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Buying a home is the biggest purchase that many of us will ever make, and it usually involves taking on lots of mortgage debt. On this episode of Teach Me How to Money, real estate pro Natali Morris sheds some light on the home buying process, and why it might help to purchase property that produces income.
What is a mortgage?
A loan that allows you to buy a house or some other property if you don't have all the cash necessary to do so.
Natali Morris is a former network news anchor turned personal finance educator and motivator. Her specialties include personal finance, business, and technology. She is currently a contributor to CNBC and MSNBC where she was previously an anchor. Prior to that she was an anchor on CBS Interactive. She was also a contributor to CBS News and the TODAY Show. She has also contributed to CNN, ABC News, G4TV, BBC, The CW, Fox News, Fox Business News, and Univision (Spanish-language reporting).
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Jeremy Quittner: Welcome to Teach Me How To Money. I’m your host, Jeremy. On this week’s episode, we’ll be talking with real estate expert Natali Morris, but before we get to the interview, our jargon hack this week is mortgage. Wait! Everyone knows what a mortgage is, right? Wrong. Plenty of people are confused about them. A mortgage is a form of debt that allows you to buy a house or some other property if you don’t have all the cash necessary to do so. You can get one from a bank, a credit union or a company that specializes in mortgage loans and while you can move into your house, once you have a mortgage, technically it’s not really yours until you’ve paid it off. The lender has what’s known as a lien on your home and can take possession of it if you aren’t paying your mortgage or you get seriously behind on the payments. The most common kind of mortgage is called a 30-year mortgage and it gives you 30 years to pay off the loan. Another type of mortgage is also called a 15-year mortgage, which yeah, you guessed it gives you 15 years to pay off the loan. Every mortgage comes with an annual percentage rate or APR. That’s the interest you’ll pay over the life of the loan. There are fixed-rate mortgages, which means the interest rate stays the same for the life of the loan. There’s also something called a variable rate mortgage, which means the interest will move up and down as the federal benchmark interest rate changes. Here’s something that’s good to know. You can also get a mortgage for a piece of machinery or some other movable property, but homes are the biggest purchases most consumers make. It’s best to read up thoroughly on mortgages before applying for one, so that’s our jargon hack for the week. Now let’s get to the interview.
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Ever wonder why home buying seems so expensive and out of reach. Today we’ll be speaking with Natali Morris. She’s an investing in real estate expert who is formerly an MSNBC news anchor and she’s also written for Consumer Reports, Wired, Variety Magazine, Market Watch, Tech Crunch, and many other publications. Today we’ll be talking about why home buying seems so difficult. Welcome Natalie!
Natali Morris: Thank you so much!
Jeremy: So Natali tell us a little bit about your background. What makes you an expert in home or property buying? You have a company that specializes in it.
Natali: Yes, I do, but really it was born out of my own need to take better control of our finances when I was first married and we had a small child. I found myself after maternity leave without the job that I had left. So I had to really reinvent myself. My husband and I then moved out of New York City and into the suburbs. And while I was looking for my next job, I was really confused about my role as sort of this former news anchor now current stay-at-home mom. I got pregnant again with our second child shortly thereafter. And so I felt like, someone had just slammed on the brakes on my earning potential and I just didn’t know how to find my worth. As I was seeking out what I should be doing with my time in between playdates and nap times and stalking my agent for the next job. I found myself online, sort of looking around and really confronted with a lot of messaging about how stay-at-home moms should shrink the budget, or you know, spend less. How to shrink your life down, how to make sure that you’re budgeting, you can feed your family on $10 a year. Kind of these crazy like extreme couponing budgets and things like that.
Jeremy: Compression budgets and things like that.
Natali: Yeah, right. And I hated that. I felt like it made me feel small. It reminded me that the money that was coming into my house had Clayton Morris on the pay to line and not Natali Morris.
Jeremy: And Clayton’s your husband?
Natali: Clayton’s my husband. Yeah, I guess you could work that out, but I should have been clear about it.
Jeremy: So it made you feel like you weren’t really participating.
Natali: Right, it just made me feel like an administrator in my family. Like, okay, I balanced the checkbook and I know the password to the utility companies and I pay those bills, but I wasn’t building anything. I wasn’t involved in any wealth building. There was no money in my name coming into the house and I just really didn’t like it. So one day, I was sitting at my desk while my son was napping and I was pregnant with my daughter and I thought to myself, “Okay, if there’s no paycheck with Natalie Morris on the ‘pay to’ line, then what I’m going to do instead of become an extreme couponer, I’m going to become an extreme wealth builder. And I’m going to be so good with personal finance that my efforts are equal to another paycheck, not my efforts, shrink our life down so we don’t need another paycheck.” And I feel like so many people have that choice and they have that fork in the road and then they decide, “well, I’ll be really useful by, you know, shrinking my life.” You can only shrink your life so much and you can’t really save your way to wealth. That’s a misnomer. And so what I did was I sat down and I took out my balance sheet.
Jeremy: Explain to our listeners what a balance sheet is.
