Morris Invest Case Study 2.0

[Tyler Jahnke]

Hello BiggerPockets!

I stumbled upon the Morris Invest Case Study by @Ian E. and am now inspired to document my current investment with the company. This is kind of a long post, but I hope you stay with me. Clayton Morris (founder of Morris Invest) has an amazing front facing impression with his valuable podcast (I listen to it everyday) and the multiple interviews he's had with reputable sources (BiggerPockets, EOFire). That's how I got hooked on the buy and hold model his company sells.

Even with all that exposure, and the fact that he's a TV host, it was hard to find and really dig into the details of his company online and there's not a lot of specific content on Morris on BiggerPockets. So here's what transpired:

November 12 - Had a scheduled call with Morris Invest. Thoughts: first, I thought I'd actually be on the phone with Clayton, but it was with Larry, who is an Acquisitions Manager. He gladly answered the 20+ questions I had as if he was reading a script. I get it, he gets the same questions all the time from new investors. Very friendly and easy to talk to. We ended up talking about a couple properties at the end of the 30 minute call and he said he'd email over additional details.

Couple days pass and no email from Larry regarding properties.

November 16 - I assumed I'd get an email from him within 24 hours maybe even 48 but nothing came through so I gave him a call. He explains he sent an email the same day we spoke. I check my SPAM folder, and sure enough it's sitting there. Can't blame this on Morris Invest, feel a little embarrassed, and assess the properties. One of the properties catches my eye:

Acquisition: $24,000 + Rehab: $15,000

Rent: $600

I do my research - LOTS of Google Street View, research on Zip Code, crime stats, Zillow for home value and comp values (I know, not the best) tax numbers. At this point I'm VERY interested and have cash ready.

November 18 - Another Call with Larry for additional questions on the specific property. I ask about everything from Inspection Reports, rehab details (I have specifics for what I want in a rehab), potential scope of work, etc. His general answer was: he'll have my answers by November 22.

November 22 - I follow up with Larry via email as he said I'd have final answers to my questions today.

November 23 - I receive an email from Larry stating the property I'm interested was SOLD over the weekend. He attaches another property in the email for me to look at. I am not interested as it sits directly next to a bar. He states I need to put a property under contract as soon as possible if interested otherwise it'll get picked up quickly.

Obviously, this was not the best example of communication, and set me a little off. I began to question investing with Morris Invest.

November 30 - I receive an email from Larry checking in saying he hasn't forgotten about me. He has some properties becoming available soon. I appreciate this communication and am glad he checked in.

December 5 - I get a property from Larry that catches my eye! $37,000 acquisition + $9,000 in renovations. Should rent at $750/month. I get introduced to Nicole, Operations Manager, I ask to put it under contract, but don't sign just yet.

December 5-7 - I send a couple emails to Nicole regarding the Purchase Agreement, but don't get any answers. I get them answered by asking a colleague who owns his own Realty company. I send another email to Nicole as I need my name revised and cc Larry on the email in for hopes of a prompt response.

December 8 - I sign the Purchase Agreement. Introduced to Danny for Insurance (answer three questions he sent via email) and Daniel for Title work (also answer 3 of his questions via email).

December 12 - I finalize Insurance on the property.

December 13 - Check in with Daniel as I didn't get any updates on closing or next steps after answering his initial questions on 12/8.

December 14 - I receive closing documents, wire instructions, and title work. Need some time to read over everything before signing.

December 15 - Nicole said I'd receive the Scope of Work before closing, but didn't yet, so I check in with her and get it.

December 16 - I send over closing documents, wire money.

December 22 (TODAY!) - I receive the final closing package from Title company with all signed documents. They're saying I should get the Owner's Title Insurance Policy and Deed via email in a couple weeks.

I also am now officially in the rehab phase. Nicole reached out with the Scope of Work and wire instructions. I pay 50% of rehab cost to start construction, 25% in 3 weeks, and the last 25% at completion of renovations. I responded back with numerous questions regarding the Scope as I really want to know where my money is going. I have not wired anything yet. The scope had a number of typos and unreadable line items. Hoping I get a response soon!

