Building a Real Estate Investing Plan (Our Story: Part 4)

Building a Real Estate Investing Plan (Our Story: Part 4)


How to put your real
estate plan into place? That’s today’s episode. Let’s dive into it. Hey, everyone. Welcome into the Investing
in Real Estate show. I’m Clayton Morris. I’m Natalie Morris. And together we have
rehabbed thousands of homes. We have, I think, nearly 50– 50 buy and hold
properties right now that cash flow about $30,000
a month in passive income. Try 40,000, honey. Oh, 40,000. OK, good. I always like
these little– it’s like finding a $10 bill in
your pocket you don’t realize. You found $10,000 a month. Woo hoo! Great. All right. Good. So yes, we have that
kind of passive income. But real estate is the
vehicle that we use. But who cares about
real estate, right? It’s four walls and a roof. We teach you how to find
the right properties and all that on this show. But what we do is we want
you to build passive income, hit financial freedom. And the vehicle that we use
is real estate to get there. Simple. And today, this is part four
of our story, our journey, we’re going to talk
about our plan. So we’ve gone through my
disasters in the early days, back during the housing
collapse and investing in a Phil Mickelson golf
course community and all the craziness. Natalie buying an A class
property in San Francisco. And all the problems
that created. And then us hitting rock
bottom, losing our jobs. And now the turning point. And how putting it all
together with a battle plan. And how we’re going to start
to invest in real estate. Am I right? You are absolutely right. And we are sharing
this story in hopes that we can inspire you to
build wealth for your family. And show you how we
did it, so that you can come up with your own
unique way for how you do it. So we talked about how we
both lost our jobs last week, we had this sort of
existential crisis inside of our own identities. And we decided,
OK, we don’t want to be paycheck families anymore. We want to build passive income
through performing assets. So we decided to take
every dollar that we can and channel it into
buying an asset. And one of the quotes
that I like so much from Rich Dad, Poor Dad. We talked about how I read that
to you on a road trip for– a couple of road trips
actually, because it’s a bit of a long book. And one of the quotes
that stuck with me is that the rich buy assets
and the poor buy liabilities. So what we did is we went
through our balance sheet. And we went through our budget. And we figured out how
much of the dollars that are coming into our
family are being funneled into liabilities. So let’s say you have $100. Is a third of it spoken
for by your mortgage? That’s a liability,
not a performing asset. Is a third of it spoken
for by your groceries? Obviously, those
don’t perform, right? That’s just a bill. Is a third of it then spoken for
your car payment, your student loan, your utilities
bills, right? Then what of that
money are you keeping? None of it. Right? That’s three thirds is
you’re getting right up to– so you have maybe 1% that
you can build assets with. So you have to evaluate
where your dollars are going and decide, no longer do
I funnel all of my money into liabilities, because
that’s just treading water. That’s not building anything. That’s the lie that we’ve
been all told, right? Do you buy a house. You work for somebody else. You funnel money into Wall
Street, which is a 401(k). And you’re paying an enormous
amount of taxes, right? So you’re paying the
government, you’re paying a bank for the
house you live in, and you’re paying Wall Street
for the money in your 401(k). That is not financial
intelligence. That is financial idiocy. And we were doing it. And we were now
coming up with a plan to change all of that, right? Right. So I just texted Clayton because
I want him to really realize how we’ve built. So what I
just sent you was our balance sheet from 2013. This was right after we
had our second child. We were just starting to sort of
change our perspective on where our money was going. Look at all these stocks. Oh my God, it makes me sick. I know. It’s crazy. It’s like looking at your
wedding album or something. Right. Vanguard index. Makes me sick. But no. Click on the third sheet that
says balance sheet May 2013. OK. So our daughter was
just about to turn one. And if you look at all of the
things in our asset columns, these are not really
performing assets. They’re assets, but they’re
not performing assets. What do you mean? So you’re saying
things like my 401(k)? Like Clayton’s 401(k), right? Fidelity investment account. That was not making any amount
of money that we could live on. It was sort of pennies,
but it was also high fee. Natalie’s Bank of
America savings account. Clayton’s Capital
One savings account. And then, look,
we have the 529s, we have the house
that we lived in, and we have a Jetta and
a Ford Escape, right? So almost none of
these perform at all. We couldn’t live off a single
one of these performing assets. None of them produced
cash flow for us at all. And then if you look at
our liabilities here, it’s mortgages and car payments. And it’s half. We had 50% liability to assets. Now, I’m going to
link you– and I’m sorry if everyone else hears
the sending of the text. You’re going to hear, whoop. Now, look at our
assets for 2018. OK. All right. I’m clicking. I’m clicking. OK, so it’s a big long column. And more than half of
them we live off of. We can live off of almost all
of them in our asset column. Wow. So it’s a dramatic– Yeah, it’s a humongous change. So we went from– let
me just explain that. We went from a whole
bunch of like lines on this spreadsheet
saying things like Fidelity, Vanguard fund,
all this kind of rigamarole, right? Making Wall Street profitable
to making ourselves profitable by taking that cash
that was making Wall Street, we’re paying exorbitant
amount of fees, and when the market goes
down you lose everything, to buying actual physical
property that is now producing cash flow for us each month. Oh, and it gets even better. Because now it’s a
tax shelter in a way that our 401(k) never
