I have 8 paid off rentals cash flow. My next move is 10 financed 4 plex units. I'm 56 debt free living below my means. It does work. Just buy 1 to start the rest gets easier.
Clayton, here's my situation. I have a 3 story townhome with a 2 car garage that I paid off. My next move is to get another property but I'm not sure if I should A: rent out my 1st home and buy a home that I will occupy since less money down (10%) is required or B: Try to buy another rental property but about (25% down) is required since I won't occupy it. BTW u guys have great chemistry.
I was scared of debt so it took years to pay off my first quad and house so now I pay 20% down, do 30 year loans, pay 100.00 extra on principal each month. I can see a day coming soon that I will pay off a house a year from cash flow and never need the bank again.
HELP!! I am in the process of buying a rental home, possibly from morrisinvest.com as well. I have $50,000.00 to invest and wanted to buy a rental property and I found $70000.00 patio home. so I decided to buy with 20%down and get the traditional mortgage but quickly realized that I have to pay roughly $3500.00 load processing fee to get the either 15yr or 30yr loan. question #1 should I use HELOC(which processing fee is in 7 to 800ish) from my home to pay the rest 80% and try to pay off as fast as I can or just get the traditional loan and utilize the tax benefits?
i too was thinking not paying my mortgage and just buying another a house but its too much risk i paid off my mortgage and i cash flow $900 now with the money that i cash flow i can use that cash flow to pay the mortgage for my next house and be left with cash flow from that property also. 1st Home cash 2nd home loan Every 2 years i do this
In Canada (at least in my province) we can’t deduct the mortgage interest on a personal residence, but we can on investment properties. Therefore, from a tax perspective, it’s better to pay off the mortgage on our personal residence first since it’s non-tax-deductible “bad debt”. After that focus on pay down of investment properties. I also run HELOCS on all rental properties so I can easily access the equity in each property.
@Morris Invest: Clayton, how do you typically pay for your properties? Didn't you say one time that you paid cash for the first one but then pull out all the equity from that one to pay for the next and then the ones after that?
Last 6 homes, I simply put down 20% and finance the rest over 10 years (through my LLC). Homes are generally in the $110-130k range (mostly 3 bed / 2 bath) and lease for $1200-1400 per month. This model allows for the home to essentially pay for itself each month. Also, super important for people to remember: LOOK AT THE TAX RATE BEFORE PURCHASE. A $110k home in one neighborhood may only have a property tax of $800 but the same home in a different neighborhood can cost $3,800 in taxes per year. The annual tax expense is a huge factor in my search parameters. And, be sure to protest tax increases every single year.
I just bought my first rental property in that same model as yours, 20% down and finance the rest over to 30 years so that the house could pay for itself each month and a little gain on that, but the question is, how do you acquire more properties? You wait until you get some equity, and get a HELOC and with that buy another one, refinance or what is the best strategy?
dghost04 I think the BRRRR method will work for most people - but I get the 20% down payment from my 8-5 job. Even if you only buy 1 per year to start, that will quickly build into a nice portfolio over the years. Plus, your 30 year mortgage should allow for an accumulation of monthly cash flow to get the next 20% a little quicker each time.
Hi Jose, depends on your personal situation and goals! Check out this video: goo.gl/2FbByJ It's in regards to a rental property, but a lot of it will still apply.
@@RedactedNews Hi Clayton, since my last question to you, I have invested in 2 properties. One SFH and one duplex that are both cash flowing. For my future investments, is there a danger / risk in having many properties leveraged if the market crashes?
Glad i found this site. I have 2 4plexes and a condo and I got lazy and stopped looking. You guys are inspiring me to reach for FI. For the record, I have a low debt tolerance and trying to pay off ASAP.
I have to say your channel is one of the most rich in real usable information i have found. I am currently looking to move to the southwest and looking to become a rental property owner. I would love to talk to you about what options would be available to someone like me who would basically be starting from zero with student debt.
Great video and very supportive wife...My wife has her Realtor license and is getting ready for a Loan Officer's license....Can't wait to get things rolling with Properties...
