How to Buy a Rental Property When You Don’t Know Where to Start

How to Buy a Rental Property When You Don’t Know Where to Start


How to get started in
real estate investing if you don’t know
where to start. Hey, everyone. I’m Clayton Morris, longtime
real estate investor. But I understand
that a lot of people get overwhelmed
with real estate. They get overwhelmed with
kind of starting out. Where do we start? Where do we go, right? It can seem a
little daunting when you’re just getting started. And there’s so many different
resources and strategies out there. Today we are going
to break it down for you, how I build
financial freedom, how I was able to quit
my 9 to 5 job, buy, buy, buy and
hold real estate. That’s what I did,
my wife and I did. And because of that,
we’re able to help others learn about how to do
all of this, just like we did. So on today’s show, we’re
going to get back to basics. We’re going to make it
easy for you to understand. But first I want to start
with a little bit of a story. Because when I
first started out, I didn’t know anything
about real estate investing. And I made some huge mistakes at
the beginning part of my life. So if you are young and you
are watching this video, I mean, much love to you right
now, because holy smokes. You are in a way better
position than I was. Now, when I started
out, I ended up getting into massive
credit card debt. I was renting properties
across the country. And I had bought a couple of
cars, so I had a lot of debt. I had a car payment. I was in credit card debt. I wasn’t making very much money. And then there were
others who I knew about who were being very smart
with their money, who were investing in rental properties. I only learned this later. I was like, how are you able
to just live on easy street when you are in your 30s? How is that possible? And here I was clawing
my way out of debt. I ended up being $75,000
in debt at one point. I had gone through
a foreclosure. I did some speculative things,
speculative land projects and other stuff, and I
didn’t understand it. It wasn’t until I was in
my 30s when I actually got a handle on financial freedom. I understood, OK, I
understand real estate investing is the number
one way to build wealth. But how do I do it? So I sought out some mentors,
followed the right path. And the very first few
properties that I ever bought, those single family
properties in the Midwest, that cash flow,
about $800 a month, those are the exact
same properties that I still buy today. They cost $50,000, $60,000
all in after the renovations. That’s exactly what
I buy that makes up the bulk of my portfolio. And heck, that’s what
my company does as well, my company Morris Invest. So if you are new here, please
subscribe to the channel. Please smash that like
button, because we’re going to deep dive some
strategies to help you get started with real
estate investing today. And by the way, if you want
to book a call with our team, it’s easy. The links are below this video. All right. So let’s start out. Number one, the very
first step in this process is you have to know what
your freedom number is. What is the freedom number? It’s your goal. But more importantly
than just a random goal, it’s based on actual numbers. So the freedom
number is the thing that changed my entire life. How many of you know that story
from watching this channel, know my freedom number story? It is the thing that
changed my life. My wife came to me
one night and said, we cannot pay our mortgage. We can’t do it. I had to dig through my
closet and find stuff to sell on Craigslist in
order to pay our mortgage that particular month. We didn’t have a
handle on our expenses. We didn’t know what
our goals were. And therefore, we didn’t have
a roadmap to success at all. We were just barely
treading water. And I’m sure a lot of you
can probably relate to that. And if you can’t
relate to that, I’m hoping you’re
watching this video because you want to prevent
that from ever happening. So that’s my goal. If you can prevent that from
ever happening, hallelujah. Then I have done
my job to help you. So what is the freedom number? Well, my wife said,
well, what if we took the two rental
properties that we do own– they were cash flowing
about $800 a month– and we figured out
how many of those it would take us to cover
all of our monthly expenses? And she said, OK, I’m
going to go back upstairs and continue to do some laundry. I said, no, you’re not. You’re not going anywhere. That’s the eureka moment. And I jumped up and I grabbed
my marker for my whiteboard in my office. And I said, that’s it. We are going to figure this out,
how to build financial freedom. What is our freedom number? So I give away a
cheat sheet for free. We have a link below
that you can grab. It’s totally free. It’s three pages. It’s how to find
