How This Investor Got Burned Buying an A Class Rental Property (Our Story: Part 2)


It’s part two of our story why
Natalie made a huge mistake buying an A Class property. Today, it’s all
about her mistakes. That’s today’s episode. Let’s dive in. Already you’ve hurt my feelings. That’s Natalie Morris. I’m Clayton Morris. Welcome to the Investing
in Real Estate show. And I’m super excited
because last time on the show we talked about my
mistakes and how I went through a foreclosure,
had a deficiency judgment, invested in some raw land,
speculative land projects, all kinds of hoo-ha. And today, we’re going to
talk about Natalie’s mistakes in real estate investing. But this is part two of
a broader journey, right? You’re so excited about this? I am. Super excited. We get to talk about all
of Natalie’s mistakes. All right. So let’s talk about how many
episodes and what we’re doing. That’s true. Right. OK. Natalie’s mistakes will
only be one episode of a five-part series. And the impetus
for this series is that we hope to prove to you
that our journey, becoming real estate investors,
is relatable, is doable, because we want to
take you through who we are, where we’ve been,
where we’ve come from, and how we got to this
point in our lives. We’re now in the
beginning of 2018. Last year, Clayton
left his day job. And now we own
about 50 properties. We cash flow those 50 properties
about $40,000 a month. And neither of us have to work. So we spend all of our time
helping other people become real estate investors,
come up with a plan to be financially free. And we’re not trained in any
kind of financial advice. We just want to inspire other
people to do what we’ve done. So we hope to use
this five-part series to tell you who we are, where
we’ve been, how we’ve done it, so that you can figure out how
you can do it in your own way. Right. So start with episode one,
please, in the series. So you can watch that
first so you’ll understand the back story of all of this. But yeah, it’s really about– now we run a
successful real estate company called Morris Invest. We have hundreds of
clients around the world. We’ve rehabbed
thousands of properties to help other families build
passive income and cash flow. We started it just
for ourselves. We were just rehabbing our
properties, placing tenants, and cash flowing. And then we had friends and
family started coming to us and said, hey, can I
buy a $50,000 property? Can you show me how to do it? And we said, yeah, we do it all. We’ll do it for you. We’ll take care of you. I’ll put my team on it. And then it just grew from
there over the past many years, and it’s just been
a real blessing, and we’ve been able to
help hundreds of people. And I love the holidays, too. I really– I say this
not as a pat on the back, but I do love the
Christmas cards that we get from families
that we’ve never even met face to face, but they own, now,
seven properties with us or 10 properties, and we get
to see their kids growing up. I mean, it’s an amazing feeling. So that’s part of our journey. That’s where we are now. But let’s go back
to Natalie’s pain. Let’s go back to the failures. I want you– So much pain. If you’re driving, I want you
to feel the pain, the suffering. And when Natalie and I
came together and we met, I know that she
had this apartment, but I think you almost kind of– I don’t want to say ignored it. But I would hear you on
the phone just getting so pissed off and angry about– That’s where we’re starting? OK. Well, where do
you want to start? Sure. If you want to start before
that, start before that then. Well, don’t you think we should? Because I didn’t just
magically have this apartment. There was a story
behind this apartment. OK. Yeah, start there. All right. My mom never let
me go to the prom, and my dad didn’t show
up at my dance recital. No. Those things are– OK. So yes. I was raised by real
estate investors, and I always had this idea that
owning your own real estate was a great way to build wealth. I saw it in my own family. My grandparents,
my dad’s parents, they both had real estate that
they had invested in early on, I guess early in their marriage. I guess– well, I don’t know at
what point in their marriage. They both were on their second
marriages, and they had– so they were later in their
careers when they got together. And they both had a
lot of experience sort of taking care of themselves. And this was ’30s, ’40s. Like, that they had bootstrapped
a lot for themselves. They were both
wise, I want to say. And so they bought some land. They bought some– I wonder– I don’t know. They owned some warehouses
later in their lives that they had paid off 20 years
before I even knew about them. So this was the ’80s. These properties had been
paid off since the ’60s. And I actually don’t know
if they bought it as land or if they bought them as
warehouses that were already built as warehouses. I think they bought it as
land, because right now what’s on those warehouses
is an oil change shop and some other businesses. My dad still owns
them, actually. So talk about buy and hold. This has been in our family
for more than 50 years now. And so my grandmother– they
got divorced when I was a child. And my grandmother used
to go down to the bank and she would say,
Grandma needs some money. And she didn’t have credit
cards or the internet to just, like, Amazon Prime
herself some groceries, right? So she would say, can
you take me to the bank? And I would say, sure,
because by then I had my driver’s license. And she would go to the bank
and be like, rents came in. So I’m going to
take some money out, and then I need to go to
the market for some bread. And I’d be like, all right. So I always understood
that my grandmother had this passive
income that continued into her elderly years
that she could live off of. And I remembered– I was
just thinking about Christmas Eve with my grandma. And she would give us each
a little white envelope, not the big ones, but the
little ones that you lick with pointy envelopes. And she would have our names
written on it in her script. And she would give us these
crisp $50 bills that she would get from her rental– like Merry Christmas. That’s what we got because
she couldn’t see very well, so she couldn’t go
out and go shopping, but she would give us money. And so I always had
this idea that if you owned real estate,
then you would be able to have some
money coming in. My dad, once his
parents died, he inherited a plot of land,
a pretty big plot of land in Union City, California. So it’s right in the
heart of the Bay Area. It’s right in the
middle of the East Bay. And so it’s a really
good commercial land, and now there’s a
huge Kaiser there, and there’s a lot down there. It wasn’t quite
as much there when I was growing up in
this specific area– off the highway if
you know Union City. And so my dad had his business
there for a long time. He had his landscaping business. And then his parents
decided to sell it– or maybe it wasn’t
even that plot of land. I don’t remember completely. I’m peripherally aware of
it in my childhood, right? And so they sold the
land, and my parents both had a share of it. And so it all went to
their brothers and sisters and they cut it up. And so my parents had
