What can you tell me about investing in Memphis?

26 Replies

I am a person who needs to make his own mistakes. Doesn’t matter how much you tell me OR EVEN how much I believe you. I need to burn my hand on the stove, but I get an awful lot of private messages asking questions about investing here. I reply and be as helpful as possible, but I realized today that I am retyping a lot of the same stuff. I decided I would make a post and lay out my thoughts and suggestions. Still happy to help and answer private messages- but this can be a good primer to build those conversations off of.

If you are like me and learned about Memphis from podcasts (for me it was Get Rich Education- Hi Keith!) you heard things like “Memphis is the number one cashflow real estate market in the world”. I am sure this is true, or close to true. The problem is that the worse the area gets the better the numbers get. Of course there are exceptions. Nobody needs to reply that “you can get a great deal in a good area if you just look” or any such. You can pay 10k for a house that rents for 800 bucks a month in parts of town. That is an a-maze-ing ratio. But you will experience massive turnover. Vandalism. When you turn the place it will be trashed. At the end of the decade you might see a bigger return number than in another area- but you had to work very hard to get it and your cashflow will be chaotic. Alternatively you can spend 60k to get that same 800 bucks. But you will do fewer evictions, when tenants move out there will be less damage, etc. So the “Memphis is the best” numbers look really good because of the large number of 800 bucks for 10k type deals.

So lesson one is- adjust your thinking to account for this. I drove here as fast as I could (like, literally) after hearing Keith talk about Memphis. It was the right thing. I am happy I moved my business here. But it is far far rougher and riskier than I expected.

I don’t know the numbers or stats on this, but there is a metric-****-ton of out of state money being invested in cashflow residential real estate here. There are entire businesses designed around it. Some of those businesses are dishonest and completely focused on taking the money out of your pocket without adding value. I am sure that not all of them operate this way. But I will say that I do not know a single one counter example. Suffice it to say that if you spend an afternoon making phone calls you will talk to several Zero Sum Operators.

When I first got here I had my lunch taken several times. I am a bit of a hippie and like people and want the best for everyone. I like to think this is a great way to be- but not for business here. There are just too many people who are happy to stab you and leave you in an alley. I predict at least one comment below to say something like “you just had really bad luck”. I did have bad luck- and you probably will too. A couple of examples- I bought a six property portfolio. Five were in super ****** areas Fraysur (yeah yeah there are a couple of decent nooks) and Orange Mound (there are no decent nooks). The contract was for them to all be occupied. One did not have a tenant so to meet the terms of the contract the seller moved a family with no job into the property. And then removed the air conditioner. I had to evict the person and rehab the property after. Another property he claimed rented for 1150 a month and that the tenant had been there 15 years. The first month the tenant paid half the rent. The next month they were gone- the seller had moved them to another of his properties. I then learned that market rent for that property was about 700 a month. Don’t even get me started on wholesalers… (Again, I am sure there are good ones- I just don’t know any.)

Lesson two is- go read the wikipedia article for “trust, but verify”

Project leadership was my previous life’s bread and butter. I am great at getting people to do stuff. Not in a sales way- in an Amish people building a barn way. I came here justifiably arrogant about my ability to get **** done. I literally have a framed picture that says “Gets **** Done”

Boy when I got here did I fire a lot of people. First there is a culture shock element. This is another adage for you “everyone in Memphis is bad at their job” There is a plague of poor work ethic here. This created a market opportunity for people to charge WAY MORE than is reasonable. And those people aren’t any better. It is hard to get work started. Once it is started people will not finish, or finish wrong, or ask for more money, or… etc. I had a guy out to quote a big rehab job- 50k ish in labor alone. He didn’t take notes when we did a walk through for scope. I emailed him my notes in the form of a worksheet he could just fill out. A few days later I texted asking if he was not going to submit a bid. He told me he would have it to me later that day. Later that day he sent a text saying “about 30k or so”. The amount of effort he was willing to put into getting the contract consisted of texting me a sentence fragment. I often post in some of the local Facebook groups that I am looking for this or that kind of contractor. I will get a bunch of messages. Sometimes the project gets stalled, sometimes I find someone I like right away… whatever. So when I need someone the first thing I do is go back through the people who messaged me the last time I asked. In about three months I observe at least a 75% ghosting. The numbers are no longer valid, the guy moved to new york, whatever. Let me rephrase that for clarity. About 75% of the contractors you will find today will be gone in three months.

