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!

[Jay Hinrichs]

Originally posted by @Diane G.:

Jay Hinrichs so do you think there never was any tenant from the start, or the Tenant moved out later on?

 don't know maybe some of the locals know who drove by it.. but not uncommon to have vacant trashed homes in these areas.. I mean when Tyler bought it  it was a 5k house that he paid 30k or 40k for with the promise of rehab.. it finally got rehabbed because in my opinion he was pretty brilliant using BP to put pressure on Morris.. unlike so many others who reported no or little rehab and figured it out way after the fact..

[Tim Ryan]

@Diane G. anyone who has been on this thread as long as many of us have and following along knows where the money has likely been coming from.  Question you should be asking is how long does @Tyler Jahnke think that the property has been vacant?  Stated another way, did he ever have confirmation from those in the BP community who looked at his property that anyone other than his squatter was ever living in his unit?

No surprise on my end seeing these notifications / updates today.  In my 9 to 5 job where I work with the Attorney General's office here in Michigan daily and someone who helped prosecute a low-income housing developer in California back in 2010 (which was when I got into real estate investing), knew back in December when the Attorney General in Indiana got involved with Ocean Pointe, this was all bad bad BAD news and would only get worse, which it did. 

I remember I said "Oh my" out loud and shook my head side-to-side when Tyler said he was continuing forward with Ocean Pointe based on a conversation with Clayton who said everything was all good.  Jumped firmly onto the @Jay Hinrichs good luck band-wagon with that decision.  Side note and a little tip for everyone. . . should strongly consider getting everything is all good comments in writing/email, as well as a copy of any licenses you are shown in writing/email if they ever happen to you.

Best of continued luck Tyler and glad to see you are using this as a learning tool.  Hopefully one where you don't suffer a financial loss when all is said and done.  I'm sure there are plenty of readers of this thread who haven't commented who appreciate your learning on their behalf so they didn't have to commit the capital you did tohave this experience. 

[Jay Hinrichs]

@Tim Ryan  I am sure I mentioned this before but it bares repeating.. I have seen this show before

there was a Utah company Called Marquis  Chad Duecher you can google.. took a while but same thing in the same city this one and KC  same assets same issues. sell junk homes for grossly inflated prices pay rental income to give investors false sense of security.. Duecher got 7 or 9 years..

there is another big case that just opened and the properties are up in Michigan and another Utah firm and I think its a civil rico at this time .. but who knows same thing exactly as this..

The sales Manage for Marquis Rick C came into my Oregon office way back in 2012 showing me their model of dealing with 5k houses and so on and so forth I showed him the door and told him you guys will never make it and sure enough.. bad things happen they get in over their head ground partner sucks assets suck tenants suck and investor holding the bag get very upset.

[Jay Hinrichs]

@Tim Ryan  also I just chuckle thinking of the marketing morris does with we rent great houses to nurses firemen other solid workers.

then standing in front of a trier of fact or some agency and buyers show pictures like Tyler just posted and others..  not funny for investor but boy I would not want to be trying to defend this..

[Joseph Suarez]

@Tyler Jahnke

Thank you for sharing your experience, both good and bad, and congratulations on picking up your second property. After the repairs were finished and it was ready to rent out, did MI or Oceanpointe tell you that they had placed a tenant in the home and did they ever provide you with a copy of a lease?

[Tyler Jahnke]

Hi @Brent M. - I actually purchased my first property in December of 2016 and my second property just this month, so it's been about a year a three months between purchases. Just wanted to clarify the timeline.

My first property was all cash and this new one was financed with 25% down. I will definitely beat the 1% rule as all I need to take care of is a new window pane in the garage and general cleaning. I don't have the money now, but I'll look to add a third bedroom down the road with the extra square footage I have.

Thanks for riding this roller coaster with me!

-Tyler

[Tyler Jahnke]

@Jay Hinrichs - I appreciate you calling my move brilliant :)

To your point, there probably was unintended consequences of my innocently described monthly income reports. But, I do want to make sure everyone knows, from the start, I'm being transparent. And if a rent check comes in and there's no repair or maintenance requests, that's what I reported. 

As you know, I haven't given up and I've tweaked my investment strategies. I purchased my second home in a much better neighborhood (neighboring houses all worth $100K+) with a better chance of appreciation, higher rent = better class of tenant, and room to add in forced appreciation if I build out a 3rd bedroom.

I've learned A LOT this past year and a half. And after listening to @David Greene's podcast episode 257 (which was brilliant...you all need to listen to it) you kind of have to just throw out your first property. It's probably not going to change your financial life. But, it will provide you with an invaluable amount of knowledge.

