High ROI Real Estate

High ROI Real Estate



case study going from 0 to 12 properties in a short amount of time that's today's episode let's get right to it hey everyone hello freedom-fighters welcome into the investing in real estate show I am Clayton Morris I'm really excited about today's episode we'll get to that in a second but if you're new to the show this is the show where we talk about passive income and honestly that the main reason we talk about passive income is not for the money it's not the bank account because money comes and goes it's about how do you live the life that you want the lifestyle that you and your family choose to live are you tired of driving two hours every day to and from work are you tired of being worried about whether or not you can take off for the holidays for your family because you don't get enough time off of work that's what this show is all about it's about putting control back in your hands so you can live the life that you want and the vehicle that we use to get there is buy and hold real estate we buy it we get great return on investment and we hold it as an asset for the rest of our lives my guest today is a case study episode because Jonathan Seashore has worked with us he's been a longtime real estate investor investing in Aurora Colorado it lives in Littleton Colorado but now has switched to the Midwest and he's got a bunch of properties we're gonna talk about his journey why he made the switch and how are things going for him today hey Jonathan welcome to the show yeah you think you clean so I think this was actually your idea right we were talking on the phone a few weeks ago and you said you know what would you say is that I've referenced so many people I've told somebody people about Morris and vest that they're asking me what am I gonna be on the show that's right that's right a lot of people but Morris investing well about what I've been up to for the last almost year or so and that's great well welcome to the show thank you so much so I know a little bit of your story but just you know I think the everyman story I hear this from our audience a lot you know it's great to have the Robert Kiyosaki's on the show people who have you know hundreds and hundreds of properties who have kind of achieved that dream right they own a house in France they all of those things that's great but what about the people that are just like me you know where maybe they're just starting there only a few years into this they've got a few properties and they're thinking about taking and getting started why do you you know paint a picture for us on sort of your life how you got where you are now and how you decided to become a real estate investor sure sure so uh I guess I've been married for about ten years in 2000 we bought a really big house in 2005 really nice house my wife and I both work full-time and it was kind of against the the Kiyosaki methodology and so we had a huge house payment but I wanted to reinvest in real estate and so with the lending the way it was we were able to make that that happened even though we had a huge house payment we were able to buy to investment properties in the Denver metro area in 2006 and 2007 I went on to manage both of those for a couple years and and they were a lot of work managing contractors and managing tenants is it's a lot of work yeah it's a thankless job so when you can hand it off to somebody else who can do it it you know it's it's quite a relief it's quite a relief so and if folks are listening to this episode now I take you back to episode 241 of our podcast where Natalie and I talked about a conversation with a millionaire retired landlord because you know it can be a lot of work and you're in your mid 70s you're like you don't have a property management company you're doing everything yourself you're battling code enforcement you're having to collect rent you're having to do all of those things it can be exhausting so you had these I want to unpack these two properties that you purchased then now this is right around right before the crash so what was Colorado like before the crash were we seeing like big appreciation on properties could you get in for like a hundred percent financing what did it look like so in 2005 things were pretty good we bought our house a hundred percent financed with the bank conventional both my wife and I work full-time so it was easy to get that monster loan it was easy to get a HELOC to further so we had a HELOC on her house so what we ended up doing is I ended up consulting enough money to pay down the HELOC and then we used that HELOC on her house to buy our first property so things were by mm late 2006 and 2007 there was blood in the streets it was kind of a scary time there was Aurora was a rough part of town and so we went we actually worked with a team of a couple of guys that helped us learn the ropes for how to rehab homes so they helped us by this these first two homes and they helped us rehab them both and we learned a lot from the experience however ended up being a landlord because the numbers didn't fully work it's a cash flow like we were breaking even if not feeding those two rentals for probably seven or eight years so you were breaking even at the time did you understand ROI the way that you do now like when we talk about it here on the podcast we've got episodes devoted to you know understanding ROI and how to figure out if this is a smart investment when you were looking and analyzing the numbers at the time did that did that fully sink in no no and of course my plan was to keep buying these because it's all gonna work out in the end but