a good chunk of cash. And so they wanted to
then take that cash and immediately reinvest it
because they didn’t want to pay the taxes on this inheritance. And they bought this relatively
mid-size apartment complex in Fremont, which is a very
expensive city in the Bay Area, and they bought it for– I remember it was like one
point something million. So it was eight units. And my dad found it. I don’t know how. And he was like– he said, we’re
taking grandma and papa’s money and we’re buying this
apartment complex. He said, I want
you to come with me to meet the guy who’s selling
it because his wife is going to show us how they run
the books and basically the ins and outs of owning this
property that they had owned for– I don’t know how many
years they had owned it. And so this was a really
formative experience because I went with my
dad to this guy’s house, and he lived in a
pretty nice area, I went to say in
the Oakland Hills, and his wife sat
me down and said, OK, I’m going to
show you my books. And she opened up a notebook
and she had that lined notepaper that you can buy in
Staples, you know? And it was like, unit one, unit
two, unit three, unit four. And she had the ledger for
when each one paid its rent and what the expenses
were for that. And that actually informs how
I manage our properties now because I remembered– so when
we bought our first apartment– or we didn’t buy an apartment. When we bought our
first single family, I remembered thinking
back to this lady’s ledger and I just created the
same thing on Excel, because it worked for her. And she put it all on paper
because she’s like, well, if someone comes with me for– some is a check
and some is money, I need to write that
down, so I erase this. And she was so meticulous,
and she had done it with joy. Like, they really
enjoyed working together, this old couple. But she also was managing the
properties themselves, right? So– That’s what he did. And then he decided
he was done with it. He wanted to sell it. Gosh, he could have– if he had just waited, he could
have got so much more for it because the Bay Area, then– the housing market
really exploded. It was always expensive
in the Bay Area. But then, it really exploded. And now– I mean, I’m not
exactly sure what my dad is getting on rents there. My dad still manages
that, as well. So you’re talking about
generational wealth. Like, this has been
passed down now. This is wealth that my parents– I mean, you think about what
you can do with a dollar, right? You can take a
dollar and you can buy a really expensive latte,
and then poof, that dollar’s out of your family forever,
or you can take a dollar and you can invest it
in some real estate. And then look, now, I’m
the third generation that will inherit that wealth. Those dollars really continued
to work for my grandparents for three generations down. So these are really
formative experiences. I don’t think I
really understood how much they were at the time. And I never thought, well,
I’m going to do that too. I think I just, like– I was always putting it
in the treasure chest. Well, and that’s why
it’s so important. But it’s interesting that– here’s the thing. That’s what we talk about
on this podcast all the time and on this show is
building legacy wealth for you and your family. It’s not just about– we bought– we recently–
it’s not just about the asset. It’s about the cash flow. It’s about the legacy
wealth that you’re building. It’s about building a dynasty. Yeah. Think about these
dynasties that are around for generations that don’t
get everything wiped away, but that go back
hundreds of years. Like, think about your
family as a dynasty, and that’s what we try
to do here on the show, and that’s what you were
seeing the beginning stages of when you were sitting
down at this woman’s table. It’s amazing. Right. And my parents and
my grandparents really had the idea that
cash flow was the goal. So they never got caught
up in the appraisal, right? Imagine if the appraisals on
the warehouse and the land that my grandparents
owned had upset them and they walked away from it. Then what, right? Like, who cares what
it appraised for? It’s now paid for their family’s
living for five decades, right? That’s crazy town, you know? So they didn’t get
hung up on that. They knew that what they
wanted was passive income. They knew these
things would rent. That’s all they cared about. My dad did– actually,
my mom and dad– they did try and do a
flip in the Bay Area when I was a teenager, and that
went really wrong for them. It didn’t make me think,
oh, buy and hold is better and flips are bad. But if I sort of rewind the
tape and look at my experiences, I remember they went
in on an apart– it wasn’t an apartment. It was an A Class home that
they were able to get off market because my mom worked
in real estate. I don’t know if she found it
or one of her friends found it. But they went in with a
couple of other families that we were friends
with, and they decided, we’re going to fix up
this home and sell it. And then the market tanked
right when they finished it. And it really taxed their
friendships with these people. And I remembered that they put– I remembered my dad
being there a lot. I remembered them being
really stressed out about it. And I remembered them
not really making money. Now, this was in
Pleasanton, California, which now homes in Pleasanton do
not go for less than a million. It’s just that area
has really exploded. It’s an extension of
the Silicon Valley. There a lot of
high-tech jobs there. If they had just waited
it out, they definitely would have made their money. But the holding costs were high. The taxes were high. It was a really, really, really
stressful thing for them. So that was kind of their
foyer into flipping. And then they were
like, nope, never again. We’re just going to
keep what we’ve got and then live off
the rental income. So then I always thought
ownership of real estate is a good thing. I had bought some– I bought a house that
I lived in in Las Vegas back when that market
was pretty hot, when I lived in Vegas for a little
bit after graduate school, and I sold that house when
the market was still high. So I had some money to use up. And I moved to San Francisco. I had the money from
the profit of that. I remember so clearly. It was $87,000 that I had from
the sale of that property. And so I was working
a low-level PR job in San Francisco that was
tech public relations. And so I wasn’t
making very much, but I had enough to
make a down payment, and I wanted to buy
in San Francisco because I was living
there and I was like, this is where my life is. It was, like, I’m
starting anew, right? Single girl– I want
to live in the city. I didn’t want to be on the
East Bay with my parents. And so my mom helped me
find a condo that was down on Harrison Street, and
it’s called SoMa now, that neighborhood
of San Francisco. It’s south of Market. And now there are a
ton of luxury condos down there that you can buy. But at the time, there
weren’t all that much. It was down by– there was
a Gordon Biersch there. There was a club I used to go
to when I was 21 years old. It was right up the street. I never went when I lived there. But it was, like, a