My ability to Get **** Done went… well.. Into the shitter here. I am still quite a bit more effective than many people here. To the point where I wind up doing a fair bit of work for other people who are stuck just because I CAN get it done (mostly strategic partners due to bandwidth issues). I feel massively handicapped here in terms of productivity, but relative to the Memphis baseline I am pretty baller.

Lesson three is- buying a distressed property and knocking out a quick rehab here is very different than most other places. Anecdotally, I find running rehabs in other states remotely (from here) to be easier than managing rehabs here while I *AM* here. Don’t bet all your money on one throw of the dice from another state.

BRRRRRR... Man, it all just sounds so easy on the podcasts. And my experience before I came here supported that. I purchased properties in WA for around 80k rehabbed them for 20k rented them for 1200 and then refinanced them at 160k and reinvesting the 120k. Just like the textbook. Here the local banks are all pretty leary of this. I had many frustrating conversations with one of my bankers before I realized what he was saying. In the above scenario the bank has a 160k piece of collateral against a 120k loan. The problem they see is that I have 120k loan collateralized against a 160k property that I basically got for free. If **** goes south it is easy(ier) for me to walk away without my hard-earned-cash being at risk. Translation- the bank views your 25% down payment as stronger collateral than your 160k property. Everyone (you know what I mean) has seasoning requirements- they are just more arbitrary and strict here. So be ready for that. BRRR will be more like B...R…..R………..R.

Lesson four is- whatever you learned through podcasts, websites, books, seminars, youtube, gurus, etc… It is going to be harder and slower than that.

So what is a body to do? You are out of state. You work a day job. You saved some money and believe cashflow residential is where it can grow the most. You hear Memphis is The Place. I just told you it is terrible here. You still want to do it. Fine. This is what I think you should do.

  1. Come here. Do not invest remotely without at least visiting.
  2. While here meet with multiple types of people- take notes- compare notes- try to see the truth between them
  3. If you plan on doing a rehab expect it to take five times as long and cost twice as much as you think it should
  4. Unless you REALLY WANT to dance with the dark side to maximize your return don’t invest anywhere you wouldn’t be willing to walk around at night waving a 100 dollar bill
  5. Any business transaction you are in do as much outside verification as possible. They say your tax will be X? Go to the county sites, wade through all the crap, do the algebra, and figure out what the tax will be. I would bet you the 100 dollar bill you get to wave that it will be 150% of X
  6. Anyone who won’t tell you specific Memphis investor horror stories is probably straight up lying or lying by omission or the person you should get your lotto numbers from
  7. Be prepared to spend a long time (like, two years maybe) stabilizing your property. Pick some management company- I suggest a small one, but you-do-you. Watch them like a hawk for a few months. Question every transaction. (maybe not to them specifically- but look at each one and really think about it). If it is vacant look yourself for the ads as if you were a person- don’t just click the link they send or look at their site. There are a lot of conflicts of interest at work here and it is made worse by Everyone in Memphis is Bad at Their Job syndrome. Be ready to fire them and try another company until you get to one that serves you well.
  8. Cross your fingers and keep me posted.

Welcome to the trenches soldier,

Jack

Your comments on zero sun operators are right on. I'm shocked how many properties I see out of state investors unloading, which they paid 40% more for a year ago.

This post has been removed.

This post has been removed.

This post has been removed.

Bravo. BRAVO!!!!!

Outstanding reality check.

@Jackson Long thanks for the candor.  Generally what rent rates are you dealing with?  Do you think you'd have as much frustration as you've had if you moved to a higher range?

It’s a great summary but my experiences have been a little different and for sure better. My MEMPHIS properties are in the $1,000-1,400 rent range. The charges for turns are more than they should be but other than that my experiences have been pretty good. A few tenants have had to be evicted but I own over ten properties so stuff happens.  I am sorry you have had bad experiences and hope my fortunes don’t change to mirror yours. 

