Ep351: Mark Morris – Buying a Home as Investment Can Become a Heavy Burden

Andrew Stotz 00:02
Hello fellow risk takers and welcome to my worst investment ever stories of loss to keep you winning. In our community. We know that to win in investing, you must take risk, but to win big, you've got to reduce it. And I bet you're exposed to investment risk right now to reduce it, go to my worst investment ever.com and download the risk reduction checklist that I've made specifically for you. My podcast listeners based upon the lessons I've learned from all of my guests, fellow risk takers, this is your worst podcast host Andrew Stotz, from a Stotz Academy, and I'm here with featured guest, Mark Morris, Mark, are you ready to rock? Yeah, let's do it. All right. Now, I'm going to introduce you to the audience here. When you hear the name, Mark Morris, I want you to think, hi cash flow portfolios. Mark is an expert at building developer relationships, and helping house builders achieve discrete volume sales at speed. alongside an IT freelance career, he has been a property investor for the past 20 years, building a portfolio of bida LED apartments and houses across Greater Manchester. He has also built a solid income generating portfolio in the Midwest of the US, including Ohio, where I grew up outside of Cleveland. So Mark, take a minute in Philly, for the tidbits about your life.

Mark Morris 01:37
Thanks, Angie. Appreciate the introduction. So you as you as you touched on. I was an IT freelancer, I was employed for sort of mid 20s. And then when we came to the what we call what you may remember as the the year 2000 bubble, where everybody believed that when the clocks when the diary changed from 1999 to 2000, was gonna be Armageddon, and none of the computers work. And in those sort of times, you know, companies, I work for finance and insurance, they were just paying ridiculous amount of monies for contractors, just to get bums on seats to keep testing. And as we all know, now, it was a complete dumb squib bought upon me toe in the water. And I really liked the freelance world. But the issue I had was once to 2000 was over lots of contractors who finished you know, the assignments finished, they couldn't find new assignments, and a lot of people became unemployed, or went back to just the day job. I was really, I was really adamant that I wasn't going to do that. So I had some a few months out, and I have to be honest, you know, it nearly money was tight, and I was struggling. And I realized that I needed some way of raising my passive income to cover me for these to cover for these breaks in between assignments. And that's really where I started looking at property. I was really keen on property. I started building a very small foot. Very small portfolio. My parents were involved in property. And I really realized that that was the key to enable me to continue a freelance career. And that's really where it all started.

Andrew Stotz 03:28
Interesting in You said your parents, what, what experience did they have? They were renting places or

Mark Morris 03:34
Yeah, they were but they were actually renting a holiday home once in a place called the light districts, which is about an hour, an hour and a half away from Manchester. And when I was very young, you know, I used to go there. We used to clean and they used to take bookings. So I could see how that the property, the property business worked on. Up until becoming a freelancer, I never had any sort of money at the end of the month genius mean, so I needed I started actually finding that there was a bit of cash at the end of the month, and I got a bit of a pot together. And I thought yeah, okay, let's start investing in property.

Andrew Stotz 04:13
I think it's an interesting story, because sometimes what we learn in our youth comes back later to help us so. Well, now it's time to share your worst investment ever. And since no one ever goes into their worst investment thinking it will be. Tell us a bit about the circumstances leading up to it then tell us your story.

