Why Most Americans Never Build Passive Income (And Why That Matters) | Ep 133

James
If I were an AI bot, I would start off the sentence with, but here's the truth. Most people have you ever had it where it's like it tells you? Yeah. Yeah, it does. Vlad is particularly bad at that one.

Jessi
Weird intro.

James
Yeah. But here's something surprising or the truth about it. That's usually how it'll go. So so here's the truth. Most people plan to build passive income, but But few actually do. And that's what I want to talk about 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 wisely so they will actually do the investment and in both property and residence so that together we can build wealth while improving housing. I'm James and this is my wife Jessi.

Jessi
I'm I like I don't know why I'm thinking about this, but I'm think away. Well, I'm it has nothing to do with anything. Oh. I'm just I wa for whatever reason I was I was thinking about the colors of paint that we were We were trying to like, okay, I can tie this in. I can bring this back. I was thinking about the colors we want to paint our house. We're going through the list of like, I want this color, I want that color, I want this color. The whole process, you and I got a little heated discussion at one point.

James
Yeah.

Jessi
And um and uh we finally

James
I think we landed on it.

Jessi
Right? But you're at you it's like that moment where you're like, which one do you like? Well I like that one. And the next person, well I like that one. You and we can't we kinda ask the kids independently and then you and I and we're like Do we all like that one? We all like that one. I think we all like that one.

James
I really feel like you undersold this process that we went through. Because we probably started this a year ago. Oh yeah. And ended up not painting our house last year because we were not very different. So this year we tried a different strategy.

Jessi
Yep.

James
We looked at a bunch of houses, we walked around, we still were And I actually uh shifted like 180 to what I was headed down like a red-orange route. Right. I was like, okay And then you used some AI tool to paint our house, and you were like, no. I was like, that's so ugly. That's the worst. And so we quickly pivoted to a shade of green. And Which is cool. And and then we got a bunch of paint sample. We got three paint samples that we all agreed on. We looked at it, we thought it was good. We think we like these.

Jessi
And there was there was one that you like that I was like, no.

James
Yeah, but mine was like it was very so bright. Uh it was like a bright green. Shut up. Hey man, we're gonna do it. Like let's let's own it. And that was when we then had that really in uh shall we say intense conversation. Intense conversation. And part of it was like just trying to, and I'm maybe this will, I don't know, we'll try to tie this in.

Jessi
Oh, it definitely ties in.

James
I have a tie in. Cool. It just trying to get us to use the same language so that we were describing the same thing was difficult. And you're like, that makes no sense. And you would say it another way. And I'm like, yeah, that's what I just said.

Jessi
Yeah, you were describing it very analytically. I was describing it very artistically. And it it was just like, this is not computing.

James
Ultimately what we ended up doing is we went back and we grabbed those paint chips. We put the kids down to sleep. We went back to Home Depot last night and we're like, okay We know like it's somewhere in between these two is probably okay. And we just like we held them up. We went through, we came back home with two of them. And honestly, both of them were good.

Jessi
Yeah, we were okay with with either.

James
I think we're I think but we all there was one that was Slightly. That we all liked a little bit more.

Jessi
Yep.

James
So I think we're like, we're right in the middle of the day.

Jessi
But here's my tie-in is I think people don't get to the point of Passively investing because it's hard. Like there's this process that you have to go through.

James
Yeah. And there's a learning curve at the beginning.

Jessi
Right. And it's like Even you were like, we had to delay painting our house, you know, because it was like we have to get to this agreement. There's this understanding, there's this there's this process you have to walk through.

James
Yeah.

Jessi
Which for some people is like, that's super intimidating. I can't deal with it. I'm not even gonna do it. And I get it.

James
Yeah.

Jessi
You know, I'm sure there's plenty of people who are like, I'm gonna hire some designer, they're gonna pick a great color, and they're gonna do the whole process for me. So I don't have to worry about it.

James
Yeah, and I mean even for us it's like okay, yeah, it took us a while to find the color. And now the real work gets to start.

