New invester from Southern California

31 Replies

Hi everyone. I heard about this website through my loan officer and I'm so glad to stump upon a place where there is so much information. I currently reside in Orange County California. I would like to purchase investment properties with good cash flow and some appreciation. I would like to avoid "bad" areas with high crime and bad schools as much as possible. I have been looking in Memphis and have gotten in contact with some real state investment companies. I have a few questions and appreciate all the help I can get.

1. How is Bartlett and how is the rental market there ?

2. I am interested in a property in Bartlett with a zip code of 38135 going for 149,000 4 bedroom 2 bathroom. Does that sound like a reasonable price and would there be renters that would pay 1500/a month in that area ?

3. Has anyone worked with the company Memphis turnkey properties before?

4. Any recommendations of other great investment areas ?

Thank you in advance 

Hi @Abigail T. ,

Welcome to BiggerPockets!

Glad to hear that you want to get started in real estate investing.  Being in the OC makes us 'neighbors'.

1. Bartlett is a good sub-market of Memphis.  Low unemployment.

2. Depends on what the market value is there based on sold comparables.  Hard to answer a question of "reasonable" price.

3. Yes I have.

4. Depends what you're looking for in an investment.  How are you defining "great" in terms of location, the property, and the returns?

Be sure to set up some Keyword Alerts so you'll be notified when people mention that which interests you here in the forums.

Also check out my 10 Rules of Successful Real Estate Investing and download The Ultimate Guide to Passive Real Estate Investing.

Continues success!

Hey @Abigail T. welcome to the community!!

You will learn everything you need to learn about out of state investing here on this site!

Also I am a local investor here in the Memphis market as well as a licensed agent!

To answer your questions: 

1. Bartlett is a great area! Actually my favorite all my properties are in the Raleigh/ Bartlett area! The rental market is good but more of an owner occupant area. You can certainly rent homes there but here is how it works: you may experience longer vacancies because it's a more established home owner area but you will also have tenants that will tend to rent for longer periods of time! 

2. Certainly you can get rents that high in Bartlett, but there are more factors that we need to be able to tell you if its a good deal! At first glance I would never pay 150k for $1,500 rent. Maybe in other areas around the country this is the norm but you can certainly get better yields in Memphis!

3. Never worked with Memphis Turnkey 

4. I LOVE Raielgh, anything east of Austin Pea, also we love Berclair and the university of Memphis area.

Let me know if I can help you in anyway.

Hi Abigail, I think you spoke with Jeremy this week.  I don't have a email address for you, but thought I would weigh in on the thread since my company was mentioned.  Full disclosure, Abigail spoke with a member on my team about investing in Memphis.

1. Seems everyone agrees that Bartlett is a good area. I own 2 in Bartlett myself. I like Midtown 38104 or Collierville.  The higher up you go, the #'s on paper get worse.  However, I would argue my home at 338 Fletcher Hollow, Collierville, TN  that rents for $1,595 and I am "all in" at $169,000 is my best property in my portfolio b/c of area.

2. For this particular property, that price and rent ratio is excellent.  If you are going turnkey, then the best way to be successful is to address everything and by everything I mean more then what is inside the 4 walls of the house.  At 3920 Appling, the giant tree in the front yard would be kept by a lot of individuals that our in my niche, but it is already pushing up the front deck and while it poses no current threat (and may never) to the house, it should be addressed b/c it could be a potential issue.  The cost alone to get that tree down is $4,000.  The roof has about 7 to 10 years left, but if you are leveraging your cash into conventional financing, then it makes sense to buy the house with a new roof that will last you 25 years.  That roof is huge and will cost us $6,000.  With 20% down, that roof is only costing you $1,200.  That is much better then using up cash flow in 10 years for a new roof. We also have a lot of fence repair and we have a lot of work to do on the external buildings.  Many companies never touch these external buildings in an effort to reduce cost, but the TN Landlord Law is clear stating that the owner must maintain the entire lot, which includes fences and external buildings such as storage sheds.  Also, since it is an "A" class deal with higher rent, we are putting in granite counter tops and new appliances.  We have also decided to build ceramic tile all the way up the shower walls for a more owner occupant look.  Basically on houses like this, we do retail ready rehabs. We could offer the house cheaper if we put off the deferred maintenance and scaled back on items such as granite and vinyl plank flooring in high traffic areas to make the #'s look better but that will not do our investors any good. If a turnkey provider avg rehab is not $20,000 to $30,000, then major deferred maintenance is not being addressed.  Here is a link to one of our past Bartlett rehabs. https://cbproperties.box.com/s/00i6h4vshnnsvdxc5wq...

