My first deal with Memphis Invest/REI Nation

OP

Investor · Topsail Island, NC · Member since 2019 · 12 posts · 23 votes

@Joseph Crunkilton

Thank you for the feedback.

I think for my next property I’m going to try doing it without a turnkey provider. I’d like to “learn by doing” since I’ve spent a lot of time reading and educating myself.

2 Reply

Douglas T.

Member since 2020 · 16 posts · 14 votes

Gabriel, first - it is totally awesome that you want to DIY and learn. That is great. If I were younger, knew the area I would be in for the foreseeable future and knew anything at all all about repairs, etc (I don't), I would do the same. So my question is, other than REI, did you look at any other turnkey providers that you thought sounded good or have heard good things about? Thanks!

OP

Investor · Topsail Island, NC · Member since 2019 · 12 posts · 23 votes

@Douglas Tucker

Honestly I didn't. I was looking for a low risk investment. REI nation kept coming up as one of the largest turnkey companies and the reviews seemed very consistent. They had a pretty immaculate reputation as far as customer service and providing a passive investment. The returns were on the lower end, but I knew that going in. In truth I probably should have looked into more companies and compared them, but at the time I just wanted to get started.

2 Reply

Douglas T.

Member since 2020 · 16 posts · 14 votes

Great. I appreciate the quick reply. I’ll have a look at them tomorrow. I’ve bought one property, and it was a turnkey in Chicago suburbs. The turnkey operator turned out to be a convicted felon running another scam (actually I think it was a legitimate business for some years - they renovated and sold thousands of foreclosures, but must have gotten in over their heads). Happily I got a pretty good property on which they did a good renovation job, and just before they went belly up I kind of smelled a rat and got the house out of their management, so their collapse didn’t affect me. But many big investors got hurt bad by them. Anyway, good luck. Current market seems fraught with both risk and opportunity (I guess they go hand in hand!).

1 Reply

AJ Singh

Rental Property Investor · Orange County, CA · Member since 2016 · 513 posts · 374 votes

@Gabriel Rodriguez

Congratulations! Memphis is a great cash flow town and you have chosen your turnkey provider well. You may be able to find great bargains in the off market but sourcing reasonable vendors without a local partner is tough. Best of Luck!

OP

Investor · Topsail Island, NC · Member since 2019 · 12 posts · 23 votes

@AJ Singh

Thanks. I’m still educating myself and saving up money. I figure even if my first “solo” deal is mediocre I’ll hopefully learn a lot.

Ben Saad

Member since 2019 · 8 posts · 0 votes

@Gabriel Rodriguez do you live In Memphis or is this turnkey our purchased from San Diego?

OP

Investor · Topsail Island, NC · Member since 2019 · 12 posts · 23 votes

@Ben Saad

The Turnkey property was purchased while I’ve lived in San Diego. However, I lived in Memphis many years ago, and I still have family and friends in the area.

Account Closed

Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes

@Gabriel Rodriguez. For those kinds of returns why do you have to go to low end markets like Memphis? You can probably find similar to better deals in appreciating areas. Its really hard to see how you make money on this investment. Assuming you get your numbers (which I suspect are not actually as conservative as you think) your COC return is lower than your Cap rate. This means that your leverage is actually negative (i.e your interest rate is higher than your net returns). Its hard to see the point of this. You cant expect appreciation from these prices (probably already over market) in these areas. So where do you actually expect to make money?

3 Reply

Chris ClothierBusiness Member

Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes

Podcast Guest on Show #224

Originally posted by @Gabriel Rodriguez:

I've been lurking on Bigger Pockets for a while, but I have not posted until today. I figured I would start by posting a breakdown of my first real estate deal through a turnkey provider, REI Nation.

I purchased this property in the Memphis area in March 2019. The property is a 4BR/2.5Ba located in a suburb of Memphis. It is in a solid class B neighborhood, and was fully rehabbed by REI Nation at the time of my purchase. My purchase price was $169,900. The property had just been rented on a two-year lease for $1295 in year 1 and $1345 in year 2 ($1325 average). Here are the numbers:

Purchase price: $169,900

Down Payment 25%: $42,475

Closing costs: $4875

Gross Rent: $1325 monthly

Expenses (monthly):
Vacancy (4%): $53
Property taxes: $160
Insurance: $51
HOA: $21
Maint/Repairs (4%): $53
CapEx (5%): $66
Property Management (10%) $133
Lease-up fee (1 month rent with turnover estimated every 24 months): $55

Total Expenses: $592

NOI: $1325-592= $733

P/I: $127,425 x 5.125% = $694

Cap Rate: ($733 x 12)/($42,475+$4875)= 5.2%

Cash Flow: $733-$694 = $39

CoC return: $468/$47,350 = 1%

My numbers are more conservative than the ones REI nation provided. Obviously, the overall numbers are not stellar. However, my goal was just to get started. I also wanted a passive low-risk investment. After reading a lot about REI Nation (Memphis Invest at the time of my purchase), they had a great reputation but were on the pricier side of turnkey investments. That was okay with me at the time.

