Should you become a
first-time homebuyer? You know, your
primary residence? Or a real estate investor? That’s today’s show. Let’s dive into it. Hey everyone. I’m Clayton Morris. I’m Natalie Morris. And hello, freedom
fighters out there. Welcome to the Investing
in Real Estate Show. This is a show
where we teach you how to build passive income,
and achieve financial freedom, so you can spend more
time with your family. And the vehicle that
we use to get there is buy and hold real estate. How are you, my love? I’m great, thank you. I got a towel from the dryer,
and draped it over my legs. It’s so nice, and
warm, and cozy. So if I disappear
from the screen I’m going to be just hidden
under this nice warm towel. Here’s a little
secret about my wife, which is, during the
fall, when it starts to get crisp in the air– today it was like 39
degrees when we woke up, and it’s going to be
like a high of 50 degrees here on the East Coast–
beautiful sort of pumpkin weather. She turns into a cat. I’m always freezing. Cats migrate to heating
vents, and things like that. So at night, Natalie will
sit down with her iPad and read a book. Or she’ll sit down near a
heating vent, or the fireplace. She just moves around. So any time there
is a heating source, you can find her nearby it. Right. I was thinking though, I wear
long sleeves and pajama pants all year round, because
Clayton freezes me in the summer with
the air conditioning. Mm-hmm. But now it’s actually
appropriate clothing. So for anybody who
watched our YouTube video, my thumb’s getting better. So thanks for the
concern on that. Today, we’re going
to talk about where you should funnel your money. Whether you should buy a home– become a first time home buyer– or invest in real estate. And I have to say, I’m
not convinced either way, but I can make strong
arguments for either. Which is why we
should remind you, we are not financial experts. We’re people who try and help
you lay out all the cards, understand the system, and
then make the best choices. The point of this podcast is
for you to learn new things, learn new arguments,
learn new tactics. Because we’re
learning them, too, and we help you to weigh
things better than you– I want to say that’s
better than you would get from a financial
advisor who’s not a fiduciary. Right? Right. Exactly. And I have an excited
episode, because we have a guest coming
up on our show, in the near future, who
is a financial advisor, and is so angry about the fact
that financial advisors don’t seem to understand
real estate investing. So we’re going to talk
about this disconnect between financial advisors,
and the power of real estate investing. But that’s for another show. But a little background. If you’re new to the show,
I know that we have– We saw a huge spike
in our downloads. Couple 100,000 new people
listening to the show. So thank you so much. If you’re new to the show– Natalie and I are married. We’ve been longtime
real estate investors. We’ve rehabbed
thousands of homes. Our company is called
Morris Invests. So we do that for
our clients as well. But we also are a
real estate investors. So we are in the trenches
buying properties for ourselves, in order for our family to
be at financial freedom. And we try to help as many
people as we can here, with free information. So go out there, take action,
and be a real estate investor with this information. It’s totally free. So we hope we can help
you in that regard. Today’s episode–
We had a question. It’s all framed around Brandon. Brandon is a
listener of our show, and he wrote on
our Facebook page. He asked this question. Hi Clayton. First of all, thank you so much. You and Natalie have set my
family on a totally new path, and I will definitely be booking
a call with your team soon. But before I do though,
I wanted to suggest a topic for your podcast or
blog, that would help me, and my friends, and my family. I have a friend that is about
to buy his very first home, with his wife and
kid in a town, where he is employed by a university. I also have a brother
that is reaching the same stage in his
life, and he will probably be buying a home
soon there as well. The topic I’d like to
hear your thoughts on is if it’s a good idea to
become a first time homebuyer. Or, if you should skip that step
and become an investor instead? Great question. So I have a lot of
feelings about this. I have a lot of
thoughts about this. By the way, I have a whole
video on our YouTube channel about why I think
the home you live in is the one of the worst
investments you can make. And I’m not alone in that. It’s not an original idea. That comes right out of
Robert Kiyosaki and Rich Dad, Poor Dad– that most people
build this paradigm– the American dream–
around this idea– that the American dream is
to own the home you live in, and that’s it. Right? That’s how you build wealth. Right. Not true. Not at all true that that’s the
number one way to build wealth. Why do you think that is? Well, when people think that
they are real estate investors because they own the home that
they live in, most of the time they are banking on their
home appreciated in value. So they think, well, I’ve
put my largest chunk of cash into this asset. And this asset will then perform
because it will appreciate. Which is a really risky bet. We saw that in 2008. We saw it 10 years before that. Usually there’s like a big real