your freedom number. And it’s that simple. And it’s a PDF. You download it,
and it walks you through how to figure out
your monthly expenses, OK? You want to figure
out, first of all, your monthly expenses for
about six months of your life. Don’t give me fake numbers. Are you hearing me? I don’t want fake BS numbers. I want real numbers. What do I mean? Well, often people
make up a budget. And they think that they
spend this amount of money on groceries, or they
think that they only go out to eat once a month,
but they go out four times. I want you to go through
your credit card statements. I want you to look at
those items on your bills, your monthly spend
bills, and I want you to take six months of that. And I want you to scan down and
really be honest with yourself. I spent this much on Netflix,
this much on groceries, this much on gas, this much
on going out to the movies. And add it all up. And I want you to take the
average of those six months. What is it? Is it $5,000 a month? Is it $6,000 a month? That is the number
that it costs to run your family every month– school bills, groceries,
gas, all of that. And then we are
going to figure out how many rental
properties it would take to cover that monthly expense. So for me, I think it ended
up being about 12 properties. For other people that we talked
to when they call our company, it’s six properties,
five properties. It depends on where you
live, how much expenses you have in your life, right? You may have six kids. You may have one kid. You may have no kids. This will be a moving target. And as we added another
child to our lives, that freedom number
went up a little bit. So we need to find
out where we’re going. What is your freedom number? So download it for free. You can go to
morrisinvest.com/freedom, or you can click the link
below and grab it for free, and just spend some time with
your partner, your spouse, and go through it
and figure it out. Now, is your freedom
number 12 properties? Great. Then you have an idea
of what to zero in on. I want you to then take a
post-it note out, write 12 on it, and slap it
everywhere around your house. When you wake up in the morning
and go to the bathroom– on your mirror of
your sink and see that 12, because
that’s what you’re going to focus on getting to. You don’t need to be at 50. You don’t need to be at 70. You don’t need to be at 2. It’s different for every person. This goal is so important for
you as a family to figure out. Once you hit that
number, guess what? You’re financially free. Your safety net is now in place. Regardless of your employment,
your safety net every month from the cash flow from
those properties coming in is covering your
monthly expenses. That’s financial freedom. So step one is to
figure out that goal. Number two is ROI. Number two in this process is
to focus on return on investment when you’re starting
in this journey. So before we even start
looking at rental properties, or hiring contractors, or
finding a property management company, or any of that– we’ll
get to those steps in a few moments– you need to focus on
return on investment. What neighborhoods
will you be in, OK? Where are you going to go that’s
going to give you the highest return on investment? I was a guest on a
podcast yesterday, a wonderful, wonderful woman. She is out in California. She lives in Sedona. And she says, just the same
size properties, Clayton, that you buy, like 900 square
feet, 1,000 square foot homes, three bedroom, one bath– that’s
like my bread and butter– she could get in that part of
California for like $500,000. And I like to play a
little game where– I live in New Jersey. I would never buy a
property in my backyard because the price, the return
on investment, is not there. So I’ll drive around and I’ll
see the exact same size house here in New Jersey that I would
buy in the Midwest, Michigan, Tennessee, Texas, other
spots of the country where it’s more affordable
and the ROI is higher. And I’ll see the same house. I mean, brick for brick, it
looks like the same stuff that I buy, right, in Michigan,
900 square feet, three bedroom, one bath. I’ll look on Zillow
or some other thing and it’ll cost like
$400,000 in New Jersey. Just drive 10, 15 hours away. And guess what? Prices are totally different. So I am going after
return on investment. What is going to be the
number that I generate every month from cash flow? And I like to be between
about 7% and 12% net return on investment. If you want a deeper
dive into ROI, we have a whole video
on how to figure out return on investment,
so I’m not going to go into all the prickly
little details about the math formula that I use. But I do walk you through
it with a whiteboard, and you can see that
in our other video. So please check out the
video on return on investment to help you figure that out. That’s what I look for. Now, there’s so
