The 5 Mistakes New Real Estate Investors Make

[INAUDIBLE] tonight. Today, we’re going to talk
about the five worst mistakes that real estate investors make. I hope you’re doing
great tonight. So we’re going to start the
show just in a few minutes. I want to get a bunch
of people on the line. I hope you’re doing great. So we’re going to be doing
a lot more live shows. I’m really excited about this. So if you’re new to the
Investing in Real Estate channel, we produce a
number of videos every week in an effort to try to help you
become a real-estate investor. We teach you everything
from setting up your LLCs, to tax benefits, to how
to find the best deals, how to structure your entities,
your checking accounts, and all of those pieces in order to
make sure that you have the best legal structure, the best bank
account structure, and all of those different pieces– I want to make sure
that you guys have. So thanks everyone. We’re going to start the
show just in a few moments. Tonight, we’re going to be
talking about the five worst mistakes that real-estate
investors make. Jonathan, welcome to the show. [? BiPie ?] welcome to the show. So we’ll save some
Q&A for a little bit later in tonight’s episode. I’d love to find out where
everyone is coming in from. Chris, welcome in Chris
[? Lu ?] [? Han. ?] Hey Jason, UFC fan nation from
Iowa, welcome in. Welcome in all of
you guys tonight. I’m trying to get the
camera just in properly. Arkansas– welcome in, Grant. I’m up here in our mountain
house for the weekend or for the week. Coming in from Chicago– Michael. Welcome in, Michael. Michael has a great story
to share, by the way. In fact, Michael, I would love
to have you on the podcast to tell your refinancing story. I think he purchased a property
from us in the $40s mid $40s And he did a refinance,
pulled money equity right back out of the property, and
is ready to start shopping for a second property. I love stories like that,
because we have investors that do that all the time. So love, love love, love
that you had great success. So you bought it for
like in the mid $40s. And I think it appraised out in
the mid $50s, which is great. Or $53,000, which is great– after the rehab. So that’s great. So thank you for sharing
that story with us today. $45,500– you bought
it for $45,500. And it appraised for
$53,000 after the rehab. Awesome. And you were able to pull that
equity right back out again. That sweet, Michael. Sweet, so thanks so much
for sharing that story. It’s like twilight
here in the mountains. Hopefully it won’t get too dark. Hercules wants to know, do
I need to own my property to work with Lima One Capital? No, you can buy rental
properties through Lima One any day of the week. Frederick from Chicago– “Enjoy your videos. Thank you so much.” And hopefully, you guys are
subscribers to the channel. Thank you so much. I really appreciate that. Thank you so much. All right, Eddie wants
to know, what do we think of tax-deed properties
to get started with investing? I always say, it really doesn’t
matter what type of property it is– foreclosure, tax
deed, short sale. I don’t care what it
is, as long as you’re able to find a great deal
and you have a team in place that can make sure you’re
getting it rehabbed properly, and up and running,
and renting properly. That’s all that matters. So you can find a property
of tumble weeds rolling down the street. I don’t care how it
hits you in the face as long as the
numbers make sense and you’re able to make sure
that you can get it rehabbed, and rented, and up and running,
and that the ROI is very high. That’s all I care
about is the ROI. I don’t fall in love
with real estate. I fall in love with ROI,
as many of you know. All right, so
tonight, we’re going to talk about the
five worst mistakes that real-estate investors make. I want to dive into these
to get started with. And that will open up to some
Q&A about tonight’s topic. And I’d love to hear
what’s on your mind. And we will talk a little
real-estate investing. If you are new to the
channel, welcome in. This is the Investing
in Real Estate show. I’m Clayton Morris. I’m the host of this channel. We’re going to be doing
a ton more streaming. We’re actually building
a brand new studio. I’m super excited about this. We’re building a brand new
sort of television studio where we’re going to be doing
a lot of live shows, a lot of live question and answers. If I could tell you how many
emails that I receive a day– I should show you
someday my inbox– I get hundreds of emails a day. And that’s not because I’m
special in any kind of way. It’s because you guys have
a ton of great questions. And they’re all very
good questions– everything from OK, I have an
LLC in this particular state, and I want to buy a
property in that state. Will that cause me issues? Questions like that– they’re
all excellent questions. What I want to start
doing is a lot more live shows where we can answer
a lot of these questions to help you become
real-estate investors, or to help you maximize
your overall income, or how to mitigate
your taxes in order to make sure that you’re
keeping more of your own money. I have questions that I ask. We just literally asked
our tax accountant today in the office– we asked our tax
team this afternoon a very specific question that
I didn’t know the answer to. So there are no
stupid questions. And that’s why I’m really
excited about doing a lot more live
shows and bringing you a lot more content. So I am up here on a family
vacation in the mountains with my family this week. So I apologize for the beard. Actually, I’m thinking about
growing a full-on beard, because I just hate shaving. So I can’t wait to not
shave on a regular basis– kind of like David
Letterman or something. All right, so
tonight, we’re going to talk about the
five worst mistakes that real-estate investors make. Let’s start. And there’s no particular order. These are five common mistakes
that I see new investors make– real estate investors who
are long-term real-estate investors. Maybe they’ve owned a
property for many, many years. It doesn’t matter. These are five common mistakes. And I’m going to give you
ways to avoid these five common mistakes as well. So let’s dive into it. Number five– and I’m just
going throw this out there to you guys and see how many of
you get this question correct. So in the comments thread right
now, what do I like to say is the most important thing
when investing in real estate? Let’s see how many of
you guys know how much I love this particular answer. Jeffrey Moon, you got it. You said “ROI”. Exactly. Grant Wade, ROI. James, ROI. I love it. Hercules, ROI. Cash flow, cash
flow, ROI, ROI, ROI. You guys get it. Number five on our list– the number one mistake– well, number five– again,
no particular order, but the first in this list– not focusing on ROI. And I can’t tell you
how often this happens. Let me just give you an example. I think a real-world example
is a perfect example. I had a husband and wife
out of Philadelphia. They own a property. They owned a property that they
lived in for a number of years in Manayunk, which