was a tax shelter. Now it’s an actual tax shelter. We can claim depreciation. We can claim all
business expenses because we bought these
in an LLC as a business. And this is how you build
financial intelligence. This is real wealth
building right here. This is amazing to look at. Yeah, it’s really–
this is your life kind of thing told in
numbers, it’s like The Matrix. So when I did this
balance sheet, it says, at the
bottom, May, 2013, our daughter was just
about to turn one. It was right around the
time that we read this book. And I looked at this and I
said, well, these assets, we can’t live off of any of them. So we’re no closer
to retiring now than we were 10 years
ago, just because we have these sort of few nest
eggs scattered around the stock market. And so we really
decided that we wanted to funnel our money
into performing assets. And we thought, OK, real
estate is probably a good way, but we didn’t know
where to start. We thought, well, should we
find a real estate agent? What market should– should
we just go looking for things in our own backyard? And I don’t know how
the heck did you– Clayton just really got obsessed
with real estate podcasts. So how did you even
didn’t think of that? Well, and books. I mean, honestly,
I heard as a guest to somebody in the
wholesaling space on, I think, The Entrepreneur On Fire podcast
with John Lee Dumas, who I’ve been a guest on his
podcast since then, which is kind of crazy. And he was like buying
off-market properties. And I remember just like sort
of listening to this strategy thinking, wait a second,
this is the answer I’ve been looking for. Because I was thinking,
you don’t just call up a realtor to find properties. You’re going to pay
like above retail price. And then what if it needs an
additional $10,000, $20,000 worth of work into it? Now you’re above
where that is, right? So do you want me to
tell the airline story? The flight? I think you did in episode one. Oh, OK. Yeah, I’m pretty sure you did. Well, I can tell it again now,
because if you didn’t hear that part, I mean,
this is what I was listening and kind of
gathering up these ideas about real estate investing. I didn’t quite know how we
would get there though, right? I wasn’t sure exactly
where we would go, how we would get there. And I was on this
flight to New Zealand. We took the kids out to visit
your folks in San Francisco. And then I went from there to
visit my friend in New Zealand, who’s a photographer. And I was only going to be
able to be there for five days. And on this 16 hour
flight, the couple that was sitting next
to me on the flight, they’re in their 50s. And they asked me– we
were descending, right? So we’re like on our
way down to the tarmac. And there, we just
start talking. And they asked me how long I
was going to be in New Zealand. And I said, five days. And they said, oh, five days. That’s a quick trip. I said, yeah, I
don’t have much time. I’ve got to get back
to work and so forth. And I said, what about you guys? How long are you going
to be in New Zealand? And they said, we’re going
to be here for two months. And I said, what do you do that
you can be here for two months? They didn’t look retired. And he said, oh, I’m a
real estate investor. And I said ding ding
ding, holy smokes. This is crazy. So I just started
picking his brain. I’m like, where do you invest? He’s like, oh, I
invest in the Midwest, not overpriced properties,
where most of the country lives. He said, I’m from California. I would never invest
in California. Me and my partner we
buy single family homes. We renovate them. We’ll buy them for 25,
put $20,000 worth of rehab into them, and get
them rent ready. He’s like, we don’t over
upgrade our properties. We’re not putting in
granite countertops. We’re not– don’t put in all
these extra bells and whistles. He’s like, we get
them rent ready. And that means new
mechanicals if they need them. We don’t update the
roof unless it needs it. We put in new windows
if they need it. And then we rent
them out to tenants. And we’ve got a
lot of properties. And he said, so while
I’m here in New Zealand, that cash flow from
those properties will be keeping my
wife and I happy. And she just kind of laughed
and she said, yeah, it’s great. The passive income comes
in from these properties while we’re traveling. And we work for ourselves. And he said, I only focus on
ROI, return on investment. I don’t care about real estate. Don’t fall in love with the
adorable little bungalow. Just buy four walls and a
roof and get it cash flowing. And I was like, God, this is– someone just gave me– that’s it. The secret formula right there. And when I landed, remember
you were like, honey, how was your flight? And I called you
on FaceTime audio. And you could barely
hear me because we had such a bad connection. What was I saying? You were like, blah
blah blah, real estate. We’re going to do this. And buy more. And I was like, oh, OK, I just
figured you were jet lagged and talking all
kinds of nonsense. I mean, I only heard
every other word. And I was like, yeah, all right. But by the time you got
back, you had already done some googling,
figured out this market you wanted to start in. And you found a real estate
investor who helped– or a real estate
agent who helped you identify off-market properties. He was great. He was one of the few real
estate investors who are really used to– or agents,
rather, who were used to working with investors. And knew how to find
them great deals. Not all agents know this. In fact, they don’t really even
teach it in real estate school. I’m a licensed
real estate agent. And I think they– I mean, it’s like they
barely speak about investors. Maybe they graze over it. No, they’re focused on retail. Yeah, they’re supposed to
help you find a primary home. They’re good at that. But for investments,
it’s really hard to find one that knows
what you want and knows how to help you find ROI. So Clayton was lucky enough
to find a guy in Michigan. And we found these
two properties. Clayton paid cash for them. And we found a guy
we knew, his brother was a contractor
who rehabbed them. It took him a really long time,
