All right. We are live. Want to kick it off for us? Welcome to our live stream. Today we're talking
about credit, buying rental
properties on credit. Here's a camera. Oh, OK. Not there, there. Not there. OK, is this thing on? Ding, ding, ding. Welcome to our house. We are Clayton and
Natalie Morris. And this is a live stream
that we do sometimes to help other investors like
us start to ask their questions and work out any
issues they have so that they can get started in
buy and hold real estate, which is what we do. We're not financial experts. We are just two
regular Joes who like to work together to build our
family's wealth and port– What are you doing? I'm adjusting the camera. I'm giving an intro here. OK. You said regular Joes. Is that sexist? We're regular Janes. We're regular dudes.
We got some construction
going on here. And that will be extra
fun for this broadcast. But we had some users
submit questions. And a lot of them we
were sort of group them together for a theme
today about buying on credit and how to expand your
portfolio without cash. Should you use credit, should
you save up enough money? What should you do? So we're going to
take those questions, but you can also give
questions in the live stream. And we'll take a look
at those and answer them to the best of our ability. Again, we help you learn
from our experiences, because we've been a family
of real estate investors for I guess since
we got married. We both had rental properties
when we got married. So it sort of
inadvertently became something we did
together on accident. And then about three
or four years ago, it became something that
we did together on purpose. Because our goal is to
stick it to the man.
That's right. Stick it to the man. We want to not be slaves
to day jobs basically. I think everybody
feels like that. You want to live your best life,
but not feel like you really need that paycheck. So what we want to do is own
enough rental real estate that we have the
monthly cash flow that we can raise our family
and live our lives in the way that we're accustomed to
without having to work. Now we both have other work
that we do that we like. It's not that we're
bitter employees, right? We just want freedom. Who doesn't? So hopefully, where
are the questions, we can inspire you to get
started doing the same.
Right, so let me pull
up the questions. And please let us know where
you're watching from today. When we do these
live chats, we love to hear what struggles
you have right now with real estate
investing, where you're dialing us in from. We've had people all over the
world watching the live stream so thank you so much. Get in some of your questions. And try to keep them
around the theme of credit, using banks, debt
versus credit, debt versus cash, those
types of themes that we're going to try
to zero in on today.
Because so many
questions about this. Let's stay on topic, people. I think a lot of people get
frustrated by these issues. So let me pull up
our questions here. But you want to kind of
kick it off like the theory behind buying with
credit instead of cash. Or why someone would want to do
that as opposed to using cash. Well, OK, we did a podcast
on our investing real estate podcast recently about this. And I was thinking
a lot about we wanted to sort of do this
also on the live stream so that we can
reach as many people with our message as possible. And so I've been
thinking about this. And really, the one thing that
I want everyone to take away is that when you are getting
money for any purpose, whether it be your primary
residence or a car or a loan for school or an
investment property, you have to evaluate
money as a product.
Not does this work for
this situation, what about this, what about that. You have to think about these
all as a financial product. So as if you were to go to
the store and buy an apple. Is this a good apple? Are they charging me too much? Are they charging me too little? Is the quality good, right? So you need to evaluate all
financial products the same.
So there is sort of
industry standards. You pay for a car a
certain interest rate. You pay for a house,
your primary residence, a different interest rate. You pay for school loans,
usually exorbitant interest rates, that's just so
sad that that happens this way in this country. And you pay for investments,
another standard interest rate. So you want to think
about how much does it cost me to own that product.
What are the closing
costs, right? If you have a broker
that is giving you access to this money, they might
want one point on your loan. Is that paying too
much for money? So when you think about
how to use either credit or a portfolio loan or– what are some other
financial products? Just think of it
all as a product. It shouldn't be that scary
if you think about it as I'm going to go to the
store for apples, I'm going to pick the best
apple at the best price. That's right. All right, so we've got
some questions here. And here, again, in the chat
thread we've got some people. Lucy Moy saying,
have you started yet? You know, we're still waiting. Nice to see Lucy welcome in. So in the live chat, you
can ask some questions away. We'll have that right up
here on the monitor right beside the camera, as well. Here's the first question. How do you get started
without using credit? That's the first question
that we have today. How do you get started
without using credit? Well, I mean cash.
That's one way. So if you've got cash on hand,
that's the way that I started. Because I had a foreclosure,
I went through the ringer with my history. I didn't have good credit,
my credit was in the toilet. I didn't have the ability
to get a loan, any sort of other financial
product, so I ended up having to use cash that
I ended up saving up. Now to me, cash comes
in a number of forms. Cash can be money in
your 401(K) that you can borrow from as a
loan to yourself, which without penalty, you can do. Now this isn't withdrawing
money from your 401(K). This is borrowing
from your 401(K). It could be money sitting
in your savings account. For instance, the properties
that we rehab and renovate through Morris Invest, through
our company, roughly the price range, like we just sold
a couple of properties this morning, the prices
on those were like $42,000, one was $44,000. Three bedroom, one bath. But we do a full rental. That's the total cost.
