The Fixer-Upper We Didn't Fix: A Step Towards Financial Freedom | Ep 38

James: Welcome to the Furlo Capital Real Estate Podcast, where we dive into the intricacies of passive real estate investing. And our mission is to equip people to invest wisely in both properties and residents so that together we can build wealth while improving housing. I'm James, and this is my wife, Jessi.

Jessi: Hey, we did our first installment. Yeah, if you can call it an installment of orthodontia, orthodontics for our daughter. So yes, apparently the first step is

James: spacers

Jessi: to make a space.

James: They're little rubber bands in between your

Jessi: back. I kind of remember, so I had to get some of those when they did mine. I can't remember them.

It's just like that annoyance. Like, ah, there's something stuck in my teeth. She, yeah, she kept telling me like, it just feels like something stuck in my teeth. I'm like, there is something stuck in your teeth. Like it has to stay there. And then later this afternoon, she was like, I was like, does it hurt?

Or, you know, how's it feeling? Whatever. She was like, nah, it doesn't really hurt. I just, it's just there. Like, I just feel it. And she's like, can you give me some Tylenol? So I don't feel it anymore. I was like, that's not how that works. I was like, you need like some numbing something if you don't want to feel it, but that's not happening.

So it hurt or just, no, she was like, it doesn't hurt. It's just annoying. I was like, yeah, all right, you'll get used to it.

James: Totally happened to me. We walked in and it was serious. It was like a two minute appointment. Like you walk in, she checked in and I was like, you gotta learn how to do this. She did it.

And then we sat down and they called her back and it was like, Appointment was at 9 o'clock, we were 5 minutes early, they called us at 8. 58, we went back, we sat down, she kind of explained it, and I, I kid you not, like, we were up and leaving by 9. 02. That's amazing. It was pretty quick. Pretty quick. Yeah, we're like, alright.

They won't all be like that. No, they won't. But, it was good. It was a good starter one. Yeah, there's a first for many things. This is one of them. And what we want to talk about today, is our property that we bought, that was on our property First Avenue. Yes. Good transition. So it wasn't our first property.

That was masterful. It was our third one that we bought. But it was. Not on third, on first. Yeah. Do you remember how we, how we found it?

Jessi: I do remember how we found it. Alright, I'm curious

James: about your version of this story, because I've told it many times.

Jessi: If I remember correctly, we went out to dinner.

This was pre kids. Yes, we were at Red Robin and I, I don't remember why we were looking at properties because we're nerdy, I guess we

James: were waiting for our server to come.

Jessi: That's true. Okay. So we were sitting waiting and we were just scrolling through listings. And this one popped up, which the listing was like, it looked like a dump.

James: Yeah.

Jessi: Like it was not, it did not look Pretty. And you, I think just, I just kept going. Yeah, you just swiped. And I was like, whoa, whoa, whoa. Wait, go back to that one. It's cute. I was like, I think I said like, it's cute. And you were like with the record, fine.

James: Cute. On This one was a, a roof that was completely filled with moss.

It was ugly. It kept abysmal pink. Oh yeah. The color was awful. Like, wooden old windows, shag carpet, in the living room. Which, like, all of those things were like, fixable though.

Jessi: It's cute. Okay, here's, what I saw was some redeeming factors. Sure. Of like, it was think like, not tiny home, but like, A step above that.

So you're like, Oh, this is like, it's a cute space. Like just for the two of us, it would totally work. And, and there was some character to it. Like it had built ins, it had interesting doors. It had like, you know, which I don't know that for a historical type of place is like, it was cute. It was, it was you know, I don't know.

James: I guess I remember, but I also remember in our conversation at the restaurant, You were like, Oh yeah, wait, why'd you go best at one? I was like, dude, you see the picture? And you were like, did you see the price? I was like, yeah, did you see the picture? And that was the other thing I was like, finished dinner.

And you were like, we got to go check this place out.

Jessi: Yeah. I was like, let's go. Do you

James: remember when we pulled up? So it's like, it's nighttime at this point. Yeah. Do you remember what we, what was hanging out in the front yard?

Jessi: Yeah. There was a homeless dude chilling in the front yard.

James: And I was just like, I think we've seen enough.