is a small town just outside of Philadelphia–
cute little town, great little young-family
town with some breweries, and some good restaurants,
and close enough to the city. You can take a quick Uber
ride to downtown Philadelphia. They owned this
townhome, and they moved. Well, guess what. They kept it. I hear this all the time. So they kept this
particular property, and they tried to rent it. Great. It’s renting. So they told me on the phone– this was like a year ago. They said, we want to
keep this property, because we think in
a number of years, we’ll have it paid
off or paid down. And it’ll really start
to be a great investment. And so I just– full stop right there. I know we’re talking about
doing rental properties with us. That’s great. But let’s stop right there, and
let’s talk about this property. I want to understand
the psychology of why you’re keeping this property. And they thought that if
they worked on this property and paid down the
mortgage, maybe even increased the rent
at some point, maybe even did some
repairs, that eventually, the return-on-investment
would be good. So I ran the numbers with
them right on the phone. I said, how much are you
bringing in every month? What are you paying for a
mortgage on this property? How much are you
actually cash-flowing at the end of the day
after you’re paying taxes? What do your taxes look
like on this property? They hadn’t accounted for
their taxes in this property? When we all got finished
with it, I said, look. I hate to break the news to you. You are in the negative. You are producing
a negative return on investment on this property. Why are you holding
onto this property? And the answer that they
gave me is that they just had a sentimental value
connected to this property, because that was their first
property they owned together. So they thought in
their heads they could get this property
in cash flow eventually. Again, this is going to bring
us to another point on tonight’s show. And that brings me
to my second point. So number one, they
didn’t focus on ROI. They were in the red. And I said, here’s
what you need to do. You need to immediately
call up a realtor, and you need to list this
property and get it sold. You’re producing a
negative-cash flow. With your taxes, you’re
not breaking even. You’re losing money
on this property. The ROI on this
property is terrible. Why are you attached
to this thing? Get rid of it. So anytime you’re entering into
a new real-estate transaction. Simply run the numbers. I like to do that
back-of-the-book envelope test. You can do the 1%
test if you like. It’s what my father-in-law does. Will it produce cash flow
at 1% of the purchase price? Or you can do my
ROI formula, which is a very conservative
ROI formula. It’s not for the faint
of heart, because it’s incredibly conservative,
meaning I take out 40% for vacancy, repairs,
and expenses in my formula. And I know a lot of people
make fun of me for it, because it’s so conservative. But if you can take your
monthly rent times 12– so $700 a month times 12– multiply that times 0.6– that means you’re
removing 40% for vacancy, repairs, expenses– what are you left with? Now, divide that by the
all-in cost of the house, and that’s what you’re left with
as your return on investment number– the ROI number. It will be a 0.11,
0.12 0.13, 0.10. Just move that
decimal point over. And that just means it’s
a 10%, 11%, 12%, 13%. Look, the stock market gives
you about a 2% to 3% return. So if your net ROI on that
is higher than 2% to 3% net– not gross– your
net ROI, OK, it’s better than the stock market. But I personally like to
shoot for about a 10% to 12% net return on my properties– net. But because I’m doing
repairs, and because we’re placing a tenant
in the property, I don’t really worry about the
repairs for 10 to 15 years. So that 40% ends up being
kind of a pipe dream. At the end of the
year, it ends up looking closer to that
gross number than the net. I asked my wife the
other day, I said, how many repairs do we end
up having on our properties? What’s that number look like? What’s our repair percentage on
all the properties that we own? And she said, I can’t
remember the last time that we’ve had a repair. And that’s the point– that when you take care
of the property up front, those repairs are
almost non-existent. Hey, thanks, MJ
[? Livendahl– ?] [? Lindvahl. ?] Thanks
for the great backdrop. Yeah, we’re up here
in the mountains. So just give you a little
preview here of what this– actually, the light over here
is a little bit better, huh? That’s way better, actually. Sorry about that. So here’s our little log
cabin up here in the woods. I don’t know if that’s
a little too pixilated. Does that look all right? And there’s the lake. Can you can see the
late right down there? Looks like I got some
puzzles out here. Yeah, the light is– it’s twilight out
here on the lake. So I’m just trying to get a
little better picture for you guys. And I’m sorry for the jumpiness. I don’t have tripods. I don’t have any of our
studio stuff set up tonight. So I’m just kind of winging it. I hope this is OK and
you don’t mind this. I apologize. So let me move to the second one
in this list out of the five, because this brings
me to my next point. So first is not focusing on ROI. The second is
investing emotionally, which if I go back to
my Philadelphia example for this particular couple,
they were investing emotionally in this rental property. They weren’t investing
with their heads. They were investing from
their hearts, which is OK. It’s sweet. It’s adorable that they
wanted to keep this property. Shawn, welcome to the channel. Thanks so much, Shawn. He just recently
discovered the channel. Yes, we all have
a lot of emotions. But real estate– I don’t
fall in love with real estate. It’s four walls and a roof. And someone needs to
live in a property. Someone needs to live in
these particular areas. So why shouldn’t you
own those properties? You know, one of my mentors
in this business, Robert [? Schiemann, ?] he likes to
say that when he lives down the street, he’ll see
high-end properties, mediocre properties,
low-end properties. And guess what. Somebody is living in
almost all of them. Why shouldn’t he own them? So don’t get emotional
about real estate. Let me just show you this house. Pull this off here. So this is our mountain place. It’s got four walls and a roof. We actually used this
place as a rental property for a little while. We did a we did a
vacation rental with us for a little while. And we didn’t like that. This was our place. And we just decided
to stop doing that. But I didn’t get
emotional about it. We just wanted to spend
more time up here. But the problem with
that Philadelphia couple that I was explaining
to you is that they were emotional about this property. They, in fact, buried
their heads in the sand and did not want to even
run the numbers to know what their cash-flow looked like. It took me on the
phone asking them, what are you paying in taxes? What are you cash-flowing
on this property? And the wife, actually,
