MEMPHIS INVESTMENT PROPERTIES Case Study

MEMPHIS INVESTMENT PROPERTIES Case Study

Investor · Miami Beach, FL · Member since 2017 · 73 posts · 64 votes

Greetings BiggerPockets!

Just last month, I started crawling, walking (& dare I say running) towards being a new real estate investor! Last night, I was reading the Morris Invest Case Study 2.0 (@tyler jahnke) and not only was it enlightening to see the trials and tribulations of his journey but it was astounding to see how the BiggerPockets community got so involved in the comment threads and how helpful everyone is. Truly incredible!

A little background about me: I work in a real estate development company as a Design & Construction Manager keeping an eye on Architects/Engineers and Contractors but I don't really work on the front end with Acquisitions, Proformas, etc. so investing is generally new to me but I learn quick :)

So, my journey begins...

Oct (week 3) - I began spending hours a days reading and researching about single family home rental investments and Turnkey investment properties around the nation. I read many articles on the best cities to invest and I started finding out about companies that specialize in this investment vehicle. 

Oct (week 4) - To make a long story shorter, I ended up making an offer on a 3 bed/2 bath on Scottsdale Ave near Parkway Village with the company Turnkey Properties (@alex craig) http://turnkeyinvestproperties.com/

I really appreciated their website and the information it provided such as the Sales Offering Packet which contained a lot of information including a detailed Scope of Work that they would perform on the property. 


I had a few Lenders lined up but when the rates started coming in, it sunk my Proforma and the Cash on Cash return and Cash Flow dropped significantly. So significantly, I had to drop out of the deal which really took the wind out of my sales.


Turnkey Properties returned my Ernest money because they said I was trying in good faith to stick to my end of the deal but my credit wasn't as good as I thought it was so the 5.5% rate, points and closing costs we're just too much. (4 years ago and beyond, I didn't really pay any school loans so that came to bite me on the ***!)

Hopefully, in the future, I will get the opportunity to work with the team at Turnkey Properties (@jeremy veldman) again because I had a favorable opinion of them up to the end.

Oct (week 5) - To make a short story longer, at some point in the journey, a Lender, Security National Mortgage Company (@aaron chapman) convinces me to pay my credit card to zero and they would rerun my credit score (Every month I pay it to zero but I guess when Lenders run credit scores, I must have had a high balance). I did and low and behold, my credit which was under 680 suddenly went above 680 which not-so-magically lowered my general rate.

One thing leads to another and I end up signing a purchase agreement on a 3 bed/1 bath on Avon Road near Berclair with Memphis Investment Properties (@james wachob @mark hart  ) http://memphisinvestmentproperties.net/

Nov (week 1) - A different Lender (Supreme Lending) offers me a lower rate than 5.0% with points which allows me to move forward with the Loan. I have signed all the Loans documents to date. Unfortunately, SNMC couldn't offer me a better rate but @aaron chapman congratulated me on it (he is a true gentlemen, which EVERYONE tells me he is!).

Nov (week 2) - Today, I received the Scope of Work from Memphis Investment Properties that is to be performed. In a few days, I will post before that Scope of Work and before photos and update the BP community on the progress.

The schedule is as follows which I will update periodically:

Nov (week 3) - Renovation

Nov (week 4) - Renovation

Nov (week 5) - Renovation

Dec (week 1) - Renovation complete.

Dec (week 2) - Home & Termite Inspection to be performed. Home Inspection report issues to be rectified.

Dec (week 3) - I plan on visiting Memphis and walk the final product, meet Memphis Investment Properties team including Property Management.

Dec 18 - Close on the deal.

Questions and Comments are MORE than welcome!!!

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y

@Victor H nieves  that's more realistic  and you do have a lease fee of one months rent when you get a new tenant and if you own this 10 years you will have 4 to 5 lease fee's minimum .. unless management takes a very reduced fee or you get lucky and get a long term tenant.

pretty much anyone buying 1% or so rule property is going to net 5 to 8% COC with 20% down.. over time.. and if you get that tenant from hell you will net nothing or go in the negative.

