Morris invest - any insights?
Rental Property Investor · Oakland, CA · Member since 2016 · 268 posts · 106 votes
Morris invest - any insights?
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Clayton MobleyPro Member
Birmingham, AL · Member since 2014 · 875 posts · 947 votesAs the CEO of a turnkey outfit in Birmingham and an experienced buy-and-hold investor, I have to agree with basically all of @Jay Hinrichs' points. If a company is selling rehabbed properties for $40k, then they bought them for around 5-10k, meaning these are C class properties at best. More likely you have some seriously distressed D properties in undesirable neighborhoods, because the sale price has to include a profit margin for these guys, the original seller and the rehab crew. So, no matter how nice the properties look now, no one that can afford to live elsewhere will pay to live in those neighborhoods. You could rehab something to look like the White House and never rent it for a decent amount because the amount of crime in the area (not to mention the condition of the surrounding properties) will deter anyone who has the financial ability to be even remotely choosy about where they live.
Which leads us to the issue of equity. I see a lot of people talking here about buying below market to get some built-in equity right off the bat, but equity only truly exists when you sell the property - until then it's just 'expected' value. It doesn't matter how much money has gone into a property if you can't sell it. Put 30, 40, even 50k into a distressed property, it won't matter because no one will pay 40-60k to live in the type of neighborhood where you can buy a 5k property to fix up. If you hold a property for a few decades and the area magically gentrifies into the next hot neighborhood, then great, but that's a miiiiighty big bet to make. Appreciation isn't even guaranteed in A and B class areas, so relying on the possibility of appreciation in lower-tier neighborhoods is very risky.
And regarding the issue of financing, I think that bears a little more scrutiny. Yes, cash is faster and easier, and it does seem that a lot of new investors looking for the next hot deal are keeping this new outfit busy....but when the question 'why do you not work with financing?' receives the answer 'because it's faster and also we don't want to deal with bank red tape like appraisals', I think it's time to dig deeper. Appraisals are important for a number of reason, not least of which because they ensure that the investors knows the value of what they are buying - at least on paper (see my comment above about 'expected' equity on properties with no real resale value). I would hope that this company is encouraging prospective clients to engage the services of a third party appraiser, rather than brushing off the necessity of an appraisal as an unnecessary annoyance.
On the one hand, I'd like to say this is a new outfit that just has more business than they expected. Real estate investing - and turnkey and wholesaling in particular - gets a bad wrap sometimes so we all tend to be a little bit 'on the lookout' for scammers, which is unfortunate. So I'd really like to hope that these guys are as legit as some of the posts here indicate because I like to think that we, as an industry, are learning to separate the wheat from the chaff, leaving only the well-intentioned professionals. Indy can be a great market, and a wholesale-cum-turnkey operation is an inventive model, so I'd like to think these guys are just a little avant-garde. However, I've also seen a lot of posts mentioning how difficult it is to contact them, or to schedule even a simple call in a normal time frame. The fact that the site has little information and that one person wasn't even sure if the guy on the phone was the guy from podcasts gives me pause. A few people have mentioned that it 'seems maybe too good to be true' and, in my experience, that usually means it is. It sounds a little like these guys just want people with cash on hand who will pull the trigger without a lot of questions or checking-in. Whether this is by design or because they are overwhelmed by their own success remains to be seen.
HOWEVER, for those that have spoken to the company and felt that they were on the level, I would say follow your gut but be very sure you take responsibility for doing your own due diligence. Ask them to show you exactly what their ROI numbers are. Ask for a real-world example of their returns on a property similar to the one you are considering. Not with an estimated 40% expense rate, but with the actual expenses incurred for the last year (or however long they've been operating). Don't lump all the costs together, ask for specific expense rates, occupancy, maintenance, move out costs, etc. They should be willing and able to provide these hard figures and they should be happy to walk you through how they add up. Questions from first time investors should never be met with 'tuning out' as one person put it with regard to their mention of financing. Even if they are really busy, an investor with questions, who wants to be educated about their decision, is not an inconvenience and shouldn't be treated as such. If you get the information and the treatment that you deserve and feel confident in the product, then go for it!
Sorry for the ramble ;) Having just read this whole thread, it seemed Jay was a little on his own out there and another experienced perspective might be useful. Take it as you will, and good luck to all in whatever investment niche you choose!
