What Four Gilded Age Tycoons Still Teach Real Estate Investors Today | Ep 137

James
After the Civil War, there were four men who helped build today's modern economy. Curious, who do you think of First.

Jessi
Rockefeller.

James
Rockefeller. He's definitely one of them. Yeah. Got any others?

Jessi
Uh oh, I know. Oh man. That's a great one. Cool. Uh Ford comes later.

James
Ford is later, but we are going to be talking about Rockefeller and three other mystery men today on 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 in today's modern economy, following in the footsteps of these giants of industry. And so that together we can build wealth while improving housing. I'm James and this is my wife, Jessi.

Jessi
Yeah, who are those other three? Hmm. Who could they be? I'm sure you'll tell me, but now it's bothering me.

James
Their fortunes were bigger than most nations' treasuries at the time. And they they were all in a volatile. I m uh the book didn't actually I mean I guess it went into some of them.

It's hard because they're not inflation adjusted. Well sure, but you could yeah. You can give relative to the colour.

So I read a book. It's called The Tycoons, How Andrew Carnegie, John D. Rockefeller, Jay Gould, and J. P. Morgan invented the American super economy.

Jessi
Okay, I do recognize All of those names.

James
Yes. I don't know exactly what each of them did. Uh because what they did honestly was pretty remarkable.

Yeah. And it turned out that they were in a time and place in history where they could actually do it. Yeah.

And um so there's yeah, that's super fascinating.

Jessi
I I uh hope you say more about like what was the context in which they were investing because it uh I don't know what the climate looks different and the economy looks different. Yeah. Throughout history at different points. And so, you know, hopefully by looking at them you get to pick up on like, oh, you know, I need to pay attention to these sorts of swings or this sort of technology or

James
That's a great idea. We should be able to do that.

Jessi
That's what we're doing.

James
So uh let's start it off with so it was post-Civil War. Okay. And um at the time there was no SEC, there was no antitrust, I there were no rules because there didn't have to be any.

And let's see. Uh oh, and if we if you listen to a podcast from a while ago, um we talked about how the railroads had Yeah. And they were now really taking off and connecting.

Communication and communication, travel, moving things back and forth. So that was kind of a big deal. Uh capital was still fairly scarce.

Information was also pretty scarce. And um and relative to now Even though it kind of feels a little Wild West, like it was crazy Wild West back then. You know, like the whole idea of tenant landlord law was not a thing.

Yeah. Workers' rights, not a thing. Interesting.

Like yeah, the forty hour work week, like

Jessi
So was it kind of like each uh I don't know, each business owner or individual just kind of came up with their own rules?

James
Yeah. And if you liked working for a particular person, if you appreciate down the south, they're like if you have black skin, you work for Frizzle. But that wasn't a good thing.

If it's two independent parties Agree. Sure. They go, I'll pay you this much.

They go, I'll work this much. You go, cool. Sounds good.

Yeah. As long as there's not a problem. Because at the time there were no huge companies, so there wasn't really a big imbalance in power.

Super interesting. Everyone who did it was a craftsman. You didn't work in a factory.

You worked in a uh uh an iron shop. No, uh metal. Blacksmith's shop.

A blacksmith's shop.

Jessi
Iron ironworks.

James
Iron workshops. Yeah. Trying to think.

Jessi
Wow.

James
Like that kind of thing, right? Yeah. But it wasn't a big production. And then eventually you would either inherit that business or go do your own thing and you had a had a skill.

Jessi
So What was the it Merriman I've talked about this, but what was the relationship of these four guys in their stance to the Civil War? Like Did they have I I'm sure they had family members that fought in the Civil War?

James
Probably.

Jessi
Did they? Like No, I don't think so. Okay, so it's post it's like that first generation after The Civil War.

James
Yeah. My guess is they were northerners. That's my question.

Jessi
The South manufactured a bunch of things.

James
Well the South grew it all. Yeah, the South grew raw.

Jessi
That's right, that's right.

James
It turned out all the value add was in the manufacturing.

Jessi
Yeah, the manufacturing. It cre it made it into something special. So I'm guessing these four were in the north

James
But I don't know. So so let's talk about what they did. Yeah, what did they do?

We're gonna start off with uh Andrew Carnegie, Andy Carnegie, um his son Grandson was Dale Cargheny. Dale Carnegie. Dale Carnegie.

Who wrote How to Win Friends and Influence People?

Jessi
Oh.

James
Okay. I know that book. I don't have the link.

Yes. So that's his grandson. Interesting.

