Morris Invest Best Rental Markets 2019


The best real estate markets to
invest in real estate, that’s today’s show. Let’s dive into it. Hey, everyone. I’m Clayton Morris, longtime
real estate investor, founder of Morris Invest,
which is a turnkey real estate company. I’ve invested all
over this country. We’ve done thousands of deals. And one of the things
we like to look for is a great real estate market. So hopefully at the
end of today’s show, we’ll have a firm
grasp on what goes into finding a great
rental real estate market. Now this is not a retail show. We’re not talking
about the best places to raise kids, best
places that have fountains, and malls, and a– I don’t know– and
a Chuck E. Cheese. That’s not what
we’re talking about. I hope today will be
a masterclass for you. So get out a pen and paper. And be ready to write
down some notes. Feel free to rewind
this, replay, go back, and take some
notes because we’re going to dive deep into a
lot of the different things that people don’t think
about when they get started in real estate investing. So first, let me just say this. Real estate investing
is all about location. I know it is such a cliche to
say that location, location, location, but it
absolutely is true when it comes to where you are
going to put your hard earned dollars. Where are you going to place
your money so that you can receive cash flow in return? So it is all about location. And you have to be really
smart and strategic about where you’re going to put your money. After all, these are
your retirement funds. This is the cash flow you
hope to bring in every month. Where are you going
to put those monies? So location is
incredibly important. I would say it probably is right
there just above the property management team that you
have managing that property. Because if you have a property
management team, that’s great, but you’re in a bad
location, it doesn’t matter how great the
property management team is. That house might sit
vacant for a while, or it might have more break-ins
due to crime and other things. So that location can really also
help that property management team do its job
more efficiently, more effectively, have
less worries about a tenant turnover, and so forth. So at a high level, what I
look for in a great rental real estate market is cash flow. So if you’re watching
today’s show, today is all about cash flow. I am not really an
equity investor at all. So you’ll have a
cash flow market, and you have your
equity markets. Yesterday, or this week, we saw
some huge news around Amazon announcing its
second headquarters in Queens, New York and also
their other headquarters in Arlington, Virginia. Now the reason I bring that
up is because that’s really, I think, more of an equity play. If you’re an equity
investor, you might be super excited about
buying some single family homes or office parks, office
space, dilapidated commercial buildings near Amazon’s new
double headquarters in Queens, New York and in
Arlington, Virginia just across the Potomac
from Washington, DC. There’s a lot of dilapidated
commercial buildings in those areas. And so if you are
an equity player, if you’re a commercial
investor, you might say, great. I’m going to buy something
for $700,000 in Queens, hope to ride this Amazon
wave, and maybe sell it in a few years for $1.4 million. That’s not what I do. That’s not at all what I do. And I’m not looking for
cash flow in those spaces. I’m looking for an equity
in that kind of a market. Again, not what I do. I learned the hard way
a number of years ago, did not invest for
appreciation, speculation. We saw people get burned big
time in markets like Phoenix, and Las Vegas, and Miami, the
speculative investing market where people were buying
for $100,000 on the hopes that they could turn
around a few months later and sell it for $150,000. That’s not what
I’m talking about. So you do have those two
different types of markets. And I think sometimes people
get confused about where they’re going to put their money. They think, well, we’re
going after equity here. That’s what we’re investing in. No, no, no. My goal is for you to
really focus on that cash flow, consistent cash flow. And what that means is markets
that are fairly boring. When everyone’s talking in the
press about San Francisco’s housing bubble because of
Silicon Valley or Phoenix, and it’s a hot real
estate market, and houses that were selling
for $275,000 are now selling for $300,000, great. Stay away if you are an investor
who’s looking for cash flow. So why do I say that? Because again, I come
back to my formula that I don’t want
to be investing in properties that cost me
more than about $150,000 to $175,000. That is the limit. That is the ceiling. For me, it’s around
$150,000, but I could push up to $175,000. So if you’re buying a single
family home for more than that, I’m telling you the chances
are that the rent will not keep up with the value
of that property. So I want to be below that. Now that weeds out