All the best,
Clayton
414 Replies
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Robert Lindsley Well maybe some of the INDY folks can chime in however I can assure you that 40k all in In indy is maybe not a war zone but its an area that will be a super challenge to own and maintain.. @Chris Clothier Chris is the preeminent expert in the turn key space and he will tell you his company learned this very early on and left the space.. there is NO money in it for the investor and all you do as a TK operator is get your butt chewed when your clients tenant trashs the house for yet another time.
think of it logically .. this is the cheapest housing the cheapest rent.. and what does that combination bring you.. it brings you the roughest tenant.. botton line end of discussion.
If you go .. go on a Saturday.. mid week things are quite in almost all neighborhoods..
you would be much better off putting 50% down on a 100k TK .. that rents for 900 to 1100 that's a totally different renter, not that you could not have a bummer but you mitigate it dramatically.
Believe me I owend 350 of these types of homes from D's to B's its not something you want to risk.
I understand this company has a very polished approach and a very well thought out marketing scheme that gives the illusion of grandour but its just an illusion..
- Indianapolis, IN · Member since 2013 · 210 posts · 149 votes10y
I have already spoken to @Chris Gerenser on the phone so he knows my take on the Indy area and what to expect.
Everything that @Jay Hinrichs and @Chris Clothier have been saying is pretty much right on. Jay has also been giving out some very valuable info, not just on this post but this one to:
https://www.biggerpockets.com/forums/48-general-re...
Can you make money on $40K properties, yes, if you're a local investor or you already have experience with investing. I DO NOT advise newbie investors to buy these types of properties. If you are buying a $40K TK property in Indy then the property is going to more then likely going be in a middle to low income area. Rent ranges from $525 to $650. There is one thing to remember about Indy it is a street by street basis. This has been said time and time again here on BP but it still needs to be mentioned. One street can be Disneyland and the other street can be gang bang central. It still amazes me how these streets do not bleed over into one another.
If all you have is $50K to spend then I suggest looking locally. I don't think newbie investors should be straying to far from home. I have seen to many get burned. I know, if you live in California then you can't buy anything because it's to expensive. I personally think that is not true. I think the investor who thinks that needs to look harder or do better research. Sometimes you just have to be creative.
For Disclosure: I do and have owned $40K properties and with the right leasing company and PM you can be successful with these properties but I am local to the market and none of properties were TK's.
- Flipper/Rehabber · Fair Lawn NJ · Member since 2016 · 382 posts · 87 votes10y
The wait time to talk to them is November now!
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Account Closed I just have to be honest here IMHO that is such utter BS... buyers lose interest who is going to book an appointment for November.
I just bought tickets to go to Paris in November but make an appointment to talk to a salesmen don't think so... LOL... this is some real good take away marketing in action...
- Indianapolis, IN · Member since 2013 · 210 posts · 149 votes10y
That's exactly what I am talking about. Investors just have to open there eyes and look around them.
- Lender · Roseville, CA · Member since 2011 · 205 posts · 86 votes10yZach Quick , Jay Hinrichs is correct re: the impracticality of financing such a low price point. There are certain fixed costs of processing a loan and for this price point in a stagnant area is not feasible. For someone who has 50k to put down, compare instead to a $200k property in and area with just Average appreciation; the loan costs could be covered by appreciation in 12 months or less because the return is on the leveraged value, not just the initial investment. Disclaimer: I'm in California so I may be jaded toward an appreciation market and using real estate as leverage rather than the idea of hoping for a couple hundred in cash flow each month...I've done better than that in more liquid markets (stocks).
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Carrianne Mucho we get into some good debates about CA appreciation and mid west cash flow LOL....
being on the lending side of the business for all these years.. it is hard for folks to understand why they cant get this little mortages IE 25 to 50k or really almost anything under 100k.
for the mortage lender its a loser.. and now with maximum fee's that can be charged on some mortgages its frankly just a loser.
people want to equate mortgage lending to POints and yield spread.. well there is no secondary market per say for these little nonowner occ investor mortgages so their is no yield spread so an LO is going to run a file for 2 points on a 30k loan that's 600 bucks that's working for less than minimum wage.
- 10yMike D'ArrigoPro MemberTurn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
Originally posted by @Chris Gerenser:
@Jay Hinrichs what should I be on the lookout for? At that price point, the home is paying for itself relatively quickly. What factors can make them a bear? I mean, I understand that if there are issues with vacancies, damage, etc, but sounds like there may be other factors that I'm not thinking of?
