Average Rental Time in Memphis
Real Estate Investor · Monroe Township, NJ · Member since 2016 · 468 posts · 85 votes
Average Rental Time in Memphis
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes@Abdul Azeez I learned this the HARD WAY out in the mid west...
much better to have lower rent and filled unit.
than risk kids breaking in an stripping your home. taking your condenser unit.. ( even if its caged)
I have 3 rentals left in the south.. I have not raised rents since the day I bought them 10 years ago.
but one tenant has been there the entire 10 years.. they were new homes so cap ex has been next to zero. granted I am probably 100 to 200 under market.. but what is 100 a month more going to do for me.. its about the long game and having your tenants payoff your house for you.
I know people talk about cash flow as real and appreciation as icing on the cake.. in my mind cash flow is the icing on the cake.. if you get it great but if your tenant is paying your house off that to me is the ultimate goal.
215 Replies
Jay brings up a good point. When we take a step back and forget the 100 to 200 a month cash flow which in business terms is zero. Where on this planet would you like to have that house paid for down the road collecting the highest rents or live in later? This chasing rei initial cash flow on paper game is for locals and amateurs only imo. Unless you are entering retirement and looking for cash flow passively....even in that, sfrs for passivity, might be the last place one goes into to actually get that.
You bought the property for $83k and the property taxes are $915/year on it, and let's just assume that insurance is $750/year. Now let's assume you put 25% down at a 4.5% interest rate. At the point, your cost will be $453/month. You set the price to $1,115/month and lets assume that PM/Vacancy/Repair/CapEx is 28% . Let's also assume that tenant pays all utilities and trash is municipal as well. This scenario will leave you with a $350/month cash flow.
Looking at Memphis rents, anything over $1k/month looks like it'll be in the top 10% of the city; By the looks of it, you can certainly bring the price down to around $900/month and still cash flow $195/month which is pretty good.
From a renters perspective, I would think "why the hell would this owner put the extra $15 to make it $1,115 and not just $1,100?? There's a psychology effect to it that makes it seem like all you care about is the numbers, which is true but you can't come off to a tenant that way in such an odd price.
- 9yJames WachobBusiness MemberReal Estate Broker · Memphis, TN · Member since 2015 · 1k+ posts · 890 votes
@Abdul Azeez The key is to find a great team! Ideally you would find a company that has everything under one roof. Acquisitions team, renovation crews (fully licensed and insured), Property Management, and a Real Estate Investment Brokerage in case you ever decide to sell.
- 9yAlex CraigBusiness MemberReal Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes
@Jay Hinrichs probably the best comment I have read yet. Far to often, I think investors think of the small picture and not the big picture of what 20 paid for properties renting out at $1,000 a month can do. Even at the 50% rule, that is $120,000 a year. I don't think investors truly think about maxing out their own and spouse Fannie Mae limit, then using the cash flow each month to pay off mortgages. I used to have a spreadsheet showing how quick one can start paying off property with 20 leveraged homes, but it is quick. Well quick in these sense of long term buy and hold.
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Alex Craig yes not to get into the leverage debate but in my mind the goal is free and clear props as soon as possible.. for the reasons you suggest.
also the quicker you pay them down the safer you are if you have an event that forces liquidation.
if you have nice equity and have to cut and run your not bringing money into close and or your getting some money back.
I know this is totally BAY AREA thinking I was raised there.. CAsh flow was not anything we looked for basically in SFR it was how can we get into a prop and let SOMEONE ELSE PAY FOR IT.
All I know is most of the wealthiest investors I personally know have substantial assets paid for.
Great feedback @Jay Hinrichs
Can't agree more... With one tiny update... The latest bay area mentality is "how to get into a property and have someone else pay 70% of it".... You pay the balance, hence negative cash flow at the beginning... Lol
@Diane G. not everything in SF/prime Bay Area has a neg Diane. The ones I got aren't neg. Many ways to do this- get a good deal, value add, high rent PSF, inlaw unit income, upcoming/changing rental neighborhood. But if you just pick up any ole thing or are a retail buyer, then yes, good chance you'll have a neg.
I hear you... But in the A locations in San Francisco, there is no other way to buy than retail.... Even foreclosures try to fetch an above market price...
I am currently looking for SFM in Redwood along 280, same thing, no other way to buy other than retail.....now, if you are willing to buy in Redwood city along 101, yes, you could get a deal....On 280 side, no such thing as "a deal"....
But i agree with you, if you are willing to sacrafice on location, you don't HAVE to be neg......
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes9y
I don't do SFR as I can't stand it but I can tell you some of my friends that own many units DO NOT charge top line rents whether houses or apartment buildings unless you have a market so constrained that there is little to no supply for the demand.