a lot of markets. That’s going to immediately
weed out a lot of markets. When I talk about California,
I talk about Denver– we have a lot of
investors that we work with out of Denver who buy
properties with us because it’s just oversaturated, overpriced. Again, Phoenix,
Scottsdale, Las Vegas now, Miami, a lot
of parts of Florida except for Jacksonville,
outside of New York City, again, those are equity plays. And that’s really going
to be a flipper’s market. So I want to avoid
those as much as I can. That’s not what I do. And that’s not really
what you should do. If you’re watching
this channel, you know that we are buy and hold
investors for long-term capital play. We want to have that
capital coming in constantly for the rest
of our lives, something that we can then hand
down to our children. That’s the goal with
every property that I buy. And you should too. You should be able to
depreciate on your taxes all of the tax benefits of
owning that rental real estate in perpetuity. So when we look at these markets
where an Amazon headquarters is coming in, that is,
again, an area that is incredibly overpriced. Queens, New York,
$700,000, a million dollars for condos in these
areas near Manhattan. I get people that write to me
all the time that want to know, is investing in
Manhattan a smart play? If that’s your game, if
that’s what you do, great. That’s not what I do. So the other big mistake
that new investors make is that they go to
their own backyard to rent or to try
to find properties. Avoid your own
backyard unless you happen to live in
one of the markets that I’m going to talk
about today, in areas that makes sense to
own rental real estate. Most new investors, they
don’t know where to turn. They decide that they’re
going to be weekend warriors. So they work a 9-to-5 job. They’re too busy. And then on the weekend, they
call up a local real estate agent. Let’s say you live in– I don’t know– South Orange, New Jersey. Perfect example. So you live outside
of Manhattan. You live in South
Orange, New Jersey. The taxes are going to be like
$20,000 a year, $25,000 a year. And you’re like, I’ve heard
about this real estate thing. I live here in New Jersey. I don’t know where to start. I’m going to call
up John the realtor. And I want to go start looking
at investment properties. Now most realtors aren’t going
to tell you, hey, John, or hey, Bob, that’s a terrible idea. They’re going to say, great. Well, we have a
single family house, or we have this duplex that
just came on the market. It needs a little bit of work. Do you want to go take a
look at it this Saturday? You say, great. You get in your car. You go with your wife. You go on Saturday to check
out this rental property, an alleged rental property down
the street, a few blocks away. And it’s $450,000. And you’re paying
$25,000 in taxes. And you haven’t
taken into account that New Jersey is additionally
a difficult state as a landlord to get tenants out
of a rental property. So all of those things– newbies make mistakes. They don’t realize they also
don’t have a proper property management team in place. So they end up maybe getting
a mortgage on this property. They put up money to buy this
overpriced rental property. And they don’t even
know what ROI is. They don’t even know what
return on investment is. What is the potential cash
flow from this property in New Jersey that they’re
thinking is a great investment? They haven’t done the math. I’ve got a whole great
video here on this channel all about ROI. I hope you’ll check it out. We can dive deep
into ROI calculations so you understand what
we’re talking about, really figuring out those
numbers ahead of time. But again, your
backyard, you’re not going to find great
rental properties, again, unless you live in
one of the markets that I’m about to talk about. And chances are, you
don’t, which I’ve seen just from people writing in already. Malibu, California, Los Angeles,
California, Denver, Colorado, I’m telling you, not
good rental markets. There are always exceptions to
the rule, but for the most part you are paying too much. So what goes into a
great rental market? And again, we will get to some
specific markets as examples that I like to invest in. But just at a high
level, what should you be looking for in a
great rental market? Well, the things
that my team looks for, we want to make
sure that there are jobs. We want to make sure
that there are jobs that are American-based jobs. That’s key. We saw what happened
before when a company just decides to move to Mexico,
and they’re a one trick pony and a one horse town. That one factory decides to up
and leave, and move to Mexico. And then the people that are
in that market lose their jobs. And you’re out of luck
as the homeowner who has a property in that house– a property in that neighborhood. Now you can’t rent it. So jobs, I want American-based
jobs in these neighborhoods. What type of
American-based jobs? Well, if you’ve been watching