but the properties we buy now don’t take nearly this long. I think it was like
two and a half months. And we paid him in cash. And it was a lot of work. It took a really long time. And it was expensive. But when we finally
got renters in there. I think they were on the
market for like three weeks before we found for tenants. And Clayton was really nervous
during those three weeks. And then you got an email
from the property management company saying, we
have secured tenants in both of your properties. They move in next week. And rent will start at
the end of the month. And I remember it. I was on the elliptical. We were at the gym. And you were off in the weights. Clearly. Clearly. You don’t see these guns? Right. And I remember you saying, we
got it, we got it, we got it. And I was like, what
are you talking about? I didn’t even know
what you were talking– I didn’t know that this
was bothering you so much. You were good at
hiding that from me. And so I was like, what
are you talking about? And you’re like,
come here, so we met in the middle, where
the weights meets the cardio machines, remember? And you were in tears. And you were like,
I did it, I did it, like we have this
passive income now. Even your mom had
texted you, like, your dad and I are really
worried that you spent all this money on these properties. Like, they really felt like,
oh, no, here goes Clayton again. He’s going to–
because you had already lost everything in real
estate investments before. And they were like, oh,
son, what are you doing? And it’s funny. This time though, like, OK,
I’m really waiting on this– just this one
moment of letting me know that they’re rented, right? But it’s totally different
than my previous investments because I purchased
real assets this time. Before I invested in some
speculative land project that didn’t even exist. Here I actually invested in
these small homes in Michigan that are three bedroom,
one bath, two bedroom, one bath that needed some work. And, yes, I paid more for the
rehabs than I should have. I upgraded and didn’t take the
advice of my airline friends. And I put more
bells and whistles into it than I needed to. I even was– at
one point I’m like, should I put a Nest
thermostat in there for them because maybe they’d
want to control it from their smartphone? And my contractor was like,
ah, no, no, you shouldn’t. And these kinds of–
but the difference is– The point is that these
were actual assets. They existed. So what was the worst
that could happen? I could have a vacancy
for not three weeks, but four weeks, five weeks,
six weeks, seven weeks, even that’s not
the world because I paid for them with cash. So I’m not paying a mortgage. You know what I mean. But it was totally different. So that fear was not
necessarily founded at all. But it was weighing
on me because I felt like I had been such a
failure through most of my life with wanting to do
these types of things, with wanting to make
a difference for me and my family. And when I saw that these
properties that I discovered based on my flight
to New Zealand, they taught me where to buy. No, don’t overpay. I bought like a short sale. When you can buy short sales. You can’t even
find them anymore. I bought a foreclosure. And it needed a lot of work. And it worked. People do this that
don’t go to college. And they’re millionaires. And they live on financial–
they live on passive income. And they don’t
have to have a PhD. Yeah, well, I don’t know– why do you got to
poop on college? Well, because they don’t
teach financial education. They don’t teach
financial literacy. They teach you how to
work for somebody else. All right, I get where
you’re going with that. Yes, but a lot of real estate
investors do go to college. And you can learn a
lot in college too. How many wealthy
PhDs do you know? I have to think on that. I’m not just going to throw
the PhD under the bus. Good luck. I will think on that. And I will get back to you. So in the next
episode, we’re going to talk to you about how we
went from these two properties that we bought to now 50. That I think is going to be a
long episode, because it’s not just any one way. Yeah, we used many, many
tricks in our toolbox. But, yes, sort of aligning
ourselves philosophically and having that first win
and realizing, oh my gosh, every month now
this money comes in and we don’t have
to work for it, we just own this performing
asset, was huge, right? So we went from
that balance sheet I texted you in the
beginning of the episode to now what we’ve got now. It’s been a really fun journey. And we’re going to
tell you how we did it. That’s right. So that’s coming up
on the next episode. We hope you suffered through
our little battle plan here on how we got started. So what I always want to say
to you is use this as our plan. This is one way to build wealth. We did it with single
family properties. This was our strategy. We followed it through. We’ve helped a lot
of our investors who’ve bought properties through
our team do it the same way and achieve financial freedom. If you have another way
that you’d like to do it. You want to invest in
billboards or cattle futures or something like that. That’s great. This is the way that we did it. Local organic
farming is something that Tom Wheelwright
talks about actually at the end of his book. Don’t laugh. He actually talks about how
it’s an amazing tax shelter, because this is what
the government wants, is local organic farms. Right. So you want to do
that, go ahead. That could be your way. I’m sure there are people
who get rich off of that. We don’t know how. We have no podcasts about that. We built wealth on
single family properties. And that’s what we’ve
done to create success. So that’s what we teach here. So there’s a huge arsenal of
information in this channel. And I hope you will
sit down, share it with friends and family, and
make a difference in your life because it’s all here,
exactly how we did it. Now, I want you to go
out there, take action, become a real estate investor. It’s the number one way to
build wealth in this country. We’ll see you back here on
the part five of our story. Bye, everyone. Sayonara.