When they buy something if market rent is 1,000 tops and low rent is 800 they want to be at 900 or below. With middle market rent they get a lot of applications for the best tenants. In many markets the crappy tenants will agree to anything because they are desperate for a place. The great tenants know they are gold and want to get the best place at the best rent they can. They want value.
Buying anything with the expectation of getting top line rent it seems would be a mistake. Instead be conservative on a lower rent.
As to the other comments about effective rent I have found also that tenants do not think it is less. Some of these tenants have not even graduate high school or have a very low level of financials skills especially on lower end rentals.
Once many years ago I gave a clear sheet showing if they had to put down a deposit, moving costs, etc. it would far out weigh what they were currently paying. They did not have much education so all they knew was in their reality it was more expensive. The reasoning skills of lower end tenants can be very poor which is often why some move around often and have many life and financial problems.
The investors I know that do very well focus on equity growth and cash flow is a secondary consideration.
If the rental market is competitive why not give a lower rent to draw in many applicants to get a really good one and have a stepped up rent program?
So 950 the first 6 months and then 980 the next 6. Gradually keep moving them up close to top market but not quite. Once they are living in the unit some tenants can stomach smaller increases better.
No legal advice given.
Any update on this @Abdul Azeez?
- Real Estate Investor · Monroe Township, NJ · Member since 2016 · 468 posts · 85 votes9y
Originally posted by @John P.:
Any update on this @Abdul Azeez?
Replaced the PM and dropped the rent. The new PM has given a scope of work. Let's see if this works out.
I dont get it, everything around you is more expensive...
- Real Estate Investor · Monroe Township, NJ · Member since 2016 · 468 posts · 85 votes9y
Folks - I wanted to refrain from posting until I had some tangible update. I was informed by the new PM that a tenant has moved in on Apr 21. As you know, I replaced the PM on Mar 29. I dropped the rent to $995 and the new PM provided a scope of work and I decided to do the ones I thought were necessary. I was informed on Apr 10 that a tenant was successfully found and would move in on Apr 21. I will still see how this performs from a profitability perspective and satisfaction factor for new PM will come out as time goes but this is the most recent update I have had. So, in effect, a tenant was found within 13 days of transfer. I am grateful for all the advise so far about Equity growth being more important than cash flow.
@Abdul Azeez Thanks for starting this thread. These are the true "real world" experiences I love reading about. I always find it interesting that certain people/companies are highly praised on forums, but when I use them, they never seem to be the perfect person/company that all other posters tout them to be. It seems you experienced this first hand with your initial PM company.
My belief in reading through the thread was that price was always the issue. It's hard for me to wrap my head around it, but renters are generally VERY price sensitive. I had a $2800 rental that sat for a few weeks and then I dropped it $50 since it was coming close to the first of the month. Someone who saw the property at $2800 got the alert for the $50 drop and came by with his agent the same day to sign the lease. Crazy right?
Anyway, glad to hear you got the place rented and good luck in the future.
- Real Estate Investor · Monroe Township, NJ · Member since 2016 · 468 posts · 85 votes9y
Originally posted by @Eric C.:
@Abdul Azeez Thanks for starting this thread. These are the true "real world" experiences I love reading about. I always find it interesting that certain people/companies are highly praised on forums, but when I use them, they never seem to be the perfect person/company that all other posters tout them to be. It seems you experienced this first hand with your initial PM company.
My belief in reading through the thread was that price was always the issue. It's hard for me to wrap my head around it, but renters are generally VERY price sensitive. I had a $2800 rental that sat for a few weeks and then I dropped it $50 since it was coming close to the first of the month. Someone who saw the property at $2800 got the alert for the $50 drop and came by with his agent the same day to sign the lease. Crazy right?
Anyway, glad to hear you got the place rented and good luck in the future.
Eric - thanks. I agree with you. However sitting so many miles away I do not know if price was the only issue. The new PM told me that the house had a very strong pet smell when opened and strongly recommended a deep pet cleaning which is one of the items I approved. Did the house really have a pet smell? I do not know but hey it's rented. This is the kind of input I would have expected from my first PM but which unfortunately did not happen. The pricing feedback which the second PM provided to list at $995 when they took over the rental is also something I would have expected from the first PM but did not happen. Will the second PM now deliver in management? I do not know. That only time will tell. But I get a distinct feeling that some of the companies that do offer good value to investors are not on BP.
Regarding your point on certain companies being touted in BP, I cannot agree more. In my case, I went with the mortgage company being recommended here constantly. It was a nightmare to deal with. The guy who was recommended here and who talked very smoothly with me left the company after accepting my loan. The experience was really bad to deal with an out of state mortgage company spread out all over the United States after his departure. He was not even professional enough not to accept my loan when he knew he was leaving and the only reason I came to him was because of the BP recommendation. That's a story for another day. I could start a thread on that.