I agree with @Jay Hinrichs completely. This price point is extremely challenging to say the least. Those properties are going to be in the rougher areas of Center township of Indianapolis which looks good on paper but very rarely pan out. The home is only paying for itself when it isn't vacant or vandalized. We've sold turn keys in Indianapolis for several years and focus on higher class assets because of bad experience in this class.
- Investor · Napa, CA · Member since 2016 · 19 posts · 5 votes10y
@Mike D'Arrigo @Jay Hinrichs Thanks for the info and guidance. All valid points and will be focusing on the higher class assets you both (and others) have suggested.
- 10yMike D'ArrigoPro MemberTurn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
You're welcome Chris. Let me know if I can help.
- Lender · Roseville, CA · Member since 2011 · 205 posts · 86 votes10y
@Jay Hinrichs - Right! and besides that, there are fixed costs like say, an appraisal...on an investment property which requires a rent survey, that fee alone would be over 1% of a $50,000 loan! When you spread fixed costs over a larger loan amount, it becomes more cost effective and the Lender is sharing risk with the borrower (vs. an all cash deal). IMHO, leverage is one of the main reasons real estate is an attractive investment over other options!
- 10ySergey TkachevPro MemberInvestor, Agent, CPA · West Sacramento, CA · Member since 2009 · 706 posts · 262 votes
@Jay Hinrichs, thanks so much for your input in this discussion!
- Registered Nurse (ICU) · San Jose, CA · Member since 2014 · 496 posts · 332 votes10y
Like @Account Closed mentioned above if you have experience and the right team you can make money off the 40k houses. I just rehabbed 2 homes in the Garfield park area in January. One was all in for $38k and the other was all in for $45k. I am now cash out refinancing them and #1 appraised for $65k and the other appraised for $75k. I will be getting all my money and then some back. Tenants are paying $750 rent and are good working class people. Most importing the homes are beautiful. FS Houses is the team that helped me pull this off and Steve Lehman is one of the people who helped educated me on the Indy market. I am forever greatful for these people and there help.
- 10yKim HandelmanPro MemberReal Estate Agent · Guilford, CT · Member since 2014 · 193 posts · 88 votes
I had a conversation with Clayton over a week ago. I waited over a month for my time slot. He called me from NYC in his car. He then proceeded to park the car and pay a valet. Everything was pretty loose. My situation is that I would either buy with my retirement accounts or finance with an asset based lender. I wish he would have been up front and told me he's only looking for cash buyers. Instead, he gave me the name and number of their property management company and told me that he'd send me some properties to look at and the contact info for his lender. I never heard from him. I called his management company and left a message and they never called me back either. I think they may be overwhelmed from all the buzz his BP podcast has stirred up - trying to get systems in place and handle the call volume.
I then called Norada. I had a great conversation with Ron, one of their reps. I couldn't have scripted a better phone call. He really listened to my situation. He spent an hour discussing markets and different scenarios that might work for me. He was totally transparent. He explained how they make money and answered all of my due diligence questions with honest and concrete answers. I hung up feeling like I knew exactly where I stood and what I needed to do.
Norada is a better fit for me. They're really buttoned up. This is my first property and it will be a make or break for me. They may not cash flow as much but their properties are in higher end neighborhoods and I feel that it's where I need to be right now.
That's my experience. Hope it helps.
- Fredericksburg, VA · Member since 2016 · 190 posts · 64 votes10y
@Steven Piazza I was wondering the same thing about why he is not holding them. Philanthropy? Or is this his business model? I have a call set up with him in a few weeks. I'm sorry to hear that he is only taking (or at least leaning towards) cash buyers :-(
And good info @Kim Handelman
- Investor · Glendora, CA · Member since 2016 · 41 posts · 72 votes10y
Wow, Kim. That's so similar to my situation, it's almost eerie! I talked to Clayton in may back before his company started taking off--it was a more direct conversation, as he was in his office at the time, but the cash only situation and almost exclusive concentration on 40k or so homes in Indianapolis really isn't what I want to do.
I talked to Ron and Marco at Norada, as well, and they were very forthright, very clear, and answered all my questions. I still haven't purchased from them, but I think I will. I'm waiting for my HELOC to close before jumping in... and expect I'll be purchasing from more than one Turnkey provider (I've talked to a few on the phone alread) to see who I like best. I'm certainly vetting them all, and will only go with the ones that are investing in areas that match my criteria.
