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!

[Diane G.]

@ Tyler jahnke
First thank you for starting the thread... it is benefiting a lot of people

2nd, flying to the brand new city for a day trip (or 3 day trip) is NOT going to make you understand the local market....you need to live there for 3 months to really understand it..

3rd..leaving Bay Area thinking it is too expensive is going to leave you further behind....

4th...if you think Bay Area is too expensive to invest, think again!!!! If you have $50k, buy s studio in SF... rent it for $2400 and let it appreciate ...Or buy a brand new 3/2 SFH from KB home in Hayward..... many ways to start small....

[Tyler Jahnke]

Hello BP Family,

Here's a big update to provide additional background information and recent findings. BIG THANKS to @Aaron B. for driving by my property to check it out. Here we go:

Property Data

2 Bed, 1 Bath, 1 car garage

768 square feet (1,536 if you include unfinished basement)

Lot size: 7,840 square feet

Estimated rent: $750 per month

Median Zip Code Home Value: $118,100

Crime: Light/Dark Green (safe) in immediate neighborhood, but 0.5 miles from Red (less safe) commercial zone.

Closest School: A K-8 one mile away rated 8/10 according to Zillow

The Neighborhood

Property directly across the street valued at $94,000. Street view from September 2016.

Two properties directly next door (my garage seen at far left) valued at $51,000 and $67,000.

Two properties on other side of mine valued at $47K and $48K

THE Purchased House

Front

Rear

Rear

Garage

Broken Lower Windows to Basement

Siding in need of repair

Side

INTERIOR Photos taken PRIOR to closing

I followed up with Morris Invest regarding rehab progress last night after receiving photos from Aaron B. My biggest concern obviously is that exterior work has not started at all. Aaron was unable to gauge interior progress. According to their timeline the rehab phase should be complete by mid-February. I'm looking forward to their response and will inform you as information comes in.

-Tyler

[Aaron B.]

@Tyler Jahnke, no problem happy to help.  Wow, really great post. 

I think there are a few salient points to the newer reader who is an out of state investor. Folks speak a lot about "boots on the ground" but I think that phrase needs to be further defined.  As an investor your sole "Boots on the ground" should not be people selling you a property.  I would suggest an out of state investor really needs to get an objective set of boots on the ground. Someone who has nothing to gain if you buy the property or not.  Obviously, it is hard to find that person in any particular market but folks are out here. 

[Diane G.]

@Tyler Jahnke

Thanks for the update.... Based on the comp, I'd say your property is worth maybe around $35K... So the $36K purchase price is NOT too bad...

But that is NOT the point..

The point is why spending so much energy and time to get a net rent of $375 (using 50% rule)...Sure, it will give you $4500 annual income... BUT at the same time, that Bay Area starter property that you could have bought will be up by $20K....(assuming $500K value and 4% appreciation), leaving you $15K behind.....

[Susan Maneck]

Originally posted by @Joel Owens:

Tyler good luck with low income tenant type properties. Report back in 2 to 4 years what the property is worth now versus when you purchased and the cash flow you have achieved.

Over the last decade on here people have post after post of buying these types of properties but never come back to give long term success stories with them ( promoters with self interests excluded and shills for them).

 I've been investing in C and D areas for the last five years. It has worked out fine for me, but it is labor intensive and I can't see it working long distance. 

[Susan Maneck]

I listened to one of those podcasts from companies that buy houses that need rehabbing in different areas of the country, then get you to pay for the rehab and maybe even the property management. After the podcast I went to his website and found one house for 49K. I ran the address through google and found that Fannie Mae had been trying to sell the property for 29K. Mind you, the property hadn't been rehabbed yet. I realized I would be paying someone nearly twice as much for property I could find on my own, and that the rent would be lower, not higher than what I currently get. It just didn't make sense to me. 

[Lee S.]

I think a lot of investors from the coasts take a quick look at their local market and figure it won't work so they start looking out of state, I did that as well.  However, I did a lot of reading here on BP and came to the conclusion it was a bad idea while at the same time realizing I can find properties in my own market which I have done.  Now I read threads like this and cringe.  

[Diane G.]

I made the exact same mistake 10 years ago, thinking I could not afford Bay Area price... I went to Phoenix and bought 2 SFH for $400k each...

Then I got a taste of out of state investing and came back to San Francisco and bought several 2/2 condo for $650k each....

Today the Phoenix properties are $360k ish, but San Francisco ones are like $1.4m each.....of course, the former cash flowed from day one , and the latter are negative for a good 5 years after purchase.... but today the cash flow are WAY better than Phoenix thanks for sky rocketing rental price in the city.....$1800 for a large 4/2 SFH w pool in Phoenix but $4500 for 2/2 condo in SF...