I don't think it was a son. Definitely can't be his son, because that's not a son or something like that. like that.

That's really it's part of the Carnegie. But Andrew Carnegie is the guy who he did steel. They made steel.

So the big thing was um iron initially. And And around this time they're like, oh, we can actually do steel at a pretty high level. And because of things like the radio the railroad and other things, the demand for steel was huge.

And so he was he was ruthlessly competitive and he obsessed over cost and quality. But really over cost. Wow.

And he was also really big into vertical integration. Honestly, all these guys were to some degree. Yeah.

And so he owned the ore. He owned the rails that transported the ore, and then he owned the mills that then processed the ore into steel. And uh he ended up he bought um competitor assets uh for the cheap during panics.

Like he so he was very aggressive during like unknown panic times. Wow.

Jessi
And so we just like stock up on Goods and services and stuff.

James
Well, no, he would just he had his own financial backing where if another steel mill got in the trouble, he was like, sweet. Oh, he would just buy it. I'm trying to remember the exact numbers. I think at one point he had over fifty percent of the market.

Jessi
Okay, what's the time frame of this? Okay, yes. So eighteen seventy questions.

I'm trying to r relate it more towards like my family. 'Cause I know I had grandparents that worked in steel mills, but that was way past this f this framework, this phase. However, like s some of this foundational work, like it's not that crazy long of a time.

James
You know, he owned um another hundred years. Still huge. I mean, there's a possibility that they worked for one of his companies.

There were a bunch of mergers and acquisitions. That was a big thing. Yeah.

Jessi
And so like names changed and So where were they getting steel from?

James
They're getting ore.

Jessi
Well, like uh

James
Okay, this is like shows my naivety.

Jessi
They were just like digging up the the iron ore or whatever the stuff is in rock. Yeah. In the US.

James
Yeah. Okay. Yeah, and then when you take it to a mill, oftentimes it was you heat it up, you melt it down something else, turn it into steel, and depending on how hot you get it, what other elements you add, I mean it's this whole chemistry scientific process um would determine how hard it was and What you used it for?

Yeah. Yeah, yeah, yeah. So he was he was in on that and made a very big company.

Um so here's some lessons from just him. is that you can control input costs like Carnegie controlled the ore. Okay.

So there's some like outputs you don't necessarily have a lot of control in control of, but you can on the inputs like primarily like what do you buy a place for. You know, like that is that's an input. You can control for that.

Jessi
And um But you can't control for like how much you sell it for?

James
No, not really.

Jessi
Oh, because that's dependent on what someone's willing to pay. Yeah. In the future.

Yeah. Interesting. Yeah, yeah.

But you can determine how much you're willing to pay. Correct Okay.

James
And to some extent too, you can control like am I going to hire someone else to do this, do it myself? What's the quality level we're going to go for something versus longevity of the fix? Like that kind of stuff.

Yeah. Uh he uh another one is just like when people were retreating, he was buying. And so that's another man, you're like distressed assets are definitely a thing.

Jessi
And that's where you can add value to projects if you walk in How do you position yourself to buy distressed assets? Like you just save up and Yeah. And then actually m make the decision to move when it's correct low or yeah.

James
Yeah, yeah, yeah. Weird. Um we started investing in 2009.

And so that was right after the the crash happened. Yep. Um do you remember that the the one program that we were able to take advantage with that on our first?

Jessi
Yeah, the new new homeowners.

James
Yeah. It's like a tax credit. Tax credit.

It's like nine grand. Yeah that you just got. You got to deduct it from your taxes.

You didn't get a check, if I remember correctly. Yeah. Um, but you had to live in your house for three years.

Right. And then if you moved. And our duplex counted because it was worth enough.

Because they only counted half the property. And it was super funny talking with the accountant at the time because like it was kind of a one-off deal. And he's like, I don't know if this is gonna qualify, but we'll submit and see what happens.

We'll see what happens. And it was like, okay. Like it was pretty crazy.

So yeah, so it's be aggressive in downturns and really pay attention to your inputs. And that's important. All right.

All right. Let's talk about Mr. Rockefeller. Do you remember what he did?

He was the guy who you recognized. I know the name, but uh oil, I I don't know. Yeah, actually.

Um at one point in time, he controlled 90% of the world's oil.

Jessi
Oh my gosh. That's a monopoly. That's insane.

James
Yeah. So yeah, it was Standard Oil was the name of his company.

Jessi
Um I think so too.