our show for a while, you know that I like to think
about the Amazon distribution center or fulfillment center. It’s my go-to example. Don’t pin it on me. But really, they’re going
to be a little bit higher than minimum wage jobs. They’re going to
provide transportation for the employees
with Amazon buses to and from a central location
to the place of employment. They’re going to
work at the auto– they’re going to work
at the local hospitals. They’re going to work at
the auto manufacturers. They’re going to work at
the local school districts. They’re going to work at the
FedEx distribution centers. They’re going to work at
the health care facilities. Like I said, the hospitals
are a great indicator because the hospital’s
not going overseas. So like I say, we just rented to
a principal at a local school. One of our principals at a local
school just rented from us. We have a manager of a Walmart
that just rented from us. We have those types
of American-based jobs that are not going overseas. So I want to look at that. And I also don’t
want to be in a town where you have just one
employer, so not just one Walmart, and that’s it. I want to look in towns where
we’ve got multiple actors. That’s very, very important. And then I want to see
that that’s growing. If I see a downward
trend, like there’s a lot of people leaving,
then that’s a bad sign. You can look at census data. You can look at a bunch
of different websites to see this different
census data. And you can see where
people are moving to. And you can see if people
are moving out of New Jersey. Here’s a perfect example. People are leaving New York. They’re leaving New Jersey. And they’re moving to other
places where it’s cheaper. People are leaving Illinois. They’re leaving Chicago. They’re moving to
different areas. People are leaving in
droves from California. They’re moving to Idaho,
and Oregon, and Arizona. So you need to
look at that data. So why would I want to be
investing in San Francisco Bay Area? Why would I do that when I see
so many people are moving out of that area? And property taxes
are through the roof. And to set up a business, an LLC
in those areas are ridiculous. So all of these
factors are coming in. All right, so we
talked about jobs. We talked about
the demographics. We see if an area is growing. I also want to look
at the downtown. So I don’t really invest
in downtown areas, but I want to pay attention
to what’s happening in these downtown areas. So one of my favorite
markets, Detroit, Michigan. Let’s talk about
that for a minute. Let’s see what’s happening
there as an example, just one of my markets that I like. Well, you have a
lot of businesses who have poured billions
of dollars into that city. And you have tax breaks
and tax incentives, which has people moving to that area. They’ve now allowed
a payroll tax cut in that area, which has
people moving from the exurbs out in the suburbs into
the incorporated city area because they’re getting
a tax break on their payroll. The opposite is
true in Manhattan. Manhattan charges you on your
payroll to work in Manhattan, even if you live in New Jersey. You’ll pay a Manhattan
tax just to take the train into Manhattan to work. I know because I used to do it. So even though I didn’t have
a residence in Manhattan at the time, I still had to
pay to work in Manhattan. The opposite is
true in areas that are being smart
about tax incentives to get people to move there. Also in Detroit, one
of the things I love is that the city is now
booming with business. A lot of major companies
are moving there. So I like to see
multiple players. So what do we think of
when we think of Detroit? We think of the Motor City. We think that that’s the
main employer in Detroit. It’s not anymore. It’s rebounded tremendously. Chrysler Fiat has pumped
billions in there. Ford has is building
a whole new– they’ve taken over this
old historic building. And they’re doing amazing
things to revitalize that area. So these car companies
are back in a big way. However, they’re not the
biggest player in town anymore. Health care is,
health care jobs. You have all kinds of research
and development facilities have now sprung up inside
of the Detroit metro area. So you have a lot
of health care jobs separate from the auto industry. So it’s not a one
horse town anymore. And guess what? Now it’s even a
three horse town. Because now you have Google,
Facebook, Amazon all bringing other hubs into that
area, trying to create a bit of a mini Silicon Valley. So now you have a lot of tech
sector jobs, health care, and automotive. And you have a lot of
American-based jobs in the neighborhoods
where I am investing. So those B collar– those B class, C class,
blue collar neighborhoods that I love to invest in. So when we look at
Michigan, that’s a perfect example of
what I’m looking for. Not overpriced,
competitive, and I’m still able to get a rental
property in the $50,000, $60,000, $70,000 range. I just personally bought three
