Memphis Investment Properties Turnkey Case Study

Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes

7y

Originally posted by @Peter Schuyler:

Memphis Investment Properties Turnkey Case Study

Disclaimer: I am an investor/customer of M.I.P, I do not work for them nor being compensated in anyway, just sharing my experiences with other investors.

Providers Involved:

Norada Real Estate Investments

Memphis Investment Properties (M.I.P)

Reedy and Company Realtor, LLC – Real Estate Broker and Property Management for M.I.P

Bemortgage – Lender

Lipscomb – Insurance

The Prep:

I originally came across M.I.P through Norada (Marco Santarelli, BP contributor and has his own podcast).
I was assigned an advisor who gathered my goals and situation and we worked together to identify two markets to look at Memphis TN, and Birmingham, AL.
I’m am an out of state investor living in Colorado and have two other properties in Texas (not turnkey) and have been a BP member for some time.
I attended an investor Tour in May in Memphis to check out the area. It was hosted by M.I.P and we toured properties, meet lenders, insurance agencies, and other provider doing business with M.I.P

My Criteria/Situation:

100K Purchase price
Good working-class B, B+ area
3/2/brick house
Was looking for 1% rent to purchase ratio
Conventional financing with 20-25% down payment
Utilized 401K loan for down payment and closing costs

The Purchase:

During the M.I.P Property tour in May, they handed out flyers with properties for sale reserved for visitors that weekend. I put down $3K deposit on a house during the first day of the tour.

Below is the Performa and the initial picture of the house. Additional pictures, comps, and a list of renovations were provided, no costs, just items they would do. We had seen a similar house on the tours. M.I.P is willing to replace HVAC’s, roofs, windows, etc. when needed, but they will minimize the renovations based on the age of major items, etc.

This house needed a new HVAC/condenser, but the roof and floors were in average condition.

This house was set to be empty June 30, and close August 45 days later, this did not happen as planned.

Timeline of events:

Property Tour May 17-19
Deposit on May 18, 3K for $95K purchase
May 21 Purchase Agreement signed electronically
June 30, the house will be vacant (renovations start)
Was notified in early July tenant would not leave
July 17 house syndicated on Zillow, Realtor.com, Trulia etc. (pictures of current house pre-renovation listed along with a second house-MISTAKE)
July 23, tenants move out and return keys
Aug 31 First set of renovations complete, mostly cosmetic
Through Sep I negotiated with Norada and M.I.P to improve the renovations, I was not satisfied with work nor scope, they agreed to all items and improved the unit through Sep while it was on the market.
Sep 12 Appraisal came in for asking price of $95,000, cost $495
Sep 18th Third Party Property Inspectors found items, M.I.P fixed all issues, Cost $295
Sep 28th, closed on the property, no tenant yet

Closing:

The closing was smooth, mobile notary came to my house
All paperwork initially was signed via DocuSign, but ended up signing everything in front of the mobile notary at the end again
Electronic copies were available post-closing
No issues with wiring money, etc.

Post-Closing:

Home is still empty, Reedy and Company Realtors, LLC is now the Property Management company
Pictures of final renovations were provided after many inquiries
House rent rate was lowered to $965 after sitting vacant all summer at $1065
I was not sure why they raised the rent so high during the closing process. A friend of mine noted that some do that to actually discourage renters during the renovation process, so they can finish and have access. Others note that the marketing department wants to raise the rents for the benefit of all. I do not think this was a major strategy killer, but the house sat empty during peak rental time (Summer before school started) and is still vacant at a price above Proforma.

Some Observations:

Closing costs came out to be much higher than the proforma estimate
Taxes were spot on
Property Mgmt. fee spot on
The vacancy is listed at 4%, even though PM says I takes an average of 45 days to rent, so it’s a broad average I’m assuming after tenant leases or across all their properties.
They advertise 2-year leases during the tour and most turnkeys are rented prior to closing, not the case for my property, still vacant
One inquiry has come in for a family whose house burned down, but they want 3-month lease smack in the middle of winter for another renewal, not optimal
Neither the marketing department nor PM inside Reedy was very proactive as far as communication. I had to get Norada involved too many times to push them to email me back. This is probably my major complaint as this is totally controllable. As an out of state investor all we can expect is communication since we are trusting the process 100%.
The delay in closing was also probably controllable since it was their tenant to remove. This caused me a rise in interest rates and the second hit to my credit since it had to be pulled twice over the period of closing.