James
Yeah. I'm pretty sure it does. Um yeah, like I said, he He he imper he was uh like he took over very niche market oil, but like he dominated it.

Jessi
And this is He controlled 90% of the oil market of in the world?

James
Yeah.

Jessi
Not just in the US.

James
Yeah.

Jessi
Uh gosh.

James
I am pretty certain that's true. Well I don't like I don't know if it was a thing in other countries at that point. Yeah, and the reason why he was huge portion.

He figured out how to systemize refining and was able to do it more efficiently than anybody else. Interesting and so he would just drive competitors out of the market. Right.

And then when they collapsed, he'd be like, sweet, I'll buy it, switch it over to his system, and just kept on rolling. Dang. Yeah.

Jessi
I wonder how he uh came to that process You know, trial and error or was he j was he super smart, like chemically and he was a good, like good at the industrial side.

James
People liked him. Carnegie, not so much. Like that guy was like mean.

Whereas Rockefeller, like people loved him. They were loyal with him. They stayed for decades with him.

They wanted to work with him. All right. Yeah.

And even his competitors respected and liked him. So they were willing to sell to him. Yeah.

Because they were just like, yeah, man, no, I get it. You can beat us fair and square. And he was always nice about it.

And so sounds like just a cool dude. Yeah. Honestly.

Um he but he didn't diversify. Like all in on all the time. That was it.

And did rather well.

Jessi
So did he similar to Carnegie, did he like uh

James
I don't know what you call drill for the oil and then refine it and then sell like move it and it was just the refinery if I remember correctly.

Jessi
So he would buy raw oil from People who dug it out. Correct. Drilled it.

I don't know. Yeah. Yeah.

Yeah.

James
Showing my naivety on all these processes. Yeah, that's a thing. Yeah.

And I think if I remember correctly, he had I think I want to say it was like 90% in the US. And at one point in time they were like, dude, you have a monopoly. And he was like, what are you talking about?

The rest of the world is like I'm on like 50% worldwide. Oh my word. And then what made it interesting was it was Russia actually started their whole pipeline.

oil pipeline. And then they became competitive with him because now they could transport it a lot easier and cheaper.

Jessi
Yeah.

James
But he still did rather well. Again, this is so his whole thing was I'm gonna focus. I'm not doing storage.

I'm not doing short-term rentals. I'm not doing single family homes. He was like, I do Two bedroom, one bath, multifamilies that are 10 to 20 units.

Yep. In this particular town. And that was it.

And he just really focused, focus, focus, focus, focus. Yeah. Got great at managing that type of asset.

Essentially. And I think there's something to be said about that. Uh would you say that we are a niche dominant or spread thin?

Jessi
Uh I say we're diversified.

James
Yeah.

Jessi
That's fair. We do a we do a lot of Different types of things, which also has benefits. Yeah, yeah.

James
So I'm I'm more down the Carnegie route of let's let's Yeah vertically integrate verticalize all the different JC Morgan when we get there. Sure. But yeah. Um yeah. So

Jessi
Not super niche.

James
Yeah, no, but he was like, this is all I do. And there are definitely investors where they're like, I just do short-term rentals and that's it in this area. And like and that's and there are advantages.

You can get really, really good at doing that one thing. And so if you're like, oh, I like the way that fits, like that's a good one. Okay.

I didn't know as much about Jay Gould Walking into it. I don't know either. He did railroads.

Yeah. Yeah. So um yeah, in some ways he helped kick off this gilded age.

Mm-hmm. Um but He like if you think Carnegie was a tough guy, people hated Ghouls. Oh.

Yeah. Um he uh his whole thing, he bought undervalued distressed rail lines that others weren't a fan. There was a They talked about early on in the book there was the Erie rare line that went what was it the Erie Lake?

Um to Chicago and back in there's like And it wasn't like there's just one. Also, they all had different sizes in terms of their gaps and different size rails. Like none of this none of this was standardized in the world.

It wasn't until later where someone's like, you know what'd be really cool.

Jessi
If things were all connected, if we could go one or the other, it'd be really cool.

James
And so, um, but he He was uh he would just straight up lie to do stuff. He didn't care. He'd be like, yeah, no, no, no, no. I like, yeah, we're not doing this or that and just Whatever.

Jessi
It totally reminds me of like the ticket to ride games. You know what people are like laying down track and we're like, no, no, no. Like you go ahead. Yeah. I don't need to go that way and then

James
Yeah, come on. Definitely was one of his things. Um he um the way that they put it was he was a financial engineer.