many people that get started in real
estate investing. They don’t think about
return on investment. They just think that, oh,
if I buy a $300,000 house, that’s going to be fine
because it’ll cash flow $1,500 a month with a tenant. My mortgage is $1,300
a month and I’m golden. No. No. Remember, rent does not keep
up with the cost and value of a house beyond $150,000. So if you spend more than
$150,000 on a single family home, not going to do it, OK? Your return on investment is
likely not going to be there. So pay attention to ROI. That’s what we’re going after. That means that the best homes
might not be in your backyard. Therefore, you might need to
work with a company like ours, or reach out to real estate
agents in different parts of the country, or reach
out and look on Craigslist in different parts
of the country, or reach out and find other
sources to find properties. But it might not
be in your backyard if you live in San
Francisco, I am sorry to say. All right. Number three on my list, when
you’re getting started and you don’t know where to start,
number three is you cannot do it alone. You cannot become a real
estate investor in a vacuum. You can’t do this alone. You can’t do this solo. You have to build a team, OK? You have to lean on other
people, and even mentors, quite honestly. It’s my hope maybe that
this channel provides some mentorship for you. And I’m blessed that you’re
here and you watch this channel, because I like to be able
to help you in as many ways as I can. But the bottom line
is you’re going to have to find real estate
agents at some point. You’re going to have to
find a property management team at some point. You’re going to have to
find a great legal team to help you set up your
LLCs and those items. You’re going to need a
great accountant eventually. You’re going to need contractors
that you can lean on. You cannot do this alone. And when you try to do it
alone, you will fail, OK? I like to say there
really are no such people as self-made people, OK? We’ve all had mentors. We’ve all been taught. So no one lives or
grows and become successful as an
entrepreneur by themselves. Gary Vaynerchuk, Lewis
Howes, you name it, Robert Kiyosaki all had mentors. Robert kiyosaki,
rich dad, poor dad. He was taught by his rich
dad how to build wealth. So I would encourage
you to go out to local meetups in your town. And all you need to do is
go to meetup.com and find local real estate
meetups in your backyard and start to make those
connections if you want. Or if you’re actually
investing out of state and looking at those
areas, reach out to local property managers. Start to have those
conversations. Start to build your team. Do you have a reliable
contractor, et cetera? We’re going through
that right now. And I made the mistake– I don’t think it’s a
mistake, but an area of New Jersey that I actually
did buy 10 properties, we have a couple of evictions. We need to do some
tenant turnovers. I’m being charged
an arm and a leg right now for the
costs associated with some of these rehabs. And I know that I’m
being ripped off. So guess what? I’m going down there in a week. And I’m going to be
meeting with a number of different contractors. And I’m going to have them
bid against each other. I’m going to develop those
relationships, because I want a long-term relationship
with John, or Sam, or whomever to be able
to say, hey, look. You work with me, you give
me a good deal on the prices on getting these properties
fixed up and turned over, I’m going to work with
you for a long time. That means that when I need
the roof on this one fixed, I’m calling you because we’ve
developed this relationship. So it’s all about building
these relationships. You cannot do it alone. Number four on my list,
get your partner on board. This is very important,
very important. If you are a man,
husband, whatever sitting there watching this right now– and I know we have a lot of
men who watch this channel– I need you to get your spouse,
your wife, your partner, I don’t care who it is, to start
watching this video as well. You both need to be on board. You cannot have trains going in
two different directions, OK? You can’t be passing
in the night. One person has one goal and the
other person has another goal. You need to be on
board together. Now, my wife and I have
a great partnership because I’m the ideas person. I know where value is
in properties, right? I find great deals. That’s what I help
our clients do. I’m able to go out
and get great deals. I have a good sense of that. That’s how I’ve been able
to build up my portfolio. My wife is very good with
the spreadsheets, OK? She’s very good
with the details. And so when I come to
her with a large idea, we’re able to implement
it because she then is like Hermione Granger
