Jason interviews Clayton Morris on how to find your freedom number and create passive income from real estate.
Clayton Morris is a news anchor on the #1 cable news show in the world. When he’s not interviewing presidential candidates, he’s building his successful real estate investing business, helping investors buy their first rental property and build financial freedom. After some epic failures he’s learned how to build a meaningful life, and he shares these lessons on his top-rated podcast, Investing in Real Estate with Clayton Morris.
To learn more visit: www.claytonmorris.com
Below is the full transcript:
Announcer: Welcome back, America, to Sound Retirement Radio where we bring you concepts, ideas and strategies designed to help you achieve clarity, confidence and freedom as you prepare for and transition through retirement. Now, here is your host, Jason Parker.
Jason: America, welcome back to another round of Sound Retirement Radio. So glad to have you tuning in this morning. As you know, we’re always looking to bring experts onto this program who we believe can add significant meaningful value to your financial life as you’re preparing for and transitioning into and through retirement. We have one of those guests lined up for you today. It’s going to be Clayton Morris, who I’ll introduce in just a minute, but before we get started, as you know, I like to get the morning started right by renewing our minds.
I’ve got a verse here for us from Ephesians 2:10. “For we are God’s handiwork created in Christ Jesus to do good works, which God prepared us in advance for us to do.” Actually, that’s awesome. Then I know some of you are going to be seeing the kids and the grandkids, and it’s back to school time so I have a joke for you to share with the kids. Which school supply is king of the classroom? The ruler. All right. Here we go. This is episode 144. If you’re driving down the road this morning in Seattle, remember you can grab all of these shows online at Sound Retirement Radio, but I’ve got Clayton Morris on the program.
Clayton Morris is a news anchor on the number one cable news show in the world. When he’s not interviewing presidential candidates, he’s building a successful real estate investing business, helping investors buy their first rental property and build financial freedom. After some epic failures, he’s learned how to build a meaningful life, and he shares these lessons on his top-rated podcast, Investing In Real Estate with Clayton Morris. Clayton Morris, welcome to Sound Retirement Radio.
Clayton: Hey. Thanks so much for having me.
Jason: Oh, man. I’m excited to have you on this program. Investing in real estate is something that a lot of our clients have an interest in, many of them do invest in real estate, but I’m curious to learn more about your story. In that bio, you talk about epic failure, so why don’t we just jump right into some of those before we get into how you help people.
Clayton: Sure. Epic failure, there’s been a bunch of them. Probably the biggest one for me was really in … I grew up with a lot of negative associations with money and means around money, so I grew up constantly hearing from my parents, “Money doesn’t grow on trees. We’re not the Rockefeller’s. We can’t afford that.” So I had that meme my whole life and I never really got good about dealing with it until much later in my life, and so a lot of the things that I was involved with at a younger age was still being driven by that fear of money.
Even my first real estate ventures back in, before the crash happened, I was investing in some speculative land stuff and a Phil Nicholson golf course project in North Carolina, and the builder vanished, and the economy tanked, and I was left holding a bag, a couple plots of land with no house built on them, and the builder backed out of the whole thing. Phil Nicholson backed out of it, and here I was, I put up a whole bunch of money and lost everything, and didn’t know what I was doing. So that was probably one of my first big failures, investing in speculative things, which I never ever do again. Now, I actually buy real houses, place real tenants in the property, do real rehabs with actual houses that exist. Now, my life changed after that.
Jason: Yeah. Boy, it’s important to have those lessons and to be able to learn them from people like you that have already gone, they’ve made the mistakes, and now people can tune into the podcast you’re doing to learn more about how to invest in real estate. You talked about something there about these experiences that we have growing up and how those are ingrained in our conscious. I know I had to overcome that, too. I had a lot of skepticism, a lot of fear, and this idea of this scarcity versus an abundance mentality. What were some of the … How did you overcome that? How did you find a way to overcome some of that programming that you had in your mind early on?