Not sure where you guys live where properties are 80k. Here in CA, 1 house is at least 400k. Imagine 2 or 3 of these things...even if they were cashflowing. Imagine the risk. 1 skip in the economy, or a few vacancies simultaneously, and you're screwed. Here in CA, my advice would be to only have 1 mortgage, use it to payoff the next and so on. You only need a few of these paid for to be set. Slow and steady wins.
Good informative discussion. As you mention in the beginning, 4% is cheap money. Personally, I would take on all the debt I could get at 4-5%. Very easy to 'flip' that into a better return! One other consideration though, is that with a conventional mortgage, it's not a linear conversion. A 5% rate is obviously not 5% of the amount borrowed due to the time factor- $100k at 5% over 30 years ends up costing $93K in interest, so your effective rate to borrow $100k was 93% interest. Thus the benefit of paying off the initial part of the mortgage quickly to reduce overall interest because of how it's amortized. So saying that you have debt at 5% and can make 12% on another investment, so the spread is 7% isn't quite accurate mathematically. You are making a profit, but it's not 7%. As you say, everyone has a different tolerance for debt, but if you are not comfortable with having debt, you will have a tough time making it in real estate investing. Using the bank's money is the quickest way to free cash flow and financial independence.
Once you have a tenant in a buy/hold property, and get a mortgage - (in thinking of doing snowball effect), getting into the 2nd property (under the same LLC); DOES THIS MEAN THAT I MIGHT HIT A WALL in trying to acquire a debt service for the 2nd house? (*Yes. This is in a scenario wherein I we did not have the funds to buy the property outright, and we used a loan for the purchase/rehab..,)
I have several props. Some NNN corp out of state, I decided to pay off mortgages by first getting a heloc for 500k (house was almost paid off). After paying off a nnn prop I got a celoc on that prop and paid another one off. I live off my paycheck and all my net rents every month go to payoff the lines of credit, I found using the lines is a great tool to ALWAYS having your cash flow working for you rather than having it sit in the bank and waiting for it to grow to a point where you can finally do something with it.
I currently own 2 investment properties, one of which is nearly paid off. We are in the process of purchasing a single family home for our family. We have minimal debt outside of mortgages, the income from our rentals will cover all of the mortgages and once the one is paid off we will have a surplus of over $1,000 per month. Should I use the surplus from the paid off properties to 1. Accelerate the payment of the 2nd investment property? 2. Accelerate the Payment our primary home? 3. Invest in additional investments? 4. Enjoy the extra income? From a tax perspective, paying of the primary house off makes sense. Then there is the philosophy of paying off the smallest debt first, which would be the 2nd investment property. I would definitely say I am less debt adverse than I was a year ago. I have a better understanding of the tax implications of using debt as a vehicle and it is how the rich defer their taxes, ending up paying "less than their fair share!" as any socialist would proclaim. Since starting my journey with Morris Invest, my freedom goal has doubled. While it is not about what we need to get by, it would allow us true freedom and the ability to truly build legacy wealth for my families future. On this day after Thanksgiving, I am thankful I discovered you guys, you've opened my eyes to new possibilities and helped expand my goals and accelerate my timeline. I have a goal to purchase my first of many turn key property with Morris Invest in the coming months. I'm looking forward to the adventure. Thank you both, from my family to yours.
+StirCrazy Hi, thanks for reaching out! We're so thankful for you as well. That's what seems to happen with the Freedom Number--it's a moving goal. Any of those options are fantastic. It really depends on your goals. I hope this video helped you determine how to evaluate what's best for you and your family.
What if you want to build a primary residence and use the current house to rent. And use home equity for the down payment? And oh forgot to.mention, the equity would then be maxed out
The problem of trading off between a 5 percent mortgage and investing it someplace else at 12 percent is this.. when things crash, and with the government pumpiong up the market to big heights, you suddenly have a 12 percent return that isnt -and yo still owe on the 5 percent loan. The NUMBER ONE reason people fail in long term holds in crisis is a LACK OF LIQUIDITY. I had breakfast with people worth millions in property equity, but had no cash to pay for breakfast. Leverage debt is a double edged sword - it can cut you a path, or cut yo in half. Be careful. There is also the quality of life issue as you get older....paying something off is not always the optimum use of money, but, you sure sleep well and cant be foreclosed on when no mortgage. Be careful of overextending yourself taking one thing that cash flows right now while everyone has a job and paying their rent, but might falter in a bad market. Take it slow, try to buy low. Right now the market is very high. Good to get in when young, but in a few years things will crash.