So if you think in terms of
I like to think of $50,000. If I have $50,000
cash, that would get me a rental property basically. That's how I try to
approach that number. So it could be cash on
hand that you're using. It could be from your 401(K). What are some other forms
of not using credit? You can partner with
other investors. You can find some private money. Maybe your parents
have some retirement that is in the stock
market that they maybe think is a little volatile. My mom is like that. She had a lot of her retirement
savings in the stock market and has started to
get really skittish about the global economy. And so she was like, look,
I don't want my money in something that
I can't affect. Because she does not clearly
control the stock market.
So she wanted to
have investments that she could have
some agency in. She could research
the investment, she could understand what she
was going to get back from it. She knew what it would cost
her to fix these things up, what she would get out of rent. So if you want an
investment that you control, then real estate is a
great place to look.
Other places you
could get cash from, your IRA if you
have one of those. You can invest inside
of an IRA if you have a self-directed one. There are life insurance plans
that allow you to invest. A solo 401(K), I don't
know how many of you have listened to our podcast. We have a great podcast called– It's great. It's great.
It's called Investing
in Real Estate. And we've had
interviews with folks who've done solo 401(K)
providers, self-directed IRA providers like Scott
Mauer from Advanta IRA. He's fantastic. In fact, we are in the process
of moving our IRAs over to Scott. And a lot of our clients
through Morris Invest have worked with Scott. He's fantastic. Because there is a little bit
of a learning curve to using these products to invest. And we've talked about those
on different podcasts, as well. But there's a lot of ways that
you can use the cash that you already have, a home
equity line of credit, you have money in
your own house. We've talked about that before. So these are tactics that you
can dive down into our podcasts or any of our
writings to find out. But there's a lot of ways
to access the cash you don't think you have. But also, my sister has
just moved into a new area. And she wants to invest in
real estate in this area.
And she's been there
for about two months. And she made it her business to
go to every single real estate meeting in that area. Because she wanted to
meet like minded people. She wanted to meet flippers
and funders and rehabbers and other investors. And she's been able to do some
really amazing things just by surrounding herself
with like minded people. So if your goal is to
invest inside your own area and you want to– actually, I
guess at a real estate meeting you could meet people who don't
want to invest in that area, right? I mean, outside of the area? Yeah. If you went to a real estate– I've met a lot of
people outside. I used to go to real estate
meetings a lot in New Jersey. And there would be
investors from California that were here visiting New
York City that wanted to invest. That wanted to invest here. So yeah, the more
you put it out there that you're intending to
invest in real estate, the more you're
going to find people who are like minded who
want to help you out.
In fact, we've even met
people at real estate meetings who have done like zero deals. And they're like, well,
I want to do this, so that's why I'm here. And I think that's amazing. Because that means
you're showing up and you're making sure
that this is something you want to understand, it's
a language you want to speak, it's a community you
want to be involved in. So another great way we should
talk about is wholesaling. Now wholesaling, for those
of you who aren't familiar, we don't talk a lot
about wholesaling here on the channel. It's really, I
think, the foundation of all real estate investing.
Wholesaling. Now what does wholesaling mean? Wholesaling means that I, as
a person, find a property, I get it under contract with
the intention of closing on that property,
and then I can either assign that contract
to a flipper who wants to work on the property. And I'm sort of the middleman. Or I close on the
property and I sell it to somebody else
at a higher price. And why would someone
want to sell their house at a discounted price? Well, it's in disrepair.
They just want to be
done with the property. Maybe they inherited
the property, they live many, many
hundreds of miles away. And the house is a mess. They don't want
to pay any taxes. Yeah, they don't
want to pay taxes. That's really the wrong question
to ask, why would someone want to sell their
property for a discount. It happens all day long. Those are the properties
that I buy and rehab. So wholesaling is a fantastic
way of being the middleman. Making an additional
$5,000, $10,000, $20,000. My second deal in
wholesaling, I made $43,000 from wholesaling a property that
I didn't spend hardly any money to get. Like I didn't spend hardly any
money out of my own pocket.
I just put a link in the
chat to my mentor, Tom Crool, a link for you to watch a video. We just had a 30 minute
video that I did with Tom where he walks you through
how to start wholesaling as a means of getting cash. So when I started
wholesaling, I did it for the purposes of
buying rental properties. I started getting 10,
20, 30, 40, 50, 1,000. When I hit that $50,000 mark,
I would buy a rental property. And then I would do it again.
So I would go
through those deals. As I was getting more and
more wholesaling money, I would convert that
into rental properties. So wholesaling is another great
way to get some quick cash. And she mentioned her sister. Her sister managed to do her
first wholesale deal about two weeks after starting
with Tom, after studying under his course. And she's already
locked up a property and already has a buyer for it. And she's going to make $5,000
on that first deal, which is phenomenal. Yeah, I'm so proud of her. She's really been
pounding the pavement. So there there's so many
different ways to get started in real estate investing. It's only a lack of
imagination honestly, or a lack of motivation. So just take personal
responsibility, get up off the couch, go to
local real estate meetings. Shake hands with people, bring
a stack of business cards with you, and bring a pen. Go to a real estate
meeting, bring a pen. This is what a pen is, folks.