So my advise for new comers - suck up the initial pain, pay off is big and sweet later on....

[Diane G.]

I understand $650k does not go very far today, so buy a large studio or a small 1/1 condo... before you know it would be $860k or $900k..... and you will never ever see a $250k appreciation if you go out of state....

I just signed up for KH home brand new homes in Hayward releasing on July ... high $600k..... 10 years later , they will all be $1.2m

[Jason Howell]

@Diane G. Being in the Bay Area (north of SF in Petaluma), I appreciate your insight on this.

Having said that, the approach that many interested in Morris Invest (thanks to his podcast) are working toward has little to do about making money by appreciation. These properties wouldn't be sold (or at least that's the promise of Morris's approach... I can't speak to how effective or solid that foundation is). The idea is less about "buy a house, let it appreciate, then sell it down the line for a big return" and more about "buy a number of these houses, let tenants pay the individual mortgages down for you and ultimately pay it off, then live off the cash flow on the back end thanks to the portfolio of properties that you now own outright."

Mind you, I am completely green to all of this and purely taking in as much information and education on the topic as I can. Hence why I'm here in the first place.

@Tyler Jahnke REALLY appreciate you being so transparent with this. In my research on turnkey options (and in particular, Morris Invest) I hadn't found much in the way of actual client experience so this is incredibly helpful.

[Maxwell Lee]

         Those are bold guarantees by @Diane G., especially for someone who recently started a thread asking if now is the right time to deploy capital in the RE market considering where we are in the current cycle. 

But her primary point, that there is plenty of money to be made investing in her high-priced area, is extremely valid. It's just not necessarily for everyone. Not every investor profile fits the SF market. Particularly if you are seeking steadier cash flow, lower risk, etc. 

In no way am I suggesting that out-of-state turnkeys, or Morris Invest, are the way to go for the OP's particular case. Just restating the worn out truth that successful REI comes in many stripes.

[Susan Maneck]

Originally posted by @Lee S.:

I think a lot of investors from the coasts take a quick look at their local market and figure it won't work so they start looking out of state, I did that as well.  However, I did a lot of reading here on BP and came to the conclusion it was a bad idea while at the same time realizing I can find properties in my own market which I have done.  Now I read threads like this and cringe.  

 Generally they are right about not being able to afford properties in California, but this summer I bought a condo up in Lake Tahoe for a 110K. Yeah, that is the price of three houses where I live, but the condo is leveraged and I would have had to pay cash for those houses in Mississippi. The rent is covering all or nearly all of my expenses and that includes the $375 that is going towards my principle on the property (I got a 15 year mortgage.) Eventually this will be my retirement home. I think you just have to look harder in California and stay away from the coast (except Eureka and Crescent City which are both affordable.) 

[Lee S.]

I live in the foothills of California about 2 hours due east of the Bay Area.  I lived in and went to college in the Bay Area for 5 years.  I've bought 2 houses locally recently for 95k and 107k and renabbed both.  One is rented but could have sold for 90k profit, the other I'm planning to sell and will make ~50k profit but could rent it at 1%.  I have zero doubt I can find More properties than I have funds to close on.

Investors that live in the Bay Area do not have to invest half a country away, they can do it right down the street or at worst 1-2 hours away.

I think the issue may be that it seems so easy to do turn key vs source locally and that may be true initially.  Long term however I think the turn ke will return less and take way more effort and frustration.

[James Wise]

Originally posted by @Aaron B.:

@Tyler Jahnke, no problem happy to help.  Wow, really great post. 

I think there are a few salient points to the newer reader who is an out of state investor. Folks speak a lot about "boots on the ground" but I think that phrase needs to be further defined.  As an investor your sole "Boots on the ground" should not be people selling you a property.  I would suggest an out of state investor really needs to get an objective set of boots on the ground. Someone who has nothing to gain if you buy the property or not.  Obviously, it is hard to find that person in any particular market but folks are out here. 

 That person isnt to hard to find. A quick Google search should provide many home inspectors. Always a good idea to use one when buying out of state.

[Joel Owens]

Jason Powell's comment:

"buy a number of these houses, let tenants pay the individual mortgages down for you and ultimately pay it off, then live off the cash flow on the back end thanks to the portfolio of properties that you now own outright."

--------------------------------------------------------------------------------

If someone makes 50,000 a year and buys 1 or 2 of these house to hold long term there is not enough cash flow there to replace income.

If rent in the hood was 1,000 a month for a 50,000 house paid cash for and took away half expenses you get 6,000 a year. To equal 50,000 a year plus you would need 9 of these house for 450,000 cash investment.