I'll keep you all updated!

[Tim Ryan]

Originally posted by @Jay Hinrichs:

@Tim Ryan  your dreaming dude.. if you think inner city ghetto properties change that quick

what has changed is Bates Hendrix  and fountain square were I have 20 plus projects going.

the hood is the hood.. these homes are in the hood."

my deals in bates and fountain I pay 70 to 100k for.. then remodel.. I just did one on Broad way that I sold for 525k.. which is big money for Indy.

sorry .. you can paint it however you like but this is a train wreck and those that are going to get run over are the CA buyers who know know better.

Think you are contradicting yourself or didn't fully comprehend my comment.  I noted that there are economic development plans in the Indianapolis area where some of these properties may be located.  Not saying Tyler's is, especially since I don't know where his propery is located, but you confirmed with your comment there are areas that can change.  Where we don't disagree is that inner city ghetto properties don't change quickly if at all; however, I'd argue there are some fringe areas that can experience some positive change.  Not sure your area where you purchased and sold for at $525k meets any parameters of being in the hood so can't compare that to Tyler's property.  Though unfortunately for him, think you and I would agree he doesn't have the same options for exiting the property.

I am still thankful that this journey is being documented as I haven't seen it discussed at length elsewhere for Morris Invest as the other thread never got there and the details and daily/weekly updates are fun to track (especially since it's not my money).   

[Craig T.]

Jay Hinrichs that's great insight on the area and I appreciate your experience as well.

[Jay Hinrichs]

@Tim Ryan  I live in a constant state of contradiction !!!!  ..........

the issue here is and if we look at the facts again

you have a TURNKEY HOME  being sold to a WEST Coast investor.. NO local would buy it.

for 40k or there abouts.

now turn key indicates full rehab.

full rehab he said is 9k  well that's bunk we know that so he is just getting lip stick on a pig.

turn key company Morris I can pretty much definitively tell you wants to make at least 10k on the transaction . this is average for turn key . ( Note I fund turn key in 12 markets so I know and have been doing it for 20 years)

so now we are down to 30k minus the measly 9k  that 21k for the asset.. and I suspect they bought it for less and there are wholesaler layers of profit in their as well as these areas are really dominated by wholesalers... so this asset was bought for 5 to maybe 10k from the owner.. now tell me what neighborhood in Indy were you can buy 10k houses ?????????   there ya go.  the deep hood period.

now you have Aaron driving by and saying bad neighborhood on the decline he I am sure is being politcly correct and being nice.. so read between the lines..

[Tim Ryan]

Agree with all of the above.  That's how the game is played and if someone spends 10 hours reading through this website and listens to a few podcasts on here, they'd get there as well having no experience when they started.

Though I agree, I will say that if buy and hold is your niche, is there perhaps a possibility that this property can cash flow for the next 5 - 7 years at a decent CoC %? (keyword: possibility)

Even with limited options to exit, can't that be of value to this type of investor and you can try and mitigate the checklist of reasons why these properties fail with a strong PM?  I know it's a basic response and history might state otherwise in most cases, but not all.

For your lipstick on a pig comment, that is something I'd be very curious about and know folks have some questions on the rehab work being quoted. Curious since Clayton emphasizes his up-front investment on the properties keeps CapEx limited and could be a contradiction here.

[Ishviyan D.]

Jay Hinrichs and the most hilarious thing is that on his Morris Invest podcast, when he addressed the question about why people look down on 40k duplexes, he attributed it to people being elitist snobs who "stick their nose up in the air" and have negative perceptions about "blue collar" neighborhoods. I found such a silly rationale quite amusing to say the least. Staying away from war zones unless you have the tools to deal with the troubles is REI 101

[Justin R.]