A financial engineer. Yeah. But like but really what he would do is he would he would buy the things, restructure it, and then he would flip it and profit off of it.

Um he also Uh because of some of his unscrupulous natures, um he would get in trouble, lose a lot of it, and then just kind of like it was c it was costly like a two steps forward, one step.

Jessi
Oh word.

James
Yeah.

Jessi
Sounds like like a gambler on some level. Just like Oh. Yeah.

James
I hear what you're saying, but no, not really. But again, his big thing was he helped build out the whole rail system that everything else was built on and did so got paid handsomely for it.

Jessi
Did he Was he part of that process to to kind of streamline different railways because he was buying them and making them um no his way or

James
No, it was a guy afterwards who was like, we should do this. No, but he would do things where he would like he would start up like secret companies to make bids and offers on multiple railroads. Why?

I mean, it's totally a thing. Sure. And then And then uh and at one point in time, he almost picked up like an entire region, like an entire northwest.

Ben someone found out about what was happening and blew the whistle. And I mean, he was like days away from locking up everything. And um and they stopped him and he was like, ah.

They said part of it was he got a little too greedy and was trying to go too fast. But uh but yeah, they also talked about what was the story? Like I said, like they did some illegal stuff to the point where like they had to be on the run at one point in time or like we gotta get out of here and then ultimately he was like, I want to go back home.

And so he just brought like a just like Pockets of cash, essentially. Just paid off people to to let him go and let him off the hook and he outs he sold out to other friends and stuff and Not a great guy, but helped build the railroad. So the lesson that we can take from this is that similar If you got an asset that no one's interested in buying, like figure out why.

And how can you add value? Because it might be like there might be something there. That's what he was really great at figuring out.

It's like, oh, these railroads, they didn't price it right. Their models were wrong or the whatever the railroad wasn't good quality. He would figure that out and then go in and do the work.

I mean he was a he was like a flipper, but yeah, for railroads just crazy. I mean it kind of makes sense if you have an eye for that.

Jessi
Yeah.

James
Yeah.

Jessi
Um Also don't break the law when you do stuff like that.

James
I feel like that's Yeah. That's that's fair. That's yeah.

Jessi
I mean he was successful, but Maybe don't do it that way.

James
All right. Let's talk about I can never um was it John Pierre? No, it's his first name is it was really I on the audio book I was like they kept saying I was like I can't Anyways, JP.

JP as friends call him. Uh Morgan. He was a banker.

Yep. Who was it to? I think it was, oh gosh, let me think.

Um I can't remember if it was Carnegie or Gould. I think it was Carnegie who also found Um this guy named Charles Schwab to help him run his company. Yes.

And to help him fund his company. No, no, he wasn't. He was just a straight operator guy, like an employee. Uh like an executive.

That's crazy. And then at one point in time he became friends with JP Morgan. Interesting.

And helped Usher, I'm pretty sure it was Carnegie. Um helped figure out a way to buy him out and take it over. Yeah.

And eventually became wealthy himself and then started his own. Fine and was like, it turns out I like just financial stuff. Yeah.

Um, so yeah, like there's all these names at this time where you're like, oh yeah, holy cow. Huge. These guys are unbelievable.

They all knew each other. Oh my word. Um so Mr. Morgan.

Um they described him as a gentleman banker. A gentleman banker. He was a guy who he did not like chaos.

So he was different than all the others. He was like, no, I want to impose order. I want to make sure we're all doing the same thing.

So he built uh trusts he consolidated a bunch of industries together like he was uh let's bring it all together let's do some financial things to make it work yeah

Jessi
That was follow some rules.

James
Yep.

Jessi
How we trade and sell and buy personally helped stabilize the U.

James
S. Treasury in 1895. uh by just like because the the Fed didn't exist at the time. Okay.

Yeah. So he stepped in and was like, all right, I'm gonna help set up some of the things. Here's what we're gonna do.

Here's what we're gonna handle the president was like, sounds great.

Jessi
And this helps if I guess if you've proven yourself and you know how to manage money and you've managed millions of dollars at that point Yeah. And you're friends with the president.

James
Yeah.

Jessi
You get to do stuff like that.

James
Totally. And so um so you can see he was slightly different than everyone else. And and he did There were some bad investments that happened and it was a thing and um but for the most part, like piano, he did he did awesome.

Obviously, still around. Yeah. And doing good.

That's like that's probably the one where you're like, oh yeah, it's got his name, and we're all still aware of it. Um though they merged with Chase, right? I think so.