Natali: Yes, I will. So this is something my dad made me do from the age of 12 years on. You create a list of everything you own in this world that you could sell for something. So it could be your house, your car, your wardrobe, your artwork. It can’t be a person, it could be like another living thing I could think of if you owned a horse that you could sell because it’s a prize-winning horse or something like that, right? It could be a patent, maybe you have a patent on some surgical knife. But whatever it is you’ve got that has a value that you could trade for, monetary value, then you add that up. That’s your asset list. Then you make a list of all of your liabilities. What do you owe in this world?
Jeremy: So I just wanted to clarify here. These are these were you for you personally or for your entire family that you were making this list?
Natali: Well I had one for me personally. I have always kept a personal budget.
Jeremy: What you’re talking about here in this instance, the one that you made for yourself or for your family?
Natali: I was making them yearly for myself. But at this junction and that I’m talking about where I’m a young mom, a new wife. I had not done this for my family yet. I was very proud about keeping our money separate. I wanted to always pay my portion of certain utilities and that just doesn’t work when one person is not earning a paycheck. And so I said, “Okay, I have to know what we are working with as a family.” So I took my personal balance sheet and then made one for my family. So what I did was take a look at that balance sheet and say, “where can I do better with one thing on this list.” Now what I chose was something from the asset column.
Jeremy: And what was that? What asset was that?
Natali: We had some stock accounts that had been rolled over from old 401(k)s. And so I decided that I was going to learn to do better with those because now they were in IRAs, before were in 401(k)s. And so it felt like a safer place to begin to make investments because it wasn’t money we were living on at that time. So I taught myself, at the time I had a freelance contract with CNBC. So I would go in and do some reporting for them. And then when I would leave, I would walk past the book pile because people always send finance books into network news, specifically CNBC. And I would just pick something out like I want to read this, I want to read this, I want to learn this. And then I really taught myself the language of money.
Jeremy: So how did you get to housing from this? Yeah, I’m just kinda curious how we get to housing from this.
Natali: It became this sort of leap where we started to invest in ETFs and they were growing nicely. The market was doing pretty well. This was around 2013-2014 and then my husband started to listen to real estate investing podcasts. He had always been interested in real estate, but both of us had made, I don’t want to say they were bad investments, but we had made investments in the wrong way. Neither of us had taught ourselves the ins and outs of real estate investing at all. So we started to listen to these podcasts and we were like, “man, we really did it wrong. We didn’t have to lose money on those deals. We didn’t have to, you know, manage our properties ourselves.” There was just so much to learn. He was a network news anchor as well, he anchored the show on the weekends. So Monday through Friday he would be walking around the neighborhood or mowing the lawn and listening to real estate podcasts. And so he got really fired up about it and we both decided we would revisit that seminal book, “Rich Dad, Poor Dad.” And I had been exposed to it before, and he had read some of the other ones too, but it was just the right time and place for us where I was in a more wealth-building minded position. He had the time and the renewed spark of wanting to be in real estate and we were equipped with what we could use, our balance sheets so we knew what we had to work with and how to get there. That’s not to say we hadn’t made mistakes. We made some mistakes when we got started as a team. But, our first investment as a family did pretty well. I mean, there were things I would have done differently.
Jeremy: What was the investment? Did you buy a house? An apartment building?
Natali: We did. We bought two single-family houses in Dearborn, Michigan, which is a suburb of Detroit. And we renovated them. We didn’t even have a contractor at the time. My husband flew out and he found a friend of a friend who could do it, and we paid this guy, in two installments. And then we found a property manager and those houses we bought for about $34,000 each. We put about $20,000 into them and then we got five-year leases on them with tenants at $800, so they were amazing returns, these two investments.
Jeremy: So you were developing what’s known as passive income through those properties.
Natali: Exactly right. And so we just got a taste for it and we were like, “wow, this is really great.” So we slowly started to leverage the assets in our asset column in order to acquire more real estate. So what we did was we looked, what else is there that is not a cash-flowing asset and then how can we turn that into a cash-flowing asset. So here’s one example. Our 401(k), well it was Clayton’s 401(k) because I wasn’t working. So it was his 401(k) at the network, was just chilling out there, invested in the stock market, company matching. But that’s not a performing asset we can live off of. We can’t pay our groceries with. And it wasn’t even performing anywhere near the properties that we had bought and we were like, well, we don’t love this investment. Now once you teach yourself the language of finance, you can’t really be that impressed with the 401(k). It’s a mediocre product at best. My CPA calls it, “the way to partner with the government to invest in the stock market.”
Jeremy: Because you get this tax-favored account that you put a portion of your gross income into etc. and then hope for the best with returns?
Natali: Yes, exactly. I mean the government is incentivizing you to do what they want you to do, right? That’s how the tax code is written. So what’s the government incentivizing you to do here? Invest in the stock market because that is what makes a healthy country’s economy, right? But I don’t want to do that, that’s just not my comfort zone. So what we decided to do was take a loan out of my husband’s 401(k) for a one-year term and then buy another cash flowing property and we paid ourselves back that loan. So now we are the lender.
Jeremy: And one of the reasons you did that is because the loan you could take out at a very low-interest rate, right?