that in the end I was just exhausted working full time and and managing managing these properties and ended up having to get an extra consulting job on the side and we have a new baby that same year I'm so holy smokes yeah yeah so you ended up what I'm sorry I didn't right I ended up being diagnosed with with cancer at that time because I was managing those property as I was driving all over town I was commuting 90 minutes to work it was just there was nothing left to give in my life and so that was my my reality check that look something's got to change you've got to use a management company at least so that's what we did after after that we ended up using a management company but that didn't change that we were still feeding these rentals to keep them floating they were floating about even but you know every now and then you've got a furnace or a water heater or something that just eats up all any reserves so no I think this is a classic example and I'm just gonna sort of look into my crystal ball and predict this now tell me if I'm totally wrong because I hear this from investors all the time that'll say to me hey I've got these three properties in the Gulf Coast you know or along the east coast of Florida they're too $50,000 homes and I have them rented but I don't make any money off them they're in a class neighborhoods and every or even in B class neighborhoods and every every few months I've got an air conditioner that's up I've got a fixer garage door we look at our numbers and we're constantly kind of being eaten alive like sharks by these properties is that kind of what was happening with these properties for you yeah definitely was you know one violation a tenant issue of some sort and I was always disappointed at the bank balance of those those two properties we were we were hit we finally hit one the 1% rule later on maybe eight or nine years in and and the numbers started working in our favor but not like Morris and vest numbers so I'm curious I want to unpack these two properties a little bit more because there's a lot of lessons here for listeners who I hear it all the time you know it's somebody who it's the house they bought with their wife and then they move and they they hold on to this house they're kind of breaking even on it they don't even take into account sometimes the taxes that they're paying right and so that they may actually be losing money on this was this like it described the neighborhood for me describe the type of property describe the type of tenant describe to me the square footage you know just be as detailed as you can I think people could really take a lot from your your lesson here sure so in Aurora Colorado that was our first property it was a single-family home it was a two-bed one-bath we bought it for sixty eight thousand dollars we went in and it had a one car garage that was beginning to be converted into a third bedroom and so we completed that conversion so we added a third bedroom and an extra bathroom a master bathroom so we were all-in at about a hundred thousand on that one in 2007 so 32 grand in rehab amounts so about a hundred what did you estimate the house was worth now after you did that rehab you're into it for about a hundred how much what do you think the house is worth I think the house was worth about a hundred and twenty at the time okay great so you got a good deal then you went to the bank after that and got a home equity line of credit on it you know the the house was in good enough shape that it qualified for conventional financing and so I ended up getting a forty year loan on it at six point five percent interest on it okay so describe the tenants for me in the type of neighborhood this was so it was or it was a rough neighborhood it was not far from Fitzsimmons Medical Complex in Aurora I didn't feel safe over there at night I did not like going over there even during the day it was definitely a transitional neighborhood probably a c-minus because I just didn't feel safe well I would say it might even be a D if you weren't even like feeling safe there during the day you know because I Drive my through like through my neighborhoods and my properties in the afternoon and everyone's at work you know those are c-class neighborhoods so if you felt uncomfortable there during the daytime that might have been a d-class you know there are parts of like Newark New Jersey where you do not want to drive down there in the afternoon even you know when there's daylight you know yeah okay so it was I mean I I was kind of guessing that this might have been sort of an a-class neighborhood but no you it was really a you know kind of a lower-income area and then you were how far from your home and you were managing this property kind of going back and forth and what was that like trying to find tenants and and screen tenants and all of that so it was about 50 55 minutes from my house a long way when you had a tenant issue to go handle right what was your other question oh just how long did it take you to you know how long did it take you to screen the tenants do all that stuff and show so I ended up paying somebody to help me find the first tenants and they took the first month's rent to do that now this was in kind of a down economy at that time so a whole month's rent to find tenants and she did the background check and such yeah so I used her to do that know it felt expensive yeah well especially since you weren't really using a property management company you were sort of you know you kind of you were doing it yourself but then you even realize you know what I need some help I can't do this myself from fifty minutes away