Yeah. And you're like, yes, we have, let's call our agent. I was like, who are you?

Jessi: Well, I, I mean, the timing was perfect as well. Cause we had, had been talking about outreach or like positioning ourselves in neighborhoods that like needed help or needed. Just needed to, needed love in them. And it was like, perfect.

I was like, look at that. There's someone right there who needs love. And like this neighborhood obviously is in trouble. Huh. I remember that too.

James: So we put in an offer and we ended up buying this. Do you remember how much we purchased it for? It was around that 60, 000. I think. Yeah, it was 62, 500, which we actually offered for free.

less at the time it was like 58, 000 or 57, 500, something like that. And we were talking with our mortgage broker. He was like, this is going to sound really weird, but you need to offer more for it. He's like, because it puts you into a different loan category at this level. If you can get above 60, 000, it puts you into a better, better position.

So it's like, so offer a bigger price, but then have them pay for some of your closing costs, which is pretty classic trick that happens. So, which I was like, cool, less that I have to bring to the table. I love it. And so we actually bought it. So we ended up putting just over 5, 000 down for this home, which was awesome because the year prior we'd received our tax returns.

We had because of other real estate stuff, we received a little over 5, 000 back. And so it was just like, and the timing of the purchase, which was it was in April. It was like, yep, we'll take the funds from this tax return and put it right over here. And so it was like, our monthly budget was never impacted by it.

It was pretty awesome. Yeah. And then as you noted, we moved in and we pulled up the carpet and there was wood underneath and it was in pretty good shape. So we left it as is. The the roof did have moss all over it, but all we had to do was clear off the moss and the roof itself was still solid, didn't leak, it was still good.

And we actually never replaced it the entire time that we owned it. And it had, we always joke. That we bought a fixer upper and then we just didn't fix her up. And so the original point of this house wasn't to be an investment. It was to try to live cheap. That was the entire goal of it. And at

Jessi: the time we were dinks.

Double income, no kids, and we were like, okay, how cheaply can we live so that we can put all of our income into investments, essentially. And we were

James: living in a duplex that was a three bedroom place with a pretty big garage. And this one was only a two bedroom. And we were like, this is great, because that other bedroom was totally extra for us.

Yeah, we didn't use it. Yeah, so we were able to downsize. And we had a dog, and so this had a yard, and it still had a garage, even though it was a weird, funky garage door.

Jessi: It was super funky. Right.

James: It's all good.

Jessi: Like kind of barn door type style. Yeah. It's super weird. Didn't quite open and close the right way.

James: Yeah. Because the driveway was a little

Jessi: messed up.

James: Yeah. Aww. I love that

Jessi: house though. Do you

James: remember the backyard? Because we never, we never put in a fence. We just put like a. Yeah, it

Jessi: was like chicken wire. Or just like a. To contain our dog. Yeah. Yeah.

James: And the people in the back behind us, they constantly were in the back just like smoking and hanging out.

And there was like would always random people our come defend staying there too. He was like, who

Jessi: are you guys? Yep.

James: Get outta here. Bark, bark, bark. Oh yeah, he barked a lot of that

Jessi: place.

James: Let him do it. They're not supposed to be back there smoking, so whatever. It was pretty funny. Yeah. I, oh dude, I remember.

So that place was a rental and like you said, they used to have random people coming in and out. Yep. I remember we went. We replaced the sewer because the city had a sewer program where they would do it for you. But I had to get permission from them to let the people go on their land. And I remember I got a hold of the, the owner.

And he rolled up in like this brand new Tesla. And I was like, oh my gosh, this is a piece of garbage home. Alright, whatever. So funny. Just classic. I'm like, this is why landlords get bad names. Because you have an awesome car and you have not taken care of this property at all. But, whatever. Yeah, so we, we lived in it for, gosh, how many years?

I don't remember. Let's see. Three? We

Jessi: moved

James: in. Three or

Jessi: four? I feel

James: like

Jessi: it

James: was longer than that because

Jessi: maybe it was longer because we, okay, so we bought that,

James: we moved in here

Jessi: and then two years later, two years after that, we bought the apartments.

James: Yeah. I feel like we might've been there for like, I think we owned it for like, well, I know that we sold it.