Natali: Right. But then we are paying ourselves. We are making that interest. Not a bank, it’s us. So what we did was we got another cash flowing property. We paid back that loan with the rental income. Boom, we’ve got another property. And so that just became something where we learned to take these unorthodox ways to take something in the balance sheet that’s not cash flowing and turn it into something that is. Here’s something that my accountant taught me, that I think about a lot. If you have something in your asset column that does not cash flow, is that an asset?
Jeremy: Technically, no. It sounds like it isn’t.
Natali: It’s not. An accountant, basic accounting would say that that is not an asset. So what does an accountant tell you to do? What do you learn in accounting school? If you’re running a business?
Jeremy: I guess to sell that or something?
Natali: You sell the asset or you pay off the liability. So you should not have a business, which I’m going to advocate that you treat your wealth-building as a business. If you want to get somewhere, if you’ve got a goal, a business should not have an asset on its books that does not cash flow. And it definitely should not have a liability on an asset that does not cash flow. Almost everybody has that. We have cars, we have primary homes. My primary house does not cash flow, right? So what do I want to do? Either sell it or get rid of the liability. That’s where our book comes in because we teach people how to basically like take a ninja sword to the liability of your mortgage by getting in the driver’s seat.
Jeremy: That’s great, I love it. But I feel like we’ve put the cart before the horse a little bit here. And what I wanted to talk about is that first home buying purchase a little bit more. Because I think that’s the level probably where most of our listeners are. For instance this week I was reading, you know, just how home buying is becoming more and more out of reach for most people, for just so many different reasons. Prices for homes and apartments are going through the roof. Private equity firms are coming into a lot of places and buying chunks of housing in some areas. More and more people are struggling with escalating costs even of renting so they can’t transition to homeownership. So what’s going on? What about for these people? How about for you know, people for whom homeownership seems so far out of reach. What’s the first step?
Natali: Well, what I would like to say is, why do you want that to add an asset to your asset column that does not cash flow. So most people are going to take the majority of their savings and put it in a primary house that does not cash flow. Right. And then when they themselves there, they’re going to say, “oh my God, how do I get out of this liability? That is like a weight on my back.” Your mortgage is probably the thing that makes you have to go to work every day. It makes you dependent on your lifestyle. So I think, if I were to do it again when we were just getting started out, I wouldn’t have taken all of our savings and put it into the primary house because then we had no assets, no true assets. Appreciation is not cash flow.
Jeremy: So I actually I wanted to follow up on that and ask you, you know, for someone who’s just getting started here, how do you know when you’re ready to do this? Like how much savings do you need? How many lenders do you need to speak to if you do need to secure a mortgage for a portion of the loan or a portion of the value of the home that you’re buying that will produce income for you. How do you know when you’re ready for this?
Natali: You’re ready when you start to just do your research a little. You don’t need cash to get started. You just have to be willing to learn. When we got started, my husband had a foreclosure on his record from before we got married.
Jeremy: And just describe what a foreclosure is for people who may not know what that means.
Natali: He had a house that he had gone underwater when he was in Florida, meaning it was worth way less than he owed on the property. But he was transferred to New York and he couldn’t sell that house for what he owed. And so he was trying to work with the bank, but then the mortgage crisis happened and the bank sold that note and he couldn’t find who they had even sold it to because of what happened in 2008-2009. And so because of that, he had that foreclosure, meaning the bank marked him as an undesirable person to lend to because he had a huge mortgage that they had to sell out from under him. So that meant for seven years that stayed on his credit record. We could not get a loan in his name. And shortly after we bought our first home, I stopped working so we couldn’t get a loan on my credit either because he had the job, but I had the credit score. So we had to teach ourselves all these unorthodox ways to invest in real estate because we had no traditional route. And you know, it taught us how to be so resourceful. And that’s what we teach people on our YouTube channel is all different ways that you can leverage what you’ve got, that you can find money, you know, to start investing. All you have to do is really just want to and have the willingness to learn something new.
Jeremy: Great. Natali, thanks so much. Actually I wanted to get your help with a listener question. This person writes in to say, I’d love to save for a home, but I also need to pay off debt and save for retirement. So what would you recommend to that person?
Natali: I would recommend to find a way to take that savings and put it into something that actually performs. Just you have to start thinking of making your money turned into nest geese, right? So I wouldn’t say, I need to save for retirement. So I’m going to put it into some kind of safe bank product because once you start to run your numbers and really think about your retirement number. It really bothers me when I see commercials of people dragging some kind of fabric across a field and saying, this is my retirement number. Meaning I must die at the end of this fabric, right? Like this represents your mortality. Wealthy people don’t need money in some kind of chest, they have cash flowing assets. They’re not worried about how much is in one place. They’re worried about how much is cash flowing every day. And so I would just say change that mindset because once you start to try and reverse engineer that “fabric” number, you’ll realize that you cannot save your way to wealth.
Jeremy: Okay. Great. Natali, thank you so much for coming on the show. We’ve been speaking with Natali Morris. Thank you so much!
Natali: My pleasure!
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