because the key is when you have like a property management company like the ones we work with in our different markets they've got like eight or nine leasing agents and they guess what they're out there they all kind of battle they get bonuses for finding great tenants and doing background checks and they kind of battle each other two of the same leasing agents might be going over to one two three main street with a qualified tenant and whoever gets there first and like you know gets a deposit and gets it rented and shows a property seven o'clock at night that's their job and for you to do it after you're working long hours you have a baby and then you're driving fifty minutes just to show a property that's where things can start to fall apart and quickly when I turned it over to a property management company after that tenant I forget exactly there might have been a two tenants in there that I managed it directly the property management leasing agent there was gunshots in the street the first day he tried to show the property that the street was shut down the whole thing so I was grateful that somebody else was showing it at that point you know we'd like to go down and take a left-hand turn on to Main Street here but we can't because it shut down because their bullets that were fired their property yeah that's great that's oh man you had it all okay so then take me we've got through that we understand the tenants now what did you do with those properties ultimately and how did that once they started becoming a little bit positive for you you were still carrying you were still carrying a note on the property correct yeah yeah so we ended up selling our our nice house in 2014 and and we had worked really hard to pay it down so we had several hundred thousand dollars that we held to kind of help pay down these mortgages the realms were doing great but still weren't cash flowing a ton I think between the two properties we were netting maybe a thousand a month and then I was turned on to Morris invest and I started doing the numbers and the freedom numbers and I thought well what would happen if I if I move this money to Indy so specifics on my rental properties we were getting in our Englewood house we were getting $2,200 a month for rent and then the Aurora house are getting $1,100 a month so we were getting about 33 300 gross for that we went to sell the properties we ended up doing a 1031 exchange on those those two we ended up with about five hundred and thirty thousand dollars so one sold for 320 something and one sold for 220 something so we had about 540 thousand dollars we rolled those two all that money to morris invest to be a 1031 exchange and on paper the the gross rents went from $3,300 in the Denver metro to $9,500 in Indianapolis and so those numbers it was a no-brainer you don't have to think too hard when you're getting almost three times the gross rent yeah and then you're also the other ancillary benefit of it being the 1031 exchange so you know you're not paying taxes on that it's deferred into this vehicle this great investment vehicle and you're not now managing the properties yourself you have I can't I can't drive there I can't go solve the problem right right and you know you've got to let to become like a hands-off investor so well talk about a little bit about that transition for you and I know you know becoming obviously your you were very hands-on dealing with these Aurora properties than to just be able to like sort of turn that over and say okay I know they're problems that are gonna come up we're gonna have evictions at some point we're gonna deal with code and four we're gonna deal with things that are out of my control you know there's gonna be a leaky toilet at some point but you know what I'm not gonna go fix it I'm not gonna get on the phone and call you know the Plumber Joe the Plumber to go fix it now it's out of my hands was it an easy transition for you or you something you're still working on talk about that a little bit yeah you know the Morison fest team makes it pretty easy to transition you you pick your property you go under contract on you use their title agency to close and I couldn't believe we could buy properties via you know via email and not actually go to India to do it talk to the insurance company got insurance most of most of the first round of properties were rented before we even got them so the rent checks started coming in immediately on most of all it was really easy when I rented properties when I bought prop or two properties we had to I had to spend a lot of time on the phone getting you know the power and water utilities all hooked up and and going and with Morris invest on the vacant properties that was all done for me somebody else handed that handle of all that I didn't have to manage any contractors it just was truly turnkey she took a huge burden off off of my shoulders to just handle it well that's very kind of you to say that's our goal and we know we're not perfect so we you know it problems them come up we try to fix it you know we're all human beings and that's why we say to people who are new investors it's it's the one business I think and I've been in done a lot of business I'm sure you have as well and we can talk about your day job but you know it's it's the one business that I truly believe he can really fix anything from every piece of it is fixable you know needs a roof great new roof you know needs a new water heater great put another $700 water heater in the house get a bad tenant get an eviction a couple weeks later paint carpet touch-up get a new tenant in there you know your bank is not