This is what a pen
looks like as a prop. And at the real estate meeting
when you meet somebody, I used to do this, but
you need to do this because you're going to forget. You meet a person, maybe
they're going to help you, you're going to write down
what type of investor they are. Oh, this is a flipper, great. This is a cash buyer, great. I want to put that down,
put that in my account when I get home, my contacts
list when I get back home. Oh, this person's
a realtor, great. I met John, he's a realtor. He likes to buy. He can get me deals, whatever. But you're going to meet
a lot of people who really want to give you money to invest
in real estate for what reason.
Obviously because
if you're not going to use a bank to invest in
real estate, which most people, you can use a bank for
one investment property. It's going to be
hard for you to build a whole portfolio with a bank. Traditional banks
don't really do that. And they specifically
don't do that in an LLC. So you'll find
specialized lenders. In fact, Kevin
McMullin in the chat says he has a specialized
lender that wants 30% down, which is actually
not that uncommon. But has really high
interest and I'm wondering what he means by high. Because a lot of
these hard money guys, the interest rate is much higher
than you would get at a bank.
But sometimes it
works out for you that you want to build
a whole portfolio. You want to borrow more money. You're going to pay more
interest, because you can't do this piecemeal at a bank. So for instance, in fact, I
just got an email this morning from Lima One Capital, which
we used to build a portfolio loan last year. Is now doing multi-family loans. So the interest rate
is between 10% and 11%. And it's a three year loan. Which I was like,
OK, that sounds like a good product for
someone who can buy and flip it, or buy and refinance it. It's a good way to get
into a multi-family. Pretty favorable terms. But if you're going
to pay 10% interest for the life of
owning that property, that's not a good deal, right? It's right for some people,
not necessarily right for us. Right. So your question, Kevin,
and I'd love to answer. Kevin writes in the chat, you're
using that local hard money lender, however he wants 30%
down and a high interest.
So I'd be curious what high
interest is, as Natalie said. Because 30% down
is not that much. No, because on an
investment property, 25% down is kind of typical. And look, banks want
to know that you have– Excuse me. You all right? Yeah. Excuse me. Banks want to know that
you have skin in the game. And therefore, by having that
little bit of cash in it, they're not going to
want to work with you. I mean, we don't do 100%
financing deals anymore. Banks don't do that anymore.
And so they want to
know that you have skin in the game in order to
make something happen. They're going to want to know
that you take this seriously. And that's why, honestly,
so many of our investors will buy our properties. And they'll close with cash and
then they'll refinance later. Meaning, they'll close
for $45,000 all in. And now there's a
tenant in the property and it's fully rehabbed.
And the bank will look at that
and say, hey, that's great. You actually take
this seriously. You already own the
property and there's a tenant covering any mortgage
we put on the property. And they do that loan like that. We've had a lot of
investors recently do a lot of loans like that. So they'll buy the
property and then they'll pull the equity back out
by doing a refinance. Or taking a home
equity line of credit out on that particular property. So a couple of different ways
to then leverage after the fact. And banks are much
more willing to work with you when they see that
you've got skin in the game. So to answer your
question, though, Kevin, are there any other
companies like B2R Finance that do loans on a lower value
property and little money down.
Oh, I did look
into B2R Financing when we were looking
at a portfolio loan. And they had a
pretty good product, but I think their minimum
valuation product was $75,000. So that didn't work for us,
because we buy smaller homes, smaller single family homes. And we wanted a
lump of 10 of them. And each of them I want
to say they were worth 50, but we were getting
them for like 40, 45. They were worth like 60. But they had to appraise
for a minimum of 45.
And each of them did, but
that was their minimum. So we used Lima One. I don't know if they've
restructured this portfolio loan product anymore. You have to remember, these
private lenders, all they are are hedge funds. They're not governed by
the same sorts of laws that you would get at a Wells
Fargo or FHA loan programs. So they can switch
up at any time. Let me give you an example. Lima One Capital. L-I-M-A. Here's what happened. At the end of the year, or
towards the Fall of 2016, they were allowing loan programs
on $45,000 valued homes. So that's kind of right in
our wheelhouse, $45,000. Well then, suddenly,
they changed it. As we even had a couple of
investors who were using them and they changed it midstream.
Like, oh, we changed the
terms of our program. OK. That doesn't happen
at a typical bank. That doesn't happen at Wells
Fargo, Bank of America, governed by federal laws. They just change
it and they said, you know what,
now we're $60,000. And they decide that
this doesn't work for me. They might have been burned by
certain people who they think were buying up properties that
were not worth a whole lot. Like the risk is high, clearly,
if the cash value is lower. Right, and if they don't have
property management teams. So maybe someone
bought 10 properties and they couldn't
get them rented.