We owned it for for nine years to eight years total.

Jessi: Okay. So we, we probably lived there for six.

James: Yeah, we, we lived there for eight years total. Yeah, we probably lived there for, eh, it might have only been five years. Whatever. Around there. Yeah, and so we so again, we joke that we bought a fixer upper and we didn't fixer up.

Jessi: Yeah, or the window, like. Oh, it was,

James: well, what I would tell people is in the Christmas time, when we put in a Christmas tree and the wind blew, the needles moved. It was that kind of house. It was very drafty. Remember, in our, and we were super, again, we were, we were trying to live as cheap as possible. Yeah.

Like, as cheap as possible. Yep. So, for example, We didn't turn the heater on at night. Instead, we used the little electric heated blanket. Not the blankets, but the the sheets, because hotter rises. And that was our, and then we had our wall heater on a timer, so I got like 20 minutes before I woke up, it would kick on and try to, and just take the chill off the house.

That was, and then if you remember, there was no access to the crawl space.

Jessi: Oh, gosh. Oh, I do remember that. Oh my word. Okay. That was, that was the worst thing about the property was it was near a river. And so there were rats. It had a, it had a rat problem, which we figured, we figured out eventually. And it was like, okay, we have this under control.

But when we were first trying to figure it out, I w I was pregnant with Eleanor and We, I think we called the pest company initially and we were like, okay, what do we do? And they were like, let's just put poison. And so we were like, whatever. That's great. But it was awful because the rats ate the poison and then went under the house and died and we couldn't get them out without like digging up the house and it smelled horrible.

And there was flies there. I was like, oh my gosh, never again. This is so gross. And so we switched to traps. Yeah. Like the big, just claw traps. Yeah, And I, like that first week we had them out there, I think we caught like nine. It was incredible. It was incredible. It was so many rats. Yeah, and then it would

James: stop for like three or four months.

It was like that family, we caught them. And then all of a sudden you'd catch another five in a week. Yeah, five. Oh my gosh. And then, then it would stop and they just came in waves. Yeah.

Jessi: But that was so much better. Oh yeah. Because it was like, they

James: would, they would get

Jessi: caught outside, not under the house.

We could just dispose of them.

James: Yep.

Jessi: Yep. Oh my word. Oh yeah. I still have trauma.

James: Oh that was, I remember that. Cause you, cause you were pregnant. So you were really like. Oh everything was sensitive. You couldn't walk in the house. And I was like, I barely smell anything.

Jessi: Oh.

James: Like I can't live here. Like it's

Jessi: so bad.

James: Yeah. Yeah it was intense. It was a cool little home though. So eventually we moved out and we turned it into a rental. And at that point in time, I was willing to spend money on the place because then I could write off everything. That was our other, I'm like, dude, the goal is to live. Yeah.

Jessi: We were living cheap.

It wasn't to live in a nice place. So yeah, we were like, I put up with a lot

James: on a sweatshirt. So we replaced the windows. We refinished and repainted all the walls. We also repainted the outside and we refinished the floors. We did a bunch of stuff to it. We did not replace the roof because it was fine.

Which is crazy. I've driven by it. It's not a bad place. Another little point thing

Jessi: about this place was it, it had this steep staircase up to the attic space, which was half ish finished. Yeah. But the, the previous owner had trains, like a train set. Yeah, that's right. A train set that was up there. And you could, you could, Here the train go by.

It was like a

James: block from the train tracks.

Jessi: I remember that. It was kind of

James: this guy

Jessi: like

James: the trains come and they run up there and like run as a little train track. Yeah, exactly. You can imagine it. We tore all that. Yeah, we took it all out. We just kind of use that space as storage. To be clear, we tore it all out.

When we were moving out. Yeah, when we left. Because we did not do any work on the place when we moved in. I remember, remember you you had to clean it. Like you cleaned the walls and everything. You just scrubbed everything and it was super gross and dirty. And yeah, I remember having friends over doing that.

It was great. Dude, that was a process.

Jessi: Yeah, we cleaned it when we moved in.

James: So how did we do on this investment? Great. Is the question. So we bought it for, I was sad when we sold it

Jessi: though. Cause it was like, I just have to say this one more thing. Yeah. I know you want to get into the numbers. It was kind of like, we, even when we moved out, we held onto it.

