Okay. Because it's a smaller ratio now.

Jessi
Yep.

James
Which is another way of saying you're paying more for the revenue on The building. If the capitalization rate goes up, it means the prices come down. No, no, no, no. Sorry. Sorry, I did it backwards. Flippy flopped. The ratio is backwards in my mind. I don't understand why they do it. In my opinion, they actually got this right in the stock market where they talk about your price per earnings. That's what it should be, but whatever. Okay, sorry. Scratch that. Let's say it's at five. And if it goes down, that means I think I'm doing this right. If it goes down, what that means is that you're paying more for the revenue. Yeah, yeah, yeah. You're paying more for the revenue on the uh you're paying more for the revenue of the property, okay? So it goes down. I said it right. I said it correctly earlier. Either the price is going up for the same revenue or the revenue has gone down for the same price. That's your cap rate goes down. Or sometimes I'll say it's being compressed. And then the opposite direction, if your cap rate increases, that means that you're paying less for the revenue. So the ratio is getting bigger. So either the price has gone down, the price, yeah. The price has gone down for it, and/or the net operating income has gone up for the same price. Right. Okay, following me? I think that makes sense. Okay. Yeah, it's a ratio of the two. Yes. So when you're buying a property, you want the biggest cap rate possible. You want the cheapest price for. The revenue for the income that it's spitting out. Yes. And the cool part about this is that it totally gets out of financing. It doesn't take that into account. And it lets you compare buildings. So if you know, oh, here's a building over here that has an NOI of X. And it's sold for this, and here's one over here. So there's kind of a market cap rate that you can.

Jessi
Yeah, you turn it into this common ratio, and correct. And you're like, well, okay.

James
I can compare apples to apples. So you can also do this into the future to kind of calculate what do I think this building is worth. If I bought it at a five cap, and then I do things, I raise rents, I streamline utilities, whatever, and therefore my net operating income goes up. I can then say, well, now I can multiply this times the cap rate. And this tells me what the price would be in the market.

Jessi
Oh. Okay. Okay, but your cap rate still goes up. Because your income is going up, but what you paid for it stays the same until you sell it.

James
Well, what I'm saying is if I hold the cap rate steady, whatever I change whatever changes for the net operating income, that will then change the price. And I can, in theory, if I'm increasing that operating income, I can see my building go up. I understand. Okay.

Jessi
Yeah, if you keep the ratio the same.

James
Yes.

Jessi
You increase the price.

James
But obviously, the market's always moving and shifting. It's kind of going up, going down, staying the same, whatever. And ultimately, when you go to sell, whatever the market cap rate is, that's going to be what your value is. Ish. Yeah. So, how do you get around that when you're forecasting? Because you don't know what the future market cap rate is going to be. You don't know what people are going to be willing to pay for your revenue. So, what I do and what conservative underwriters do is you assume that that cap rate ratio that whatever I buy it at, I go, this is, it is what it is. And then you assume every year it ticks up. Just a little bit more. So, if you only hold on to it for two years, I don't know, that cap rate might increase by half a percentage. Which essentially what you're saying is, I think people were willing to pay less for my net operating income in the future. It's a highly conservative way of thinking. Yeah, it's yeah. Essentially, you're holding it for a long time, it could really go up to the point where you're like, oh my gosh, like people are Like, I'm not almost this deal, doesn't make sense anymore because I'm potentially losing money on it because you've implied that that end sales price just could really go down.

Jessi
Okay. So you counteract not knowing 100% the future by just being very conservative. Correct.

James
Yes.

Jessi
That's a smart thing to do, I suppose.

James
Now it's possible. You buy it at a five cap and you've got, oh, it slowly ratchets up, and maybe you predict out in the future it'll be a six point five, and it turns out it's actually at eight. Oh no, you're still hosed. Yeah. Bummer. But maybe you get lucky and cap rates either go up or maybe they go down to four and a half. Oh my gosh, the payday is unbelievable at that point because you were forecasting out that it was going to be a higher cap rate.

Jessi
So just knowing what we know about the economy, Capricorn.