	Proforma Estimate	Actual	Notes
Closing Costs	$2854	$4086	%43 higher than the estimate
Pre-Pays	$0	$734	I was told that M.I.P does not try to estimate pre-pays
Interest Rate	5.25%	5.375%	I put 25% down, the delay in closing caused me to obtain a higher interest rate
Property Taxes	$97	$97	Spot on (2017 records)
Insurance	$40	$52	I used Lipscpomb, M.I.P .recommendation
Vacancy	4% (14.6 days a year)	Since tenant vacated 26% (95 days)	Since my ownership 5% (21 of the 95 days)

Overall Summary:

Overall, I would recommend Norada and M.I.P. My experience was not perfect, but most items come with the territory in my mind. You must do your due diligence and expect delays.

My major complaint was lack of proactive communication. I work in the I.T. field were daily, weekly communication is the key to working in a remote environment. I have come to expect that from anyone who is in partnership around my investments. I did express my disappointment many times in lack of communication and it improved a bit after closing. I do not hold any one individual at fault, I believe its part of the system, they are overly busy and have to multi-task quite a bit. I think they should be upfront that you might not hear from them for days or weeks sometimes.

I would be more than happy to talk to any investor about my first Turnkey investment. I will most likely do this again because I'm not an expert in BRRRR, Wholesaling, or Fix and Flips. I need consistent CoC, Tax relief, and mortgage pay down, etc.

Thank for the detail. I've been curious how the Turnkey actually turns out for the Investor with Type 1 Turnkey. I put together a comparison of Type 1 Turnkey & Type 2 Turnkey and this is what I came up with.

I'd like your comments of any corrections on Type 1 Turnkey. Disclaimer: I provide Type 2 Turnkey in Phoenix & Mesa to people from CA & AZ. It is a different market than yours in TN & AL with different costs associated, but I'd be interested in any tweaks that you've learned that would make the experience better. CLICK on Images to enlarge:

0 Reply

Clinton Davis

Rental Property Investor · Memphis area · Member since 2018 · 103 posts · 51 votes

7y

I'm no expert but I have lived in the Memphis area for 15 yrs and not to discourage you but ~$950/mo in the Hickory Hill area is pretty high. I'm guessing thats why it's been sitting empty so far. Over the last 10 plus yrs Hickory Hill has been in decline. There's just too much riff raff. Schools are terrible in most of Memphis due to mismanagement of funds and just a lack thereof due to corrupt govt officials. If you have money, your kid goes to private school. Or Most people (the kind you wanna rent to) are moving to the suburbs like Collierville, Germantown, Lakeland, Bartlett. North Mississippi (Southaven, Olive Branch).

3 Reply

Peter Schuyler

OP

Fort Myers Beach, FL · Member since 2016 · 225 posts · 124 votes

7y

Yes, your comment seems to be inline with some recent comps for a 3/2 1200sqft rental. The image below was zillow rentals in that area around mid Sep, and you can see many below 900. I know rental rates is sometimes an art and science at the same time. Im hoping for a

Originally posted by @Clinton Davis:

I'm no expert but I have lived in the Memphis area for 15 yrs and not to discourage you but ~$950/mo in the Hickory Hill area is pretty high. I'm guessing thats why it's been sitting empty so far. Over the last 10 plus yrs Hickory Hill has been in decline. There's just too much riff raff. Schools are terrible in most of Memphis due to mismanagement of funds and just a lack thereof due to corrupt govt officials. If you have money, your kid goes to private school. Or Most people (the kind you wanna rent to) are moving to the suburbs like Collierville, Germantown, Lakeland, Bartlett. North Mississippi (Southaven, Olive Branch).

0 Reply

Peter Schuyler

OP

Fort Myers Beach, FL · Member since 2016 · 225 posts · 124 votes

7y

I agree, some of that time was renovation time, but the initial delay hurt my interest rate and the vacancy as it took longer to prepare the property for true showings. I hope in the long run the rental rates stay stable in Hickory Hills, etc. That was the "pitch' I banked on.

Originally posted by @Account Closed:

Great write-up sir!

I wonder how many would be turned off of TK by your post.

3 months of vacancy in Summer?

Pro forma not exactly accurate....................lol.

1 Reply

Peter Schuyler

OP

Fort Myers Beach, FL · Member since 2016 · 225 posts · 124 votes

7y

That spreadsheed is a little dauting, almost need an info graphic.

I think I get the concept, Lease/Option instead of traditional buy and hold turnkey with little forced equity, only bought equity.

Originally posted by @Account Closed:

Originally posted by @Peter Schuyler:

Memphis Investment Properties Turnkey Case Study

Disclaimer: I am an investor/customer of M.I.P, I do not work for them nor being compensated in anyway, just sharing my experiences with other investors.

