Wow! This site is fantastic. For an information addict like myself this ought to provide lots of fixes! My name is Chris and I'm from Los Angeles, CA and I'm looking for all the help I can get.
Currently I have a few rental properties in Memphis, TN that I've purchased from "turnkey" companies. I was thrilled with the results in 2011.....2012, not so much. I have a very busy job that I love so I'm not looking to get into real estate full time but I end up with $50k - $80k extra in cash each year that I need to do something productive with and real estate is where I'd like it to be. I'm looking for all ideas on the best way to invest this cash for a decent cashflow that causes me as few headaches as possible. The forum posts on Memphis aren't too positive and reflect my current situation. I'm not completely against Memphis at this time but definitely looking for other ideas.
@Chris Reece Welcome to BP! We do mostly new construction and commercial, so I'm not a lot of help for you. However; there are lots of others that will be. Here's a thread I started a while back, tells of all different things people do. https://www.biggerpockets.com/forums/48/topics/72199-what-specifically-do-you-invest-in
As far ar types of property, or locations, you'll find people from all over. In the next few months we're thinking about doing a meet up for So Cal BP people. I posted a thread on that too, it's Southern California Meetup if you want to search it.
Welcome to BP Chris.
Karen M. It sounds like you are at a level I one day hope to be. I would definitely attend a gathering of other BP ppl so hopefully I'll see you there!
@David T. What kinds of investing are you doing out in Ontario? SFR? Multi-Family? I'm investing in TN right now because I thought I couldn't get the same results close to home but now I'm starting to wonder...
Welcome to BP Chris. Just out of curiosity, what changed with your Memphis properties in 2012 that caused you to not be so thrilled about them?
Hey @Kyle J. , I have three properties in pretty good areas of Memphis. In 2011 each property brought in about $250 per month cashflow at a purchase price of about $90k a piece I was thrilled!
In 2012, oh boy, where do I start. Lots of repairs...HVAC system, replacement fridge, 2 turnovers that needed lots of repairs. One of the tenants that got placed never pays on time unless threatened with eviction so the fees have been through the roof. All said and done I lost $1500 instead of making a $7k. Painful! The worst part is I'm not sure what lessons to glean from the experience or how to improve returns so here I am, learning all I can to try and make the most solid decision I can and to see what some of the pros are doing. Any advice? I've got another $60k burning a hole in my pocket but I'm understandably a little gunshy and wondering if I'm not better off sticking it into a mutual fund somewhere. I need to get back on the horse, just trying to figure out how.
Chris, I can see why you went from thrilled to not-so-thrilled.
Two thoughts immediately come to mind:
#1 - Sounds like you had a lot of repairs come up in a relatively short period of time. Especially for a "turn-key" property. Do you think whoever did your initial make-ready just did a crappy job? Or were the tenants just extremely hard on the place?
#2 - You clearly had some bad tenants "placed" in your properties. Was that done by the same turn-key property company, or did you use a property management company for that? Either way, that would be the first thing I'd change. Most tenants don't turn bad...they're bad when they move in.
Good tenant screening is one of the most important things you can do, and not too much will hurt you worse than bad tenant screening or not doing any screening at all.
I'm kind of a control freak and don't buy/own/manage anything I can't drive to in under 45 minutes or so. I want to be able to physically put my hands on a property. I know others have success investing away from their home area, but I just like to do all the rehab, repairs, tenant screening, etc myself because I know no one will do it the way I would.
I'd suggest connecting with someone on BP who either lives in the Memphis area or at least has trades people there that they can refer you to, and then get yourself a quality handyman or contractor and a good property management company.
I'd also hold off for the time being on buying another house there until you get a good handle on the properties you already own there and things are going a little more smoothly. Who knows, maybe you end up deciding that's not the right market and you want something closer to home?
Welcome to BP Nation Chris. Sounds like you have a common problem. Buying and managing from afar is not easy. I did it and hated it. Others do it and love it. To each his own I guess.
Many threads here on BP regarding this subject. Browse around, use key word alerts and the search function, then engage the community and ask away.