"I had breakfast with people worth millions in property equity, but had no cash to pay for breakfast." There always seems to be this gap between the play it safe guys and the millionaires who have learned to wield the power of debt. I don't wanna discount what you're saying, because I think a lot of amateur investors, including myself, do need to acknowledge risk and take it seriously. At the same time though, with enough financial literacy, a successful investor will look at a crash as an opportunity.
There’s some truth to what your saying. The market did crash in real estate but rent market went actually slightly higher. Cause it’s dictated by a different market. Rent is dictated by the people’s paycheck to paycheck. A mortgage is dictated by banks, the federal reserve, etc... if no banks existed then Real estate market will crash cause no one can borrow to buy. But rentals will continue to exist if anything it will become more aggressive since no one can afford a house... whatever property you get it needs to cash flow at least 15-20% above all expenses and have a reserve of at least 6 months for vacancy and expenses. Simple.
you guys mentioned portfolio loans. Is that when a specific lender bundles all your properties and gives you one debt service? If so are there any portfolio lenders you can recommend?
I don't have a tolerance for debt, so I would funnel all my cash flow from the rental property back into the mortgage, this is called accelerating debt?
.Is Buying cash on cash the only way to get 10% to 12 % net roi . Having a mortgage on the prooerty lowers roi to 10% gross and 6% net . It wouldnt be worth it right ?
Hey In Monopoly you can refinance to buy other properties. If you flip a card over you get the amount of money on the back of the card. During this time you can not collect rent on that property. This can only be done when the property does not have houses on it I believe. This is a strategy on how to get more properties much quicker😀
I love your videos. I was in real estate back in 2008 straight out of HS and it didnt go well for me. I bought a house a couple of years ago for 25k which is now worth 120k this year and i thought about selling but instead decided to rent. Ive been watching your videos and i feel motivated to start my own small businness instead. I want to own my whole neighborhood if possible 😁
The problem I debate in my mind is pay rentals off faster or use that cash to buy more rentals. Which do you think is the quickest way to get to your freedom number?
I think it really comes down to tax advantages. The way I look at is: I run a business out of my primary home, well actually 2 businesses the rental business and HVAC business. I pay more tax thru HVAC business because of self employment tax with the HVAC business, because the rental business is capital gains, it's taxed at 20% after all expenses there is no self employment tax with that. Because I am taxed at a higher rate for the HVAC business I carry a loan on my primary home then deduct a portion of the use of this house and all expenses on the higher taxed business entity loan interest costs and so on. The flip side of this for me at least is I wind up double depreciating. I depreciate my main home for business use of the home while I live here fixing it up / making typically what amount to high value changes and then, convert it to rental after so many years of living here and running my HVAC business from it AND then: I depreciate the whole thing again at a higher valuation after I turn it into a rental. Nice area, great schools. I think the main thing is to figure out what is going to give you the highest advantage. A few points here and there all add up over time. If the government gives you a tax break cookie, it's time to turn yourself into the biggest cookie monster you can.
This is great. I am in this exact position, questioning whether I should get more properties, or pay off the ones I have currently. I have 1 rental property that we just hit over the 20% equity mark in 2016. We lived in it for 1.5 years renovating it, and once I finished we rented it out. We pay $150 extra per month on the principal minimum, and there is still $281/month cash flow. We are just letting that build until we have cushion enough for 1 year of potential vacancy. I bought another house once we rented this out, which was very interesting because the bank did not take into account my debt on the first property if I supplied a 1 year rental agreement with tenants. I thought of it as a loophole for acquiring rental properties for less down. I don't know if I could go to the bank again and buy a property if I showed a rental agreement on my now 2nd home I live in. I have been introduced to seller financing in the past couple weeks and I am on the hunt for a large shop to try and relocate my business to, or buy another rental property.