Providers Involved:

Norada Real Estate Investments

Memphis Investment Properties (M.I.P)

Reedy and Company Realtor, LLC – Real Estate Broker and Property Management for M.I.P

Bemortgage – Lender

Lipscomb – Insurance

The Prep:

I originally came across M.I.P through Norada (Marco Santarelli, BP contributor and has his own podcast).
I was assigned an advisor who gathered my goals and situation and we worked together to identify two markets to look at Memphis TN, and Birmingham, AL.
I’m am an out of state investor living in Colorado and have two other properties in Texas (not turnkey) and have been a BP member for some time.
I attended an investor Tour in May in Memphis to check out the area. It was hosted by M.I.P and we toured properties, meet lenders, insurance agencies, and other provider doing business with M.I.P

My Criteria/Situation:

100K Purchase price
Good working-class B, B+ area
3/2/brick house
Was looking for 1% rent to purchase ratio
Conventional financing with 20-25% down payment
Utilized 401K loan for down payment and closing costs

The Purchase:

During the M.I.P Property tour in May, they handed out flyers with properties for sale reserved for visitors that weekend. I put down $3K deposit on a house during the first day of the tour.

Below is the Performa and the initial picture of the house. Additional pictures, comps, and a list of renovations were provided, no costs, just items they would do. We had seen a similar house on the tours. M.I.P is willing to replace HVAC’s, roofs, windows, etc. when needed, but they will minimize the renovations based on the age of major items, etc.

This house needed a new HVAC/condenser, but the roof and floors were in average condition.

This house was set to be empty June 30, and close August 45 days later, this did not happen as planned.

Timeline of events:

Property Tour May 17-19
Deposit on May 18, 3K for $95K purchase
May 21 Purchase Agreement signed electronically
June 30, the house will be vacant (renovations start)
Was notified in early July tenant would not leave
July 17 house syndicated on Zillow, Realtor.com, Trulia etc. (pictures of current house pre-renovation listed along with a second house-MISTAKE)
July 23, tenants move out and return keys
Aug 31 First set of renovations complete, mostly cosmetic
Through Sep I negotiated with Norada and M.I.P to improve the renovations, I was not satisfied with work nor scope, they agreed to all items and improved the unit through Sep while it was on the market.
Sep 12 Appraisal came in for asking price of $95,000, cost $495
Sep 18th Third Party Property Inspectors found items, M.I.P fixed all issues, Cost $295
Sep 28th, closed on the property, no tenant yet

Closing:

The closing was smooth, mobile notary came to my house
All paperwork initially was signed via DocuSign, but ended up signing everything in front of the mobile notary at the end again
Electronic copies were available post-closing
No issues with wiring money, etc.

Post-Closing:

Home is still empty, Reedy and Company Realtors, LLC is now the Property Management company
Pictures of final renovations were provided after many inquiries
House rent rate was lowered to $965 after sitting vacant all summer at $1065
I was not sure why they raised the rent so high during the closing process. A friend of mine noted that some do that to actually discourage renters during the renovation process, so they can finish and have access. Others note that the marketing department wants to raise the rents for the benefit of all. I do not think this was a major strategy killer, but the house sat empty during peak rental time (Summer before school started) and is still vacant at a price above Proforma.

Some Observations:

Closing costs came out to be much higher than the proforma estimate
Taxes were spot on
Property Mgmt. fee spot on
The vacancy is listed at 4%, even though PM says I takes an average of 45 days to rent, so it’s a broad average I’m assuming after tenant leases or across all their properties.
They advertise 2-year leases during the tour and most turnkeys are rented prior to closing, not the case for my property, still vacant
One inquiry has come in for a family whose house burned down, but they want 3-month lease smack in the middle of winter for another renewal, not optimal
Neither the marketing department nor PM inside Reedy was very proactive as far as communication. I had to get Norada involved too many times to push them to email me back. This is probably my major complaint as this is totally controllable. As an out of state investor all we can expect is communication since we are trusting the process 100%.
The delay in closing was also probably controllable since it was their tenant to remove. This caused me a rise in interest rates and the second hit to my credit since it had to be pulled twice over the period of closing.

