Real Estate Nerds 31: How to Ask The Right Questions to Avoid Bad Deals with Clayton Morris - Bad Beats

Real Estate Nerds 31:

Bad Beats

"How to Ask The Right Questions to Avoid Bad Deals"

Clayton Morris
Real Estate Investing Expert
Real Estate Nerds
Episode 31: "Bad Beats"

Listen to the Podcast Here:

On today’s episode of The Real Estate Nerds Podcast, the powerhouse investor, podcaster, and brains behind Morris Investing and the eponymous ClaytonMorris.com web site drops by. Clayton Morris shares one of his all-time worst deals with our host and attorney Scott Smith. Together, they dissect the deal and focus on the critical errors Clayton made–and what he does now to avoid future busts. Listeners will also gain some insight into Clayton’s philosophical approach and major revelations around investing and financial freedom. This is a conversation you truly don’t want to miss. Tune in now to hear the full discussion.

Clayton Morris on Financial Freedom and The Psychology of Reprogramming Bad Ideas

Scott welcomes Clayton on the show. The two dive into his background as context for the deal they got together to discuss. Their conversation covers Clayton’s early life and ideas about finances, the critical revelation that drove him into the real estate world, and the real world techniques that he has used to transform his own destructive, self-limiting thinking. These are techniques that any of us can, and probably should, use.

[1:00] Clayton mentions some of the unhealthy ideas that he absorbed about money and finances during childhood. Axioms like “money doesn’t grow on trees,” and the notion that a traditional career was the only means of financial security stuck with him for years. He spent a decade in broadcasting, and saw major success in that career. But ultimately, he dove into investing when he was fed up with being dependent on a paycheck and living by other people’s rules.

[03:12] Clayton elaborates more on his experience and pursuit of freedom. He describes his life before real estate: “You are your own performing asset. You get your asset out of bed every morning, drive to work, and rely on that paycheck.” He believed a W2 job was crucial for security. Now, he has successfully attained the goal of having regular cashflow on a monthly basis from real estate.

[4:00] Scott circles back to the childhood beliefs Clayton’s family and society instilled in him about money, namely that you have no safety net unless you follow a certain career path. After losing his job at Good Day Philadelphia, he bought two properties for roughly $50,000 that cashflowed at $850/month. He maintains this strategy, but at that time, he had not yet achieved a psychological shift. He discusses the major change: “It wasn’t until I started journaling and writing affirmations and realizing that I was worthy of these things…If you believe you’re worthy of abundance, it won’t come.”

[6:00] Clayton re-emphasizes that journaling was a critical discipline to retraining his mindset. He admits his old beliefs still creep up from time to time and shares some tips for combating these unhelpful thoughts.

Clayton Morris’s New Jersey Bust: Veering Out of His Lane

Scott and Clayton shift gears to discuss Clayton’s Bad Beat. They touch on what lead up to the deal, and the most significant mistakes Clayont made along the way.

[8:40] Scott asks Clayton for some background about the circumstances leading up to his worst deal. Clayton talks about his pattern for acquiring properties: “I try to find off-market properties that I can add value to, place a tenant and get it cashflowing. It’s what I’ve always done. It’s been a key to my success, it’s what we help my clients do, and it’s been a key to my success. It’s how we build financial freedom.”  While this is his pattern, a property in New Jersey didn’t go as planned.

[9:00] An investor friend presented two New Jersey properties. He was a longtime landlord who managed the property himself, and was offering packages of ten as he planned retirement. Clayton tends to stay away from New Jersey for tax reasons. He sticks with single-family homes as a general rule and was told that he was looking at a package of 10. However, these weren’t truly single-family homes. They were duplexes, but not the type you’d imagine. In New Jersey, Clayton explains, “duplex” ownership means something different. Unlike most of the country, the units are deeded separately, almost like townhomes. This difference and his unfamiliarity is now something he regards as a mistake.

[11:30] Clayton’s next mistake was listening too closely to the landlord. This particular landlord managed properties himself, while Clayton always uses property management. There were other bumps in the road, such as maintenance issues and tenants vacating with little notice, that Clayton could have avoided by not being so trusting of his landlord. “I should have paid much closer attention to the tenants…We had to handle two evictions right out of the gate.”