Mark Morris 04:33
Sure. So we're probably around the year 2005 property prices, you know, at that point were very buoyant. You know, you went down to the pub, everybody was talking about property everybody was getting some property you know, the taxi drivers rental property and, you know, I was getting caught with you know, with all the hype. I had a friend too was estate agent and he said, Look, you know why I had two or three properties at that point, but I'd got a cash pot together. And I wanted to try and create more cash to give me this sort of space for when I was out of contracts. So he suggested, well, why don't we go? There's lots of new build new build developments in a place called Wales, which is in the UK, on marinas, and what let's go and have a look. And, you know, I was quite impressed by him because he owned his own business now saying, Yeah, yeah, let's go number walk. Sure enough, we went with sword round a few places in Wales, and we came upon one Marina development that was being sold off plump. So all the walls, literally, we went to the agents and all the walls has a big model of this Marina development was going to be set, it was sitting, it was going to sit on a beautiful part of the yesterday by the Marina. And the guy that while he called, he was selling it, like a dream, he was, you know, this, these, these properties are selling of off Planet 200k, you know, within this 12 month, build within 18 months, you know, they'll be worth 242 5260. And, you know, boy was I just caught up in, you know, the height, you know, within 10 minutes, I put a deposit down, you know, never really thought that was it, you know, I was sold out, I was gonna make this quick, this quit book, and wow, brilliant. Everything was gonna, you know, turn to gold. And so what happened was, I think is probably happens with all developments, we started getting delays. So 12 months, turned into 18 months, 18 months turned into two years. But all this time, I was thinking this is great of a product, a 2k reservation fee down. And this property, this property is increasing, talk about great leverage, you know, on a 2k investment. And then, after about two years, the development started to start completing the development. And literally, within me completing in 2007, probably within about two months, the crash happened. And you know, we're talking big time US, US England, every you know, suddenly, wow, I suddenly realize, hang on a minute, this extra 50 60k that I was going to make was suddenly going to become potentially a 50 60k loss. Because quick, very quickly, nobody was buying these apartments, I wasn't going to turn, I wasn't gonna turn that investment over. The other thing, so many, I mean, it was it was a catalogue of errors, not not only because I felt as though I wasn't going to be keeping hold of it for any length of time I used finance, I put a small deposit down. And, you know, effectively, when that term finished, I couldn't I couldn't leave the mortgage because I was in negative negative equity. You know, I just couldn't do the evaluation would have been 60k down, I would have had to put another 80k just to get another mortgage. So I suddenly found myself really struggling on a poor mortgage products. I was in negative equity. You know, I mean, we call it in the UK, I became a mortgage prisoner. And the other thing is, I had to realize, well, what am I going to do with this property? And I'm gonna have to rent it out. But I actually then made my second mistake is I tried to scrimp on management charges. I chose a very poor management agency, who effectively tried to let it for two months. got absolutely nowhere. I found that actually at the mortgage payment on the management charge was way above what I could get in rent. So I had voids I was paying. Once I did finally get it let I couldn't cover the mortgage. And as I say there was high community charges because there was a left involved in all sorts. Very, very high expense. And so this day, I still actually have that property and it's still not Got back to its original value, and it still doesn't wash its face. So, I mean, as things happen since then, you know, I've managed to build a successful cash flow business, but I am still there with this property in, you know, still not. So we're talking 1213 years on, still not got back to the same level in terms of price and still doesn't cover the mortgage. So yeah, an absolute catalog of errors real?

Andrew Stotz 10:34
Well, I think that I got a lot of questions. But rather than ask those questions, let's just get into the lessons that you learn, because I think you've got some pretty clear, strong lessons. So maybe you can go into those.

Mark Morris 10:49
Yeah, sure. So the first thing I didn't do was, I wasn't educated at the time. I had a couple of promises. But in those days, there was no podcast, there was no training, there was no content. I wasn't educated. I didn't do anything in terms of personal development. I didn't do any research, I didn't do any due diligence, didn't look at the fundamentals of a property. I had no plan B, my only plan was that I was going to flip the property quickly and make a quick buck. I never thought about what was going to do, if that wasn't going to happen, which, obviously, you know, I needed a plan B, and they also needed a Plan C. I think the other thing was, at the time I was investing I didn't invest for the long term should, you know should always be looking at the long term, not the short term. So effectively, I bought a liability rather than an asset. And I still have that liability to this day. You know, you've got to didn't ensure that the property cash flowed. So now never buy a property unless I'm cash flow in minimum 250 to 300 pounds a month, I've never bought anything out that didn't cash flow. So that was a massive lesson absolutely huge. I didn't understand financial metrics, didn't understand return on investment, yield scroll shields, I was just, I just got suckered in with the, you know, the quick capital appreciation, you know, you can't go wrong, didn't understand leverage or pick the wrong mortgage product. So became a mortgage, very quickly became a mortgage prisoner. Didn't research with property managers tried to scrimp on property managers. So we ended up with a void to three more void, which again, seriously hit my, you know, hit me in the pocket, and didn't just didn't do the research on the developer interested in this developer has actually never gone bust. And I think the warning signs, if it had done the research, they would have been there. And I think the real, the real final lesson is, in those days, I never understood the, what we call the 18 year property cycle. So, you know, just quickly, for the listeners who don't know, I mean, the 18 year cycle is from from crash, to peak, there's got to be 18 years, you have, after a crash, you have three, four, essentially five years of no growth, then a number of years of modest growth, then you have what we call a mid cycle wobble. key thing is the last years of between five and seven years, when you get massive increases in property price, will you buy those last two years, you are going to have serious issues, because you're on the Winner's Curse there, and you're going to wind up in negative equity. And history just repeats itself. You know, I've looked for the property cycle. And it does play out. Not exactly, but if that boy if I hadn't known that I would have never been varying from 2005 onwards. So huge, huge amounts of lessons learned. It was a really, really, you know, hard odd wants to say, but yeah, key, some key lessons that,