	Proforma Estimate	Actual	Notes
Closing Costs	$2854	$4086	%43 higher than the estimate
Pre-Pays	$0	$734	I was told that M.I.P does not try to estimate pre-pays
Interest Rate	5.25%	5.375%	I put 25% down, the delay in closing caused me to obtain a higher interest rate
Property Taxes	$97	$97	Spot on (2017 records)
Insurance	$40	$52	I used Lipscpomb, M.I.P .recommendation
Vacancy	4% (14.6 days a year)	Since tenant vacated 26% (95 days)	Since my ownership 5% (21 of the 95 days)

Overall Summary:

Overall, I would recommend Norada and M.I.P. My experience was not perfect, but most items come with the territory in my mind. You must do your due diligence and expect delays.

My major complaint was lack of proactive communication. I work in the I.T. field were daily, weekly communication is the key to working in a remote environment. I have come to expect that from anyone who is in partnership around my investments. I did express my disappointment many times in lack of communication and it improved a bit after closing. I do not hold any one individual at fault, I believe its part of the system, they are overly busy and have to multi-task quite a bit. I think they should be upfront that you might not hear from them for days or weeks sometimes.

I would be more than happy to talk to any investor about my first Turnkey investment. I will most likely do this again because I'm not an expert in BRRRR, Wholesaling, or Fix and Flips. I need consistent CoC, Tax relief, and mortgage pay down, etc.

Thank for the detail. I've been curious how the Turnkey actually turns out for the Investor with Type 1 Turnkey. I put together a comparison of Type 1 Turnkey & Type 2 Turnkey and this is what I came up with.

I'd like your comments of any corrections on Type 1 Turnkey. Disclaimer: I provide Type 2 Turnkey in Phoenix & Mesa to people from CA & AZ. It is a different market than yours in TN & AL with different costs associated, but I'd be interested in any tweaks that you've learned that would make the experience better. CLICK on Images to enlarge:

0 Reply

AJ Singh

Rental Property Investor · Orange County, CA · Member since 2016 · 512 posts · 374 votes

7y

@Peter Schuyler

I would suggest to start lowering rent $25 weekly for next four weeks. it will hit your bottomline and proforma but a vacant house in Memphis can lead to more issues

i had a vacancy in Cordova, needed 3 weeks to do cosmetic rehab, qualified tenant could only move in Oct 19, so 75 days vacancy. Just part of the game. and above all $50 lower than previous tenant.

1 Reply

Peter Schuyler

OP

Fort Myers Beach, FL · Member since 2016 · 225 posts · 124 votes

7y

@AJ Singh

How long have you had your rental in Cordova, do you see signs of dropping rent overall, or is this marketing timing given its a bit off season now?

0 Reply

AJ Singh

Rental Property Investor · Orange County, CA · Member since 2016 · 512 posts · 374 votes

7y

@Peter Schuyler I have had it 3 years. Rents do drop every now and then depending on the rental comps and weather We are approaching winters and it gets slower to rent

0 Reply

Account Closed

Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes

7y

Originally posted by @Peter Schuyler:

Memphis Investment Properties Turnkey Case Study

Disclaimer: I am an investor/customer of M.I.P, I do not work for them nor being compensated in anyway, just sharing my experiences with other investors.

Providers Involved:

Norada Real Estate Investments

Memphis Investment Properties (M.I.P)

Reedy and Company Realtor, LLC – Real Estate Broker and Property Management for M.I.P

Bemortgage – Lender

Lipscomb – Insurance

The Prep:

I originally came across M.I.P through Norada (Marco Santarelli, BP contributor and has his own podcast).
I was assigned an advisor who gathered my goals and situation and we worked together to identify two markets to look at Memphis TN, and Birmingham, AL.
I’m am an out of state investor living in Colorado and have two other properties in Texas (not turnkey) and have been a BP member for some time.
I attended an investor Tour in May in Memphis to check out the area. It was hosted by M.I.P and we toured properties, meet lenders, insurance agencies, and other provider doing business with M.I.P

My Criteria/Situation:

100K Purchase price
Good working-class B, B+ area
3/2/brick house
Was looking for 1% rent to purchase ratio
Conventional financing with 20-25% down payment
Utilized 401K loan for down payment and closing costs

The Purchase:

During the M.I.P Property tour in May, they handed out flyers with properties for sale reserved for visitors that weekend. I put down $3K deposit on a house during the first day of the tour.

Below is the Performa and the initial picture of the house. Additional pictures, comps, and a list of renovations were provided, no costs, just items they would do. We had seen a similar house on the tours. M.I.P is willing to replace HVAC’s, roofs, windows, etc. when needed, but they will minimize the renovations based on the age of major items, etc.

This house needed a new HVAC/condenser, but the roof and floors were in average condition.

This house was set to be empty June 30, and close August 45 days later, this did not happen as planned.