I'm still confident I can turn this first property around with the help of great connections I made in Indy. It'll be a couple months of hard work to get it cash flowing again, maybe I lose some money, but bottom line: I JUMPED IN to real estate and I can't turn back.

-Tyler

[Colleen Cimo]

Sorry to add my personal story to your thread but me seeing this today is the cherry on top of the **** cake my husband and I are eating in deaing with ocean pointe. we bought 12/2017 and our renovations should have been done 3/18/18 but are nowhere near. We really have no idea what has been done at this point, if anything. I know weather played a factor, that’s understandable. But we were hands off for close to 3 months and put our trust in their process. Now, With little to no follow up on the progress of the home, having to purchase more renovation insurance, and getting city fines for disrepairs on the home nearing 5k, I am freaking. The fines are steep and none of the violations team are stepping up to follow through with us or provide any solutions, updates, give us peace of mind... nothing. 

Communication has been my burden. We have our entire savings wrapped up in this. My husband and I still work, have two young children and another on the way. We were looking for a better financial future and instead are deaing with huge headaches and frustrations. 

Bottom line: fear and insecurity are taking over at this point. I need some rescuing!!!

[Alissa Engel]

My husband and I have been listening to the Morris Invest podcast for a couple years, and have really considered investing with him.  My biggest concern thus far (and maybe this is something I need to get over) is that the homes he has on his website look a bit "shabby" to me but are considered "turn-key".  This along with my history with very BAD PMs are my big hang-ups.  Thanks for posting your experience with them; I will be following closely!  It sounds like you have experience with rehabs, so I am very curious about your satisfaction with the final product!

[Edward B.]

@Alissa Engel, just stay away. I only heard about MI a couple days ago when someone threw his vast experience in my face because he had been listening to several MI and BP podcasts. So I decided to look up MI and see what I was missing. I remember Clayton's BP podcast as well as his wife's and was very impressed with both. I'm sure his podcast is amazing as well, he was a TV personality after all. But there are too many options out there to even consider investing with someone that has this much negativity swirling around him. You can't even access his BP podcast any more. Walk away, just walk away, there is nothing to see here.

[Jay Hinrichs]

Originally posted by @Colleen Cimo:

Sorry to add my personal story to your thread but me seeing this today is the cherry on top of the **** cake my husband and I are eating in deaing with ocean pointe. we bought 12/2017 and our renovations should have been done 3/18/18 but are nowhere near. We really have no idea what has been done at this point, if anything. I know weather played a factor, that’s understandable. But we were hands off for close to 3 months and put our trust in their process. Now, With little to no follow up on the progress of the home, having to purchase more renovation insurance, and getting city fines for disrepairs on the home nearing 5k, I am freaking. The fines are steep and none of the violations team are stepping up to follow through with us or provide any solutions, updates, give us peace of mind... nothing. 

Communication has been my burden. We have our entire savings wrapped up in this. My husband and I still work, have two young children and another on the way. We were looking for a better financial future and instead are deaing with huge headaches and frustrations. 

Bottom line: fear and insecurity are taking over at this point. I need some rescuing!!!

@Joel Wilmoth is a local PM   And and there are others just look through all these threads there are 3 or 4 that have taken an interest and will help.. 

also if you really think you have been wronged here and its your lifesavings you certainly should let the state of Indiana regulators know what's up its free.  they already gave the last owner of Oceanpointe a cease and desist and took his personal licesne. 

[Colleen Cimo]

I just reached out to Clayton and got a response. We are hoping to get some of these issues worked out very soon. My post was an emotional response. As it is when money is at play. Will be seeing how things progress from here. 

[Jay Hinrichs]

Originally posted by @Colleen Cimo:

I just reached out to Clayton and got a response. We are hoping to get some of these issues worked out very soon. My post was an emotional response. As it is when money is at play. Will be seeing how things progress from here. 

 well very good TRUST but VERIFY with a neutral third party.. hire your own inspector.. like banks do.. any thing less and history has proven you MAY end up not to happy.

[Gerard J.]

Wow.. i can't believe I just spent my whole Saturday reading from Page 1 to 24. Well in all honesty I did watch the whole Netflix series "Iron Fist" in one sitting. But I can't say I learned anything from that show as much as I learned from this thread. I have feeling @Tyler Jahnke will come out on top in the end. He is the protagonist in this whole series after all. We're all rooting for you man. 

[Brent M.]

@Gerard J. haha damn all 24 pages damn, I have a keyword for "Morris Invest" that procs so I can read all that people say about them, I would skip over them.  There are several BP recommended turn key businesses that are truely turn key and have no problems with any inspections, already have rehab done or even a tenant in place.

