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!

[Tyler Jahnke]

Hello BP Peeps!

Biggest update is....received new renovation pictures, was informed construction is complete, and my property management company is currently marketing to tenants.

I have not received FINAL renovation pictures, but I got pictures today that I assume were taken sometime last week.

February 8 - Reached out to Morris Invest regarding renovation updates as I was supposed to receive photos last week. Received numerous photos of the garage:

For reference, here's an exterior shot of the Garage from JANUARY 13

Here's an exterior shot of the garage I received today

And here's a random shot of an interior room. Looks like they changed the interior color scheme to something lighter. Previous interior photos included darker wall paint.

AGAIN, biggest news today is construction is complete and management is currently marketing to tenants.

-Tyler

[Diane G.]

@Tyler Jahnke

Best luck... Hope you get a good tenant soon...

[Tyler Jahnke]

Thank you @Diane G. as do I!

[Tom R.]

@Tyler Jahnke thanks for sharing your journey, it's been really interesting and best of luck!

[Tyler Jahnke]

You're welcome @Tom R. and Thank you!

-Tyler

[Natalie Schanne]

@Tyler Jahnke - Does your Property Management contract clearly state you'll be consulted for approval prior to repair/maintenance costs expected to be over $X such as over $300 or over $500?

Are advertising expenses limited to X?

If it was my house, I'd ask Morris Invest or the PM to take great (bright, well-framed) pictures of the property and send them to me, then I'd post on the local Craigslist (with an awesome ad) to see how much interest there was. If I got a message from an interesting person, I'd forward it to my PM to vet the person and show the property. 

I'm concerned that your contract may have loopholes where I could bill you $10,000 for advertising or $10,000 for home repair, and you've pre-agreed to it. Sure, you could fire them afterwards, but you've still agreed to pay the bill. 

[Par Attaran]

Checked out the most recent Podcast and Clayton is pretty much calling out BP now. 

"Don't listen to people on internet forums, they sit around typing all day with out taking action" 

Hahahahhahahahaha

[Eddie T.]

Yes I too listened to his podcast today and agree with the above comment he pretty much was saying how to good and too busy he is to come on BP and answer our questions.

Funny how he is too good too spend time on BP but has no problem accepting all the free promotion his two appearances on the BP podcast have given his company. So if your too good for BP why go on the podcast twice? And then throw us under the bus when we don't agree?

[Tyler Jahnke]

Hi @Natalie Schanne - the PM contract does not clearly state I'll be consulted for approval of repair/maintenance costs.

Advertising expenses are not clearly stated and limited to a specific amount.

You bring up great points and potential loopholes, but I'm putting my trust in them that they won't surprise me with a $10K advertising bill.

-Tyler

[Jay Hinrichs]

@Eddie T.  are you saying after all these long threads of the inconsistancies of this outfit.  BP put him on another BP podcast or is this one of HIS podcasts.. ???

[Eddie T.]

Jay Hinrichs no the interview we listened to today was on his own show.

My reference to two appearances on the BP podcast is related to his appearance and his wife's separate appearance which is a lot of free marketing to the over 400,000 BP members but then he says on his own show that he is too busy to come on "Internet forums and talk to people who have never done any deals.

Yet we have people like yourself on here who have owned 300 of these at a time with way more experience.

[Par Attaran]

Originally posted by @Jay Hinrichs:

@Eddie T.  are you saying after all these long threads of the inconsistancies of this outfit.  BP put him on another BP podcast or is this one of HIS podcasts.. ???

 his recent podcast- 

[Jay Hinrichs]

@Par Attaran  thanks I would not know how to find that.

there are people who can make C class work.. but those are locals who do it for a living and they don't hire someone like Morris and their rehab crews to create a rental for them.

its unfortunate that those that have fallen for this hyperbole don't chime in more.. but that is the way of the world.

AS for nay sayers or experience.. there are tons of experienced folks that came before this dude..

and I have personally seen posts from those that have traveled there looked at the product and neighborhoods and just simply passed on it.. neighborhoods poor.. rehab EXTREMLY poor PM

time will tell.. going to be a lot of broken hearts and wallets come out of this operation I can tell you that.

Just the IDEA that low end rentals are easier to manage than top end rentals is just so ludicrous I can't believe  ONE he makes that statement  and TWO anyone would believe it. 

[Par Attaran]

Originally posted by @Jay Hinrichs:

@Par Attaran  thanks I would not know how to find that.

there are people who can make C class work.. but those are locals who do it for a living and they don't hire someone like Morris and their rehab crews to create a rental for them.

its unfortunate that those that have fallen for this hyperbole don't chime in more.. but that is the way of the world.

AS for nay sayers or experience.. there are tons of experienced folks that came before this dude..

and I have personally seen posts from those that have traveled there looked at the product and neighborhoods and just simply passed on it.. neighborhoods poor.. rehab EXTREMLY poor PM

time will tell.. going to be a lot of broken hearts and wallets come out of this operation I can tell you that.

Just the IDEA that low end rentals are easier to manage than top end rentals is just so ludicrous I can't believe  ONE he makes that statement  and TWO anyone would believe it. 

 What I don't understand: Why hasn't Clayton (who has an account here) come on the BP forums and answered questions?  Nearly all other Turn Keys come here and kindly answer people's questions and concerns. 

