Opinions wanted: Buy or no buy? Turnkey in Jackson MS 39212

[Christy Osterkamp]

Opportunity for me to purchase a turnkey in S Jackson MS. Not in flood zone, not in high crime area. Seller will carry for 5 years at 7.75% with $6000 down. 3/1. Schools are of course 5/10, 1/10, and 3/10.

May not cash flow right away but to get this under contract for $6,000, no underwriting, refinance within 5 years, sounds like a no-brainer.

Opinions??

[Chris Clothier]

Originally posted by @Christy Osterkamp:

@David Edge $45,000 fully rehabbed. New HVAC, roof.

Hi Christy,

My advice it to look at this from a slightly different standpoint.  You stated the property is Turnkey and fully renovated.  Whomever you are buying from made sure to tell you it had a new roof and HVAc which may be the case, but what about the rest of the property?  The person selling the house is not doing this for free so I would encourage you to consider this.  The economics do not work in your favor.

If they purchased the property for $15k as the local investors are telling you properties of this type sell for in South Jackson and if they want to make a profit of $15k on each sale.  That leaves $15k for renovation.  A 3/1 may be 1200 sq ft depending on age for a price point in this range.  That means they spent $12.50 per sq. foot to renovate this property.  After you account for new roof and HVAC, if they are actually new, leaves maybe $3-$4 per square foot to renovate this property.  

You live in Oregon and this is not a good investment for you. It is not a good investment for anyone that lives far away and is investing passively.  I have written and spoken about this for years and how easy it is for sellers to use the word Turnkey to manipulate buyers.  These are the types of properties that hurt out of state buyers and put a stain on the quality Turnkey companies.

There simply is not enough money in a deal like this for the buyer to do a quality job on the renovation and properly bring a property up to code and limit the holding costs for the final investor.    At a few dollars per foot, there is no way to provide a property of real value for an out of state investor.  

Someone local is completely different, but out of state buyers get taken advantage of and are often attracted to the super low price of entry and therefor see low risk.  In reality, these low price point are the riskiest investments you can make as there is a much higher probability of loss.  The dollars lost may seem lower, but the likelihood of actually losing them is higher. 

I think you can do better as a passive investor.  This has nothing to do with Jackson, MS. and I have no idea who the company is.  I just know from 16 years experience in this particular niche that it is super hard to be successful as a passive investor from far away at these lower price points.  

Best of luck