Andrew Stotz 14:28
wow, and what happened to the guy that took you there?

Mark Morris 14:32
Well, you know, he laughed, but he actually had the foresight and just, he had a reservation fee. That was refundable. So as the development just went on, and on and on, he actually pulled a stop, stop gap so you could actually get out of the development. But I was so blinkered on this theory that this property was going up ticking up to 10 to 20 to 32 I was just blinkered so yeah, he, he got out, I didn't.

Andrew Stotz 15:07
The reason why I asked that is because anybody that's visited Thailand knows about the touts and we have so many touts that are touting, you know, things that you don't have any clue where they're making money from it. And normally, when something like that happens, it usually means that person got some sort of commission for getting someone to it. But I think UK is probably a little bit different. So I, you know, there's, there's a couple of things that I want to mention about this. I mean, the first thing you talked about the idea of I bought a liability, not an asset. And I think that, you know, having taught finance all my career, I just thought everybody kind of understood the difference between an asset and a liability. But the reality is, is that most home purchases that people are making are, in fact, a liability. Because they're putting usually not a lot of money down, they owe the bank a lot of money, and a loan that they're taking to buy the house is a liability, then they have liabilities related to let's just say a liability is cash outflow. An asset is cash inflow. And it doesn't have to be, you know, you're you understand, and you've taught us about the idea of cash, cash flow, but an asset, there are assets, you could buy a piece of land that you think has good potential, and five years from now, you you've received no cash flow over five years, but you sell it for five times the amount that you bought it for, that is an asset, because you're either going to get appreciation by getting, you know, cash flow or appreciation in the value of it. But I think a lot of people think that they're buying an asset, when in fact, they're buying a liability. And then you

Mark Morris 16:53
Yeah, sorry, absolutely. Just one thing, I just want to say at the same time, I bought, as well as this, the worst investment ever, I also bought a normal property. Again, in the Winner's Curse, the last two years of the cycle, however, it cash flowed, and it was cash flowing 250 300 pounds. And that, again, went into negative equity, or the fact that I was cash flowing, it really didn't matter. You know, as long as there was no, there's no concern that because I knew eventually, it would come back. And as it has it, as it happens, it has, whereas this, you know, this disasterous investment. It was high end as well, you know, to mean, it was really high impromptu, very highly priced as it was, and mortgage payments, which no large and the community charges were large. And you know that at the time, I had a young family, and that really gave me some sleepless nights, because she just felt, especially when, when the crash it happened, and I couldn't get it let you know, not only was not caught, I wasn't getting anything to cover the mortgage, or the charges. So yeah, absolutely. assets and liabilities. You know, these key

Andrew Stotz 18:24
key key understanding, and it sounds like the developer priced, they had perfect timing in the sense that they were pricing for the peak of the market at a peak product. The other thing that, you know, that I take away from this is the idea of buying Off Plan. You know, if you go down the street in your neighborhood, and you see a building that's you know, 510 20 years old, it's already done, it's completed, the risks related to completion of the project are gone, because it's already done. Now, of course, you know that, that's going to mean that, you know, you can't buy it as cheaply as if you walk down the street and someone says, Hey, I got this development, here's a piece of raw land, okay, you're gonna be able to buy it more cheaply. But I think it's important to remember that when you're buying Off Plan like that, ultimately, what you're doing is you're buying a startup company, you're buying a dream, you know, you're buying into a business and the business means there's a huge amount of risk to get to the final result. That is very different from investing in existing property. I think most people get that confused and they don't realize all the risks that they're bringing on. They're really investing in that person. And in their business, not in property. But when it's complete, okay, fine, and then everything's up and running. Okay, now you own a property, but the period before that, you're investing in a business.