working for you get a new bank you know so all of those pieces can be fixed and in other businesses it's very often it's not the case and in very odd like the stock market for instance I don't know how much you invest in the stock market it's all out you know all out of your control and the moods of the market can shift and you have no control if you invest in coca-cola or or offshore oil rigs or these types of things you don't have any real control of that and you can't really fix it at the end of the day yeah I mean when I want to say my first job on a college I worked for six or seven years and as they able to save you know a hundred Lowe hundred thousand dollars worth of it in my 401k and then we went into some massive recessions and I we came out back in you know then years later it seemed like it just sort of hung around where it was when I left my first job in 2004 right I couldn't make any progress so I am disheartened with the stock market as well and and my wife and I prefer not to invest in 401ks anymore it's it's more beneficial to us to put it into tangible real estate talk about the way in which you purchased the property so now you have what twelve you have twelve properties with us you did the 1031 exchange for a portion of them I assume or all of them did you 1031 exchange everything yep okay so both properties were 1031 we've got nine single-family homes and three duplexes so there's 15 rentable doors great great is that a 1031 exchange person we hooked you up with we have a person who's been a guest here on the show that we wrote that we reference but it was somebody you discovered on your own and described the 1031 fondon't one on my own okay tell us about that process what was the 1031 exchange process like for people who aren't familiar with what that is well you have to find somebody that knows what they're doing because the rules are very rigid and you have to follow them to the tee so the 1031 exchange company that I used made it very straightforward and easy and Morris invest was it was easy to plug plug in the properties and get them done within the windows I want to say we were close I think you have to identify your properties within something kind of tight I forget if it was 45 days or something like that I think we were closed within 45 days that's great yeah 45 days you have to to close on those properties you know or to identify those properties and then you have I think 180 days to close you have 45 days to identify and then 180 days I believe to close on the properties so that 45-day window is incredibly important but of course you don't want to close and sell your first house your or rora properties before you have the 1031 exchange set up and that's why it's so important to talk with an actual 1031 exchange provider we've had Lance growth who's been on our show so we refer a lot of clients over to him because we've had great success with him and he so what he'll do is he'll set it up and then once you close in the property the money is escrowed to the business to the to the 1031 exchange business they hold that money until you've identified the properties then you close on those that you know this package of properties that you're purchasing and it's a great investment vehicle because you you don't think they'll help to pay the capital gains yeah so the the the complication are the trick with our situation was we have conventional financing on both of those properties with buying morris invest properties you're not going to have great luck getting conventional financing before you you know when you buy when you close on those houses so we ended up having to do 401k loans to to get that extra money and then the money from the house that we sold our old personal residence we had to to kind of wash those loans and bring all that cash into because you you you have to for the 1031 you have to spend at least what you sell it for – commissions and fees right well that's great so now you've got 15 doors 12 actual physical properties and what is your freedom number look like where do you you know are you still at your day job and describe what you're doing day to day and how you know what your family structure looks like is this has has owned has owning these 15 doors been changed your life in any appreciable way I've been working in information technology for about 20 years and I work hard I work long hours ironically I'm actually unemployed at the moment I'm I was laid off so I've been taking the kids to school and being mr. mom really thinking about this is kind of what it's like gonna be like in retirement someday so these properties have given me hope our freedom number my wife and Isis is 36 to do that now we we could take time and let the profits grow to accomplish that number or we could go kind of the tom wheel will write Robert Kiyosaki and use some debt to kind of leverage us to get there so in my mind or freedom number is closer to 60 with leverage and then we just focus on paying down those loans once we get there right because as Robert Kiyosaki says you know debt is cash flow debt equals cash flow because we're not on the gold standard anymore we're in a debt economy and so when you're able to use that leverage debt it creates you know creates income in your pocket and that's the bottom line so if you can do it creatively taking some of these properties or leveraging your current home or you know bundling the the prop Bertie's together and doing a you know a refinance of some kind and then pulling that money out and being able to roll it into the next package of properties is you know using the 401k all of the different metrics and