Turnkey Property Analysis in Memphis 38119

12 Replies


So I'm currently analyzing a property I found through Marshall Reddick that is in Memphis, 38119 (I look for the zip code in the forums but didn't turn up much).

Essentially, this looks like it is in a good neighborhood; it was a distressed property bought a week ago @92K, and they are trying to resell it at 149K.

Checked the rent with rentometer/craigslist and it looks like this could be rent for $1500 to $1700, depending.

Here is the .pdf report.

Only thing with Memphis/this particular area is that the education sucks.  But talking to the turnkey company, they said this is in a owner-occupied area and said this was good for value and for easily executing an exit-strategy.

So I guess my question is, in my report is there any assumptions that are terrible?

I did 10% vacancy, 6% on repairs/maintenance (it is newly renovated if I could close this), 11% on property management fees.

Cash flow estimated at $153, but according to this article on CapEx which I assumed to be 0, I would have a negative cash flow of $30/mo. I assumed it to be $0 because these are the things that they are working on currently:

  • New 30 year architectural shingle roof
  • Exterior wood repair and paint
  • Laminate hardwood throughout downstairs
  • Smooth all ceilings
  • Fill in swimming pool and sod back yard
  • New furnace and AC
  • New water heater
  • New bathroom vanities in all bathrooms
  • Pressure wash exterior
  • Landscape
  • Trim trees
  • Ceramic tile in Kitchen
  • New kitchen counter tops
  • New sink and faucet
  • Carpet stairs
  • Refinish hardwood up
  • Install washer box to prevent future leaks

Seems like they hit everything except for windows/foundation?  I reckon the foundation would be inspected during the home inspection, though.

As a first time investor, my other question is: what questions am I forgetting to ask?

My first primary home was in 38119 and I still own it as a rental along with another home in the same zip code.  Its a great East Memphis location.  Based on what you listed for the repairs they did it sounds like a great deal. The price is not too far out of line with the rental amount but the price is good for what I found for recent comps. The school district is not the best as you stated but the area is great.  I still own my second primary that was in a $500k+ neighborhood but was in the same school district.  

If you are assuming $180 in monthly capex I think that is far too much considering the amount of new items done to the home.  

I actually remember looking to buy this home about 9 months ago but could not get it for a price I though would cover all the repairs.  

From my view it seems like a decent deal to go with. I dont know who currently owns it as it still shows as being owned by HUD.

@Angelo Wong They are trying to resell it to you for $149k. How does that compare to the actual value of the property? You want to purchase it with some sort of equity built-in. You will likely never get that 70% rule when buying turnkey because a lot of that is the cost of someone else finding and rehabbing the property, but you should always aim to get SOME amount of automatic equity. Do you know what something like this is going for at retail (ie owner occupied)?

I estimate the value in the $142k - $180k potential based on the first few comps within a close proximity of the home.  6800 Kelmscott just sold for $142k, little smaller by 280sqft. 

2645 Green Mill just sold for $177k and is same size/beds/baths.

@Angelo Wong if this is a predominantly owner occ neighborhood have Curt or another agent send you MLS listings of same age basic sq footage bd and bath... if the numbers check out that will give you a second opinion.. Also you may find a nice owner occ in great shape as well to compare and or purchase or you may find a better deal who knows.

What you should do is go directly to memphiscashflow.com and buy it direct from them otherwise they have to pay a large fee to Marshall Reddick.  Tell Clifton Stone he owes me one!!

I would not say the schools suck over there, Ridgeway High School is one of only a handful of high schools to offer the International Baccalaureate program in the entire state.  There are 2 other schools in the district that offer that same program. The ratings do not reflect the school.  Check out this link: http://www.memphisparent.com/Memphis-Parent/Living...

It is certainly a retail driven area and deals over there are rare.  I think that rent is obtainable as we manage one of Curt's properties for $1,450 in that area and it is smaller.  We recently rented on at 6617 Stout for $1,395 and it is only a 3 bed 2 bath in a week.

As for value, I think it is worth more then that; Curt mentioned Green Mill. Also, the other house on Kelmscott that sold for $142,000 and it looked like my grandmothers house (green carpet, old lady curtains, green counter tops, 70's lights, etc. If it were fixed up, then mid 160's is realistic. Actually the Starting Point, which is a MLS Realtor tool that comes up with a statistical analysis (not to be confused with appraisal, but it gives a ball park figure far more accurate then Zillow) is $162,000.

I don't know Marshall Reddick, never heard of him, seems odd to go to this guy instead of straight to the owner.  Those guys have a great reputation and the owner was one of the first turnkey providers to open up in the city.  What advantage does Marshal offer?

I am a big fan of "A" type properties as I have a bunch of these in my own portfolio; on paper these returns do not look as good, but in the long run, these properties consistently perform better then the Pro Forma.  In 8 years of being in business, I have only evicted 1 "A" class property. 

Wow, thanks for all the great response guys!  Just ate dinner and already tons of very useful responses!

@Curt Davis , yep Memphis Cash Flow; I am literally working with Clifton himself, hah.  Thanks for the direct-buy advice!

@Jay Hinrichs - yeah buying in Milpitas would have been a good deal, for sure.  I immigrated to the states when I was a kid and my parents got this Milpitas home for 400k, now it is worth 3X...

@Alex Craig - those are very comforting numbers--mostly just wanting to get some cash flow going so even if this was mid 150s I'd be happy. As far as the Marshall Reddick question goes: I think he's retired (and now run by his former colleagues) and it is just a local company whose free meetup I went to; they procure these free listings on their website and do some analysis for you so it is easier to do the math, at least, in a preliminary fashion. As far as actual track record/technical merit/history goes, I don't know much more than that--however at the meetup talk they tried to be as conservative with their numbers as possible which I found attractive (as opposed to hyping things up and pretending REI is some overnight venture).

I also think Memphis Cash Flow mentioned Marathon property management as a good go-to sister company for managing properties--do you know of others that also reputable? I'd like to cold call a bunch tomorrow and ask them about costs, etc.

@Angelo Wong  I highly advise sticking with the company that sold you the property.  You want to develop long term relationships with your TK providers and being in their PM company is part of that.  If things go wrong, i.e., maintenance issues, they will likely take care of early in the investment which helps you build up your cash reserves. 

I have to agree with @Alex Craig regarding staying with the management company that sold you the home.  The idea is they have an interest in doing what they can to make sure you have a positive experience and develop a relationship long term. But.... in the event you come to the conclusion down the road your not happy with their management company they you should reach out to Alex who owns his own management company.  They do a great job as I have many of my own homes managed with his company.  There are also other companies you could contact but check with some of us locals and we can point you in the right direction.

FYI - Marshall Reddick is most likely not just putting peoples houses on their site for the heck of it.  There is most likely a hefty fee in the event you contacted Clifton from MR. 

Good luck

The Ridgeway schools both offer International Baccalaureate programs.  Those optional programs are considered elite in Memphis. 

The non-optional programs are just fine.  There are also several private schools in the area.