I am bummed to see a bunch of posts removed.  I had meant to get back and address some, but I guess I was too slow.

@Ryan Ward I actually completely pulled back from the C (and below) class areas.  I do a lot of work in Midtown with some borderline areas- but am targeting the hipster and low level white collar demo.  Teachers, xray techs, baristas with green handlebar mustaches...  Now that I am a bit more sophisticated though I am considering  going back into Da Hood.  A lot of portfolios cross my desk and the idea of jumping from 30 doors to 100 doors quickly is very appealing.  As to your specifics...  With houses anything under 800 has been a nightmare.  With apartments I've done okay with some 675-800 ones.  Mostly small ones in "cool" areas.  The other thing is that we vet our tenants and treat our tenants in a very non-Memphis way.  We've only had one real problem with a tenant we didn't inherit.

@John P. Totally- I know there are people who make it through the crossfire unscathed and am glad to meet one.  What part of town are your rentals in?  What management company are you using?  Are they pretty much turnkey purchases or are you doing rehab?  Did you come out or do your due diligence remotely?

Originally posted by @Jackson Long :

I am bummed to see a bunch of posts removed.  I had meant to get back and address some, but I guess I was too slow.

@Ryan Ward I actually completely pulled back from the C (and below) class areas.  I do a lot of work in Midtown with some borderline areas- but am targeting the hipster and low level white collar demo.  Teachers, xray techs, baristas with green handlebar mustaches...  Now that I am a bit more sophisticated though I am considering  going back into Da Hood.  A lot of portfolios cross my desk and the idea of jumping from 30 doors to 100 doors quickly is very appealing.  As to your specifics...  With houses anything under 800 has been a nightmare.  With apartments I've done okay with some 675-800 ones.  Mostly small ones in "cool" areas.  The other thing is that we vet our tenants and treat our tenants in a very non-Memphis way.  We've only had one real problem with a tenant we didn't inherit.

@John P. Totally- I know there are people who make it through the crossfire unscathed and am glad to meet one.  What part of town are your rentals in?  What management company are you using?  Are they pretty much turnkey purchases or are you doing rehab?  Did you come out or do your due diligence remotely?

Purchases mostly required minimal amounts of work which I had determined prior to purchase. So not turnkey but not total fixers either. All over town in B- neighborhoods I would say. They rent for about $950-1,400.  Currently using Reedy for management. Yes, have been to Memphis several times and have a friend available for occasional spot checks to make sure the houses look good from the street (no cars on blocks on the grass, etc...).

@john 

Interesting on Reedy- I will check them out.  How long ago did you start buying here?  Mind if I ask what you ultimately cashflow on the places?

@John P. undefined

Thank you, Jack!  This needs to be sticky posted to the top!  I appreciate your candor and wish more posts were like this.  Memphis is full of vultures.

I'm a newbie investor, currently under contract on my first Memphis property.  I can attest to doing all the legwork myself. I'm going above and beyond to get this deal done because no one else is willing put in more than the bare minimum.  I have given my realtor and the property management an earful.  I had to terminate this contract before anyone was serious about closing the deal (now we are back on, due to close in about a week).  

This has been a headache for sure.  But damn, glad I didn't buy anything through a turnkey company!

I can't BELIEVE prospective investors don't visit before buying! That's just plain dumb.

I don't know if I'll buy another property in Memphis.  If this deal pans out in real life like it does on paper, I MIGHT be back but right now, I'm currently looking elsewhere.  I think there are other areas with good cashflow that are better than Memphis.

Thanks for this insight. I’m originally from Memphis and still have a lot of family there, a nephew being born in July! As a complete noob to this, I was kind of hoping to make a start in Memphis. My current residence is Denver where it’s ridiculously hard to find a deal that I can afford, get started etc. 

I noticed some of the podcasts and articles stating Memphis was a great cash flow area, but knowing the area saw that most of these listings seem to be in the “war zone.”

I’ll keep looking elsewhere! 

My Memphis experience has been pretty solid.  I've used a turnkey provider, bought 1 a year for last 4 years, and the returns have been pretty good (not great, but not bad either), and in line with what the provider predicted.