she kind of kept quiet. She didn’t even want to
admit the taxes that they had to pay on this property. And when I got the
calculator out, the bottom line is that
they were in the negative. She was tied emotionally
to this townhome that they had purchased. So don’t invest in real
estate emotionally. Now what does that mean when
you’re selecting properties? Well, let me give
you an example. Sometimes– and
Michael knows this. He’s one of our investors. If we send a property
to an investor, they usually sell within a
few hours when we send it. And when we sometimes work with
a new investor, we will say, Mary, Jonathan,
we want to let you know that our properties
sell within a few hours. So if you’re interested
in it, just let us know. And we’ll get you a
purchase agreement. Sometimes new investors–
wife, husband– they’ll look at
it for a few days. They’ll say to
themselves, well, I really wanted like an adorable
little bungalow with some nice trim
and some potted plants. And they have the sort
of emotional feeling, because they think they’re
going to be living in the house. You are not going to
be live in the house. And so therefore, your
mindset about curtains and the types of paint
colors that you think you want in a property, it
doesn’t matter at all. You have to really come
outside of yourself and realize that if
you have a nice house, and you take care
of it and rehab it, and get it cash-flowing, that
your sentimentality about pink, or having potted plants, or
certain blinds hanging up, or certain carpet color, and
all of that– it goes totally out the window. Who cares what you want? I know it’s hard sometimes. But who cares what you want? No one cares what you want. It matters with
the tenant likes. And if you know your
neighborhoods like we do, then we know what’s
going to cash-flow. We know exactly how to rehab our
properties, because we know– and so we know exactly what it’s
going to going to look like. So I apologize. Did we skip a beat here? Hopefully not. I know that we just had
a little internet hiccup here for a second. But is it still the
same live stream going? Let me know if you guys can
still see everything OK– the beauty of doing live. Can you still see everything OK? Are we all good? It’s blipping a little bit. It’s all good? We’re back? We’re all back. Good, good, good. All right, thanks, guys. We actually had a
contractor calling me, and it actually kicked me off
the internet for a moment. Yes, I used to be on the Daily
Thanks, [? Rule ?] [? Stein. ?] OK, so number one mistake
that new investors make all the time is they’re
not focusing on Return On Investment, ROI. Number two, they’re
investing emotionally. Number three– the
third biggest problem that people make when they’re
trying to invest in real estate is that they try to
self-manage their properties. Self-managing rental
properties– no, no, no, no, no. Please, please,
please do not try to become your own
property-management company. Property-management
companies have one of the hardest jobs in
all of real-estate investing. Not only do they have to
deal with you, the buyer, the person who
has this property, they also have to
deal with the tenants. They also have to
deal with the city. They have to deal with
the code enforcement. They have to deal with
any number of issues that can arise. You do not want to be in the
property-management business. It is a thankless job. They work incredibly hard. They work incredibly hard, and
they don’t make a ton of money. And you do not want to be in
the self-management business. Now, I know it’s alluring. If you’re just starting out
in real-estate investing, you think you’re
going to save 10%. A typical
property-management company– almost every property-management
company I work with charges 10% a month. So if your property rents for
$700 a month, take out $70, and that goes right to the
property-management company before they direct-deposit
your monthly income. I’m happy to pay that 10%. Number one, it’s an
expense for your company. It’s an expense
for year business. It’s an expense for year
real-estate investing journey and career on your taxes. But it’s also let
you off the hook. If you truly want to
create passive income and financial
freedom, why the hell are you managing
properties yourself? The problem is that most people
think they can do just one. So you buy one property. And you think, this is easy. I can manage this one property. And you rent it to
your high-school friend or your brother-in-law’s friend. And everything’s going smoothly. Sounds great, right? Well, what happens
when they move out, and then you get a
troubling tenant in there, and you’re doing all of
the legwork, the background checks, and all of that? But it’s fine. What happens if you
get a second property? This is what I like
to try to tell people. It sounds great when
you have one property. Great. You want to self-manage it? OK. But I don’t want you to just
own one rental property. How are you going
to build wealth? Second, third, fourth,
fifth, and sixth properties– I want you to then
start thinking about what it would be like
to have all of those managed by you as well, because people
don’t think the long-game well enough. They only think short-term. So think about what that
would be like to manage all of those properties– 10, 15 units– and then you’re
showing properties at night. In 10 to 15 units,
chances are you’re going to have a
vacancy in one of them. And therefore,
you’re going to be out on 7:00 PM at
night, 8:00 PM showing properties to potential tenants
at night after they get off work, et cetera. Is that the world
you want to be in? Or would you rather
have that in the hands of property-management teams
that then can take out, show those properties at nighttime. Those particular people who
are showing the properties, the leasing agents, for the
property management team, they get like a bonus if they
get it rented to a quality tenant, et cetera. You do not want to
be in that business. And it just adds a level of
headache that you do not need. So again, don’t self-manage
your rental properties. It is a bad, bad mistake. All right, number
four on this list– not forming a legal entity. The fourth biggest
mistake that people make when they are
getting started and realizing when they’re
investing in real estate is that they don’t
form a legal entity to buy their rental properties. Now, this is a
little complicated. In the United States,
our accountants have advised us to
purchase real estate in a limited-liability
corporation. They take about five
minutes to set up. They cost about $100 to do it. You pick a name. A lot of times, our
investors will just pick the street address– 123 Main Street– great, that’s
the property they’re buying. They stick an LLC
at the end of it. They file it with the state. It takes about five minutes
to do on the website. Incredibly easy to do– so, 123 Main Street LLC. The reason that you
want to incorporate is because now your
legal protection as a business owner, with that
property being owned inside of an LLC is
incredibly beneficial– not only from a
legal perspective. But now, your income is being