Timeline of events:

Property Tour May 17-19
Deposit on May 18, 3K for $95K purchase
May 21 Purchase Agreement signed electronically
June 30, the house will be vacant (renovations start)
Was notified in early July tenant would not leave
July 17 house syndicated on Zillow, Realtor.com, Trulia etc. (pictures of current house pre-renovation listed along with a second house-MISTAKE)
July 23, tenants move out and return keys
Aug 31 First set of renovations complete, mostly cosmetic
Through Sep I negotiated with Norada and M.I.P to improve the renovations, I was not satisfied with work nor scope, they agreed to all items and improved the unit through Sep while it was on the market.
Sep 12 Appraisal came in for asking price of $95,000, cost $495
Sep 18th Third Party Property Inspectors found items, M.I.P fixed all issues, Cost $295
Sep 28th, closed on the property, no tenant yet

Closing:

The closing was smooth, mobile notary came to my house
All paperwork initially was signed via DocuSign, but ended up signing everything in front of the mobile notary at the end again
Electronic copies were available post-closing
No issues with wiring money, etc.

Post-Closing:

Home is still empty, Reedy and Company Realtors, LLC is now the Property Management company
Pictures of final renovations were provided after many inquiries
House rent rate was lowered to $965 after sitting vacant all summer at $1065
I was not sure why they raised the rent so high during the closing process. A friend of mine noted that some do that to actually discourage renters during the renovation process, so they can finish and have access. Others note that the marketing department wants to raise the rents for the benefit of all. I do not think this was a major strategy killer, but the house sat empty during peak rental time (Summer before school started) and is still vacant at a price above Proforma.

Some Observations:

Closing costs came out to be much higher than the proforma estimate
Taxes were spot on
Property Mgmt. fee spot on
The vacancy is listed at 4%, even though PM says I takes an average of 45 days to rent, so it’s a broad average I’m assuming after tenant leases or across all their properties.
They advertise 2-year leases during the tour and most turnkeys are rented prior to closing, not the case for my property, still vacant
One inquiry has come in for a family whose house burned down, but they want 3-month lease smack in the middle of winter for another renewal, not optimal
Neither the marketing department nor PM inside Reedy was very proactive as far as communication. I had to get Norada involved too many times to push them to email me back. This is probably my major complaint as this is totally controllable. As an out of state investor all we can expect is communication since we are trusting the process 100%.
The delay in closing was also probably controllable since it was their tenant to remove. This caused me a rise in interest rates and the second hit to my credit since it had to be pulled twice over the period of closing.

	Proforma Estimate	Actual	Notes
Closing Costs	$2854	$4086	%43 higher than the estimate
Pre-Pays	$0	$734	I was told that M.I.P does not try to estimate pre-pays
Interest Rate	5.25%	5.375%	I put 25% down, the delay in closing caused me to obtain a higher interest rate
Property Taxes	$97	$97	Spot on (2017 records)
Insurance	$40	$52	I used Lipscpomb, M.I.P .recommendation
Vacancy	4% (14.6 days a year)	Since tenant vacated 26% (95 days)	Since my ownership 5% (21 of the 95 days)

Overall Summary:

Overall, I would recommend Norada and M.I.P. My experience was not perfect, but most items come with the territory in my mind. You must do your due diligence and expect delays.

My major complaint was lack of proactive communication. I work in the I.T. field were daily, weekly communication is the key to working in a remote environment. I have come to expect that from anyone who is in partnership around my investments. I did express my disappointment many times in lack of communication and it improved a bit after closing. I do not hold any one individual at fault, I believe its part of the system, they are overly busy and have to multi-task quite a bit. I think they should be upfront that you might not hear from them for days or weeks sometimes.

I would be more than happy to talk to any investor about my first Turnkey investment. I will most likely do this again because I'm not an expert in BRRRR, Wholesaling, or Fix and Flips. I need consistent CoC, Tax relief, and mortgage pay down, etc.

I liked your idea of building some infographics to compare Turnkeys. These are just playing with the charts using your numbers. It's a work in progress.

Here I compare buying a Turnkey in TN with 1) With Cash (no debt load) 2) With a mortgage and 3) one in AZ using Subject To. I am using the average appreciation of 3% per year over a 10 year period. Right now we have 7% growth in Phoenix but I'll use 3% since that is the national average long term. CA

When I buy Subject To, I sell on Lease Option to a Tenant Buyer and get $20,000 down. I still own the property & get the write offs. I have no CAP EX since the Tenant Buyer takes care of that. Here are a couple of reasons this makes sense to do: (IMHO)

The Green Bar is Total Rents for the first year. The violet is just Rents. However, I also get an Option Fee in Phoenix from my Tenant Buyer and the tall Green Bar is my Total Income on that property the first year.

