Clayton Morris Might Actually Change My Life

Clayton Morris Might Actually Change My Life

Fredericksburg, VA · Member since 2016 · 28 posts · 12 votes

What's going on BP Family?!

I'm so excited to share with you guys what I've discovered and the numbers I ran for my early retirement plan! I recently was introduced to a gentlemen's YouTube channel by a friend of mine. His name is Clayton Morris. Let me tell you this guy is no joke. He breaks down every aspect of creating passive income through buy and hold SFR and does it with such simplicity; no offense to him, but a 10 year old could understand it. I highly encourage you to check out that video because it could put your life into perspective as well.

Now, moving on to what I learned from Clayton. Clayton has this formula and idea called the 'Freedom Number'. What you do is you add up all your expenses for the month (you can do this by checking your bank account online obviously) and I mean ALL EXPENSES; including going out to eat or to the movies, then you add 10% to it just give you a little breathing room so you're not so constricted on your spending. So lets say all your expenses add up to $4,500 a month and you add the 10% for good luck. So 4,500 times .10; that equals an added $450. Which gives us a total of $4,950. Now just round that up to an even $5,000. $5,000 a month.

There it is, your Freedom Number! Oh, but it gets better! Now we're going to find out how many rental properties it's going to need in your portfolio to meet that goal of $5,000 a month. So what we're going to do is take the average rental price of $700 dollars a month. We want to be kind of conservative on this estimate so what Clayton does is he takes 40% out for repairs and vacancies. So 700 times .60 (the 40% taken out) equals $420. Alright, here is the moment of truth. We take the $5,000 and divide that by the $420 and we get 11.9. Round that up to 12 and that is the number of properties that you will need in your portfolio to reach $5,000 a month in cash flow! Amazing, right?!

So I ran my own scenario. Keep in mind, I don't have any expenses as of now. I don't even own a car and I have no credit history (I'm 24. Live at home with mom. Not afraid to admit it). What I've always wanted to do is just travel with my girlfriend and have money to spend while I'm traveling the world. So what I did is I made an Airbnb budget of $200 dollars a night or less for a one month vacation. That's $6,200 for one month plus I through on $5,000 for the plane tickets and anything else I might want to do or purchase while I'm on vacation. So $11,200 dollars MAX for a one month vacation.

I drew out a 10 year plan to retirement and here is what it looks like based on the Freedom Number method.

Starting at age 25

Retire by age 35

Acquiring 36 properties in 8 years

This would be 5 properties a year.

Which would be 40 properties by the end of year 8.

That would be $16,800 a month or $201,600 a year ( CONSERVATIVE ESTIMATE BASED ON THE FREEDOM NUMBER SHEET BY CLAYTON MORRIS)

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Break down for 1 year:

$2,100 a month or $25,200 a year.

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By year 2, TECHNICALLY, I could quit my day job as an HVAC Technician making $4,200 a month or $50,400 a year as full time real estate investor.

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Rental Property Investor · New York, NY · Member since 2011 · 956 posts · 510 votes
9y

I commend your enthusiasm and motivation. However,

 you are brand new and totally inexperienced.

You'd be a MUCH wiser man to open your ears and close your mouth

and learn from these wise experienced people here on BP.

They have ALOT to offer.

See this reply in the discussion

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    9y

    Sam Alomari wrote:

    " 1- Clayton's calculations are a simplified version of the truth. He doesn't count for CapEx because he does a complete gut rehab. He deducts 40% for tax, insurance and maintenance, but that percentage is not always a good estimate. It helps you to make a quick decision if the deal you are looking at is worth the time for deeper analysis, but I wouldn't make a final decision using his simple approach."

    -----------------------------------------------------------------------

    There is another forum topic on here about Tyler's purchase so far with Morris and what he has experienced. Sam above says 40% is used because of a complete gut rehab. The pictures from Tyler's forum post are not any indication of a complete gut rehab. What appears is a light rehab to try to get in rent ready condition with remaining issues. A gut rehab is going down to the studs and replacing electrical,plumbing, roof, windows,A/C, water heater, floors, counter tops, etc. Basically redoing everything but the shell holding it up so that everything is brand new.

    IF such a rehab was completed with pictures, video, and receipts then in the first 5 years or so of ownership ( with a good tenant) the costs might be around 40%. As the years roll on and things start wearing out the costs will swing the other way much higher so the average is not 40%.

    We would run into this when I had a client looking at a 100 unit apartment building. Seller would claim newly remodeled and show low expenses while they owned it. They did this by patching everything and not properly keeping up with CAPEX. So my buyers 5 to 10 years of owning horizon looked completely different than the sellers numbers. The seller wanted to have their cake and eat it too by not properly maintaining the asset to then try to sell at a premium upon disposition.

    We didn't buy that property.

