Need advice - my first investment in Memphis

13 Replies | Memphis, Tennessee

I live in California and plan to make my first out of state investment in Memphis. Need advice from experts if this looks good from numbers perspective and are there any pitfalls that I should be concerned about. The property is in a low income neighborhood in zip code 38127. Plan to make this a cash offer. 

Originally posted by @Eric Adobo:

Name your TK provider. Out them. πŸ€—πŸ€—πŸ€”πŸ€—πŸ€”πŸ€—πŸ€”πŸ€—πŸ€”πŸ€—πŸ€”πŸ€—πŸ€”

 They should be shameD. 

Here we have an out of towner begging to be fleeceD. 

You won't heed my warning So Good Luck. 

@Aditya Namjoshi "check yourself before you wreck yourself"

The only good thing I see there is that your total purchase price means you won't lose "too much" money when it all goes to ****.  Here are some things to think about/know:

1) Have you actually been out here or are you doing the whole thing remotely?  You should really spend a couple of days out here doing non-tourist stuff to get an understanding of the market (and not with people who want to sell you stuff).  Failing that you need to work with someone you know.  I cannot stress that enough.

2) Management.  I've yet to see a single example of a quality trustworthy management company out here.  Without fail they will view you as a profit center.  Whatever amount they charge for management will be a reasonable enough number.  Then every time money trades hands relevant to the property they will make more money from you.  Replace locks/rekey for a new tenant? Double the cost of just hiring a vendor.  500 dollars to turn a unit for a new renter?  Oh the dump fees are not included your actual bill is 700.  And so on and so forth.  We worked with a company when we first got here that overcharged/falsely charged us about 10k over as many months.  It was a nightmare getting that money back.  And lastly, you are a tiny little piece of their business- when your property is vacant you are losing 300 bucks or whatever a month (double that if you are leveraged) and they are losing 30 bucks.  The level of urgency to fill your property will be very low.  I live in a borderline area (much nicer than 38127) and there are consistently 1-3 vacant properties on the street with well known management companies- these tend to sit vacant with the signs in the yard for 6-9 months.

3) Location.  That is a **** part of town.  The socioeconomic level of your tenants will be low.  There is high correlation between people who want to rent a house for 600 bucks in the hood and people who will treat your house like ****.  The only good thing I can say about it is that it doesn't look like you are overpaying by MUCH relative to the actual value.  However, relative to your rent, its not a good deal.  Also, should you change your mind and decide to use leverage rather than all that cash- you will find it almost impossible to find someone willing to do a mortgage that low.  And if you decide you want out- it will be tough to sell without losing money.

4) Memphis is the wild west of buy and hold investing.  There are more hustlers, wholesalers, and crooks here than you can shake a stick at. I've been operating here about 2 years now (boots on the ground) and I would guess that over 50% of the professionals I've interacted with are unscrupulous.  It is freaking absurd.  There is money to be made- but it is not just sitting on a table for you to pick it up.  Ever hear the phrase "there is no such thing as a free lunch"?  Well out here they don't even have Happy Hour.  (I literally just wrote that joke- but I am going to use it a lot I think)

I don't have anything to sell or services to offer or referrals to give you.  So if you want to reach out I am happy to give advice or specific feedback on vendors I've worked with.  Its not that everyone here is bad- its just that the good people are doing their own thing and the bad people are actively looking for suckers.

Although several local investors have great success with investing in 38127, I would not suggest this area for an out of state investor starting out in Memphis. While there is a possibility this may turn out to be a solid investment, the chances are high you will experience issues with tenants, collecting rent or vacating the property. Not to mention vandalism, theft and issues that can occur while it is vacant. You would be highly reliant on your property management in this area. 

   Having a bad first experience with an investment in this area can give you a "bad taste" for Memphis all together. I'd suggest using Trulia's crime map and researching the areas a bit more before diving in. If you would like to stay relatively low on the purchase price, I'd suggest looking into 38128, 38115 or 38118. You may still experience issues as the above, but would have a better chance at gaining solid returns. If you'd like to make an even safer investment, I'd suggest B-/C+ areas like 38133, 38134, 38141, 38116 or 38117. 

However, great choice in looking to start in Memphis!

How's the BBQ in Memphis? 

If you want Memphis buy  where Dave Ramsey buyS.

Cops show back in the day. 

Episosodes filmed in Memphis-way too manyπŸ˜…πŸ˜†πŸ˜‡πŸ€”πŸ€—πŸ™πŸ€—πŸ€”πŸ˜‡πŸ˜†πŸ˜…πŸ˜†πŸ˜‡πŸ€”πŸ€—πŸ™πŸ’‚πŸ’‚πŸ’‚πŸ’‚πŸ’‚πŸ’‚πŸ’‚

@Aditya Namjoshi   From a numbers standpoint it's not a bad deal.  I think some of the advice in the thread is standard knowledge.  Anytime you are OOS you are leaning on your PM.  I personally don't think you need to visit a area but you do need people on the ground who will give you back good information.  But just based off numbers, its not a bad deal.  

Don't buy pieces of crap (sub 50k houses).  Go east to Raleigh/Barlett where the tenants actually pay rent and don't destroy your property.  They're not much more expensive and are orders easier to own and manage.

Yes, when I bought in this area, I had monthly rent to price ratio close to 1.5%.  Not sure what the market is like today.

I also think that this rent / price ratio is an awful metric that drives people towards low-value houses that cash flow on paper but are money sinks in reality.

I totally agree with @Jonathan McGee !

#1 KEY: In Memphis, for out of state investor, I suggest buying properties that the rent rates are $850 per month and above. Yes, it's looking less % on paper (ROI) but it will actually produce what it should.
A lot of the 20% ROIs are just on paper, unfortunately. 

#2 KEY: If you still want to buy a low-income property, and you decide to buy it by yourself, make sure that the house is already in a good condition. 
Do not look at the paint and carpet, look into the big stuff :
Windows. HVAC, Water Heater, plumbing and electrical, and roof.
Try to buy a vacant house and not rented.
The 3rd key - Is to find a rockstar property management in place. I can refer you to some really good ones out there.

Hope this helps!

38127 has its share of problems as well as some other areas of town. However, Memphis can be a great place to invest. I agree with @Frank Jiang that the further East you go in the northern part of town the better chance you have to keep tenants, long-term.