And then they defaulted. Well, now that's on Lima One. So they're like, you
know what, let's move up into more expensive homes. And so then they
changed it to $60,000. Well then, literally three
weeks later, then they changed it to $80,000. And we had investors
who were going through the program with
them and suddenly found out in an email from them, that
oh, we changed the terms. So you have to
remember that when you're working with these
private institutional lenders. But there are two
companies I want to mention that you should check into. Cap West. C-A-P West. They will do refinances on
properties in that low range, which is great. We've had investors use them. MB, as well. MB Financial also has
helped a lot of our clients. So there's so much
private money out there, and there's so many
different ways of doing this. You just need to be creative and
just start to make phone calls. And go to [INAUDIBLE]
meetings and start to establish those connections. And you're going to find money.
There's more private
money available right now for real estate than
there ever has been. It's just like a
lack of imagination if you can't get out there and
start making these connections. But a Google search
is not really your friend in this
situation, because you're going to find a lot of different
types of banking products that have just sort of
slapped ads on the keywords that you're using. You need to be asking
other investors. And if you're watching
this live chat, you're in the right place. Because you're just sort of
networking with other people who've done it.
Lucy who says I'm in
Indianapolis meeting one of your guys today at 10:00 AM. Awesome, Lucy. So she is potentially
one of our investors who's in Indianapolis meeting
one of our team members today. That's great. Drew will take
great care of you. Not in Indianapolis as far
as refinancing, but again, MB Financial, Cap West. We've had a lot of success
with our investors using those guys to do refinancing
out of properties. So that enables you to
snowball your portfolio. If you're going to
go the credit route. Now, personally, this
is where we come down to personal decisions. I'm of the opinion,
I remember hearing this on a podcast
years and years ago and it stayed with
me ever since. My buddy, Joe McCall,
who runs a great podcast, he was having a discussion.
And he owns rental properties. And they were talking about
the power of free and clear rental properties. And so during a
down economy, having free and clear rental
properties where you've paid for them
in cash, maybe you've got a vacancy for a
month, but you don't care, or two months because
you don't care because you own
them free and clear and you're not
carrying a mortgage. And also you don't care because
you've budgeted for that. Right. And as part of your ROI
number, for instance, if we work with a new
investor that's worried that during the
holiday season they had like a vacancy for
a month or two months, we have to remember that that
number is built into our ROI. You could expect up to four
or five months of vacancies. That's built into our
40% that we account for vacancy, repairs, expenses. And it's really rare. It almost never happens,
but we budget for it. We've talked about
that several times.
You can look that
up on our website as well, how to
calculate your ROI. But I love, so for
me and Natalie, the power of free and
clear rental properties. That's what we go after. We try to not have debt at all. I mean, our goal is to not have
debt on our rental properties. Our goal is to have these
properties free and clear. And yes, we will use
leverage here and there. But we're strategic about it. And so we never
are over leveraged. And we're never
under our ROI number when we're figuring
for leverage either. Right. So, all right, next question. Well, let's take this one
about good debt and bad debt. Because I think when
you think about, again, we're just thinking
about credit or loans as financial product.
And a credit card is
a financial product. You can get these
credit card packages that we've talked about a
few times on our podcast. Where a company will
go out and negotiate a bunch of credit
cards that you can use for you at either
for investing or whatever your financial goals are. It's just a product. You might pay a
yearly fee for it, that's how much you're paying
to own the credit card, right? And then it's got an
introductory interest rate. That's awesome, that's how much
you're paying for that money. Then it's got a
regular interest rate. It's just a product.
So if you're buying a
house on a credit card and you have a 0% interest rate
on that credit card, awesome, that's a good financial product. If you're buying a house on
your personal credit card and you're at 17%
interest rate, plus you have a $100 yearly fee
on that credit card, and even if you get a
12% ROI on the house, that's a crappy decision. That doesn't work, right? So you're just evaluating
product by product. Now to buy a house on credit,
either by a loan or a credit card or some other
product, is a good debt if you can cover
that with your ROI. So if you're making 12%
a year on your property– Which is what our properties
that we buy a minimum net, not gross, minimum net ROI. Ask any of our investors
who are watching today.
And that's our goal with every
one of our rental properties is a minimum net
between 10% and 12% ROI. Meaning the gross is
going to be over 20%. Now what do we account for? What's the difference there
between the 20% and the 12%? We're taking out vacancies,
repairs, expenses, taxes. So that comes out
of that formula before we even buy the property. We want to make sure that our
net is between 10% and 12%. So that's super conservative,
because our property is not going to be vacant
for six months. I mean, even if it's vacant
for two, that's still OK. Because that's still
within the net ROI formula.
Right. So let's say you have a
12% return on investment, but you have some
financial product that allowed you to get
that investment that is 8%. Is actually pretty standard
for hard money loan. Let's say eight. So you're still in the
positive 4%, right? That's a good investment. So that's not bad debt,
that's necessary debt in order for you to get into
this investment. And you've now increased
your net worth. This is the beauty and
what Gary Keller talks about in the Millionaire Real
Estate Investor book, which you all should read immediately.