[Will Zena]

I thank you @Tyler Jahnke for being brutally honest about your experience and also @Jay Hinrichs for your experience and wisdom. You both saved me probably $50k or more as I was considering buying a duplex last year and I paused due in large part to this thread. The best decision I ever made was not to buy with Morris Invest.

I still don't understand why they would get involved with such a scheme. He and his wife seem very smart. This obviously ends in their demise and in tragedy for many buyers. Why ruin your lovely family getting into this and stealing from others? I like to sleep well at night making an honest buck. I hope they are taken down soon and people start doing some due diligence on their investments with MI.

That's the power of BP. Rule #1 is always do your due diligence no matter what. 

[Joel Owens]

On these lower priced type properties why don't investors simply invest with a group local to them in larger properties that are more expensive where they live or simply invest maybe the next state or so over so you can easily travel there?

People mentioning that they put their life savings in something in hopes of a better future is gambling. These low income housing plays are speculating and not investing. The hope is the tenant does not move and the older house that had minimal repairs will not fall apart anytime soon.

So an old house with minimal repairs to it, questionable areas to invest in, and tenants that tend to live hard in the spaces can be a recipe for disaster. 

It's different if someone makes 300k a year and is worth 2 million and taking a punt on a 40k property to see if it cash pops for them or becomes a dud. Their regeneration of capital per month can have it where they can easily bounce back and recover the small loss through other investments. The family taking most of their savings to start owning low end houses in lower type income areas states away just does not make sense.  

[Jay Hinrichs]

@Joel Owens  I find it ironic that we have the accredited investor rules for all the larger syndicators .. ( although risk profile of investing in rookie syndicator could be high as well :)  ).

So the person with 50 to 75k of total savings would not be accepted unless they made 250k a year for the last 3 years and had a 1 mil net worth exclusive of their home.. I think that's about how that goes.

But I hear you LOUD and clear I just cringe when I think of someone shooting all their bullets in any fashion buying what are the highest risk rental assets in the US.. IE lowest price point SFR in a given MSA.

A provider of turnkey no matter who they are I think should ask the question   ( Now this is not all your money, RIGHT ?)

Because if it is your under capitalized in my mind to be any kind of land lord.. 

I know its a Massive catch 22  how do you start.. and what is the proper amount of reserves to have.. 

but as your gently alluding to anyone using ALL their liquidity and thinking one low end rental is going to get you to your as Morris calls it ( Freedom Number) this is ultra high risk.. much better to simply buy a REIT and let the pro's manage it.

The risk of owning these assets is just not clearly talked about... And in the case of the company we are talking about here its the opposite they describe these the complete opposite I know you won't look at their marketing but I just about fell out of my chair the few minutes I watched it.. unbelievable  but that's their opinion I guess but its not in any way shape or form based in reality of the asset at least in my 20 years of working with them. 

[Jay Hinrichs]

Originally posted by @Will Zena:

I thank you @Tyler Jahnke for being brutally honest about your experience and also @Jay Hinrichs for your experience and wisdom. You both saved me probably $50k or more as I was considering buying a duplex last year and I paused due in large part to this thread. The best decision I ever made was not to buy with Morris Invest.

I still don't understand why they would get involved with such a scheme. He and his wife seem very smart. This obviously ends in their demise and in tragedy for many buyers. Why ruin your lovely family getting into this and stealing from others? I like to sleep well at night making an honest buck. I hope they are taken down soon and people start doing some due diligence on their investments with MI.

That's the power of BP. Rule #1 is always do your due diligence no matter what. 

 Just like Tyler once you guys put a little time and effort into due diligence you guys came to the same conclusions..  Tyler bought up in the asset class but in the same market. and has a good attitude for getting caught up in what he did.. Others though like the lady with all here family money in one of those properties that's SCARY.

I remember 540 post ago I Mentioned that my thought was Tyler was a well paid West  coast bay area engineer and if this did not work out well it was not he end of the world.. now all these post later.. he says the same thing only quoting another real estate person he has read or listened to that says many times your first purchase is a stinker.. So that thought process has put him in a good frame of mind to move forward.. Others will get financially damaged or emotionally damage and they are out of the game.. 

[Kieran Mazzola]

Originally posted by @Jay Hinrichs:

Originally posted by @Colleen Cimo:

I just reached out to Clayton and got a response. We are hoping to get some of these issues worked out very soon. My post was an emotional response. As it is when money is at play. Will be seeing how things progress from here. 

 well very good TRUST but VERIFY with a neutral third party.. hire your own inspector.. like banks do.. any thing less and history has proven you MAY end up not to happy.

