Memphis Invest; Turn-Key Rentals

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This is an open letter about my experience with Memphis Invest. I scoured the web for an in-depth review of Memphis Invest, or any other Turn-Key Rental company, but was never satisfied with the responses. It seems the only people that leave reviews are those that benefit in some way from the review or those that intend to cause damage to a company's reputation and have no other recourse than posting online. In any case, I wish someone would have written extensively on the turn-key process, interviewed several Turn-Key companies, and spent a hundred or so hours gathering due diligence...and then posted about it. So I'm doing it here.

Some context: I'm an attorney living in Seattle. The market here is not ideal for residential investors. Most deals close for 10-20% over asking, w/o inspection, w/o conditions. My primary residence was purchased after a run-off type auction, wherein multiple bidders were asked to make their highest offer after all offers were submitted. To purchase a starter house in this city (using conventional 25% down) is 200K or so, and it's nearly impossible to cash flow (unless, of course, you're a flipper w/ experience and want to manage the property yourself). As such, turn-key operations in other cities is very appealing to me. 

I just closed on my first deal with Memphis Invest last week. I hope to close three additional deals within the next 12 months.The process has been nothing short of outstanding. Sure, there are some pitfalls, but I've been impressed with their service. And, to boot, one day after closing they found me a tenant and executed a two-year lease at the exact rate that was quoted in the estimates. My experience with MI has been outstanding and I've recommended them to my colleagues and family. 

As I said, I interviewed a few turn-key providers. I won't name the companies here, but I will caution anyone investing in turn-key to ask a few questions prior to selecting an operator: (1) are you a broker selling another company's turn-key? (2) does your company handle management? (3) do your financial estimates (estimated return on investment and costs) account for capital appreciation, tax depreciation, equity pay-down, (or, specifically, what exactly is used to determine ROI). 

The process with Memphis Invest: Memphis Invest handled the initial intake very similar to every other turn-key I interviewed. We discussed my investment goals, timeline, budget, investment criteria, MI's reputation and process, what I could expect, etc. It was a twenty-minute call. Nothing special.  I would imagine they get calls everyday from people that want to invest but don't have the capital, so this wasn't surprising. 

I decided to continue with MI because of their amazing reputation and asked for more info. I was sent a packet that included statistics on the markets they operate in, local economic stats, demographic analysis, stats on their vacancy rates, and some background on the MI. Nothing special. In fact, I received better brochures from some of the other companies I interviewed (however, these companies had fatal flaws noted above). 

Then I worked with David Meeks to find a few properties, understand the residential RE landscape in each city, and review a few properties. He sent me properties that included scope of rehab, expected returns and costs, and several pictures. What I didn't know: the properties that MI secures and rehab are sold within hours of listing as available. And as far as I know, there is no negotiation on price because of high demand. (Both are stress-inducing and strange considering they don't mimic the residential market, so be prepared for that). This was frustrating because no one wants to rush buying a house, and their prices are higher than other turn-keys. Also, they base their pricing on expected returns, not the appraisal value (another interesting fact). 

A month after looking at several houses (w/ accompanying spreadsheets), I found one I liked. I told David and he saved the property for me. I used their lender (which is not required but definitely encouraged), which was a very pleasant experience. We executed the close within 3 weeks of my offer! The appraisal came in above the purchase price, insurance and taxes came in below their estimates, and my ROI is expected to be higher than what they quoted me. Under promising and over-delivering is the keystone of this company and is why they have so many repeat customers.

My 3rd party inspection came back with some problems, but MI fixed every problem listed. The property is set to cash flow about $250 a month (I'll update this when I see checks). MI has an amazing team of folks that handle each step of the process. From my understanding (without knowing their management structure) they have an intake person that helps you find deals and answers basic questions. They have a process manager that facilitates the inspection, appraisal, closing process, secured a notary (that came to my house) and helps answer any questions about the closing/rent/etc. They have their go-to title company and brokers to secure lending and Title (these folks seem to be a little pricier than competitors, but won't bate-and-switch the APR and interest or move closing costs into another expense, like I've seen so many other companies do) and their service was outstanding. MI also has its own insurance company that offers a third-party package with better rates and higher liability (great for investors). I decided to go with this insurance company after comparing it with other companies.