Buy it on Audible. If you've got a long
drive today, buy it. Because there's so
many principles. He wrote this book
before the crash. And the principles are as
smart today as they were then. And if we had paid
attention to them, we probably would not
have had the crash. So there's three phases
of real estate investing. There's buy, own, and cash flow. So when you're starting
out, you really shouldn't be worried
about cash flow. You should be worried about
buying the properties. And if you buy them, where even
if it's $100 over your leverage point, meaning let's say– We have a question here
from Kurt Andersen. He says, can you be cash flow
positive on a $50,000 property where you're
refinancing 70%, i.e. 35% of it? Well, this is my point, right? Is that as long as
let's say you're cash flowing $700 a
month from a tenant, and you're taking out
40% for vacancy repairs.
And taxes. And taxes. And your mortgage on that
property is, let's say, $300. So you're bringing in after
that removal about $400. That's a $100 difference. So now even with that
cushion, you're $100 positive. Great. That doesn't sound like a lot
of cash flow, because it's not. But you're in the first stage
of real estate investing, buy. And when you buy, now you've
added a $50,000 net worth asset to your net worth. Now your net worth
has increased, and that's what rich
people understand. Is that it's not about
the cash flow yet, it's about the net
worth building. There's an old saying
about this that they use for the stock market. It's not timing the market. It's not when you get in. It's time in the market.
So that's how you build wealth. Is you've got to
jump in, you've got to be in there
and owning things. That's how you
build your wealth. It's not like if you play
it like a double dutch. You're like, now, now? That's never going to work. You have to get in there. Yeah, just make sure that
you're not over leveraged and make sure you're buying
where you can then create that cash flow years later.
So five years on a five– Let me give you an example
of a guy I knew in Cleveland. He bought 100 properties. OK, this was a
number of years ago. When you could get them
pennies on the dollar. He financed 100 of
them and he was not cash flowing anything on them. He was literally covering
barely with his tenants in 100 properties
the loan that he had borrowed from a private lender. And so he increased
his net worth now by buying 100 properties. He became well
over a millionaire just by adding those properties
to his personal net worth.
But he wasn't cash
flowing anything yet. Yet. And then about five
years later, because he was using the full
rent from those tenants to pay down that note, he
started popping free and clear. So he went from the buy
phase to the own phase. And then he, after five years,
hit that cash flow phase. And now 100 properties
started popping free and clear for him that are
all cash flowing.
They're free and clear,
and they're cash flowing. But he increased his net
worth on the front end, and then he gets the cash
flow in the third phase on the back end. And something we've done
is play with amortization for these loans. So we secured that
Lima portfolio on a group of properties. And those properties
started to cash flow. And we're making
about $5,000 a month on rent for that
group of properties. But our debt service, what we
pay monthly into that mortgage, is $2,000 a month. So we're in the positive
by $3,000 a month for that. But that's owned in an LLC. We don't bank on that money. We don't use it on our family. We're just growing
our portfolio, because thankfully, the face
over here still has a day job. So we actually don't need
that money right now.
So I've been taking
that extra $3,000 and funneling it in as
the principal payment into that loan. So that our debt service
on that portfolio lowers more and more and more. And we pay less in interest. Now, amortization
is a tricky game. And you're only
allowed to pay down 20% of the principal per year
without a prepayment penalty in these types of loans. These types of loans typically
do have prepayment penalties, whereas your home mortgage
probably does not. But I'm OK with that,
because what we owe on it is getting lower and lower. We're going to reduce
our burden of interest.
And eventually, now
in a couple of years, I'm going to own this
new lot of properties. And they'll have no
debt service on it. So I'm really
excited about that. Right. So that one chunk that
she was talking about, I'm kind of treating it like
those Cleveland properties from my friend. That we're just
taking all the rent and just funneling it right
towards that principal balance to pay it off.
And so in a few short
years, what do you think, about three years, four years? Five years? Well, we can't pay it off
in less than five years without a penalty. Although, the penalty
would be pretty nominal. It has to do with– I can't remember
exactly how that works. I'm getting in the weeds, here. But yes, the amount of
principle we've put down so far, because
it's a 30 year loan, has already reduced it
to a 20 year loan now. So if we can do
that, then next year then we can get it
down even further. So we would like to pay it
off in five years or less so we don't get the penalty. And then we just
own it, so we're going to see what we can do.
Because these are great
cash flowing properties. Right. Yeah, I mean almost
every property I own is in Indianapolis
or Michigan. And most of them
are paid off and I continue to buy more and more. Because our goal is to get over
a certain number of properties and continue that snowball. Like I said, we sold three
properties this morning. We're sold out of
properties at the moment. We're getting more in,
but they sell so fast. And most of our
buyers will pay cash, and then they'll
leverage them later to snowball their investments. They want to have
that cash flow, but they also want to be
increasing their net worth. So we have some questions here. We'll take a quick moment for
some questions in the chat.