taxed as a business as opposed to an individual. So you’re taxed at a certain
tax rate as a human being, as an individual. You’re taxed at a different
tax rate as a business, as a limited-liability company. If your tenant slips and
falls, and you were negligent for some reason, or the
property-management company was negligent, even though they
have their own insurance, and they’re covered, the
chances of you being sued are pretty slim. But nevertheless, they can
only come after your LLC and the value of that LLC. They cannot come after
your personal assets. What does that mean? Well, that means all of
the rental properties I own are in different
business entities– LLCs. That means I don’t
want somebody suing me and then be able to come
after the home I live in. I don’t want people to be
able to come after this home. That’s not something I want. I don’t want that
ever to happen to me. And that is a huge mistake
that if you are not invested, and you don’t have
an LLC set up, you’re going to be in
for a rude awakening. So please, please,
please make sure you purchase properties in a
limited-liability corporation or some sort of business entity. If you are an
international investor, we work with a lot of
international investors– Canada– we actually have
an investor from Slovenia who’s joining us soon– China, New Zealand, you name it. Typically,
international investors may set up a different structure
inside the United States. So we will have Canadian
investors, for instance, set up a C corp, because it
offers Canadian investors a level of liability
protection that they would not get with a limited-liability
corporation, because they’re not
American citizens. So this is very
important for you to talk to your tax accountant,
especially if you’re an international investor. But I will tell you that
inside the United States, if you’re living
here, then an LLC is definitely going to be one
of the best ways for you to go. And again, seek the
counsel of your accountants and your lawyers on that. But you are offered a level
of protection in that. It’s such a smart move. Now, you may say yourself, but
what about buying properties with a mortgage? I won’t be able to do
that if I have an LLC. Well, if you’ve listened to
my most-recent podcast, or one of my most-recent podcast on
the Investing in Real Estate podcast on iTunes
with Garrett Sutton, I would encourage all of you,
go check out that interview with Garrett Sutton. He is Robert Kiyosaki lawyer. And as he will attest,
it’s very, very simple to purchase a property
in your own name. And then, if you’re
getting a mortgage, then once the
mortgage is closed, or once you close on a property,
transfer it over to an LLC. It’s incredibly easy to do it. Just listen to that episode. It’s mind-blowing. You will definitely
learn a lot about how to be able to transfer that once
you have it in your own name, transferring it over to an LLC. It’s very, very simple. So there you go. So that’s number
four on the list– not purchasing properties
in a legal entity. Number five on the list– it’s a simple one. It’s overspending on
your initial purchase. So when you’re buying
real estate investments for the first time,
please, please, please just don’t overspend. What does that mean? Well, it simply means that
if you are buying properties on the open market,
and you’re seeing a retail price for a
property, and it still needs $20,000 worth of rehab– for instance, up here
in the mountains, there’s a house next
door over here– let me just give you an example. It’s a perfect example. This house over here– you can’t really see it. Maybe you can in
the woods a little. But it’s a blue house. It has been on the market
for like a year now. And it needs a ton of
work on the outside. I’m a real-estate investor. I live next door to this thing. I wouldn’t buy it. They’re asking a retail
price for this house. It needs a ton of work. Therefore, if I
were to buy it, I’d have to put an additional
$30,000 worth of work into the property. It needs new siding. And I think it needs an updated
roof, needs a new paint job. It needs updated appliances. There’s a whole slew
of things it needs. Needs updated windows. So that is overpaying for
that particular property. Now, it might be a good
vacation rental for somebody if someone wanted to do that. There’s a couple of
ski resorts near here. There’s a big lake
right near here. So it’s perfect
for summer season, it’s perfect for the winter. But again, if the ROI is
off because I’ve overpaid– now, if I could get
a deal on that house, and I could buy it maybe for
60% of what they’re asking, or even– because I know I’m going to
have to put in about 10% more for repairs so that I might be
still be about 70%, 80% below when I’m done. Maybe. But even then, it looks
like it’s way overpriced. So that’s the problem. People don’t know where
to look for deals. They overspend. They go out on the
weekend because they want to become a
real-estate investor. And they don’t
run their numbers. They don’t know their ROI. And they go out, and
they meet with a realtor. And the realtor says, well,
this one’s been on the market for 100 days. I think it’s a really
good investment. You’re going to bring
in $1,000 a month. And yet, the property
cost $200,000, and you have to put
another $20,000 into it, that’s not a good investment. That is not a good return
on your investment. So please, please,
please know your numbers. And make sure you’re
not overpaying. Now, I overpaid on the first
two properties I ever did. I bought them off the
MLS with a realtor. And I over-upgraded
the property. I put in appliances, I did all
sorts of like hardwood floors. I overpaid. Guess what. Do you think it’s
going to rent for more? Uh-uh. I wish I would have saved that
additional $15,000 in rehab, because it would have
rented for the same amount if I didn’t do those things. And that’s what you’ll learn
as a real-estate investor. And I’ve got a whole
video here on the channel, by the way, on things to
not waste your money on when you’re doing a rehab– bathrooms, kitchens. I walk you through why you
shouldn’t be spending money on these additional items,
because at the end of the day, you’re going to spend
$15,000 more on this crap. And guess what. The property is going to
rent for the same amount as if you didn’t spend
that extra money. So it’s not worth doing
these big upgrades, and overspending on
these cosmetic items, and doing the stuff that’s
not going to come back to benefit you in the end. So there you go. Those are the five items. I’m going to run down
them real quick again– five mistakes that real-estate
investors make when they’re just getting started. Number one, not
focusing on ROI– that’s really important. Number two, investing
emotionally– don’t invest emotionally
in real estate. Number three, trying to
self-manage your properties– please, use a
property-management company, please, please, please. Number four, not
forming a legal entity when you buy your
rental properties– not only to mitigate your
taxes, to help you with that, but also for the liability
