Should You Buy Low Cost Rental Properties?

Should You Buy Low Cost Rental Properties?

Why I love buying $40,000
homes, in that price range for rental properties,
that’s today’s video. Let’s dive into it. [MUSIC PLAYING] Hey, there. I’m Clayton Morris. I’m the founder
of Morris Invest. I’m a longtime real
estate investor. And this channel is
devoted to helping you create passive income,
helping you to change your life we hope, create legacy
wealth for you and your family. And it’s all about buy
and hold real estate. That’s what we talk about. So let’s dive into
today’s topic. $40,000 Homes. Now those are the types
of houses that I buy. OK? Now recently, I saw in
some forum somewhere, some yahoo commenting
about $40,000 homes. He had never purchased
a property before, but he was worried. And he said, in
fact, he even labeled these types of properties as
ghetto, that these properties are in the ghetto. And I thought to
myself, I clearly can see that this guy is
from Seattle or San Francisco and he has some sort of elitist
mentality about these types of properties. But I want to dispel that
for you in this video today. $40,000 homes. These are the ones that I buy. And I own many of them. I have been able to achieve
financial freedom for me and my family by purchasing
single-family homes, three-bedroom, one
bath, two-bedroom, one bath, with a yard
and a driveway in some of America’s most affordable
highest-cash-flowing, lowest vacancy rate cities
across the country. The type of tenant that
usually rents from me– a nurse at a hospital. I have many nurses. I have high school
principal as one of my tenants, factory workers
that work night shift– long-haul truckers
who distribute goods all over the country and need
a place to hang their hat, but they’re not home
very much because they work near the
distribution centers near my rental properties–
convention center employees, hospital and hotel
workers rent from me. These are the types of
hardworking blue-collar tenants that rent in my properties. Now I guarantee you, yes, there
are some really rough towns across America. And you could probably
pay $10,000, $20,000, $30,000 for a really crappy
house in what they’re labeling the ghetto. That’s not what I buy. I buy in C-class
neighborhoods, and sometimes, I spend a little bit more
into B-class neighborhoods, but not often. Because those tend
to have lower ROI. Now I’ve got a whole video on
the difference between A, B, and C neighborhoods. You should watch that. And by the way, I also have
another video explaining ROI, or Return On Investment. So those are the types
of properties I buy. I love buying those
properties for a variety of reasons, which I’m going
to get into right now. So we’re going to go over
a lot of numbers now. And I want you to
think about this and really kind of enter
this process with your cup empty for the moment
and really just allow yourself to learn and soak
in some of this information. Because when I learned
it, it changed my life. Now I’m not the
first to do this. One of my mentors owns 500
of the exact same properties that I now own. He also owns single family
homes, three-bedroom, one bath on the
same streets that I do in some of America’s most
affordable rental markets. The reason that I
love these properties is because I started
first with my goal. And that’s what
I want you to do. OK? So step one in this process
is to start with your goal. If your goal is cash
flow and creating unearned passive
income at a high level, I’m talking a high
return on investment, then you’re going to want to
be in this same price range. I’m talking $30,000 $40,000
$50,000 $55,000 maybe $60,000 price range on
your rental properties. Once you start going
higher than that, then what’s going to happen? Your ROI, your return on
investment is going to go down. And your equity
situation is going to go a little bit higher. Now you think to yourself,
well, I want to have my cake and eat it too. OK. It’s almost impossible. There’s a slight
little gray area where you’re going to get a
higher equity for paying more for the house. But your cash flow
is going to go down. It’s frankly impossible to be
able to get that cash flow up to the equity position
all the way up. It’s not going to happen. So if you’re a little skittish
about buying a property in a C-class neighborhood,
then what you’ve got to do is mentally
understand that you’re going to make less
money, that you’re going to be going after
equity and appreciation. So there are three stages
of real estate investing. There are three different
ways you can make money. Cash, flow which
is what I go after. Equity, which is nice. It’s secondary to me, and
I don’t really, frankly, care about it. And three, is appreciation,
which after the 2008 recession is all but dead as a
true investment vehicle. I look at appreciation as sort
of nice icing on the cake. But again, to go after those
$40,000 $50,000 $60,000 range homes, you’re going to
be able to get a higher cash flow and a higher relationship
to your purchase price. Now if you’re paying
more for the house– as an example, let’s say
you pay $100,000 for a home and it rents for $1,000 a month. OK? Let’s put those numbers
up on the screen. $100,000 home, it rents
for $1,000 a month. OK. Now if I pay for
a $500,000 home, do you think that that house
is going to rent for $5,000 a month? You would think so right? [BUZZER NOISE] Nope. Not going to happen. The cutoff point
is about $150,000 in value, for that rent to keep
up with the value of that home. So when you go up
to $200,000, you’re rent is not going to
$2,000. $300,000 it’s not going to $3,000, 4, 4 5,
5, it’s not going to happen. So you need to remember
that as you pay more, your rent value is
going to go down. It’s not going to keep up
with the cost of that house. So again, I come
back to the goal. For me and my wife,