Jeff says, are you
familiar with any lenders who will loan on a property
you've purchased in a land trust instead of an LLC? I'm not personally, Jeff,
because we don't own anything in a land trust. And I've never had
that question before. It's a great question. People will loan on anything. Well, you have to remember
you just need to ask around. Call up a number of these
places, MB Financial, Cap West, Lima One. And talk to them. And a lot of them, they will
make you buy it in a business. They will not let you
buy it in your own name. You have to have an LLC, or
you have to have a trust. Whereas a traditional
bank is the opposite. Yeah, you're only allowed
to buy 10 in your own name. And they won't loan to you
in an LLC, which is insane. I mean, think of
all the investors that could be buying properties
and helping neighborhoods and all of that. I mean, the properties
that we do in Indianapolis, we've rebuilt whole streets. We've renovated
houses all up and down the same street
that were terrible, in disrepair, boarded up.
And we've gone in and done a
full rehab on this property. So what are we doing
for that neighborhood by doing a full rehab? New roof, new furnace,
new water heater. New siding, new paint, carpet,
drywall, kitchens, baths. Everything. That's great for a neighborhood. So these federal laws
just make me so angry. So maybe we'll see some
changes on that soon. So, Jeff, I don't
have an exact answer, but I would just give a call
to some of those companies.
And I'm sure if they don't
have the answer, ask them, hey, can you point me
in the right direction. Because we have a
lot of people that will buy properties
in a land trust. So it shouldn't
be that difficult. Yeah, Clayton identified
this portfolio loan that I keep referencing. And said, find some
kind of product that means we can buy I
want 10 of these in this lot that we had just acquired. And he's like, I want
us to keep 10 of them. And I said, OK,
I'll figure it out. So what I did is just
make a list of lenders that I had been referred to. And I asked them all
the same questions. What are your closing costs? What's the minimum value? What do you require the
investor to put down, like 30%, what have you? Are there percentage
points on this loan? Are there prepayment penalties? What's the average interest? These are all
things, like I said, I'm just evaluating
product by product.
And there was one lady that I
talked to who I really liked. And she was kind of
like, oh, a woman. Because I think they don't
deal with as many women. And I liked her
and she liked me, but her product
didn't work for us, because they required too high
of a value on the properties. And they didn't do portfolios. They only did one at a time. So you can't get
personal about it. You're making great
connections and that's awesome. But again, I want to just
drill this into your head. You're evaluating your
debt as a product. Think of it. It's no different than an apple. You want the best value for
the best apple you can buy. And that's also the way that
I look at rental properties. For instance, Lucy today
is in Indianapolis.
To me, you're going to get
bored after about 30 minutes of driving around. No offense, but
they're all, you know– just the way that a financial
product is a product, to me, don't fall in love
with real estate. Fall in love with ROI. They're all going to look
the same after 30 minutes. They're 1,000 square feet,
a yard, and a driveway, and they're all going to
serve the same purpose once its rehabbed.
And it's going to rent, and
it's going to produce cash. So don't fall in love with
the adorable little bungalow. Oh, I love that one
with the green shutters, it was so adorable. Oh, that one's sold? Oh, I guess I won't
be an investor now, because that one's gone. They're all going
to be the same.
Right. This is not your opportunity to
pick out an awesome backsplash or put your own style into it. Because when we sold our primary
residence last year because we were buying a new house,
the realtor told us, take down all your
personal pictures. Because you want other people
to envision their lives in this space, not your lives. So what we're doing is
creating a nice space for other families, not you. So this is not your way to
express your creativity. Be creative about financing. Be creative about money. But don't be creative
about the actual product. It's not up to you. This is for someone
else to live in. And we've got a
great question here asking, after you figure
out your freedom number, which, by the way, if you
haven't downloaded my freedom cheat sheet, please do it. Just go to
MorrisInvest.com/Freedom and you can download it.
It's totally free. And it will walk you
through how to figure out. It's a three page PDF. It'll walk you through
how to figure out how many rental properties
it would take for you to reach financial freedom. But the question is, after you
figure out your freedom number, you guys mentioned
creating a plan. Do you have a spreadsheet
you use that you can share? I need to figure out next steps. What would you say to that? I actually just
created that last week, because we were talking
about how many more we needed to hit our number and
not have to grow at this rate anymore. It's not ready for prime time. So we'll share.
Maybe I can– no. No, we're not going
to share it yet. Maybe I can clean it up
and find a way to share it. Because what I did,
should I tell what I did? Well, let me just say, we'll
share it on the podcast. So listen to an upcoming
episode of our podcast investing in real estate, and we
will share it there. And we'll make it a free
download in our show notes page once that podcast
episode goes live. Once it's ready. What did you do? Well, what I did
was figured out what we're cash flowing now
per month and what we want to get to cash flow per month. So let's say we're cash
flowing $2,000 a month, but we want to be cash
flowing $5,000 a month.
So I took the
number of properties we have divided
by our cash flow, and I figured out what we're
making on average per property. And so then I took
the difference $5,000, these are fictitious
numbers, minus $2,000 is? $3,000. Very good. $3,000 divided by the
average rent we're getting. Let's say, $500. Is six more properties, right? Right. And so I was like, OK,
well then we need six more. Because I took
what we still need to get to in passive income
divided by average rent.