And for a while it was kind of like, okay, this is like, it's, it's, I've still loved the house and Even some of the location and all the things, but I was like, okay, even if like this could be a retirement, you know, we move back into this place. It's like single level. It's super cute. It's super cheap. So I was sad when we eventually let it go.

I don't think you were.

James: No. And I, especially

Jessi: because of the numbers. Well, so here's what's

James: interesting. From a cash on cash standpoint. So that's just purely from the rent piece. So obviously those first few years, it was zero. Yep. We lived there. Yeah. And then that very first year we turned it into a rental.

It was negative 7, 000 because I invested a bunch of money into it. And then, so it was pretty low that next year. It was 4, 700. It was pretty good. The year after that something went weird. It was only 147. I think we had some sort of turnover and we had to do some other work or something. Then it was 1, 800 and then it was 2, 700.

And then so it just wasn't like, just wasn't a ton of money. And It was a tiny place. So from a cash on cash standpoint, it was only a 4. 3 percent return. Yeah. It wasn't, it wasn't great. I looked at it as more of, this is house is good insurance for us. Again, if something ever happens, We could always move back here and live super cheap.

Because what I would tell people is, we had a 15 year mortgage on the thing, which is part of the reason why the cash on cash is what it was, and our principal, interest, taxes, and insurance was 598 a month.

Jessi: That's insane.

James: It was super cheap. So that was, I was always like, okay, if we ever need to move, like we can move back here and I know we can make ends meet, no big deal, it'd be super cramped, we're a family of four, but we can do it.

But ultimately, The market just took off on us and, and we ended up selling it for a profit. Well, we sold it for 242, 000. So we ended up selling it for, but, and when you include all the mortgage payoff stuff, our proceeds were actually 202, 000 for it. So that means that even though our cash on cash was only 4.

3%, our average annual return was actually 181 percent and it was all because of that last, because of when we sold it and that was where I was like, we have to like, right. It's borderline irresponsible for me. Taking care of this household and his business to just hold onto it. Yeah, because. I, it will take me, it would take me, it would take me forever like to make up that same it would take me a hundred months, a hundred years to make up that same, that same amount.

So I was like, no, I'm not going to hold onto it for that. I can reinvest it into something else, which is ultimately what we did. Yeah. We took that, we sold three other, two other places, put it into some warehouses where we actually get a better return, better leverage, all that stuff. Made a

Jessi: lot of sense.

James: Yeah the I R R which takes into account time. and the the value of time. Mm-Hmm. was only 55%. Hmm. Which is still amazing. Yeah. When we talk to people about our investments, we're like, Hey, if we can hit 15% IR we're gonna be happy about this . Yeah. So yeah. This was, it was, and again, the only reason why that was so low is because we put such little money into it.

Mm-Hmm. Ultimately. And so it just turned out to be a fantastic investment for us, which was pretty cool. Yeah. But yeah, it was a fun house. It was small, easy to clean, because it was small. The bathroom was weird too though. Bathroom was funky. It was just like any small house. We are, we are currently in the middle of a project right now.

Rehabbing, fixing, and eventually going to resell this house. That is a slightly bigger version of this one. Yeah, so instead of it being a two bedroom, it's a three bedroom, but it's that same kind of era, same kind of funk

Jessi: about

James: it. So we're going through redoing all the same stuff, right? Doing the windows, improving the siding, gonna redo the floors, cabinets, everything.

Redoing

Jessi: walls, painting. It's gonna be awesome

James: when it's done. Did it have

Jessi: any paneling?

James: Yeah. There was some

Jessi: paneling

James: in this place, which I think we

Jessi: just decided to, we kind of repaired places and then painted it.

James: We retextured it.

Jessi: We textured

James: it. Yeah. Yeah. But yeah, so, so that was that project.

I thought it was pretty fun. It was good. We learned a lot, but the entire goal of that, cause we definitely subscribe to that idea of the place that you live in is not necessarily an asset. If you define an asset as anything that puts money into your pocket and a liability is something that takes money out of your pocket, we went, well, the place we live in is not an asset in that regards.

