Do people ever learn? (Memphis market observation).

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

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 :-).

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

Originally posted by @Dean Letfus:

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.

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.

the absolute classic and truth in this thought process was the [post 2 or 3 weeks ago titled.

" 0 to 15 units in 12 months"

come to find out west coast person decided it was a good idea to leverage their personal residence and buy D class 400.00 a door rentals in this market.. and I don't care what market any market this is darn near financial suicide.. Now what I find very interesting and to your point is.. there were over 200 post congratulating this person and basically saying cant wait to do the same thing.. that was just incredible to me..

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Mark Cruse
Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes
8y
There are multiple notions here that are either relative, inaccurate or open to personal interpretation. The notion that only areas which gentrify have appreciation is silly. Clearly that is false. In addition. the notion that white flight automatically assumes areas that were good will be bad speaks to a very ugly bias in my opinion. There are multiple places I can point to that clearly dispels this, and areas you may consider horrible to drive in others may not see it this way. I have a hard to believing all these people in Memphis are losing. That would have to mean every last investor there is an idiot. The quickest way for wholesalers to lose credibility is to push sorry products out. They could drop 2 or 3 that are bad and quickly have their name out on the wire in a bad way. There are tons of people making money from buy and holds and flips in places like Baltimore and SE Washington DC, where gentrification is way off the horizon. I have personally made money in very rough and non-appreciating areas along with most of my associates. It’s my feeling because there is the existence of so much personal bias it’s clouding an accurate perception as to what may be actually occurring.
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Marcus Auerbach
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
8y
Jay, that is a good observation - BP has been drumming for cash flow, because they have realized how many people speculated on appreciation and lost everything. So they pushed it for a good reason, but to a point where people think it's the only think that matters. In reality you need a healthy combination of cash flow (can't do without), principle pay down (works better on higher priced homes, duh) and potential for appreciation, both natural and forced.
Try to make a million with $500 in cash flow. Takes 166 years and at least 4 full gut rehabs in between. Much easier to buy a million worth of quality properties and let the BP calculator do the talking. You make a million that way depending on how you choose your assumptions in less than ten years or a bit more.
@Jay Hinrichs
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Victor S.
WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
8y
Originally posted by @Les Dell:

Around 2005, a co-worker decided to do a lawn care business on the side and wanted me to help him. We were in Atlanta. Someone OTP hired us to go mow a lawn somewhere downtown. When we got there we almost didn't get out of the truck and it was only 11 a.m. When we got around the back of the house there was an ATM machine lying on the ground that had been pried open and left there the night before. We reported it and some detectives showed up soon thereafter. The air conditioner had also been stolen.
I'm not sure how the investor found the property but I was nearly positive they could not have visited it. The saddest part of all was the next door neighbor came outside thinking we were the new owners, she was venting that all of the recent gentrification nearby had caused her taxes to go up so much that she was unable to afford her house anymore, she had been there most of her life.
I agree that you can't go by zipcode especially in the South. You can be driving down the road in a VERY high-end neighborhood and then suddenly without warning be in the hood for five or six blocks for no apparent rhyme or reason. It's weird.
Reminded me of the time my friends moved into the hood. Two stolen cars in the garage and some appliances that were gone lol Owner was from CA... Rent was not cheap, by any means, as it was still in the city, but not in a good pocket (OKC is very pocketed). Most amazing part of their time there was that they never had a single break-in or anything that was stolen.
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Tony Kim
Rental Property Investor · Los Angeles · Member since 2018 · 844 posts · 1k+ votes
8y
Originally posted by @Jay Hinrichs:

Originally posted by @Joel Owens:
This topic shows again and again on BP over the years where people talk about buying these low end houses in suspect areas in the hopes of making it big. Then some time later you see maybe one post about (problem with the properties now) or nothing at all then CRICKETS.
I have literally seen hundreds of these topic posts over the years. The sad thing is if the investors just invested in better areas and locations the equity growth usually way outpaces cash flow returns over time and the headache tends to be much less for the earned overall annual yield.
As for searching for properties to buy it tends to be the same in every asset class. Sellers are looking for the inexperienced and the suckers. They want to sell at a high valuation for a quick buck even if the property is a dog with little to no upside potential. On the commercial side I look for the DIAMONDS for my buyers. I find they represent maybe 20% of the market and the rest of the properties are just overvalued right now. Sellers specifically love unsophisticated buyers and also those that are poor planners with 1031 exchanges looking to buy something quick to avoid a larger tax penalty. When contacting owners to sell off market often the good stuff they do not want to sell. They instead want to sell the crap at bad valuations. They know it is bad they are just looking for the newbies and inexperienced.
The seasoned investors tend to always be in buy mode however the velocity of the buying can change with the real estate cycles and so can tweaking the investment strategy somewhat. The investors stay true to their core investing philosophy but tend to make minor tweaks along the way.
So I am looking for deals for clients the numbers just are larger in millions to tens of millions in price per property.
I am seeing so many of these guru seminars like I did in 2004 to 2007 run up. Deals were getting harder to find so most of these house flippers went to writing books and selling courses to make the majority of the money. They touted the huge returns (grand slams) and make it seem like an everyday occurrence. They MAXIMIZE the story telling of the huge deals and MINIMIZE the downsides and everyday smaller returns where if one thing goes wrong you could lose money rather than make it. Lot's of these course trainers increase networks so by having the ants marching (newbie investors) they might be able to partner when the newer investor finds a great deal or better yet buy it off of them for a minimal assignment fee.
If people have little money but a lot of time they may want to look into AIR BNB type stuff or vacation rentals. Those are not passive by any means and laws are constantly changing but some investors are making high cash flow returns in great areas with some equity growth built in versus owning low income dumps in higher crime areas. I know there are some investors on here who thrive on lower income tenants and investments and tout them as great. My 15 years of experience in real estate and talking with thousands of investors over the years has shown one common theme. It is a small, and I mean very small percentage of investors who have the skillset to handle lower income type tenants, properties, and locations and make money with it. I would tend to say about 90% lose their shirt and walk or run away with their tail tucked between their legs with a small to big loss to show for it. I see it now on Facebook people getting all excited about some dumb seminar coming into town touting itself as free tickets. They go there and ask them in the back room to run up their credit cards by calling companies and asking for credit limit increases etc.