Mark Morris 19:47
Yeah, that's so true. I mean, and the thing is, you know, like you say, you don't want the risk is there you don't know whether, you know, you don't know whether that developer will end Built in they may, they may go bust before, you know, again, we don't know how long it's going to be, it's going to take all development seems to seem to run over. And by that time the market could have changed quickly, you'll know, you've got no control over that. So yeah, due diligence, I mean, I'm not against Off Plan investments, because, you know, it can come work really well. But yes, so much more riskier, as you say. Absolutely.

Andrew Stotz 20:29
So I guess when I think about building a portfolio of assets or property assets, you know, maybe an off plan development is more risky than a beginner should take and maybe build up your portfolio of three to five properties, and then start to say, Okay, I'm willing to take a little bit more risk.

20:48
Yeah, definitely.

Andrew Stotz 20:51
And the last thing is just that, you know, when I look at all the interviews I've done, I've identified six common mistakes that people make, and the number one state that almost everybody makes is the following failed to do their own research. Yeah. And I think that, you've already identified that as a huge one. And one of the ways that I do that, you know, in Thailand, we had a period of time in Bangkok, where there was a lot of fitness clubs set up, and that the hard sell is hard. When you go in there, you know, they've gotten the path to walk you through the place and get you all pumped up. And they've got to sit you down with a contract in front of you and all that. And, you know, that's, it's hard to do your research, when you just walk into the first one, and they've got a beautiful man or woman there. That's, you know, guiding you through it through a real, real polished thing. So the way that I did it myself to prevent, to allow myself to do my research is that when I went to visit the places, I left my wallet at home. So I didn't have anyone, it was impossible for me to commit beyond. Okay, sure, I could have signed a contract. But the fact is, I just was able to say, Oh, yeah, I don't have my credit card. Yeah. And sometimes we have to do tricks to get ourselves to stop and do the research. And I think, go ahead.

Mark Morris 22:19
No, no, that's so true. And I think that you need a cooling off period, don't you need to sleep on things minimum? You know, because currency The next morning, you know, when you wake up, you've had a number of thoughts were like, let me just check this. Let me just do a bit more detail on this. Let me just make some inquiries, you know, oh, yeah. So absolutely, yeah. He's leaving you at home? Yes, absolutely do that don't make any, you know, don't sign on the dotted line there, and then have that 24 hours, you know, some really kind of do some research, and it needs to be 48. Longer than Yeah, absolutely.

Andrew Stotz 23:06
And that brings me into another lesson out of this. And that is the lesson that. In the US, I know, I don't know about the UK and other countries, but we have cooling off periods for contracts, there are certain contracts that you can literally walk away from within three days, I think it is in the US, but check on cooling off periods related to a contract. So if you've already signed a contract, and you think, Oh, I think I made a mistake. If there's a cooling off period allowed to do that, then, you know, consider that. And the second point that I would make. And this is gonna sound a little bit strange, because I'm, you know, a sincere, honest guy, but you can walk away. And you could forfeit money that you put up, you could even break a contract. And, you know, nobody wants to be a person who breaks a contract. But if this contract is going to break you and your family, you know, there is an argument that you can walk away. So not only the before period of research, the during period of kind of that decision making the immediate period afterwards, you know, there have some ability to walk away. And then in the middle of a contract, I'm sorry, nobody wants to walk out of a contract, and nobody wants to deal with that. But there may be a reason why, you know, it makes sense.

Mark Morris 24:33
And I think Yeah, very soon, I think in terms of new build developments, and in all honesty, I don't know whether I actually had this or my my issue was that I was just blinkered even, even when I even when I bought I didn't want to, I didn't want to get out of that but I still believed that it was going to make me this quick, quick 50 60k And sure enough, the the Market turn pretty much soon afterwards. But just to follow on from what you saying, I mean, in the UK, we have, we have something what we call a long stock. So effectively, it's, you know, if you are buying Off Plan that like what happened to me, instead of it taking 12 years, sorry, 12 months, it takes two years plus, you can exercise the long stop, get out clause, because effectively, they'll give you a long stop date. And if they go past that, you're able to come out of that contract and get your deposit returned. So yeah, I mean, again, that was another thing that I didn't know about, I'm still not sure whether there was a one stop, contract. Or I would always, if I was buying Off Plan, I would make sure that that was written in there.