Clayton: Yeah. I think that’s incredibly important for people because unless you can overcome that programming, you’re going to continue to do things in your life that are from a place of greed, a place of fear, a place of scarcity, and you’re never going to build true wealth. I know it sounds a little hokey, and I know it sounds a little esoteric, but it’s the absolute truth. I found that, for me, one book changed my life many years ago, a book by Edwene Gaines. She’s a great old lady. She’s snappy and funny, and she wrote a book called The Four Spiritual Laws of Prosperity. In one … She talks about how we need to have all four of these things aligned in our lives, but one of the laws of prosperity she talked about was tithing.
Now, I don’t care if you’re a religious person or not, it’s not really about whether or not you follow a strict adherence to one particular thing or another, but it was the history of tithing, giving 10%. She said, “The problem is that people just blindly give money and think they’re filling up their tithing quota for their life,” but she said, “That’s the wrong way to approach it.” She said, “What you want to do instead is even if you have no money, if you have $1, give 10 cents to someone who’s providing spiritual sustenance to your life.” It could be the waitress, that you’re having a terrible day and the waitress at the diner is just spending an extra few minutes with you talking with you and really made you feel … Your whole day turned around because this waitress spent a few minutes just brightening your day, leaving that person the extra tip.
Once you realize you cannot hold onto money, and it’s a hard thing to do, especially if you’re one of those hoarder types with money, but once you realize that when you die it all goes away, and so money flows through you. Once I started to see it that way, that money flows in and flows out, flows in like title patterns in our lives, instead of trying to hold onto it and being greedy or worrying that I’m never going to get any again, that’s when money starts coming into your life, when you think from a place of abundance. I would encourage everybody who’s struggling with this issue, read her book. It will change your life. It changed mine.
Jason: A couple things you said there that really resonated with me. First, I’m reminded, Dr. John Maxwell, we had him as a guest on the program, and he’s a Christian author. He’s written over 50 books, and he said God created him to be a river, not a reservoir so this idea, like you were talking about, wealth and abundance flows through you, but then I think about all these self-help books that have been promoted over the years. It sounds like this is one of those, The Four Spiritual Laws of Prosperity, which I haven’t read but I’ll look forward to reading, but I’m reminded that all of these principles are oftentimes first found in the Bible.
There’s a verse that says, the only verse in the Bible where God says, “Hey. Test me in this and see if I won’t throw open the flood gates,” and this idea of tithing, of giving. It’s the only place in the Bible where God says to, “Test me.” So I just love that you come back to that. For me, I had the good fortune of having a mentor. I had somebody that helped me see the world different. What if it was as simple as just putting on a pair of goggles, sunglasses, and one set of goggles you saw the world through skepticism and pessimism and lack, and then you could just take those off and you could put on another set of glasses and you could see this world of abundance and opportunity, and giving.
If it was only so simple, but it seems like all of us have to go through a journey to get there. I want to ask you about freedom. On my book, Sound Retirement Planning, the tagline is “Clarity, confidence, and freedom.” You talk a lot about freedom, helping people understand freedom. Will you talk a minute about how you help people get there?
Clayton: Sure. I give a thing that’s now been downloaded tens of thousands of times, and I give it away just on my website, whether it’s on ClaytonMorris.com or on my business website MorrisInvest, it’s free. People can download it, three pages, and it helps people really figure out their financial freedom number. What it is, is it really forces you as a couple, as a single person, married couple, whatever it is, sit down with your spouse, your loved one, and grab a glass of wine and get serious. Get your spreadsheets out. Get your expenses out in front of you, and the worksheet walks you through how to figure out your monthly expenses and then look at what number of rental properties it would take for you to achieve financial freedom given a few key metrics.
This was born for me out of a real, sort of a dark place. I hit this sort of rock bottom moment where here I was a national news anchor, in a pretty great job in Manhattan, and on the number one show in the world, and here I was not able to pay my mortgage. My wife came down the stairs to me, and at this point, we had two rental properties, but I tell you, it was still from a place of being scared about money. It was still from a place of not knowing what I was doing. It was still from a place of feeling, like from a place of scarcity. We had two rental properties that I had purchased, and I had done the rehab. They were cash flowing like $800 a month, and the total cost was like $40,000 on my property. Three bedroom, one bath.