Thanks for the insight and detailed walk thru of your experience. Please keep it up. Im currently investing in a crowdfunding site, and may share my experiences at the end of my investment period. Not only will sharing keep us all informed on good investments, but it will keep these companies honest, and the good ones in business!!

[Joel Owens]

Hey Jay,

Yeah I know Chris Clothier. I wasn't saying he sold the really cheap homes. What I am trying to say is that what I consider border line investment homes you really have to know the areas. Chris has a different product at I think like 70k or 80k ( not sure) and up houses where you can pencil in a full rehab. He seems to really stand behind his product and has a whole back end system I think not many TK providers offer.  

The dirt and location is where the money is at and not the property itself. Take a nice rehabbed property in the hood and it is STILL in the hood. Take a run down property in a nice area and then you can REALLY improve value.

I think an investor who wanted to invest in SFR might want to conduct an experiment.

They could do a split comparison between 2 investments.

Buy a property in the hood for 40,000 which TK companies say is (newly renovated)

AND  

Find a below market property needing work in an A to B area. The buyer does the work themselves or a crew and then achieves close to a 1.5 to 2% rent to sale ratio plus equity upside.

Hold each one for a few years and compare the cash flow metrics and equity growth to see where you are at.

The nicer area likely over the years will have stronger rent growth. The D area will have more nominal to flat rent growth and little to no equity upside.

If an investor is local to the area and they only have 5k to get started then I can see why they might go the D class route and have a big headache for early investing years owning a D asset. I do not know many investors that stay in this asset type long term. They use it as a springboard to other things as fast as they can. 

Again instead of owning a D asset that may lose value, has low chances for rent and equity growth an investor can simply buy shares in a sponsored project of higher end properties and areas. They can watch how that sponsor does what they do and learn the process off of someone else's successful experience.  

The C+ to C- properties the local investors tend to pick the better moderate income properties that are a cheaper in  price but still in an okay area. They usually leave the D to F areas for the out of town investors thinking they are buying the cherries but are getting scraps from lack of local market knowledge.  It seems TK companies love to lipstick these properties and then try to sell them off as C or ( up and coming ) areas with huge potential! lol

I am sure in 5 to 10 years from now people will still be rolling the dice on this type stuff not listening. With any investment an investor should analyse DOWN STROKE  versus UP STROKE risk. They need to analyze what can go wrong versus right and the percentage and probability of what might happen. Then they should decide if it is worth the risk to capital or not for the perceived upside.

[Jay Hinrichs]

@Tim Ryan  there is a remote chance that you will get that unicorn tenant that stays in the home for years does not have a bunch of kids that trash the place.. that can happen...

however these areas are transient at best..

one way to see that is look at all the disconnected dish TV lines many of these homes will have 5 to 10 of those that means 5 to 10 tenants in a 5 year period or less..

STRONG property management does not specialize in hood properties.. they lose their butts on these rents are low.. much tougher to collect and simply not worth the drama.... So you end up with companies that will take these one they are usually newer and looking to add doors anyway they can.

what sad in this whole chapter is that Morris has this star power then BP lets him do a pod cast on BP that then gives the audience IMH opinion a false sense of security when dealing with these properties... Pod casts are powerful marketing tools in the right environment and BP is one of the strongest of them all.

[Jay Hinrichs]

@Joel Owens  GREAT POST  JOEL  .

these properties will be cycled like you talk about until they are no longer standing... they simply are not viable UNLESS there is strong urban renewal going on in that particular area or block.

And for Indy is so spread out.. the two areas I know that are hot are fountain square area and Bates Hendrix.. developers ( myself included) are buying homes in the 60 to 100k range doing pop tops and or building ground up and selling in the high 200's to low 400's... its true re gentrification.

Another case study is were I have been investing in Charleston SC... on what's called the Peninsula.

this area is right next to down town and the Mansion area.. its seeing incredible rebirth.. the area was 95% minority up until about 5 years ago... were properties were and are wasting away could not give them away.. now a nicely rehabbed home sells for 200 to 300 a foot... and I have built 22 new builds there on infill that have all sold at or near 400k to 600k  right next to a hood rat LOL literally.

