Is Memphis still a good market for SFR?
Investor · New York City, NY · Member since 2013 · 17 posts · 7 votes
Is Memphis still a good market for SFR?
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Curt DavisBusiness Member
Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votesDean,
You are a turnkey company. You sell homes to your clients, rehab them and refer property management. How is that not turnkey? Just bc you dont have in-house mgnt?
You are not getting any better deals then the rest of us and as far a rehab goes, that is all a matter of how someone wants to renovate. The average home needs $10k-$12k if you do a decent job.
I will give you some credit, to operate your business from a 3rd world country cant be easy.
You mentioned the home on Newling, here is the actual breakdown:
$58k purchase price
We then got a $78k loan to cover all our purchase, rehab and additional fees so we are initially all in for $78k.
We advertise for $99,900 but accept a $92,000 cash offer.
There is a total of $5,260 in commissions for this home.
We will have about $1,000 in closing cost when we sell.
The home was vacant for about the first 3 months taking into account renovations and property mgmt advertising time, $2,340 holding cost while vacant
So when its all said and done the company will make close to $5,400
Not the huge profit that it looks like.
Some markets are inflated bc of what we do but this area for example has always bee a $100k-$115k neighborhood so our buyer getting it for $92k is a pretty decent deal. The house next door was sold for $112k.
I can say with confidence that our mgmt company is as good as Chris's mgmt company!!!
Curt Davis - KAIZEN Realty538 Reviews
37 Replies
- Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes12y
Hi Tony. Yes absolutely you paid too much. You will have to wait a long time before they are worth what you paid but if you are keeping them that's OK. I fundamentally think the market in Memphis is specifically bad for investors paying current turnkey prices. They are ridiculously over priced. Even the hedge funds are regretting what they paid I noted in a Wall St article this week. The non locals all miss one critical factor and that is that Memphis is basically poor so we do not get rent appreciation and income growth so you must never pay retail in this city unless you have a 20 year hold strategy.
- 12yCurt DavisBusiness MemberFlipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
Dean so what your saying is that no investor buying in Memphis or any other market should buy from companies like yours or anyone else's who provide the services we do?
Homes are worth what someone is willing to pay for them like any other product.
The early hedge funds were getting great prices but the ones who came a little later were just buying direct from retail sellers. Hedge funds should have never entered the investor market as they truly dont know what they are doing. Its easy to just buy homes when you have a couple hundred million to put out there.
Curt Davis - KAIZEN Realty538 Reviews - Dallas, TX · Member since 2013 · 4k+ posts · 744 votes12y
There are good deals on all corners in Memphis, but most cash buyers are buying elsewhere.
My 2cents,
Joe Gore - Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes12y
We are at least 10K, often 20K OR MORE below a turnkey seller so I don't consider us in your market.
You have complained about our company that we must do a bad rehab to be selling so cheap in fact because you don't understand how we operate.
Yes I am saying you should only buy from a company like yours or another turnkey if you are going to keep the property a long, long time. Thats why we avoid the turnkey model to keep our prices down so our investors can actually sell if they need to.
Let's say you and I buy a house for 50K, like 7265 Newling for example. We both spend 20K rehabbing it. I will then sell it for around 78K.
You have to sell it for 99K.
You can sort of justify it because there are some comps similar but all those comps are hedge funds or other turnkeys so you have created an artificial price point that teh hedge funds are now finding is unsustainable, particularly in Memphis.
My buyer can exit it almost immediately if they had a problem because there is plenty of equity in it. Your buyer has to create equity through debt or lose money if they needed to sell as they paid 20K too much for the property. It's just a different model. We do what we do because we get over 80% of our clients coming back for more houses so we don't have to advertise for new clients. Makes our business much easier to run and cheaper to run. Our clients can't go anywhere else can get deals as good as ours.
There are always reasons to pay too much for a property if for example there is good financing being offered so that your cash input is lower and you can create the equity by paying the note off but this is still a very long term process.
And for risk averse people the security of a Chris memphisinvest deal for example where they know the company has done a primo rehab and has exceptional management in place it can be worth paying more PROVIDING you have a very long term buy and hold model.
There's nothing wrong with a tattoo as long as you really, really love it.
- Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes12y
One thing I would be very careful about if buying from anyone saying they sale to investors is location. I have bought out of state without going to check a house out in person. I did several things to make sure the location was not bad. I began investigating 2 very nice looking properties in memphis but did not get very far because @Curt Davis was kind enough to chime in on the add and point out facts about the location and the type of problems a buyer would encounter. You can check out locations by contacting other management companies and asking if they would be willing to advise on where they prefer to manage at and find out if your prospect would be an area they like. You can also get help from local folks if you have connections. Location, location, location!