You also have the option of buying here in So Cal so you can be close to your units which does help.
I give a great deal of praise to those that are able to invest in SFH beyond driving distance. Either you are spending a large chunk of your profit on management and/or one bad tenant or vacancy can eat up all of your profit plus some.
I feel much more comfortable with medium to large MF properties that can afford professional management. That is not to say that the PM doesn't need to be watched, but a few vacancies are not going to put you in the red.
If you have limited time, then here are a few suggestions.
1. Partner up with someone that has the time, but may not have the money.
2. Loan out your money to an HML.
3. Invest in notes, tax liens.
4. Invest in a syndicated investment of a large property.
How ever you invest, check them out make sure that they have experience and can be trusted.
If you are happy with a $250/month return on a 90K investment, you can do much better with any of the with fewer headaches.
You must do your due diligence.
Thank you everyone for the replies, thoughts and well wishes.
@Jeff Greenberg , thank you so much for your simple suggestions. I look forward to researching each one and seeing if its a good fit. So my thoughts are clear: $250 per month on a $90k investments doesnt sound great. But in Memphis last year I was doing $250 per month on a $20k investment. That plus an increase in equity each year seemed great to me. I've done cursory looks around the LA area and nothing seemed to come close. I'd love to be close to home, so maybe I just need to look a little harder or get more creative? @Will Barnard I'd love to hear any ideas you have on sticking close to home and still turning a solid profit. You are way ahead of me but I'm in Santa Clarita pretty often on business so if I can ever grab a coffee with you and pick your brain I'd love to do so.
@Kyle J. So maybe others can learn from my experience, the big repairs that hit me this year were new fridge- $500, A/C Compressor - $1300, excessive repairs from a tenant moving out - $600. Then I just got nickle and dimed to death after that.
I wouldn't really blame the "turnkey" operator at all. They actually provided exactly the service I thought I was paying for. As it turned out it was extremely hot in Memphis this summer and the Compressor on one of the units worked but it turned out to be too small so I had to go up 1 ton. I was getting lots of complaints and not one since I changed it. I wouldn't blame that on the "turnkey" guys.
The tenants that were put in place by the "turnkey" guys were great and they paid great for a year and a half so I can't complain but the PM put one good tenant into a unit and a not so great tenant into the other. The not so great guy keeps catching up but only after being served court notices and all of that costs money.
I'm not SUPER concerned at this point. It seems like such a high turnover and odd big ticket items like a new compressor are anomalies. Unfortunately it just doesn't take much being 80% leveraged to knock your profits to zero. My biggest question right now is if I buy 20 properties out there is there a chance for a $4k loss in a year being 80% leveraged? That would really hurt when I am expecting a $40k return. Thanks for the thoughts and advice!
Sure thing Chris. If you want cash flow here in So CAL, you will likely have to pick some of the desert areas (Antelope Valley, Bakersfield, Riverside, etc). Difficult to find cash flow in areas close to and surrounding Los Angeles. However, with that said, if you don't need cash flow, but can play the waiting game, you can buy now and expect some appreciation in the next few years providing a return. Many are taking this road right now (not a road I particularly like, but a viable one none the less).
Chris it all comes down to hassle, versus security , versus returns wanted.
In a nutshell that is what we are talking about here. The answer and what makes a good investment you will get a thousand different answers as every investor is not the same.
As mentioned there are plenty more passive investment out there. Hard money loans, note buys, investing in Reit's, triple net leasing although with 60k to 90k you are looking at forming a partnership to be able to buy something to pool money.
Sounds like maybe Will and TDI investing for the flips might be a route to explore for you. Higher yield but remain passive. You won't get the tax write down for depreciation like with the buy and hold though.
Hard money lending in Cali you won't get the same return as in other states because HML's are competing in a rising market.
Chris, both my rentals are SFRs.
Thanks for sharing your experience from investing in Memphis.
Please let me know if you have any questions.