The experience has been truly eye opening. Let's see how this works out.
Your story is just another vivid example of why one should not invest OOS, in my opinion... In essence you are giving up all control and have to rely heavily on someone else to treat your property as if it was his own, which will never ever happen in a million years...
When I hear people say, on BP, that their OOS is doing well, I am thinking half of them are probably clueless on what is really happening with their properties.. They are just looking at $200 /month and got happy of that....
- Real Estate Investor · Monroe Township, NJ · Member since 2016 · 468 posts · 85 votes9y
Originally posted by @Diane G.:
Your story is just another vivid example of why one should not invest OOS, in my opinion... In essence you are giving up all control and have to rely heavily on someone else to treat your property as if it was his own, which will never ever happen in a million years...
When I hear people say, on BP, that their OOS is doing well, I am thinking half of them are probably clueless on what is really happening with their properties.. They are just looking at $200 /month and got happy of that....
That ship has sailed Diane. Too late for me to question the decision to invest out of state. I believe one of the reasons people invest out of state is because of instate becoming too expensive.
@Diane G.- I have to disagree with the notion of not investing OOS. (Disclaimer: I haven't done it yet). I think it comes down to your individual investing goals, level of risk tolerance and your team aka boots on the ground in the particular State/local you're investing in. I would think that he key to OOS investing is the latter: TEAM as many suggested in this thread. Without having people/experts there who you trust with your $$$, it's foolish to do. Of course, you will pay more ultimately, but if someone is comfortable with the cash flow, then more power to them. There are many investors on BP who invest OOS successfully, I think @Ali Boone is one of them...I would be interested to hear from people who have been doing this successfully.
BTW, thank you @Abdul Azeez for starting this thread as well as everyone who contributed from both sides of the isle (Pro and against OOS investing). Such discussions are extremely helpful to get a glimpse of real-life scenarios out there. Reading the thread for the last few hours, I kept thinking the same as others: your rent was too high. I probably would not have waited this long to fire the PM, but I know it's easier said than done.
Based on my landlording experience (CA), every time my property didn't rent quickly, the price was too high. Once the rent was lowered, bingo!
Whether you invest in or out of state, the PM will be key imho. Whether you can find a PM that has your best interest in heart and provides a level of care you would, that's a different conversation. I do believe that if a tenant is well qualified and screened, your level of exposure is lower and PM will be much easier-resulting in better experience to the owner.
The personal touch can be very important. Tenants are our customers and we have to provide a decent level of customer service. I've had long-term tenants in the last few years (knock on wood!) because I built a relationship with them, treat them with respect and they appreciate it (most Landlords are A-holes in the Central Valley). My rentals are in C 'hoods' so I am assuming they would be similar what you would get in Memphis in certain areas.
Whether a PM can provide the level of personal touch and build a relationship, that's also a different question.
To expect a PM to care for your property the same way you would, is to trust a newborn to a nanny the same way a mom would....It is NOT the same...
You can find a good nanny, never going to be the same as the mother; you can find a good PM, never going to be the same as the owner....
For those who says a good PM is equalvent to the owner, they are just fooling themselves...
Originally posted by @Diane G.:
To expect a PM to care for your property the same way you would, is to trust a newborn to a nanny the same way a mom would....It is NOT the same...
You can find a good nanny, never going to be the same as the mother; you can find a good PM, never going to be the same as the owner....
For those who says a good PM is equalvent to the owner, they are just fooling themselves...
Ali has documented on BP many issues with her PMs. Going thru multiples, letting bad tenants rent resulting in back to back evictions in a couple months is just a partial list. Don't be fooled that this has not been a huge issue and eroded most of annual cash flow on a single property all due to crappy managers. That experience is typical and there are far more bpers who have had plently of problems as well. Finding someone to manage a rental for $80 a month long term is very risky business. There is just not enough percentage incentive to make this business management model reliable over time. Many PMs will fee you up the ying yang and make up the missing money for them with lease up fees and other expenses all of which will be on your end. Good luck!
About 3 weeks ago, I got a new hard wood floor for my condo that is renting $4500... I have known the floor guy for 10 years and I know him so well that I don't usually ask for quote prior to work being done.. I just tell him what I need done, and he will do it and send me a bill afterwards...
This time, the wood has a certain pattern on it, and when he installed it, the pattern got aligned up in the middle of living room right upon entry... it looked like little foot steps going across the room, really crappy look...He sent me a pic and looked ok in picture..
When I popped over, I almost fainted... I asked him to come back and redo the entire room right away... If I were OOS, I won't find it out... And for people paying $4500, they are on the picky side if I may say that... Guess what is going to happen to that property then?
Luckily, I am local... It is 45 minutes away....
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