    Think about this. Investors are looking at low income and high crime areas where they are taking a risk based on projections of mainly an only cash flow benefit. That cash flow benefit is based on the assumption that costs run 40% on properties that do not appear to be GUT REHABS. So if you buy something with light renovation to be done to it at a premium purchase with ongoing future repairs and the expected  cash flow isn't there the chances of failure are high. I don't know anything about the specific company and I am just talking in generalities.

    People cannot usually do gut up rehabs selling houses for 40,000. If markup was say 15,000 per house and the seller paid 10,000 for it initially then you would only have 15,000 to replace everything for parts and labor and that doesn't even include employee business costs, buying and selling closing costs, ongoing utility costs while the property is being renovated, payments to investors or  a lender if the seller is not paying all cash with the purchase and rehab etc.

    If anyone is pushing you to buy,buy,buy fast or lose out then you really need to think about what and why they are doing that. If they can't justify with documentation the reasons, provide erratic partial information, or show an unwillingness to help then those are giant red flags.    

    Invest at your own peril. At the end of the day it is your cash on the line and you will either benefit or have a nightmare of a situation to get out of for a very long time. Some turn key companies have a guarantee where in the first year they will "buy back" the property if the investor is not satisfied with the purchase. I have seen a few do that over the years but then again they can sell such a warranty to move a bunch of houses, have their LLC guarantee it, and then go out of business so the purchaser does not see a benefit if they want to redeem the warranty after buying.

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Joel Owens  too funny we said the exact same thing 3 minutes apart.. fine minds think alike.

    your deep experience in many properties.. my experience of actually owning them and financing them over the last 20 years....

    some will listen some will think we are nuts.. LOL

  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    9y

    I just want people to go into these things with eyes wide open and ask lot's of questions.

    Some turn key companies keep the diamonds ( with profits from selling marginal property to others) and sell the duds to build their own portfolio of success quickly but leave a path of total carnage on the backs of others.

    I don't invest in SFR but if I did I would buy in high quality areas.

    It would be interesting to see an investor do the split investment method of taking 50k and buying a property like this all cash and then taking another 50k and investing to own a small slice in a higher quality sponsored project. At the end of 2 years compare equity and cash flow positions of each.

  • Investor · The Colony, TX · Member since 2014 · 192 posts · 66 votes
    9y
    To quote Pitbull, who was translating a Spanish proverb, "Ask for money, get advice. Ask for advice, get money twice." You're welcome.
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Joel Owens  I think the issue is the sponsor deals need accredidation which I suspect many who jump into low end rentals don't have.. they could invest with the CF that do not require you to be accredited.. but I have seen some really crummy debt deals.. Patch of Land is having major issues.. I predicted that 2 years ago when I looked at the projects and the super high rates they were charging.

    its all a balance I put some money with a sponsor in an A class California deal... which I am very happy with... 30% return in about a year looks like we will hit it... so I agree with you.

    but people have to start somewhere and they think cheap low end ghetto properties is a start what they don't realize is those will probably set them back a decade by losing their first chunk of money they put together...

    Oh well.. time will tell it always does.

  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    9y

    It seems if investors cannot get into accredited deals they could look at things like note investing or tax lien investing. David Krulac has done very well with tax liens over decades.

    You can start out in smaller amounts also.

    I know many sponsors who do not accept non-accredited investors due to extra reporting and potential liability.

    For investors looking to turn key companies do not just look at what they are SELLING look at what they are KEEPING long term and where.

    If the owner of the TK company owns properties long term in the areas they are selling to you then at least on some level they believe in the area.  If they are selling a bunch in one local area but holding their personal portfolio in another miles away that could be very telling.

  • Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
    9y
    Originally posted by @Jay Hinrichs:

    @Derrick Dill  Abso darn lutly  the most missed part of the equation is the on going turn over costs and cap ex.. completely agree with  you... I was just saying metal roofs are brilliant and there are some best practice items that can be done for rentals that will help with this.

    anyone who has read any of my post though knows that I am not keen on low end D class rentals like Morris is touting.. the rents are not high enough to generate enough gross cash flow to properly maintain a home that is going to have 10 to 50% more expenses because of the tenant base.

    and those expense's will come in lost rent.. vacancy .. theft and tenant abuse.. just will there is a reason you have hoods and semi hoods... the risk is huge and the morris product is in those areas.

    Jay,

    Roofs are a non-issue. I've never paid for one and never will. They are either paid for by the seller I'm buying from (as deduction from sales price) or 100% by my insurance. Metal roofs last, but I'd never consider it for a SFR rental.

    The best practices are around acquiring right, managing right, and selling right.  These affect each other...ex buying the correct home will make management easier.  Acquiring right includes acquiring an easy to maintain, well built, low maintenance property, in a good neighborhood with which you can attract a low maintaince, well-qualified tenant that will stay for a long period of time. 