Jessi
And now I start power washing.

James
So I think was it was it Samson who was like, so are we painting tonight?

Jessi
Right He was like I started putting the swatches on to see them and he was like yes we're gonna paint the house tonight. It's like yeah about that.

James
There's we have uh stink call rep. Oh man.

Jessi
The painting is like a tiny little sliver

James
Yeah.

Jessi
But this whole process is up.

James
Yeah. That's right. It is. Um I don't know how to tie this in. But um Yeah. Yeah, no, it is one of those where it can be intimidating up front. But It's important to do to keep up the value of your house. And in the same way, I think learning how to invest passively and actually doing it is also important for a couple of reasons. Number one Your labor, what you can earn per hour, that has a ceiling. No, no, I get it. There's some people out there with like, you know, they're basketball players or whatever and and they've got They're the outliers. They've got really good skills and and even then there's still a cap, but you know For the average person. And And so the earned money is what you get when you're awake, whereas the passive money is your capital going to work while you're asleep or doing other stuff. And so it has a lot less of a ceiling. to it. Um it can kind of keep going. And it's just good to to diversify where your money comes from. But there are reasons why people don't do it and I have six of them that I want to talk about. So the first one is all around mindset. And one of them is, well, it just it takes money to make money. Right? Which is true, but also not the whole story. And that's because a lot of people, they usually start first with sweat equity, not actual capital, like the house hacking or they're doing some sort of like seller carry notes or they're running a syndication, whatever. Like there's ways to get into it. And then so the fallacy is people believe that capital is the only way to get started. Yeah, that you have to have a like a decent chunk. Correct, correct. And that's not totally true. And again, like There may be some it may not be 100% passive when you first get started, sure, but you can build those muscles. And other ones like creative finance is is huge and versus just like conventional financing.

Jessi
Yeah, that's an interesting idea because you're you don't have to have a ton of money.

James
Yeah.

Jessi
You do have to have a little bit of know-how in how to structure Or you lock yourself in and say, I have to be an accredited investor.

James
So therefore I need to have the income or the net worth. So I gotta have the money before I can get in.

Jessi
And it's like, well

James
Yes, but also no. So I think that's the first reason why people don't get involved. The second one is around behavior. And that is because They don't have the money. They're busy spending it. Oh, Dave Ramsey would be not happy with that one. So it's earned, but they never allocate anything for investing. It just goes right into their lifestyle. Sure. And um and there's a lot of people out there who I think, I don't know, you would describe them as well educated. They've read the books, they've done the studying, they get it, but they just don't actually accumulate enough to ever pull that trigger. And so you just gotta you gotta like gotta take a break from all that spending.

Jessi
Well like you're saying um Behavior does have to shift, you know, because like you were also saying, your income isn't just this uh ever increasing amount of money. So as the lifestyle costs increase as your as choices change, as you have kids or whatever else, you know, you have to actually adjust. to set aside a portion of money that is going towards investing, which means inevitably you're not doing something else with that money. So I get I get that. That's hard. Yeah.

James
Which you and I were great at when we first got married. Didn't have any kids. There was one year where we saved seventy percent of our income. Like, cool. So we were able to do a lot with that and make some rapid progress, which was really cool.

Jessi
But it was also we gave up living in a super nice place.

James
Yeah. Or yeah, we did. Yeah, you know. We didn't touch. We didn't have super nice cars. Right.

Jessi
Yeah. And I like It's very easy, I think, for people to just go, well, I want a nice house and I want a nice car. And I now I have a job and I have plenty of money to do it. It's like, well, if you don't have to do that, like you can shift.

James
Yeah. Totally.

Jessi
I agree.

James
You're right. Reason number three, uh uh this one's structural. Just schools and systems. They train workers, not owners, not business owners.

Jessi
That's true. I that was wrapped up in kind of what I was trying to say, but I didn't I didn't like say it well.

James
So try again.