As I wrote above, MI secured me a two-year lease only a day after closing. That's remarkable. I didn't have any say in the tenant, nor did I get a chance to review the tenant, which was a little troubling, but I trust PPMG to handle that process better than me.  Time will determine if they made a good decision. Now I have another member of the MI team that, as far as I can tell, is the liason between me and PPMG. 

Overall, MI caters to every foreseeable pain point, both in the process of purchase and the property management. They simplify everything, which has pros and cons; It's a ridiculously easy process (compared to buying a residential property), but if you're a detail-oriented person (like myself) you may be left wanting more information at times.  They are forthright in their estimates, honest in their expectations, and care very much about their reputation. Every cost they sent was right-on the $$$ or lower than expected. They were dead-on with expected rent I would garner from the property, they estimated high on my insurance and taxes (which means more cash flow), and estimated low on the appraisal.  I've had constant communication with several members of their team. They ensure that every point of contact on their service chain and their associates--lender, title, notary, remodel-- is extremely professional and painless as possible. The property was probably more expensive than the price on the open market, but the renovations were thorough with an eye towards being pain-free and low maintenance. 

I'm searching for my next property with them now. Will update when I purchase my next properties. Also, I intend to provide ongoing posts about management. This process can be scary. It requires a lot of trust in online forums like BP, because so much of the turn-key process (buying in another state) is done in the "dark."  I hope this post shed some light.  PM w/ any questions.

Awesome review, thanks Brandon! I am currently looking into an out of state TK provider and this review was very insightful.

All the best.

Great review! I have a call with them tomorrow.

January 2018 Update: I'm currently in the midst of closing on another investment w/ Memphis Invest. Here's an update on my current investment (referenced above).

Property management. Memphis Invest uses a software called PropertyWare to track all expenses, collect statements, and create a ledger of accounts receivable, paid, outstanding, and overall return on investment. As a finance guy, the ledger has been really interesting for me. I want to track whether MI was "close to" the estimates I was originally forwarded. 

Not enough data yet... Because (1) my tenant moved-in during the middle of the month, (2) MI takes a tenant finder's fee and (3) my mortgage wasn't due for two months, the ledger is irregular. That is, I can't inform anyone with any accuracy whether my estimates are close at this point. (E.g., Thus far I've received an E-check for approximately $247 for a portion of the first month's rent. I paid my mortgage for the first time this month ($866) and was just informed this morning that my rent payment of $1,350 was collected. I haven't been charged yet for property management fees for this month. 

House Price: 163K

Rent: $1,350

Mortgage + Insurance + Property Tax: $940

Property management: $135


My numbers thus far: If all goes to plan, and there aren't any unusual costs, I will cash flow slightly above what MI quoted me. I.e., around $275 a month. I put down 25% on a 163K house. My appraisal came in above my purchase price, so I did not have to put any additional down. That may not be your case! (However, my appraisal on my second house came in about 10K over the purchase price...but, perhaps, I've been lucky). 

My ROI: Depending on what variables you include, ROI can become confusing. E.g., I have a spreadsheet I built that has 13 variables (avg vacancy rate, avg appreciation, bi-weekly payments, rent appreciation, all types of fees, depreciation tax shelter, etc). Several of the variables (anything w/ appreciation) are speculative and won't be accurate until executed. But w/ my fairly comprehensive spreadsheet, I'm making around 12-13% ROI. This includes (1) 7.5-8% return on cash (2) 1-2% return on equity from renter paying portion of my principal (3) an estimated 3% appreciation (consistent w/ most data I've seen on DFW area), (4) property management fees, etc. I'll take any hard investment w/ ROI around 12%, especially when it includes w/ tax benefits.  (Keep in mind that MI doesn't input appreciation or tax shelters into its ROI. Your ROI could be higher, unless, of course, the housing bubble pops).

I haven't put in a cent since purchasing, which is nice. True to its word, MI provided the tenants a move-in ready, 100% operational rental. 

I'll update soon w/ new house info. 

@Brandon S. Thank you for creating this thread. I find threads like this to be very enlightening. Congratulations on your investment properties!

@Brandon S.

which city is the house in?  

