Second deal in memphis
Below is a brief walk through of my journey in purchasing my second single family rental in Memphis, TN. I made plenty of mistakes when I made my first purchase, some of which I talk about in a prior post that can be found here:
https://www.biggerpockets.com/forums/12/topics/804517-hindsight-is-20-20-things-i-wish-i-did-better
I tried to learn from those mistakes. Although, I’m sure I still made some mistakes, I think I learned from those mistakes and improved my overall process. I hope this post helps others in avoiding the mistakes I made.
Brief Background regarding my Investment strategy: From the beginning I was looking to implement the BRRRR strategy. The property I purchased is a four bedroom, two bath in the Raleigh Neighborhood. The purchase price was $52,000. Rehab quote is approximately $9,500 and expected rent is between $875-950. I began my search late March, I put my offer in the first or second week of May and just closed on the property this week.
Lessons learned:
This time around I like to think I was better about selecting a property. One of my biggest takeaways from my first purchase was to scrutinize the rent the seller states the property could rent for. In my my first deal, I basically took the word of the turnkey company and did not check how much the property could rent for. This time around, in addition to checking with my own PM, I would cross reference the rent they suggested with what was advertised on Zillow, trulia, hotpads, other PM websites, and I would call various PM companies to ask what similarly sized homes in the given neighborhood rent for.
I also decided to cut out the middle man and work with an agent and contractor to purchase, renovate, and then rent a property rather than paying retail to the turnkey company. In my first deal, I looked up property records (after I bought it) and found that the turnkey paid 78k for the property and in turn sold it to me for 122k. I figured that equity would better be served in my pocket.
I also made it a point to not fall in love with the first deal I came across. In my first deal I looked at several properties and once I selected one, I got tunnel vision and was adamant to make that deal work—not that it was a terrible deal—but im sure with more patience, I could have found something even better.
Finding an Agent
I started with a quick google search that consisted of “investor friendly real estate agents in Memphis.” With that I was able to find a few agents and I began looking at their reviews. One agent in particular stuck out because, aside from his positive reviews, another investor-- @Chris Boselli--that I met here on BiggerPockets worked with him in the past and had a positive experience. After speaking with about half a dozen different agents, I decided to go with Tyler Tapley. Of all the agents that I spoke with, he was the most experienced in dealing with investors looking to implement the BRRRR strategy. At the time that we spoke, he had a network of property managers, contractors, title company, and closing attorneys. Basically, everything I was looking for to find and execute a deal. From the beginning, Tyler sent me numerous deals, which I vetted thoroughly. There were deals I sent him that he gave me his thoughts and opinions. After looking at many different homes, he brought me a deal I was excited about and I jumped on it. With each deal tyler sent me video walk through of the home and on the homes that showed additional interest in, he would send me comps to look over.
Finding a property management company
I currently have a property management company that I use for the first property I purchased. I wanted to work with a different company not because I was having issues with my property, but because I wanted to diversify a bit rather than rely entirely on one company. As I mentioned above, Tyler had a network of property management companies that he referred to me. He gave me a list of about 5 PMs and I began researching each one. My fiancé and I sat down and did the following: 1) made a pros and cons list for each company; 2) went on the better business bureau to read ratings and reviews; 3) read google reviews; 4) made a list of “interview questions”; 5) called each PM and interviewed them. After a few days, we made our decision.
We tried to do this early on because we wanted to leverage our PM’s knowledge of the neighborhood whenever Tyler presented us with a deal. Whenever Tyler would send us a deal, I would send it to the PM to get their input regarding potential rent, class of neighborhood, etc. This helped us eliminate numerous deals.
Finding a contractor
This portion of the process was lumped together with finding a property management company because the company we chose has an in-house contracting team that handles full rehabs. Once I had a property selected the contractors provided me with a rehab bid. Of all the deals, I found I only got a bid on two properties, and I only put an offer on those same two properties. The estimated time of completion for this rehab, as stated by the contractors, is 3 weeks. The rehab is set to start before the end of this week. (Fingers crossed that there are no unexpected hiccups). One thing I probably could have done better was obtain multiple bids from contractors. I was happy with the first bid I received and since the contractors work for the PM company I chose, I decided to forego obtaining multiple bids. Hopefully this doesn’t come to bite me in the future.
Finding a lender
This purchase was made in all cash. However, I was looking to refinance the home as soon as the rehab was done so that I could roll the cash out into the next deal. Tyler had two lenders he recommended. Of the two only one was doing the delayed financing. For the sake of completeness, I called about 8 other lenders and they all told me that I would not be able to refinance before the traditional 6-month seasoning period. However, one of the lenders that Tyler recommended said they are offering delayed financing and walked me through the process. Since I just closed on the property this week, the delayed financing hasn’t occurred yet. However, I started the loan application as soon as my offer on the property was accepted.
Submitting the offer and closing the deal.
I offered the amount listed because I felt like it was a fair deal. After looking at comps in the area, cross referencing the listed price with the tax appraiser's records (list price lower than tax appraiser), comparing the amount the prior owner paid with the amount it was listed for (seller paid more when they purchased), I decided to submit an offer at asking price. My offer was accepted without issue. However, the seller had an issue with their LLC. Apparently, the LLC was not in compliance and they had to pay various fees, submit paperwork to gain compliance. It delayed the closing by about 3 weeks. I started to think the deal wasn't going to go through. Luckily the title company and Tyler both had experience dealing with this type of issue and reassured me that it's not uncommon and typically simple to resolve, it's just a matter of time.
Next Stages
For those familiar with the BRRRR strategy, you realize I still have quite a few more steps to complete before I can say this was successful deal. The rehab is set to start later this week and should be completed in the second or third week of july.
Since we’re in the summer time now and with the school year around the corner, I’m hoping a tenant will soon follow. I’m happy how this deal has gone so far. I’m excited to start my search for the next deal. Although I would like to have my tenant in place before making any offers. Stay tuned for another update! I’d love to hear any feedback, insight, or tips from anyone.