estate crash every 10 years. And we see that our
home values plummet, and then usually they come
back around the same price, and then they plummet again. Unless you’re in
one of those sort of odd, outlier-type
markets– like the Bay Area, or New York City,
or Chicago, right? Even those places
are not impervious. I had a condo in San Francisco
that dropped to over $100,000 less than I paid for. And now– if I had sold it–
it would be over $200,000 more than I paid for. That’s crazy, right? Right. That’s speculative. But the Rich Dad,
Poor Dad paradigm has us thinking that we
need to use our money to buy things that perform for us. Right? Right. So a primary home that you want
to live in, in a neighborhood, usually doesn’t fit that bill. Right? Wait. The home– As a performing asset. Exactly. Is your home a performing asset? So that’s a great point. Now, there are a couple
of caveats to this. So if you happen to live
in a good rental market, for instance, where
we do our rentals– in the Midwest, and other
areas of the country– where the return on
investment is very high. That means that you can purchase
the property for a low cost. Taxes are low. And the ability, then, for
that return on investment to be there. So if the mortgage cost is
going to be dramatically low, you need to weigh those things. But that’s kind of rare. Chances are, you’re
not going to be living in that kind of a spot. But there are some other
caveats to this, right? And a lot of people do
what’s called a house hack. So in the case, Brandon,
of your friends, there might be an
opportunity for them to purchase a duplex
in the town where they live near that university
that you’re talking about. And live in one
side of the duplex, and then rent out the
other side of the duplex. And now you’re a
real estate investor. Because that other
side of the duplex is now paying your mortgage
to live in the other side. Now, what if you just
own that duplex outright as a rental property, and
two families lived in there, and you’re getting the
rent from both of those? And you’ve rented another place. There’s the opportunity there. So you rent an entirely
different apartment in the town where you want to live. Or you want to rent
a house in the town where you want to live. And you own this duplex. Now two families
are paying you rent. So there are some caveats. You could buy a three-plex. Kevin Weinhold– who
was on the show– he was gracious enough
to have me on his show. That episode will be upcoming. The very first property
he bought was a four-plex. He lived in one side
of the fourplex, and the other three
he rented out. He made a mistake,
because he rented it out to young, good-looking women. And when they would tell him
that they didn’t have rent, he just would kind of say, OK. That’s OK. [LAUGHTER] So that’s a mistake, too. Don’t fall for the good-looking
women as your tenants. There’s a movie about that. Clayton, I’m sorry. I just can’t pay
the rent this month. Oh, well. Oh, that’s OK! Don’t worry about it! [LAUGHTER] Does that mean, then,
you have the right to peep in there when they’re
changing, and things like that? No! You take those
kind of privileges. What kind of– What kind of creepy
landlord does that? I don’t know what kind of– where’d you come up
with that creepy idea? Probably it was on a movie. I don’t know. I was thinking of– what’s the movie? While You Were Sleeping
with Sandra Bullock, where her landlord is super creepy. And he’s always hanging
out in her house, and she like, get out of here! Oh. And what’s that movie where– what’s her name from– She lives in a hotel, or she
lives in an apartment building. But it’s all wired with
video cameras, and– I don’t know. Sliver. I had a landlord like that. Remember? Well, you would come home
and he was in your apartment. He was like, I noticed you
didn’t have a kitchen table. Yeah, you would come home and
he was like in your apartment! And I was like,
this guy just like comes into your apartment
on a regular basis. You were like, I know. But he’s just like an old guy. Just, you know. I’m like, no! [LAUGHS] One day, I came home,
he goes, I noticed you didn’t have a kitchen table. So I put one that I had–
an extra– up there. And I was like, thank you. But why did you notice that? He’s like, I noticed your
bed was a little wobbly. So I fixed the leg of your bed. He would just wander in. Yeah. But he was like a really
elderly Polish man. So, you know. I don’t know. Why are we talking about this? Well, I don’t know. Because we were
talking about this guy. My landlord on the
Upper West Side. He was just allowing cute
women to not pay him rent. So you, of course, run that
risk when you’re now also, suddenly, the property manager. So there are some caveats. House hacking is a thing. We’re going to do some
videos on house hacking here, on the show, to dive a
little bit deeper into that. Because I’ve had
those questions. But it doesn’t suit everyone. Again, it comes down to
return on investment. So if you’re buying a
duplex that’s $400,000– and that’s fine that you
live in one side of it. But to me, that sounds
like a terrible investment of $400,000 duplex. Chances are, the
return on investment is not going to be there. The ROI is not
going to be there. So house hacking is great. But again, it comes back