protection that you get. It’s a whole other game
once you start setting up and become a business and
you start buying real estate. And number five,
overspending on your initial purchase– please, please,
please don’t overspend on your initial purchases. Make sure that
you’re buying smart, you’re getting a
high ROI, and you’re cash-flowing consistently. So those are my five
tips for tonight. So let me just open it up for
a few minutes to some questions and answers here. I see a lot of
questions coming in. And I was trying to stay
focused on getting you through these five
tips that I wasn’t able to read all of them. So let’s fire off
some questions here. First up, anyone have a question
they’d love to be answered? I can’t believe it’s August . It’s like 60 degrees. It does feel nice. I’m up here in the
mountains of Pennsylvania. All right, Terrance
says, let’s say you get approved for 50k for a minimum. Theoretically, can
you use it as a loan to buy two properties at 25k? Yes, Terrance, theoretically. However, banks don’t like
to loan on properties below $40,000 in value. So it’s going to take
you some finessing to find the right bank, and then
also, to find a property that’s also rehabbed and rented. The properties that we do
are mostly pre-rehabbed. So a bank is going come
in, and say, oh, this house isn’t even rehabbed yet? It’s way easier to do what
Michael, who’s watching, did with one of our properties,
which is, buy it for cash. We do the rehab. It gets cash-flowed,
and then you pull the money back
out on the backside. So you have that 50k. You buy a property free and
clear, pull that cash out. And you’re able to do
a refinance that way. And pull that money out, and
buy another property that way. Banks are much more willing
to work with you when they know that you
rehabbed the house, and now it’s cash-flowing. Jason Allen says, Wyoming
holding company and and Florida LLC per property–
good corporate veil? Yeah, and Jose, I’ll get
to yours in a second. Yes, absolutely. Our tax accountants have advised
us to set up a holding company LLC in the state of Wyoming. And then, in the states where
we own our rental properties, we have LLCs in Indiana,
Michigan, Pennsylvania. And they report up to the
Wyoming holding company. Now it’s important you
get a lawyer to set that portion of it up
for you, because they need to be able to talk
to each other correctly. And that’s important. Miguel– just closed on my
second investment property today. Happy, happy, happy. Awesome, Miguel. Congrats. Pam Dawn says, I feel smarter
after listening to you. Thanks for the info. Thank you, Pamela. Please tell my wife that. I would love for her
to say the same thing. I think she’s mad at me tonight. You know what? We were out on the lake today. And she said, can
we just go home, because I’m going
to have to fight the baby like the whole time. And we didn’t. We went to this restaurant. And then, of course, guess what? She had to fight the
baby the whole time. So she’s angry with me. So I’ll have to deal
with that later. Mark Henry– can you recommend
property-management companies? I can. It just kind of
depends on where. I mean, there’s so many, and
it depends on what market. Best way to purchase
a first property– that’s a pretty
wide-open question– best way to buy
your first property. Mark, no I don’t know any
property-management companies in Fort Lauderdale. I apologize. I’m not in that market. Best way to buy your
first rental property– I mean, literally, listen
to what I just said tonight in these five tips. Make sure the numbers are right. Make sure it
cash-flows properly. Make sure the ROI is there. Don’t manage the
property yourself. Set up an LLC. Now if you’re asking
me about funding and where you’re going
to get the money, I’ve got a whole bunch
of videos on this channel to help you with that,
how to get private money, how to use a home-equity
line of credit to purchase properties,
all of that. So incredibly,
incredibly important. You can buy them with
credit cards, that’s right. You can do a whole
bunch of things. And if you’re interested in
some different funding options, we partner with a great company. If you go to our website,, a fantastic way to use business
credit cards in order to buy your first properties. Is Pittsburgh in
Youngstown area good? Area with $90 Shell
gas plant moving in. Yeah, Pittsburgh is a
great area to invest. Youngstown is as well. Buy they’re a little
oversaturated. And you may pay higher in taxes. And also, I’m not a big
fan of some of the crime in Pittsburgh as well. I went to school at the
University of Pittsburgh. And there are some
troubling areas there. It just gets to
be a little hairy. Peter [? Oates– ?] how are your
Jacksonville properties doing? Fabulous, really, really well. It’s one of those few
untapped areas right now– Florida– where
we’re seeing it’s just a ton of growth,
which is great. [? Rule Stein– ?]
buying a duplex as your primary residence
is the easiest way to get into rental properties. Yeah, that’s a great way, too. Absolutely. That’s called sort
of, house hacking. You buy a duplex, you
live in one side of it. And then your tenants
on the other side are paying your
mortgage, basically. Best areas? Omar, you’re looking
to buy in Indiana. Well, reach out to
my team, my friend. If you’re looking
to buy in Indiana, that’s what we do best. I’ve got three offices there. We do about 50
properties a month. So trust me, I know
every nook and cranny. So please, please, please book
a call with our team right now. Go to our website, Click on the Schedule
a Consultation button. We’ll jump on the phone
for 30 minutes with you and help you figure that out. Rob– I have a 90k HELOC. I’m in California looking
at my first investment. Shoot. Sorry, they’re
just going so fast. Oh, here I go. I can scroll back. What do you know? What areas would you
recommend for a 50k range? Well, again, Rob, that’s
what we do all day long. For instance I spoke
to a doctor yesterday. He’s a doctor in Los Angeles. His friend is also a
doctor, owns four properties with our company. And he said, look, I own
an eight-unit property in Southern California. And it’s cash-flowing terribly. So I’m ready to take the plunge
on buying some $50,000 homes. And so he is. He’s buying, I think, two
of them right now from us. And they’ll cash flow
about $700, $800 a month. We take care of everything. We do the rehab, we
place the tenant. Our goal on every property we
do is between a 10% and 12% net ROI– net. That’s what we do. Let’s see. I hope that helps, Rob. So that would basically
get you two properties with a 90k HELOC. Right there, you could pick up
two properties– boom, boom. Have them cash
flowing-about $700 apiece– $1400 bucks a
month in cash flow. That’s the beauty
of taking $90,000 and turning it into
a stream of cash. [? Bi ?] wants to know–
[? BiPie– ?] do I have to get a commercial loan
to buy a fourplex? No, you don’t. Four units and under is
considered residential. Anything over four is considered
commercial– so 5 and up. Everardo wants to know if I
can set up a call with you. You bet, [? Everardo. ?]