from Harry Potter. She will be able to
zero in on the dollars and cents in the spreadsheets
where I am sometimes head in the clouds, but
I come up with the ideas, and then we implement. Your partner needs
to be on board if you are going to
invest in real estate, OK? You cannot do this by yourself. And you’re going to be
climbing a mountain if you try to do it against your partner. I do hear from a lot of people
who write to me and say, my husband just doesn’t get it. What do I do? We have a video on
that whole question, on how to get your
partner on board. We have a great podcast. If you also don’t listen
to the audio podcast, we have separate content
there called the Investing in Real Estate podcast. You can find it on iTunes,
Google Play, wherever podcasts are sold. They’re free, by the way. But we talk about this
strategy more deeply there. And Natalie and I have a really
good discussion about it. So I would encourage you
to check out that resource if you have a
spouse, a partner who is struggling to get on board
with your investing journey. One of the things,
though, that you can do is sort of gently nudge them
in the direction of having to check out these videos. Just put one on here
and there and let them start to listen to
it, maybe in the background while you’re making
breakfast or something. Just put it on your
iPad and hit Play. And that person
may start to hear some things that will
clue them in and make a shift in their lives. All right. Number five on
the list is money. I know this is the hard one. Everyone’s going to
get stopped right here. You think, oh, I
can’t go any further. I have no money. I don’t know what to do. Stop it. Money is just a manifestation. So in this process of
buying rental real estate, getting started, you’re
going to need money. You’re going to need
financing, cash on hand, any number of ways
that you can get money. So let’s break down a
number of different ways. And I’ve certainly walked you
through this on our channel before. But you could start
with something simple like the cash on
hand in your savings account, OK, maybe
using a portion of that as a payment on a property. Or you buy the property
outright for cash, which is what I did when I started. That way I had no debt
service on those properties. And the full cash flow coming
in from those properties was golden, was gravy. You can work with local banks. We are doing a
refinance right now on one of our rental
properties in Michigan. The local bank there
has been phenomenal. They’ve been great. So we’ve been able to roll
that into a 30-year note. And we will have the tenant
paying down that note every month. And it’s not money
coming out of our pocket. You can buy a property for
cash and then refinance it. Pull that money back out again
and then rinse and repeat, and roll it and roll it. You can borrow from your 401k,
not withdraw from your 401k, borrow from your 401k
as a loan to yourself that, yes, you do pay
back out of your payroll, but it’s your own money. And you can borrow from it
as a bank of you that enables you to buy a performing asset. You can use a service
like Fund and Grow. If you go to our website,
you get $500 off just by signing up. And they’ll give you
zero interest credit cards, which is a
phenomenal way of doing it. Zero interest credit cards. They’ll give you like $50,000,
$100,000 with these cards. So if you go to
morrisinvest.com/funding, you sign up with them, there’s
a sign up fee with them. But then they only charge you
that if they get you the money. So if they can’t get you
the money, which is rare, then you get your money back. So you can get like $100,000
with unsecured credit and then buy two
properties like that, or three properties like that,
or four properties like that. You can go to different private
money lenders that exist out there, like Lima One Capital or
LendingOne, on and on and on. There are so many
lending sources available for people
who have good deals. So we’re going to get to the
deal part of this in a second. But remember, we need to get
an idea of how you’re going to pull this money together. We were having a great
discussion yesterday in one of our live streams
with somebody in the Financial Freedom Academy with us who
has multiple different revenue sources. They’ve got money in savings. They’ve got money in equity
in one of their properties. They’re thinking about
doing a 1031 exchange. There’s no shortage
of ways to get cash. And by the way, there’s
so many private lenders out there who want
to lend you money. There’s so many
people out there that have just buku
bucks sitting there, and they would love
to make a 5% return, or 6% return, or a 7% return. If you were able to
bring them a deal– here’s the deal. I’d like to buy this property. Would you lend me the
money at 7% interest? It’s about two points