3. @Oscar Perez  @Neil Robinson @Aaron Chapman have done business with me and I manage 10 or so homes for Curt Davis.

4. If you are looking at a property in Bartlett, those are all "A" classes.  There are not many "A" classes areas in Memphis where the cash flow works.  While it is hard to find deals in 38104 or U of M area (38111 - East of Highland), it is not impossible; those would be A class areas.  East Memphis 38117 North of Quince all the way to Walnut Grove / White Station area is hard to find cash flow deals, but not impossible, those are also A class.  38125 areas South of Hacks Cross is good too. Everything else in Memphis is "B" or "C" class.

Good Luck!!!!!!!!!!!

Welcome to the group Abigail,

I have been working with Memphis Turnkey for appx 6 years, strategizing with hundreds of their buyers in the Memphis area. I would be more than happy to discuss my experience with them as well as the experience shared with me from those I assisted in the financing.

Let me know the best way to connect if you would like,

Aaron Chapman

MLO NMLS 267844

Hey Abigail! Welcome to the crew. Even more exciting, welcome to the 'BP turnkey buyers' crew :) (I just made it up). I live up in LA and have always bought turnkeys as well. Where in the OC are you and what got you turned on to the turnkeys? How'd you choose Memphis? (I used to go to school outside of Nashville and played rugby a lot in Memphis)

As @Alex Craig says, I do have several properties with him, including in Bartlett, and have been very pleased with his company and my Memphis investments. It has been the top market I have invested in.

I'm a busy IT professional in the Pacific Northwest with a side business and have found Turnkey properties to work well for me as I fit it into my chaotic schedule. For me, the hands-off approach with a provider works well, but that may not fit your investing strategy.

Neil

Thank you @Alex Craig for the thorough answer. Yes I spoke with Jeremy and he was very helpful and answered all my questions. It sounds like you have a great company going. I am also looking at other markets in addition to the Memphis area and doing research and comparisons at this time. 

You can do better right here in SoCal. Don't be 1 of 100,000+ out of state investors dumping your money into a market you know absolutely nothing about hoping for cash flow and praying for appreciation. 

@Aaron Mazzrillo  I do not know anything about the SoCal market, so I can't comment if one can do better, but many of our clients invest in our Little Rock or Memphis market because the cash flow is better.  If you want appreciation in our markets, I would say go somewhere else.  I have always said appreciation when cash flow is good is bonus anyways.  There is a lot one can do to learn about a market, namely flying to that market and learning about it.  Other things one can do is subscribe to the local paper and business journal, bookmark the chamber website, call Real Estate agents and Property Managers not affiliated with the sell, talk to other out of state investors for their feedback, just to name a few.  I would say "hope for cash flow" would pertain to any market as we all hope for cash flow.  Anyone who owns rental property knows that cash flow can be good for several years, then a string of maintenance with a terrible tenant can kill that cash flow on that property for 2 years.  The bottom line is one can hope for cash flow by investing irresponsibility without doing due diligence or they can do their homework and position themselves for success and dramatically increase the chances of profitability on that property.  I have seen many come and go in the Turnkey business; the ones still around have a track record of success for their clients.  Just like any business, those that do it right stay, those that do it wrong go away.  All that being said, no one can guarantee cash flow; I would run for those companies that offer guarantees.  That is code word for "I am making so much money off you, that if I have to pay you $300 a month for 8 months, then so what, I made $12,000 of you anyways."  You would be surprised how for 20% down on a $90,000 house will take you in some markets.

Just my 2 cents....... 

The last rental I picked up here in California I purchased in June. A 3 bed 2 bath that appraised for $180K. I paid $99K. A private lender gave me $100K at 7% I/O. I'll spend around $10K on getting it rent ready. I expect to be all in on the deal for around $15K cash after I do a rehab for rental. Market rent is $1,250. My payments on the loan will be $583.33. Taxes & insurance will be less than $200/month and it won't get reassessed to market value every year like so many other states do. That leaves me with $460/month to cover vacancy, any repairs that pop up which should be minimal since I'll rehab it as soon as the current tenants are out, and overhead (self managed). At the top end, a 37% ROI AND I've captured quite a pile of equity as well. I buy quite a few rentals every year and the numbers are always around 20% ROI or higher.

No signing a conventional loan with a bank. No dealing with out of state management. No guessing if what I've bought is in the right neighborhood or if I paid too much for it. No needing to get on a plane to go visit the property. No laying in bed awake at night when the house goes vacant and I'm wondering what the heck I got myself into.