Please, jump on our website. Or you can just email me
directly if you’d like as well. And I can set something
up with our team– just [email protected] Jose wants to know– finding
a good tax accountant that knows real estate exemptions. Jose, I would only
recommend one company. We work with ProVision
Wealth out of Scottsdale– Tom Wheelwright and his team If you listen to my podcast,
the Investing In Real Estate podcast– we’ve done now three
episodes with Tom. He’s the smartest tax
accountant in the world. He’s the smartest real-estate
tax accountant in the world. He’s Robert Kiyosaki
personal tax advisor. He used to work in the
Treasury Department. He used to work
under Ronald Reagan. Book a call with his
team at ProVision Wealth. They are the best when it
comes to real-estate investing. That’s who we use. Soren Lloyd wants to
know– about to close on our third
investment property. So far, all for cash. Which non-bank lenders
do you recommend for us start to leverage our assets? That’s a great
question– non-bank. So you’re talking
about private money. Now, I would say companies
like Visio Lending– V-I-S-I-O. Lima One Capital
is another good one. But they require a minimum
value of about $60,000. So they’re private. They’re private money. They’re basically
like hedge funds. They can make their
own determination of what they want to lend on. So they’re not governed
by Fannie and Freddie and that sort of stuff. I would check there. Start with those guys. SleepIsNotNecessary
wants to know, if we were in a
housing bubble, how would that affect the business? That’s too hard to answer,
because to me, bubbles are specific to demographics,
and areas, and geography. And California, for instance,
may or may not be in a bubble. There are certainly areas– like
San Francisco absolutely looks like they are, because
of all of the tech boom. But where I invest,
we’re not in a bubble– stable, blue-collar
jobs that aren’t going anywhere, minimal
appreciation, slight– like 1% to 2%, 2 and
1/2% appreciation. Very stable. No mortgages. So you can’t buy properties that
I buy, frankly, with mortgages on the front end. Well, mostly. I shouldn’t say that. You can get like– State Farm and other programs
will lend down to a low value. But it’s hard to get. You have to prove income, you
have to prove stable jobs. So I don’t really believe
we’re in much of a housing bubble in most of the country. I think certain areas, we
might see some bubble activity. FourSeasonPro wants to know,
for your first few properties, is it best to buy in a
state where you live? Or should you be
looking at properties all across the country? So please, listen to my
podcast, the Investing in Real Estate podcast
with Clayton Morris. I think episode 3– I talked about how the
best properties are not in your backyard. And I explain why. So please, go and
listen to that episode. I walk you through step-by-step
why that’s not the case, why investing in your own
backyard is a huge mistake, typically, unless you
happen to live in one of these great rental markets. Mike Henry– how about buying
a $10,000, $15,000 duplex with cash– there’s a lot of
those in Ohio and Pennsylvania. Mike, please,
please, be careful. I’ve had a lot of
investors who think that there are greener
pastures by buying one of these dumpy-ass $10,000
to $15,000 properties, because you found it on Zillow. And I love you, Mike. I’m telling you
right now, that’s going to be the biggest
mistake you ever make. Why? Because you’re not going to
even have any idea how much it’s going to cost you
to rehab that property. Then you get it fully
up and running– you don’t know the history
of that property, foundation problems, all kinds of issues. My team will walk
these properties, make sure that we know what
we’re doing before we buy it. We have our contractors, we
have our inspection team. We go through it. We know what we’re buying. So please be careful, Mike. I know it can be alluring
to buy one of these things. If you’re a one-off investor,
and you come into one of these one-horse towns, and you
start hiring contractors, they’re going to see you as a– it’s going to be
like, the vultures are going to be
hovering over you. They’re going to be
like, ah, this guy Mike, he bought this property. Yeah, Mike, we’ll fix
it up for you– $40,000. Rehab will cost you $40. What? I thought it would
only cost me like $20. Meh, we noticed some things
we didn’t find before. OK, let me get another opinion. You’re going to go across town,
try to find another contractor. And now it’s wintertime. And now it’s November
and December. Guess what. A big snowstorm is coming. Now you own this
piece-of-crap property, and the city wants to
start put violation letters on your front door,
because you know what? It’s vacant, and you
have broken windows. And these contractors
don’t want to touch it, because it’s winter. So you need to be very careful. Just please, please,
please, be very careful. Rob– California is
not good for cash flow. No, it is not. I would say 80% of the investors
that we work with at Morris Invest are from California. No joke. And half of my extended
family is from California– father-in-law, mother-in-law. They all own
properties through us. And California is– they live
in the San Francisco Bay Area. This is an example. The same property
that my mother-in-law was able to buy with us, she
bought in Tracy, California, and spent $400,000 on
the same square footage, same bedroom-bathroom count. She just sold it two years
ago and said, I’m done. So just to give you some
perspective on how much– she then ended up
buying one with us, which was like $45,000. Vanessa wants to know, is it
better to rent to section 8 or regular? Personal preference, Vanessa. I love section-8 tenants. You know why? Because the city does
an inspection on it, they make sure that
it’s ready to go. They have to have income, and
they tend to stay a long time. You can typically do like longer
leases with a tenant like that. I love section 8. The only downside I really find
from section 8 is the amount of time it can take to get your
money from the state, meaning, when you get a section 8
tenant into a property, I think they accumulate the
money– depends on the state– anywhere from 60 to 90 days
before they cut you a check. That doesn’t mean you’re not
earning during that time. It just means it’ll
take you about 90 days to finally get that
first rent check. If you want to start
cash-flowing immediately, then that’s not
the route for you. You also can tend
to get a higher rent amount with section-8 tenants. So to each their own. I like both of them. I have section-8 tenants. But I also have regular tenants. What do I know about
commercial lending? Terrance, I don’t know a lot
about commercial lending. I really don’t. There are some different laws
that govern commercial lending and how many you can bundle
together in a portfolio. So that’s something
you definitely want to speak to a
commercial lender. They are governed
by different laws. I don’t do anything in
the commercial space. So I apologize on that. James wants to know, where
are your typical turnkey properties located state-wise? We are in Indiana,
Michigan, Florida, and Ohio. Joe wants to know,
cash-out refinance for 15 years or 30 years? To me, I would rather go
for the lower interest rate, and just funnel all
of that cash flow directly towards
that primary balance, whether it’s a 15- or a 30-year. So I would go for the lower
interest rate, frankly. After how many
properties should you consider having a
property-management company? I would say after the first one. Well, thank you guys. You guys have so
many great questions. Holy Smokes. [? Cuma ?] [? Call ?]