bridge and tunnel club. I don’t know why
that’s relevant. But– It’s not. It was important
to me at the time. It’s really not relevant. Hate to break it to you. These mundane details
about the clubs you went to– not
really important. They sold– there was, like,
a bodega in the bottom floor and they sold really
chalky hot chocolate. So– OK. I lived in this apartment. Again– another
detail we don’t need. If you want to know all the
details that are completely– yeah. These are just the
memories that I have. So I was able to buy this
condo, and I lived there, and I wanted to live there. And my mom cosigned on the loan
because I made such pennies at the time in my job. And so I moved in and
I was able to walk to work because it was so close
to downtown San Francisco. And then, after about a
year, that neighborhood was just so industrial. And all of my friends lived
in a cooler neighborhood down in the Marina. And I decided I didn’t want
to live in SoMa anymore. And so I decided to
rent out the condo, because I wanted to keep it,
but I didn’t want to live there. It just wasn’t
cool enough for me. So I– the problem
was the condo– so I remember my
mortgage was $1,800. But it was an adjustable
rate mortgage. So in five years, it
was going to adjust. But the dues on that condo,
because it was downtown San Francisco and they had– there was a pool
and there was a gym and there was some
really nice doorman. There was super crazy
association lady who ran it who was
always upset with me for some reason or the other. How much– so your
mortgage was $1,800. Was your homeowners’ association
dues included in the mortgage? No. It was an extra $500 a month. And at the time, it was $460– and it went up
about $20 a year– every month. And so that was so
expensive because it’s not a tax deduction. I don’t think it is–
your HOA on your own– I actually don’t
know that for sure. But I don’t think– I mean, if you
own it in an LLC– It would be a business expense. It would be a business expense. But otherwise it’s– so– But not if you own it
as a primary residence. Yeah. And the taxes on that condo,
just a tiny, little condo, were around $6,000 a year,
which was a ton for me because already that
mortgage was a stretch. I was making about $37,000 a
year, not very much at all. So I had to find renters that
would cover my expenses as well as the taxes. So it was always
tough for me to find. And so I kept it. I had some pretty good
tenants, actually, the first couple of years, and I
lived in San Francisco as well. I never had a property manager
because I felt like I just couldn’t find the room
in my budget for it because I was barely finding
renters to cover my expenses. But if something broke down–
for instance, my first tenant, her garbage disposal broke. So I called my sister’s
husband at the time, and I was like,
Juan, please, can you please go replace
the garbage disposal? So he went to Home Depot. He went and installed it. But it was a humongous
pain in the butt for him because he lived
in the East Bay, and then to go there
and get permission from this crazy property
manager who never wanted us to– like, there was
always some rule. Like, you can’t come
on Wednesdays at 2:00. And I was like, OK, can we
come on Thursday at 1:00? No, because there’s– like, she
was just always super mad that I would ask for permission for
any kind of maintenance person ever. And you’re doing this from
thousands of miles away. No, no. At the time, I still
lived in the Marina. Oh. So you were still dealing– So that was fine. Yeah. Yeah. So that was OK. But then when I moved to
New York a few years later, I got a job
opportunity with CBS– with CNET at the time,
which became CBS. And so I moved all the
way across the country. And then it was really tough
because then, if it was like– I remembered I got
some emergency calls, like toilet’s backed up. And I was like, OK, I’ll
call roll Roto-Rooter. And I’m on a
different time zone. It would have been easier
for me to just say, you call Roto-Rooter,
send me the bill, and we’ll take it off your rent. Then I had some really
reliable ladies, specifically, these girls, single
girls, who were engineers who lived in my
condo and were great tenants. And they always paid on
time and it was easy. But then when those tenants
left and the market took a dive, I could not rent that condo
out for what my expenses were. OK. So let’s break down those
numbers before you move on. So it was $1,800 a
month for your mortgage. Yeah. And then on top of
that, it was about $500 in a homeowners’
association, which if you’ve watched
our YouTube channel, you know I have a whole video
on HOAs and why I got burned, and I will never buy
investment properties with a homeowners’
association because there’s a whole host of reasons. I mean, they can
change the bylaws kind of at any time they want. They can do all sorts
of things to you. I’ve heard horror stories. Just read the comments
thread on our YouTube channel on that video, and there are
people like, oh my god, I got burned from an HOA. So you were paying
an additional $500 a month for the
homeowners’ association on top of the $1,800. So that’s $2,300 a month. Were there other things
on top of that that you were having to deal? The taxes– well, the taxes– The taxes. Well, yeah, of course. –were expensive. Right. OK. So that’s what you were paying. And then what were you
able to rent it for? Well, it really ran the gamut. I think when I first
started renting it out, it was around, I want
to say, $2,000 a month. But then when the market
really took a dive, I could barely
get $1,300 for it. So I took a loss on it every
month of around almost $1,000. Well, yeah. But you were always
taking a loss. Right. But when you– So right from the get-go– –include taxes, right, I was. Yeah. So I never really made money. And I would always– my mother was a cosigner. And I was like, Mom,
I want to sell this. And for a while,
I think I paid– I want to say I paid
$460,000 for it, $460,000. And I had– remember,
I told you– that $87,000 profit
that I put down. And then my mom helped me with
a little bit of the extra. So she was always
a partner in it. But she wouldn’t let me sell
it because she’s like, oh, it’s going to be worth so much. It’s going to be worth so much. And she was right. It was worth a ton or
it is worth a ton now. If I had kept it, I
would have probably been able to sell it for twice. But at the time, I was
just bleeding money. And we had just had, I think– when we sold it, we
had just had Ava. So we just had our second
child and we were like, this is strapping us. We can’t keep doing this. It’s too expensive. So we sold it years
after we got married. But it was 2014 when we sold it. So when the market
really hit a dive, I couldn’t even
get $1,300 for it. And I remembered
I got this couple, and they were not
married, and they both paid their rent separately. By check and together
it amounted to $1,350. So I was taking a loss on it. But this couple was
from hell because– you don’t want me to say that? No, I do want you to say it. But just bear in mind that– Oh. You rolled your eyes at me. No, no. Bear in mind that this
is an A Class property. OK. So this is, again,
when people are like– this perception of