higher than the prime rate is right now. But, hey, guess what? You don’t have to then
deal with the bank. You can deal with Uncle John. There’s so many ways. Don’t be limited by your
thought that, I have no money. I don’t know where
to get started, OK? You’re only limited by
your lack of imagination. There’s so much money out there. Do it. No excuses. Number six on my list is,
start to make offers, OK? We’re finding properties. We’re going to be working
with local real estate agents. We’re going to be working
with a company like ours at Morris Invest,
or you drive by and you call a For Sale by
Owner sign in your neighborhood. Great. Whatever. I don’t care how you do it. You’ve got to start
making offers. When you start to find these
properties, these deals, after you’ve done my ROI
formula at the beginning, following the return
on investment formula, making sure that you’re not
overpaying for a property, making sure that the return
on investment and cash flow is there, OK, and
making sure that you’ve done your due diligence
about the neighborhoods that you’re investing,
then you’ve just got to start making offers, OK? You’ve got to put pen
to paper and do it. I remember when I
first got started doing wholesaling in real estate. And I knew that I wanted
to be successful at this. And I just said, you know what? I’m going to make 100
phone calls a day, which is what I
did, and I’m just going to start sending
offers to these people. If I got hung up on, they told
me they weren’t interested, guess what? Guess what I did? I got out my contracts,
my purchase agreements and I just said– I wrote it out, even though
the person hung up on me. And I sent them an
offer on their property. How many of those do you
think I ended up buying? A lot. You know why? Because you’re the only
person sending them a purchase agreement. You’re the only person making
an offer on that property. And then that offer sits
there on their desk, right? Maybe it’s a month. They don’t do anything with it. They’re like, oh,
the nerve of that guy sending me a purchase
agreement for my house that needs total renovation,
but I’m just hanging onto it because I’m lazy, right? The nerve of that guy. Guess what? You’re the only one that sent
them a purchase agreement. And guess what? They’re going to call you. And that happens repeatedly. Some of my biggest deals came
from just making offers, just putting pen to paper,
putting a price down that makes sense for both the
buyer and the seller, right, and getting it in the mail,
getting it to the real estate agent, making offers. I make offers all week. Left and right I’m making
offers on properties. That’s how you do it. Not all of them
are going to hit. Probably 98% of them won’t hit. All you need is 2%, right? All you need is that
one deal to grab. So just start making offers. And you can work with
sellers in unique ways, too. You don’t just have to
pay cash for property, property gives you keys,
now you own property. No. You might say to the seller
of that property, hey, I was driving by this property. I saw a For Sale by Owner
sign out in the yard. And I’d like to make you
an offer on the property. What do you need
for the property? What do you want
for the property? Well, I want $120,000
for the property. OK. Well, maybe make them an
offer on seller financing. Why are you selling
the property? Oh, I’m a tired landlord. I’ve got 10 properties. I’m just getting
rid of this one. OK. Well, would you consider
selling it on terms? Well, what do you mean? Well, why don’t you be the bank? That way you don’t get hit with
a large capital gains bill, right? If you’re going to sell me
the property for 120,000, you could get dinged
with a big capital gains bill, the tax bill at
the end of the year. Why not issue me a note
that’s 6% for 15 years, and I’ll pay you? Now I own the property. That seller doesn’t get
hit with a huge tax bill. And if he’s a smart investor,
he knows that that makes sense. Seller financing happens
all day long, OK? So you can get
unique about the ways in which you’re making offers. If you make one
through a realtor, you can offer to,
say, the realtor, hey, I’d be interested in
doing seller financing. If the seller wants
to, let me know. I’d be game for it. Even if it’s at 8%, then you
don’t have to deal with a bank, and you don’t have to come out
of pocket with your own cash. It’s brilliant, right? So don’t be limited in
your approach to this. You’re only limited
by your imagination. There is no shortage of
ways to start making deals. Number seven, do
the paperwork, OK? You’re going to have to fill
out the title company paperwork. You’re going to have
to go to closing. You’re going to have to
do all of these things to get things done. You’re going to have to get
insurance on the property. We’ve got a great
insurance partner that we work with on