wants to know, after the first
property is acquired, how easy is it to pull cash out? It should be very easy. And you do it pretty
quickly, I think. Like, one of our investors
is on here on the live stream tonight. And I think he just
closed in June. And he was already able to pull
the cash out of that property. Or maybe in the spring,
I think, it was closed. And he was already able
to pull the cash out. And it’s now August– so just a few months. It can happen very quickly Depends on how quickly and
what bank you’re working with. Some will require six
months seasoning for you to hold it– others, a year. It really just depends on
who you’re working with. [? John ?] [? Doe ?]
wants to know, are you still aggressively
snagging up properties? Oh, yeah. In fact, my wife and I
just bought two yesterday. We bought two
properties yesterday. I wish we could keep
all of our properties. But it comes down to capital. My wife came to me
yesterday, and said, our accountants have
advised us we need to buy more properties ASAP. So we acquired two
properties yesterday. If I buy from Morris Invest
in cash, how long before I can cash refile. Or like I said– I’m sorry. I already answered that
question a moment ago. Very quickly,
depending on your bank you’re working with or the
lender that your working with. [? Everardo ?] wants to
know, I purchased a four-unit with leverage and was not able
to put the property in an LLC. Do I wait to pay it off
and then open an LLC? No, no, no, no. Again, [? Everardo, ?]
go listen to my episode with Garrett Sutton
on my podcast. Go to the iTunes
store right now. Subscribe. Listen to my episode
with Garrett Sutton. I think it was like
four episodes ago. The Investing in Real Estate
podcast is the name of it. Garrett explains how
to exactly do this with leverage and an LLC
transfer after purchase. Go listen to that. Mike– oh, the property
you’re thinking about buying is an eight-unit
apartment building in a small, unincorporated
community with a population of 342 people. Eh. Mike, again, I come
back to what I know. The reason I love the
markets in the territories that I invest in is because of
the stable, blue-collar jobs that are there. For instance, in
Indianapolis where I invest, where my
team is located, the properties that I buy are
right next to the hospitals. They’re right next
to the post office, to the Amazon distribution
center, the FedEx distribution hub, the NCAA headquarters,
the convention center. These are all huge employers
and drives enormous amount of jobs that are not
going to China, that are not going to Mexico,
that, during a recession, don’t go away. The hospital doesn’t cut staff. Nurses, postal employees–
those type of people, during a recession, did not see
one dip in my rental income. So a 342-population town– I don’t know. I don’t like those
lottery numbers very much. I know you’re trying
to analyze this deal. Just please be
aware of the jobs. And what is the local
economy look like? For instance, I like
the towns that I’m in, because the vacancy
rate is very, very low. It’s like 5%. You go to places like Memphis– Memphis has over
20% vacancy rate. And the crime is incredible. It’s like over 20%. I mean, the crime
rate is ridiculous. So just be aware of
where you’re buying. Where I like to invest
is like under 5%. So Rob, yeah, absolutely. I mean, I don’t want to turn
this into anything about me, really. But just go over to our
website if you’re interested. That’s what we do. I’m a real estate investor. I’ve been through the wringer. I’ve rehabbed
thousands of homes. So that’s what my company does. Rob says, hey, can you give
a brief overview of what you do with your company. I thought you just invest. So can we invest with you? I run Morris Invest, which is a
large, turnkey rental company, which our goal on
every property we do is between a 10%
and 12% net ROI. And our average property
prices are between $40,000 and $50,000, although, we
just started some brand-new construction properties
that are $68,000– three bedroom, two bath. And they just
cash-flowed $900 a month. And that’s it. We take care of everything. You call us. You book a call with our team. We really want to know what
your freedom number looks like, meaning your financial
freedom number. You can download the free
cheat sheet, by the way. If you haven’t already
downloaded our cheat sheet, just go to It’s free. It’s like three pages. And it’ll kind of walk you
through how to figure out what your freedom
number looks like– how many rental properties
it would take for you to achieve financial
freedom, given our formula. I hope that helps. Thank you, Anthony. He said, I do a
great job, Morris. Thank you, Anthony. I really appreciate that. James wants to know,
do you offer 40k to 60k all-in turnkey houses
in Florida, Michigan and Ohio? Yes, sir. That’s what we do. That’s what I do all day long. Vanessa wants to know,
how long should you hold onto a property? Our goal in-house is to
hold on to our properties for the rest of our lives. I want to hand my
properties down to my children, which is the
way that I’ve structured them with our estate. I don’t ever want to
sell my properties. We’ll go through
economic downturns. Maybe the values will drop
$5,000, $10,000 at some point. Who knows– 10 years from
now, 5 years from now. Guess what. They’re going to go back up. And I don’t care. You know why? Because the cash flow
will stay the same. That same $700 a month in
rent is not going to go down. It’s going to stay consistent. Thank you, Rob. I really appreciate it. Thanks everyone. John wants to know,
what resources do you use to analyze markets? Again, on this YouTube channel,
I talk about crime data. I talk about job growth. I talk about a lot of
those different things right here on this
YouTube channel. We got a whole bunch of
videos that kind of walk you through that. Basically, I look for crime. I don’t I don’t care much about
crime, to be honest with you. Crime data websites
are pretty awful. So I want to make sure that my
houses aren’t getting blown up. But when you drive
down the streets of the properties that I
own, everyone is at work. They’re blue-collar