A Class, you think, wow, these tenants are
going to be A Class. No, guess what? They end up being more pains
in the butts than anybody that lives in the
C Class property. That doesn’t mean you’re not
going to have repair in a C– of course, you’re going
to have carpet and things like that to deal with. But they were from
hell, and that’s often the case with A Class tenants. They end up causing
the biggest problems. They’re the biggest
pains in the butt. I mean, not only just from
what the physical damage was, but they were like– they call
you at 2:00 in the morning. There was all kinds of
issues that they had, right? Right. Yeah. So they had this
dog that completely destroyed the carpet. They were always fighting with
the homeowners’ association fee over one thing or the other. And they would call me, the
homeowners’ association, and be like, they tried
to take their dog up the elevator at this time of
night and that’s not allowed, and then she was
really rude to me. And I’m like, this is
like managing children. I don’t know what they
expected me to say to them. And I was like, I don’t
really want to deal with this. I can’t tell you how
she should behave. She’s just a tenant. When they moved out,
the place was trashed. And so I sent my
realtor in, the person who found me rentals,
and he was like, this place looks
like a total dump. The walls– there’s piss
all over the carpet. I’m pretty sure it was dog
piss, but I cannot be sure. They had left huge
holes in the walls. They destroyed–
like, it just was– there were stains on
the kitchen counters. It cost me a ton of money. So I kept their
deposit, and I was like, I’m going to keep this
and pay for these repairs. And she knew her rights
because California’s very tenant friendly. And she’s like, you can’t
keep it for these things. You can only keep
it for these things. And she was willing to take
me to court over the things that she wouldn’t pay
for that the law did not make her pay for. She was a total B word. And like I said, at the
time, I was making– no, let me just make
this point, and then I do want to ask your question. I don’t– OK. Thank you. Appreciate it. So at the time,
like I said, I was getting $1,350 for this
apartment for these two people. And they did not even
always pay on time. But I went to Rentometer just
now before we started the show, and that condo right now rents
for an average of $4,000. So it’s twice. Like, I could have been
making that, right, because– Could have. –the market fluctuated so much. And that’s not to say that
when we hit the next market fluctuation I wouldn’t
be back to $1,350, right? But I do want to
drive home your point that these were A
Class properties. If right now I could get
$4,000 a month for it, that proves your point that
that’s an A Class property, and it was a huge
pain in the butt. Huge pain in the butt–
and then these big market swings that we see in Manhattan
and other A Class places, like San Francisco,
where let’s say you own 10 units
in that building and you have a $2 million
mortgage on the properties and you’re able to cover your
mortgages because the rents are $4,000 a month. Well, what happens when the
market takes a complete dump in an A Class neighborhood? C Class, historically, stay
stable because the rents are stable. Those are the people
that tend not to lose their jobs in a big downturn. They work at the local
distribution centers. They’re long-haul truckers. They’re nurses at
the local hospital. Those are the stable areas. We saw it in Detroit. Same areas where we
invest in Detroit, they didn’t lose their jobs. It was on the front
cover of Forbes magazine about two months ago,
that exact story talking about those exact
neighborhoods where we invest did not lose their jobs. But the A Class neighborhoods
in Detroit got hammered. Those were the companies that
left, all that kind of stuff. Anyway, my point is
that, yes, then you see these big swings
in that market. So that was one point. The other point
is that, then, you were upside down from the very
beginning with this property even without the taxes, right? The $1,800 a month plus
the HOA fee is $500– that’s $2,300. And you are only
able to get $2,000. So even with the HOA,
you were under water. Then tack on the taxes. Yeah. So right out of the gate, it
was not a smart investment. Like, if you were holding it as
a flip, it didn’t make sense. The mechanics of it
just didn’t make sense. And you were holding onto it
for emotional reasons, which is point number three,
which is don’t get emotional when it comes to real estate. Your mom was like, you
should hang onto it. Mmm. I don’t know how
emotional I was. I wanted out. Well, your mom was
emotional about it. I wanted out by the time
I moved to New York. I was like, I don’t want to
deal with this, you know? And like I said, she was right. It would have eventually been
a good– well, like right now, it would have been
a good sell, right, or right now I would have been
able to make some money back. But I had to really
deal with a lot of crap. And if I think about what
we could do with that amount of money and if we really
run the numbers– like, I don’t think I’ve
gone through– should we run the numbers– Yeah. I remember my other point
that I was going to say. OK. You make that point and I’ll
do some quick calculations. You do some numbers. But I was going to say,
the other point that I wanted to make is about the
landlord-friendly states. OK. This is incredibly
important, what Natalie just said about the
landlord-friendly states. So we only really invest in
landlord-friendly states. And that’s not to say– we have
some properties in New Jersey. But not terribly
landlord friendly– the state of New Jersey. But California is
definitely not. It’s one of the worst in
the country landlords, meaning it’s very
tenant friendly. And so if you have
to get an eviction or you have to go through all
these processes, guess what? Landlord’s kind of crap
out of luck in California. They can stay in that
property for a long time and it take many,
many, many months to get an eviction if you’re
dealing with someone like that. So it can be a royal pain. I have a whole video series–
we have audio and everything– that we talk about the most
landlord-friendly states. So please check
out that content. We’ve put it out there. It’s on our channel. You can watch it, listen to it. And we talk about Indiana
being one of the best. We talk about Florida. We talk about Ohio. We talk about these other
states in the Midwest where it’s very tenant– I’m sorry. Excuse me. Scratch that. It’s very landlord
friendly– landlord friendly. That means you can get
an eviction quickly. They have no tolerance for
people that don’t pay rent. You do not have to go
through that same rigmarole with security deposits like what
Natalie was just describing. So all of those things make
a state landlord friendly as opposed to tenant friendly. So I just did some
numbers on this, which I’m sure I did
back when we sold it. But at the time in
2014, we already had some rental properties that
were performing at about 10% cash return. And we can teach you how to
do that in another episode. This is not the time to do math. But I’m going to tell
you what my math is. Most of our properties that