My wife said, “We can’t pay the mortgage this month. We’re going to have to …” So I had to go through my closet and try to sell stuff on Craigslist. That was how bad it was. In tears, we were sitting in my office, and I said, “We’ve got to change this.” I just hopped up to my whiteboard in my office, and I said, “Wait a second. Wait a second. Those two properties that we have, they have consistently cash flowed for us for the past two years, and yet we’re still struggling. What if we took the monthly expenses we needed in our family, and we figured out how to just add a third property, add a fourth property, add a fifth property, and then that total number would cover everything, all of our expenses? That would be financial freedom.”
Because most people say, “Oh, I want to be a millionaire.” Who cares about being a millionaire? I don’t care about being a millionaire. Most people just have their monthly expenses covered, they would be financially free, and that’s really the mantra that I really try to preach to people. Think about wealth-building differently, not about just some random arbitrary number of, “Oh, I want to be a millionaire.”
Jason: Then when you get there, when you have that financial freedom, how has that impacted or influenced or changed your life? I was thinking a lot about this this last weekend, Clayton because all of a sudden … There’s only so many projects to do around the house, and so you’ve achieved financial freedom. We have a lot of people that listen to this show that have retired in their 40s or their 50s. What happens once you have that financial freedom?
Clayton: Well, I think there’s two stages I like to think of. Financial freedom being the one stage where you have all of your monthly expenses covered: your gas, your car, your Netflix subscription, your mortgage, all of that. You pad it by 10% so you can take trips and things like that. That’s financial freedom. Then there’s the next level, which is legacy wealth, and that’s when you really start getting serious with it. It’s something that I teach on my podcast about then taking things to the next level.
“Okay, I own these properties in an LLC. Well, how can I have this asset protection, reporting up to a holding company LLC, or an S-Corporation? Then that’s reporting up to my estate planning trust, and all of that’s protected at all of these different levels. How can I really now mitigate my overall tax burden? How can I …” that next level ninja stuff that I call the legacy wealth building because at the end of the day, you have a Rolodex, I have a Rolodex, and you build up all these contacts in your business, in your life. You can’t hand that stuff down to your kids.
You can a little bit. You can try to, maybe you have a child or you can try to get them in the door at your company and get them an interview, but all of that stuff dies with you, all of those contacts, all of the material, all of those things you built up, except for real estate and these assets. If you can build those up and you can learn how to hand them down to your family in the appropriate way, that’s legacy wealth. That’s the true legacy wealth that I really want people to build, and so I’m really going to get excited about that.
Jason: Let’s dig a little bit into investing in real estate. Out here in the Seattle area where I’m conducting the interview from this morning, I’m actually in Kitsap County, which is just a little bit west of Seattle, but boy we have, I think Seattle has had one of the hottest real estate markets in the entire country for a couple of years now. We’re seeing … The median house price, I just read recently, in Seattle is $750,000. Is there still an opportunity to invest in real estate even in a market locally like we have that’s so hot?
Clayton: Well, one of the things I always talk about on my podcast is that the best properties are not in your backyard. I think one of my earliest episodes is still one of my most popular episodes where I explain that. I live in the state of New Jersey and there’s no way that I would invest in real estate in the state of New Jersey because I don’t get emotional about real estate. I focused on ROI, Return On Invest. To me, real estate is four walls and a roof, and you’ve got to make sure that you’ve got great tenants in these properties and everything is running like clockwork, like we do on all of our properties, but the issue is that when you’re in states like New Jersey, I’ve got property taxes that are $18,000 a year.
I’ve got all of these problems with … The ability to get an eviction takes many, many months. Same with the state of California. Well, that doesn’t make it very, that doesn’t make it great as a real estate investor to be in those areas to be in the state, in New Jersey, if it takes eight months to get an eviction. So I’d rather be in states where I invest, where the properties … when I’m done, my rehab, the total cost is like $40,000, $45,000, a three bedroom, one bath with a driveway and a yard. You drive down these great neighborhoods, they’re C class, B- neighborhoods, blue collar, hardworking Americans who are at work every day.
They are nurses in the local hospital, they work at the local Amazon distribution center, they are a postal employee, and they have a great place to live at the end of the day, but the prices are not Seattle prices. They’re not California prices. They are in that 40-range and so you just need to get real with yourself. If you’re obsessed with your own backyard, I think it’s a fear thing. You’re feeling like, “Oh, what do I want to do? Do I want to drive by there every weekend and wave to my house, and that makes me feel good?” Or do you want … Same with the stock market.