to what neighborhood, what market are you in, and
are the numbers sound? So the argument from a lot
of high-level investors that I know, is that
they might own two, three, 1,000 rental properties. And guess what? The house that they
live in, they rent. They do not own the
house that they live in. A friend of our show
owns a place in Malibu, and lives in this massive
house that he rents, with an infinity pool that
cascades out into the ocean. He’s always wanted
a place like this. But guess what? He rents it. He lives in this. He’s lived there for years. He rents this house. And he has hundreds
of rental properties that bring him cash flow. So the argument
about the home you live in being the worst
investment you can make is– Imagine taking that
big down payment. So if you have a $500,000 house
that you’re looking at buying, what would be the down payment? What’s 20%, 25% of that? Off the top of your head? What was the purchase price? $500,000. What’s 25% of that? Down payment. $125,000. So imagine taking
$125,000 that you’re going to put down
as a down payment on your primary residence,
instead you buy two or three rental properties. The houses we buy? That would be about two or
three rental properties, that might be bringing you
about $700, $800 a month apiece. Yeah. So now you turn that $125,000– according to Robert Kiyosaki– into assets, rather than
the house you live in– which you don’t get to
claim depreciation on, you don’t get to
create a tax shelter, you don’t get to
claim write-offs. There’s a whole
host of reasons why you could take that $125,000
and put it into something special like that. Yes. OK. But I’m of several
minds about this, because I don’t think that’s
the only way to think of that. Because when you think
of money as either/or, usually that’s the
way it performs. Right? So it’s not necessarily a matter
of, can I buy real estate, and then I cannot buy
myself a primary home? Because there’s a
lot of pride that comes along with homeownership. There’s a lot of freedom
that comes along with it– especially if you pay down your
mortgage, like our book tells you to do. And so I want to say, maybe
the way he phrased it was, should I skip this step? And I don’t want to
say you should skip it, but we’re talking about
how you prioritize it. Right? Because this doesn’t mean
you can never have that. Right. This just means what
are you choosing first? How can you make your
money perform first? Now in our lives, we have
gained some financial freedom, and we do use our
money sometimes towards things that
do not perform– like a vacation. Well, that certainly
performs for me. Those things pay dividends, but
it’s not a performing asset. Right. It’s not producing. Yes. It has its value. It certainly does. But if we’re really only using
our money towards things that perform– What we’re doing is
using most of our money towards things that perform. But that doesn’t mean
it’s one or the other. So I think I would
rather present this as a choice of what to do
first, not what to do, period. Because I think you can have
your cake, and eat it, too. I think if you think way about
wealth, then it will happen. OK. So two things that
you said there, I wrote down on my
little Post-it note here. Pride. So pride of ownership. Yeah. That’s an intangible. So we can’t exactly
quantify that. That feeling that
I own this house. But do you really? Because unless you own it
free-and-clear, the bank owns– Oh, you’re going to tell me how
homeownership is burdensome. Please do. No. No, what I’m talking about– Please tell me this. Here we go. So I see myself walking
myself into a corner. It’s like playing
chess when you know you’re about to be checkmated. I’m listening. So how can I quickly
get out of this? By saying I just heard
the door bell ringing, and I’ve got to go. I can’t talk to you anymore. So pride. Right? The idea of pride of ownership. Right. Yes. You do take great care. OK. I get to mow my lawn. I paint the outside. My fence is painted nicely. I want to treat
my carpet nicely. And we take great care of it. And this is I like to come
home after a trip to my house. Right? Right. Yes. That’s an intangible. I get that. That’s not something
you can truly measure. That’s intangible. But now you mentioned freedom. The freedom. I would actually say
that you’re creating less freedom with the ownership
of the house that you live in. Now think about the
guy who lives in Malibu and has this infinity pool. He rents this place. He never has to pay
anything to fix it up. As a tenant, his landlord is
now responsible for upkeeping this property. Paying taxes. A door breaks, he’s got
to go to Home Depot. This is an A-class
property, so he’s going out to fix maybe five garage doors. Who knows with this kind of– He’s going to have
to fix the pool. He’s going to have to
fix the air conditioner. He’s going to have to
fix all of these things. So he has more freedom
as a renter than an owner of this primary residence. And he’s able to enjoy
this beautiful house. And he could take pride in it. He lives there. So I’ve seen a lot
of people take pride. I see a lot of our tenants
who take pride in the fact that they live in
a property with us. And they take great pride. They take care of
the trees, the yard, and they’re there
for many years. So I don’t know about that. Well, I didn’t say there’s