we own now do at least 10%, on average 12%. That property, given that
I paid $460,000 for it and I was making
around, I’m going to say for the time I owned it,
an average of $2,000 a month, was performing at 3%. Yuck– 3%. Even now, if I kept it
and was making $4,000, that still would only be 6%. So of course I can do better
with that money, right? I can buy several
that perform at 10% rather than just this one
big chunk that’s making 6%. So yeah. It took a lot of, though,
convincing of my mom. I was like, Mom, I just
don’t want to do it anymore. So I sold it in 2014, and
I did make a little bit. I sold it for, I
think, $525,000. So I made some of
that money back. I was able to pay my mom back
and was able to just wash my hands of it. And it felt great because
every time those fees went up on the HOA, that sucked. Every time the taxes went
up, that really sucked. And I was always like, how
am I going to make this work? And then dealing with the
actual tenants, you know? If I wanted to
keep that property, I should have found a
good property manager. I should have done
that from the start because using your
brother-in-law is not a permanent solution
unless your brother-in-law is a property manager. And then you get
phone calls at 2:00 in the morning for someone
complaining about someone using the elevator. Like, that’s not
what we teach, right? We talk about what we do at
Morris Invest, which is turnkey so that you don’t have to deal
with phone calls like that, no heat calls. Right now, the team
is dealing with people don’t know how to turn
pilot lights on and deal with their furnaces because
it’s negative 8 degrees. It’s like, do you
want that phone call? Do you want to deal
with frozen pipes and all that kind of stuff? No, no, no. Yeah. No. Right. So it was not a
great experience. But it wasn’t so bad
that it discouraged me from investing in real estate. So then several years later,
when Clayton came to me and said, I am all in on
investing in real estate. I met this couple. They went to New
Zealand for two months because they own
rental real estate. We’re going to do that too. I didn’t feel burned. I was just like, OK,
but we got to find a way to make it easier because I have
been a landlord for a long time and I didn’t love it. But at the same time, we
both had high paychecks, we both had really good careers,
but were finding a hard time making ends meet. So I was game for
a new solution. I just– I don’t know
how I would have come to this solution on my own. I remembered sitting
in my office at CNET and thinking, OK. I had just got my contract. I was making– should I
say what I was making? I guess it doesn’t matter. Sure. So my new contract was– I made $137,000 a year,
which Clayton pointed out on the previous podcast
was half of what he made, less than half. So– Yep. Gotta get that little dig in. But for a single girl
living in Manhattan, that was really good money. And even though
my rent was high, I still had some expendable
income because it was just me. I had no kids. I even had wardrobe
paid for me back then because I was on the air. So I was like, OK, I should
invest in some real estate. So I remember just going
to Google and thinking, like, best investment markets
to invest in real estate and come up with
some crap Forbes article that told me that– You should invest in
San Francisco or some– No, it wasn’t San Francisco. I think it was, like– I don’t remember exactly where. Brawley or– And I was like, well,
what do I do with this? I don’t know. Then what? And I didn’t know where to go. I didn’t– I was like, should I
call a realtor in this market? And I kind of– like, I got about– I think people say the
average Google search is four clicks deep or something,
and then people give up, and they’re like, ah, I
got what I needed, right? And I probably got
about four clicks deep. And then I was like, I
don’t know what I’m doing. Forget it. And I gave up on the idea. And I probably did
it once or twice, and I never went
to the next step that Clayton went to,
which was actually deciding I’m going to learn
about real estate investing and then listening to
podcasts incessantly, trying to listen to other
people’s success stories and figuring out
what worked for us. Clayton really is an
autodidact in every sense of the word, which is
one of my favorite words. It means that
you’re self-taught. You taught yourself something. So he just decided to
seek out other people who knew what he was doing,
surrounding himself with this culture,
and made it happen. And so I came along for the ride
with this background of, like, yes, I know this works. My grandparents lived very
comfortable retirements, and I’ve seen my parents, then,
have some success at this, and I can come
along for the ride, but I need it to be easier
than the way I had it. So that’s how we decided to
invest in real estate together. But that was my story. That’s where I came from. So I didn’t have– when we decided to– we
talked about the challenges of how your credit was
ruined when we decided to invest in real estate. At that time, I didn’t have
that $137,000 salary anymore. I had lost my job at that time. And so my challenge
was that I had the credit, but not the salary. Your challenge was you had
the salary and not the credit. So that was not a
very good combination. So that’s why we had to
teach ourselves from podcasts and going to meet-ups
and meeting people. So this was the challenge. So we’re going to talk to you
in another episode about how we solved it. Yeah. And I’m also excited, too, about
the idea of the four Google clicks deep. It’s, like, I really wanted to
make this channel, our Morris Invest channel and our website,
not difficult for people to find, and so that it
can be easy for people to get started in
real estate investing, and they don’t have
to call a realtor, and you’re going to
overpay for some property, then you’re going to
have to build a team and hire contractors
and all of that stuff. I’m proud of the fact that we
can do it with one click now. That was kind of
the goal is to not have to make people search
around and they get frustrated and then never take action
because it’s so overwhelming. Right. That’s exactly what I did. Right. You were just like– I was like, OK, I
have a little money. –I gotta go to lunch now. I can’t do this. I think I can– yeah. And then I was like,
oh, someone’s IMing me. I’d rather read my IMs. Someone’s calling my office. I got to go. I can’t. Then you forget, and
you get distracted, and you’re like, oh, I was going
to try to look into real estate investing, but, you know what,
it just seemed overwhelming. So it doesn’t have to be. The whole point of this
channel and everything we teach you is we’ve
literally given you all of the tools on this
channel, from step one, figuring out ROI, where to
invest, C Class properties. It’s all here. Every piece of it is right here. Right. And the irony of it is
that I was a podcaster. I was one of the original
video podcasters, the very first to the industry. And I never thought that I
could learn from podcast. It just did not
occur to me at all. And then I just married a guy
who thought outside the box. That’s you, darling. Thank you. You’re welcome. And it can be overwhelming. You can go down rabbit