And when you compare Appreciation in the Two Markets, Red is ARV in 10 Years at 3% growth

and Violet is The Cost of Initial investment - The amount one puts in to get the property ) Phoenix is Twice as Much Return.

0 Reply

Account Closed

Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes

7y

Originally posted by @Account Closed:

Originally posted by @Peter Schuyler:

Memphis Investment Properties Turnkey Case Study

Disclaimer: I am an investor/customer of M.I.P, I do not work for them nor being compensated in anyway, just sharing my experiences with other investors.

Providers Involved:

Norada Real Estate Investments

Memphis Investment Properties (M.I.P)

Reedy and Company Realtor, LLC – Real Estate Broker and Property Management for M.I.P

Bemortgage – Lender

Lipscomb – Insurance

The Prep:

I originally came across M.I.P through Norada (Marco Santarelli, BP contributor and has his own podcast).
I was assigned an advisor who gathered my goals and situation and we worked together to identify two markets to look at Memphis TN, and Birmingham, AL.
I’m am an out of state investor living in Colorado and have two other properties in Texas (not turnkey) and have been a BP member for some time.
I attended an investor Tour in May in Memphis to check out the area. It was hosted by M.I.P and we toured properties, meet lenders, insurance agencies, and other provider doing business with M.I.P

My Criteria/Situation:

100K Purchase price
Good working-class B, B+ area
3/2/brick house
Was looking for 1% rent to purchase ratio
Conventional financing with 20-25% down payment
Utilized 401K loan for down payment and closing costs

The Purchase:

During the M.I.P Property tour in May, they handed out flyers with properties for sale reserved for visitors that weekend. I put down $3K deposit on a house during the first day of the tour.

Below is the Performa and the initial picture of the house. Additional pictures, comps, and a list of renovations were provided, no costs, just items they would do. We had seen a similar house on the tours. M.I.P is willing to replace HVAC’s, roofs, windows, etc. when needed, but they will minimize the renovations based on the age of major items, etc.

This house needed a new HVAC/condenser, but the roof and floors were in average condition.

This house was set to be empty June 30, and close August 45 days later, this did not happen as planned.

Timeline of events:

Property Tour May 17-19
Deposit on May 18, 3K for $95K purchase
May 21 Purchase Agreement signed electronically
June 30, the house will be vacant (renovations start)
Was notified in early July tenant would not leave
July 17 house syndicated on Zillow, Realtor.com, Trulia etc. (pictures of current house pre-renovation listed along with a second house-MISTAKE)
July 23, tenants move out and return keys
Aug 31 First set of renovations complete, mostly cosmetic
Through Sep I negotiated with Norada and M.I.P to improve the renovations, I was not satisfied with work nor scope, they agreed to all items and improved the unit through Sep while it was on the market.
Sep 12 Appraisal came in for asking price of $95,000, cost $495
Sep 18th Third Party Property Inspectors found items, M.I.P fixed all issues, Cost $295
Sep 28th, closed on the property, no tenant yet

Closing:

The closing was smooth, mobile notary came to my house
All paperwork initially was signed via DocuSign, but ended up signing everything in front of the mobile notary at the end again
Electronic copies were available post-closing
No issues with wiring money, etc.

Post-Closing:

Home is still empty, Reedy and Company Realtors, LLC is now the Property Management company
Pictures of final renovations were provided after many inquiries
House rent rate was lowered to $965 after sitting vacant all summer at $1065
I was not sure why they raised the rent so high during the closing process. A friend of mine noted that some do that to actually discourage renters during the renovation process, so they can finish and have access. Others note that the marketing department wants to raise the rents for the benefit of all. I do not think this was a major strategy killer, but the house sat empty during peak rental time (Summer before school started) and is still vacant at a price above Proforma.

Some Observations:

Closing costs came out to be much higher than the proforma estimate
Taxes were spot on
Property Mgmt. fee spot on
The vacancy is listed at 4%, even though PM says I takes an average of 45 days to rent, so it’s a broad average I’m assuming after tenant leases or across all their properties.
They advertise 2-year leases during the tour and most turnkeys are rented prior to closing, not the case for my property, still vacant
One inquiry has come in for a family whose house burned down, but they want 3-month lease smack in the middle of winter for another renewal, not optimal
Neither the marketing department nor PM inside Reedy was very proactive as far as communication. I had to get Norada involved too many times to push them to email me back. This is probably my major complaint as this is totally controllable. As an out of state investor all we can expect is communication since we are trusting the process 100%.
The delay in closing was also probably controllable since it was their tenant to remove. This caused me a rise in interest rates and the second hit to my credit since it had to be pulled twice over the period of closing.