(And, yes we did indeed go visit the provider, checked out their operation, and walked a few homes, before we bought!)

@George Pauley

Do you mind if I ask what turnkey provider you used?  Also, i just returned from Memphis this week and met multiple investors that where very satisfied with their investments in Memphis.  Many picked up more in the two days I was there.

@Jackson 

@Jackson Long

Thank you for putting together the thread.  As a new investor, it helps to read the good and the bad.

What investors did you meet? 

A few people from California,  Seattle and Denver. All made their purchases through turnkey and have been satisfied this far. Hope I'll be able to say the same.

Originally posted by @Brandon Rivera :

@George Pauley

Do you mind if I ask what turnkey provider you used?  Also, i just returned from Memphis this week and met multiple investors that where very satisfied with their investments in Memphis.  Many picked up more in the two days I was there.

 

Sure, MidSouth Home Buyers is who we've been using.

Coincidentally, we were in Memphis this last week meeting with a 2nd provider.  Were you at the Memphis Investment Properties investors event this last weekend with us?  :)

George

@ George Pauley

I was at a similar event hosted by James Wachob. I believe he used to work with MIP.

Thanks for the name of the turnkey provider. Will look them up.  Considering a different market for my next purchase.  I'm OOS so for the most part I'm only looking at turnkey right now. 

Hmmm...  Well, I am glad your stuff is performing and I hope it continues.  Keep me posted.

Originally posted by @Brandon Rivera :

@ George Pauley

I was at a similar event hosted by James Wachob. I believe he used to work with MIP.

Thanks for the name of the turnkey provider. Will look them up.  Considering a different market for my next purchase.  I'm OOS so for the most part I'm only looking at turnkey right now. 

I've met james wachob before when he was with MIP

I was impressed with his desire to spread the word about Memphis

I've been invested with Memphis Invest since summer 2012, so I've done well, but i'd bet that any appreciation I may have gotten will go away in the next downturn...

@Jackson Long

Man, you came out with some passion in this post!  

I think it is great that you are posting your experiences and although I feel there is some hyperbole, it is still your view of the experience you have had and it is important to post a counter-view to the cupcakes and rainbows often posted about how easy it is.  

As for Memphis itself, I would only caution readers that what you have shared as advice is applicable to any market and any investment and not unique to Memphis.  Believe me, Charlotte, Dallas, Houston, Birmingham, St. Louis, Little Rock, Atlanta, Los Angeles, Miami, Cleveland, etc....none of these are immune to what you are discussing.  It is not a market issue, it is a people issue.  And by people, I mean it is an issue on the part of the buyer as well as the service provider, seller, etc.  There is nothing you discuss that is unique to Memphis, but I absolutely empathize with you and believe that everything you've shared is your unique experience.  

I too had a very rough go when starting and paid for it over my first few years as an investor.

I have been investing in Memphis since 2003 when I bought my first investment property near Rhodes University and I have since invested in hundreds of properties.  I hope you find it encouraging that someone who has built what I view as a successful portfolio and a company with a stellar reputation has been bamboozled and lied to and sold straight up junk by people who I trusted.

When I started I had a dream that every property would always provide $200 a month per property and I only needed 50 of them to earn six figures and replace my then income.  I was dead wrong.

The price points you are talking about are where I started and I lost my a$$.  I bought properties from people that were presented to me as "church friends" of the seller and pillars of the community and after I purchased their portfolios the same things happened to me.  The houses went vacant, the managers stole money, the deferred maintenance showed up to the tune of thousands of dollars and I lost much more money on my investments than I made.

Those experiences absolutely helped shape my families' company Memphis Invest and our approach to buying, renovating and managing.  I didn't join my dad and brother until late 2008 after the company was already up and going.  We had all experienced some of what you are describing and it shaped the way we built the company.  You don't have to love or even agree with buying Turnkey properties or work with Turnkey companies, but there are many good people in the industry both in Memphis and across the country.  To be fair to the many great people here in Memphis, there are also many investors, Realtors, tradesmen and others here in the city that would help you and any others in need in a heartbeat.