holes where you start– so I would just say
pick one– like, we invest in
single-family properties. That’s our bread and butter. And that’s what we talk
about on this show. Buy and hold real
estate for the purposes of creating legacy wealth. That’s our show. That’s our channel. That’s everything we do. Right. I would say stay with
one course of action. And if it’s not ours, you don’t
like our course of action– this is how we’ve built wealth. We’ve helped hundreds
of clients build wealth this exact same way. If it’s not for you and you
want mobile home park investing, you want 100-unit apartment
complex investing, this is not for you. That’s not what we do. So follow one course of action. There’s so much
information out there. It can be scattered
all over the place. But you can get shiny
object syndrome, and you can start going off
in 80 different directions, and then you never take action
because you’re so overwhelmed. So just stick with one straight
course and stay focused, and then I think you will
see success in short order if you stick with it. So that’s my little– Ding, ding, ding. Thank you, honey, for that. That’s my news you can
use at the very end here. All right. So we’ve exhausted
your time today. I’m excited. So this was part two of
our series on challenges, our real estate failures. That was Natalie’s story. Coming up in part
three of our journey– this is the one you’re going
to want to get out your– well, we’ve got a couple. But we’re going to talk
about our turning points and losing our jobs and
what we went through when that happened, losing our
jobs, not having a salary, and then also having to
deal with wanting to take action and build wealth. How do you do that? How do you have no money
and turn everything around? So we’re going to talk
about our turning points on the next episode. Any final thoughts? No. Great. I don’t think so. I’ve given it all to you. Yeah. But I do want to say– I know my parents do listen
to our podcast sometimes. And I am very, very
grateful that I was raised by the rich dads. They both were– it
was rich dad, rich mom. They never were afraid. Even if they were afraid,
they didn’t show it. They would come up with a lot
of scary financial scenarios and they always approached
it like, OK, I can do that. And I hope that my kids
see us doing that as well. And I don’t want them to
see us being wasteful. I don’t think my parents were
wasteful with money at all. But I always saw them take
it seriously, approach it as a team, and be cautious and
confident at the same time. It was a really, really powerful
combination, the two of them, because my dad had this
entrepreneurial spirit and my mom had this
great stewardship, and I really believe
that money goes to people who are great stewards of it. And it ended up just–
they were a great team. It wasn’t the best
marriage, didn’t last, but as a team,
business wise, there was nothing they couldn’t do. And so I’m grateful for
that because I don’t think I realized until I started to
tell my story how formative these experiences were, my dad
taking me to this old guy’s house, saying this is how
these people run their business as a family, or my mom– watching her move all the
papers around in her office and try and make the
money work and say, well, this is how we’re
going to do this, then, and I always do this. Like, she’s so diligent
about these kind of things. And I’m really
grateful for that, and I hope that we can do
the same thing for our kids. And that’s what we
try to teach you here on this show, which is to teach
these things to your children. It’s incredibly important about
how you talk to your children about wealth. And so I like to think
that over the past month while this tax bill
was being written and it was under the wire and
you and I were sitting there at dinner having discussions
about how this tax bill will impact our family– what do we
need to do in this last week before the year? Do we prepare our
property taxes? Do we do this? Do we do that? What do we need to do? And we were treating it
as a game, and it was fun, and it wasn’t scary. And our kids overheard this and
heard us talking about that. And we were having
these discussions about what this
tax bill would mean for our company and our family. And so we want you to be
able to do the same things around your table because those
are formative discussions. Well– Yeah. I mean, the way that you
approach your finances makes a humongous difference because
Clayton was always afraid and his parents
were always afraid of bill time, mortgage
time, all of that stuff. And– And I became afraid as a result. I never have– Yeah. Yeah. I’ve never felt afraid, even
when I was making no money, sometimes my checkbook
was in the red. But I always check kept
a balanced checkbook and I always knew where the
money was and how to fix it, and I always felt like there
is a confidence about me that came mostly from this competence
that my parents gave me. And so the two of us together,
we made a pretty good team because Clayton’s daring
and entrepreneurial and I’m organized and confident
when it comes to money. So that’s a good–
so a lot of times, I do these other podcasts,
and people say, well, what if you don’t like spreadsheets? And what if your husband doesn’t
want to invest in real estate and you don’t like real estate? And I say, well, play
to your strengths. Just find what you
do like and then make that part of your
family business routine. So I’m exceedingly grateful for
my parents, but also for you because so little of the money
that comes into our house is on a paycheck
with my name on it. So often it’s paychecks
with Clayton’s name on it, but it’s me who can
then be like, OK, I’m going to rock this, right? And then I take it and I
do something great with it. But most of the money
has his name on it, and my competence is
something different. So I’m grateful for my
parents and for you. Well– well, thank
you very much. That’s out there
now in the public. Thank you very much. Yeah. But don’t go repeating it. Don’t tell anybody. Yeah. Don’t tell anybody. It’s now public. My wife loves me. All right. We will see you back here on
episode three of this podcast. But remember, we publish
this show three times a week if you’re listening to
the audio version of this. Please, check it out. We also have tons of great
videos on your YouTube channel. But can I just interrupt you? So if you are listening
to the audio version, this series will only
come out every Wednesday. It won’t be concissive. Is that a word? Concessive? No, that’s not a word. It won’t be conc– I don’t know what I’m trying–
you know what I’m trying to say, though, is– Consecutive. Yes, that’s the word. It’s 10:00 at night. I’m so tired. I know. I’m glad you interrupted me
for that great point of wisdom. To make that point. But the point is
that if you expect this five-part series
consecutive in the podcast, it won’t happen. And on the YouTubes, it will. Right– or concusively. Now go out there, take action,
become a real estate investor. It’s the only true, real way to
build fantastic wealth, legacy wealth. Don’t be constipated. That’s also a C word. Concussive. All right. We’ll see you next
time, everyone. Bye.

