Memphis MFH for $20K? What am I missing?

Question

Hello all - New here but thought I would start by seeing if anyone is familiar with the Memphis TN market?  I have many well performing properties in NYC and Florida, but this would be my first delve into the TN market.  I see many homes for sales sub-$30k with tenants in place that "seem" to be cash flow + day 1 with under 2 year paybacks.  Am I missing something?  Any tips or lessons learned in this market would be helpful.  Thanks in advance.

Douglas Skipworth · Answer

@Alex Craig,

That was an awesome example.  Thanks for sharing!  (And, you should definitely hook up with Derrick Craig. He's first class...like you!)

We manage many houses in tough neighborhoods (see below for a list of the 6 zips where we manage over 100 units) and we follow the same model Alex described above about securing the property (eg, boarding windows, removing components, etc.).  It's really hard work.

But, most of our investor clients are out of town (1/3 are from Memphis, 1/3 are from the East and West Coast US, and 1/3 are International) so it can be done successfully.

38122 - 267

38111 - 225

38128 - 213

38118 - 176

38127 - 173

38114 - 121

I am 100% convinced that all investors should use BiggerPockets to vet their team, especially turnkey providers and property managers.  And, I'm equally confident that the right property manager can navigate the challenging areas for out-of-town investors.  I see it happening every day.

Alex Craig · Answer

The only thing you will be missing is money in your checking account if you buy these properties.  Then we they go vacant, you will be missing AC units, copper and much more. Don't fall for this trap.  They are horrible, crime infested areas.  This is coming from someone who has lived here all my life.

Joe Moore · Answer

@James Wachob I'm ready to go.  I will take you up on that offer on my next trip to Memphis.

Douglas Skipworth · Answer

While I understand the other posters' position, I agree with @James  Martin.

There are definitely instances where an experienced management company can do a solid job for an out-of-town investor in challenging parts of town.  But, I have found that to be the exception rather than the rule, which is what the other posters are saying.

Just know @Martino Romeo, it can be done.

Joe Moore · Answer

It is time to get on a plane and go to Memphis and start to learn the landscape.

James Martin · Answer

WOW- I feel so alone! I happen to like these areas at times😜

Alex Craig · Answer

Let me back up for a second.  @Douglas Skipworth, @James  Martin and @Derrick Craig I believe are right to a certain extent.  I am not so sure about a 20k property; I would have to see to believe that, but maybe a 35 to 40k deal.  Your fate all lands in the hands of the Property Warrior, I mean Manager.  My skepticism comes mostly on the sell side.  I have seen so many out of state investors get took to the cleaners on these deals.  The expectation must be set on the front end; this is low income housing, typical in high crime areas and that is what it will ever be.  I have talked with Douglas about these type deals and he owns from what I understand, quite a few and he is doing well. Because he has a large portfolio of these homes, naturally it make sense for them to manage in those areas too. Douglas, excuse me if I am not accurate.  You absolutely must have a PM with a presence in the area.  Also, your PM should be well plugged into community organizations for the area.  James has homes in these areas and I know he is a Ninja and is very hands on with his properties.  I don't know Derrick, but it sounds like he knows what he is doing too.

To give you an idea of the work involved in this type of home, I will share my story of the home I own that fits this forum post narrative.

I own a property at 4967 Newton that I paid something like $23,000 and after rehab was all in at $29,000 (I did take a larger loan though).  But in theory, I should have been all in for $29,000 and that property rents for $695.  I actually had a 6 year tenant just move out and she left the house in great shape.  But here is where the hard work comes in; the day the property went vacant, I had my guys boarding up the back windows, pulling the furnace, hot water tank and AC. You don't want these houses to sit vacant for long. I started my rent ready that same day and did about $2,500 in additional work to make it look great. After all, I did just have a 6 year tenant move out, it makes total sense to dump some of those profits back into the house for improvements. Once the rehab was done 2 days after the move out, I had awesome high res wide angle lens pic shot.  I position this house to be the nicest on the street and rented it below market rent.  Even though I got $695 last time, I rented out the house for $650 this time to get it occupied ASAP to reduce the certain probability that the house would have been vandalized had it sat vacant for to long.  I also sent one of my $12 a hour henchmen by the house on Mondays to check it out and then on Friday afternoon.

Long story short, you have to expect your PM to do that work to maximize your opportunity for success.  That is why I say these homes are best owned by locals.  We rarely manage homes in these areas.

Move Out Link:

https://cbproperties.box.com/s/us7duj2hjfnk20lounm...

RR Pics:

https://cbproperties.box.com/s/4gy65id435nclpy1rag...

Derrick Craig · Answer

@Chris Clothier Great minds think alike!! I as already all over it we were typing at the same time.. Thanks again for the shout out!! LOL!!

Chris Clothier · Answer

And there he is....

Apparently he was chiming in just as I was singing his praises.  Listen to what he says.

Best of luck!

Chris Clothier · Answer

@Martino Romeo - Reach out to @Derrick Craig here on BP and connect.  When it comes to MF and maybe even SF as well, but I know MF for sure, he should be able to give you some real time advice on how that segment of the Memphis market works.  Derrick has a good reputation for the hard part, management, in these areas so I would start there.

I have not had any success in Memphis at the price points you are talking about and have stayed away from Multi-Family for a few reasons, but mostly so I can concentrate on SFH.  Either way, if you are interested in MF at that price point in this market, I would start my education with Derrick.

Memphis MFH for $20K? What am I missing?

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