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 :-).
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 :-).
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..
@Dean Letfus
Well I'm a buyer in the Memphis low income market. Its not been without its challenges, and I've been burned a few times, but thats the same everywhere. If you have reasonable services, i have interest in building relationships. Rehab, leasing, property management, etc.
Based in KC, we're in over 10 different midwest markets...and currently have 109 SFH in Memphis.
If you know of big packages, Im interested.
The due diligence is up to the investor. If the investor is incapable of determining what they are getting is decent they may want to consider doing something else. The low income market can be very lucrative to the person that is on top of their game and understands all the dynamics associated with it. It appears that you have made some of this work there.
Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
8y
@Vincent Chen, the best solution in my experience is to find a competent Property Manager and get them to advise on location. They are the ones who are in the neighbourhoods everyday.
Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
8y
@Jay Hinrichs, I agree with you as you know mate, however as I was one of those NZ marketers I have to say the issue was the US suppliers not the down under marketers in many cases. We were being wined and dined, driven around and shown homes that to an Aussie or a kiwi would be worth 250K to 750K in our markets and being told we could supply them to our clients for 45K or 60K or whatever. And they all went on about their amazing management and how successful all their overseas owners were.
I took over my own acquisition after I found out all the above wasn't true and that basically they would supply anything with a big enough margin for them.
And most marketers lived on 5 to 7K commissions which I think was reasonable. I did occasionally hear of daisy chain marketers who needed close to 20K to pay off all the middlemen. They didn't last long!
That's why I post threads like this now because I know what goes on under the sheets!
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?
That's a good question and I don't have a great answer, but somehow real estate has become hip, like craft beer. Podcasts everywhere, shows about flipping (Two Chicks and a Hammer here in Indy). Most of these things gloss over the difficulties.
I watched a podcast once where a guy (pushing his turnkey properties) said something like, "So Mr. Smith writes in, 'What if I buy a rental property and the dryer breaks?' COME ON, man, I'm trying to help you here. You don't even have a property yet, and you're already worrying about the dryer breaking? Relax, willya?" That's the general tone, "Just trust me, go ahead, do it."
They don't make shows about people who get caught in a downturn and lose millions on their flips, or who give up on their rental properties after a year and lose 75%. They should. I think people would watch those, just as they watch horror movies.
I like BP, but people turn it into part of the problem when it could be part of the solution. People use it to pump each other up with enthusiasm, and the commenters urging restraint get shouted down as "negative", "old-fashioned", "narrow-minded", "haters" who are trying to "kill the dream" and who "think there's only one way".
Indy was a big Morris Invest city, and they weren't the only people selling D / low C stuff OOS. I know a lot of enthusiastic people got their bones picked. There are people on here warning about that sort of thing all the time, and being completely swamped by an avalanche of "You go, dude" comments.
I don't know how this business got taken over by this rah-rah mentality, when it's really a very serious thing to take hard-earned money and put it at risk. But sadly, like the guy said, there's one born every minute.
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
8y
Many people seem to be on a high right now buying CRAP thinking the upturn will never stop. They do not have experience with complete market cycles.
The experienced are still buying but CAUTIOUSLY. The rest will feel the pain on the next downturn. I know lot's of investors still actively buying but also sitting on millions or more in cash waiting to deploy. I saw all of this in the last 2004 to 2007 run up.
Cornelius, NC · Member since 2017 · 20 posts · 3 votes
8y
I agree with James Wachob. Memphis has a stagnant Job economic structure. It has banked its hat on since the 80s as a distribution hub. This means lower wages for a majority of the high school educated population. This is multi generational as well. Combined that with segregation, red lining, and lower home ownership (read above average # of renters compared to similar sized cities) among the majority demographic will leave an outsider investor who doesn't know Memphis searching for cash flow gold and losing the equity battle. Also you have to dig real deep into the "C/D" areas and you will find some real gems if you do a true micro-analysis within the zip codes. For example, the whitehaven area has a tremendous amount of wealth within some of the neighborhoods if you know where to look. Just my 2 cents...