Welcome to BiggerPockets! I love the great attitude and the willingness to jump right in and start investigating. This is the best site by far to connect with other investors and opportunities as well as to get good unfiltered advice.
I wrote an article flor the BP blog a couple of weeks ago and one line you wrote in your response above really hit home to the point i was making:
"Unfortunately it just doesn't take much being 80% leveraged to knock your profits to zero." You were spot on with that comment. So many investors don't get that when talking about "cash flow" property.
The good news is that you have an income stream that allows you a lot of freedom with investing. You can look around and diversify as an investor and not everyone has that luxury. I think it is very wise to investigate every opportunity. Also, be real clear about what you long-term objectives are with investing. I personally have a portfolio of properties, but I also invest in other ways. Some is for long-term wealth building and some is for short-term high yield. Either way, always consider what your long-term goals are when putting your money to work.
Being a large company here in Memphis, I can only offer you my support and help in any way - and I would do that for any investor who asks for help here in Memphis. I think you have a very good outlook, but if you wanted a second opinion on rental rates and your 2nd year expenses I would be happy to help. As with any investment, you should not be expecting a lot of deferred maintenance, but especially not with a turn-key property. I really like the Memphis and Dallas markets and I can say that I dont agree with simply chalking up problems with a memphis investment property to "it's just memphis". I do think a lot has to do with management. A bad management company can make a good investment go bad very quickly. I'm not saying that is the case here, but I would be happy to put another set of eyes on your properties if you wanted that opinion. I look forward to connecting with you soon.
All the best - Chris
I dont agree with simply chalking up problems with a memphis investment property to "it's just memphis". I do think a lot has to do with management. A bad management company can make a good investment go bad very quickly.This is very true, and one of many reasons why owning property out of state is difficult/challenging. A PM can make or break your income property.
You may want to contact @Chris Clothier to discuss your situation. They have a good reputation when it comes to property management and he may be able to help you out. Your property can "live or die" because of management.
Marco Santarelli, Norada Real Estate Investments | (800) 611‑3060 | http://www.NoradaRealEstate.com
Well guys I didn't expect alot of personal advice on my situation or as much perspective as I'm getting here so I just wanted to say thank you very much and I feel a little safer now amongst like minded ppl than I did alone a few weeks ago. BP will definitely be a part of my investing strategy moving forward. I'll definitely be reaching out to @Chris Clothier to get his local opinion on some things as he is clearly a respected member amongst you.
Chris, can I ask your opinion about my situation, knowing the local market in Memphis.
My ultimate goal this year was to go from 3 to 8 properties. Purchased in the $100k range with 20% down. That puts me at about $750 out of pocket each month for P/I/Taxes/Prop Mgmnt. If I buy right, from what I know I should be able to average over $1050 per month in rent on those properties. My goal with this cash flow for the next 10 years or so was simply to build equity and to help me pay for my dream home with my family that I hope to purchase next year and in case of job loss, health issues, etc I'd like a cushion to count on and I'm willing to sacrifice a little up front to get it.
Chris, do you think that strategy is a good way for my family to count on $1500+ in cash flow plus equity build up each month or knowing the market would you suggest a different route. An honest answer based on your vast experience in Memphis would really help me sort some stuff out here as I choose a path forward. @Will Barnard , @Jeff Greenberg , @Joel Owens or others who may have insight could be very helpful as well.
Again, didn't plan on my intro post going this direction but with the knowledge you have and knowing more about my situation I feel like you could easily give this plan a thumbs up or down. And I understand some of it is personal preference.
My pleasure Chris, happy to be of assistance.
Hi Chris. If I read your post correctly you are wiling to pay 100K per property and get $1050 rent is that correct?
If so then you are in the wrong parts of Memphis or simply paying too much for your houses, WAAAAAAy too much.
My average buy price would be under $75,000 fully rehabbed and those homes are paying a minimum of $1200 a month, many are $1250 to $1400.
So you may need better help to get into the right deals and maximise your cash flow.
Dean Letfus, Memphisinvestment.com | 901 264 8674 | http://memphisinvestment.com/
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