Here is the main issue.. again for some reason todays investor at least on BP has it pounded into their head that appreciation is gambling and that cash flow is everything.. I would really like to know who preaches that or where these folks are learning this and why they bite on it.. is it because of the once in 200 year melt down in 08 to 2010.. ?? At the end of the day cash flow while nice for the small investor. the only way they really get financially free is with big run up in appreciation or they hurry their behinds off and get the houses paid for.. So they have true equity.. I mean look at all the big SUPER SMART syndicators we see on BP.. and their deals were is the money made to make the nice 15 to 25% IRR's that folks are investing in their deals for.. ITS made with a raise in value caused by a serious raise in rents and for appreciation and market driven lower of cap rates..
I for one cant figure out why anyone buys a property with no expectation of appreciation and does not care about it.. you need it to come out on top when and if you exit..
I agree with your statement above Jay.
I think part of the reason BP preaches cash flow over appreciation is that it is much easier to get started investing for cash flow. The bottom line is that you need far less initial capital to begin investing for cash flow. If this place was all about capital appreciation, then half the members would be priced out due to the high amount of capital required to just acquire one property...let alone scale into multiple properties. Thus, the core strategy that is pushed here is to start with as little as possible, leverage it out as much as you can, and earn your few hundred per door, paydown the loan as much as you can, pull out equity to purchase more properties, and keep repeating. Not a bad strategy because it obviously works for many people....but it's just not for me.
2 Reply
Mike D'ArrigoPro Member
Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
8y
@Dean Letfus Unfortunately, this problem isn't unique to Memphis. We see it a lot in Kansas City and Indianapolis also. The problem comes down to people who spend more time crunching numbers and analyzing markets but not enough time learning and understanding the neighborhoods within those markets. Personally, I think that most of the time, neighborhood is more important than market. There are good areas and bad areas in almost any market. People get lured in by cheap properties that require little upfront capital and look good on paper. I have preached until I'm blue in the face about the dangers of buying these low end asset classes and there is enough all over BP but too many people are still getting fooled.
2 Reply
Eric Burgh
Real Estate Professional · Hoboken, NJ · Member since 2017 · 46 posts · 26 votes
8y
This thread was a refreshing read and down to earth. Lots of information on this site, but the band wagoning and “great job! Go get em” responses on the ”0-100 doors in 100 days “ posts is geTTING old, and quite frankly uninformative and provides no value.
2 Reply
Dean Letfus
OP
Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
8y
I don't think it's fair to bash the cashflow cheerleaders either. The fact is that high appreciating assets will often be neutral of negatively geared and that can be risky. It wiped me out in New Zealand in the GFC. So focusing on cashflow, IF IT IS GENUINE AND SUSTAINABLE, makes it almost impossible to go broke.
However it is also almost impossible to get wealthy on it either so that's the problem. As Jay pointed out the real money is in the equity gain that you can eventually crystalize.
If people are serious investors, in a market like Memphis, they need to learn how to create enough money to be able to buy A and B grade assets and own them free and clear so that they have genuine cashflow and appreciation. I do it through buying A grade assets with seller financing then cashing out. The profit from one of those deals is usually enough to buy a B grade property free and clear.
3 Reply
Ryan D.
Rental Property Investor · San Jose, CA · Member since 2013 · 188 posts · 228 votes
8y
Originally posted by @Marcus Auerbach:

I think people do learn, but it's almost worse than being uneducated: you might want to call it "selective learning" - very similar to "alternative facts".
People "learn" what suits their believes - they will selectivley "learn" what supports their perceived truth. Usually has to do with quick success, huge growth and great returns on small money. They will selectivley pick content that makes them feel good, because it tells them they are right in what they want to believe. And who doesn't like to be right?
So, if they read that you can go from zero to 100 doors in 14 months and retire at 24 by pulling money out of 50k properties in "up and comming neighborhoods", they are selectivley looking for evidence to support that idea. They become increasingly convinced that it will actually work!
(A healthy read on that notion is Ray Dalio's Work and Life Principles - most of his life he has been looking to predict the future of markets, commodities and economies and he failed a few times on a massive scale; one of his key messages: being radically open minded and discussing a topic with someone who has polar opposite views and trying to understand their rational is the single best way to test your assumtions.)
Hate to say it but BP is contributing to this problem: it makes me almost angry every time I see a new blog with a catchy title, such as: "512% profit on my first deal!" Often times I get the impression that the author has little to no first hand experience and has just aggregated enough tertiary information to come up with another "5 ways to get rich quick" blog. And the worst part is by the time I want to write a comment there is already a long list of comments congratulating and thanking the author for his profound wisdom. Being an official BP blog gives the information much more credebility than the author might actually deserve. (Let me be clear: I am very grateful for BP as a plattform and there is a huge amount of great information here, so no intend to bash BP in general!!)
@Marcus Auerbach - I couldn't possibly agree with/underline your comment enough! Though BP is a great tool to increase the skill-set of experienced investors, it also contributes to lowing the barriers of entry to getting into RE. Having entry-barriers to anything forces the participant to be able to perform at a certain level of capability prior to entry, and is a form of protection for all participants, both new and seasoned. In many ways BP enables the "I read three articles this week & watch HGTV, so now I'm a RE investor!" mentality.
Any tool, wielded improperly, is likely to get people hurt.
1 Reply
Dean Letfus
OP
Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
8y
@Ryan D., the difficulty is that we all want others to succeed so inspiring them in itself is not a bad thing and not BP's "fault".
It's just human nature I guess. When I was coaching in New Zealand one of my goals was to buck the average trend which was that only 1 in 100 people ever really did anything with the education they paid for. So I tried to find a way to push people into buying their first property. Over time I realised that this was often counter productive and people needed to make their own decisions. Often they would take 2 or 3 years of handholding but when they started they knew exactly what they were doing.
In America it's almost the opposite it seems to me. It's easy to get people started because the entry barrier of price is so small, but human nature kicks in and they try to find the path of least resistance and instant gratification. Oh I'm an investor I bought a house and I'm a clever investor because I only paid 25K for this beautiful house in such and such a city.
A year later they are pouring money into trying to keep the property rented and slowly realising they have lost 25K and have a photo of what was once a nice house, never to be nice again.
Maybe if more of those people would warn others we could stem the tide of greater fools?
1 Reply
Mark Cruse
Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes
8y
I think it’s all in if you know what you are doing or if you do not. It’s just not so static and generic. Both a mixture of cash flow and appreciation is the best approach. It’s a sense of diversification. If you don’t know the neighborhoods, can’t effectively operate in low income communities or have skewed / biased perceptions of what you are dealing with you are going to fail. Why people are claiming this and that is bad is beyond me when there are multiple people, including those in this venue who make this a very lucrative model work.
0 Reply
Ryan D.
Rental Property Investor · San Jose, CA · Member since 2013 · 188 posts · 228 votes
8y
@Dean Letfus - agreed, I think the community here is very supportive & wants people to succeed, and I'm very thankful for BP. Your "1 out of 100" comment is spot on.
The danger is when people become encouraged to engage in investments they are sorely under-prepared for. People are encouraged to think that "being motivated" is somehow a substitute for starting small, learning on low-risk investments close to home that you can see/manage yourself, & moving up incrementally as your capabilities & experience naturally grow.
There is a reason that only 1 out of 10 small businesses survive their first 5 years, because running a business is hard. Most people fail to appreciate is that "investing" in real estate IS running a business. Too often people are encouraged to think that RE investing is somehow passive like stock market investing.
I love it when people ask questions that show they've put real thought into things & they are diving into the details, trying to understand how things work - I think THIS is the type of behavior that our community needs to encourage more.
1 Reply
Mark Cruse
Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes
8y
If a person honestly believes gentrifying an area with other groups of people is the only way to make money or any place that isn't you should be horrified to drive down street you will never, EVER be effective in that area. People who do not function from that scope of thinking have made wherever they invest work. It's all in the skill set, ability and mentality. Plenty of people are working this model right now and profiting. I'm one...……..
0 Reply
Jason Simonin
Rental Property Investor · Blue Springs, MO · Member since 2018 · 3 posts · 2 votes
8y
Instead of continuously talking about all the problems, why not come up with solutions to make investing in Memphis a good experience, no matter what part of town its in? Create social impact, and good returns. If i was in Memphis, I'd see it as an opportunity to provide a service (rehab crews, good management, maintenance) to out of state investors. Flip the script... I'd be a customer.
2 Reply
David Oldenburg
Lender · Granite Bay, CA · Member since 2014 · 456 posts · 454 votes
8y
I run a large real estate investing group in CA. I constantly get asked what I think about out of state investing. I have seen so many real estate investors scammed this way. To people in CA a $50k or $75k or $100k sounds really cheap, and unscrupulous people use that to their advantage. I only invest in my area and there are more deals than I can do, so no reason to go anywhere else.
1 Reply
Account Closed
Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
8y
Why would you want a job when you can use OPM to 100% finance your house, get positive cash flow AND pull out instant equity to go invest in your next house etc etc? You dont need capital or experience or even luck. All the people with JOBs are just plain stupid!
1 Reply
Matthew Olszak
Real Estate Broker · Chicago, IL · Member since 2015 · 1k+ posts · 2k+ votes
8y
Originally posted by @Jay Hinrichs:

Originally posted by @Joel Owens:
This topic shows again and again on BP over the years where people talk about buying these low end houses in suspect areas in the hopes of making it big. Then some time later you see maybe one post about (problem with the properties now) or nothing at all then CRICKETS.
I have literally seen hundreds of these topic posts over the years. The sad thing is if the investors just invested in better areas and locations the equity growth usually way outpaces cash flow returns over time and the headache tends to be much less for the earned overall annual yield.
As for searching for properties to buy it tends to be the same in every asset class. Sellers are looking for the inexperienced and the suckers. They want to sell at a high valuation for a quick buck even if the property is a dog with little to no upside potential. On the commercial side I look for the DIAMONDS for my buyers. I find they represent maybe 20% of the market and the rest of the properties are just overvalued right now. Sellers specifically love unsophisticated buyers and also those that are poor planners with 1031 exchanges looking to buy something quick to avoid a larger tax penalty. When contacting owners to sell off market often the good stuff they do not want to sell. They instead want to sell the crap at bad valuations. They know it is bad they are just looking for the newbies and inexperienced.
The seasoned investors tend to always be in buy mode however the velocity of the buying can change with the real estate cycles and so can tweaking the investment strategy somewhat. The investors stay true to their core investing philosophy but tend to make minor tweaks along the way.
So I am looking for deals for clients the numbers just are larger in millions to tens of millions in price per property.
I am seeing so many of these guru seminars like I did in 2004 to 2007 run up. Deals were getting harder to find so most of these house flippers went to writing books and selling courses to make the majority of the money. They touted the huge returns (grand slams) and make it seem like an everyday occurrence. They MAXIMIZE the story telling of the huge deals and MINIMIZE the downsides and everyday smaller returns where if one thing goes wrong you could lose money rather than make it. Lot's of these course trainers increase networks so by having the ants marching (newbie investors) they might be able to partner when the newer investor finds a great deal or better yet buy it off of them for a minimal assignment fee.
If people have little money but a lot of time they may want to look into AIR BNB type stuff or vacation rentals. Those are not passive by any means and laws are constantly changing but some investors are making high cash flow returns in great areas with some equity growth built in versus owning low income dumps in higher crime areas. I know there are some investors on here who thrive on lower income tenants and investments and tout them as great. My 15 years of experience in real estate and talking with thousands of investors over the years has shown one common theme. It is a small, and I mean very small percentage of investors who have the skillset to handle lower income type tenants, properties, and locations and make money with it. I would tend to say about 90% lose their shirt and walk or run away with their tail tucked between their legs with a small to big loss to show for it. I see it now on Facebook people getting all excited about some dumb seminar coming into town touting itself as free tickets. They go there and ask them in the back room to run up their credit cards by calling companies and asking for credit limit increases etc.
Here is the main issue.. again for some reason todays investor at least on BP has it pounded into their head that appreciation is gambling and that cash flow is everything.. I would really like to know who preaches that or where these folks are learning this and why they bite on it.. is it because of the once in 200 year melt down in 08 to 2010.. ?? At the end of the day cash flow while nice for the small investor. the only way they really get financially free is with big run up in appreciation or they hurry their behinds off and get the houses paid for.. So they have true equity.. I mean look at all the big SUPER SMART syndicators we see on BP.. and their deals were is the money made to make the nice 15 to 25% IRR's that folks are investing in their deals for.. ITS made with a raise in value caused by a serious raise in rents and for appreciation and market driven lower of cap rates..
I for one cant figure out why anyone buys a property with no expectation of appreciation and does not care about it.. you need it to come out on top when and if you exit..
While true that cash flow is widely considered the end-all-be-all on BP, I'll argue the reason is that due to most people's education level, an appreciation play IS gambling. Reading on here, as well as in speaking with plenty of "investors", a ton don't even understand basic calculations like cash flow (ie they use gross rent - piti), cap rate (ie they use gross rent - taxes / pp), etc. How can someone who doesn't understand the most basic of metrics properly analyze their market on a macro level to determine rates of appreciation? Instead, they look at a stat or chart, see last year values appreciated 10% and therefore each of the next 5 years will do as well and they'll be rich, because prices can only go up! When in reality, there are so so many more factors involved. Or when a city builds a new park in the middle of the ghetto: "HUGE municipal investments going on now, change is right around the corner and prices will skyrocket!".
Plus, waiting for a property to appreciate (even a few years) isn't fun, it doesn't have that rush, like daytrading penny stocks vs. investing in AMZ. It doesn't have the get-rich-quick aura wholesaling has. And for someone with very little to no funds to actually invest, on-paper cash flowing properties is their only route and the only one that somehow justifies purchasing sub 50k properties renting for $500/mo which are otherwise destined to fail.
2 Reply
Joshua R.
Rental Property Investor · Los Angeles, CA · Member since 2018 · 15 posts · 6 votes
8y
@Dean Letfus. I am interested in investing in Memphis, are there any areas or zip codes you would recommend? Thank you!
0 Reply
Shiva Bhaskar
Investor · Los Angeles, CA · Member since 2017 · 523 posts · 476 votes
8y
Originally posted by @Jay Hinrichs:
Originally posted by @Joel Owens:

This topic shows again and again on BP over the years where people talk about buying these low end houses in suspect areas in the hopes of making it big. Then some time later you see maybe one post about (problem with the properties now) or nothing at all then CRICKETS.
I have literally seen hundreds of these topic posts over the years. The sad thing is if the investors just invested in better areas and locations the equity growth usually way outpaces cash flow returns over time and the headache tends to be much less for the earned overall annual yield.
As for searching for properties to buy it tends to be the same in every asset class. Sellers are looking for the inexperienced and the suckers. They want to sell at a high valuation for a quick buck even if the property is a dog with little to no upside potential. On the commercial side I look for the DIAMONDS for my buyers. I find they represent maybe 20% of the market and the rest of the properties are just overvalued right now. Sellers specifically love unsophisticated buyers and also those that are poor planners with 1031 exchanges looking to buy something quick to avoid a larger tax penalty. When contacting owners to sell off market often the good stuff they do not want to sell. They instead want to sell the crap at bad valuations. They know it is bad they are just looking for the newbies and inexperienced.
The seasoned investors tend to always be in buy mode however the velocity of the buying can change with the real estate cycles and so can tweaking the investment strategy somewhat. The investors stay true to their core investing philosophy but tend to make minor tweaks along the way.
So I am looking for deals for clients the numbers just are larger in millions to tens of millions in price per property.
I am seeing so many of these guru seminars like I did in 2004 to 2007 run up. Deals were getting harder to find so most of these house flippers went to writing books and selling courses to make the majority of the money. They touted the huge returns (grand slams) and make it seem like an everyday occurrence. They MAXIMIZE the story telling of the huge deals and MINIMIZE the downsides and everyday smaller returns where if one thing goes wrong you could lose money rather than make it. Lot's of these course trainers increase networks so by having the ants marching (newbie investors) they might be able to partner when the newer investor finds a great deal or better yet buy it off of them for a minimal assignment fee.
If people have little money but a lot of time they may want to look into AIR BNB type stuff or vacation rentals. Those are not passive by any means and laws are constantly changing but some investors are making high cash flow returns in great areas with some equity growth built in versus owning low income dumps in higher crime areas. I know there are some investors on here who thrive on lower income tenants and investments and tout them as great. My 15 years of experience in real estate and talking with thousands of investors over the years has shown one common theme. It is a small, and I mean very small percentage of investors who have the skillset to handle lower income type tenants, properties, and locations and make money with it. I would tend to say about 90% lose their shirt and walk or run away with their tail tucked between their legs with a small to big loss to show for it. I see it now on Facebook people getting all excited about some dumb seminar coming into town touting itself as free tickets. They go there and ask them in the back room to run up their credit cards by calling companies and asking for credit limit increases etc.
Here is the main issue.. again for some reason todays investor at least on BP has it pounded into their head that appreciation is gambling and that cash flow is everything.. I would really like to know who preaches that or where these folks are learning this and why they bite on it.. is it because of the once in 200 year melt down in 08 to 2010.. ?? At the end of the day cash flow while nice for the small investor. the only way they really get financially free is with big run up in appreciation or they hurry their behinds off and get the houses paid for.. So they have true equity.. I mean look at all the big SUPER SMART syndicators we see on BP.. and their deals were is the money made to make the nice 15 to 25% IRR's that folks are investing in their deals for.. ITS made with a raise in value caused by a serious raise in rents and for appreciation and market driven lower of cap rates..
I for one cant figure out why anyone buys a property with no expectation of appreciation and does not care about it.. you need it to come out on top when and if you exit..
Jay, thanks for bringing this up. I am looking into areas outside my native market (southern California, mainly LA), to diversify and enjoy a bit more cash flow (looking into Ohio and finding some good stuff, taking a Cleveland trip soon), BUT I find it crazy when people here point fingers at those of us in this market for taking on deals with lower cap rates in OK but improving areas and considerable rehab and valuable potential. People seem to think cash flow is everything.
Did upgrades on a place we picked up in a B neighborhood in LA and bumped the rent by 13% and added already value to the property that was at least 2 to 2.5 times what we spent on rehab. I stay away from D areas, but if I did do it, there are ones 10 miles from us (Compton, Watts) that are definitely transitioning into C or even C+ areas, with money to be made on appreciation and a bump in rent. You make more absolute $$ on one or two deals in CA than 5 in some other states. Why wouldn't I do it?
