Morris Invest: Buying Your First Rental Property and Start Up Costs


Case study. In today’s episode,
we’re deep-diving some of the behind-the-scenes
start-up costs associated with getting started
with rental real estate. Hey, everyone. I’m Clayton Morris, the
founder of Morris Invest. And today we’re enjoying a
little outside podcasting– video-casting– out here. It’s too beautiful
on this spring day to be inside a studio. So hopefully the wind
won’t pick up too much and it won’t be too bad. But today on the
show, we are going to deep-dive the questions
around getting started with real estate investing
and some of those hidden costs that people don’t think
about when they’re setting up and getting started with
their first rental property. So we’re going to dive into
some of those suggestions and questions today. And there are
probably other costs that may be out there that I
might not have thought about, but these are the costs that
my clients at Morris Invest and I personally have
to go through when I’m buying a new rental property. We’re not talking about
commercial property and we’re not talking
about other assets that we’re picking up. I’m specifically talking
about the types of properties that I purchase, the
types of properties you know that my company does,
those single-family homes, three bedroom, one
bath in the Midwest, the prices are going to be
right around that $40,000 mark. That’s my bread-and-butter
properties that we do. So given that as a ceiling on
what types of properties I buy, let’s dive into some
of those case study costs that you could
expect when you’re buying your first rental property. Now, of course, the
purchase of the property is going to be a cost, right? You’re paying cash
for the property. Now, cash can be any
number of things, right? It could be you borrow
money from your 401K. I’ve got videos and sessions
right here on the channel all about how to do that. It could be that you’ve
got money in savings, so you’re buying it out
of your savings account. It could be you buy it
from a self-directed IRA. Maybe you’ve got private
funding that you take on. Any number of ways that
you acquire that property, those are going to be
costs, of course, associated with buying that property. We get that, right? The purchase of the
house, that’s an obvious– that’s an obvious one. But what are some
of the hidden costs associated with buying
rental properties? Let’s start with
the most important, setting up your business entity. Now, I’m going to put
up the white board here. If you’re watching on the
video version of this, I’m going to put
up the white board and go through
some of the costs. But if you’re
listening to this, I’ll break them down as equally
important so you can hear them and jot them down as well. So an LLC– now, this
is going to be different depending on where you’re
purchasing or setting up your LLC. I’ll give you a
couple of examples. In the state of Indiana, where
we do a lot of our properties, you’ll just go to the state’s
department or state website, and you can set up an
LLC for about $100, $125. You could also use a
service like LegalZoom, something like that, but it’s
going to cost you about $300. You could use a website called– for instance, in Florida,
it could be, I think, floridaregisteredagent.com. Or in Michigan, we could
work with an attorney there to set it up very
quickly, and that’s going to be about $300. So the range on setting up an
LLC or your business entity is going to be
between $100 and $300. Now, that’s going to be
typical across the country. However, if you’re setting
up an LLC in California– which, again, I
wouldn’t recommend investing in California. That’s not my bag at all. Costs are way too high. But investing in California,
setting up an LLC can be about $800. You can tell that the California
government really wants people to do business in their state. Another hidden cost,
or one a lot of people might not think
about when they’re buying their first
rental property is the insurance on the
rental property itself. Now, of course, these
things can change. And they can cost different
things in different areas. And it depends on
how much coverage you want to get on
your rental property. For each of the properties
that I personally buy, my wife and I typically
will put about– it’s around $400 to $600