To replace 100,000 a year income you need 18 of these houses or 900,000 cash.

If you have 450,000 cash then you do not need to buy 9 houses states away in D areas. There are way better and safer things you can do with your money. You certainly do not want to hold these things for decades as a retirement plan. 

Sure you can put a mortgage on the properties and leverage them but then you have a mortgage payment to calculate in.

There are some trainers out there that tell people buy 1 house a year until 10 then stop and in 30 years you will have 10 houses paid off for retirement etc. So the people pay this stuff off eventually but could have done so much more with investments.

I really think those looking to retire in 20 to 30 years from now will need 10,20 million etc. to be very comfortable. 

1 million 20 to 30 years from now will simply not be much and a 100 bill will be like a 20 is today with inflation.

[Diane G.]

@Maxwell Lee

thanks for calling me out on my  "promises", please also know that my promises are always backed by NO less of worthiness than what you will get from our President (elect)... Lol... Just joking.....

Back to my initial "theory" that Bay Area is better choice than out of state D class, below are some examples that I think will appreciate handsomely...

SFH in Redwood city at $675K

https://www.ziprealty.com/property/3624-PAGE-ST-RE...

Brand New SFH home by KB home for $600K ish...

http://www.kbhome.com/new-homes-bay-area/eden-cove

Hayes Valley studio in San Francisco for $499K

https://www.ziprealty.com/property/150-PAGE-ST-_UN...

All these will be negative cash flow of $300 to $500 a month for a good 5 years, but you will get LOTS of appreciation....I think

[Account Closed]

Originally posted by @Joel Owens:

Tyler good luck with low income tenant type properties. Report back in 2 to 4 years what the property is worth now versus when you purchased and the cash flow you have achieved.

Joel: I have owned some of these for 4 years now. And so far the cash flow meets or exceeds my projections (not the same as the pro formas provided by the seller).

[Ariel Hernandez]

Following this thread has been an emotional roller coaster for me LOL. My brothers live in Indy for about 10 years so I used to go visit often. I flip a few houses last year in northern NJ and recently bought a four plex in Fountain Square in need of full rehab and looking at Indy for future flips.

@Jay Hinrichs I really appreciate all the longterm perspective shared, learning a lot from you. 

@Jeff Schechter thanks for sharing your insights about Indy, I've studied different metrics and I compared them to places like Jamaica queens where I own a SFH rental and have experienced the changes of the neighborhood myself, Or places like Newark which is changing rapidly due to NYC crazy prices and proximity to Manhattan and I hope Indy could offer me some of that. I will be needing a management company for my four plex in Fountain Square, a referral will be appreciated.

@Tyler Jahnke thanks for sharing your investment experience and please keep us updated as time passes

[Susan Maneck]

Originally posted by @Joel Owens:

Jason Powell's comment:

"buy a number of these houses, let tenants pay the individual mortgages down for you and ultimately pay it off, then live off the cash flow on the back end thanks to the portfolio of properties that you now own outright."

--------------------------------------------------------------------------------

If someone makes 50,000 a year and buys 1 or 2 of these house to hold long term there is not enough cash flow there to replace income.

If rent in the hood was 1,000 a month for a 50,000 house paid cash for and took away half expenses you get 6,000 a year. To equal 50,000 a year plus you would need 9 of these house for 450,000 cash investment.

As someone who owns nearly that many houses altogether in C-D neighborhoods here is how you do it without 450K investment using my own version of BRRR.

1st house purchased with my mother in 2011. Paid 15K, took 25K to rehab. Appraised a year later for 50K. Wells Fargo gave a HELOC for 30K. House currently rented for $900 a month. HELOC payment less than $150 a month. 15K from HELOC loaned to my son to buy 3bdrm 1ba. Most of the rest went to purchase another home for 35K. Less than 5K needed for rehab (needed paint, flooring and a water heater.) It only appraised for what I paid for it a year later but I got a HELOC on it for 21K. Currently it is rented for $825 and I pay less than $90 on the HELOC. I now have three houses but out of money to buy more. That is when I opened a solo401K for which i was eligible by a little consulting work I do on the side. I rolled over my IRAs worth roughly 100K into my solo401K. With half of that money I purchased two houses, one for 30K in a C neighborhood and another for less than 16K for a neighborhood which has now declined a D to an F neighborhood. Not a war zone, but too many empty houses. I put nearly 14K into rehabbing both houses which are now rented Section 8. I get $868 a month on one house and $770 on the other. (HUD gave me 10% over the market value for building a ramp for my disabled tenants.) The remaining 50K in my account? Well, 30K I loaned myself to buy a house which is now my principle residence. (Had trouble convincing Fannie Mae I really intended to live in this house since I owned a bigger one three blocks away.) For that 30K I bought that house free and clear and rented out my old house for $950 a month. (I bought that house for 73K from HUD in 2001 but sadly it is now underwater.) Now I owe my 401K 30K amortized over 15 years at 4.5% interest. That leaves 20K in my 401K which I again loaned myself (amortized over five years.) Meanwhile my son had bought his second house and refinanced his first house and turned it into a rental, so I got my 15K back. Now I had money for another house. This time I found a property with two houses on a piece of land with a combined square footage of over 3200. This was my first and only purchase from a wholesaler. I bought it for 32K. Front house wasn't bad, back house was a mess but I figured I got it for free. I spent probably 18K fixing both up and now get $1500 a month renting both houses to an extended family. My latest property is my condo in California which I purchased for 110K with a conventional mortgage and 20%. Currently it is rented at $950 but my plan is to eventually make it my retirement home.