It was a very tough leap for me to do this .. Myself and a company called lifestyle simplified kind of pioneered it.. they are local and have done quite a bit more than me.. but this is true repositioning.

what is being talk about with Morris is simply D properties being marketed as C or B... time will tell.

[Alan Grobmeier]

@Jay Hinrichs

Wait a minute here!  I am a FORMER engineer, recently retired.  And I STILL have a ways to go to get my first social security check at 62.  ;-)  

I have 8 SFR, all in A- to A areas. I have made good enough rents/cashflow to 'retire' and live off rents and my wife's income/job. I don't work much, maybe 30 minutes a MONTH. I used nothing but systems to get to this point as I had a successful and stressful career where I travelled a ton. Both domestically and internationally. I get my rent checks via Chase QuickPay, home warranties on ALL properties so I am not the first line of defense. I screen all my tenants EXTREMELY well and do my own property management. After all, NO ONE will watch my 'babies' like I will! My average stay is 3-5 years. One of my tenants has been with me since the 'beginning', 9+ years ago.

We ALL are not the same.  ;-)  I would rather overpay for a pretty house vs getting into the C-F 'business'.  

[Eddie T.]

@Alan Grobmeier Jay isn't speaking to what you are doing you went out and bought A assets and self manage them. You did not mention how far they are from you which is also a factor. But what Jay is speaking to is the NYC or California investor who invests in INDY and never travels to look at the property in person buys in C?D neighborhoods never goes in person to verify the rehab and then al their income and property performance relies on the property manager which it is hard to find a Quality one who will manage in C?D neighborhoods. 

[Alan Grobmeier]

@Eddie T.

7 of the 8 are in my 'backyard', in the Phoenix area.  The other one is in San Diego, which I have not even visited personally in 5 years.  I generally don't visit them unless there is a problem that NEEDS my attention OR I need to turn the property (which is rare).

Jay was 'lumping' all of us 'engineers' in one group, which is what I was jumping on. Not all of us are about ROI. Some of us do have long term thinking. ;-)

I created an EXTREMELY specific business model and repeated it.  My places ALL have shutters on the windows and 100% tile floors, 3/2 and one story.  It took awhile to get them the way I wanted.  And it cost me some money.  But I can rent my places in a weekend to a high quality tenant that wants to be there for a LONG time.  My schools are good, 8-10, which is another attractor.  I don't gouge on rents, but I do go for market.  

[Jay Hinrichs]

@Alan Grobmeier  yup not sure how my posts would indicate that I am against self managing A class rentals.. I owned about 15 of those personally.. and self managed them from Oregon and they were in Mississippi ( I bought them gozone all brand new construction)  150 to 225k each.. over a 3 year period  now the Gozone bonus depreciation that saved me about 700k in income tax's has sunset and I can now sell them.. basically breaking even on them. and cash flow was neutral.. so I just have to take the 700k I would have paid uncle sam and figure out what my return was.. although that's way to much work for me.... I am a big picture guy not a down to the last detail guy... but I think I did the right thing... the 700k would have been long gone I got 10% down with 6% fixed mortgages at the time.. so 300k or so out of pocket saved me 700k in tax's... and I am getting my 300k back as I sell.. and maybe a tad more.. one I actually made 25k on .... a few I lost 10 to 15k on.. and as I said I probably about broke even to had a tad of a negative cash flow.. but in the scheme of my business negative cash flow is not a worry or even felt.

I am ALL about investors doing exactly what you did... buy close to home buy A class and self manage. that is how you sleep well.. and have solid assets that can be liquidated. like my A class are all being sold to home owners .. can't do that in D class only people that buy are landlords.. and they beat you up on pricing generally if they are locals.

[Eddie T.]