a year for rental coverage and liability insurance on
our properties. $400 to $600, that’s a good rule of thumb, a
good range that you can expect to pay for your insurance. Now, sometimes it could
be a little bit less if you don’t get as much
coverage as maybe we do. And it can be a
little bit more if you want more of a Cadillac policy,
as some people will call them. Maybe replacement
costs are higher. But for me, on a property that
I’m buying that I’m paying $45,000 for, and it’s
worth $50,000 or it’s worth $45,000-ish or
$48,000 or $49,000, I’m going to get a replacement
plan coverage of about $50,000. I’m not going to try to twist
the arm of the insurance company and try to
get them to get me replacement costs of $75,000. They’re never going
to go for that. So the replacement is just
going to be a little bit more right around the value
of that property, so that I know if, god
forbid, there’s a fire and the place burns down, I can
rebuild it for the replacement value of property. Easy peasy lemon squeezy. So there we go. We’ve got LLC and
we’ve got insurance. Now, you also want to take
into account setting up a business checking account. Why? Well, when you
incorporate as a business for your rental
properties and because of the tax benefits of
owning rental properties, you’re setting up your LLC. Well, you don’t want to
then take your rent payments to yourself, John Smith. That would be idiotic. Why? Why would that be idiotic? Well, it’d be idiotic
because then, of course, you’re going to end up paying
way higher in your taxes. You’re taking the money
as a sole proprietor, as an individual,
when the LLC was– is the company that
actually owns the property. If Johnson Holdings
LLC owns the property, why would you get a check made
out to you as Bill Johnson? It would make no sense. So you want the
monthly rent check from your tenants made out
to Johnson Holdings LLC. And therefore, you go
down to your local bank. You set up a business checking
account with that LLC name as the ownership of that. And to set up a business
checking account, all you need are two things. You need your
incorporation documents from setting up your LLC, and
you’ll need your EIN number. And EIN number is your
Employment Identification Number. And you get that
from the IRS website. So just go over to IRS.gov. It’ll ask you for your
incorporation information from your LLC, and they’ll
spit out an EIN number. You take those two things down,
you go right down to the bank, and you set up a business
line of checking, or you set up a business
checking account. And you can then start
to take direct deposits from your rent inside of
that checking account. Now, a word of caution. We used to have our
business checking accounts with some large– a large bank. I won’t name names,
because they may have changed their policies. They may have changed
up a few things. I don’t know. But typically, with
the large banks, you’re going to pay
for business checking. You’re going to pay fees
for business checking. So we decided to
swerve our plan and we started using local banks for
our business line of checking. Why? Because now it’s free
and they don’t charge us. So it could be a cost. That’s why I put
it on this list. It could be a cost. But it’s not necessarily going
to be a cost if you do it right and you shop around. A lot of local small banks,
in order to compete with those larger banks, will have
their business lines– their business checking accounts
super cheap and almost free– typically free, so they can
compete with the larger banks. We’re in New Jersey,
so we use a local bank called Lakeland Bank. And they’re fantastic. And we have multiple
accounts with those– we have multiple accounts
with those companies. They’re fantastic. Yeah, we have multiple
accounts with Lakeland Bank. And they’re really,
really great. So again, that’s a cost that
you may incur or you may not, depending on which bank you use. All right, another one
is the property itself. We talked about, of course,
the purchase of the property. And then you’re
going to then have to pay closing costs on the
purchase of that property with your title company. So typically, your
title company will– our typical title
company closing is anywhere from
$300 to $500, right? It could be a little bit more. But a good rule of thumb for
closing for a rental property– or for a purchase of that price