[13:20] “We had to deal with all of these problems because I went out and around what I was used to,” Clayton explains. He allowed his emotions to cloud his judgment and ultimately ended up with additional inspection, legal, and tenant-caused damage costs. The remaining properties that were cash-flowing were essentially paying for the costs of the others. “This should have been a home-run of a deal, but basically I ended up making nothing.”

[15:00] Scott asks whether Clayton began doubting his gut instincts. Clayton concedes his trust in this seller caused him to look the other way on some things that should have been clear red flags.

[16:20] Clayton shares another mistake he made: “I was distracted with other business and didn’t put much time, attention, and effort into this closing, which is my own fault.”

[17:00] Clayton warns of the dangers of “inherited” tenants. Unless he sees a full ledger, he will not simply trust that a tenant pays on time regularly. In fact, he has encountered completely falsified ledgers as well–and heard plenty of horror stories on the subject.

[20:00] Scott points out that Clayton’s story invokes a classic investor’s dillemma: “It can’t be the case that we never go out of our lane. When we veer out of our lane is when we find new opportunities, grow, and make money.”  He asks Clayton for his thoughts on changing lanes effectively. Clayton believes that, “If you’re changing lanes, you need to be all in on it–looking over your shoulder and checking your blind spots.” Change must be calculated and focused, in his opinion. He feels his “lane change” failed because he was distracted by other issues and not paying full attention.

[22:00] Clayton ultimately agrees with Scott about the importance of getting out of your comfort zone: “Growth comes from discomfort, and not being distracted. You kind of have to surrender to the discomfort.”

[23:31] Scott believes one of the key takeaways from this lesson is knowing your core skills and sticking to them. He speculates that if Clayton had adopted a “copilot,” or someone familiar with the Jersey market and aspects he was unfamiliar with, this deal would have gone very differently. Clayton agrees that experts are extremely valuable, and defers to them regularly. His personal approach with highly skilled experts is humble. He encourages them to explain things like he’s a five-year-old and approaches with an attitude of being ready to learn.

[25:00] Clayton speaks briefly about the importance of his mentor: “I had a mentor who showed me the formula, where to buy, how to do it, what to look for, what type of neighborhood, and how to find the sweet spots.” This is how he developed his successful single-family strategy that remains the bread and butter of his portfolio. Scott shares how he, too, uses experts in various contexts, from investing in joint ventures as well as running Royal Legal Solutions.

The Takeaway: Set Aside Pride and Ask Questions

Scott and Clayton conclude this episode of The Real Estate Nerds Podcast by sharing the takeaways they hope listeners can use as lessons from Clayton’s story.

[27:30] Clayton’s biggest takeaway from his own story is about humility: “Don’t be too proud to ask the right questions.” He shares some additional lessons from his own mentor, who pointed out half of something is better than none of it. This is why partnering can be critical–going it alone is.

[29:00] “You can learn some amazing things if you’re not too proud,” Clayton points out. Scott points out that giving another person the opportunity to share their knowledge is actually a gift to them. The opportunity to be of service is rewarding to experienced investors and other investors. Scott also points out that Clayton must know this well, as he helps many investors not only make money, but change their lives.

Connect with Clayton Morris

Connect with Clayton Morris through his incredibly popular website, ClaytonMorris.com. The site gives away a wealth of free investing advice and strategy. Listeners can also follow Clayton Morris on Twitter where he is @ClaytonMorris. Clayton encourages our listeners to check out his own podcast, The Real Estate and Investing Podcast. If you’re interested in turnkey real estate, check out MorrisInvest.com.  

Listener Resources

Thank you for joining us on today’s episode of the Real Estate Nerds Podcast.

For even more free educational resources on real estate investing and the law, check out the Royal Legal Solutions blog. You can also reach our host Scott Smith directly, connect with him on LinkedIn, subscribe to the Royal Legal Solutions YouTube channel, or join our investor community on Facebook.