Bottom line: Total rents on all my properties come to  $6783  per month. Mortgage payments come to around $1750 a month. Amount of my own money invested? I figure that comes to maybe 150K altogether. If we subtract the mortgage payments from my rent that still leaves me with about $5000 a month and if we assume that I will only see half of that after taxes, insurance, maintenance all that other stuff, I'm still left with $2500 a month minimum income from 150K investment. Where are you going to get those kinds of returns? 

[Joel Owens]

Anish the ones you bought 4 years ago are they in B to C areas instead of the D area being discussed here?

Seems like 4 years ago you could buy higher quality product for depressed pricing versus today so somewhat and apples to oranges comparison of the quality of product and area for the price point.

I don't do SFR at all but know much better opportunities in better areas 4 years back.

[Jason Howell]

Dang @Susan Maneck. That is super eye opening, thanks for taking the time to go into so much detail breaking down your history. That scenario totally speaks to the idea behind what @Tyler Jahnke is jumping into, albeit at a distance.

Turnkey is so tempting because of the hands-off aspects. But you say you didn't go that route cause there was too much money lost along the way. I realize not investing locally complicates things. But how does one manage all of that from out of state when they are just starting out? I'd love to know I could pull that off, but I simply don't have the history, the contacts, or the knowledge (though I'm working on that one) to feel confident in my ability to do it without someone holding my hand through it.

[Susan Maneck]

Jason, the fact that others are getting their cut along the way is not the only reason it doesn't make sense to do this at a distance. I'm making good money at this but it can hardly be considered passive income. Every single one of my tenants pays cash and if you don't go around collecting the rent personally you are not likely to get it. The only tenant I have with a credit score over 600 has a HUD voucher! There is a reason most of my properties are within walking distance from where I live. Sometimes you get paid in bits and pieces. What property managers will do that? The Hinrichs may have done well with his investments in Madison County from a distance, but ask about their experience in South Jackson. Property managers let these houses sit for months. I usually have my houses rented within days of seeing the last tenants move out and I rarely advertise.

Ironically, the one property which I own long-distance is my California condo. It is so hassle-free that my 84 year-old mother manages it! 

My advice to those who see these long-distance properties as their only option, rent them out Section 8. Any house I'm not able to sale before I leave the state to retire and live in my Tahoe condo, will be rented to those with HUD vouchers. That way I don't have to come back too often.

[Diane G.]

@Susan Maneck

Thank you for your story.... That is about the ONLY way that out-of-state can work in my imagination....You live 2 miles away, you are ok going over 3 times during a month to collect.... AND you have to build the personal relationship with the tenants too....

[Susan Maneck]

Originally posted by @Diane G.:

@Susan Maneck

Thank you for your story.... That is about the ONLY way that out-of-state can work in my imagination....You live 2 miles away, you are ok going over 3 times during a month to collect.... AND you have to build the personal relationship with the tenants too....

I have indeed built a relationship with my tenants. I pick up my tenant's kids who are Middle-school age each weak to Junior Youth Empowerment  meetings. The tenants who are handy I hire to do various jobs, especially if they become temporarily out of work. I spend a lot of time talking to them about money management because one day I want them to buy my houses. I sure won't make any money selling them to investors! 

[Account Closed]

Originally posted by @Todd Burton:

In case anyone is interested, this is one of our "scope of work" as an example of a professional service vs. the rehab the way it was handled in this post (and many others).

Sample Scope of Work

Thank you for sharing, very insightful.

But wow, $45 to change a lightbulb??!?

Thank you for making me feel better for self-managing my rentals.