Investor · New York, NY · Member since 2017 · 7 posts · 3 votes
8y
I felt it worth chiming in here as I recently purchased a turnkey property in the Memphis area via Roofstock. As a very quick background (my first post), I have worked on "Wall Street" for 10 years and I'm based out of NYC. Due to industry regulations I am unable to invest in stocks, bonds, mutual funds etc. Pretty much anything your average person can invest in is off limits for me. I have been lucky enough to be a limited partner in a 250+ multifamily in Houston for 5 years now which has produced outstanding returns so I felt why not get involved more directly. I have money sitting around not earning anything. Do your due diligence but just get the first deal done as @Brandon Turner regularly reminds on the podcast.
Getting back to the topic at hand @Dean Letfus many of the properties listed on Roofstock are in your "stay away" zip codes and indeed the property I purchased is as well. It was ~$75k that was already rented for $750/month and was recently renovated. I have an estimated turn cost through their site and feel like I have a pretty good idea of future capex expenditures with my inspection report. I have done the numbers and the IRR I'm projecting is satisfactory in what I'd view as a worst case scenario. So what am I missing? Is it really that big of a difference compared with an $85k property that rents for $900 in the grand scheme of things? I am not trying to get rich quick nor am I financially illiterate. I'm certainly open to the fact that my first purchase will be a mistake/learning experience and that's totally OK with me. But when I compare this investment versus trying to house hack in an undesirable neighborhood of Brooklyn it seems like a no-brainer. Indeed, I'm currently asking myself why I shouldn't buy another 5-10 properties of a similar nature! Personally my biggest regrets in real-estate have been NOT going with my gut (buying an investment condo in Miami in 2009, sizing up the Houston property mentioned above, buying a few SFH rental properties in Pittsburgh in 2012).
All thoughts/comments welcome. Don't be afraid to call me stupid and if I've made a poor investment I'm very happy to answer the question in the original post that people DO learn!
Investor · Indianapolis, IN · Member since 2017 · 145 posts · 158 votes
8y
I hate to always be the voice of doom on here, but I think you should know how bad the worst case really is.
It's not uncommon for wholesalers (including us) to buy C / D properties from OOS investors for 25% of what they paid a year or two ago. No one is gloating over that, everyone feels bad for the guy...but 25% of what the guy paid is all the place is worth.
That's the worst case. Unfortunately, in a lot of these areas, the best case is that the property dribbles out a little cash flow, but will never appreciate.
I personally know exactly one OOS guy who has successfully invested here. He comes here a lot (from 1100 miles away) and knows the city very well. Excepting one mistake, he's bought very smart and fairly cheaply in solid B areas, and is having no problems. Much more typical is the guy described above.
Investing in cheap properties can be lucrative, but it involves finding viable houses on the fringes of promising areas, getting them cheap, and probably putting a lot of sweat equity into them, maybe self-managing, etc. Then you can hope for both cash flow and appreciation. But all that involves being local and working very hard. And it is a high-skill game.
If I had money just sitting and wanted to invest OOS SFH in a hands-off fashion, I would stick to B and above stuff in decent / hopefully improving areas. I don't see why you couldn't do okay like that. I do understand the attraction of a house that sells for the price of a car. I just don't have any success stories to report, of OOS guys buying that stuff.
I can talk about this stuff all day if you like. Can't claim to know anything about Memphis though. Maybe it is RE paradise...but I imagine about the same conditions obtain as here. Anyway, best of luck to you.
Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
8y
@Ryan Ward, it's not about stupid at all mate it's just about risk minimisation in my view. So in your case the things that would concern me are primarily tenant quality. People paying $750 rent may be problematic.
My biggest other concern for you is you paid 75K for $750 rent??? Is that a typo? I hope so.