  • Specialist · Marco Island, FL · Member since 2016 · 225 posts · 56 votes
    9y

    @Aaron Z. @Jay Hinrichs But how much more do metal roofs cost. I dont have my first rental yet. But I feel like it would make alot of sense especially if while doing a rehab you had to fix / rehab the roof anyway. But isnt it ugly? Or am I thinking of something else

  • Specialist · Marco Island, FL · Member since 2016 · 225 posts · 56 votes
    9y

    @Raheem Jamaal Dont let anyone kill your vibe. But be careful not to let confidence seem like arrogance, especially over text. Or person. Or ever. 

  • Investor · Virginia Beach, VA · Member since 2015 · 83 posts · 34 votes
    9y
    Originally posted by @Michael Johnson:

    @Aaron Z. @Jay Hinrichs But how much more do metal roofs cost. I dont have my first rental yet. But I feel like it would make alot of sense especially if while doing a rehab you had to fix / rehab the roof anyway. But isnt it ugly? Or am I thinking of something else

     You can pay as much or as little as you want for a metal roof.  On the low end they are roughly 50% more expensive than your typical shingle roof. A big part of that is that they are uncommon so there aren't as many experienced installers so you pay more.  

    As far as ugly, there are also a large variety of styles and types.  Some look just like a slate roof and cost just as much.

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Aaron Z. on the ones I fund... I see the roof being about 20 to 25% more than shingle... and they come in all colors and designs.. I see them here in Oregon on 1 mil plus homes.  and of course the Indy turn key stuff is 80 to 120k... also they can go right over existing so you save on tear off and they are light so its not like stacking multiple asphalt and bowing your rafters.  These guys will match the color to the trim and gutters looks pretty sharp

    Clayton Mobley I believe brands his all RED in B ham... but that's what I have seen of his stuff when I am in B ham checking on my loans there.

  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    9y

    Metal roofs are a preference thing. Some people with log cabins love the metal roofs rustic look and the sound of the rain hitting it.

    In suburbia many home owners do not like metal roofs because of high cost to buy, less fudge factor given to install it by contractors versus shingles, and owners complain of the high amplified noise when it rains,etc. 

  • Rental Property Investor · NY · Member since 2013 · 844 posts · 350 votes
    9y

    @Aaron Z. @Michael Johnson Here is a metal roof on one of my rentals. it is in northern Ny the area gets pounded by snow in the winter and then pounded by heat in the summer their are only a few places in the US that have as drastic temperature changes thru out the year.

    The roof looks amazing not sure where you formed that opinion of it looking ugly best looking house on the street by far. As for cost $6000 it is all about finding the right installer.

  • Investor · Virginia Beach, VA · Member since 2015 · 83 posts · 34 votes
    9y

    @Eddie T. not to overtake this OP's original discussion but that is one beautiful roof!  How many squares? Having a simple rectangle roof can really keep the costs down on a metal roof as well.

  • Rental Property Investor · NY · Member since 2013 · 844 posts · 350 votes
    9y

    @Aaron Z. Well I am no roofer but I believe if it were to be done in shingle it is 12 square. When doing metal I think they use regular measurements not by the square. Yes having peaks and valleys adds to the cost so when considering to purchase a home I always take into consideration the steepness of the roof and the architectural design. Some of the home builders make beautiful roofs when first being built but 20 years later when the home owner needs to replace the roof the price is shocking because they are not getting the same discount a builder is who is doing an entire sub division.

  • Hurst, TX · Member since 2016 · 192 posts · 114 votes
    9y
    My freedom number is 1 million dollars a month. Thank you Clayton Morris! Where do I send my check??😃
  • Investor · Belleville, IL · Member since 2016 · 16 posts · 3 votes
    9y
    Originally posted by @Raheem Jamaal:

    I thank all of you for the words of encouragement and thank you @Account Closed for making a guest appearance on my post and enlightening people with your own knowledge and experience. I just know it sparked something in me when I watched your passive income video and it will continue to spark something in many other people for years to come. For anybody that lacks faith in my abilities here, I understand where you're coming from. For some this would be like doing the impossible. I have a lot to learn and maybe I am a bit naive with my numbers, but WHO CARES? This will all be a learning experience for me and so what if I don't hit it out of the park. I'm going to give it my all and that's what I'm going to do regardless.

    Cheers once again!

    Raheem,

    I'm with you. After watching the Freedom Number podcast on BiggerPockets I became more refocused on my goals. I was a bit naive prior to learning about the freedom number and completely underestimated how many doors I needed. Now, I have a better idea and have landed on 33 doors which I plan acquire and rehab using the BRRRR strategy. It's not the number of doors that is the challenge -- it's how fast you plan to do it. I originally planned to do 4 per year which isn't realistic to me.. So I scaled my plans back to 2 per year for the first two years and then increase every few years. I already had 2 doors but bought my "first" in this plan a couple months ago.

