Do people ever learn? (Memphis market observation).

Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes

8y

Originally posted by @Dean Letfus:

@Caleb Heimsoth, your post is a good example of the problem with Memphis. Zip codes are a useful guide but you can have a pocket in a bad zip that is awesome to invest in. Even 38127 has parts that are fabulous. You need always to get local input on the actual block of the actual street. I won homes where you can walk 100 meters and the whole demographic changes.
One basic rule is never go below $800 a month rent, We don't really look at anything under $900 to $950 these days.

@James Wachob, I agree with you mostly. I think number 4 is a complete waste of time. Especially in Memphis you are more likely to get deceived actually. Really bad areas of Memphis look awesome. Big tree lined lots with neat looking houses. But the area is a zoo. So visiting is a waste of money to me. Just get good advice and don't get enamoured with any particular company. I hope what you say about your deals is true, I know I rarely see an email from you that's in an area we would buy in but the bulk of your inventory probably sells before it's advertised so we may only see the marginal deals?

@Chris Clothier, failure is far more helpful than success in my opinion. I have learned nothing from success except that it's successful. But failing your way to success is the best way to get there!
You're right about up-sellers although I have observed many wholesalers getting much more sophisticated and dishonest, (if that's possible). Sadly many of the larger players are now marketing the houses that are in such bad areas they cant turnkey them to people as fixer-uppers or equity deals. This has always made me mad. Why don't companies do what you guys do and just stick to decent areas. Of course the answer is greed but it taints everybody when the big boys don't have any standards either.

Thats fair, I’ve had multiple people tell me not to go into 38127 but I guess that doesn’t mean it’s all bad. I like the rent example. I have been around 750 and above. Will likely gravitate towards 850 and above in the future.

The rental amount and then with good local advice from the PM makes me fairly confident on judging an area.

1 Reply

Dean Letfus

OP

Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes

8y

@Caleb Heimsoth, yes a trusted local expert is the only real solution. I have 2 people I run every address past. I just never have a problem since I started doing that. I think the ideal is ato find a great PM and have them vet every address. They have to manage the thing after it's bought so they have a huge vested interest in stopping you buying a lemon.

5 Reply

Nina Hayden

Rental Property Investor · Dallas, Austin · Member since 2018 · 246 posts · 213 votes

8y

Great thread and advice! These are the types of posts every newbie needs to read. I have seen these issues that "no one" seems to learn happen over and over with each real estate cycle. It is unfortunate and when many lives are affected it is beyond sad. I work with many investors and none of them have made their money this route or had the get-rich-quick mentality. What investor likes to lose money? Why I question when someone says they are investors, especially when they are sloppy with numbers. Real estate investment takes time and effort.

5 Reply

Leland S.

Developer · LA, Nashville TN · Member since 2015 · 295 posts · 75 votes

8y

I've seen a lot of turnkey companies trying to sell rented rehabs in garbage areas like Cleveland where nearby homes are selling for 20k and claiming it was a cash flow cow. The distance real estate crowd is definitely saturating any market that's not in CA. Even being in Phoenix I am looking outside. I'm very cautious of putting cash into anything in this market that doesn't have a healthy margin. I am not interested in following dumb money!

1 Reply

Dean Letfus

OP

Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes

8y

@Nina Hayden, many of us have been there Nina. The problem is how can you know when you're from somewhere else. You get sent photos of a house or even go and visit it, it doesn't actually help you know the rentability of the area at all. Memphis especially almost all of it looks amazing. It's very green, most homes are brick. Once you get outside of completely blighted areas with burnouts and boards there is really no way to know what an area is like.

0 Reply

Carl Coe

Member since 2017 · 6 posts · 1 vote

8y

@Dean Letfus I think about this quite a bit. A wholesaler from CalifornIa had a “great” 70 unit deal here in North Carolina. I went to visit the property and it is as close to condemed as you can be. Literally zero redeeming qualities and not even a good financial package. Perhaps it’s my experience but to me these remote wholesalers and those that buy from them are seedy and create no long term value. Anyway the world is full of winners and losers and I wish them the best.

1 Reply

Jack B.

Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes

8y

Originally posted by @Dean Letfus:

So brief background. I started investing in the USA around 08. Ended up in Memphis and with the help of a great mentor really got going in that city. It quickly became obvious that many parts of Memphis were terrible and likely to not re-gentrify. In fact more than that it was obvious that what us New Zealanders would call "white flight", meant that many areas that were either quite good or just OK were going to turn bad soon enough.

So location is super critical here in Memphis. More so than many other cities I believe.

Roll forward to late 2017 up till today. My inbox is filled daily with deals from pretty much every wholesaler I can find operating in Memphis and these days there are a ton of them.

99% of the deals on offer are in such bad areas you wouldn't drive down the street let alone own a rental there. And these deals seem to be selling, often to out of state investors, as fast as the emails get sent out.

How can so many investors be lining up to lose money when you only have to visit somewhere like this forum to know of the issues?

And I mean serious money. I know of an investment group from down under that is currently losing a fortune having to bail out of hundreds of terrible houses in awful areas.

So I'm posting this just as a discussion point so that people may find it when they search. The fastest way to grow a small fortune in real estate is to start with a large fortune and then invest in Memphis without expert local advice :-).

I wonder the same thing all the time. Lot's of novices and incompetent people who don't realize that buying a 30K house in the ghetto is not an investment. I also love all of the stories of their cash on cash return, which lasts for a short period of time before the house is shot up or tenants trash it.

I'll stick to properties that require a 100K down payment in Seattle and appreciate 50-100K a year over the 6K a year cash flow figures on the 30K houses.

1 Reply

Dean Letfus

OP

Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes

8y

Originally posted by @Jack B.: