In today's show Larry talked with John Morey. They met while doing some business together and have known each other for almost 20 years now. Larry was his first hard money lender.
In this episode, they talked about the disadvantages of rehabbing and why Inherited IRA is the absolute best kind.
Larry: Welcome to the Brain-Pick-A-Pro Show live from Lake Wylie South Carolina and all the way a little further south in LA, Lower Alabama, right is John Murray. My good friend man we’ve known each other for years probably what it’s almost 20 years now.
John: Almost, yes sir.
Larry: Wow, now we first met because we were doing some business together, right.
John: Yes sir. You my first hard money lender and I was shocked how you said yes to me. And I said, “Whoa this is awesome.”
Larry: And look at you now.
John: I’m working it sir.
Larry: That’s great man. So John you’re from where in Alabama?
John: You’re from Athens Alabama.
Larry: Oh okay, yeah. Good so tell us a little bit about yourself. How did you get started in real estate and kind of what you’re doing now?
John: Well back in the late 90s that’s when I actually double a little bit into it. And I used to live in Waco Texas so of all places yes. And then I transferred because I am an engineer and I travel quite a bit. Then in 2000/2001 I was living with [Inaudible] [01:23] that’s when I got into having my own rental properties. Then when I moved I came to Huntsville Alabama I said, let me try and see if I can get back into this again but it was kind of slow until I got fired.
John: Yes sir. I know that’s what [Inaudible] [01:39] for me. I got fired three years ago, May 13th 2016. That’s when I became I fulltime real estate investor and never looked back.
Larry: That is great.
John: I am very happy, yes sir. It’s stressful sometimes but I’m happy.
Larry: Listen every day you got to make that decision to keep going, stay in the business. So tell our listeners a little bit about what kind of real estate investing you.
John: Okay. Right now I’m a buy and hold kind of guy. I did first start off trying to do rehab, I’ve about four, five rehabs under my belt. But I realized that’s not really the way to go if you want cash flow. Rehab is not a cash flow kind of investment I had to get into the rental business. So I’m a buy and hold kind of guy.
Larry: That’s great and you’ve done a lot of rehabs. But you’re kind of like me now I hate rehabs. I hate it, I won’t do them and you can’t make me, right. The rehab I did I lost $75,000 on it, right.
John: Oh boy.
Larry: And I won’t do any more rehabs at all. And listen this was a nice house, nice area almost a $300,000 house. But it was in the middle of winter, and the pipes froze the contractor had left the water on and the heat off.
John: Oh man.
Larry: So here’s a little tip for you and I know you know this, insurance companies will not pay if the pipes burst if the water is on but the heat is not. They won’t pay. And this happened on the second storey and I had to take all the sheet rug down from like three feet up, down on the second floor.
The first floor ceiling, the first floor walls all the way down to subfloor. New hardboard floor everything cost me 75 grand and insurance would not pay for it. And also you know this, the contractor didn’t have the money for it right.
John: Oh yeah. That’s one thing that many especially the young ones don’t understand. Rehabbing is fun but it’s slow, and cash expensive.
Larry: That’s so true. I had a guy opt in our website just last night our real estate website, wanted to buy one of our properties and we wholesale a lot of properties. And he said, “Do you recommend doing fix and flips remote? Can you put me in touch with contractors and realtors and all that?” and I just said, “No, don’t do it.”
John: I’m with you. It’s hard enough when you’re in your own town and then you’re trying to do this remotely that you don’t know the town, you don’t know the people, you have no contacts. That is a formula for failure right there.
Larry: That’s exactly right. So you’re not doing rehabs anymore, congratulations but you’re doing buy and holds. Where do you find most of your properties John?
John: I just like driving for dollars. So I find the properties actually in my home in Decatur Alabama.
John: So I go this is a town next door but I go there and definitely you’re going to find houses that you can buy 5,000 to about $20,000. And then I would sometime pick them up sometimes I’d just do owner financing and I’ll keep it as a rental. So that’s how I’m finding mine, I don’t go to Huntsville or Madison, the model that I’m using does not fit for that town. So I go to Decatur or to Huntsville or to Cullman, I go to those places.
Larry: Right that’s good. Now you mentioned something key a minute ago. You say you’ll buy them, you’ll fix them up and rent them or if they’re in a certain amount of condition whatever that condition is you will do owner financing. Tell us a little bit about that, how do you determine what you’re going to rent versus what you’re going to owner finance? And it probably has to do with the condition of the property I’m guessing.
John: Yes sir. The condition of the property will dictate that. If I could put very little money into it and I know that I could buy that good price and I could rent it out with a good profit margin of at least $250 positive.
John: Then I will rent will rent it out. Now if I see that this particular property I might have to put 15, 20, 30, $50,000 into it, I will actually owner finance that to somebody that would like to make that their home but they have skills. So I do advertise it that way, “Hey if you have skills how to fix up a home and you will make this your home, let’s talk to me.”
Because some of these people they do not want to use the bank or they have no capacity to use the bank. But they have money. So I’ll just put it up out there and say, “Hey I’ll do owner financing so that would mean between five and $25,000 down, it works.
Larry: That’s awesome. And tell them the reason that you do that because with a landlord, if you’re renting the property now you’re a landlord you’re held to a different standard than you are if you seller finance the property, right.
John: You hit it right there, that’s exactly right. When I’m a landlord I have to be on top of all the repairs and stuff like that and the tenants call me. So I have my team we go there, we fix all these things. When I am the bank I don’t get into any of that. I just tell them, “If something is going to happen and you can’t meet their mortgage payment just contact me let’s work it out because I want you there I don’t want the house back.”
But of course it’s not a bad thing if I get the house back because I just do it all over again and they’ve already fixed it up. But I encourage home ownership that’s really one of my goals. I’m trying to copy Mr. Walter Watford he’s my idol so I’m trying to do what he does which is he’s trying to encourage home ownership through owner financing.
Larry: And that’s so true, I love Walter also. It’s very similar to our Filthy riches model. And I call it filthy riches Walter calls it Affordable Housing which is really what it all is. That’s exactly what it is. And we’re going to get Walter on a podcast here soon as well.
Larry: Yeah in fact just a couple of weeks ago in interviewed Mark Ross on my podcast. Mark Ross from Good Steward Servicing and he does all the RMLO stuff that you need to be able to do a seller financed transaction. So he’s really good at that and he’s also the least expensive I found which is also very important, right.
John: That’s good.
Larry: Exactly. So run us through a little typical deal that you might like maybe the last deal you did or whatever.
John: Oh boy, well this last deal that I did I’ve been sending this letter to this lady for over a year. And she has a lot of properties and the ones that I run into are pretty much torn up. Well I didn’t know that this lady passed on last year in May. I received a phone call from a lawyer and said, “Hey by the way are you Mr. Murray?”
Of course now I’m hearing a lawyer calling me and I’m like, “Oh boy okay what happened now?” Well come to find out, yeah I was really nervous but come to find out he’d called three investors and I’m the only one that responded to him.
John: Because of that property I didn’t know that he has a stack of my letters in his office.
John: We ended up buying this one property well in Decatur if the community development people tagged that property to be condemned or bulldozed and if it does get bulldozed nobody builds on those lots.
John: So that’s actually, yeah that’s right it is. So what I did is I came up with a proposal and wrote down everything wrong about the property. And I said, “Okay I’m going to offer you this much or you could just have it bulldozed and you get nothing.”
John: So it was a little proposal and boy the loved it. So I bought that property for less than $4000.
Larry: Wow. That’s awesome.
John: And I sold it in two weeks cash.
Larry: For how much?
John: 10 grand.
Larry: Right that’s awesome. So you made a little over six grand minus closing cost, right.
Larry: That’s awesome, that’s really good. So that was a wholesale deal.
John: And we’re in touch.
Larry: Now and that was your most recent deal right?
John: That’s my most recent one yeah.
Larry: Now you know John I just want to point out in my Filthy Riches model I tell people to go out and buy a $5000 house and then seller finance it for $29900, get a couple thousand dollars down. But a lot of people are saying, “Larry you can’t find a $5000 house anywhere.” Well you’ve proved positive.
John: Yes sir. Well it depends of course, location is everything, right. Where I am we have a lot of towns that have these kinds of properties. So this why I don’t go after the shiny object. To me I think that’s a big mistake of many newbies or even the people that although they’re doing it for a long time they want the $500,000 homes type of stuff. Well imagine how long that’s going to take to get your money back.
John: You might sell it in two days or you might sell it a year later. Worst case let’s say you sell that $500,000 home a year later let’s say made 100,000 bucks well that’s at closing. What about your holding costs and if you divide that $100,000 by 12 that’s how much you made.
John: Well for what I do, I go after the money I don’t go after the shiny object. So if the deal or the property presents to me that I can make dollars that’s what I’m going after. So that means if I don’t have to get my fingers dirty that’s exactly what I will do.
Larry: That’s great. Now John are you doing a lot in retirement accounts now?
John: I do have one right now that I’m doing that with. But my funds are already depleted but yes I do have a self-directed IRA and I just recently got an inherited IRA so that just happened recently. So I was going to go into action here shortly.
Larry: That’s awesome. Now you brought up a great topic. You’re the first person that’s ever mentioned inherited IRA on my podcast. So I’m really excited that you did because I’ve been wanting to talk about it. so tell our listeners a little bit about what is an inherited IRA, why is it so important and why is it the absolute best kind or IRA you could ever hope for?
John: This was through our network as you know on how we got this. So we bought into the inherited IRA and of course one of the critical components to this is the person that has the IRA has to be terminal. So when they pass on, then now you get that inherited IRA. Now the beauty of the inherited IRA is you use that and then you could also withdraw from it.
So like a regular self-directed IRA like the one that I have, there are some conditions you have to follow. Like you have to be 59.5 plus that has to be seasoned for about five years. Well those things don’t really quite apply as per my understanding with the inherited IRA. Once you have that, you could start investing using that and you could withdraw at any time.
So this is a very powerful tool, the inherited IRA.
Larry: It absolutely is. And the cool thing about an inherited IRA, if you have a parent or grandparent or I mean there’s even people out there that will list you as a beneficiary to be able to get an inherited IRA when they pass on. But let’s say you just have one for a parent or grandparent or whatever and whoever is the beneficiary of that IRA, the beautiful thing about it is that beneficiary can grow it, can build it.
Now you can never contribute to it again but you can grow it, you can invest it. You can even if it’s a $500 inherited IRA, you can do ramps, you can buy property and use private money you could partner with people. You could grow that thing. But also the most beautiful part is you can take a distribution every single year based on your life expectancy, right.
If your life expectancy is 80 years and you’re 70 years old, just to keep it simple, there’s a 10-year life expectancy left, right. So if you’d grown that thing to $100,000 you can pull out $10,000 the first year tax free, right, whatever it is. So it’s based on the life expectancy. And what a lot of people do is they will make the beneficiary you want to take it from the oldest person to the beneficiary being the youngest person.
Imagine if you could get one of these inherited IRAs or even maybe great grandchildren, they can pull out money tax free for the rest of their life, right John?
John: Yes sir. That’s the beauty of that and that’s why you have the experts like Quincy Long is with IRA you have people like him that can explain this so thoroughly. And what you just said is pretty much what Quincy would say.
Larry: That’s exactly right. It’s a beautiful thing, I love it. Guys do a little bit of research on it and you should get involved. And if there’s any way possible to set that up with your family, friends whatever. So it’s a really great thing, it really is.
So John I know you’re really big on like helping people, encouraging people you’re very involved. And I see you at events. I told you before we started recording that I saw you on a video in a multifamily event giving a testimonial. So you travel around and you and I saw each other in Nashville last year where I was there.
And so you’re still I mean not only are you a doer, a mover and a shaker, but you’re also like me you’re a student as well. So you continue to learn and perfect. So give us a little bit of advice to some people that might be starting out in the business. What kind of advice would you recommend, what would they do, what not to do and that sort of thing,
John: Yeah my biggest thing really is education. Always read something, read a little bit about something. What an NOI? What is a cap rate? How do you do the ARV? And how do you calculate what to offer? Understand those things. Now after that you have to decide which route you want to go into real estate and don’t give up.
But with that being said, I would like to advice people, try not to go into rehabs right away. Here’s my reasoning. If you are just a beginner and you want to do a rehab, there’s a lot of moving parts in doing a rehab as you know. You lost $75,000 on that one nice rehab. Fortunately I haven’t lost that much yet and I hopefully I won’t.