James
And by the way, there's other things that you can do too, just to round it out. Let's say. You're a fantastic negotiator, and everyone's buying properties at, like, say, a four and a half cap, and you buy a place at a six cap. You could say, I know I bought it at six, or Yeah, you could then say, I know I bought it at six, or no, sorry, other way around. Sometimes you know you got a project. That the NOI right now is not very good, but you're buying it for the future, and the seller knows it. And so maybe you're buying it at, say, like a four cap. But you know, you're going to bring it into market normalness. And it's really just the forecast because the NY is really low right now. Cause I don't know, there's like a lot of vacancy.

Jessi
Yeah.

James
And you're like, I'm going to fix this through operations. Great. You then don't say, oh, my starting is the four cap. And man, it slowly ticks up to a five, even though the rest of the market's at six. You can say, well, I'm going to start it where the rest of the market is. This is probably what I should have bought it for. I was willing to overpay because I knew I was going to be doing this other stuff, but ultimately it's going to bring it in line with the market cap.

Jessi
So there's. That is all very mathy.

James
It is very mathy. That's the mathematical way, though, how you underwrite for the exit. Back to that.

Jessi
So, to get back to my, just so I can wrap my head around cap rates in general. Would you say that in general, knowing what we know about the economy, cap rates like inflation are always going up? No.

James
Because property values are oh, it's the ratio. It's a ratio. So if rents are going up, as a matter of and it's just what are people willing to pay for

Jessi
Matches.

James
The ratio.

Jessi
Yeah.

James
Okay. So, what was interesting in Oregon, when interest rates actually, so oftentimes they're correlated when interest rates were going down, cap rates also went down. Because When you're buying it, honestly, you don't care what the cap rate is, that's not important to you. It's just like how much money am I going to make on this thing? And so the financing suddenly matters. And so, if interest rates on loans are going down, you're willing to pay more because you're not paying as much for your loan. And so we actually saw cap rates compressing. And then we ran into a situation, whatever this was, a few years ago, where interest rates suddenly jacked way up, and he actually inversed it. Now cap rates were lower than the interest rate. And now, all of a sudden, doing deals the normal way you did, it didn't make sense. You were going to lose money every single time. The only way you can make it work was by just doing a bigger down payment. But then you watched your returns just tank, and it suddenly everything broke. And people who wanted to sell their properties, they were like, Well, I thought I was going to get this. And everyone's going, Those powers don't work anymore. But it takes time for sellers to be like, Okay, all right, I guess I'll lower my price. Because when they were doing the underwriting, they were thinking those original numbers. And so it really like it messed with things economically Drives me nuts. Yeah.

Jessi
So it's yeah, it's all based on what the market will will provide at any given moment.

James
Yeah.

Jessi
Uh-huh. Like if you have a buyer that will pay that? Okay.

James
Yeah. Yeah. And hopefully you have a buyer. And that's the thing to keep in mind when you're doing it.

Jessi
All right. Okay. And you can see on some of these rules. This is like totally a tangent. Would you ever not do something on a property? Hoping to attract a buyer who sees more upside. Does that make sense?

James
Oh, totally. Yeah. Okay. Oh, I've done that on a lot of flips where we go. We fix it to a certain expense. It's a half flip. Yeah. We get a property that wasn't financeable. And we just get it to a point where it's financeable. So then we can sell it as a fixer-upper to a retail person who wants to buy a fixer-upper.

Jessi
Sounds like another workaround to me that's like, oh, okay. Yeah, I'm not going to maximize my NOI. Like, I'm going to bump it with the intention of selling.

James
Or honestly, that happens a lot with, say, like duplexes and triplexes, or you'll fix it up. And then you only rent, you leave one vacant. Right. Okay. You don't max it out. Now you're going to underwrite it. Hey, if you rented it out, it would be worth this, even though the actuals aren't like that. But what you know you're doing is you're setting it up for someone to move into. So that's 100% something you would do. All right.

Jessi
That makes sense to me.