If you get a great tenant that stays for years does not damage ( pretty rare frankly) then you could do better.

but its best to be realistic than to do blue sky performa's and then be disappointed later ..

the idea behind these rentals is very much lost in the cash flow is king debate.. the idea behind owning rentals is to get them paid for as QUICK as possible.. that's when you loving life.. up until then its managing expense's and you should put every dime back into them to pay down debt and or keep them in good shape.. the other thing is you should be buying were there is a reasonable expectation that values will climb some what you need that to offset sales cost when you do finally exit.

Now many folks I fund over the years they are buying with the intention of never selling and they have goals to own 100 or more.. I help them get to that goal.. and have done it many times one of my clients I have funded has over 250 rentals and self manages them all.. its their business its what they do and so on and so forth.. and they only take a little of the cash flow out for themselves the rest goes to pay down their debt so they can at the end of some time have decent equity.. I am NOT a refi till you die guy I don't believe in that at all.. I am a get property paid for guy.. and the most successful private owners I now have little to no debt. that's when you really cash flow.. If you had no debt you would be at 450 a month with MY expense numbers that's where you want to be..

See this reply in the discussion

148 Replies

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  • Investor · Miami Beach, FL · Member since 2017 · 73 posts · 64 votes
    8y

    UPDATE:

    Though I ended up backing out of the deal above (primarily due to my inexperience in having the proper proforma parameters and the question of whether the property could attain said rent...which made me basically have a nervous breakdown!), Memphis Investment Properties and I are still doing business together...2nd time is a charm I suppose!

    RECENT EVENTS:

    NOV 22:

    • Reserved a 2/2 built in the late 1980's in the Hickory Hill neighbourhood.

    NOV 27:

    • Executed purchase agreement contract.

    NOV 28:

    • Wired earnest money to Delta Title Company.

    NOV 29:

    • Locked in loan rate with Supreme Lending (located in Memphis). 30 year conventional, 20% down.

    DEC 4:

    • Completed loan documents.

    DEC 5:

    • Paid for the appraisal.

    DEC 6:

    • Obtained evidence of insurance thru the Turnkey provider (via Lipscomb & Pitts Insurance).

    DEC 13:

    • Visited Memphis, toured the MIP offices, visited my property and a few other M.I.P. properties and I also visited Supreme Lending offices.

    DEC 19:

    • Conditionally approved for a loan, I just had to clarify 2 minor questions.

    FORTHCOMING:

    DEC 29:

    • Renovation to be complete.

    JAN 1 - 5:

    • Home Inspection, Termite Inspection & Appraisal to be performed.

    I will update as we approach the final stretch!!!

  • Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y
    Victor H nieves I just read your thread and appreciate the insights. I’m closing on another property in Memphis soon myself and factor in all the things that are mentioned here like vacancy, maintenance and capex. Depending on the rehabs, If you get new big ticket items (furnace, roof, AC etc) that should help for the first number of years. You can make money with SFR but you need to be realistic and I think scale fairly quickly (get to 8-10 as soon as possible). Possible and realistic CoC return for a turnkey SFR is probably 8-10 percent. Then I agree with @Jay Hinrichs, get them paid off as soon as possible.
  • ARRT, RT(R) / Rental Property Investor · Newport Beach, CA · Member since 2017 · 360 posts · 242 votes
    8y

    Man, is investing OOS kind of scary, or what!!?? Getting ready to invest OOS and and just trying to sort through the volumes of information here!  :)

    ~Daniel!

  • Real Estate Agent · Fort Collins, CO · Member since 2016 · 246 posts · 142 votes
    8y

    @Daniel F. Harb, I agree, when you are just getting started it feels like you're drinking from a firehose.  What are the parts that are scary to you and where are you at in the process?

  • ARRT, RT(R) / Rental Property Investor · Newport Beach, CA · Member since 2017 · 360 posts · 242 votes
    8y

    Hello Jennifer S.,

    Actively searching the best way to invest OOS. I don't think $100 or $200 a month would do for me. Am I unreasonable to think I can find minimum  $250~$500 cash flow monthly?