But I have two education powers, that’s what I call them. You learn so much from them but it took a long time to get there. So I advise people, study what real estate is all about and learn how to understand contracts and get into wholesaling. The reason why I say wholesaling is this, there are a lot of moving parts in that also.
However there’s less risk on you as opposed to doing a rehab. If we just compared the two, rehab cash expensive and there’s a lot of moving parts. You have to manage all the contractors and stuff like that. While when you do a wholesale all you do is learn to be a good negotiator with the seller, get it under contract.
Start networking immediately so you have a buyers list. Then all you do now is sell the contract. When you’re selling the house you’re selling the contract to get an assignment fee and there you go. That’s what is to me the best way to get into real estate and then you need to know a lot of people. Then now you could figure out which route you really want to go in real estate.
Because everybody, I’m sorry HDTV but you’re killing a lot of people. HDTV is nice to get ideas but HDTV is not reality. So do not jump in and try to do rehabs right away thinking you’re going to make that much money. So that is my opinion and you never stop.
Larry: That is awesome. I love what you said about on the TV shows I mean they negotiate they buy they close they rehab they sell, the cash the cheque in 30 minutes, right.
John: I know yeah. And it’s so big right 100,000 bucks I love it.
Larry: I know, right. If the real world only knew the producers buy the houses and rehab it, right.
John: Yes sir, oh yeah it’s crazy. And I really don’t want people just to get so sucked into that. So that’s when I talk to new investors I’m very blunt, I’m very straightforward. That’s not the route to go.
Larry: That’s good.
John: And I tell them that. And if they don’t like it, that’s okay. It’s their life, it’s not mine, but then they will realize that what I said is true because I already have two, three people that talk to me all the time about how they got started in real estate using rehab how a big mistake it was. I do have one guy right now that I’m mentoring he’s killing me after I showed him what I’m doing, he doesn’t like rehabs anymore. He said he won’t do rehabs.
Larry: I don’t blame him at all. I hate rehabs myself. So now you get a lot of deals driving for dollars or are there some other ways that you recommend people starting out to be able to find deals maybe on shoestring budget or whatever?
John: Yeah if you’re on a shoestring budget there’s a place called Marketplace on Facebook. That’s pretty much free, I go there I post things on there all the time. I just try not to abuse it because if you’re part of other groups those groups will kick you out. I know there’s a couple of people that used to go, “I buy houses,” all the time. I don’t see them anymore. They got kicked out.
John: They’re abusing it. So that’s one way that every now and then maybe once a month just say, “I want to buy houses,” that kind of stuff. You can do that. Now if you have a little bit of money also direct mail, I use direct mail also. There’s many sources out there but the one that I use is List Source.
And you could actually narrow that down to really a very specific area, very specific category. Do that and get two, three, 400 names and then that’s a good small budget right there. And the just come up with your plan, just send it off and just monitor that because List source is not 100% accurate.
Some of those things will come back. So when they come back, have your database, just clean it up and then do it again. So be consistent and maybe once every quarter send out the direct mail and then watch. And then I do driving for dollars then you add Facebook Marketplace, bingo. There you go, that’s a good start.
Larry: That is a good start. You could get a deal or two a month doing that, right?
John: Yes. My driving for dollars the reason why it’s so successful for me, because we do have a lot of houses here that are really torn up. And when I send out my letters, I kid you not this happened to me one time and I was so excited. Five people called me, three of them I closed the deal.
Larry: Wow that’s awesome.
John: Yeah the condition of the houses.
Larry: That is huge, that’s unheard of. You don’t see that in other parts of the country, right.
John: Yeah in Alabama they’re here.
Larry: I know Alabama is a great market I love Alabama. I bought houses in Montgomery I bought houses in Huntsville, I bought houses in Birmingham, there’s a couple other places but I love Alabama. I love it, great market.
John: And maybe I’m giving out my secret here but I’m going to say it anyway. Like I said earlier on, it’s not about the shiny object, it’s all about the dollars. So I go to the smaller towns because you make money in smaller towns, you don’t have to be in Huntsville or Birmingham those big places. You could go to the smaller towns and people live there, people want to live there. So that’s where I go.