  I like it, because with that higher rent, it looks like it must be in a good neighborhood (better quality tenant should bring better maintenance and vacancy costs)

David B.

    @Brandon S.

    Congratulations on your DFW MI purchase!

    Just curious - do you have 2 year lease with automatic rent increase set up with this purchase?  What is your property value assessed at and what is your property tax rate?

    Thanks.

    Henry

    Hello, fine people -

    As promised, here is an update on my 2nd and 3rd purchases. I hope the below adds value.

    Roadmap. I'll start with "the good" and then move into "the bad." If you're like me, you're probably a little fearful of sending money to another state, to a company you've never seen in person, etc., and you're searching for excuses to save your money. If that's you, then please read both the good and the bad. Don't go straight to the good and keep your money in the bank earning (losing after inflation) .2% on your investment.

    The Good

    • This process could not be easier. I truly mean that. I've heard so many nightmares. My experience has been, "this is almost too good to be true; what's the catch?" There was a slight catch (see bad).
    • All three properties appraised for the purchase price or more. I dind't expect this as Memphis Invest prices the property based on cash-flow, not market comparables. So this was a nice bonus. 
    • All three properties are cash-flowing (But...check the bad).
    • All three properties were rented within two-weeks of purchase. This was astounding. So happy about this because, as you know if you're reading this, you assume a 5-10% vacancy rate. 
    • All three of my rentals -- all the DFW-- are rented with a two-year lease. 
    • All three leases step-up in year 2! 
    • I've not heard a peep from my renters. It's as passive as it gets. 
    • No maintenance!
    • Renters have paid (almost) on time every month
    • Memphis Invest correctly estimated most expenses for all three rentals, including taxes and insurance. 
    • Memphis Invest has been a pleasure to work with. I've suggested them to several friends and family. I will continue to purchase houses with them. 

    The Bad.

    • While all of my properties are cash-flowing, my 2nd and 3rd properties are not cash-flowing like my 1st property. But keep in mind, I'm investing in Dallas and Arlington, where appreciation is expected to be 5-6% annually for the next few years. If you want straight cash flow, my advice would be to look elsewhere. If you have a stable income stream, DFW is a great investment.
    • Memphis Invest underestimated my gross rents for property 2 and 3. They're not renting for as much as Memphis Invest predicted. It's not a substantial delta--$50 for one and $100 for the 2nd--but it's a little worrisome.
    • The service for property 1 was impeccable; the service for property 2 and 3 was satisfactory. Don't get me wrong, I'm still a huge fan. But, you definitely get the red-carpet treatment for your first property. After that, you're assumed to know the process and are provided little communication. 
    • Memphis Invest made a large mistake in the remodeling process. They told me that they put a new roof on my property. I had a third party inspector look at the property; among other defects, he said there was no way that the roof was new. I informed my Memphis Invest rep and they agreed it was a big mistake; after all, a roof is a huge expense. They agreed to take off the cost of a new roof from the purchase price. I'm cynical, but I believe this was just a mistake on their part. No bad faith. I was contacted by the regional manager within hours.
    • Considering the ancillary costs of lending--e.g., administrative fees for loans, administrative fees for property insurance, etc.--my returns are not double digits. I'm okay with this reality, as my stock market gains look like crap after Trump's trade war (hoping that has changed by the time you read this). Solid assets feel safer. 

    On balance, I'm still a huge fan of Memphis Invest. I'm going to purchase 2-3 more properties this year with them, but I'm going into cheaper areas that promise higher returns. Additionally, I'm checking into other turn-key operations as well. I'm happy with my properties, however, I would like to trade future appreciation for present cash-flow. Properties 1-3 were purchased with dumb-luck money from cryptocurrencies. I don't think I'll see stupid returns like that again. So, the next properties will need to generate return. 

    Again, I hope this helps you on your journey. If you have any questions, don't hestitate to email me. Good luck!

    Once the tenants turn over in a few years if its 2-5K per house x # houses, you'll have to report back on updated ROI. Best of luck!

    @Michael P. Is right class of 2015 turnkey buyers are experiencing 5-20k turnover expenses. Sfhs are just not scalable. Do the math... at a teeny weeny 300 per month of cashflow you need 30-50of these things.

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