    Your plans are very doable but just be open to scaling back and making sure your numbers make sense (e.g., accounting for future repairs, vacancy, possibility of property management, etc). Good luck in your journey!

  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    9y
    Originally posted by @Raheem Jamaal:

    @Mathew Keehner I assure you it can be done. There are a number of ways I can finance a deal. I'm not going to explain myself cause I don't feel the need to, but for all I know I could have an uncle who happens to be a millionaire and would loan me the money in a heartbeat. There's always going to be people like you with limiting beliefs. Sad, but true and as for @Eddie T. You want credibility?...read 'em and weep...

    With all due respect, you might want to listen to pay attention to what other people on here with far more experience have to say rather than being so dismissive. I don't know how you can assure @Mathew Keehner that something can be done when you haven't done it. I  have several years of experience selling turn key properties in Indianapolis and have never seen an out of state investor be successful with low end properties. Anything renting for $700 or less is in a rough area and won't perform well.

  • Investor · Avilla, IN · Member since 2013 · 796 posts · 769 votes
    9y
    Raheem Jamaal Congrats on finding BP and getting the real estate bug. I am a little confused on your numbers so could you clarify something? In year two you state that you would have 10 homes and could quit your job (technically you said). $420 a month x 10 is $4200. How much of that $4200 will be going to the monthly principal and interest payments on those homes? I own over 60 units and have been a landlord for 8 years. None of mine are paid off yet. I'm just curious how you plan to pay them off so quickly?
  • Wholesaler and Real Estate Broker · Indianapolis, IN · Member since 2009 · 438 posts · 293 votes
    9y

    Raheem

    It is wonderful when you are first excited about the possibilities of real estate and the freedom you can gain. Please heed the advice of the more experienced investors. Numbers on a board often do not mirror real life performance. That is why you are being advised by some to proceed slowly. Once you get better as a landlord then you can venture out further. Use Clayton's plan as motivation and as a Birdseye view of where you want to go but believe me it will be a grind
    in the trenches when you are dealing with tenants, contractors and property managers. So keep
    your enthusiasm and do not let anyone take it away. BUT they are warning you for a good reason.
    There are a lot of hard learned lessons behind their advice.

  • Indianapolis, IN · Member since 2017 · 10 posts · 6 votes
    9y

    Hey brother,

    People aren't trying to knock you.  I think its more just concern that you do adequate research and prepare yourself for the reality of things. I wish you the best and you can absolutely do whatever you set your mind to.  Just be prepared and do your due diligence and you'll be straight. Good luck!

  • Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    9y

    You got some great info on this post. The concept and theory you learned is great too. If Clayton has good deals and locations to do this even better. 

     As mentioned by the very experienced pros already, that for non locals to invest in the bottom barrel sfr locations almost anywhere can create the perfect recipe for little to zero profits. Typically, if that bottom stuff is through a turnkey company offer, that will nearly cement in turnkey stone fashion zero profits ahead. The TK seller will make money on the front end though and pass 100% of the future losses coming to you in the form of cap ex, taxes, insurance, mortgage, fees, vacancies, break ins, vandalism, turnover cost, paint, carpet, code violations and the general loss of sleep is free of charge. Good times. 

    Now BP would have done some solid research before the podcast to make sure it is all good right?

    Well maybe not...https://www.biggerpockets.com/forums/732/topics/401989-be-careful-who-you-invest-with

    So before you start, really do the due diligence beforehand.

    Good luck with your search!

  • Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes
    9y
    Originally posted by @Aaron Z.:
    Originally posted by @Jay Hinrichs:

    @Derrick Dill  my client in in Indy that is doing turn key  puts NEW metal roofs with 40 year lifes and 15 year unlimited warrenties on all his homes... saves tenants 20 to 40% a month on utls bills its brilliant.... Spartan in B ham does this ... as well

     I don't know why this hasn't become standard practice.  There are so many benefits to a metal roof! and they aren't the old tin roofs from little house on the prairie anymore...

     Do they do well in areas where there is hail like the mid west ? How do they compare to comp shingle in terms of product cost, and labor cost to install?

  • Investor · Los Angeles, CA · Member since 2015 · 23 posts · 15 votes
    9y

    Best of luck to you! It doesn't hurt to dream big. However, don't forget to do your due diligence. 

  • Engineer/Real Estate Investor · Renton, WA · Member since 2015 · 368 posts · 120 votes
    9y
    Originally posted by @Eddie T.:

    Raheem Jamaal being on a BP podcast does not validate credibility. We recently discovered a scammer who was on the BP podcast and stole 40k from one of the members here on BP.

    Who was the scammer? 

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