99 thoughts on “How This Investor Got Burned Buying an A Class Rental Property (Our Story: Part 2)

  • Lol!! Let's go back to the failures.These stories were great and unpeeled the essence of who you guys are. Thank you for sharing.

  • Great shares. I work in this area Dublin-Pleasanton-Silicon Valley and your stories truly resonate. I need to work with you guys asap. 👊🏾

  • Can u make a video on an LLC Holding company? And break down how to use it effectively; how to report to it, tax benefits, etc??? Thank U Much…..

  • Thank you, Clayton and Natali! So appreciate your willingness to share what you've learned. Working toward financial independence for my family and it's encouraging to see your example! Keep up the great work, friends.

  • Yes, I can tell he is having fun…. at your expense. Poor Natali.
    Thank you both for your sharing your experiences.
    What is the title of the first part ?

  • Loving your channel!! I've learned so much. Passive Income rocks!! You used to have soothing background music in some of your earlier videos… Please add it back, it was so calming to listen to while learning from your experience. 😉

  • I have a rough plan for 50 houses in 50 days- well it's pretty detailed. However when I'm analyzing leverage as we build value and cash year to year I want to optimize the number we acquire each year. Year one goal is 2 homes-then ramps up but what are both your thoughts or ideal number to purchase each year from year 1 to year 5. Our goal is $40k/month by end of year 5. At year 10 our goal is 200 homes.

  • One of my coworkers just bought a rental property in the most expensive neighborhood in Seattle – the down payment was nearly $200,000. I'm not Del Walmsley, but that seems like an unbelievably stupid investment. They could have bought 10 houses with that money or an apartment building.

  • I was considering a couple of 4 unit apartment complexes. It seems like that would be comparable to owning 4 class B or C, just in one place. Right now my issue is too much debt from being a single mom with a kid in college so my credit is not great, salary is good enough to qualify, but can't get financing or qualify for HELOC with what I do own.

  • Nathalie – we love the details of the bodega… I can't wait to hear the next episode… I have that class a property in Brooklyn NY

  • Interesting story, imagine if grandma had properties across the bay in Menlo Park or Atherton? East bay is similar to NJ prices.

  • The problem that you didn't touch on is the "dilution" of the property due to all the children and grand children that have their share of that same property not to mention disagreements between them (or divorce) . how do you handle that? tnkx

  • About to sell my class a and reinvest in class c. Thank you for showing me the difference in all the classes of houses. Makes a ton of sense to me!😁. Happy New Year.

  • Clayton – What microphone do you have? I have been doing some youtube videos and would like to add that mic to my setup

  • I always feel uncomfortable with the distinction of landlord or tenant friendly states. You know there are some slumlords out there

  • Hello, I am close to closing on my first property and this place needs a lot of work. I was wondering the brands and expense of the equipment you put in your houses? Such as the furnace, water heater, electrical panel, plumbing and of course THE ROOF. Thank You.

  • Hello Clayton, I have been reading of how hard and risky it is to manage a class C&D property because they situate in a bad neighborhood.
    How does this differ when a Property Management Company (PMC) handles the management? Will there still be certain "Headaches"? Does the ROI change and is there certain unexpected costs? What's the method you use when purchasing real estate?

    On a side note: how many property does one (or a business/LLC) have to own to be able to hire a PMC?

    Thanks,
    Jose Lopez.

  • Outstanding! Thank you Both !!!! I'm learning so much, and I'm taking action for myself and my family! Your the best!

  • I heard you mention the Raleigh market in a negative light. What are the negative aspects of the Raleigh market in your guy's opinion?

  • Great video. The sound issues haven't been corrected yet. Either Clay's mic is too low or Natalie's is too high. Settings must be adjusted.

  • Great video!! I love listening to you both on iTunes Podcasts. It's real and open about your experiences. I'm inspired and will take action!

  • Hi Clayton, hoping to use the services of your company later this year. I currently am able to put aside half cash needed to buy a property from you. I contacted some peer to peer lenders to get more information but the interest rates are usually 13%+. Any idea what next steps I can try?

  • But what happens when autonomous driving decreases truck drivers by 50%, less invasive surguries gets rid of 50% of nursing jobs and detroit starts using robots (or moves jobs to China) and all those blue collar workers lose jobs?

  • i'm curious to the math. 50 properties – $40k/mo = $800/property per month? I think you said previously that you bought a chunk than cash out refi and re-positioned into more properties. Therefore, the leveraged investment is still netting you $800/mo? I'm not being negative, just love the math but it seems a little high ? and, if each prop was aquired @$30k x 50 = $1.5mil. that seems doable. if 30% down is required, that's $450k down. Cashflow = $480K. That's 105% Cash on Cash in the first year.

  • My GOD Morris did you ever get lucky with Natalie. I think she’s more valuable than your Real Estate properties. Lucky Guy

  • Great video and very motivating! We watched all your videos on getting funding and we have to use a private lender as our credit is cramp, no cash at the moment, so I am about to have a conversation with a friend about JVing or a loan. My question is how do we make it a win/win for both and how do you refinance with a friend as a private lender? Can you do a video on pitching to a private lender with a 5, 15 or 30 yr mtg, how they would benefit and how we can come to own the property or properties?

  • As a junior in high school(I know right, who reads real estate investing books in high school!?) I read Rich Dad Poor Dad back. I loved it, it clicked with me. I read more real estate investing books and just caught the burning desire to invest in real estate. But I got lazy and spent my money on clothes and hanging out. It's taken me 17 years to finally push towards some of my subconscious goals I made back in high school. I have my first rental and pressing forward – can't wait to get the next. Anyways, I love what you guys are doing – your stories and positivity helped me push through last year in setting up my rental. I just got the first auto-draft payment this month from my tenant and it feels pretty good! I wish I would have followed the promptings I had in high school, I'd be so much farther ahead of the game. Your videos have helped spark that flame I had in high school – thanks for all the hard work you put into these videos =D

  • You guys are the best.I love all your videos,appreciate for training and share your knowledge.wish you the best in journey of your life.