around the $40,000, $50,000, $60,000 range– it’s going to be anywhere from
$300 to $500 in closing costs. That covers title insurance. That’s title insurance
with your title company, and that’s them running the
title search for the property, and then, of course, recording
the deed with the county so that your property is
on record with the county as you owning that property. All right, one more cost that
some people don’t think about. And this is not true of every
market across the country. We’re in certain rental
markets where you have to pay a landlord license. I know that sounds crazy. I need to get a license
to be a landlord? But yes, indeed. If you’re in Michigan and you’re
in some other markets where I own rental properties,
at the township level, they will mail you– after
you close on the property, they’re going to mail
you a letter that says, please fill out your
landlord license information. And this typically costs
between $100 and a $150. In Michigan, I think it’s $125. But again, this is something
that you’ll pay for yearly. It’s a pain. I know. It’s stupid. It’s the state’s way
of, again, trying maybe to have you do business there. I don’t know. I never understand what
goes through the minds of bureaucrats in these states. You want to encourage
business growth? Get rid of the landlord
license, $150 fee. I’m going to go in and
renovate this property and make this old, dilapidated
house beautiful again and improve the neighborhood and
place a tenant in the property, and you’re going to
charge me for that? Come on. You know what? Maybe I’ll just let
that house sit vacant and rats will run around in it
and it will become an eyesore on the neighborhood. So again, a landlord license– figure that as part of
your overall fee structure when you’re running
your numbers. So there you go. We’re out here in
the wind, taking stock of some of
those hidden features. And I hope it wasn’t
too windy for you when you’re listening on the
audio of this, of the show today. But let’s recap
some of these again. So setting up your LLC
or your business entity for purchasing real estate. Next up, insurance
on the property. You’re going to want to take
out insurance on the property to protect yourself
for liability purposes and replacement costs. Setting up a business
checking account– you’re going to want to do that. Some may be free. Some might cost you a
little bit in a yearly fee or a monthly fee to have
that checking account. Number four, the property
itself, of course, purchasing the property
along with the closing costs, the title search, and
those sorts of things associated with the title
company and the deed recording. And then finally,
a landlord license, which your mileage may vary
on that particular thing, because you may find
that, in your area, you don’t have a
landlord license. For instance, Indiana, I know
we don’t have landlord licenses. Florida, we don’t. I believe I need one
in North Carolina. I think I have one
in Pennsylvania. I think I have one in Michigan. So again, your mileage may
vary depending on those costs. But when I look
at the properties that I buy, honest to
goodness, hand to the heavens, these are the costs. These are the upfront costs
of buying a rental property. There are no other costs. Of course, you’re
filing your taxes at the end of the year
with your accountant, but that’s not really the cost
of buying a rental property. So when I look at these overall
costs, this is what it is. This is what it is, right here. It’s these four or five things,
depending on your territory. And that’s the beauty
of rental real estate, that if you do it right and
you know what you’re doing, if you work with a
company like ours or if you book a call with
our team at Morris Invest, we’ll take care of you. Or if you’re doing
it on your own, of course, then you’re going
to have to pay for labor and you’re going to have
to do those other things. Well, the bell is ringing
here at the local church. So I guess that means
we’re out of time. Thank you so much for
downloading and subscribing to the podcast– I really appreciate it– and the show, the Investing
in Real Estate show. Of course, we publish
multiple times a week. And we want to thank you
so much for subscribing. Now, I just want
you to go out there and take action and become
a real estate investor. And the bell– it
tolls for thee.