James
Yeah, that happens all the time. Rule number four. Friction is where profit hides. Okay, or another way to say it is polished deals are priced for polish. Or another way to say it is, cat urine is the smell of money. That one makes sense to me. Yes. So essentially, that's what I'm trying to say is that, like I think profit hides in or is found in whatever value you're able to add. Okay. That's the like.

Jessi
Or how much stank you're willing to put up with.

James
Dude, right? Yeah. And I think that's an important rule. I think. Yes, fine. You can buy a property that's all fixed up, right or rock with tenants. We're like, it's just a quote a turnkey property. Cool. You're probably not going to make any money off of it. It's true. At least not right away. It'll be pre-break even, unless that other person just messes up their pricing or whatever. I don't know.

Jessi
So, you think sweat equity actually accounts, it's worth more than just like Building equity or whatever. Yeah, I guess.

James
Like your return on. I don't know. I don't know if it has to be your sweat necessarily. It could be someone else that you're paying to do it. Yeah. Yes. I would say there's a hmm. Here's the way to say it. The value of something already fixed up. Is usually worth more than what it costs to fix it up. So, just a concrete example: you got a property, needs a new kitchen. You're going to put $20,000 into fixing the kitchen. When it's done, it might be worth $30,000 to $40,000 more as an overall property. So that, so that's that. That's where that friction is, though, where the problem was that you were able to solve. Where someone's like, oh, it's an ugly kitchen. I don't like it. Awesome, cool. Because people will pay less, they'll pay less for that than what it costs. To fix it up. Those two numbers, they're just not the same.

Jessi
So, what would be the give me the alternative then? Like, if you say, well, I'm going to sell this, but I'm not going to fix the kitchen up. Yeah. You'd. So, you don't get any more. You can't increase.

James
Well, no, think of it. You have two choices. This is the way to think of it. You, as an investor, you've got a house without a fixed-up kitchen. And you have a house with a fixed-up kitchen. Okay. And let's just, for the sake of this argument, they're the exact same house, same neighborhood, blah, blah, blah. Yeah. Right. And let's say it would cost you $20,000 to fix up the kitchen to do it well. Right. One house, not fixed up kitchen, would be $400,000. The other house with a fixed-up kitchen would be $450,000.

Jessi
And you only spent $20,000. Correct. But you didn't spend the $20,000 over here.

James
Right. But yeah, that's what I'm saying. Is one of them you're like, oh, it's easy. Just move in a tenant. It's quote, turnkey, easy to go. You might make some money off of it, but you could see with the other one, you're like, oh, here's a problem. Here's an issue. Here's the friction in this Deal for me just being turnkey. No, I got to do some work. I'm going to have some vacancy. I'm going to have to find contractors. I'm going to have to do all this stuff, blah blah blah. But Now, son, you got $30,000 worth of equity. Can you tap into it right away? No, it's a thing.

Jessi
Yeah.

James
But that's oftentimes why flippers, they'll find one with like, they really need a lot of work. And then you either sell or refinance. It. And that's where you can then unlock all of that value and that profit that you've created. Yep. Essentially. That makes sense. And there's, and there's, yes, there's the fix of the physical stuff. 100. There's the operational side of it. That was our storage facility. Yeah. When we bought it, it was 50% vacant because people didn't know how to run it. It's like, all right, I can figure out how to run this. And so you have those kinds of Friction problems as well. Yep. Profits where you solve the problems. Maybe it's a better way to say it. So find problems, find properties with problems and solve it. And there's value there. People pay for solves problems. That's why businesses exist to make a profit.

Jessi
Makes sense.

James
Okay, rule number five: passive. Means delegated, not disappeared.

Jessi
That's such a good definition of passive. Yeah. It still happens somewhere. Someone's doing it.