Jessi
You know, it's kind of like yeah, that the system dictates that you You get educated, you get a job, you hop on that rat race, treadmill, hedontic treadmill. Yeah. No, you don't you don't have to do it that way. Like you don't have to go to a super high-end college, get into debt And then get a high-paying job so you can pay off your debt and then get a house and then have to pay that off. Like you don't have to do it that way. It's it's a mindset. And but the systems are set up to kind of lead people that direction.

James
Yeah, a hundred percent. And similar systems there led you to get your 401k through your employer and uh put all your investments through that. Yep. As opposed to diversifying in other ways. Sure. If you got a match, yeah, 100% go for it. I get it. But um but they're also one that's one investment. Yeah, sure. That's just that is something. Yeah. And a lot of the financial products that are out there are designed uh for the bank's benefit, um not necessarily for yours. And um heck the the tax code itself re it rewards capital, but no one really teaches that. Yeah. And and so yeah, there's just a lot of structural things that say, man, yeah, go this way because It's it's good for you, not great for you. Yeah. But it is good for the institutions who have put together those systems.

Jessi
Let's be honest too. Like Comfort is nice. And so like Of course. You know, if you if you put two I just think of like kid psychology, if you put two great things in front of them or like something great and something stinky, like obviously they're choosing the great one. And so it's like as those choices.

James
That comes back to the to the second point. I think this third one is more of you have these two choices in one of them they're constantly just they're defaulting They choose this one. And it's easier to grab the one that's closest as opposed to saying, No, I'm actually gonna do the one that's a little bit further away because there's two marshmallows on that plate instead of the one. Sure. Like that's the I can see that. Oh and marshmallow's good. Yeah. You like it, but you could have had two by going outside the normal track.

Jessi
Working a little bit hard.

James
Keep that analogy going for a bit.

Jessi
Yeah.

James
So reason number four is there's just knowledge gaps. They just don't know. They don't even know this exists. Like create they're not listening to podcasts like this. Yep. And and so they just There's totally unaware of it. And a lot of it is because of the way the structures are set up. Like it's not the easiest thing to just tell everyone, hey, this is an option. You know, if you were to talk about what's earned income versus portfolio versus passive income, man, most people would like they can't describe all of them. They don't know about syndications or doing notes. Um, but They or they money they may not even know about dividend stocks, right? That was something last week, two weeks ago, that you were asking about. And and so It's like, yeah, like you just don't know. Or they don't know about REITs. Um again, the private lending is is a huge one. They just don't know. So they can't and even if they did know about 'em, they don't have the skills to evaluate the the risk versus return on them. 'Cause just there's an education piece, which honestly is like That's cool. Like that's you know, that's all right.

Jessi
Honestly too, like as the average person, it doesn't really sound interesting to me to become educated on those things. You know what I mean?

James
Yeah, that's fair.

Jessi
I'm just like I'm not gonna if I have I have a certain amount of hours in a day, like I'm not gonna choose to learn about REITs and Well yeah loan structure. But if there was someone that I trusted who did know and was an expert on those things and could explain it to me in a way that was like, this is how this is working. You don't have to be an expert. You just need the basics. I'd be like, cool.

James
Yep, this is great.

Jessi
I would do that.

James
Yeah. No, that's fair. And that's what it is. But I get it. I try to do that. Sure.

Jessi
I get why people wouldn't invest. If that is a is a barrier or hurdle.

James
Like it's like that's complicated. I work for an employer. There's a form I fill out that automatically deducts money into a 401k. Easy. And I never have to think about it again. You know, which cool. Awesome. Be that investor, that's great. Get middling returns. Cool. Yeah. If you don't want to work for the rest of your life and have a better than average retirement, it's gonna require some work on your end. Do you need to become an expert? No, but you do need to learn a little bit more. I guess. And and I think that's a for most people, that's an okay trade-off. But you know, I get it. Like if you got kids or you're barely making it, yeah, no, don't worry about it. Reason number five is fear. Yeah. Loss, aversion, or scam exposure. Honestly. Yep. Um maybe you've seen a parent or a friend lose money. Um or you s yourself have lost money. I know. I know that's those are things, right? That happens. Or they just got you get I don't know. They lose money both ways. You lose it just legitimately through an investment. Or it's some guru took your money, scammed you out of it, and you're like, no. And so anytime you have that kind of fear of it, it's just easier to do nothing. And so uh which is just so there's I get it, but there's also a cost of that inaction. And I'm okay if you doing nothing. You just gotta do it for the right reason, I guess. And and I just think there's a lot of people where they just think, ah, I don't know. And they just don't do it, which is Which is fine.