100 comments

  • Shannon Conrad

    Thanks again Clayton. You keep making such good sense and I'll be forced to visit your website! 😉

  • Chris Arguello

    Do you rehab $40-$50K homes? If so, how much do you spend and how do you find the right contractor?

  • Mmmm

  • Is it okay to open my LLC in Maryland, buy an out of state rental property and deed it to the LLC in Maryland? Or does my LLC have to be in the same state as where I purchase my rental property?

  • Audio of your video is extremely low and i am saying this after attaching my phone to my loud music speakers. You cannot expect people to watch the video of they can listen to word you are saying.

  • Forgot to add appraisal and inspection fees

  • AquanettA Baker

    It's a cost to cost a more detailed cost to costing numeric letters time's symbols symptoms CODES planetary geometry of number if excelled at this point in history of God's u will ace the ugly beautiful price hypoxia hypnotic test of letters codes geometry as numeric prenatal codes they translate wrong yet diffe🏛🏯🎻🛏🏘rent

  • Lol my guy said I wouldn't invest in California " That's Not My Bag at all " LMAO

  • What about buying and selling agents, the cost of the loan and your loan officers commission, home inspector?

  • Hi love your videos. How about preperty tax yearly? sorry im from Australia thinking of investing in the usa

  • You’re videos are gold. Thank you

  • Hello! Thanks for the great content. What is your average monthly rent you’re able to command for a 50k home in the midwest?

  • Great video

  • Prior to watching this, I really wanted to look into building and maintaining property in California. Besides rising costs, is everything okay with the market? I am a super novice at looking into these things, but I had very beginner plans to start plans to look at property there but, now I'm wondering if it'd even be worth it?

  • Can you get 10% return on investment (on average )? Thanks.

  • Usually checking account fees are waived if $1500-5000 balance is kept in account.

  • Johnson Holdings LLC, a Nevada Company to be sure

  • Most underrated real estate video on YouTube hands down !

  • When you say property or houses for (30,40,50k) do you mean like down payment? or that was the whole amount?

  • milliondollarminutes

    When you say you buy investment propertys for $40k, is that the down payment and the rest is finance or is that the total cost of the house?

  • is there a yearly fee for the LLC in Florida ?

  • I’m living on the wrong side of the country…. 50K PROPERTIES? That would get you a single wide trailer in Reno nv…

  • Ευαγγελος Δημαρακης

    Hello,nice video.I am from Greece. is this possible to do this (buy a property with an LLC in indiana) when I live in Greece?

  • Mr. Morris, does your bank account have to be in the same state as your LLC?

  • You give such great advice but I'm in California

  • How about business license in city/county? Appraisal?  Inspection?

  • I'm thinking of taking my 401k to buy my first rental cash flow investment. Is that a goood idea or not.
    Thanks!
    More power to you!

  • Go to 8 minutes and 30-50 seconds…

    Q: If you purchase the property under an LLC entity, will the property be on record with the county under your individual legal name or the LLC?

    Absolutely love the mentor ship you all provide. Just purchased my first tri-plex rental property thanks to the knowledge you among others have provided! THANK YOU!

  • NMtransfer-email Email

    New Jersey, New York Illinois are as expensive as California.

  • NMtransfer-email Email

    I would be very hesitant or concerned about buying in very poor neighborhoods or high crime neighborhoods. The ROI depends on extremely dependable tenants.

  • I've been researching low-cost properties in Scranton, Pa. and discovered the crime rates and employment rates are equal to the national average. Is that common with low-cost properties?

  • Do you recommend getting a 30 year fixed rate investment loan on a rental property?

  • I wish we had homes that cheap where I live. I moved from DC to Pensacola FL and here the houses are in the price range for 80k to 150k. Do you buy distress properties or houses in good shape?

  • What are average yearly property taxes per 40k property?

  • Hi Clayton, I have a question, im 21 and buying into my first property now im looking into a $60,000 home it has 4 rooms 1.5 baths now should i buy my first single family home as a rental property also only coming in with 3.5% or should i live in it for a year as a home then rent it?

  • My young son is disabled and I have to stay in NYS for the services. I was thinking of moving from the city buying a house for cash for my family. Than using the left over for our first property. What do you think of some of the more depressed cities for section 8 rentals in upstate NY? To get my feet wet. Than maybe go to other places in the country.

  • Clayton, do you know that USA is less than 5% of the world population? Maybe you can generalise your videos, so that they are applicable to a wider audience?

  • YG Element DG Entertainment

    Bro you mic is kinda bad with that wind blowing, I almost didn't watch this it really hurt my ear

  • Do you set up an LLC for each property? Or just one too own them all?

  • Do you create a separate LLC for each property, or do you group them?

    In another video you said you might call the LLC the address of the property (i.e. 123 main street LLC) Do you ever combine more than on property into a single LLC?

    Thanks for the information, by the way.

  • Thank you!!

  • How many houses you put in 1 llv

  • Michigan the license is just if you live out of state not for Michigan residents I can speak for us lol

  • Is buying real estate in affordable housing a good investment? Thinking of buying a home as my starter. It can only appreciate 3.5 at max for 15 years. Still pricey at 235 but this would be my first home. Haven't seen a video about this from you.