all of our properties. Link below. We will have that in
the description below, so you can check out
our insurance partner that we use on all
of our properties. It’s affordable. It’s cheap. And they’re the best. You’re going to get insurance
on your rental property. You are going to work
with the title company to get the title work done. You’re probably going
to get an inspection on the property, your
choice, or if you need to with the bank, et cetera. So you have all of these things. You know exactly what
you’re working with. Maybe you’ve already
lined up a contractor so you know how much work needs
to go into the scope of work. You’re getting all that
paperwork together. So the paperwork’s
the boring part. It’s the pain in the butt part. It’s the essential part. So when you get
all of these things and your deed lined up later,
it’s all taken care of. Number eight is to find a
property management company. I do not– I repeat, I do not– want you managing these
properties yourself, especially if you’re out-of-state, OK? There is absolutely
no reason for you to be managing these properties
yourself from 500 miles away. You shouldn’t be doing it. And frankly, even if it’s
in your own backyard, you shouldn’t be doing it. Find a property
management company. What our company does,
we work with a bunch of different property
management companies that we vet thoroughly. So they manage my
personal properties, and we have a great track
record and working relationship with them. So a couple of questions. We’ve talked about this
before on this show where we went through what to look
for from a property management perspective and making sure
that they have a number of doors that they’ve already been
managing, maybe 200 doors. They have a history
in that town. They know what to ask for to
raise rent from time to time. What kind of background
checks and screening process do they go through? What does their
technology look like? Do they use a software
like AppFolio or others so that you can log
in and see your tenant information, leases, and
rent information coming into your account? Are they organized? Do they get back to
you in a timely fashion when you call them? They’re busy. Property management companies
have a thankless job. They’re managing your
properties for 8% to 10, 12% per month out of your rent. It’s not a job I
would want to do. So we want our property
management team to make money, do a good
job, but also be responsive. So, yes, they might
have a busy office, but they should be able
to get back to you, answering your questions
within 24 hours. That’s a good rule of thumb. So finding a good property
management company that can manage your property
from a remote location. And number nine, close
on the property, OK? Don’t wait to get a
property management company after closing, because
now you’re sitting there with this property
and you’re going to have this space
between when you closed, and getting it rented,
and cash flowing, OK? So close on the property after
you find a property management company that you interview. Let them know that
in two weeks you’re going to be closing
on this property and you’d like to have
it managed accordingly. Great. They’ll start the
marketing and paperwork, and they’ll start to
get that ball rolling. So you close on the property. It’s an exciting day, right? It’s an exciting time
to actually close. Now you own your first
investment property and you can go from there. And then number 10 on my list
here is to rinse and repeat. Rinse and repeat. Go out there and do it again. Remember, going back
to our freedom number, what does that number look like? Is it 12 properties? Great. Now you’ve got your first one. How do we get the other 11? Let’s keep doing it. Do we refinance this property? Do we borrow from
some other sources? Do we leverage other
things in order to keep that movement going? But you’ve got to keep
rinsing and repeating. That is how you build wealth. And that is how you get started
with real estate investing. Yes. There are some things
in the middle here, right, finding great
contractors and finding out how much it’s going to cost
for you to update and renovate this property. But that all comes back to your
return on investment, your ROI number, OK? So we need to know
that at the beginning. But these are things that,
as you start to progress, you’re going to learn quickly. And you’re going to become
an expert in no time. So I hope you subscribe
to the channel. And I hope you smash that
like button if I brought you any value at all. Please share this with
a partner that you think could use some financial
intelligence in your life. And please join our
Financial Freedom Academy. The link is below. We have great discussions
that help other people build financial freedom as well. So thank you so much. We’ll see you next time.