Hi Everyone, I closed on my first TK property in Memphis, TN on August 17th. Yay me! Found out during the rehab's home inspection that there were (inherited) tenants in the property during the rehab, I thought this was a good thing until I asked what their rental terms were and got no clear response from my rehabber/PM. September 10th rolls around and its time to get PAID!!! The PM says they did a lease renewal on Sept. 7th and the tenant would be paying on the 20th. I asked, are they paying Sept rent on the 20th or Sept. and Oct rent? No response. Sept 20th comes and goes and I get a message that the tenant did not pay and the PM wants to know if I want to file a FED! Yes, I do. I am not running a charitable housing establishment. So lets review; I've collected $0 in rent. The tenant has already gotten at least 2+ months free rent, by the time I get them out it will likely add another month. I get to pay to evict. I also get to pay 2 months PITI out of pocket! Glad I had reserve funds set aside. To add insult to injury, I also received notice that the property in un-insurable. I've talked to some trusted advisors and they said this can happen when the insurance company inspects during the rehab process and can be easily resolved. I know I'm freaking out. So is this just bad luck or should I be firing my PM after the eviction? Thoughts and opinions welcome. Thanks Brian

Which TK company is this? Did you look at Memphis Invest for the area before purchasing? This goes back to 40k TK houses do not work because of crap area and the rehab for the TK operator to make money has to be more minimal in nature versus redoing everything and selling TK at 65k to 70k or more etc. One you are paying more but usually getting a better area, management, tenant base, and most everything is new so capital cost outlay is minimized year over year. Hopefully you didn't pay more than 40k plus for the area. I don't focus on residential or TK but when looking at those properties and areas look at various companies and compare and contrast risk versus benefit. In those bad areas to find a good property manager you might have to pay 10 to 12% or more management fee as the tenant is more intensive and more difficult to protect the income stream. You might want to pay someone on BP here that is local to drive by and give an honest assessment of the property and area to see what you are in for.

If the TK company and the PM company is the same, then I would make a clean break. They had to know during the transaction this was going to happen, thus they were not being transparent with you. I checked the chain of title on the property looks like it was never actually purchased by the TK company, rather it was Quit claimed from the old owner to them. Last year, the owner purchases for $69,000 and you bought for $42,000. That seems odd. Maybe the old owner realized the challenges that area will present and decided to take a loss then sink more money into. Who know, hard to tell. Hopefully the property was rehabbed well, but with it not being insurable, sound like it wasn't. With the house being vacant, when you get the insurance resolved, check the policy, it may only be good for 60 days on a vacant home. In that area, you will certainly want it to be insured as vandalism could be an issue. Hopefully the area was presented to you for what it is. C class would be a stretch.

So Brian you have a local mentor in Indiana that lives close to you but you bought in Memphis? That doesn't make any sense especially if the mentors price point is around the same that you paid in Memphis. Conventional wisdom says you would get your first property through your local mentor at a a great deal and they can be there for you. You could shadow them and see all of their properties in action. It just seems you would have been better off waiting and staying local to buy your first property especially with the low price points. TK investors generally only buy out of state because price points and rents are not inline to cash flow where they live. Hopefully that property in Memphis produces money for you soon instead of being no cash flow, high headache from afar, and dead equity from the down payment not generating a return each month.

@Brian Naumann well I am not the one with a low end home in Memphis with no tenant and about to take a huge loss.... now your defending those that put you in this mess... :) you have a nice dream but wrong asset to make that dream come true, unless you live there and make it your lifes work.. I have clients of mine that I have helped buy 100s of these price point homes.. they make it work because its their JOB... thats the only way to make this price point work long term .. but you will find that out over time. also why don't you just buy where you live got to be cheap mid west homes there.. why go to memphis ?

@James Wachob not to speak for Joel however we had a nice chat when we were both panelist at the big Oakland event. somehow I don't think SFR rentals are in his wish bucket.. Joel is a high producing commercial broker.. So I suspect his commission income yearly provides all the cash flow he could want or need.. :) Maybe one of you Memphis turn key companies that have good reputations will contact the OP off line and offer to do an assessment of what he has.. I fear if he does not get some honest feedback and help this person will lose if not all but the majority of his investment.. I have seen this play many times.

Whenever dealing with Turn Key properties, absolute due diligence is a must: check out the company through the State, BBB, and references; background check the people you are dealing with; get copies of tenant documentation; perform your own tenant qualification; order a house inspection; get an insurance quote; review area crime reports; speak with area businesses and Chamber of Commerce; review local school district; if you can visit and drive the area, etc. Due diligence will save you most of the headaches you are dealing with most of the time. In retrospect, it's time to do these things to assess where you are and what needs to minimize collateral damage. Good luck.

@Alex Craig one part of my e book on buying out of area rentals goes into insurance and these very issues. I suspect this is going to get much worse before it gets better.. how do you rehab a house with the tenant in them.. maybe a light turn over thats it.. this person looks like made a cardinal error in buying low end rental in bad neighborhood probably becasue the numbers looked so good.. I suspect he will lose between rent .. and having to rehab it for real again 5 to 10k right out of the shoot. and to make the statement glad I had reserves. .well anyone buying a rental without substantial reserves is just a crash and burn waiting to happen especially in low end areas like this. There is a reason most TK companies of high repute refuse to work in these areas anymore.. I see this as someone being totally taken advantage of ... would be nice to get a review on turnkey reviews on this company.

First Deal Gone wrong or bad PM?

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South Bend, IN · Member since 2014 · 318 posts · 156 votes

First Deal Gone wrong or bad PM?

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