I pay 50 to 60K for houses that rent $950 to $1050. So if you paid that much it is probably a 40 to 60K (max) property so it could be decades before you could sell it without losing money. I hope I'm wrong but based on your numbers you got ripped off in my opinion, big time!
To your bigger picture the difference between $750 rent and $950 rent is that your likelihood of collecting 12 x $750 is potentially much lower than 12 x $950. Likelihood of more turnovers and more damage increases with lower rents. Also a roof, an AC unit and paint costs exactly the same regardless of the income off the property so you eat a lot of more of your total revenue on maintenance for no benefit as lower end homes also don't appreciate in many cases.
I agree with James Wachob. Memphis has a stagnant Job economic structure. It has banked its hat on since the 80s as a distribution hub. This means lower wages for a majority of the high school educated population. This is multi generational as well. Combined that with segregation, red lining, and lower home ownership (read above average # of renters compared to similar sized cities) among the majority demographic will leave an outsider investor who doesn't know Memphis searching for cash flow gold and losing the equity battle. Also you have to dig real deep into the "C/D" areas and you will find some real gems if you do a true micro-analysis within the zip codes. For example, the whitehaven area has a tremendous amount of wealth within some of the neighborhoods if you know where to look. Just my 2 cents...
DeWayne Allen
@DeWayne Allen I fully concur. This is the case everywhere. If one does the proper research and has an accurate perception of what the situation is, the investor will be successful.
that's why I wrote my E book on out of state investing.. it was for the AUSSIE audience but its germane to US buyers as well I give it out for free.. its the stuff no one tells you about.
Jay, how can I get my hands on your e-book?
Thanks for starting this thread, Dean. I'm learning a lot!
that's why I wrote my E book on out of state investing.. it was for the AUSSIE audience but its germane to US buyers as well I give it out for free.. its the stuff no one tells you about.
Jay, how can I get my hands on your e-book?
Thanks for starting this thread, Dean. I'm learning a lot!
@Vincent Chen, the best solution in my experience is to find a competent Property Manager and get them to advise on location. They are the ones who are in the neighbourhoods everyday.
Well all, thank you for this very humbling thread. As a relatively new OOS investor this is a great reality check. As an OOS investor I have to rely heavily on my team on the ground. My property manager’s local expertise is critical in keeping me out of bad deals. Sellers want to sell, after that they have no skin in the game. I recently used my property manager as my agent to close a deal in San Antonio. I liked this strategy because if I ended up in a bad area it would just be my headache, it’d be there’s too. The place will be put on the market in a few weeks for prospective renters to look at. I’ll withhold my defense or endorsement of OOS investing until I get the place rented. Then we’ll see if it was a shrewd business decision or blind euphoria.
Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
8y
I've been reading this for the last few days and, as can happen sometimes, it gets moving in all different directions. I do have a couple of observations after reading all of the responses.
This is a public forum. I have been on here since back in 2009 and I'm not sure I've ever heard Josh say that the only thing that matters is cash flow. What he has done many times is set some parameters around the content he wants on the site such as the selling and promotion of seminars and courses. Beyond that, this has always been a user driven content site.
Since it is a public forum, there will always be varying opinions and beliefs. It is a shame that so many are shared in a way that leaves no room for being wrong. Too often, opinions are given as absolutes.
In this particular post, I think @Dean Letfus is trying to give a little light to the fact that he is seeing a ton of bad deals (his opinion) offered his way and they all seem to be getting snapped up rather quickly. Is that true Dean? And I thought your point was to remind investors to be extra vigilant and remember basics. You use Memphis as the city, but as the thread has grown, I think it's been noted that the issues you mention are actually everywhere and all the time.
In response to Dean and to each other, we've had a lot of posts and some have gone completely of the rail and that is ok. We've had a couple of ads disguised as posts and that's ok too. I just want to point out that none of us is absolutely right all the time. There are also few guarantees in real estate. You are not guaranteed to make nor are you guaranteed to lose money in any particular investment. A mentor is not a magic pill and neither are "boots on the ground". The only thing that I truly believe is guaranteed in this industry is that you are responsible for your decisions.