They bought them or something. I don't know. Um, I don't know.

So uh lessons here is you can become a calming um you just become calming in times of chaos. Breathe, take it easy. And and and when things are going crazy, are there ways where you can figure out, well, how do we combine these things to add some stability to what we're doing?

If Offices are falling and rents aren't renting out in let's say downtown big cities, which is something that's happening.

Jessi
Yeah.

James
It's like, okay, well, how can we combine these things, put them together in such a way where it helps stabilize it? You know? Um that was his his method that that he would do.

Um as opposed to say Gould who'd be like, sweet, these buildings are falling down. Let's get let's go. Let's flip it.

Exactly. I'm not gonna worry about the market. Yeah.

Whereas Morgan was big enough, we'd be like, well, how do we stabilize the market so then these how these buildings become more valuable? More more valuable. How do we attract businesses into want to rent here?

And that will stabilize it. Yeah.

Jessi
Yeah, it's it it's far more like economic principle as opposed to like business.

James
Mm-hmm. Which

Jessi
I can you need both, but I could see how he'd be really successful with that.

James
Yeah. And he definitely was a guy who was like, hey, we're gonna like I care about my reputation. I care about what people think about me, and that's gonna get people to follow me, and that's how I'm gonna lead people. Um yeah, so um would you say that we are uh stabilizers or speculators on a lot of our deals?

Jessi
Interesting. I it depends on the deal. Okay I think there are certain deals where it's like, okay, yeah, we're taking advantage of this particular opportunity because it you know, whatever is in disrepair and needs some fixing and yeah, we can flip it and get some profit off of it.

But there's others that are like Like I think of the apartment building where I'm like, this was it was in a terrible state, but we didn't just sell it right away. We we established like good systems and created like a community and it improved the surrounding area. Okay.

Yeah, that's fair. You know, so it's like it's kind of a mix of both. Yeah.

That's fair. We're definitely not ghouled, I don't think.

James
I would say we we do tend more towards the uh the spec speculator. Probably. Probably slightly.

I don't know. I see your hesitation. I see what you're saying there.

Jessi
Okay.

James
So when um so here's my next question for you. Which tycoon's instinct do you think fits the current market we're in?

Jessi
Oh. That's interesting. Um I think when we got started, I would have said gold much more.

James
Oh, okay.

Jessi
But I think now it's almost I I want to say it's almost a uh JP Morgan it's a combination of like JP Morgan and Who was there?

James
So I'm gonna say like so Carnegie was like, I'm gonna vertically integrate all this stuff. Right. That's where I'm gonna take the value from.

Rockefeller was like, nope, I'm gonna just focus on this little thing. Yeah. And I'm gonna dominate this.

Gould was more of the I'm going to pick and choose opportunities. Yeah, it's for railroads, but I'm gonna go in, make a better get out, make a better get out. Instead of having this longevity thing, it was like more flipping.

Yeah And then JP Morgan was more of the how can I help on the macroeconomic side of things and position l laws and finances in such a way that it

Jessi
benefits me. Yeah. I would say There you go. There's your Yeah, that was a good that was a super good summer.

James
It was super helpful.

Jessi
I would say Carnegie with a with a splash of JP Morgan.

James
Okay. Yeah, yeah, yeah. Which I would say in some ways that's definitely I mean that's the direction I'm headed in with property management. Yeah, because it's kind of like investing.

Jessi
There's not a ton of opportunity and deal that you can just like strike on. Yeah. So lowering your costs in certain ways by taking things on that you're managing and vertically integrating makes a lot of sense.

Okay. While still thinking about like you know, how's the market and how's what I'm doing stabilizing and Yeah. Okay.

Cool. It's not nearly the level of Operation that these guys were at.

James
Oh. Yeah, and it doesn't have to be, right? It's more like one of those philosophies.

Because when they started they weren't huge. Sure. And it just kind of snowballed.

And because it's pretty sweet. Yeah. So so there you go.

I already gave my summary of all of them. So um so we're good. So yeah, uh really cool book.

It was a pretty quick read. Um yeah, it's just called the Tycoons and very interesting characters of the time. And that was a cool one because it also just gave a lot of context about like, hey, here's what's going on.

and the economy and in the country at that time. So uh it was really cool and um I liked it. So hopefully you found that valuable and if you are interested in learning more about our investment strategy and what we are doing in this current market or if you don't just like deeper thoughts on what we think the market's currently doing, you can connect with us at Furlo.com. So with that, thanks for listening. Have a great day.