  • No shame on learning from our mistskes. Thanks for sharing guys 💪, hopefully i can start investing by the end of this year

  • What is your opinion on getting a real estate license while being a real estate investor? I know it allows for you to gain access to the MLS which can be effective.

  • i got burned on an A class property once…a condo. Thank you for the transparency. It really let's me see you can bounce back and succeed.

  • Guys, great video and stories. We are trying to get to our freedom number but seems we need many properties than 50. On a few shows, you guys mention you have about 50 properties that cash flow $40k/ month? That's $800/month per property. How is that possible if your ROI is 12-15%? Thanks!

  • Hi guys, great show!
    Natalie can you please do a podcast explaining how did you get to the position for the banks start giving you loans? I saw some of your other podcasts and you kind of mention it but not really in detail.
    You said that since you were a staying home mom it was hard at the beginning to get a loan from the bank but that eventually they started lending money. Can you please explain that transition? How much did you have to make a month or what kind of things you had to have in place to get the banks to start giving you loans or for you to qualify in one?
    Thank you so much for all you do!

  • How do I get hold of you guys? I am a young real estate investor in South Africa and have been loving the videos you guys put out. I’d love to get advise from you on possibly investing in real estate in the USA. Thanks so much and please keep the videos coming.

  • Great info and nice story of your journey so far. You two though are just so cute seeing talk back and forth hahah

  • We are buying our second home and looking to rent out our first home. My first question is how you rent out a home with solar and show the renter that the increase in rent is cheaper than what their electric bill would be. Also if you have a property with a pool do you include pool service. By the way I’m in California and after watching this I’m scared of getting shafted by renters

  • This stuff is so valuable, one could not get this great advice and information in the nations highest university's. And I am coming form a position of having rental property in the past, not doing well at all with it, two separate times and now for the third time making it work. And it is working just as you guys are explaining how it should work. In a way it is just mathematical, just do the numbers and it will work.

  • Even if you kept your condo, if the same tenants lived in your unit, you could not get $4,000 a month because San Francisco is a rent control area. If the y live in the unit for more than 5 years, you cannot even move them out. It used to be that you could get them out but now you cannot even get them out even if you want to move in yourself. It is a real disaster.

  • Where can i see your service because you talk about your clients and i want to go into real state investments

  • The idea of owning 50 houses scares me. What if rents plunge or disappear and tax bills come due? This is why long term I want to sell all my properties and move into stocks. No property taxes due on dividends! Government can liquidate homes!

  • You two are inspirational! I’ve been telling my husband I want to start investing and earning passive income.. we bought a house(260k).. we’ll my husband bought our first home with a conventional loan. I’m ready for a second under my name to start. But we are still unsure I have school loans 80k some cc debt 4K. Car is paid off. 30k in our savings. What to do?

  • Does anyone have an example template of "the books" an organization of how they would suggest to keep their income, properties, and info ?
    Thanks

  • What are your thoughts on qualifying your rental home for low income housing/hud/section 8 etc. We haven't started in the rentals yet, doing a lot of research first…but i thought the low income housing could be good because 70% or so if the rent is paid through the program, leaving the other 30% for the tenant, so that amount is guarantees every month…also they won't let anyone into the program wh a criminal history…on top of that I've been told thwy will ban you from getting assistance in the future if they desteoy the rental property or sometimes if they get evicted due to non payment…which makes them highly motivated to pay/take care of the property or it could be a disaster for them. On top of that, people are on long waiting lists for this type of housing bc there just aren't that many of them. So the odds of getting tenants quickly i would assume are high. They also advertise your home through the housing authority for free. You are required to pass a housing authority inspection but everything on the list is really something you should do to start wh if your a decent landlord. And they housing authority can make you lower your rent of they think its outside of what's acceptable in your area. I know a lot of people are probably again this type of renting thinking that their place will be "GHETTO" or something ya know. But i think providing quality homes to people in this situation, that are in great need for then, is a great thing to do for the community.

    I was just curious as a renter what your thoughts were on low income housing…any pros/cons?

  • Wow, I have been wanting to dive into real estate investing for years but have always found myself overwhelmed and frozen. Always got stuck at "4 clicks in" with my past searches. I'm glad I found your channel. I have been incessantly watching your videos and I do plan to set up a call soon. Thanks a bunch for doing this for us over-thinkers. Ha!

  • Normally i get bored watching someone talk for so long..but this, from start to end kept me excited..thanks guys.
    -Learn from others mistakes –
    Great video…..

  • my grandparents also always gave me envelopes with handwriting and 20-50$ haha
    edit. 10% year right? as in rent/price or you including closing costs, and taxes on rent and expenses you might have?

  • When you say $50K property. Im wondering where you get these? Are they fixers or straight land? In my state finding a property under $200K typically means it needs rehabbed. (Washington state)

  • 40K cash flow per month on 50 properties? thats 800 per property, how do you pull this off? Is the 40k gross or net? By cash flow I am thinking after all expenses paid.

  • The fact you guys aren’t trained is why y’all are so smart, believe me. Anyway, I can’t wait to get down in the real estate market

  • My wife is very similar to you. She’s the backbone to our business and real estate. Thank you for sharing your story 🙂

  • My first comment: Thank you so much for what you BOTH do. It has been extremely inspirational and educational. I just made an offer on a rental property today.

  • IS the HOA tax deductible even if its not owned in an LLC? If its a rental property in ones own name and not on LLC..

  • i hear you both i lost a property in 2008 , it stressed me out so much i had a stroke during this time , i worked as a realtor at remax , and had to leave the company because of the crash , i was not able to pay remax 2400 a month no sales , it was a very tough journey for me too.

  • LOL I worked at Kaiser. 6:50. Also, for anyone who is interested in this concept of providing for future generations, look at "The Great Laws of the Iroquois." 10:00

  • Clayton, put your foot down. You were right. The stories are clutter…a long-winded annoying distraction. I kept listening and listening and listening and listening and finally closed the video without getting a single point.

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