Larry: That’s so true man. I’m glad you brought that up because like we buy a lot of HUD houses. Like we have I think three to five deals of all of our deal on our board three to five of them are HUD at any given time. And right now I think we have three or four on the board. But I make an offer on every HUD house in North and South Carolina every day.
But guess where I never buy them, I never buy them in Charlotte, I never buy them in Colombia or in Raleigh or in Wilmington. They’re all in the smaller towns, right. We just bought a house, we just sold it yesterday. It was listed for $262,000 and we got it for 133 and sold it $149900 right, wholesaled.
John: Look at that.
Larry: Yeah you can’t beat that.
John: No you can’t beat that at all. And that’s just I did learn from you on how to make bids on HUD because in the short time that I’ve been doing this whole time, I’ve bought four HUD homes using your technique. So your technique works.
Larry: That’s awesome. That’s really good man. So what kind of words of wisdom would you give somebody even if they’re starting out or if they’re wanting to scale their business or whatever? Because I mean I know you mentioned education, get a mentor but you just got to get out there. But what would you want to say to somebody that’s maybe struggling, maybe haven’t figured all this stuff out yet?
John: Just be patient and don’t give up. It’s easy to give up, that the easy thing to do. Oh this is too hard, I quit. Well in reality real estate is not really hard, but it does take time. It is not a get-rich-quick type of business. So give yourself some time, take the bruises you’re going to get hit.
But then keep moving forward. One of my things that I post of Facebook a lot says, keep moving forward. I like to say that because things will happen. Go around it, go above it, go underneath it, whatever you do keep going forward.
Larry: That’s awesome man. Now I love what you said keep moving forward. John Maxwell wrote a book called Failing Forward. Remember that book?
John: Yeah same concept yeah.
Larry: Exactly I love it. So John if somebody wanted to reach out to you to chat with you or whatever I mean what are you looking for? What would you like to say to people if somebody wanted to reach out to you?
John: One thing you could do I can give my number right now which is 256-469-3099. Please call me, I’m very good in returning phone calls, I don’t wait, three four days later. Within a few hours or few minutes actually my wife says, “You respond too fast.” No, because they need me or they need something that’s very important I’m going to respond pretty fast because that’s one of the things that we lack nowadays.
People wait forever to respond. No I will respond so again my number is 256-469-3099 please call me and I’d love to chat with you. I don’t mind giving information. The reason I say this is because information is out there but it’s not information that I’m worried about it’s really are you really going to act on it? I want you to act on it.
John: So if I give you information, act on it because knowledge is great but it’s worthless if it’s sitting there. You have to add knowledge and action to get results.
Larry: Right that’s awesome. It’s like a lot of people tell me I’ve had people say, “Larry I’ve got this course, I got this book, I’ve been to this seminar, I’ve been to this. And I still haven’t done anything.” Here’s my standard response I say,
John: There’s a problem.
Larry: I say, “What you’re telling me is you have a lot of education but you have no application,” right.
John: That’s right yeah. Education application I like that. Those two together, results.
Larry: That’s true. Well man thank you so much for being on I really appreciate it. It’s been a lot of fun and you shared a lot of great information. And I can’t believe man when we started talking it’s been since like 2001 or 2002 when we first started doing business together.
John: I know. Hey man I was really so honored that you said, “John the deal looks good I’m funding it.” it’s all about the deal. You didn’t say, “John you’re short and you’re ugly I’m not going to do it,” you said, “The deal looks good.” And bingo you’re done.
Larry: That’s awesome, that’s really good. Yeah and we’re still making loans over at carolinainvestorloans.com.
John: I love it.
Larry: carolinainvestorloans.com now that’s just in the Carolinas.
John: Yeah okay I got you.
Larry: But we’re still making loans. And listen the good part is eventually people that keep doing it they graduate and they don’t need me anymore, right John?
John: Yeah. Well I still have you in my back pocket just in case.
Larry: There you go. That’s good. Thanks a lot buddy I really do appreciate it and I appreciate you being on today.
John: Thank you sir I appreciate the opportunity. Have a good day.
Larry: Alright you too.
[End of Recording] [26:32]