Probably a lot of your listeners invest in the stock market. Well, do you drive to Coca Cola and knock on the door and make sure that the company … Are you driving to these places? No. So that’s the way that I look at my real estate is it’s totally turnkey and handled by my company and others where every month, I just get consistent cash flow and I never see my properties. I live in New Jersey. I don’t drive to my properties in Michigan or Indiana. I don’t ever check in on them.
Jason: What states are you finding where there seems the best opportunity to invest in real estate today? Where are you locating the best opportunities? You mentioned Indiana. Was it Michigan?
Clayton: Right, so I built a number of years ago the first market that I ever, when I started building my team and I started building my company, I just started buying properties for myself, was in Michigan outside of Detroit. I started finding great deals where even during a recession, still cash flowed consistently. Yeah, property values dropped a little bit, but who cares because you are holding them for the rest of your life, and that same $800 a month is not changing that you’re getting from a tenant. Okay, great. If it dropped from $40,000 in value to 35 in a recession, yeah, I don’t care.
I’m cash flowing it and handing it down to my kids, so it doesn’t bother me. Michigan and then I really started building my team in Indianapolis and then we opened a third office there. We typically renovate about 40 to 50 properties a month, and finding great deals off-market that we will rip the walls out and rebuild them, put a new furnace, new water heater, new roof, new windows, new electric, new plumbing, and so my philosophy is when you take care of those main systems in a house, then they are rock solid for many, many years to come, 15 years before you have to do any kind of … replace a $700 water heater. You’re going to have tenant turnover. You’re going to have paint, carpet to touch up, the minimal things like that, so those main markets and also in some Florida markets as well.
Jason: How long should somebody expect it to take them to get to that financial freedom number? Say they’re going to invest in real estate, they’re going to buy their first property, how long for most people before they can get to that number? I know you can’t make any promises, but what do you experience when you’re working with investors?
Clayton: Well, one of my friends who now owns 2000 properties, he started with one. He bought an off-market property. He did some renovations on it and placed some tenants in that property. He then refinanced the property, pulled the same money right back out, was able to buy his second property, and then his third and his fourth. Before you know it, for most people, 10, 12 properties is all you need to achieve financial freedom. In a short amount of time, I’ve had clients that we’ve worked with who I love getting their Christmas cards and that kind of stuff where they’ve quit their job. They’ve now bought an RV, and they just move across, they just travel around the country.
They’ve quit their job, and they’ve achieved financial freedom in like three years. I have one of our … A listener on my podcast, his name is Pablo, we did a three part podcast episode with him. He reached out to me last year. He’s in the United Kingdom. He has no experience, and he has no money. He’s a software engineer. He said, “Look, I want to get started building financial freedom. I’m willing to do whatever it takes.” I said, “Great.” We did like a mentoring phone call, and I said, “Look, here’s what I want you to do. I want you to make some connections, get some private money together. These are the properties you’re going to buy. Here’s what you’re going to do.”
He just closed on his first property, and he’s already lined up to refinance to snowball into a second one, so you’ve got to take action. That’s the bottom line. You can sit on the sidelines, and you can sit on your hands, and you can sit in internet forums all day long, and talk yourself out of ever taking action, but it’s the people that take action that see real change in their life. I love getting emails from people that will say to me, the subject line will be, “That’s it. I’m in. I’m doing it. I’m getting started,” and I love that because sometimes people just need a push. Sometimes you just need to get that little ball rolling down the hill and then it starts to really pick up speed.
Jason: I think, we saw people get burned with real estate in the last financial crisis, 2007, 2008. People were way over-leveraged. There’s been some great movies made about how everybody became a real estate investor. Leverage works until it doesn’t, and then it hurts really bad. So how do you, when you’re structuring these real estate investment portfolios, make sure that you don’t become over-leveraged in the properties as you’re acquiring them?
Clayton: Well, for me and my investors, they will buy them with cash. They will cash investments, typically up front, and then they will refinance and pull the equity back out.