you know the tools that are available out there to you so good stuff so where is where do you go from here my friend well we we've been kind of like you suggested and you've talked about we're using Andrew Howell to do our legal entities and we talked about doing maybe 2 to 3 properties per work we decided on three just to have less moving parts so when you do the 1031 exchange it you have to wait a certain amount of time to transition those properties into these these new LLC entities that are created so I wanted to get a track record we're just in the process of moving those entities with those properties into the right entities and then getting the corrected checking account in entities set up for those once we get a track record of all that and the banking info it looks good I want to put go to the bank find a small Indianapolis bank to put debt on the properties I'm not sure exactly where something safe maybe between 50 and 70 percent debt leveraged and then just keep buying more some best properties and then my wife and I will just continue to not vest in the stock market but you know put it you know some money a month for that and just keep plugging in and using the income from those properties to help further that process as quickly as possible theoretically so we're buying new morris invest properties cash right so i could go ahead and so say we went from 15 doors to say 25 doors with leverage at that point the leverage would be on the first 15 doors the next ten doors would be no there would be no debt and so I could potentially go refinance those again to get further right and so that that's kind of the game plan as well as continuing to investor or paychecks into Morris invest well that's wonderful and that's how they do it you know like I've talked about my friend Abe who we started with one property now he's got thousands and he's done it the exact same way that you just described you know it's the buying buying that property placing a tenant then putting leverage on that first property rolling into the second third fourth and now he's got thousands I think he owes over 2000 properties so that's how you do it I mean it's you know and like the gentleman I talked about yesterday that retired millionaire landlord as I just mentioned he had he only completed eighth grade so you know it's surprising not everyone's out there with a PhD in real estate investing it doesn't take a PhD to become a millionaire real estate investor and to change your life so Jonathan it's it's been a real treat having you here on the show and sharing your story and thanks for letting us dive into some of the the gritty details of how you got started and everything else and my my great thanks for having you to here and being a part of the family I appreciate it yeah thanks Clayton and Eddie a new investor out there who's watching right now and who's maybe sitting on the fence and thinking about getting started with real estate investing they've been you know trying to digest in information for years and they're just been sitting on their hands and they're looking at their 401k thinking oh I'm just not getting any wealthier and this is not gonna help me in my family in retirement what would you say to those people who are sitting on their hands you have to make a move you have to do something we we made a move ten years ago and it was an okay move I think the Morison best move ways is certainly a whole lot easier profitable and they're not intimidating a $40,000 single family home is not that intimidating right at the end of the day what's gonna have I always say what you know Sten Bibi Cosette I hear on the show what's the worst that can happen when you buy $45,000 properties you know is it gonna go down to zero dollars in value no it's not a stock so what's worse that can happen you know you have a vacancy for a month two months okay that could happen you you know you could have an eviction yeah you could the house could burn down guess what you have a $50,000 insurance policies to get a check for fifty thousand so what really is the worst that can happen I'm I'm always struck by when people say you know I just find a real estate seems risky like really and then you just have a conversation with people and ask them where do they have their money right now do they have in the stock market that to me is 10 times riskier than real estate wouldn't you say I would agree yeah well Jonathan thank you so much for sharing your insight your wisdom and your experience from your family I really appreciate you joining me and from the crazy Colorado weather what was it like 70 degrees yesterday now it's what's 340 yeah that's Colorado for you Jonathan thank you so much for joining us we really appreciate it thanks Clayton in fact all of you for downloading and subscribing if you haven't already subscribed please do and if you haven't left a kind' review in the iTunes Store really helps if you listen to the audio version of this show to help other people discover the show maybe might change their life a little bit I don't know I hope so if you just leave a nice little 5-star review and write up a sentence or two thank you so much if you do that and we will see you back here on our next episode of investing in real estate now just like Jonathan did he went out there he took action a number of years ago and guess what he learned from that taking action right he has a better he has more clarity now that he actually took that action he got in the arena I have respect for people that get in the arena go out there take action get in the arena and become a real estate investor we'll see you next time everyone