I shared a lot of my story on here earlier and I will tell you that I was buying some really bad deals when I started even though I was rational, not a dreamer, a very successful entrepreneur, a local and out of state investor and I happen to think I was kind of intelligent. I had mentors whose advice I followed and I still lost money. I had mentors who actively led me to deals that made them money and cost me money. I had mentors who did everything they could to help me and gave me great advice. Still, any of my failures can be attributed to violating my standards as an investor and failing to be fully educated on the investments I was making and what my alternatives were.
In the end, and I think this was Dean's message, which gets lost this far into a forum post, is that you are responsible for your investments. He came to Memphis and met with a lot of people in town including me. Ultimately, we weren't a good fit for one another. He also had someone whispering in his ear here in the states and he trusted the advice he was getting. Ultimately, he found out he would have to take over his business for himself because he was responsible for his own investments and the advice he was giving others.
There is nothing wrong with Memphis or with Cleveland or with Kansas City or with Miami, Los Angeles, Las Vegas or any other city we could all list here. There is nothing wrong with buying in run-down, challenged areas or buying in the brand-new, shiniest neighborhood of a city. In fact, there is nothing wrong with investing however it makes you happy regardless of what any of us says on here. If you are educated and follow the standards the you have set for your investments, knock yourself out.
I often say that my families' company has a very specific way of investing and running our company and providing the services we offer. We think it is the absolute best way to invest in our niche. That is our opinion and I often express it on here! It does not mean we are right and some other company is wrong. It just means we have different opinions.
In the end, if an investor chooses to buy something, it is entirely up to them to do proper due diligence, be educated on the basics of the investment they are making as well as being educated on the alternatives. Being uneducated and rushing to make an investment are both choices. Making assumptions about other investors and even investments they are making is also a choice.
What may make us all better investors is simply accepting that our way may not be the right way and not every person or deal that we think is bad is going to be bad for everyone. It may help to not assume that an investor who does something we wouldn't is new, uneducated or guaranteed to lose money. In the end, BiggerPockets.com belongs to us as the forum commenters. That is the true power and magic behind the site. We really do get to decide how and where the conversation, advice and comments get to go!
Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
8y
All true @Chris Clothier. My main point however was to ensure OOS and non resident alien investors would hopefully find threads like this and do more homework. I have already had several people contact me and managed to save a few from paying a fortune for a doghouse in the hood.
Your comments about responsibility are indeed true, HOWEVER, as an OOS investor you have to delegate that responsibility to your PM so that is why I highlight the need to find a great one. You can do your homework to an extent on location and get advice but bad management will still see you lose money.
Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes
8y
@Chris Clothier excellent post and summation. I don't know how others feel on this but I've always enjoyed BP because it's excellent content from a very diverse group in all walks of life. I personally believe that when we start introducing ethnicity or personal biases not only does it produce erroneous analysis but it could breed resentment. In addition, posting personal opinions while insinuating others are dumb or being taken advantage of can do the same. However great post and I appreciate the insight.
All true @Chris Clothier. My main point however was to ensure OOS and non resident alien investors would hopefully find threads like this and do more homework. I have already had several people contact me and managed to save a few from paying a fortune for a doghouse in the hood.
Your comments about responsibility are indeed true, HOWEVER, as an OOS investor you have to delegate that responsibility to your PM so that is why I highlight the need to find a great one. You can do your homework to an extent on location and get advice but bad management will still see you lose money.
It is a great topic and it’s trending so I think you’re going to accomplish your goal. And your points about property management are spot on.
Investor · Detroit, MI · Member since 2016 · 211 posts · 144 votes
8y
Doesn't this post just make you laugh, not because it is funny so much as it is because so many people fall into this trap and will continue to do so no matter how many times and in how many ways they are warned.
Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
8y
@Gilbert Dominguez, we can only try. I had several people contact me in the last week and get out of contracts they were about to go hard on. So it all helps!!