That tells me how
many more properties, and I was like, that's our
number, let's go do it. Right. So we will share
this spreadsheet. I'll clean it up a little. It's, like I said,
it was just for me. Now, please be a
subscriber to our podcast. It's called the Investing
in Real Estate Podcast with Clayton Morris and Natalie. She jumps on there
on Wednesdays. I'm on there three times
a week with high level guests who do millions of
dollars in real estate deals, as well.
So we've got a couple
of great questions. Jean asks about debt. We'll get to that
one in a question. First, I want to get
to this other question from S. Doctings. Says there's been arguments that
you can't make money on $30,000 houses. What are your all
thoughts about that? I have a lot of
thoughts about that. In fact, I just did
a podcast episode with Robert Schiemann who
owns over 500 properties. New York Times best seller. He buys the exact
same properties on the exact same streets
in Indianapolis and Michigan and other places that I buy
properties in the Midwest. He laughed when he heard that. He said, my whole life,
then, I guess is a sham. He's like, because I
make a lot of money on those types of houses. Now $30,000, that's on the low. I mean, it's rare you're going
to find something like that. You know, we'll buy
a house for $30,000, we'll put $20,000 into it.
We'll put $15,000
into it or whatever. So you're in that
$40,000, $45,000 range. I think that that's
just fear mongering when I see that kind of crap. That's why I do not hang
out in internet forums. There's real estate
internet forums where people love to talk
themselves out of ever taking action on real estate. And there'll be people that
will tell you, oh, well you're going to overpay for your
contractors in a $30,000 house. You're going to have
tenants that never pay. You're never going to find
tenants for those properties. To me, it's like a east
coast, west coast elitism. And the person that wrote an
article like that actually is from the west
coast and there's people from Seattle
that will say you need to buy $150,000 properties.
They're full of crap. They're totally full
of crap, because this is what we've tied our
entire family's future to with the
properties that we own are in that same price range. And a lot of high
level investors who own hundreds and
hundreds of properties, you buy smart in strong C class
neighborhoods with blue collar tenants who work at the
hospitals, postal employees who stay for a long time. And with a high ROI in a
stable blue collar job market, these are the people
that do not often lose their jobs in a down economy. It's the people that live in
A class neighborhoods that lose their jobs. Those are the $300,000
homes, $250,000 homes that wind up going into foreclosure. These properties don't, because
the tenants who live in them end up having jobs that stay. The hospitals don't
lose employees. The service sector employees
that don't get cut. These are the people
that historically, if you look at the
data, you are going to see maybe a 2% fluctuation.
That's what? $20 in rent
if you're renting for $700. So I have a lot of
opinions about this. I will say that that argument
to me is total garbage. When I look through his points
about what he was saying, that you're going to
pay, he was quoting like $3,000 for a furnace or
$2,500 for a furnace, my team, when you buy smart– Why should a furnace, even
for our primary house? Right.
He was talking about $5,000
for a roof fix, or a new roof. I'm like, really? When we have to put a whole
new roof on, it's like $2,300. Rip all the plywood up,
put a whole new roof laid down on the property. Like what is he talking
about with these numbers? So my point is that people
like to fearmonger and make themselves sound smart. If you want to take
action in real estate, follow action takers. Don't follow people who talk
you out of taking action in real estate. If you want to hang
out in internet forums, you're going to find
naysayers all day long who are going to tell
you to not take action. But again, I hate to sound
like a broken record, just evaluate the product. That's what you have
to do as an investor. You're not fixing the toilet. You're not painting the walls. Right? You're not finding
the deal yourself. Maybe you are. What you are supposed
to be good at, as someone who wants to
manage your family's finances, is evaluating the products.
Which probably you don't
do all that much if you have stock market investing. You kind of think, is
that a good mutual fund? Is that a good
financial advisor? Here's some money. So now you're deciding,
I don't do that anymore. Now I'm in charge
of my money and I'm going to learn to evaluate all
the different sort of buffet of financial products
out there and find the one that's best for me.
We had a podcast
recently about what we talk about on our show
is here's a HELOC strategy, here is an amortization
schedule strategy. Here is a self-directed
IRA strategy. Here's a 401(K) strategy. We're not saying you should
do every single one of those, although we have. Because we're crazy. We're saying you need to
understand the options and choose the best one for you. Yeah, and there's not
also, the bottom line is, personal responsibility. To have some personal
responsibility. It drives me nuts with our
kids, when they're whining. Just take personal
responsibility. Evaluate the property. If the numbers look great
to you, take action on it. And have some personal
responsibility that you're buying the right product. You've done a little
bit of research. And if other people are
happy and making money in that same neighborhood
in that same economy, why wouldn't you? Are you just overpaying
$30,000 more than you should? And no matter what
you do, there's always going to be more
people that tell you that you're doing
something risky than tell you that
you're doing a great job.
Because that's how money works. Two more questions, and
then we'll get out of here. OK. Do I need to get out of debt
before I start investing? And then we'll take Jean's
question here about, hi, guys, I love your channel. Just a small question,
do you use debt weapons to shorten your
loan amortization and save a bunch of
interest in the progress. What is a debt weapon? Well, I think
something like a HELOC. OK. Yeah, like a home equity
line of credit or– Jean, do you want
to answer what do you think a debt
weapon means while we answer this other question.