So we want to try to minimize our expenses. And we absolutely hit the goal for that. And then once we had it as a rental, it was like, yeah, it was great. I mean, it was positive cashflow. It was fine, but man, like the market just took off on us.

Jessi: I'd like to think also, maybe this is thinking too much of ourselves, but I'd like to think we helped to improve that neighborhood as well, just in the sense of like, there were a couple of other houses that people had bought and fixed up and it was kind of bringing in You know, families or just kind of lifting the neighborhood up a little bit.

James: That's an example. If you listen to our previous podcast, where we talk about the market the surrounding market, this, like this surrounding neighborhood wasn't great, but it was on an upward trajectory. You could tell there were people around who were buying and investing in their homes. They had some pride of own home ownership, which is great.

Like our, our neighbors across the street were great neighbors. A couple of houses down were super fun. We had this, it was super weird, man. We had this big window. In front and they were always like people would look in the window and would like see us like you'd like they'd wave at you like Okay, we gotta be like this is weird But I always work from home so I always got to like see people Yeah, I thoroughly enjoyed walking a neighborhood and we were near the river, which was great.

Yeah, okay. She was it was fantastic, but just from a like from a The way we lived our life. Again, the neighborhood itself was a little rough. I wouldn't necessarily go around at night. There were a few nights where there were people who'd be like, they'd be in fights and just yelling and screaming at each other while walking down the street.

Like, oh my gosh. But honestly, we get some of that here. We get those punk teenagers who are like cussing up a storm and goofing off and, you know. Listen to their boom box. Like, what are you doing? It's 2 a. m. 2

Jessi: a. m.

James: Yeah. It's crazy. So whatever happens everywhere.

Jessi: Yeah.

James: Yeah, no, that was a good investment and I thoroughly enjoyed it and I think we learned a lot.

We made a lot of money off of it. We seem like investment geniuses, but it was this house that it was like, It was weird in the sense that flippers didn't really want it because the neighborhood it was in. There wasn't enough upside at the time.

Jessi: Yeah, for like a quick

James: flip to do a quick flip.

Jessi: Yep.

James: And because of some of the other issues in the house, it didn't qualify for FHA financing.

And so people who were low income or new homeowners couldn't get into it either. Yep. So we walked in and Which is standard conventional financing. We had zero contingencies on it. And so the banks didn't ask any questions and we did end up getting a home inspection because it's smart to do, but it wasn't contingent on it.

So we were able to just give us a punch

Jessi: list of what needed to,

James: because we looked at it and said, it's 900 square feet. It's pretty small. Like I can fix anything on here. And so so that, that was why we were able to come in and get such a good deal for it and why it was so cheap. Cause it was this weird spot in the market that just didn't make any sense.

Jessi: See, I told you. It was a good deal. It was a

James: good deal.

Jessi: Yeah. You were going to pass. You were just going to swipe on by. I was.

James: Man. You're welcome. Yeah. Thank you so much for that. I appreciate it.

Jessi: It was a flip in rolls, for sure. Because typically you would find the dumpiest

James: places ever and I'd be like, no.

Do you remember before we bought this one, we looked at a house that was near a school And they had somehow, like, dug out the backyard or like put in a pool or something. Yes!

Jessi: Quote unquote, pool.

James: It was, it was like, it was a massive pit. It was awful. That place was

Jessi: awful. It was a pit. It, oh gosh. It was, that was a teardown.

And I was like, let's go! I'm pretty sure we walked in. And I walked right out. I don't think

James: you could walk into the house. I think it was like, it was bad. Yeah,

Jessi: it was bad. I walked in and walked out and I was like, nope, we're done. And you were like, wait, wait, wait, wait, wait. Let's look at this, let's look at that.

I was just like, okay. Nope. It was role reversal. Yeah, for

James: sure. You know, like, that's right. Gotta have that sometimes. That's why we work well together as a team. Yeah, I love it. And hopefully you loved listening to this story about this property. And if you would like to get involved in other crazy fun investments with us, you can check us out at furlo.com. And if you just enjoyed listening to this, we would love it if you gave us a rating or review wherever it is that you listen to podcasts. So with that, thanks. Thanks again for listening and have a great day.