Jessi
Which I mean It's a reason why. There yeah, it it is a reason why and um There's there is a level of risk that's higher than many other investments. And so it's like I it's good to know that, but I but I hear what you're saying. If it if it's just this blind fear of like, I don't know, that sounds scary. Yeah, really. You don't do the due diligence of like, okay, well, how does this actually work? And would it make more sense? And how could I become comfortable with maybe

James
Learning more or trying to try to track a record. Yeah. Yeah, yeah, yeah.

Jessi
I get it. Good. Not blind. No blind fear. No blind fear. And reason number six, which is kind of

James
And overarching, it's kind of related to some of them we've had. It's just time and priority. Someday never comes. Yep. It's like, yeah, I you're just busy, right? You got your job, you got your kids. That's kind of what we're talking about, the knowledge gap. You're like, I don't want to take the time to learn this. Yeah, that happens. But I think you can run into that problem of I do want to learn this, I am interested. But I gotta do all these other things first. And you just You just never prioritize it and so it never happens. So you never pull the trigger. Even though you would like to. I've talked to a lot of people where they go, Yeah, I am interested in real estate and investing in it and what this kind of looks like, but they just don't. Um, they still do it. Which is which is a bummer. And that's one where it's like, okay, like maybe we watch one less show and you do a little bit of reading and listen to this podcast, which you are right now. Yay! And um So yeah, I think that's the that's the fix for that one. So to be clear, oftentimes getting passive income, those are my six reasons. Oftentimes getting passive income isn't actually passive at first. And I think that's the hard part. It's either you are learning or you're doing some doing. There's there's a piece of it at the beginning which is definitely not passive, which is what we're talking about. But if you can get over that hump, it very much becomes passive, just like the 401k and other stuff. And and there's a little bit of maintenance that has to happen, but it becomes pretty straightforward And I will say to often time our our tax code and just a lot of systems that we have are actually set up to favor uh real estate in general, business ownership as well, like having capital. Like that's

Jessi
It's harder at first, but it is more favorable. Correct.

James
Correct. And so you can start small, do a little bit of things, make some progress, learn. It's good. Like you'll get there and you'll actually learn. And it's worth uh it's worth putting in that time and energy. So um So you go. Um just reviewing my notes here to make sure I don't forget anything. So uh I guess my final question would be: thinking about those six reasons. Your mindset. Limiting mindset really, your behavior, your lifestyle, not doing it, just the structural knowing that you're in a system that pushes specific defaults or just not knowing because you have that knowledge gap. Um you're afraid of something happening, or you're just like, uh yeah, someday I'll get to it. Of those six, my question to you would be, which one do you fall into? What's your camp for potentially not taking action if you haven't yet? Or Did you have one where you're like, I actually had to I had to overcome this one and it took some time. Yeah. And um I would be interested in the comments actually hearing about what you did to to overtake it. So those are reasons why. So don't be that person. Um instead, Find whatever that hill is, that barrier, and just work through it. I think it's worth it. I really do. I'm biased, but I still think it's worth it. And so if you would like to start that process on learning more about it and what that looks like, you can start on our website at Furlo.com then you can sign up to be part of our investor club. And in there you'll get a set of emails that goes through a lot of that education piece that tells you a lot of the information. It just comes to you. Super easy. And um so you can start that learning process. So if you'd like to do that, check it out. Otherwise, thanks for listening. Have a great day.