my goal was cash flow. I wanted to get as many houses
as I could producing about $700 a month in rent. I wanted to cover all of my
monthly expenses in my life, groceries, car, kids’
schooling, clothing, meals out, vacation, mortgage payment,
Netflix subscription, whatever, right? I wanted rental properties
to cover all of that. Well, what’s the quickest
way to get there? Cash flow. Cash flow is king. So in those price
ranges of those houses, I’m doing a full
renovation on the property mostly, and putting a great
tenant in that property. And it’s fully managed by
my property management team. And they are a cash flowing
money-making machine. I don’t have to worry
about vacancies. I build that into my ROI. But those are always rented. But here’s the thing. You know what properties end
up having a higher vacancy rate and end up costing you
more in fixing things up? You’re right. It’s the more expensive homes. Why? Because in A-class
neighborhoods, you tend to have
higher vacancy rates, you also tend to have
mechanicals and things that break way more often than you do
in those smaller cheaper homes. Air conditioning units,
garage door openers, garbage disposals,
God knows what else, but you also end
up having problems with those A-class tenants. In a down economy, those are
the folks that lost their jobs. In a down economy,
these people who work at the hospital, who
work at the post office, don’t lose their jobs. These are the people who will,
then, continue to rent and stay in those properties. These are the people then,
who end up being out of a job, unfortunately. It’s those upper level managers,
when a company is in trouble, think about this, right? It’s the person that delivers
milk that loses his job, it’s the person who’s
sitting in the office that tells that person to deliver
the milk that loses his job. I saw it with my dad growing up. I know it to be true. He worked in a big meat company. When the economy tanked,
my dad lost his job. He was a manager. He was a leader in that company. He lost his job. The guys driving the trucks
did not lose their jobs. So again, think about
that when you’re thinking about your investments. If you’re a little skittish
because you live out in San Francisco and you
like to sip some lattes and you kind of sit back
and think that you’re all high and mighty and
elite, and trust me, I read these people
in the forums who think that
buying a $40,000 home is buying a property
in the ghetto. And it just makes me so angry. It really does. It really offends me. I’d almost want to
pair up that person, that little elite little
punk with one of my tenants who’s working hard and
works in the hospital, works in the factory
that drives this economy across this country. And tell him, what kind
of a house do you live in? You have a yard,
you have a driveway, the house is rehabbed,
your furnace works great, you have a new roof,
you have new windows, you have a new water heater– do you, sir, live in the ghetto? It would be an interesting– I’d like to watch that
pairing back and forth. You can see how angry makes me. Again, my goal in
mind was cash flow. If your goal is equity, then
you better use that equity. If your goal is
to buy a $300,000 home because you want
the equity, great. If that’s your
goal, then use it. Leverage that equity. You know, then go out and buy
multimillion dollar apartment complexes. Use it. If your goal is cash flow
then you should start young and you should start
as soon as you can. Because cash flow compounds. You’re able to build up
that big wad of cash, buy more properties, and
snowball your retirement. Get out of the rat race. Create passive income and get
your family’s legacy wealth on track. So those are the
different reasons why I buy $40,000 homes. And I’m going to tell
you, I can go toe-to-toe with anyone who wants to
tell me that you should spend $300,000, $200,000, $150,000
on your rental properties, just so you feel better
about your equity position. Again, my properties aren’t
going to appreciate very much. If I’m buying a
$40,000 home, chances are it’s going to be
worth about $50,000. And guess what? In about five years,
it’ll probably be worth about $50,000,
maybe $51,000 $52,000. But you know what, I don’t care. Because again, I’m going
after the cash flow. I don’t care about the
$5,000 in equity at all. Yes, if you’re
paying for $100,000 home, maybe in
five years it will be worth $110,000,
$120,000, great. So a little bit higher
percentage of equity. Great. You better be leveraging that. You better be using that. I’d love to hear your thoughts. I get really
passionate about this. And I kind of get
angry, as I mentioned, when I see people commenting
about things they frankly don’t understand. I often find that it’s
like whisper down the lane like in kindergarten, right? One person that they know
from one person from who knew from one person had a
bad investment in a $40,000 home years ago. They probably bought it wrong,
didn’t know the neighborhood, didn’t manage it properly,
and had problems, didn’t have the proper
insurance on the property or something like that. And then this trickles
down to other people. Oh, I’d never buy in a
neighborhood like that. Great. Then please don’t. That means more for me. I’ll buy them and so
will my investors. I would love to hear your
comments in the comment thread below. Any questions you have, I’m
happy to answer them as always. You can always
reach out to me, I’m happy to answer your
real estate questions. And please, subscribe
to our channel. We’ve got the big Subscribe
button right here. Go ahead and subscribe. We publish videos
multiple times a week. Go out there folks. I just want you to go out
there, take action, and become a real estate investor. Get off your butts and do it. There’s no time
like the present. We’ll see you next
time, everyone.

