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!

[Matt R.]

Originally posted by @Abdul Azeez:

Originally posted by @Diane G.:

@Manuel Luz

At some point, turnkey property going to exceed number of tenants.... if not already...

Ask @Abdul Azeez about his rental experience in Memphis.....

https://www.biggerpockets.com/forums/311/topics/410284-average-rental-time-in-memphis

 Worst experience and I would not suggest for anyone to invest there.

 I have seen much worse experiences and locations if that helps. I recall reading somewhere Memphis had the highest vacancy rate for a city that size in the nation. For sure that is zip to zip but generally longer vacancies might be the normal for certain zips/streets. 

[Ron Pol]

You can go months without a tenant in this deal and still make money. 

[James Wachob]

@Matt R. out of 1500 properties we are 98.5% occupied!  The key is to find a great team! Ideally you would find a company that has everything under one roof. Acquisitions team, renovation crews (fully licensed and insured), Property Mgmt., and a Real Estate Investment Brokerage in case you ever decide to sell.

By teaming up with a solid firm you can mitigate your risk and have some "boots on the ground" that have your best interest in mind. 

[Ryan Antista]

@Tyler Jahnke how is this going? I've listed to his podcasts and several others and trying to find real world examples to see of other investors would recommend MI as a turnkey provider. Hope all is well and look forward to any updates and photos.

Ryan

[Ryan Antista]

Great thread. Lots of interesting comments and engagements. Thanks for getting this started @Tyler Jahnke.

[Par Attaran]

Nothing makes sense anymore 

Hahahahahhahahahahahahaha

[Jonathan Watson]

Yeah, but he's talking about $40,000 properties, not $30,000 properties... get your facts straight! :-P

[Diane G.]

@Tyler Jahnke

This has been very uncharacteristic of you... many of us felt like hanging....

Where is the real update of your trip?

[Par Attaran]

Originally posted by @Account Closed:

@Jonathan Watson

@Jonathan Watson@Ryan Antista

@Par Attaran

Something not right, all CA investors. Hopefully following threads would help in your REI education.

https://www.biggerpockets.com/forums/311/topics/22... loan-amount

https://www.biggerpockets.com/forums/52/topics/420...

https://www.biggerpockets.com/forums/311/topics/27...

Happy Investing

Vivek

 I don't even get what you're trying to say LOL

[Ron Pol]

Originally posted by @Account Closed:

@Par Attaran- I guess very simple CA investors chasing PIGs, need to read the links I posted. Would help you with your REI education. Reading or talking to CA investor on daily basis about their OOS experience.

Good Luck Investing

Vivek

Vivek, please share your thoughts about where and how you recommend to invest. 

Ron

[Par Attaran]

Originally posted by @Account Closed- I guess very simple CA investors chasing PIGs, need to read the links I posted. Would help you with your REI education. Reading or talking to CA investor on daily basis about their OOS experience.

Good Luck Investing

Vivek

[Par Attaran]

Originally posted by @Account Closed - Not sure which is a bigger JOKE , OP's buying PIG in Indy or your purchase in following post (Leaving promising market in your back yard)

https://www.biggerpockets.com/forums/52/topics/420...

Good Luck Investing

Vivek

 Vivek, 

Not sure which is more disappointing,

Your inability to understand satire (I have been AGREEING WITH YOU the entire time!!!) 

or your ability to make a statement off a post with Zero context. You clearly enjoy arguing and trolling other people more than helping, so I will block you from now on. 

Good luck with your investments :) 

[Tyler Jahnke]

Hello BP peeps,

Finally getting a few seconds here to provide another update to my ongoing experience. First, a little recap:

February 8th - Renovations complete. Was told my property was being marketed to tenants.

March 3rd to March 5th - Visited Indianapolis to meet with PM/contractor and walk through completed property. Property was still vacant at the time, which was a little concerning, as it had been almost a month since they started marketing. I got clarification that they did not start marketing the property yet. I gave them the verbal OK to market the property and get it rented ASAP.

March 22nd - Sent check-in email to get status of renting the property. No response.

March 27th - Sent another check-in email to get status of renting the property. This time I got a response from Clayton saying the property was rented and fully occupied.

March 28th - Received a copy of the signed 12-month lease. Rent set at $750 per month. My first rental payment will come through via direct deposit for the amount of $600 ($750-$150 new lease fee). Every month after that I'll receive $675 ($750 - $75 Property Management fee). 