Jason: Up to what percentage? Up to what percentage, because sure it makes sense … Well, first of all, that gets a little bit tough to come up with … Well, in your case you’re saying 40, $50,000 so people can probably come up with 40 or 50,000 but when you pull the cash back out, do you leave 50% equity in there? What percent equity do you leave in it?
Clayton: Right. Oh, I wish there was … 50% equity would be a dream. Good luck finding that kind of a deal. Mostly, for instance, we just … Here’s a perfect example. Michael, one of our investors, last week refinanced. He bought a property with us in June. I think he purchased it for $45,000 all in total after the rehab, and then it appraised for 53 or 54, and so he pulled out 80% of that and he’s not buying his second or third property. I’m not sure which one. That’s like a typical, but then of course you’re at the mercy of appraisers who knows, but that’s our goal is to have a nice little bit of equity and below market value once we’re done with the rehab.
The problem with this financial crisis is you’re exactly right. Look, I was one of them. I had to go through a foreclosure because I was over-leveraged getting 100% financing, 110% financing. God knows what else people were able to get back then. Now, fortunately, that stuff doesn’t really exist. Banks are not … It’s very difficult to get loans. It’s very difficult to get loans at that price point, a 50,000 mark or even 55,000 mark. Banks are not a big fan of lending on rental properties, especially in that price point because they don’t make a lot of money so a lot of the people being over-leveraged at that level just doesn’t exist anymore.
Fortunately, the way that I protect myself is that I’m buying in C class and B class neighborhoods where historical data is my friend. I look at those historical neighborhoods where even during the last recession, people still needed to rent properties. The people that lived in C and B class neighborhood properties, they don’t lose their jobs. These are the people that end up having … are delivering the milk, so to speak. It was the managers who were living in A class properties, 100, $200,000 homes that were renting that lost their jobs, and the milk still needed to be delivered.
Jason: Clayton, do you-
Clayton: Those are the people that rent from me.
Jason: Do you, with the company that you started, Morris Invest you mentioned early on, is this something where you’re teaching people how to invest in real estate through your podcast, or are you actually, have you created some type of structure where you’re actually going out and buying real estate for people?
Clayton: Well, we actually, we don’t buy it for … I buy a ton of properties every month. We’ll buy, I buy 10 properties that need a whole bunch of work, and then we will, like I said, do the rehab on the properties, and then our clients will buy them after we’ve already placed the tenant or the tenant is about to go into the property with our property management team. That started out, for me, really as my, something I did just for my family and I, and then it just grew organically from there. Then I had friends coming to me saying, “Hey. I’ve got 40,000 in my IRA or in my 401K. I’d like to buy a house. Can you help me?”
My mom was our first client, and she said, “I’d like to do it. I don’t know how to do it. You’re going to have to do everything for me.” I said, “Of course. My team will take care of it,” and so it just kind of grew organically from there. It was friends telling friends and then our doctor friends telling their doctor friends. Then it grew from there over the past six, seven years. The podcast really is just a total education piece, helping people figure out how to structure their taxes, how to plan for retirement.
My wife is really great with financial planning, and how to get everything lined up personally in your life, how to incorporate your family as a business, how to bring your children into the fold to learn so that your children can even set up IRAs and can lend money out and build up passive income there as well. We just get really passionate about financial education in the family because it’s just stuff people don’t learn in school. I didn’t learn this in high school. Did you?
Jason: No. You’re right. There’s an area lacking. Our schools teach people to go to school and go to school and go to school and go to school, and then get a job. There’s not an entrepreneur … Nobody is teaching how to become an entrepreneur, how to add value to people’s lives and the importance of the relationships that we build. Clayton, we’re out of time but I wanted to thank you for being a guest here on Sound Retirement Radio.
Clayton: Well, thank you so much for having me. It’s been a real treat.
Jason: Absolutely. Keep up the good work. Folks, thank you for listening. Until next week, this is Jason Parker signing out.
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All insurance related discussions are subject to the [inaudible 00:25:32] ability of the company. Investing involves risk. Jason Parker is the President of Parker Financial, an independent fee-based wealth management firm located at 9057 Washington Avenue NW, Silverdale, Washington. For additional information, call 1-800-514-5046 or visit us online at SoundRetirementPlanning.com.