51 thoughts on “Building a Real Estate Investing Plan (Our Story: Part 4)

  1. Hey Clayton and Natalie,

    Can you point me to a podcast where you talk about maintaining the cash flow? So many critics of approaches similar to yours is that any CapX events (roof, water heater, flooring, etc) and vacancy make it difficult to truly cash flow. In other words, all it takes is a roof repair to wipe out such a small cash flow for months, or even years. Is it a numbers game where you have to have a certain threshold of homes before you start ensuring that enough performing homes compensate for those major repairs along the way? I’ve heard many stories of people disgusted with homes like yours because while they garner rent, the vacancy and major repairs that occur every so often wipe out any cash flow momentum built on the property,

    What are your thoughts?

  2. Love this series keep up the good work! One question, not sure if answered but do you see an economic correction anytime soon that could potentially effect the housing market? I know no one can see a bubble thats what makes it one

  3. Should i buy my first property with cash to not have a mortgage and save the cash flow to put a downpayment on a second property please respond

  4. Boy you have never L**d!!! Make other people wealthy and we work and pay multiple taxes out of our paycheck not including all the bank fees just to hold our money…and the cycle just went over and over….MATRIX….AND THEY WON HANDS DOWN!!!

  5. Amazing story on this 4th installment, you two inspire me SO freakin' much!! 😉 The fact that your parents were truly concerned about you "wasting" more money on some new real estate deals yet you strategized right this time is just awesome Clayton!! Although I've built my life & career around music i MUST get into passive income utilizing Real Estate & other creative entrepreneurial endeavors 😉 People ALWAYS need somewhere to live!! Thanks, cheers!!!

  6. Great video as always you two! Clayton, is there a way to contact you directly? I've spoken with your team and have a few more follow up questions and have had a hard time speaking with someone. We're on a time crunch and need to make some decisions fairly quickly. We're interested in about 3 of your properties, thank you.

  7. Love your podcasts and youtube videos Clayton and Natalie!! I'm focusing on getting my budget in line, but down the line I hope to be able to work with your company to start to invest and get that passive income going….can't wait for Part 5!

  8. I have recently found your channel and it has helped change my frame of mind around real estate investing and I cannot wait to get started, thank you for sharing in such detail! Question: are the accounts and lawyers you work with local to you or do you have them in each state where you invest? Also, do you know any Canadian investors I can also follow to learn more about how to go about investing where I live? Thank you!