neighborhoods. I’ve got property walk-through
videos on our website here as well on YouTube. I look for vacancy rates. I don’t want our
vacancy rates to be low, because after all, I want
my properties to cash flow. I don’t want high
vacancy rates like you get in places like Memphis,
and Little Rock, Arkansas– those types of places. Plus, we have job growth. I want stable blue-collar jobs. And also, I love boring. I want my markets
to be very boring, low volatility, and all that. Anthony– have I ever
thought about land investing– no
toilets or tenants? Yes, I have. However, in a down economy,
people that own land or people that rent land, they
want to drive ATVs on them and those types of things, they
don’t tend to hold onto that. They’re much more likely
to retain the house that they live in. They’re also much more likely to
retain the car that they drive. If they’re renting
a piece of land so they can go enjoy some ATV
off-roading with their son, or skeet-shooting,
or whatever, they will likely dropped the ball
on that land investment. And therefore, you’re
left holding the bag. Also, you don’t get to enjoy
the tax benefits of owning land in the way that you do with
owning rental real estate– being able to
claim depreciation. There’s a whole host
of reasons why I’m not. I like land. Land’s fine. But there’s a whole
host of reasons why owning rental
properties is a better. To me, owning rental real
estate is the number one way to build wealth in this country. Bottom line. There is no better investment. There’s no better investment– not even land. Land is like maybe the closest,
but it’s still not good enough. What is my opinion about
apartment buildings? People ask me that all the time. I’ve had great success. And I’ve achieved
financial freedom by buying single-family
homes, because they have a yard and a driveway. And that’s what I know. And I know that tenants
will stay a long time. They come home after
a long day at work, and they feel like
it’s their house. When you have a 10-unit
apartment complex, they’re great. You’re always going
to have a vacancy. It’s incredibly rare that
you’ll be fully stocked, fully occupied. You’re going to be
continually fixing things. Any time you have two,
three, four, five, six, units on and on and
up– multifamilies– some multifamily can be
great if they’re large. But I’m telling you,
large multifamilies– you’re always going to be
dealing with vacancies. But again, Grant
knows multifamilies. He likes them. He’s a commercial
real-estate investor. I’m a residential
real-estate investor. I’ve achieved financial
freedom from doing what I do best, which is staying
focused on single-family homes. And I can’t speak to
how other people– look, you can invest
in storage facilities, you can invest in
mobile-home parks, you can invest in
commercial real estate, you can invest in
residential real estate. You can invest in you can
invest in multifamilies, you can invest in billboards,
you can invest in land, as Anthony was just saying. There’s any number of ways
you can invest in real estate. Find one way that
makes sense for you. Don’t go eight different
directions, though. Stick to one course of action
that works well for you. And achieve financial freedom. So this channel– we talk all
about residential real estate, buy-and-hold investing. And mostly, I do
single-family homes. So that’s what this
channel is all about. I don’t really talk
about commercial. So if you’re interested
in commercial, I hate to burst your bubble. But please, please, please
don’t seek my advice on large, commercial property. That’s not what I do. Thank you, everyone. I really appreciate it. I’ve taken up enough
of your time tonight. Please subscribe to the
channel, if you’re not already a subscriber, to
this YouTube channel. Please hit the Subscribe button. We’re going to be doing
a lot more live events as we build the new studio– the Morris Invest
television studio. I cannot wait. We’re going to be doing live
Q&A sessions just like this. You can bring your
heavy questions. Natalie and I will
both be on here. We’re going to be having expert
guests live as well– folks like Robert Kiyosaki, Garrett
Sutton, Tom Wheelwright. We’re going to be doing
live interaction stuff. I cannot wait. So thank you guys so much. Yes, as everyone’s saying
here, smash the Like button. Can you guys get
the Like button? We have 110 people watching
live at this very moment. Can you hit all the thumbs-up
button right now for me? Pound it, pound it, pound
it, pound it, pound it. I never ask for it. And I just had
one of our viewers say, smash the Like button. Yes, smash the Like button. Thank you so much, Rob. Thanks, everyone, for
all of your kind words. I really appreciate it. Smash that Like button. Let’s see if we can get it
up over 100 before I sign off here for the night. [INAUDIBLE] for all of you. Any comments we didn’t get
to, please just leave them. Jean, thank you so much, Jean. Jeffrey, thank you so much. You’re very kind. And again, please
reach out to me if you have any
further questions. I’m happy to help set
up a call with our team. That’s what we do. We eat, breathe, this stuff. And also, what I love about
real-estate investing is that there’s nothing we cannot fix. There’s no problem
that we can’t fix. Tenant needs an eviction? Great. We’ll get an eviction. We’ll get a new tenant in there. Roof is leaky? Great. Put on a new roof, fix the roof. Water heater breaks? Great. Get a new water heater. You get a violation letter
from the city of Phoenix? Great. Deal with it. There is nothing you can’t
fix in real-estate investing. And that’s the beauty
of this business. Thank you, guys. Love you, guys. Have a great night, everyone. I really appreciate it. Thanks, Rob. Looking forward to working
with you, my friend. Reach out to me. I’m happy to jump on a call. Again, reach out. Thanks, guys. I really love talking
with you guys. And thanks for all of your
really great questions. You guys gave me a ton
of great questions. And I look forward to
seeing you guys next time. Much love to you all, everyone. Thanks, Omar. Thanks, Joyce. Love you guys.

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