over the past week and a half that were in the 60s. I think the rent on them was
about $850, $900 a month, $800, $850. Don’t quote me exactly,
but right in that range that I’ve added to my
personal portfolio. And I know that these
brick, tree-lined streets– so let’s get into that because
that’s another exciting part of this process. So I hope you really pay
attention to this piece. If you take nothing else
away from today’s show, I hope that you take
away this part of it. When people get
super excited about– I remember outside of
Dayton, Ohio, for instance. I like Dayton, Ohio, a
nice place to invest. You look at areas where
you had all these– during the re-election of
George W. Bush in 2004. One of the things that
the Democrats didn’t take into account
was all of these what were known as exurbs. Not suburbs, but
exurbs, meaning suburbs that are now even
beyond the suburbs. You’ve seen them all popping up. You know what I’m talking about. It’s like the movie Back to
the Future when he goes back to 1955 and he sees
his development there on the side
of the street, out in the middle of a cornfield. That’s what I think of when
I think of an exurb, not even a suburb because there’s
nothing around it. There’s no shopping. There’s no established
neighborhoods. It’s just something plunked down
out in the middle of nowhere. So what happened in
the 2004 election is the Democrats
didn’t realize that all of these new people
moving to these areas were going to be basically
voting Republican. And they were like,
new addresses. People were moving into
these new neighborhoods. And they were able
to get mortgages. And so all of
those exurbs really swayed in Ohio, particularly
the 2004 election, in favor of George W. Bush
over John Kerry at the time. And those exurbs are things
I would never invest in. Those are areas where there’s
no established neighborhood. What I like to invest
in, what I find to be the best rental
markets and historically have survived any sort
of ups and downs– the rental markets
that I love to invest in when we have ups and downs–
where everyone else is going like this, Miami,
Phoenix, my neighborhoods are going like this,
like a little wave. Why? Because you have these
established neighborhoods, these small, 900-square foot
homes, 1,000-square foot homes, brick houses on a tree-lined
street with everyone else has a different job, all kinds
of different employment opportunities. So if John loses
his job over here, it doesn’t affect Sally
losing her job over here. Different, different area. When you have these new
developments popping up out of the middle of
nowhere, a lot of them are going to have mortgages on
them because they’re brand new. So they’re going to
have mortgages on them. And we have a down economy. Guess what’s going to happen? A lot of those people
are going to be out of a job, foreclosures. What you don’t have
these established, older neighborhoods are
a lot of foreclosures. We’re seeing that now in
Detroit, for instance. 87% of all transactions in
that area over the past year have been cash transactions
to purchase properties. A lot of them are
retail homebuyers who have saved up
money and are actually buying a home to live in. A lot of them are
investors though. What does that mean? That means in these old,
established neighborhoods, you’re not going to see
a ton of foreclosures. You’re not going to see a lot
of blight, people running out of town when something
happens in the economy. So old, established
neighborhoods provide a lot of value
and a lot of stability, and lower volatility. So again, trying to avoid
those exurbs, those sort of random neighborhoods
that are plunked down in the middle of nowhere. Remember out in California,
sort of a case study, ground zero during the crash. You had ghost towns,
brand new developments plop down out in the
middle of nowhere that were total ghost towns. 60 Minutes did a whole special
walking through the streets. And these were brand new
houses that are just– I mean, no one’s there,
brand new homes that– it was frightening. It was weird, and scary,
and spooky to look at. Almost post-apocalyptic
is what it looked like. So again, I come back to
the jobs, the demographics. I also want to look
at those older, established neighborhoods. So now let’s talk about
some specific markets. I’ve mentioned Detroit
and Detroit metro area. And it’s a huge area. So I don’t want to get
into little pockets here, but I buy a lot of
properties there. That’s what my company does
all day long at Morris Invest. I also like Indianapolis. Indianapolis is
another area where– and outside of
Indianapolis as well. So downtown
Indianapolis, you have a lot of new, expensive
condos going in. So you have those millennials
that are actually moving to downtown Indianapolis. The nightlife is great, bars,
et cetera, great restaurants. You see the Pacers
play downtown. 10 years ago,
downtown Indianapolis was a bit of a ghost town. You go downtown Indianapolis,
and there’s one restaurant. And you’re like, you had to