no pride and rentorship. I said that some people take
pride in owning their home. I mean, think of our
neighbor over there, who has those amazing
fall displays. Right? Right. Every time we see
him he tells me, this house was a goal of mine. I had been working
towards it for years. I came from nothing. Now I put all of my effort
into making it beautiful. So for some people,
that’s their carrot. Right? For you, you want a certain
vacation, a certain car, a certain type of wardrobe. Whatever. For some people, that’s
what they really want. So you can’t say, oh, it’s
freeing one way or another. Both ways can be freeing. It depends on your
state of mind. But for some people
who want those things, or feel like they would feel
safer with those things, or whatever. I just hit my microphone
because I’m gesturing wildly. Mm-hmm. For some people, however
they see it, it’s fine. What I’m trying to say to
you is, don’t tell yourself you can only have
one or the other. Just tell yourself
which one am I going to get first in order
to get to the other thing? If that’s what you want. Right. Now, Brandon had mentioned
something else in his email to us. He said, he’d love to hear
this topic, and thanks so much. And then he said, but buying
my home five years ago has enabled me to become an
investor now, from the equity. But that was sheer dumb luck. Could I have made
investment choices, and been in a better
spot now, if I’d made an investment
instead of a purchase? Well, chances are, yes. What you’re saying is, so
I bought this property, and are you going to
have immediate equity? Unless somehow he’s getting
this property off-market, and he’s able to get some sort
great deal on this primary residence– Right. Which is something you
wouldn’t think about, if you become a real
estate investor, and you’re used to finding
off-market properties. Remember that place in West
Orange, that you were like, we should consider this? Mm-hmm. It was significantly below
value for that neighborhood, needed a lot of work. But if we had built that
up, by now we would be done. And we would have a home
with probably $300,000 equity that we didn’t
even put into it. Right? Right. So there are options
for you there, if you think that that’s
what you want to do. You want to find your own
primary mortgage off-market. But you’re banking
on appreciation, and that is speculative. When we invest, we
invest for cash flow. Maybe. Or you’re just finding a
home that you find acceptable at a lower rate, too. Like I said, I
want us to present many different arguments
here to think about. Because we can’t tell any– That’s exactly what we’re doing. I think you’re fighting me. Well, always. But what I’m saying
is that, yes, you can. His argument is
he got dumb luck. No. I mean, appreciation,
there is no clear– If you’re investing for
appreciation, that is dumb. Yes. Because it doesn’t. We learned our lesson
in the 2008 crash. Investing for
appreciation is dumb, and it doesn’t exist
anymore as an investment. It happens. And you’re lucky if
it’s icing on the cake. Where we invest, we see like
a 2.5%, 3% appreciation. Nothing like California’s
8%, 7% appreciation. We don’t invest
for appreciation. It’s nice, and we could
pull some equity out. Great. Great. That’s nice. But if you’re buying
the house you live in because you think in five years
it will appreciate, therefore enabling you to take equity
out, therefore enabling you to buy rental properties,
that is not a smart strategy. That is not a smart strategy. Right. If you’re tying up
all of your money that you thought you
could use eventually, by pulling the equity back
out into rental properties, it’s not going to happen. Yes, the down payment accounts
for some of your equity. So you’re putting down 20- 25%. But remember that a bank
is only, typically– for a home equity
line of credit– going to give you, what? 80% or 75% loan to value. Right. And it’s not true freedom with
the money that’s your equity. Right. It’s your money, as it is in
your own primary residence. But you’re paying someone
to use it on their terms. Right, now they’re
paying interest. We had this discussion the
other day when we were driving. Remember I talked about,
like what if we had not bought the home in South
Orange with the money that we had come into? What if we had used that? And that’s a painful thought. Right. But– Right, yeah. I mean, if we had to go
back and do it again, would we have taken
that money and instead of that down payment–
that $200,000 down payment, whatever it was– and bought
four or five rental properties? Yeah. Cash flow. I mean, and then rented a house. But can we really
look at it that way? You can, because people
do it all the time. I’m saying, we’re offering
up Brandon his family some opportunities to think
differently about this. I mean, this whole
podcast episode is around shattering
that paradigm that the American dream is
built on the home you live in. Right. You cannot claim depreciation. Yes, you can get a mortgage
credit for interest deduction. Who cares? That’s minimal to begin with. That’s small. Small potatoes in the
grand scheme of things. But it’s not a great investment. It’s not a performing asset. You’re not getting to
claim it as a tax shelter. You’re not getting to claim
it as a performing asset. And it’s not building long-term