  9. great podcast guys. I can relate to the college opinions. my 18 year daughter is hitting me up, I've toured schools who are so thrilled about getting her a music degree for 30-50k/year….of course no one knows what job that will equate to but she will have a degree…..what a scam……I say "show me the money" and that is just a debt scam on young people. that's not me anti school more anti dumb plans! getting in major debt for a "degree" so foolish. young people need us to advocate for thier well being or they will be screwed. I think I got her going to community college until she has a plan, only 5k a year, I feel like a winner here.

  10. Hey Clayton, I was discussing this opportunity with a friend and a question came up that I couldn't answer. What is the reason why we cannot get a mortgage on your properties even if we are buying conventional? Why all cash…thank you for your time.

  11. Clayton – really enjoy your videos. I've talked to a guy on your team and I am signed up for purchase opportunities. I have to ask if you are considering the Milwaukee, WI, area at all in the future ? Please let me know and we could connect. Thanks.

  12. Thanks so much for the info! I espcially loved the part where you asked Natalie to name a single wealthy Ph.D hahaha I don't mean to offend anyone but that one made me laugh

  13. Hi. Thank you both of you for all the useful tips.
    I do have question:

    Natalie mentioned that y’all are making $40000/mo from 50 properties.

    the above income constitutes to y’all making $800/property. As you (Clayton) state that you look at ROI after deducting 40% for all associated costs.

    Then it seems like you ought to be making $1300+/property/mo.

    But you have mentioned in the past that you look for $700/mo in rent and at that rate you income would be almost half the $40k/per month.

    Can you please help me understand how are you computing for $40k on 50 properties. As I am unable to arrive on the number based on your business model?

    Thank you so much, again I love the videos you both share.

    Sincerely,

    Al

  14. Thank you for sharing. I really do like the information you share. My only critique is that the average person who can't pull together $1000 for an emergency may have trouble figuring out how to get from where they are financially to where you all first began. It would be helpful if you could include some links or content of your own about how to get from Point A (e.g. being broke) to Point B (e.g. a place of being able to save money) to Point C (e.g. purchasing a cash flowing property).

  15. 80% of my working dollars go to savings, I want to move that money into real estate somehow but the start is rough.

  16. Hi Clayton and Natalie!!!  Love you guys because of what your doing for people, including myself.  I love FOX and Friends as well and the whole team!I have a question, I have considered your plan of buying single family houses and fixing them up a little but I am not sure how to scale the house pricing.  You say you purchase $40,000 to $50,000 then put a little into them and then rent them.  My problem is my area doesn't have 40 to 50 thousand dollar houses.  I live in Rhode Island where rent for a single family home goes for about $1300 to $1500 a month.  To purchase one in need of repair may be about $80,000 to $100,000.  Put about twenty thousand into it and well you get the picture, its easy for you to come up with 40 to 50 grand but I would need about 100 to 120 grand to do what you are doing.  Does that mean your plan does not work for me or am I looking at this all wrong.Please advise.

  17. Random fact: "sayounara" does mean "goodbye" but is used in situations where you don't expect to see the other person for a while. "Jaa ne" also means good bye, but is used in situations where it could mean "see you soon". So Jaa ne would be better if you expect people to watch the next part of your podcast.

  18. I admire what you guys did but I have some questions. I listened to all the 4 parts and to own 50 properties and make $40k monthly income you have to make $800 average cash flow on each property. If you are indeed making $800 and you pay cash for the property of $50K that's a $19% ROI and if you are paying only 25% down payment that's a 70% ROI. All this is achievable but not in the current market condition. I just think your numbers are exaggerated a bit.

  19. 13:00. in tears?!! no not my boy morris… esp at the gym bro? lol. Say it aint so !! jk. best feeling in the world to have tenants after a while

  20. Are you two still in gym pants? Ha ha ha, that’s how you know you’ve made it… it’s not a driveway full of lambos.. it’s sitting at home together, on a Tuesday afternoon in gym pants or jammies, doing the things you’re passionate about!

  21. Would you suggest to buy your own place for living first before buying any investment properties considering following scenario: we live in Southern California we are paying for rent $2700/month. To own a house I can use FHB loan and pay exactly the same amount or $200 more for mortgage and then start purchasing investment properties, priced at 100-150k each ? Any input would be highly appreciated;))

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