  • Great video. No BS and most importantly, thanks for not begging for a thumbs up or a subscriber

  • Are you more protected using lawyer for LLC? Also, what about a online bank like ally where you can make 2%?

  • Hello, is there a way to work with you personally just to get started? Thank you.

  • Complains about bureaucracy – lives in New Jersey….. LOL! Awesome channel though, keep up the great content. Thank you!

  • Great guy and straightforward excellent tips. Btw i think he resembles Jon Hamm!

  • when calculating for title and closing costs..are you doing that on your own or using an attorney to do the closing?

  • do you need a landlord license per property or just the 1 and for each township if there are more than one you have homes in?

  • LLC cost’s in Nebraska are $500-1,100 to all you midwesterners. Lowest I’ve been quoted was $400 by a lawyer because of a “friend discount”

    Not sure why it’s so much here.

  • Found it.. great video..thanks for the advice..

  • How do you leverage 1 house that you already own clear. With another of your own to live in?

  • What are the benefits (if any) to utilizing a program like QUICKBOOKS to track rental income, expenses, etc if my rental property is in my personal name ? I am unable to transfer the deed …

  • Clayton, I put down 50k and got my first rental property. After all fees, netting $800/month. Is it possible to take out a home equity loan on my initial investment of 50K to get a loan of about 30k, add another 10-15 to it and buy another rental unit? It seems risky, but it almost seems riskier only having 1 rental unit when I could have 3 which could provide damage control in the event of vacancy.

  • Hi Clayton! Do you and your wife mentor people that need help getting started? thx

  • Love when he rips on California. Freaking communist ruin everything.

  • Question: I plan to owner occupy my first rental property (multi-unit), so that I can take advantage of FHA loan program, should I still set up an LLC as you mentioned in this case, in collecting rental income ? Thanks !

  • I live in Houston,Texas and with 40k you'd be lucky to find a lot in the ghetto.

  • 40k homes we don't have those in Maryland lol

  • FlowtnWitWalden

    Wow, I've read through many comments here. People keep asking the same questions and Clayton continues graciously answering them. I guess folks don't read comments before asking questions? I am no attorney; but I have listened to a few great R.E. Investment attorneys and this is what I've learned:
    Regarding LLC's being in the same state as your investment property… Yes, and the reason: If the LLC is an out-of-state entity then it is considered a "foreign" business and does not hold the same rights as a domestic business (in-state entity) when it comes to landlord/tenant laws. Thus, with a foreign entity you jeopardize your ability to evict problem tenants.
    Regarding how many properties to put in each LLC… it boils down to your tolerance for risk. As Clayton stated, $150k worth of property might be a good number. But it really comes down to your personal tolerance and budget to spend on Legal fees. So if your properties are each worth $50k then you'd typically have 3 properties per LLC. But if you can't stomach the idea of losing all 3 properties in the event you are sued and judgement is successfully brought against you, then form a separate LLC for each property. Just remember the legal fees, maintenance fees, taxes, etc.

  • Lots of wind noise through headphones

  • Santana Binacci

    what do you think about Detroit Michigan? lots of cheap houses for sale renting for $600-$900/mo.! Clayton I love your content my brother!

  • Separate Alberta

    how can you re build a house for $55000? in my area thats the cost of renovating a nice kitchen. Fuck I should move to USA

  • Insurance on 5 rental properties is much less than 5 times the cost of a single property. A couple parts of the policy you only pay once. Rental property insurance does not cover as many items as a regular homeowner policy will cover. For example Sewer backup will not be covered on my rental properties but is covered on my homeowner policy.

  • What about renovation costs? I don't believe you mentioned that.

  • Clayton I love that comment on california business wise. Others have said there too expensive, and a lot of people are moving out right now. Very informing video Clayton, Thanks!