My experience with REI nation as a company has been great. My investment (I actually own 2 properties with them now) has been very passive. I get a phone call follow-up from their customer service representative every month. I have not had any vacancy so far, and I have not had any missed payments. Only a couple of maintenance issues have come up which were handled without my involvement.

My only real "complaint" about this process is that because it was so truly hands-off, I didn't really learn much about real estate in my first deal. That is clearly by design as REI Nation is geared to be a passive investment. However, I am looking to be more hands-on on future investments as I have been educating myself with books, podcasts and the BP forums. My goal is to move forward with a BRRRR investment in the Memphis area over the next 6 months or so.

Congratulations on both of your investments! I loved reading about your future goals and assure you that you would not be the first investor who went the passive route to get started, but really wanted to get their hands dirty learning the ins and outs after that point. I've got two pieces of advice for you.

1. Be patient. Reach out to local investors there in San Diego and take the time to meet (as best as you can today) and network with active investors. They are EVERYWHERE in San Diego. BiggerPockets itself is loaded with fantastic commentators who are actively investing locally and at a distance as well as passive investors.

AND... a major reason to try and build your network locally is no one is going to tell you how bad your first investment is or try to belittle you in person like what happens on forums. As an investor, as you are trying to grow and share, and in my experience, the bad form that occurs so routinely on forum sites just doesn't exist when you meet other investors face to face. Good, hard questions are one thing and you should want them, but you just get to bypass the solicitations you don't ask for and the advice you didn't know you didn't need! The real estate investor community is huge in San Diego and I am sure there are plenty of investors who will be happy to share and help you succeed over a cup of coffee or a beer.

2. Feel free to reach out anytime and pick my brain on active investing. Happy to spend time with you and introduce you to other REI clients who have done exactly the same as you in the past. It really is quite common for investors to use a passive investment to get started. It is very much like making that first jump off the diving board into a pool and using that as a springboard (pun intended!) into doing backflips some time later.

I love the most recent purchase you made and think you purchased a property in a solid area. Let me know if I can do anything for you or if you have any issues where your expectations are not being met. Congratulations again on making that leap and getting started and I wish you the best as you start gearing up for that transition to actively investing!

REI Nation4.578 Reviews

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OP

Investor · Topsail Island, NC · Member since 2019 · 12 posts · 23 votes

@Anish Tolia

Like I said up front, my primary goal was just to get started. I know myself, and I definitely think I am prone to getting stuck in the “analysis paralysis”, so a low risk option like this was a way of getting started and not getting stuck.

I have a W2 job that pays well, and most of my investments are in the stock market. With stocks I can expect about 8% annual returns or so. On this property, even with modest numbers, I calculated a cap rate of 5.2%. Along with that, I am still leveraged so I am having my mortgage paid down by the tenants which adds to my return. Appreciation while I expect to be modest, I figure can probably be expected to keep up with inflation over the long-term. Therefore, overall my expected returns on this deal are pretty similar to what I could expect with stocks. My goal is financial independence. The truth is I can expect to be fully financially independent within 10 years even without real estate investment.

I like the combination of investment and business that real estate investment represents, and I would like it to be part of my financial independence plan. Additionally, real estate returns are biased in terms of the "dividends" (i.e. rent) rather than capital appreciation like in stocks. This means I don't have to spend my principle whenever I do start relying on my investment returns to live. I see my long term plan of having a modest portfolio in the range of 15-20 single family homes or possibly small multifamily properties and eventually paying them off. I realize that this will not maximize my ROI, but maximum ROI is not my goal.

However, I see my next step is by starting to do some active investing. Hopefully as I learn I will start being able to identify better deals and force higher returns. Because I have a good job that I enjoy I’m not in any hurry to scale quickly. I’m happy with a slowly growing portfolio that I can manage the risk on.

2 Reply

OP

Investor · Topsail Island, NC · Member since 2019 · 12 posts · 23 votes