Looking forward to seeing how it goes for you if you work with Norada, @Kim Handelman!
- Rental Property Investor · Indianapolis, IN · Member since 2016 · 200 posts · 87 votes10y
In Indy stay away from houses with ARVs under 50k. They are a nightmare.
There are some good deals to be had for 50k and under though but you have to be careful.
I bought one outside the loops for 30k which is a 50-60k arv and had a really good renter so that one will have good cash flow, but I won't touch any house in any area where the ARVs are under 50k. As a fix and flipper there is no money to be made in them. Heck in a tax deed auction I won't even bid on those houses.
Try to stay outside the loops if you are from out of state that will keep you more safe. Avoid the areas that have bubbled. Too speculative...
Do that and you should be fine. Camby is a great area for 100-150k arv homes but hard to get a good deal in that area.
You can buy 100k properties from the retail market and get 1.2k or so rent from them. Just put a 70k mortgage on it and you still have okay cash flow and a lot less nightmares. I have a few like that.
Or find the wholesalers and you can do a bit better.
- 10yRobert LindsleyPro MemberReal Estate Investor · Orlando, FL · Member since 2016 · 185 posts · 53 votes
@Edward Rhoads Thanks for your insights! I'm in the process of talking to a few wholesalers and hope to have some leads soon. I'm also planning a trip to Indianapolis in the next couple of weeks so I can check out areas and potential properties before I invest.
- Apex, NC · Member since 2016 · 31 posts · 6 votes10y
I would also like to know what people think. I just read through all the posts above and still feel skeptical. I had a call with a guy named Dave from Morris Invest and it seems legitimate. When you take all they said and do research yourself it seems like you're buying a home right around what it is worth fully ready to go. Though I have the same skeptical points as above.
Since the last post 2 weeks ago, has anyone bought from them or find any hidden issues with using Morris Invest?
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Don Antoncich its not the presentation of the sellers reps or anything like that .. anyone can make any product sound great.
what your dealing with is an asset that most anyone with any experience would not touch. Unless they are local and experienced.
you can find plenty of these types of homes in the small towns of the carolinas
- Alpharetta, GA · Member since 2016 · 17 posts · 9 votes10y
@Don Antoncich I was skeptical as well and after reading the posts by @Jay Hinrichs and @mike d'Arrigo in this thread (some great wisdom) and listening to Mike's podcasts with Jay (Mike references them in an earlier post), it was very clear to me there is probably a smarter way to get into the game, especially if you're going to invest out of state.
On a slightly different note...pretty incredible story Jay tells in the podcast about having to actually move out to the midwest after the crash to fully assess what he had on his hands (when he took possession of a number of properties) and to try and mend a messy situation.
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Stephen Vetek yes I like to forget those.. days but I ended up foreclosing on 200 plus LA based investors.. who got stuck. and their problems became mine.
nicer properties were not the issue it was this low end stuff that really gave us a run for our money and frankly cost us a few million in cash loses... so yes I am not a fan !!! and you have a new crop of sales guys pitching the exact same stuff.. I fully believe in my personal opinion that 50% or better of out of state investors who buy 40k and under all in urban core assets will take a substantial loss not to mention never make any cash flow ... Again based on personal experience and my personal opinions.
- Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes10yWow, I am not sure managing that 10 to 15 rehabs a month is an easy task, 5 crews won't cut it, 10 crews of 3 each should, unless it's all carpet and paint plus a few fixes here and there, can't imagine spending more than 6 line item/scope of work. You also need at least 5 on management staff, 2-3 superintendents/project managers, 2-3 on office managing resources. I can see where they spent the 20-25k expense, and where 5-10 turns to 40.
- Buy and Hold Investor · Florham Park, NJ · Member since 2014 · 8 posts · 14 votes10y
I've long been a fan of buying well below market value, rehabbing the house, creating a very high ROI, and a nice chunk of equity in each house that I finish. I personally LOVE hard working blue collar neighborhoods with nice slow and steady appreciation. It's been the foundation of building legacy wealth and passive income for my family. And you're all right about Zillow! It's a really poor measure of value.
- Berkeley Heights, NJ · Member since 2016 · 5 posts · 7 votes10y
Thanks for posting @Account Closed. Good to see you are reading the forums. Maybe you can chime in on some of the comments people have posted about your business and the future plans you have for its growth in the Turnkey marketplace.
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