James
Yes. And I think it's important that it means, like, you're not just disappearing. You're not just like, here's my money. We're done, so yeah. Or I've had this where some people hire a property manager, they hire me, and like we just stop talking. They get a check, and we're done. Which, honestly, for my like, it's super easy for my thing. Great. But but if they're not checking in on things, yeah, and and honestly, like my experience has been I'm a different person than them, I have different priorities, even though I had tried to have that conversation. Sure, there's certain things where when they wait three years and then they start, well I haven't hadn't been doing it for three years. If they wait a year and then they start asking questions, I'm like, oh, I was slightly off on what's like one and then I wasn't quite optimizing for that. I'm like, yeah, I didn't know. Okay. And so that's where all of a sudden we get. Back in, which like 99% of the time is a super easy fix. You go, oh, yeah, we'll just get in there and do it. But yeah, I think that's and But it also doesn't mean if you're a passive investor, it doesn't mean you micromanage either. I have this also from a client perspective, where I've got people where they like. They scrutinize everything. And my experience has been that it's usually the accidental landlords where they owned a place. And then they, you know, they move out for whatever reason. Like, oh, we want to rent this thing, but we don't want to do any of it. We want to have someone manage it. But they are very opinionated on how it should be managed and what should be done. And they want to know everything because it was kind of like their baby. And in some ways, like, that's a, it's a, they put a lot of their eggs in that particular basket. Right. I guess. As opposed to people with multifamilies who are like, yeah, vacancies happen. It's a thing. Whereas me, like, I've read it, like, have you found someone? Have you found someone? Have you found someone? Like, we're working on it. We've got it. Like, yeah. And they often think it's worth a whole lot more rent-wise. I'm like, dude, this is the market number. I don't know what to tell you. I'm sorry.

Jessi
I could see that. It's more of a there's a personal investment there.

James
Yeah.

Jessi
Like, this was our home and it's really good. Yeah. Yeah.

James
Look at all these things we did.

Jessi
There's a garden we did.

James
No one cares. That's actually. A negative aspect to it. Yeah. I, which for me, I'm learning, I need to have a better onboarding process for folks, especially that kind of person, to be like, hey. Again, it's not a house. It's, you know, what was rule number one? You're buying execution. You're buying a mini business. Your house is now shifting to a mini business. You got to think of it a little bit differently. Yeah. And. This is and manage it differently. Right. Correct. Yeah. Yeah. Yeah. Also, tell your insurance person because your insurance will drop a little bit. So Things like that. We gotta tell them. So, those are the five rules. Okay. And I think if I had to pick a theme, is that just like being a sophisticated investor, not being an amateur, it's not that it isn't passive. It's or I should say they're what in the world was I trying to write here? Um yeah, the theme is Whatever. I'm gonna try that again. So, if I had to pick one theme, wow. It's just that sophistication isn't passive, right? And you're not just Hey, like, here's the money, whatever. It's, you're really thinking about it's not, it's not an asset, it's a little mini business that you're buying. Yeah. And that the numbers, they still got to work. You got to run those numbers, and they got to be able to survive the perfect story that's being told. And when you're underwriting, you're not just thinking about today, you are thinking about that end game. And that's especially true as you get into the bigger properties as well. Single-family homes, all right, all right, you can have less of a plan. I suppose, depending on where you're at and the type of property that it is. You still want to have one and you want to find the problems. That's where the profit is. And again, you're not just disappearing if you're investing passively. But you are delegating, and you want to find that balance of following up. So, there you go. So, if you're an investor, which of these five rules have you been avoiding? I'd love to hear from you on what those are, at least the ones where you're like, oh, I could probably tweak this one a little bit more. Yeah, I think that's. I know I, and Baker Tower is an example of one where I totally fell in love with the story and the property, but then was able to say, but what do the numbers have to be in order for this to make sense? And so I was able to have that discipline to back into it. Even though I fell in love with the property and I was like, I gotta figure this out, but I wasn't gonna lose money on it. Like, that's and I've had, I've had multiple deals like that. Where I'm like, this is so cool, I gotta figure it out. But, um, Yeah. So there it is. There's my five rules. All right. And so if you like those five rules and would like to invest with us, we would love to talk more about you. And you can learn about us at furlo.com. We have our investing thesis. We also talk about our management philosophy and how that works. So, check us out and let's invest together. Let's build wealth while improving housing together. Yeah. Love it. Thanks for listening. Have a great day.