- 12yCurt DavisBusiness MemberFlipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
Dean,
You are a turnkey company. You sell homes to your clients, rehab them and refer property management. How is that not turnkey? Just bc you dont have in-house mgnt?
You are not getting any better deals then the rest of us and as far a rehab goes, that is all a matter of how someone wants to renovate. The average home needs $10k-$12k if you do a decent job.
I will give you some credit, to operate your business from a 3rd world country cant be easy.
You mentioned the home on Newling, here is the actual breakdown:
$58k purchase price
We then got a $78k loan to cover all our purchase, rehab and additional fees so we are initially all in for $78k.
We advertise for $99,900 but accept a $92,000 cash offer.
There is a total of $5,260 in commissions for this home.
We will have about $1,000 in closing cost when we sell.
The home was vacant for about the first 3 months taking into account renovations and property mgmt advertising time, $2,340 holding cost while vacant
So when its all said and done the company will make close to $5,400
Not the huge profit that it looks like.
Some markets are inflated bc of what we do but this area for example has always bee a $100k-$115k neighborhood so our buyer getting it for $92k is a pretty decent deal. The house next door was sold for $112k.
I can say with confidence that our mgmt company is as good as Chris's mgmt company!!!
Curt Davis - KAIZEN Realty538 Reviews - Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes12y
I wont bother correcting your inaccuracies Curt, you seem to need to tell other people their business when you don;t know anything about it, I will leave you to your own conversation.....
The fact remains if you buy turnkey you will need to hold a LONG time before you can exit or use debt to create equity so you can sell at below purchase price. - Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes12y
OK I do not want to hijack the thread but I have a question. About 6 or 7 turnkey operators have posted here. Dean apparently claims all turnkey operators but him sell for inflated prices and you must hold for 20 years or you will lose money. Dean how does your model turn out properties for such a large amount less than the others.
My experience with out of state turnkey properties is very limited, I would be interested in anything that helps me invest more wisely in out of state turnkey type property.
- Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes12y
HI Jerry. I would never be so arrogant as to imply what you said. Firstly we are NOT a turnkey company and secondly my point is that turnkey companies everywhere are by nature selling at close to retail or above it is not a Memphis specific thing. The difference in Memphis as I said is that our rents and incomes don;t grow like many cities.
So to use Curts property as an example.
HIs numbers are $58K purchase price, (although it shows on all sites as 50K but let's say it is 58K.)
He states his rehab is typically 12K so he is all in at 70K plus holding costs and interest.
So he sells in this case for 22K more than if you bought the property yourself presumably most of that is in holding costs and affiliate fees. He doesn't state what it was so we have to guess.
Because he is turnkey he has to wait till his renovation is finished and property is rented so there are thousands of dollars of holding costs you can avoid if you did it yourself.
We operate a sort of hybrid model so in the case of the above example we would have bought the property and sold it typically before we closed on the buy. So our costs would have been 58K plus rehab of 12K plus legal and closing costs both sides of around $1500.
So we would have sold the property for 78K and the investor would have carried the risk of vacancy until rented but with no risk of rehab blowouts or other issues.
So a turnkey needs to charge in this case 14K more than us, and they were asking 21K more than us.
This is what makes turnkey expensive but as I keep saying for some investors it is a great idea.
I can't give you tips on dealing with turnkeys other than make sure they have the financial backing to still be in business to honour any promises they make. And get plenty of word of mouth about their existing clients to make sure they are as good as they say :-).
But my real advice is unless you know you will be holding long term buy through sources that have lower overheads and margins. There are plenty of companies in Memphis for example that will sell you a good house at a great price. So figure out who the good management companies are and get their assistance with rehab and then you will be all in at a wholesale rate which allows you to exit if you need to. I have seen so many people stuck with lemons or even good houses at such inflated process it literally ruins their lives. That is why we rebuilt our business to make sure we never did that to one of our clients.
- 12yCurt DavisBusiness MemberFlipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
Dean, if you were a legit operator and were a licensed agent or had someone who was a licensed realtor on your team you would be able to look the house up on maardata.org and see that we indeed purchased the home for $58k. I then broke out all expenses and commissions so I am not sure how you could not follow simple math.
Curt Davis - KAIZEN Realty538 Reviews - Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes12y
Oh I can Curt. Buy from Turnkey like you pay 92K. Buy same house non turnkey at 78K from us. Save 14 grand. Simple math.
Thats the downside of turnkey they have to pay commissions and fees. Of course if they are realtors they will ALSO be paying themselves realtor fees in many cases which further increases their margin.
It's just a cost benefit analysis. What do you get for your 14K, ( or 21K if you had achieved your asking price) and is it worth it?
The fact you could drop by 7K shows the fat turnkeys have. Your discount on asking is more than our entire fee.
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