almost pack a gun because it was dangerous downtown. That has all been removed. And now you see a thriving
community, a thriving nightlife down there. What does that mean? I’m not investing in
downtown, but as it spills into the
outer areas you’re still finding great values in
the $50,000, $60,000 range. But prices have also gone up. So we are seeing a
bit of appreciation in not only Michigan,
but also in Indianapolis. And signs all around. One of my team members
lives in Indianapolis. She was saying
just yesterday she was in Indy, signs
everywhere saying that Amazon has now raised the
minimum wage for its employees because there’s a big
fulfillment center there. So there’s a lot of
American-based jobs inside of that area. Salesforce, just buying
up one of the biggest buildings in downtown
Indianapolis, so Salesforce moving there. They’re attracting
as much talent as they can to come
into that area. Again, you have FedEx
distribution centers. If you go to the
Indianapolis airport area, you’ll see a massive
FedEx distribution center right there. All the FedEx airplanes
are right there connected to the airport,
so all those packages being delivered from the
FedEx distribution center. And one of the things I like
about that area too that’s not going to China
is that it sits at the crossroads of America. These towns that I
like to invest in sit at the crossroads, major
intersections, Dayton, Ohio, other areas that
I like to invest in where you have freeways. You have those long haul
trucks, those big Mack trucks that are loading up with
boxes and delivering them to different parts
of our country. Again, that infrastructure,
that ease of distribution is another major thing that I’m
looking for in rental markets. Another area that
I like is parts of Tennessee,
parts of Tennessee, also great tax incentives. And another thing
about Tennessee makes it a fantastic area to
invest is that there are– it’s an easy state
to get tenants out of if they need an
eviction process. So let’s talk about the eviction
process in states that I love. Texas, another area that’s
a great place to invest. Property taxes can be a
little high in certain areas like Austin and other spots,
so you’ve got to be careful. But Texas, a great
place to invest. The property taxes
in certain areas can eat away at your
profit, so again, Austin. And that’s more of an
appreciation equity play in a place like Austin,
Texas, but that’s a big state. There’s a lot of great
places to invest in Texas. Texas, though, is number
one for landlord friendly. Texas is number one
for landlord friendly. The speed with which you can
get a non-paying tenant out of a property during an eviction
process in Texas is number one. They don’t fool around. You don’t pay, you’re gone. New Jersey, you
can take a while. California, you can
take a long time. Illinois, you can take
upwards of eight, nine months to get a tenant out of
a property in Chicago. They know how to play the game. And guess what? If you’re a landlord,
you’re sitting there now with a non-paying tenant in one
of your properties just because of the bureaucracy of dealing
with the state’s laws. That’s no way. I mean, I’m sorry, but that’s
an inhospitable climate. If I own this property,
I have the right– it’s my property that I own. And you’re not paying. Why should you get to live
there for another eight months? Because you know how
to play the game? No, no, no. And then what they’ll
do is sometimes they’ll pay a little bit,
and it resets the clock. And then it extends it
for another few months, and that resets the clock. No, no. Texas don’t play that. And by the way,
neither does Indiana. Indiana does not
play that either. We can get an eviction pretty
quickly in the state of Indiana as well. So again, landlord
friendly, I want to make sure that I can get
a tenant out of a property. Again, I come back to
my point about if you’re investing in your own backyard,
you might make that mistake. You might just think, well, it’s
a great property, great value. But you haven’t
done your homework to know, what are the property
taxes looking like here? How much is it going to
cost me to get an eviction? And how long is it
going to take me to get an eviction on this property? And also, am I having to
register as a landlord? Am I having to pay additional
fees just to be a landlord? California, you have to pay
an additional $800 a year just to set up an LLC to
invest, even if you’re not investing in California,
to invest out of state in another LLC. It’s ridiculous. So Texas, Indiana, also
I like Jacksonville. I own a bunch of properties
in Jacksonville, Florida, another great area where it’s
not fully gotten the Florida bug yet, meaning other
areas of Florida now pretty overpriced and more of an
equity play in Orlando, and in other areas like that. So Jacksonville can be a good
area too, where it’s insulated. It’s interior, so it’s not
close to the shoreline. We saw during the recent
round of hurricanes that because they’re