I’ve watched too many videos and I’m waiting for the “why”....”how” How do I write off everything (depreciation, etc.) to offset the debt service? If you told me to clean a table sure I could clean it but is it clean? What are you using the table for? Changing a diaper? Playing poker? Having dinner? Do I clean it with winded and pledge? Vinegar and water? Sweep it off and throw a bowl of chips on it?
I heard you mention that your target is 40k homes. Are you buying condo or single family homes ?..in my area 40k can't get you anything at all. You can get a decent 1 bedroom condo for 65k
Morris Invest thanks for your reply. I am in South Florida, for my first investment property I think I will buy something a bit closer to home then maybe in the future I can try the Midwest. Thank you
Ok so most of your properties are in the Midwest that's good for you but a lot of people that want to invest in Real Estate live elsewhere , maybe far from there. So I don`t think it would be wise to buy properties for rentals if a person lives in another state. ?? What do you think ??
+MoneyManFernando I don't invest in my own state, neither do the majority of our investors. Here's a video on purchasing real estate out of state: goo.gl/6vPzV4
I didn’t think he was rolling his eyes. But I really did like hearing your conversations & points raised before he kept trying to keep on his point & on topic. :) That’s how my partner & I talk and sometimes go completely off track, bit sometimes that’s actually where the best ideas come from.
In my home town 110k to 130k homes in b class neighborhoods are bringing in 1200-1500 rent depending 3 or 4 bedrooms Is this a good approach My town cheaper “ghetto” homes are 40-80k and none are concrete home they are all on pier and beAm should i be afraid of these?? Im about to close a deal on a 130k home and gonna rent at 1450 a month not exacly super positive cash flow but i want to have equity to later down the line use equity lines of credit to get cheaper home with better improved cash flow that i can buy out cash money with the equity loan Me and my girlfriend are planning to pool money and go this route we combine almost 110k income and have no big bills at the moment
Morris Invest owner financing is the route jm going at for first time house according to your calculotor im at around a 8% ROI but i am using the first home to build equity so later on i can use the HELOC method to but cheaper properties since im self employed i run a restaurant im trying to build equity with my first house and then afterwards ill go strictly on positive cash flow
I would love to buy a home for 40k, Where are you locating these properties? Also, I have about 30k Cash ready to invest but I don't have a job so banks won't give me a loan to buy another investment home, any idea's how I can get my money working for me? Thanks
These methods are for a total cash purchase, I would like to finance part of a loan with a larger down payment. Either way, Ill get a job and apply for a loan with a down payment shortly. Side note: I asked my Accountant to open an LLC for me for the tax benefits and he said there would be no tax benefit. Do I need to fire him and find a new one? Thanks Clayton, Love listening to you I've been watching for over a year! Im trying to grow my portfolio!
+brandon scarborough Thanks, Brandon! Yes, there are many tax benefits to purchasing real estate in an LLC. I interviewed Tom Wheelwright (tax genius!) and he discussed how to find a CPA who is knowledgable about real estate. Here's the link: goo.gl/qbAzTk It's around the 14-minute mark!
Probably a dumb question, but you consistently say in your videos you are buying 40-50k homes. Are you referring to the money you put down on the new home?
I used to be of the belief that you should pay off your investment so it is free and clear. I've come to the conclusion that while that is fine, leveraging your equity will allow you to build wealth much quicker and I'm looking forward to getting started.
I believe when you have certain rentals that you love, done great with rent flow, has good appreciation and see yourself keeping it on the long run, those are the ones you might want to pay off.
This is very informative and helpful. What do y’all think about taking one home at a time live in it and use velocity banking to pay it off in 5 years then renting that out and going into another home and doing that same process again until you have many homes? It’s a slower process but I think more manageable. Or is there some way that’s similar to this but a much quicker way without getting into a ton of debt with the banks? Would love to see a video on this. I can’t find anything about this. Thanks so much! Jessie
Great presentation. I enjoyed the the sincerity of husband and wife team presenting the different approaches available. Thanks for sharing the information from your experience.