    On my way to the hospital to work. Please forgive if the responses from my Note 4 cell are kind of funky! Spotty connection in the Radiology department.   :)

    Thanks,  Jennifer!

    Daniel F. Harb

  • Investor · Miami Beach, FL · Member since 2017 · 73 posts · 64 votes
    8y

    @Caleb Heimsoth who did you get the Turnkey property from?

    What assumptions are you using for Vacancy, Yearly Maintenance, Mgmt Fee, CapEx?

    I will post more details about my proforma once I close and rents are flowing

  • Software Engineer · Oakland, CA · Member since 2017 · 27 posts · 9 votes
    8y

    This thread is gold for someone who is thinking about OOS investment. When i run the numbers, i try to run 10% CapEX, 5% Maintenance, 10% Manager, 8% Vacancy. If it doesnt make sense that way I next it.

    Now im nexting most of the deals i see :), But you never know, i will find a diamond in the rough someday!

  • Investor · Miami Beach, FL · Member since 2017 · 73 posts · 64 votes
    8y
    Originally posted by @Milos N.:

    This thread is gold for someone who is thinking about OOS investment. When i run the numbers, i try to run 10% CapEX, 5% Maintenance, 10% Manager, 8% Vacancy. If it doesnt make sense that way I next it.

    Now im nexting most of the deals i see :), But you never know, i will find a diamond in the rough someday!

     Those assumptions are decent and you will find most deals will be nixed...which is a good thing, less options, the better:

    • 8% vacancy
    • 10% mgmt
    • 5% maint
    • 10% capex
  • Investor · Miami Beach, FL · Member since 2017 · 73 posts · 64 votes
    8y
    Originally posted by @Daniel F. Harb:

    Hello Jennifer S.,

    Actively searching the best way to invest OOS. I don't think $100 or $200 a month would do for me. Am I unreasonable to think I can find minimum  $250~$500 cash flow monthly?

    On my way to the hospital to work. Please forgive if the responses from my Note 4 cell are kind of funky! Spotty connection in the Radiology department.   :)

    Thanks,  Jennifer!

    Daniel F. Harb

    What assumptions are you using to find a cash flow of $250-$500 monthly? what is the cost of property & neighborhood?

    • vacancy
    • mgmt. fee
    • yearly maintenance reserve
    • capex
  • Long Beach, CA · Member since 2017 · 2 posts · 0 votes
    8y
    Thank you for this helpful thread and thanks Victor for being so transparent. I am interested with OOS investing but I am still trying to figure out if Turnkey is the way to go. This has been very eye opening!
  • Rental Property Investor · Orange County, CA · Member since 2016 · 512 posts · 374 votes
    8y

    As a Memphis Investor, I want o comment on vacancy. Between Oct to March, it does take longer to find a tenant. Budget for 60 to 90 days vacancy

    Try to structure leases that end in April to September..lol

  • Investor · Miami Beach, FL · Member since 2017 · 73 posts · 64 votes
    8y
    Originally posted by @AJ Singh:

    As a Memphis Investor, I want o comment on vacancy. Between Oct to March, it does take longer to find a tenant. Budget for 60 to 90 days vacancy

    Try to structure leases that end in April to September..lol

    Thanks, yes surely I can imagine in colder climates, Winter is slower in this regard.

  • Investor · Miami Beach, FL · Member since 2017 · 73 posts · 64 votes
    8y

    Here is a little update before the year ends...

    UPDATE:

    DEC 18 (week of)

    • Renovation & cleaning has been completed.

    DEC 25 (week of)

    • Professional photos to be taken for marketing for rent (photos below aren't them).
    • Home Inspection & Appraisal has been performed this week.
    More updates coming soon in 2018! 
  • Rental Property Investor · NY · Member since 2013 · 844 posts · 350 votes
    8y

    @Victor H nieves who is your contact person at Supreme lending group? Do you know if they lend to LLC

  • Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y
    Victor H nieves I bought from Memphis turnkey or now known as turnkey investment properties (Alex Craig ).
  • ARRT, RT(R) / Rental Property Investor · Newport Beach, CA · Member since 2017 · 360 posts · 242 votes
    8y

    Hello @Caleb Heimsoth. Are you happy with your TurnKey? Are you getting a strong positive cash flow? Please forgive me for asking, but are you at a minimum $250.00 monthly positive cash flow?