As for service providers,  we have had the same electrician working on our personal and business houses since 2004.  He went from a single operator to having 3 crews.  Same thing with HVAC, general repairs and flooring.  Companies that have been with us for over a decade doing work.  One of our lock companies and lawn service companies have even expanded into other cities that we have expanded into.  There are some fantastic companies out there providing trades and services that not crooks and they show up on time and complete the work they are contracted to complete.  I know it sounds crazy right!

My post has already grown too long so I will just leave you with this.  I'd be happy to share my experiences, trade some war stories and even introduce you to any service providers that may be able to help any time you'd like to meet.  I love that you are here in Memphis and trying to help other investors and sharing your experiences.  I hope that you grow to love Memphis the way a lot of other investors like myself love Memphis.  This is our hometown and we fight for the city and for investors like yourself.  The more successful you are, the more successful we are! 

So, hopefully you take me up and we connect at some point!  Best to you -

Yo @Chris Clothier   I love your post- but now I am going rebut.  Yay for discourse!  (also please give me your electricians contact info)

I think this market IS different than others.  Here is why- Memphis is *THE* hotbed for out of state money.  This translates into a ready market of ignorant suckers (from the perspective of the local sharks- no disrespect intended there are plenty of wise and careful out of state folks).  You can see the truth of this in that there are a non trivial number of companies who's revenue comes almost exclusively from out of state folks.  There are national companies that work for out of state investors.  But Memphis has more local companies focused on out of state investors purchasing in this city than anywhere else.  I lack scientific data, but I suspect there are more wholesalers per real estate professional capita here than anywhere else.  Probably for the same reasons.

I can't remember if it was in this post or another, but at one point I was writing here about how the only people I could find that gave positive reviews of local management companies were in some way tied to the company.  I am sure you are an awesome above board cool dude (that I would love to do coffee with next week), but you are literally the poster boy for that issue.  Correct me if I am wrong about this- but I would bet good money that the majority of Memphis Invest revenue comes from out of state investors (or by proxy through managing their properties).  Further, those companies up sell pretty much every service- if your client's property needs electric work and you send out the guy with three crews do you pass the cost through or do you charge a service fee or in some other way achieve a delta between what the client pays and the electrician receives? Again, I am sure you are awesome and that your company is the bomb.  But there are several companies that I strongly disapprove of are run by people I think are awesome.  This is a weird place.

Yes, you can get screwed anywhere and you need to be careful.  But the odds of it happening are greater here.  AND as much as the ratio of renters to owners and blue collar workers  and whatever is good for the investor- it is also bad in that there are massive parts of town where the numbers look good and the reality isn't.  And those places drag the numbers for Memphis performance up- which in turn attracts more investors- which leads to more sharks- which leads to more contractual muggings.

Shoot me a PM if you think it would be fun or educational for us to fence with details.  And I am serious about coffee too.  Free after Wednesday.  Wait, hang on, did you once tell me that by 10am half the day is gone?  Maybe it was James... one of you cats anyway.  I am only available in the afternoons... Wednesday through forever.  Call me. :)

I have an investment property in Memphis that I purchased in late 2013 and I've been pretty happy.  I bought the property from MidSouth Home Buyers like @Brandon Rivera and things are going well. My first tenant had to be evicted, but the second tenant has been solid. 

It seems you get what you pay for: if you buy from a turnkey provider, the process is easier, but the returns aren't as good as someone could probably do on their own. Since it was by first property, I wanted some hand-holding. I've learned a lot since then so at some point I'll do the process myself.  

@Jackson Long Your first post is a little 'doom and gloom,' but there is a lot of truth and good advice.

These points that you made were spot on: Always good to double check any figures that are given out. If you don't check the comps then you very well may pay above market value for a house. Also, finding a good PM with good renovation contacts is paramount. 

 There are plenty of investors who do very well in Memphis (and from my understanding you're doing quite well yourself), but it is good to hear about the bad things that can and do happen. If proper due diligence isn't taken, then you're at the mercy of your ground crew. If one's ground crew is unethical or inexperienced then one's odds aren't good.

 
I know plenty of successful investors who have good luck right from the start, and most of that 'good luck' is due to choosing the right ground crew and completing one's due diligence.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here