SO, it's been 3 months since I closed on my property. The place has been renovated and is officially rented! Don't get me wrong, it's been a long 3 months, but I'm excited and happy for what could transpire. I know I'm no where close to becoming financially free, I'm no where near being "out of the woods," on this property, but I've taken the first step and hit some milestones. Let's see how this rental plays out and what the next 6 months, 1 year, 3 years, offers.

I've learned A LOT these past few months and will continue to gain knowledge everyday.

[Ron Pol]

 Congratulations Tyler, that is great news. 

Thank you for sharing your  journey. 

Ron

[Ayodeji Kuponiyi]

Thanks @Tyler Jahnke for sharing your journey with the rest of us!  

[Diane G.]

@Tyler Jahnke

Congratulations... How much did you spend on the property total in purchase and rehab?

At $675, who is paying for the utility? you or tenant?

[David Lovekamp]

The tenant pays utilities. I listen to Clayton's podcast and all Morris Invest properties have tenant paid utilities. If I'm wrong I'm sure Tyler will correct me, Lol. But I'm sure the tenant does. 

[Diane G.]

@David Lovekamp

If that is the case, that is pretty good return... Say @Tyler Jahnke paid $40K, if this is net $500 a month, that is $6000 a year

[Joel Owens]

If rent is 750 X 12 = 9,000 a year

Saying 500 cash flow a month would be saying expenses all year run 33% a year on a low end rental. 

Maybe 1st year or 2 after newly rehabbed if everything goes right. Hopefully property taxes do not go up.

Long term say 50% average. 750/2 = 375 X 12 = 4,500 cash flow a year pre-tax

4,500/40,000 = 11.25% return annually

This is just off the cash flow and not any depreciation.

Good luck and I hope it works out for him. He is almost at 2% rule (800 rent) for a 40,000 all in purchase.

Personally I would invest cash like that in a sponsored property much larger closer to where I live and own a small piece of something higher quality OR take the cash and buy a business. Some sellers want 3 times profit for price so if 200,000 cash flow profit then they want 600,000. I look for motivated sellers to buy at 1 to 1.5 multiple so I can get 100% money back in 1 year to 1.5 years and then have full investment back and pick up the cash flow stream.

[Justin Young]

Awesome to hear for you @Tyler Jahnke. I took a trip up there last week to speak with some team members that I built a network with and had I not taken the trip, I probably wouldn't have invested in certain areas. Knowing what I know now allows me the ease of mind to do so. I hope nothing but the best for you.

[Diane G.]

On a 2nd thought, @Tyler Jahnke OOS investment is a losing game, and here is why....

$500/month does sound very impressive for $40K investment, that kind of ROI is simply unattainable here in Bay Area... But, 10year of $500/ month is $60K gain... But in 10 year, the property that tyler did not buy is probably $300K more expensive than today... At least, that is what history has been....

I am sure I will get bashed for saying so... 

[Brian M.]

@Diane G.  In the end, it's all just speculation.  Nothing is guaranteed that housing prices in the Bay Area will continue to appreciate like that.  And nothing is guaranteed that Tyler's rent will always come in with few hitches.

However, on a $40k investment, he stands to lose a lot less with a "worst case scenario" than he would on a leveraged half-million investment in the Bay area.  It's all about how much risk you want to take.

[Diane G.]

@Brian M.

Of course you can say that... Nothing is guaranteed, ever....

But if you look at the past 30 years, and say history is sort of a reference, then my statement stands....

[Chris Clothier]

@Brian M. - 

This is not a negative, but you just showcased a classic mistake that investors make when buying these lower price, junk properties...and to be transparent, I made the same mistake when I first started investing.  It is called "loss aversion".

We are conditioned to be more fearful or a loss than hopeful for a gain.  The difference in this scenario, and while I don't agree totally with @Diane G. I think she illustrated the point well in this case, is that when buying the low price, $40,000 junk property from a turnkey company as an out of towner, you are almost always guaranteed to lose.  The economics do not allow for a property renovation, properly permitted and all deferred maintenance issues addressed.  At the same time, the neighborhoods are not in high demand or else the properties would not sell to wholesalers and renovators so cheap.  There is no demand at-all for these properties.

So in a worst case scenario as you state, the amount of money to be lost may be smaller, but it has a much higher probability of occurring than say a California property not appreciating over time.  

The comparison is a bit extreme because most people who can buy property in California that is appreciating are not buying these low cost turnkey properties.  Most are opting to buy a higher priced property in better locations and with a more experienced team.  

But, I thought your comment was perfect to point out that while the amount of money risked is smaller, it is almost guaranteed to be lost when buying these price points in these locations Turnkey.

[Diane G.]

@Chris Clothier

Lol... that is blunt.. Lol