15 miles inland where we like to invest in a
lot of those areas, very minimal damage, may
have a few trees down and things like that,
but still great value that you can find in some of
those areas with a high ROI. I mean, again, that’s
what we’re going for here, is the high return
on investment, high ROI in our
different markets. Where else? Well, I like parts
of Pennsylvania. I invest in parts
of Pennsylvania. A lot of people love
the Pittsburgh area. You can find great
properties in Pittsburgh. You need to be careful
though in Pittsburgh. You can find great
value there, but you need to be careful of
the crime in that area. A friend of mine, a former
chief of police in that area. So you need to be very
particular about where you are buying properties
in those areas. And I want to warn you
too, Pittsburgh, great, but you need to
have great property management in that town. Property management
is key to success in places like Pittsburgh where
you have a lot of densely– population growth in that area. Health care sector is booming
in that area, tech sector, research and development
in Pittsburgh. I went to the University
of Pittsburgh. And I can tell you,
it was at the time, because I worked in
television, it was, I think, the number 23
television market or 21. And while I was there,
we were noticing, I mean, just people
were leaving. Young people were leaving left
and right, left and right. And they were having
a population crisis. And that has now reversed. And now we’re seeing a lot
of young people coming back. So they’re going to the school,
Carnegie Mellon, University of Pittsburgh, and
other areas, and then staying and working at the
University of Pittsburgh Medical Center and
working at other health care-related industries
in the Pittsburgh area. And that area, Moon
Township and other areas out towards the
airport in Pittsburgh, that has just exploded. But again, I wouldn’t
be investing out there because, again, that’s
more like an exurb. But as you start to
look closer to the city in between those areas,
that sort of sandwich effect is a great place to
look at investment. So there you go. That’s what I look for
in great rental markets. Just don’t make the
mistake of paying too much. Don’t spend, hitting
that $200,000 price point on a single family home. The rent is not going
to keep up with it. Just bottom line,
the rent is not going to keep up with
the value of that home. Go after the value. Look at the value in the
things you invest in. When you start to invest for
value, when you look at places like Kansas City, other
areas where you’re still getting great value, although
prices have gone up, St. Louis, some other great areas. Although in St. Louis
you got to be careful. Look at some of the
flooding that we’ve seen. Make sure you’re not investing
right on top of the Mississippi because a lot of
those rental areas got wiped away and really hurt
bad during the last floods that they had. So be smart about where you’re
investing in these value areas. You think about
investing in New Orleans. You think, oh, the
Lower Ninth Ward. We’ve heard a lot about that. That seems like a value play. Do you want to invest
below sea level, where the ocean is literally up here? And what happens on
another storm surge? So think about that,
Houston as well. Like Houston, but
we all know what happened during the last
hurricane that hit Houston. So the government still hasn’t
fixed a lot of the things that they had promised
that they would fix. It had 100-year-old technology
trying to keep water out. So be smart about where
in these value places you’re investing,
so looking at areas where you don’t have a lot
of flooding, Indianapolis for instance. There’s not a lot of navigable
waterways in Indianapolis. It’s one of those cities
that’s plunked there without really much of a river. It’s one of the few cities
in the country where Lewis and Clark weren’t
paddling along to navigate. So think about that. There’s not a lot of chance
for flooding in those areas. Also, in parts of Michigan
you don’t have a lot of that. So I like to look
at those things and take into consideration some
of these natural disaster items as well because they
are going to happen. And are you prepared for it? So when you’re in Florida
and you’re in Jacksonville, are you making the decision
to get storm coverage? Because what happens if a
tree does fall on your house? What happens if your
roof does get blown away? It’s the cost of doing
business, but something you need to take into consideration
when you’re looking at your return on investment. That is today’s show all about
investing in rental markets that make sense. Don’t pay for overpriced
rental markets. Thank you so much
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time, everyone. Now go out there. Take action. Become a real estate
investor because I believe it is the number
one way to build wealth in this country. Much love to you all.

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