Wednesday, 25 November 2020

Buying Rental Properties with Credit: Good or Bad? | Morris Invest Live

Buying Rental Properties with Credit: Good or Bad? | Morris Invest Live
02 Sep
5:51

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 MorrisInvestcom/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 001% 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 NatalieMorriscom, 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 MorrisInvestcom 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 MorrisInvestcom 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

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