Because maybe if Jean
popped on earlier or later, he didn't hear me talk
about using the cash flow to shorten the amortization
for our portfolio loan. So yes, we definitely do. I keep those
amortization schedules that you can just get on Excel. Or we have some giveaways on
our website for them, as well. And I play with those
things all day long. Because I think it's
super fun to say like, what if we put
$10,000 on this loan. Or what if we put
$5,000 on this loan. And you watch how
the schedule of what you would pay in interest and
how long the length of the loan is sort of shorten and
shorten and shorten. And it's super fun and
exciting and motivating.
So yes, we do that all the time. Well, we said we
would get to that. We just did. Yeah. Oh, personal loans, etc. Yes, all of the above, yes. So maybe if you go back and
listen from the beginning, or you can find several
podcasts that we've done about this as well, Jean. Jean [INAUDIBLE]. OK, so there's one
final question here. Do I need to get out of debt
before I start investing? This is always a real
personal question. Because we had debt, and
we started investing. So I think for us it
was a tandem process. And again, to Natalie's
point that she always makes about weighing
the interest, right? So if you've got a 0.01%
student loan debt– Where did you get that? Right? I did. I had one of those
Stafford loans with a very low interest
rate that I had for years. And it was almost nominal,
almost zero interest. And it was like OK, I was
making this $300 payment a month or $200 a month for
my student loan.
OK, it wasn't a huge
interest problem. But now if I've got
a credit card for 18% and I'm thinking about
buying a rental property that's going to bring me 12%. Well, that doesn't make sense. You're still in the red,
6% per month, right? So I would then begin
to think about targeting some of that debt. You don't have to go full 100%. But really starting to
aim some of your guns at that debt to get
it off your plate, otherwise you're not really
building up that net worth that you think you are. You've still got that liability. Because net worth,
after all, is what? Assets minus liabilities. Right. Right, so if you've
got a liability with a huge chunk of debt
with high interest rate, put some of your guns on
that and try to target that.
Right. And if you go to
NatalieMorris.com, I have some giveaways on how to
knock out your debt by product. So you sort of stack them. What's the highest
interest rate? Not the highest amount of debt,
but the highest interest rate. I don't subscribe to
the Dave Ramsey theory. I subscribe to the
Suzy Orman one. And that'll help
you figure out where you can put more of
your expendable money in order to knock out your
debt little by little. But what we like
to say is can you find a way to allocate your
expendable money, a little bit towards investing and a
little bit towards your debt. And you know, you don't need
that much cash to get started. If you subscribe to
Susan Lassiter-Lyons and her philosophy
about finding money, she thinks you should
put 0 of your own money. So you have to really start
to think of creative ways to find other people and other
financial institutions that will help you. There was one final
question that we were going to get to,
private money presentations. How do you build
relationships and confidence? I've got a whole five
part video series here on the channel called
"Private Money." So just go and watch those
videos back to back to back.
I walk you through
every step of the way. Set up your presentation, how
to find private money, what to ask for, how to structure
your one sheet, all of those things. It's a playlist right here
on the Morris Invest channel. So my thanks to all of you. If you haven't already
booked a call with our team, if you're thinking about
taking action and picking up your first rental property,
go on over to our website. Go to MorrisInvest.com. And we've got tons of
resources over there.
Click on the schedule
a consultation button. We'll jump on the phone
with you for 30 minutes. We want to hear what
your financial goals are, how many rental properties
you would like to acquire over the next few years. And we'll talk about
how you can get there. And then we'll match you
up with a great property, and we do the rest. So you just sit back and
collect rent checks every month. That's what we do. And you can also find a link to
the podcast at MorrisInvest.com as well.
So we've referenced several
episodes of the podcast here. So if you just go
to MorrisInvest.com, look for the podcast and you
can find any of the episodes that sound like what
we've been talking about. And if you can't find
it, you let us know. You can reach us on a variety
of social network channels. I'm going to put it
here in the chat. You do that. So people can get it. It's on iTunes, it's
pretty easy to find. But I will link it up and put it
right here in the chat thread, as well. This one? Yeah. Yeah, oh, here it is. There we go. Oh, there's the iTunes link. Yeah. So there you go. But thanks to everyone
for joining us today. We really appreciate it. I'm gonna link this up
right now in the thread. In the chat, here
is the podcast link. And if you've listened to
the podcast and you like it, leave us a five star review. That helps us out
very much in order to get higher and higher
in the ranking in iTunes.
We appreciate that. We only accept five
stars, nothing less. That's right. Than the best. That's all we do. For us here at the
Morris house, OK, well go out, build your fortune,
let us know how it goes. We're happy to be on the
internet with other like minded investors. Yeah, go out there, take
action, and become a real estate investor. Everyone, we'll see you next
time right here on the channel. And be a subscriber. See you everyone. Bye. Thanks.