    Love to know, for I am about to start investing OOS in a few weeks. :0

    Thank you in advance!

    Daniel F. Harb, ARRT,RT(R)

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y
    Originally posted by @Caleb Heimsoth:

    Victor H nieves I just read your thread and appreciate the insights. I’m closing on another property in Memphis soon myself and factor in all the things that are mentioned here like vacancy, maintenance and capex. Depending on the rehabs, If you get new big ticket items (furnace, roof, AC etc) that should help for the first number of years.

    You can make money with SFR but you need to be realistic and I think scale fairly quickly (get to 8-10 as soon as possible). Possible and realistic CoC return for a turnkey SFR is probably 8-10 percent.

    Then I agree with @Jay Hinrichs, get them paid off as soon as possible.

     Nice to see a younger investor understanding that paying these off is important part of the equation.

  • Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y

    @Daniel F. Harb  I’m happy with it.  I don’t get 250 a month.  If you go turnkey you’re likely to be around 150-250 per property per month.  So I’d say on average about 200.  

    @Jay Hinrichs leverage is important but after a certain point I'd rather just have the increased cash flow and peace of mind that comes with a paid off property (SFR)

    I have family members who have gone this route and they’ve done very well for themselves.

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y

    @Caleb Heimsoth  yes my thought is you making 2k a year or so positive.. if you don't pay down your mortgage with that your going to end up spending it on consumer items LOL.. or you just never know what happened to it.. I mean your talking one dinner out a month..  and poof its gone.. when if you use it to pay down your debt you would be surprised how beneficial that is.. and how fast you earn true equity especially in a market that you already are thinking probably won't appreciate much if at all.

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y

    @Caleb Heimsoth  although I do understand some folks want to replace their current income with rental income and live the high life on that income.. so I get that as well.  I guess my thought is for those that keep their day job have a good paying day job don't need a few grand a year from a rental to pay bills.. what better use than to pay down debt.. be it CC  Car or the property. just get out of debt period. I guess I am like Ramsy that way..

  • Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y

    @Jay Hinrichs you hit it spot on.  Right now I keep my cash flow in a separate account from the reserves for my rentals, and then I either spend that cash flow back into buying more rentals or towards my already existing debt.  

    I’m 23, I don’t need the cash flow now lol,  so I’m leaning towards just reinvesting it in my existing debt and continue to buy rentals from my W2 job.  

    Goal is 10 properties by 27 and 20 by 30.  

  • ARRT, RT(R) / Rental Property Investor · Newport Beach, CA · Member since 2017 · 360 posts · 242 votes
    8y

    Excellent, @Caleb Heimsoth. Good for you!

    Thank you for your honesty, I really appreciate it. Average around $200.00 a month is not too shabby at all!

    Happy New Year and best of profits to you in 2018.  :)

    ~Daniel

  • Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y

    @Jay Hinrichs eventually I’d like to have the option to live on my cash flow if I wanted to, but given my personality I feel like I’d go bored if I just “retired” in say my 30s or 40s.  Now i could see how taking like pro longed vacations of say a week or two at a time could be appealing but full on retirement just seems unlikely.  

    In my late 20s or early 30s I plan to just take a year or two off from buying and pay down existing debt very aggressively.  

  • Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y

    @Daniel F. Harb once you pay it off then it’s 400-500.  From there I think things would snow ball very quickly. 

  • ARRT, RT(R) / Rental Property Investor · Newport Beach, CA · Member since 2017 · 360 posts · 242 votes
    8y

    Nice, @Caleb Heimsoth. 

    20 properties by 30 should be a cool $4,000.00~$5,000.00 positive cash flow monthly. Sweet.

    ~Daniel F. Harb

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