	Proforma Estimate	Actual	Notes
Closing Costs	$2854	$4086	%43 higher than the estimate
Pre-Pays	$0	$734	I was told that M.I.P does not try to estimate pre-pays
Interest Rate	5.25%	5.375%	I put 25% down, the delay in closing caused me to obtain a higher interest rate
Property Taxes	$97	$97	Spot on (2017 records)
Insurance	$40	$52	I used Lipscpomb, M.I.P .recommendation
Vacancy	4% (14.6 days a year)	Since tenant vacated 26% (95 days)	Since my ownership 5% (21 of the 95 days)

Overall Summary:

Overall, I would recommend Norada and M.I.P. My experience was not perfect, but most items come with the territory in my mind. You must do your due diligence and expect delays.

My major complaint was lack of proactive communication. I work in the I.T. field were daily, weekly communication is the key to working in a remote environment. I have come to expect that from anyone who is in partnership around my investments. I did express my disappointment many times in lack of communication and it improved a bit after closing. I do not hold any one individual at fault, I believe its part of the system, they are overly busy and have to multi-task quite a bit. I think they should be upfront that you might not hear from them for days or weeks sometimes.

I would be more than happy to talk to any investor about my first Turnkey investment. I will most likely do this again because I'm not an expert in BRRRR, Wholesaling, or Fix and Flips. I need consistent CoC, Tax relief, and mortgage pay down, etc.

Thank for the detail. I've been curious how the Turnkey actually turns out for the Investor with Type 1 Turnkey. I put together a comparison of Type 1 Turnkey & Type 2 Turnkey and this is what I came up with.

I'd like your comments of any corrections on Type 1 Turnkey. Disclaimer: I provide Type 2 Turnkey in Phoenix & Mesa to people from CA & AZ. It is a different market than yours in TN & AL with different costs associated, but I'd be interested in any tweaks that you've learned that would make the experience better. CLICK on Images to enlarge:

I've put together a preliminary InfoGraphic using the numbers you have given us.

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Peter Schuyler

OP

Fort Myers Beach, FL · Member since 2016 · 225 posts · 124 votes

7y

@Account Closed

Pretty impressive charts. We should talk, to be honest, I still struggling to wrap my head around your version of Turnkey, who owns what, transactions needed and when, what if the tenant does not do the maintenance, etc, title issues, timing, etc. I have read about this a little bit in Brandon Turner's book.

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Peter Schuyler

OP

Fort Myers Beach, FL · Member since 2016 · 225 posts · 124 votes

7y

@Account Closed I put this together in Powerpoint, maybe if I send it to you could do Turnkey Option 2.

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Jay HinrichsBusiness Member

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

7y

Peter keep in mind as Mike stated above that he provides these type of investments for his buyers... so his posts are a little more like an infomerical.. plus you could no way get the velocity and volume of sub too lease backs with 20k down as you can with turn key rental houses.. your not going to go to PHX and take a bus tour and look at 10 to 30 homes in one day that are all teed up with 20k down sub too buyers.. it can happen of course anything in real estate can happen but these are not fair comparisions by any means.

I mean i build new homes and i could show a graph were I put 25k down on a construction loan and make 100k profit in one year... that would blow both of these models clean out of the water.. and I could also post my article in the Portland business journal showing that I am in the top 30 of all builders in the portland market #24.. but can i repeat for the mass's nope.. can others do these things sure..

but what turn key provides is a product for the mass's other forms of real estate are more involved and take more time and there is less of them.. so my long winded response is you cant compare a sub too model to turn key in any way shape or form.. and anyone can manipulate return numbers to their benefit..

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Peter Schuyler

OP

Fort Myers Beach, FL · Member since 2016 · 225 posts · 124 votes

7y

@Jay Hinrichs

I really enjoy your posts because you demystify all the shiny objects. My first duplex was a new build form a local builder, and when I purchased it below market. he did not make as much profit on this as some of the others, but he showed his numbers, and I was blown away how much he did walk away from even on my below market purchase. It was still a win-win for both of us. Do you build homes for investors or retail?