@Alan Grobmeier I know Jay lumped all the engineers together but it's more to the point of a highly paid individual in a coastal city NY<LA>SF where i live cannot find cash flowing investments because of the price of real estate in our markets. So we go in search of yield to other cities. Now some choose to do it with TK companies and give up the control factor that you have with your investments. You choose the area, the product, the tenant and directed the rehab. And honestly a-lot of these TK buyers are not doing proper due diligence before buying and are pressured into buying (by some not all). But when you get an email from a TK provider about a property available and then 12 hours later you reply to that email saying you are interested but have some questions on the scope of rehab and the TK provider says oopps sorry too late another investor who moved faster then you already locked up this property. It generates a false sense of urgency for the buyer and they are quicker to pull the trigger on the next one without having their questions answered. The original poster of this thread actually closed on the property before having his questions answered can you believe that!!!!

[Jim Kennedy]

@Jay Hinrichs

"the unicorn tenant" ...I get it...thats hilarious. I have a new phrase. We actually have 2 unicorn tenants: key search phrase: "They are grateful" 

Jim Kennedy, CPA

[Jay Hinrichs]

@Alan Grobmeier  Ok I get it now you think I was picking on engineers LOL

I grew up in Cupertino and lived in Palo Alto for years.. I was surrounded by engineers LOL

and in my business I have some as investors with me great people.. I should have said high wage earners whether they are doctors lawyers engineers business owners etc etc.  

[Jay Hinrichs]

@Alan Grobmeier  you will love this from your perspective.

I bid on a 40 unit section 8 project in Hattisburg MS.. a few years back ( did not get it)

but the builder was brilliant he built these for his style of tenant 

Block construction painted on the inside and out.. concrete floors... and industrial grade doors and hinges... floor sloped alittle to a main drain in the middle... concrete counter tops  etc etc.

so when tenant went out  high pressure hose came in and cleaned it all out  LOL..

you take little homes in the mid west that are lath and plaster or sheet rock with carpets and you will be spending a ton of money on turn over.

my new construction I bought in MS were all stained concrete floors... only carpet in bed rooms.

[Justin R.]

Originally posted by @Jay Hinrichs:

@Aaron B.  as I figured  @Tyler Jahnke is in for an expensive lesson I am afraid.. but then again a lot of the west coast engineers and techies this is chump change so if he gets wiped out its only 30 to 40k

I soooo wish more people would take this message to heart.  If it were my P&L and Balance Sheet, I'd account for it as an "Education Expense" and write it off in the current year.

It's not the money lost so much as the ongoing headaches.  Talk to one or two people who still own these from afar after 10 years and... eeek.

Not hater speaking, just experience.  But, I'll honestly be hoping it works out for you.

[Jay Hinrichs]

@Justin R.  unless they are local there are far and few out of area investor that make it 10 years in those asset class's this is where the inventory comes from in the first place.. burnt out landlord syndrome..

what I think happens here is everyone has this idea that a good investment MUST make 10% COC or more.... and they are willing to take risks to get it no understanding the risks... and of course the sellers are not going to tell you about the risks.. sadly you learn about them as you state as a expensive learning curve....

locals can make this work I fund a few folks that have monster portfolios of these over 200 in one instance.. but its what they do its their daily business.... if one is going to go into this asset class its simply not an investment .. it must be with the purpose to own hundreds of them. and run it as I said as a business entity... to make money in this asset class the only way is to self manage and control expenses and manage your tenants hands on.... there are many many locals that own 20 to 50 of these and do this for a living... its appropriate for them...

[Jeff Schechter]

There are obviously more than two sides to every story. As stated, we buy from the same supplier that Clayton does. We invest in B/C neighborhoods. We don't invest in "war zones." If some people want to pay over $110K in Indy to feel better about a property that's totally cool...they are welcome to do so. Those renters are far more picky, and cost a lot more to keep happy. The expectation level of a $700 renter is VERY different from a $1200 renter. As such, there's a signifiant cost in ROI to "feel better." We'd much rather be in a $60K C-class duplex (with 2 doors) that brings in $1200/mo, than a $120K A-class SFH (with 1 door) that brings in $1200/mo. We don't really care if the properties are harder to sell (even though that's not really true). We plan to hold on to them for a long time. Our buy and hold strategy is NOT about appreciation. That said, Indy is getting a lot of national attention, and we are seeing a steady (very slow) rise in values. And the more rehabs we do, the more we have a positive effect on this town.