42 thoughts on “Should You Buy Low Cost Rental Properties?

  1. I think you are totally correct. I purchased 9 homes in about 3 years in the Dallas area for cash. Friends asked me if they were in the ghetto, but they were class C and class B. I never purchased a home for more than 63,000 in DFW. I purchased one for $17,500. I have sold two of these homes after 4 to 5 years of rental income and still captured $100,000 on each of the two properties.

  2. Hi! I love your channel and appreciate your content. Thank you) I am currently house hacking, and planning my next real estate move. Searching for the right market for Roi that will allow me to use the brrr method. Would I be able to get helocs or cash out Refis on these properties that are in class c neighborhoods and that cost about 40 to 50k after rehab. Thanks!

  3. I can’t sleep as I keep watching your videos!! My wife won’t seem to get on board with rental properties but hopefully if I keep showing her your videos she will see what you have shown me:). Thank you!

  4. Mr Morris my name is Luis Suarez, believing that God put on people paths Angels that give light and knowledge to amateur persons to learn new skills por financial freedom. I just will like to consider you as my mentor.

  5. Very interesting. Thank you Sir. I'm just getting started. I kick my self cuz in my neighborhood a house just sold for 40k. I should have bought it. The man who hought it is making good cash flow.
    Thank you

  6. I really n support your idea buying low cost homes for cash flow and short time ROI
    I am begginer in real estate investment can you suggest the best cities or towns for rental property with low vacancy and rent demand ???

  7. Hey great video! Im a beginner here. Im raising my credit score. Id like an 800 score before i commit to anything. I have around 30k in cash but perfer not to use it all ( just incase i have to cover mortgage due to vacancy) im looking in jacksonville area. I live near west palm beach in st lucie county. Not sure if your familiar with port saint lucie… Research is telling me jax is great right now for investors. Thumbs up this comment if you reply because i have notifications off because i get woken up at 2am from responses to thousands of comments. My question is what nieghboorhood in jax do you reccomend? Any help would be greatly appreciated! Thank you!

  8. I bought my first property for $120,000. It was not a bad investment, but if I had known you before, I would come right after you for advice.
    Now that it is done, I will consider that 120,000 as an investment in my learning. Now, i know better.
    Thank you!

  9. I’m interested in buying rentals with cash and using the rental income with my income to buy their houses with cash in full so that I have near 100% cashflow I’m wondering if you hear of anyone doing this rather than refinancing each time they buy.

  10. I have a property in GA USA. It was only rented for 4 months out of 16 months… How do I know if the company that manages my asset is Ok? How do I know my Invesment is good? How to go forward? Just subscribed .

  11. I live in Colorado where even mobile homes sell for $80k….

    It's crazy just how expensive everything is here…. I think I need to go for other states, but it's scary trying to manage something so far away… Plus I've never really been outside of Colorado, but you gotta do what you gotta do.

    I think I'm gonna take some travel trips and visit some of the midwestern states and see if I can find some cheaper properties.

  12. This is some gold information. I'm starting my own buissnes, and I want to get into real estate as well. I'm taking notes.

  13. I agree with you 100%. I am also inspired by this video I am trying to do this for myself. Sometimes it seems like the road to success is a very lonely road, but I hope to be able to meet people like you someday who inspire people such as myself. Thank you Morris for this video.

  14. Why get upset? Let people believe what they want to believe..

    I really like your business model and as a homeowner, it's totally believable.

  15. This is one of the best real estate videos ever !!! New subscriber only two videos in.. I like Kevin and grant but you've won me over

  16. Where i work homes are literally selling for 60k and renting for $6-800 I live hr away in capital county and am currently under contract to buy a home for 241k to live in that's not built yet but sometimes I consider cancelling contract losing escrow and buying a few of these 60k homes and build more wealth

  17. Could it be that the offended one does not live where the snobs reside? I live in one of those general areas you mentioned, just not a Democrat, never have been.
    I had two different rental properties consisting of 5+ rentals from the early 1980's to the mid-2000's. Wife and I opted to exchange out of rentals in an over-valued housing market into commercial residential property instead. We are now free of all things rental property related and very happy about not having to deal with tenants anymore. We do not have children, so we are not in the same position as those with children. Our tax load is lower than had we remained with our original rentals. I suspect that you agree that the government is the world's biggest pimp(s).

  18. thank you for allowing my mind to understand how this works. i can't afford real-estate where i live. my current 2 family cost 450k, i live 30 mins from boston. i have family in allentown, reading, exter PA. i can buy 1,000-1,500sqft homes for like 50k down there…im talking myself out of it but its so cheap its crazy. how do you feel about those areas.

  19. Wow, your channel is the best! I appreciate you describing everything in layman's terms for us newbies looking to invest in rental properties but finding ourselves overwhelmed by all of the information out there. THANK YOU!!! 🙂

  20. I'm on my first investment property. Sold my house and bought a condo across the street from a major hospital here in NH. Going to pay it off this year and hopefully rent it out to a nurse. Rents in this building are low $1,300-1,600. I have one of the biggest units and on the top floor of the building. I've noticed the lower the level the prices tend to drop.

  21. Great video! This is exactly what I’m looking for.. 10k a month in cheap rental properties then mentor someone else while I continue to grow. But all I know is the southern California area.. 50k homes are extinct here.

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