 @Colleen Cimo:  I can't stress enough what Jay says here.  Get your own people to look at the property.  My situation is very similar to yours except I let myself get further into the sandwich.  I was told last Aug the rehab was done, I let many months elapse where I kept asking OP for pictures but never got any.  I finally hired someone in Feb to go in and take a HD video of the place and found that it was mostly rehabbed, with the notable exception of one unit not having electricity.  Rehab complete?  On the particular day in Feb there also happened to be a large pile of rehab trash on the front lawn, which might explain the series of violations from the city, one of which I got a summons for 3 weeks ago.  You have to get out in front of these companies and verify everything they tell you.  

[JD Martin]

Originally posted by @Colleen Cimo:

I just reached out to Clayton and got a response. We are hoping to get some of these issues worked out very soon. My post was an emotional response. As it is when money is at play. Will be seeing how things progress from here. 

 Always be willing to get on a plane or get in a car and verify things yourself. Transportation is cheap these days. I would never let $5k in fines accumulate without going out there once myself to see what's happening. Trust but verify. 

[Vera Herlihy]

@Jay Hinrichs I think there are two ways of looking at what Morris Invest does. We listened to their story, "we rent to nurses and nice middle income folks," but when we went out for the tour, we decided that was not the turnkey we wanted to invest with.

Our first concern was the walk throughs, we saw over a dozen of their properties completed, in the process and about to get started. Most left much to desired, none of which I would live in or allow my 79 old mom to live in. 

But I understand that all people need somewhere to live, and not everyone can afford what I would consider acceptable. However, a home like may be a beautiful place to live for someone under different circumstances.

I am a restaurant owner, and my response is there's a price point and a palate for everyone, and I think it's the same with REI. Some investors may see it as a business, and their only concern is making a profit. For them, what the place looks like, smells like, or feels like doesn't matter as long as the checks cash.

That's not the kind of landlords we want to be, so we skipped on them and found another company. Ultimately, it's not for us to judge how investors want to run their properties. However, what I think is questionable behavior, is Morris' marketing practices. 

The biggest RED FLAG for us was when we asked about evictions and their reply was, "they're out in six days, but we don't have a lot of issues. We have Hells Angels and big ex gang bangers to collect rents for us when they're late." As we continued to chat, we learned that many, many of their tenants are poor and on fixed incomes, some are older people and some are in sad straits to say the least. Had we known this, we would have saved the trip from CA to Indie. 

It was a good lesson learned. Hope this helps. To "TRUST BUT VARIFY" 

Wishing all much health and success.

[Jay Hinrichs]

@Vera Herlihy   Nice post... yes the product is far different than the marketing message.

I fully understand your thought process I mean I am the first to say I have funded well over 1000 or not 2000 C class's in the last 20 years.. and as many B's  ... 

These houses are Ds and if the house itself is not the area is.... 

I mean like you said we don't all need white table cloths and linen napkins when we go eat.. 

Same goes with housing..  But when you have a company that is marketing a message and the ground partner is about 100 degree opposite of the message.. I get it it happens to guys like Morris who is a marketing machine not a turnkey provider.. but usually in the space once the marketing after maybe 5 or 10 deals realizes this they cut them off.. Morris has to know what was going on.. has to know the asset class I mean his videos show in in the same neighborhoods and then when you describe to people who are buying sight unseen.. well there you go.  However not finishing the rehab or in those areas the top rehab contractors wont even work there.. that's another thing most people don't understand your not going to get top shelf contracting or rehabbing in assets that don't warrant it or have the funds to do a full rehab.

I fund a few turnkeys in Indy the average rehab to do a proper rehab is 25 35k per house.. so stands to reason these 5 to 10k rehabs we seen talked about or even 15k.. u can only patch and fluff and paint over etc.. those houses if you think you just rehabbed them that wont be the case you will have continuing cap ex that will kill the investments.

[Paul Ewing]

The truth is that there is money to be made in this type of asset.  The problem is that it isn't going to be made by the standard turnkey buyer with one or three properties.  The is a guy that does this by me that specializes in what I consider slumlord places. He has about 80 of them in one town where I have one of my best cash flow places. I am looking for a few more places thwre, but I am very picky about the immediate neighbors.  It is generally a C class area and mine is in the sort of C+ section.  It is locally know as Felony Bay but there are a lot of decent hard working folks living there, but a lot of meth heads as well.  I think the key is owning a lot of properties to spread the risk and doing all the management yourself.  Even the slumlord guy does the tenant screening and higher level stuff himself.  He has a few guys to handle repairs when it gets to the point where they can't be ignored any more.

[David Greene]

Great attitude @Tyler Jahnke