0 Reply
Kai Van Leuven
Investor · USA · Member since 2015 · 325 posts · 447 votes
8y
@Dean Letfus To me you can attribute all of the OOS investing posts to 3 groups of people; the dreamers, the schemers, and the suckers! The dreamers: usually post a congratulations. They would like to own 15 doors in WarZone, USA. They probably sit behind a desk, pull in 100k a year, and want it even easier. The Schemers: those who live by the ABS (always be selling) principle. They know that what they sell is garbage but the money is too good, and the people are too uneducated about their product to turn them down. These are the turn-key (Morris Invest), mortgage brokers, and agents. The suckers: they actually buy this crap! They think that they can calculate ROI, monthly cashflow, quality of tenants, ect. From 500+ miles away. These folks have more money than sense and are just buying a retail product at a retail price. They use the “Schemers” for advice and brag to all the “dreamers”.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
Originally posted by @Kai Van Leuven:
@Dean Letfus
To me you can attribute all of the OOS investing posts to 3 groups of people; the dreamers, the schemers, and the suckers!
The dreamers: usually post a congratulations. They would like to own 15 doors in WarZone, USA. They probably sit behind a desk, pull in 100k a year, and want it even easier.
The Schemers: those who live by the ABS (always be selling) principle. They know that what they sell is garbage but the money is too good, and the people are too uneducated about their product to turn them down. These are the turn-key (Morris Invest), mortgage brokers, and agents.
The suckers: they actually buy this crap! They think that they can calculate ROI, monthly cashflow, quality of tenants, ect. From 500+ miles away. These folks have more money than sense and are just buying a retail product at a retail price. They use the "Schemers" for advice and brag to all the "dreamers".
YUP … but to be fair now and I know we are talking about D class but D class in ANY market is fraught with danger.. I made a loan one time on a 12 unit in Tacoma by the time the guy stopped paying me it was full of TWEAKERS drug dealers pitt bulls etc.
Took it to foreclosure it was such a mess I drop my opening bid by 50k under what I was owed.. it did sell.. but I did not want to fool with it.. it was as rough and tumble as anything in any other market I work in..
YOU simply have to buy quality to have a fully rounded quality experience in my mind.
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Dean Letfus
OP
Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
8y
@Jason Simonin, that's exactly what my company has been doing for years!
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Dean Letfus
OP
Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
8y
@Joshua R. , you have to look at a street rather than a zip. In very broad terms you want rents above $850, most of Bartlett and surrounding areas are good. Most of Raleigh is good. Most of Cordova is good. The further East you go the safer you are.
Anything you can buy for under 40K trashed is unlikely to be a good area.
If you're actually looking just give me an address I can tell you what I think.
Also stick to brick, no frame houses, and absolute minimum is 3 bed 1.5 baths preferably 2 baths. And NO POOLS. Lastly we have lots of big trees that will destroy your property. Budget up to 5K to get them removed.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
Originally posted by @Jason Simonin:
Instead of continuously talking about all the problems, why not come up with solutions to make investing in Memphis a good experience, no matter what part of town its in? Create social impact, and good returns. If i was in Memphis, I'd see it as an opportunity to provide a service (rehab crews, good management, maintenance) to out of state investors. Flip the script... I'd be a customer.
unfortuantaly for D class there is no changing it.. in 95% of America.
one exception was Charleston SC.. I rolled in there 6 years ago and everything on one side of one street was the hood.. we started buying lots at 10 to 30k each.. and now they are 100 to 200k each.. homes were falling down and still falling down.. but its true regentrification.
I have not sold a home I have built in this hood in over 3 years for less than 500k.. and these homes are across the street from public housing. how would that play in most areas.
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Kai Van Leuven
Investor · USA · Member since 2015 · 325 posts · 447 votes
8y
@Jay Hinrichs Many folks have lost their money in Ta’compton. I was chatting with a guy from church who’s dad bought a place there. The city paid him 5k to take it off their hands. Needless to say. He only lost money on it. That being said, It Is nothing compared to the mid-west ghetto. I do feel bad for folks who want to break into real estate and feel like it’s their only option. Most of these folks could look an hour away and probably find a good deal if they were willing to put in the work and not just “buy some line”. Is it Lazyness, vain ambition, or being mislead? One of my guiding principles has always been, “NEVER trust someone who is making money off you.”
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Account Closed
Rental Property Investor · Seattle, WA · Member since 2018 · 129 posts · 163 votes
8y
@Dean Letfus Glad I read this thread. I was looking at Memphis but I’ll stay on the west coast =) Any areas in Memphis (Zipcode) that you feel are worth evaluating?
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