I have a property that I'm about to do a short sale on. My question is should I apply for a HELOC before I sell the place with higher debt or wait until I sell which would show lower debt but lower credit score too?
At what point do the bank say your debt to income ratio is too high and what is plan B to get over that hurdle.. should multiple duplexes be part of the equation
Hi guys, I just bought a condo that already has renters in it. I want to pay it off in five years or less. I just purchased and read your book How to pay off your mortgage in 5 years. The book was very informative as far as getting a HELOC. My issue is what do you recommend to new buyers who have little to no equity in their property. Should I just pay more every month to my mortgage and make second and third payment to principle only. Will that help like a HELOC, until I can actually get a HELOC. Please help.
Question for Natalie; Do you have a favorite type of financial report that you use for decision making? I'm partial to a Cash on Cash ROI report for each property than combined to see the bigger picture.
You guys are awesome. Thank you for the great advice you share with others. And thank you for being real. Eye rolls or not, you are a great couple and a fun example of somebody being very open and real about their successes and failures. Keep up the videos!
Is it not better to save cash and/or sell other investments that are under performing and cash flow the rental. Even though this may mean your total investment amount will have to be less. Essentially trading off the tax advantages from a debt service for lower risk? Im gonna give this another listen.
so you guys always talk about buying your properties cash, but with mortgages you have more tax benefits right? do you have an account that specializes in buisness or real estate?
+Adam Steger You can deduct mortgage interest on your taxes. There's nothing wrong with using a mortgage, other than the fact that there's a limit to how many you can have. Personally, we like to use cash if we can, but there are plenty of ways to finance a deal.
i love this video thanks I appreciate it Natali stop texting Clayton and Clayton stop rolling your eyes at Natali hahahahah you guys are so funny I love it
@@RedactedNews We have not. All 3 properties are within a 10 mile radius. We have 2 in Providence R.I and 1 in Warwick R.I.. That is not taking into account our Single family primary residence also in Providence. The reason being is we do not have a Management Co. and do it all ontop of us both working full time jobs.
Clayton, you have so many great videos. I'm 31 and if you could point to a RU-vid video of yours that lays out a possible "blueprint" to follow so that someone like me can accumulate 50 rentals, which could I watch?
In my arrogant opinion, there is another option. If you already said it in the video I must have missed it. Once you have a descent amount of rental properties, then pay off your primary resident mortgage first. Due to the fact that, rental mortgage interest are expenses which you can deduct from your income. So try to increase investment expenses, and lower the interest payment of your primary house.
All these other big real estate youtubers miss a lot of things in their videos that you talk about. When Natali asked the question if you should get a loan on the second property or buy it in cash I instantly subbed since most youtubers don't answer these questions that seem straight forward to them.
I was thinking after watching a few other videos, How to make it possible when buying a property to have the land and building in two separate entities "like the tax shelter video for business" where in one way you could lease the property to yourself " so in effect you would have to on paper pay more expenses from the rental income you get ? If u understand what I mean can u do video about it lol thanks
You guys are fortunate to get $50k property across your town. I could have acquired 30-40 with the amount of property values we paid. Here in Ontario Canada the props are expensive usually you don't get positive cash flows most of the time. So for folks like us in Canada how shall we do? Payoff rental debts by using HELOC? FYI min more than half a mil for single home. At least 300$ for apt. Currently our loan interest is 3-4%. 80% mortgage interest is easily 8-9k a year. So how to manage rental property debts with under water cash flows for folks in the North?
At the time of this video, you could only have 10 mortgages in your name (personally). It was a banking law put into effect after the housing crash. I believe that number has increased in the past year or so. You can have as many properties as you want--you just have to be creative about it.
@@RedactedNews Thanks! Keep up the good work! Bought our first property and are going to build duplexes. We are very excited! I'm a school resource officer and my wife is a teacher. We appreciate the knowledge and experience you guys are passing on.
if you have a not so good credit and have very minimal cash, is there hope for me to invest? btw, I have no family to rely on to borrow either :( Please advise. I will truly appreciate your wisdom. thank you
Hello Morris from Calgary Canada, I am wondering where do you buy single-families for $40 K these days ? single house in Calgary in the worst area of city if about $300K for detached (3beds, 2 baths)
Great channel! Thanks for the videos. Question: @ 12:33 >> One person can have up to 10 mortages - can ONE mortage be a multifamily apartment complex with 10 apartments for example? The mortage is for the building of 10.
Great way to describe the thinking process. The way you put it really helps those who would benefit from paying down debt and those who should invest in a new property. Really like your channel . I am with you.
Every extra payment made towards mortgage will vastly underperform an equivalent investment into an ETF portfolio. As long as you are cash flow positive, don’t do it. If you have a 30 year mortgage, the same payment you make monthly in the first year, that same money will be far less valuable in the future due to inflation, and therefore it will feel like you are paying less. Investing money into ETF’s allows it to grow
I own my building I have my bike shop in. Old House revamped for retail space. The Bike shop sucks and want to rent the space out. I owe only 49k left on my property, But the Bank wont allow me to refi until property tax is paid up. Is there lenders that can help me refi so I can turn my building into rental retail space?
Wow Thank you so very much for you quick response. I was blessed my Wife agreed to borrow off my house to buy this building for my bike shop. I paid off our house when I sold my house in California, She wanted to move closer to her family. I wish I saw your videos before I opened my bike shop. I am hoping not to loose this place from my bank (Long Story) I hope to contact you for success in renting my place or even able to sell it without a big loss. Your response has given me hope to move forward. Thank you again, Great to see you two listen to each other in your adventures of life.
+AH Thanks! We actually talked about Grant Cardone in our live stream today. Check it out around the 19-minute mark. ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-Q1Lx-Zl56FI.html
Bought your book. Like your vids. How do I determine when to buy an apartment in a high market in fl. Considering I need to put good money down wait or just invest this is where I am
I just subscribed. The fact that you and your wife are sharing this info shows your a good human being. Keep up the good work brotha. And your wife has a great perspective on things too. Your a great team. thanks
we played monopoly where you could take out loans from the bank to buy properties and it was all based on the collateral of the other properties that you owned in the game. so you could lose your other properties if you can't pay it back within so many turns.
I think one thing that is missing from this discussion is the concept of risk. Owning the the property outright is risk free, while being in debt carries risk. For example you may lose your job, or the rental market may crash leaving you with too little monthly income to pay your mortgages. If you are heavily leveraged and the real estate market crashes then you can find yourself unable to pay your monthly payments and at the same time you will be unable to sell your properties for enough to pay off what you owe on them. You need to balance your investments against the risk of another real estate market crash like in 2008, and what that could do to you if you have high commitments in monthly payments and little or no equity that you could use in an emergency. I would recommend that you ensure that your total debt be kept small enough compared to your equity that even if prices tank by an amount similar to what they did in 2008 you would still not be underwater overall. As long as you do that, then even if rental income drops significantly you can at least sell something to reduce your monthly payments to a level that you can pay. Don't put yourself in a position where a drop in housing prices combined with a drop in rental prices puts you in a situation where you can't make your monthly payments and at the same time you can't even sell the properties to get out of the loan. That kind of catch 22 will just lead to bankruptcy.
Yes absolutely....no scripts and they ping pong questions and views back and forth which may be things that us viewers may or may not have thought about which would take me a longer time to learn and research. Just bought my first rental from my first homes mortgage broker which already has a tenant for $110,000 but was appraised for $140,000. Moving out of my primary house to rent out and moving to an apartment that my company pays for. Planning to buy more...you two have given me the confidence to do what I'm doing now...thank you!
I'll save you some time... the answer is YES, pay it off quickly. Then you can use the equity from that house and the cash flow to buy your next property!
Paul O'Connor you don’t have to have a house paid off to use the equity in it. Also you can cross collateralize multiple properties. Say you owe 3 house with 40% equity, you can go to the bank and show them that a they will take equity from each home and give you money to buy another property.
We can't use property as a tax deductible here in the UK nor offset any of the interest paid for buy to let loans. You also can't tax deduct white goods. Unless your experienced in leveraging debt by investing elsewhere then it's best to play it safe. Also it's best to wear those sun glasses play that safe too! Lol