Andrew Stotz 25:51
And I mean, that reminds me of Episode 301, which was mighty p lawnton. And he's also in the UK. And he got himself into a property situation where he did actually walk away from it. And, and he, you know, broke a contract. And he had to really, it was a difficult situation. But it's just an example that, you know, you do not have to lock yourself in to, you know, a life of servitude. So, alright, so based on what you learn from this story, and what you continue to learn. And before I continue this question, I want to imagine a young man or woman who has been seduced by the attractiveness of a relatively high risk investment young in their career, what one action would you recommend our listeners take to avoid suffering the same fate?

Mark Morris 26:45
Get yourself educated know, really do your research. Just just commit to personal development commit to learning all the time, you know, it is so key, just really understand the process, understand what the investment that you're getting yourself into, do your due diligence, but yeah, get educated.

Andrew Stotz 27:09
It's, it's a, it's a great lesson. And I think, when I began my career as an analyst, first of all, I had no money. And second of all, I had no confidence. And it took me my first investment was probably almost 10 years into my career as an animal's. Now I invested in startup business and some other stuff. But to invest in the stock market, I felt like I really need to understand a lot more, before I put my hard earned money to work. And one of the lessons I've learned from this podcast is, it's remarkable the number of times that people just hand over their money into something that they didn't do any research on. So it's a great lesson for the listeners out there. Take this as a wake up call from Mark, who's been through it to stop and sit down and do some research. Alright, last question. What's your number one goal for the next 12 months?

Mark Morris 28:05
Yes, my number one goal? This is a really good question. Because it's made me really simple. My number one goal for the next 12 months is to create another high cash flow and income stream. Now, whether that be in property, or whether it will be in property, or whether it's, you know, property in a different location, or it's doing a slightly different strategy. What Yes, was creating another cash, cash flow and income stream?

Andrew Stotz 28:35
Can't wait to talk in 12 months.

Mark Morris 28:38
Yeah, that'll be good.

Andrew Stotz 28:39
I think, make sure you recorded maybe you make a podcast or a book out of it, or a little course out of it. And I think you've got a lot to share.

Mark Morris 28:47
Yeah, I'd love to just say a call. There's a couple of quotes that you might even just quote, basically, just say, just really, I love I absolutely love, you know, the Warren Buffett quote, the, you know, be fearful when others are greedy. And, you know, be greedy when others are fearful. I absolutely love that quote. And, and the second quote, I love his best way to predict the future is to study the past, which is Robert Kiyosaki, quote, you know, it's just, it's just some pretty much your work for me. It's, it's just, you know, yeah, those two things.

Andrew Stotz 29:24
Yeah. And if you're not willing to study the path, maybe start with the present. And if you know where you are, I always tell the story of you know, imagine that I flew to, let's say, London, and I called you and said, You know, I'm going to come and see, tell me how to get there. And, and, and then you say, well, where are you? And I said, Well, I don't know where I am. And then you say, Well, look around. Do you see any signs I say I don't really see anything. And my glasses on or whatever. But just tell me how to get to your place. It's impossible to be able to get to a place. If you don't know where you are starting from nobody could give you instructions. And so sometimes just knowing the starting point, like our prices, high valuations high, is the economy overheating, are we, you know, where are we at today? So, yes, study the past, but make sure you're aware of the presence. All right? Well, listeners, there you have it, another story of loss to keep you winning. My number one goal for the next 12 months is to help you, my listeners to reduce risk in your life. So go to my worst investment ever.com right now and download the risk reduction checklist and see how you measure up. As we conclude, Mark, I want to thank you for coming on the show. And on behalf of a Stotz Academy, I hereby award you alumni status for turning your worst investment ever into your best teaching moment. Do you have any parting words for the audience?

31:09
Yeah, don't be afraid

Mark Morris 31:10
to make mistakes. You know, mistakes are great learn, you know, there's great learnings from the states to stolen them. Put your hands up, but you know, we'll take ownership but learn by the massive learning and making mistakes. Don't be afraid to make mistakes.

Andrew Stotz 31:27
Beautiful, and you know, you remind me of a quote I saw just recently it said you will make mistakes and you will pay for them. And you know, that's life. But us it's your choice whether you learn from him. Well, that's a wrap on another great story to help us create, grow and most importantly protect our well fellow risk takers. This is your worst podcast host Andrew Stotz saying. I'll see you on the upside.