Don’t forget to subscribe to stay up to date and have the most current episodes of the Real Estate Nerds Podcast directly in your listening library. Every subscription helps us create new, custom content for you. What did you think of today’s episode? What would you like to hear more about in the future? Leave your thoughts and questions in the comments section below, or leave us a review in the iTunes store. We love hearing your feedback, so fire away. Join us again next time for another fascinating investing conversation with investor Jason Hartman. Thanks for listening and joining us on our journey to become better investors!


Hosted by Scott Smith, Lead Attorney and Founder of Royal Legal Solutions. Schedule your personal consultation now. If you have questions about our content or suggestions for future episodes or guests, reach our podcast team at podcast@royallegalsolutions.com.

About Clayton Morris

Clayton Morris is a real estate investor and the former weekend anchor for FOX & Friends on The FOX News Channel. He is also a husband and father of three amazing children. Clayton actively runs a website, ClaytonMorris.com, devoted to helping people build a financially free life. He teaches other investors how to build wealth with real estate, live their best possible lives, and have fun along the way.

He was inspired in part because of his own experience growing up with limiting beliefs around money and finances. He heard the phrases like “we’re not the Rockefellers” and “money doesn’t grow on trees,” which had a profound impact on him. He thought the only way to build wealth was by collecting a paycheck and hoping to get a raise every few years. Then several years ago, Clayton had a revelation: “I realized that I had programmed myself with self-doubt, self-loathing, and a giant fear of money. But what if I learned to stop it? And what if I could help others overcome those same limiting beliefs?”

Now, Clayton helps other investors achieve his own original goal. His objective for both his website and company Morris Invest is to help other investors build passive income, build true legacy wealth, and sit contentedly with their families knowing that all of their monthly expenses are taken care of.

When making business decisions that affect your long-term goals, like what types of investments to make with your retirement dollars and which vehicles to use, it really is best to be aware of all of your options. We frequently talk about the Solo 401(k) and Self-Directed IRA as tools for funding your retirement. But what about life insurance? And what about the stock market? What if we told you there is a tool that allows to to reap some benefits of both? It’s called Indexed Universal Life Insurance–and some investors have found it a useful addition to their retirement plans.

What Is Indexed Universal Life Insurance?

Indexed Universal Life Insurance (IUL) plans are a variety of permanent life insurance plan that features a cash-building element. One primary benefit of these plans is that the policy holder gets some of the gains of being associated with the stock market without all of the risk Wall Street is famous for. This is in no small part because of how these policies are designed. IULs earn in part because they are directly linked to a market index, such as the Dow or the S&P 500.  Any gains remain within the policy, albeit a cap rate will limit how much you can make. However, you are protected during a particularly bad year for your index with an IUL. The worst case scenario with these plans is that you make nothing, but you never actually lose money no matter how poorly your index performs. The protection of your principal is actually derived in part from the same cap rate that limits your gains.

How much money do policyholders stand to make? Historically, returns run between 5-9%. The S&P Index has actually returned at 9-11%, but the upside limit on UILs stems from the account’s cap rate. For this reason, many advisors argue that the UIL can make a wise addition to a retirement or estate plan once more traditional and self-directed accounts are maxed out.

Tax Benefits of Indexed Universal Life Insurance (IUL) Plans

There are three key tax benefits of IULs. First, you may pay into the policy with pre-tax or after-tax funds. Withdrawals from the policy may be made tax-free if you are under 59 1/2. Such withdrawals are regarded as loans, with your death benefit serving as collateral. Any funds paid out to the beneficiary are also tax-free, including normal benefits upon your passing. This is true regardless of their value.

Ask the Experts at Royal Legal Solutions About Your Retirement Planning Options

Regardless of where you are in the retirement planning process, Royal Legal Solutions an assist you. We have extensive experience educating investors about self-directed investment options. Many of our investor-clients love our Solo 401k information, product, and compliance services. Our Self-Directed IRA services can also be helpful for retirement planning, as the SDIRA is yet another vehicle that allows you to diversify and take total control of your investments. To determine which of the available retirement planning strategies are best for you, consult with one of our experts at Royal Legal Solutions. You may also contact us with any questions you may have about your options.

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