Turnkey Investor from North San Diego, invested in Memphis Area
Hi All. Name is Eddie and I'm from the North San Diego area, which includes Carlsbad, San Marcos, Encinitas, etc. When I'm not at work or chasing the kids, you can find me in or on the water.
I'm a forty-something Wage Slave, and the wife and myself own multiple SFR properties out of state (Memphis TN area). I invested through a Turnkey outfit run by a former work colleague.
We have been homeowners since 2000 and purchased our first rental property in 2012. My career is in Engineering, but I also have a Master's in Personal Finance. My family chose to invest in Real Estate to add some diversification to our investments. We feel that direct investment in Real Estate provides some 'buoyancy' to our portfolio.
I consider myself to be a 'Journeyman' real estate investor. I'm clued-in enough that I know how to run all the functions on an HP 12C, I can calculate an amortization (and depreciation) schedule, I can estimate before- and after-tax cash flow, and I can calculate IRR/XIRR based on assumptions about a property.
...But I'm also naive about some aspects of real estate investing. For example, one of our properties recently hit us with a 'Lease Up Fee' (which was, in fact, in the Property Management contract we signed). I just had no idea that what this really means is that when the tenant leaves, I not only miss out on rent but I also have to pay a full month's equivalent rent to acquire a new tenant- All while still making the mortgage payments. Guess I should have added this in to the 'management fees' portion of my SFR cash flow analysis spreadsheet :(
Overall, we're pretty satisfied with how things are going so far with our SFR properties. Some specific experiences:
- One particular property is a Cash Crocodile for this year. One of the things we're struggling with is how to figure out if this cash burn is management-driven, location-driven, property-driven, or just a particular run of bad luck.
- Another property has a good tenant who has asked to sign a Lease Purchase Agreement. On the advice of someone I trust, I am pursuing the Agreement on the belief that (1) the tenant will treat the property more like an Owner, and (2) this gives me an exit strategy with Capital Appreciation a few years down the road (note I have NOT inked the deal yet).
I'm not actively pursuing any deals right now until I determine the root cause of the Cash Crocodile listed above. My goal is to to maintain an overall asset allocation of 20-25% towards direct RE. At this point I do NOT have aspirations to drop everything at work and become a full-time RE investor.
I'm willing to help other current and would-be Turnkey Investors based on my experiences. Also more than willing to listen to advice from other Turnkey Investors or Turnkey providers.
The problem property if you give us an address or PM one of us in the Memphis market we can advise if it is an area thing. Some zips, particularly 38118 and parts of 38115 have really gone shoot em up bang bang this year sadly.
Please share the property details and we will surely give you our opinion.
Thanks
Interested to hear the details on this.
Is one of your properties not renting? Can the PM company provide info that would make everything clearer?
Sounds like you don't have a very good PM company.
#2 All Forums Contributor
- Real Estate Broker
- Lake Oswego OR Summerlin, NV
- 58,930
- Votes |
- 39,986
- Posts
#2 All Forums Contributor
- Real Estate Broker
- Lake Oswego OR Summerlin, NV
says you can have a perfectly good rental in a good area then all of a sudden over the course of a year the bad element moves in and your toast. its sad but true.
Thanks so much @ Curt Davis and @ Dean Leftus.
I will be interviewing Property Managers soon.
Update for @Curt Davis and @Dean Letfus :
After getting a good referral for a Memphis PM from Dean, I interviewed an alternate PM and discussed my expectations with my current PM.
Long story short, I signed a 1-year extension to stay with my current PM and am placing one of the under-performing properties for sale.
I'm now considering branching out to Vacation Rentals either in my local area (Carlsbad California / North San Diego) or Hawaii.
Originally posted by @Edward Wills:Update for @Curt Davis and @Dean Letfus :
After getting a good referral for a Memphis PM from Dean, I interviewed an alternate PM and discussed my expectations with my current PM.
Long story short, I signed a 1-year extension to stay with my current PM and am placing one of the under-performing properties for sale.
I'm now considering branching out to Vacation Rentals either in my local area (Carlsbad California / North San Diego) or Hawaii.
Awesome Edward! Bp has the greatest set of Memphis boots on the ground I have seen vs any other location. They are bonafide experts. If they say sell you can take that to the bank as solid advice. I really like your vrbo idea for north county. In particular, Oceanside seems to have some workable entry points. Keep us posted por favor. And Surf on!
Hey Edward! What kind of engineering are you in? I used to be an aero engineer. And similarly too, I have always bought turnkeys out of state as well. I never bought in Memphis but I did in Atlanta, which was pretty much right after the Memphis boom.
I totally hear you on the property confusions. I've had one of all of those myself. The one who keeps costing money and I can't figure out why, the lease purchase agreement tenants, and the one with just a run of bad luck for bad tenants. All of mine have mellowed out now and are doing good, but I definitely know the headache.
As far as the cash crocodile, what expenses specifically are being labeled in the statements? Like what is the specified cause for the expense? Is it maintenance, or vacancies, or weird fees, or what? That will help determine the root. It could be any of the things you mention above. I'll try to help you narrow it down if you want! Mostly from a 'been there, done that' side, and we are fellow CA engineers who buy turnkeys...gotta help each other out! :)
@Ali Boone
Thanks for the offer to help - The cash crocodile appears to be due to a Special Cause.
I had a tenant engaged in criminal (drug-related) activity, and the front door was damaged during the police raid.
The PM's maintenance contractor repaired the damaged entry door and hardware- Passing the bill on to the PM (and ultimately myself) without alerting the PM that something nefarious was going on at the home. My first notification something was afoot was I received a snail-mail hategram from the HOA.
The cash burn on this unit was driven by damage, vacancy, and re-marketing expenses.
I've straightened out the relationship management stuff with my PM and have renewed our PM agreement for another year.
Oh geez! Well, chock that one up to a story for the books. It's a good one! Yep, I've had similar situations. Not drug or crime-specific, but in terms of bad tenants, they will get you every time! Tenants are by far the most expensive part of owning rental properties, no doubt about it. Hopefully you are able to land some good ones to replace these!