  • Thank you for the valuable info. Did you guys make a video on when buying out of state or not local how to collect rents and stay on top of tenants making sure payment and maintenance is Yemen care of. Thanks.

  • Clayton, props for everything you do to help others, I get the long game but you are a breath of fresh air. I wish you continued success and good health. Thank you.

  • Ok dumb question. Need an llc in each state property is owned in?

  • Guillermo Santiso

    Beautiful to hear the church bells ringing!

  • Great video.
    I know insurance is usually a yearly payment, is the landlord license a one time fee or does it need to be renewed regularly?

  • Aloha State of Mind

    Are you experienced in buying properties in countries outside the U.S.? Mainly vacation/Airbnb rentals.

  • I live in Indiana and looking to invest in to my first property! Glad your advice applies to me directly. Hopefully I can apply some things right away!

  • Mic wind cover

  • Also, do all of your llc’s goes to one business checking account or you you have 1 business checking account per llc?

  • Yeah, please don't do outside videos without a better mic. I was listening in my car and I had to have volume turned up enough to hear it, but low enough that the wind wouldn't blow my bass out

  • how do you initially add money to the business account to purchase the first home? also can i use my home equity loan from my personal property to purchase my first business propertY?

  • Stephen Rodgers

    This is great information really appreciate you giving out this information for free. This is exactly what I want to do and am going to do for financial freedom!

  • Sniper Paint Correction

    Is there a video about Morris invest? What it does, how it can help. I belive I have someone who can take in all the knowledge but when it comes to following the right path and knowing what to do or do next. That is where I get stuck. I would love to own my first rental. I am someone who lives paycheck by paycheck every week.

  • Growing up with slum lords and faulty property management is probably why the landlord license is created. Those who are mindful and committed to what they do will do it. But I understand it is problematic. But unfortunately the bad apples ruin everything.

  • I live in Orange County, California which is one of the most expensive areas….
    What if I just want to buy a condo to rent it out and dont get the LLC?

  • How much on average do you pay for home insurance?
    Being that you on so many homes. It must be pretty expensive. Can you give me a example please or, a video

  • Next time don't shoot in the wind.

  • I paid 1000$ yearly insurance for a real estate of about 50,000$ worth. In macon Ga. Am i paying too much?

  • I notice you always say that the property’s you like to invest in are 3bed 1-2 bath and 40,000 is the 40,000 your down payment or the actual house price because 40,000 is very cheap for a house I’m guessing your down payment but I just wanted clarification

  • How much would it generally cost for your first investment property I new the here.

  • Jobish Somasundaran

    HI Morris – For rental housing property. Do I need to set up LLC or can I just buy in my name and rent it. If yes is it LLC or corp which one is suitable.

  • Sometimes there are HOA costs too.

  • My expendable income is very low (20 y/o, living alone, investing in other business ventures, etc)

    Do you consider it too risky to take a loan on a home and then rent? Would you recommend waiting to build sufficient savings to pay cash?

    I would have to choose a ready to go property, as after down payment/ startup costs, I would not have enough to renovate. I would have an emergency fund though, of course.

    Google has plenty of answers, but I consider yours more valuable. Thank you.

  • Maybe this has been asked. I assume when you are starting up and you setup a LLC that you will need to build up credit before you can start investing in real estate?

  • Does the LLC have to be where you live, or can it be in another state? Let’s say you live in California but you want to buy in Tennessee

  • Do you recommend any specific banks in Michigan?

  • Thank you for the great info. Do you set up one LLC for ALL your rental properties or do you do an LLC per state or an LLC per property?

  • It costs $500 to register an LLC in the “great” state of Massachusetts.

  • Yo I love ur page

  • Thanks for the info!

  • The bird at 8:04; thought it was the gnat that's been flying around my head and took a swat at it. lol GREAT INFORMATION thank you!

  • And the bell tolls for thee 😂. Good info. Thanks for making sense and speaking so newbies can understand.

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