Just seems like an odd business practice to shovel everything under the rug. When people leave bad Yelp or Tripadvisor reviews, management will immediately come out and respond. This doesn't sound like a good long term business plan. 

[Jay Hinrichs]

@Par Attaran   its not long term.. folks just don't understand how these low end rentals are cycled .. its never ending your rental pool is the least stable American in the US.. also can be the toughest on the properties.. this leads to turn over and high rehab amounts.

why else would all these homes need major rehabs to resell.. ( although morris is doing any thing but major rehab.) 

[Diane G.]

@Jay Hinrichs - i wanted to ask you 2 questions here if you have got time?

1. I recently looked at some apartments in Phoenix on Loopnet, the "Garden-style" ones... Old, rundown, no real appreciation potential... And once you bake in vacancy/turnover, no major cash flow either... For things like that , they are ask $1 to $2m....I looked at them, and think why would they be worth anything? Who would buy those and for what reason?

2. I know C class tenants have higher turnover, but why that? Don't they still need a roof above their head just like the rest of us? Where are they all moving to? 

[Jay Hinrichs]

@Diane G.  I want to answer so it benefits this Thread.

first most of what Morris is selling is D class not C class its bottom of the barrel hood rat properties.

SEcond that tenant class .. is renting for the cheapest rent in the US ..

these folks are a flat tire away from not paying rent.

when you rent for 600 .. its common to put them into the unit with only 2X the rent If they even check qualification and from what I am hearing in feedback they don't do that PM is weak at best.

so here you are your making 1,200 a month and have 600 rent.. that leaves 150 a week to live on.

so do the math .. very difficult for these folks to maintain   continuity to their life.. and lets say they get in with 3X rent.. that's 1,800  a month minus taxs say 1,500 car utls food etc.. you can see what tight wire they are at.

Take  B or A class renter at 3X rent... rents 1,200  3X verifiable is 3600 a month ... leave 2,400 a month to live on .. not 600 or not 900... HUGE difference.. and there ya go.. that's why in my humble opinion Mr. Morris is simply not correct in his assestment of the virtures of low end rentals.

[Diane G.]

@Jay Hinrichs

that is true....Thanks...

On oos investing, those that bought into Morris, they are not 100% innocent in my opinion....They should have done their homework....

[Diane G.]

@Tyler Jahnke

I know you probably went OOS route because you think you can't afford bay area....How about these?  You put $35K down today, put a tenant in for $3200/month, you carry some loss for 3-5 years, and you will be sitting on some sizable equity in 10 years most likely $200K equity.....Better than numberous sleepless nights in San Jose for $150/door, no?

https://www.ziprealty.com/property/4400-19TH-ST-_U...

https://www.ziprealty.com/property/129-BELVEDERE-ST-_UNIT_A-SAN-FRANCISCO-CA-94117/86297006/detail

[Account Closed]

@Diane G.

 

Please stop telling people to take a cash flow loss every month for the next 5 years. You might have been able to support it for years with your full time job, but there is no guarantee that @Tyler Jahnke can. 

You are extremely fortunate to see huge equity gains, but you cannot foresee the future 10 years from now. Telling Tyler that you will see $200K equity in 10 years is irresponsible and you might be sending the poor kid into bankruptcy. 

[Tyler Jahnke]

Hi @Diane G. - Thanks for your continued input. I clearly see your strong recommendation for buying in the SF Bay Area. Here are a few reasons I decided to go out of state for this particular investment:

-Indiana's landlord friendly laws.

-My property taxes are $1,000 a year.

-Price to rent ratios.

-I'm not comfortable taking on a $500K mortgage where an extended vacancy would be financially destructive to me.

-I don't bank on appreciation.  How can you guarantee 200K in equity in 10 years?

-I can't afford to take a loss for 3-5 years in hopes of reward at this stage in my investing career.

-Excited to learn a brand new market.

Will out-of-state work out for me? I really don't know at this point. It's still a major TBD, but this is the strategy I choose and can't go back now!

-Tyler

[Brandon Stevens]

Originally posted by @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..

 I personally like mean Jay better :)

[Maxwell Lee]

Originally posted by @Brandon Stevens:

Originally posted by @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..

 I personally like mean Jay better :)

 Yeah for the past month I've been wondering why Jay seemed familiar. Was on a SW flight today and realized why...

Southwest Magazine

[Mike D'Arrigo]

I completely agree with @Jay Hinrichs. These cheap $40K or $50K properties in Indianapolis are not C class neighborhoods. We've been selling turn key properties in Indy for 6 years and know the neighborhoods. I can assure anyone that is looking at these cheap properties that they are going to be in very rough, high crime areas and as an out of state investor, you are not going to have a good experience. I'd be happy to share my insight if anyone wants to reach out and contact me.

[Mike D'Arrigo]

Originally posted by @Tyler Jahnke:

Hi @Natalie Schanne - the PM contract does not clearly state I'll be consulted for approval of repair/maintenance costs.

Advertising expenses are not clearly stated and limited to a specific amount.

You bring up great points and potential loopholes, but I'm putting my trust in them that they won't surprise me with a $10K advertising bill.

-Tyler

Tyler, that would concern me. Every PM I know or have worked with has the owner set an upper limit at which anything over that amount, you have to be notified. Otherwise you're writing a blank check and you're likely to get some unpleasant surprises. Insist on a limit.