Wanting to start to turnkey business in the Chattanooga market!

7 Replies

I am looking at moving to do turnkey investing.  In other words I want to move to building and rehabbing the properties in the Chattanooga area and then flipping them to a turnkey investor with a tenant in them.  The reason for this is what seems to be going on in a lot of other cities that the rental demand dramatically increased, but unlike other areas in Tennessee and other major cities, Chattanooga has not use all of the government funding to redevelop the public housing sites in the city.  Currently, the plan is to demolish the largest public housing units in the next few years.  I would like to be in place with properties both single family and multiple family to meet the demand.  How should I go about this?  My background in real estate to this point has been in wholesaling, renting a couple of my properties and now finding tenants for other investors.  

I am all ears to your suggestions and ideas.

I agree with Curt. Sounds like a lot of opportunity and you might need a partner with mad experience in turnkey flipping.  Otherwise, it is smart to go ahead and start building relationships with hard money lenders to fix them up... and with banks to finance properties for your non cash buyers. Either way I think that turnkey is a good route to go! Good luck my friend!

@John Britt

I think you have evaluated the problem correctly. There are a lot of similar characteristics that I see in typical turnkey markets. I think you will want to look out for these characteristics:

- High renting vs. owner-occupant population.
- Low cost of pre-rehab acquisition (10-50k range).
- Similar product on the market. This will help you to develop systems to maximize efficiency.
- Some kind of local growth and stability engine (manufacturing or major industry would be a great example). 

Beyond that, I would figure out who the other players are in the Chattanooga market. What is their product like? What are their weaknesses? Do they have to scam to make the numbers work? Are they leaving money on the table?

TN has been a popular state for Turnkey, primarily in Memphis. I know Chattanooga has a manufacturing base, so it appears similar in some senses. There are many parts of the country where the numbers don't work for Turnkey, and I usually think that comes from high cost of land/space.

@Curt Davis thank you for the advice.  I would have to start to look for experienced outside of my current area.  There are not any established turnkey flippers in this market that I am aware of. 

@Trevor Ewen thank you for the advice.  I have some work to get started on now.  

Question for you both would an investor that specializes in rent to own be a similar product?

@John Britt

Sorry for my slow reply. Try to avoid too much computer time while on vacation :)

Product is very similar, but customer is about as different as possible. In a rent-to-own/lease-option scenario, you're working with buyers that typically have bad credit but a desire to own. In many senses, these buyers are likely the same people who would've been your tenants had you ran a turnkey business.

In turnkey, you want to focus your buyer base at out-of-state/foreign buyers in ridiculously expensive markets (NY, CA, DC, London, Hong Kong, Sydney, etc.). These people are usually looking for income and can take the risk of diverse single family product because it comes at quite a discount to their local market. Basically, they have high opportunity and an even higher opportunity cost in their local markets. They (like me) transfer their opportunity to another market where the money goes much farther.

Why I would caution against having your entire business on lease options is you are effectively becoming the bank for people with really bad credit. The financing on the property is ultimately in your name. You have to be extremely strict, foreclosing, and keeping your interest rates high just to make it work. Whether right or wrong, your community will view you as predatory, because you charge high interest and foreclose often due to the low likelihood of re-payment from your buyers. Even though you may be 'doing the right thing' to keep your business alive, it will not seem like that to the public.

Getting  out-of-state money in the picture is nice because you transfer risk to (typically) more credit-worthy buyers as you run your flips. They take out financing with their own lenders (not you), and they inject more money into your community. 

This actually reminded me of a great article City Lab ran this week. It was a summary of a World Bank paper on the commonalities between the most competitive mid-sized cities worldwide. A key component of successful mid-size cities were those that sought outside business investment. In other words, attracting that out-of-state money is consistent with a common theme in regional success. 

Originally posted by @Shadonna N. :

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Good response @Trevor Ewen .  I am in a high market and have friends who live in and invest in Chattanooga.  Rents are good.

I think Volkswagen has a plant there.

 Also, Amazon has a warehouse here and Wacker is in the process of opening a solar cell plant 30 minutes from Chattanooga as well.