legacy wealth, really, for you and your family– other
than banking on appreciation that you’re going to maybe hand
it down to your kids some day. Yeah. But that’s a gamble. And who knows? Right? So that’s the point. It’s just sort of shattering
this paradigm a little bit. Right. Yeah. I think you’re doing
justice to the fact that this American dream serves
American businesses, for us to think this way. Right? Right. And if we think slightly
differently, then maybe we can reframe
either what we go after, the way we prioritize
our purchases– that kind of thing. Because our real
estate investment– the reason we traded up,
in terms of our home, when we had our third child– was partly for space. And then also because our real
estate investments allowed us to think, OK, we can
take on this extra mortgage, and we have this plan of attack
to take the mortgage down. But if we had just done it the
way the American dream wants us to think, we would
have indebted ourselves for a certain amount. We would have thought
that our primary job would be the only reason we would
buy a purchase like this. These are the
things that we want you to sort of think around. Right. Yeah. So interesting to think
about, and we would love to hear your thoughts on it. You can leave your questions and
comments on our Facebook page, and on our YouTube channel. You can leave them in the
comment threads below this. And thank you so much for
subscribing to our show. If you haven’t had
a chance already, please leave us a five-star
review in the iTunes store, if you haven’t
already done that. We would be so thankful. Any other final thoughts,
parting words of wisdom here, for Brandon and his family? Yeah. I was thinking about this
in terms of life stages, too, though. Because for us and
three children, it would be very
disruptive to decide we didn’t own a primary
home, and that we would– But I’m not of the opinion that
you need space, and suburbs, and all of that. We had our first
child in New York, and I thought that
that was fine. Why would it be disruptive to
rent a house that you stay in? I have people that rent
houses, like our friends. Our family– Well, just– Hold on. Our family friends
have three kids. They live near the school
where our kids go to school. They have a great house, and
they’ve lived there for years– as long as we’ve known them. And they have no plans of moving
from that house anytime soon. Somebody else mows the lawn. Somebody else
fixes up the house. Pays the heat. Does all that stuff. Takes care of all that stuff. So why would it be disruptive? Well, I’m talking about moving. Just in general. Well, yeah. Moving– Or leaving this neighborhood. Because for some
people, they decide, OK. Well, I’m just going to rent
an apartment and live that way. And I’m of the opinion
that that’s fine. You can take only what you need
in terms of space, and land, and electricity, and
all of that stuff. But if what he’s saying is
like, this couple has one child, or we don’t have
kids yet, then those are the times when you can
be as flexible as possible with your living situation. I mean, I think everyone should
be as flexible as possible. And I think that a
change in situation would be a great opportunity for
my kids to learn to be pliable. But it would be much easier
to do if we had no kids. So if you’re in that
stage of your life where you can be more
flexible because there are not more bodies to
manage, then that’s just another thing
to think about. Right? Yeah. Maybe meet us halfway, and
do the house hack idea. Like I said, we’ll do video
and show on that exact topic. But the idea about, hey,
move into that duplex. If you’re flexible, you
don’t have the kids, or you don’t need to worry
about all that big space– split it with somebody
else, build up your equity, and buy something
else down the road. Yeah. Hopefully we’ve given
you things to think about instead of confusing you. But I don’t want
anyone to think there’s only one way to go about it. Because we started
investing in real estate when we didn’t own any
real estate for ourselves. We just lived in an apartment,
and that worked fine. And then we bought a
house for ourselves. And that works fine too. It’s not that you can
only do one thing in life. It’s just how you go about it. And you have to be able
to have all the data, and have all the things
to put on your scale, in order to make
your best decision. Yeah. Well said. Well said. Well, I think we want to
thank you all for subscribing and downloading the show. It’s always a great pleasure
to see you every week. And people really
love the episodes when Natalie is
on here, as well. So she comes on and fights me. It’s Wife Wednesdays. Wife Wednesdays
here on the show. And we’ll be back on Thursday,
with another episode. You’re not going to
want to miss this, because we’ve got
an investor who just got started
investing recently, and wants to get
to 17 properties. Getting to 17 properties
for financial freedom, we’ll walk through that
case study as well, on tomorrow’s episode. But for now, thank
you so much, everyone. Go out there, take action, and
become a real estate investor. It’s the number one way
to build legacy wealth for you and your family. There is no better way. When people tell you the
stock market’s the way, laugh at them. We’ll see you next time. Bye everyone. Bye everyone.