The people we've teamed up with have been doing this in Indy for 20 YEARS.  My biz partner and I now have about 70 doors in Indy, and other than the occasional vacancy, they ALL perform very well.  We don't see people trashing our properties, because the mgmt company culls the crappy renters.

The investors that are licking their wounds from investing in the actual "war zones" obviously either didn't do their DD, or worked with the wrong TK company....or both.  

[Justin R.]

Originally posted by @Jay Hinrichs:

@Alan Grobmeier  you will love this from your perspective.

I bid on a 40 unit section 8 project in Hattisburg MS.. a few years back ( did not get it)

but the builder was brilliant he built these for his style of tenant 

Block construction painted on the inside and out.. concrete floors... and industrial grade doors and hinges... floor sloped alittle to a main drain in the middle... concrete counter tops  etc etc.

so when tenant went out  high pressure hose came in and cleaned it all out  LOL...

 Kinda reminds me of the dorms I lived in in college ... probably for the same reasons.

[Tim Ryan]

Tyler, sorry this has turned into everyone sharing their stories of success and this has gotten away from the original intent of your post and follow up.  Some folks, IMO and admittedly, contradict themselves a little (see: it can't be done, guy is a sham followed by I know people that make it work) but love to bloviate and tell everyone how good they are doing in different classes of properties.  I like Jeff Schechter's post above.  Good counter argument to all the negativity and speaks more directly to the Indy market and what is currently happening there.

Pretty sure the plan has been drawn out on how you can potentially make this work and given you are still in the phase where you haven't even started rehabbing, looking forward to seeing how that progresses and then the steps that come after as you continue the "Morris Invest Case Study 2.0" as originally intended.

[Account Closed]

@Tyler Jahnke spend the $500 and fly to Indy and see what the properties you are purchasing look like. Stop relying on Google Street view and really experience the city. 

The $500 investment is well worth not risking $40k of your hard earned money.

I am also from the Bay Area and I at one time owned 18 SFRs in inner city Detroit. I flew out there every 3 months hand picking properties from listings. I knew what I was buying before I bought it. I knew the street and the neighbors. 

I'm sure Clayton Morris would not mind spending a few hours with you driving you around Indy showing you prospective properties, especially if he is pocketing $10,000 each time. 

[Erik Hansen]

Great thread.  Whew, it took me awhile to get here after starting from the beginning but I'm glad I tuned in.  Lots of valuable nuggets to extract for a newcomer such as myself.  And I do hope to here from Tyler again with an update.  Appreciate the willingness to share openly about personal your experience.

My key takeaways - due diligence can't be overstated enough.  Exercise caution in every phase when it comes to people, property, and process. 

Second, one size most certainly doesn't fit all. There are many ways to make money with REI and that's part of the appeal for many investors. You can tailor your strategies that best fit your goals and financial situation.

Lastly, can't be grateful enough to have found BP and the awesome community. 

[Tyler Jahnke]

Hello Everyone,

WOW, this post has really blown up. I appreciate all the various forms of feedback, as this is an open community forum.

@Aaron B. - Of course, I want to THANK YOU first for putting yourself out there and providing amazing assistance.

@Tim Ryan - I'm glad you are following along on my journey and appreciate your support.

@Craig T. - Glad you are following along as well and are finding value in my honest experience. Appreciate the support and positivity!

@Jeff Schechter - I appreciate you presenting a different side of the story and glad to hear you've had success with the same supplier Morris uses.

@Account Closed - I'm glad you brought up flying out to Indy as I will be there early March to really experience the city and make connections.

-Tyler