You know why there are no turn-key companies operating in California? Because there isn't an almost endless supply of affordable/low income housing. That isn't the kind of market I want to own rentals in. Everyone says they invest for cash flow, but if you have appreciation that doesn't beat inflation, what's the point of owning it? You don't buy rental houses for cash flow. You buy them to grow your money. If you want cash flow, buy an apartment building.

Rentals that I bought in 2009 now have 6 figure equity spreads. I'm still getting them with good 5 figure spreads. How much equity does an out of state owner capture buying a house through a turnkey seller? Negative what number?

I would not say it is a negative number.  The better the property, the more equity.  A $80,000 property that rents for $895 is not going to have equity, but a property that rents for $1,450 that is bought for $144,900 (like my deal) should comp out at $165 - $169. I am a bigger fan of equity so long as it still cash flows b/c I like 15 yr mortgages to get mine paid off, but my strategy is for a paid for portfolio and to simplify my life as I get older.  Equity is good for my bank when I bring them a deal with small cash flow.   It sounds like you have the time to put together a great portfolio and do not mind meaning hands on.  Like Neil Robinson said earlier in the threat, he does not have time for that.  When I was in the corporate world, my first property I bought was turnkey.  I simply did not have time to rehab a home, manage it, screen tenants, etc.  The returns if you do it yourself are going to be a lot better, no one is arguing that.  Turnkey is surely not for everyone; I would say if you have the time, then do it yourself.  We actually have a few investors who bought from us and now come to the market a couple of times a year to acquire and rehab themselves.  That's great if that is your thing.  Also, I would not say that all Turnkeys operate in low income areas.  I can't speak for other companies, but last year our avg rent for the properties we sold was $1,060 a month.  Considering I like rent to be 4x the amount, that means the avg household income is not less then $50,000 a year for our tenants.  While that may be poverty in SoCal, it is a good living here.  By the way, no appreciation should not be confused with low appreciation.  You beat inflation with modest increases in the property value and raising rents.

I agree with @Aaron Mazzrillo , I recently moved to Orange County in June (from New York) and feel overwhelmed with opportunity here and in surrounding areas, like the Inland Empire, I realize it takes a lot of legwork to familiarize yourself with your market and to find the best deals, but it's sure easier than trying to do the same thing from across the country!

Originally posted by @Alex Craig :

...but a property that rents for $1,450 that is bought for $144,900 (like my deal) should comp out at $165 - $169.

The only equity in this deal is the amount of real cash you take out of your bank and vaporize as a down payment. Unless, you know how to sell houses for free? You might get away with a for sale by owner and maybe... maybe someone will come along that has no agent, but someone still has to pay title, escrow and for any repairs. You could do a lease option. That might work and get you $165K net so you'll make $20K. Still have to pay recapture and capital gains. All that work to make less than $20K and that is ONLY if everything goes perfectly right. Well, this is real estate and if there is one thing I know, I know it always takes longer and the checks are always less than what I expect.

I understand your goal is buy and hold and if you live there and it works for you great. Job well done. Reality is, turnkey rentals are a pile of BS. I can think of no situation where they make any sense whatsoever. It is high risk, low reward and provides zero experience points.

If someone reading this lives California, you should invest in California. It absolutely makes ZERO sense to buy turnkey properties east of the Rockie Mts when SO MUCH opportunity can be found in any town around here from Newport Beach to Desert Hot Springs. From Chula Vista to Redding. Heck, if I lived somewhere else, I'd still invest in California. If you can't figure out why, get on a plane and come visit. It is literally the Truman Show here.

Hi

Welcome to BP.  I live in Orange County as well. 

I purchased 2 properties with Memphis Turnkey.  One has done well and the other has not gone so well.  On the second one, I've been through two evictions and about 4+ months of pain.  The second one is in Raleigh.  I was thinking of selling the second one and discovered that getting out is not as easy without losing money as purchasing since I purchased it at close to market.  I purchased it about 2 years ago (March 2013).  It has not appreciated enough to offset the real estate commissions that I would need to pay if I was going to sell it.  I've learned a lot through the process.  I was coached that I should hold it for longer and hopefully the next tenant will be better.

So, I would caution that when you're buying from a turnkey provider, in most cases, you'll be paying close to market price or above market price since the property has been fixed up.   As Aaron mentioned above, understand your equity spread since it maybe small, 0, or even negative.  So, it will make it harder to sell in the near term (2-3 years) without losing money.

Alex has been good to work with and supportive.   However, I've learned that you should consider what your exit strategies before you purchase an investment, understand your equity spread, and be comfortable with potentially having to weather the storm (hold for 3+ years, endure multiple evictions, years with negative cashflow),

Thanks,

Dean

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

We hate spam just as much as you