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Jay HinrichsBusiness Member

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

7y

Originally posted by @Peter Schuyler:

@Jay Hinrichs

I really enjoy your posts because you demystify all the shiny objects. My first duplex was a new build form a local builder, and when I purchased it below market. he did not make as much profit on this as some of the others, but he showed his numbers, and I was blown away how much he did walk away from even on my below market purchase. It was still a win-win for both of us. Do you build homes for investors or retail?

95% go to owner occ.. we get a few investors buying our New builds in Charleston SC.. were we do multiple homes on a single lot and the owners air bnb or rent by the room to collage kids.. but these are 750 to 1.5 million each.. so different type of investments.. our owner occ starts at 450 and goes to a little over 2 million.. with averages in the mid 500s.. but its not comparable to buying low value asset rentals and by that I mean anything at about 125k and under were your mortgage is 100k or less.. that is considered a low value asset in todays finance world.. However out in the mid west from MI to GA and over to the rust belt there are as you know thousands upon thousands of these units to choose from.. so its really boils down to the provider.. as to how your success will be long term.

however the bigger % returns are found in value add in most instances.. think of all those MF syndicators out there these days they are trying or they ARE buying Cs and value engineering them to Bs and that creates the nice returns they get for their accredited investors.

Lots of ways to skin the cat in this game and turn key is the easiest for most people to wrap their brain around.. just like you said you were having a hard time wrapping your brain around sub too... that's only because its a fraction of the market and generally done by folks more advanced in the business like a Mike who do real estate more for a living than passive investing a lot goes into doing a successful sub too.. I have done hundreds of them over the last 3 decades just like Mike.. but we did them for our own portfolio. one of the major issues and it does not come up often but every time you do a sub too without a formal assumption agreement from the original lender your creating a event of default on the underlying mortgage your taking sub too.. while its rare to have a lender call their mortgage due it is at their sole discretion .. and you as the buyer have to be in a position to refi or cash out.. and its really bad on the seller their credit can and does get crushed when these unwind.. so a little more to it than just comparing it to buying a vanilla rental.

Its a great strategy for those in a financial position to implement it though.. but for most frankly they are not .. they take on risk and or cause risk for the seller.

PS I have been to the Reedys offices and talked with their folks they are one of the pioneers of turn key in Memphis.. Big company well established with plenty of wherewithal to implement the TK strategy.. and they did have a new construction product a few years back when I visited them..

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Clayton MobleyPro Member

Birmingham, AL · Member since 2014 · 875 posts · 947 votes

7y

I am not a Memphis investor, so I certainly can't give an opinion on that aspect of this deal. As a turnkey provider, however, I can say that I'm usually a little skeptical when folks use things like tax breaks, appreciation assumptions, and raised rent assumptions to sell something.

I see that those 'returns' weren't actually worked into the ROI (although perhaps on another jacket they were?) but presenting things like 3% appreciation and 3% annual rental hikes, as well as all the tax deductions sort of muddies the waters. These are all 100% great aspects of rental investments, don't get me wrong, but they should be the icing on the cake of any turnkey model. ESP the appreciation and rental hikes. You don't know where the market is going (no one does), and since the prop is still vacant as-is, it would seem even the current rent is a bit high (as others with more knowledge of that area have noted). Using those future potential gains on a pro forma is a bit misleading. Turnkey is about cash flow, and everything else is a bonus in the end.

I have zero interaction with any of the companies you listed, and we don't compete in that market, so this is certainly not about them as businesses or people, specifically. But whenever I see numbers that include all those hypothetical bells and whistles it sends off a little alarm in my head - new investors especially can get caught up in all that potential and lose sight of the numbers that are more based in reality (or, hopefully, based on historical data).

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Clayton MobleyPro Member

Birmingham, AL · Member since 2014 · 875 posts · 947 votes

7y

On the flip side, vacancy happens to us all. And sometimes buying in late summer ends up with a little more of that vacancy for the exact reasons you noted - rehab takes you into winter, when almost no one wants to move, esp in places that have reeeaaaal winter. Doesn't mean it's a bad investment or a bad team, sometimes timing is just not on your side.

Fingers crossed they find you a tenant soon!

Best of luck,

Clayton

0 Reply

Account Closed

Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes

7y

Originally posted by @Peter Schuyler:

@Jay Hinrichs

I really enjoy your posts because you demystify all the shiny objects. My first duplex was a new build form a local builder, and when I purchased it below market. he did not make as much profit on this as some of the others, but he showed his numbers, and I was blown away how much he did walk away from even on my below market purchase. It was still a win-win for both of us. Do you build homes for investors or retail?

@Peter Schuyler I'll try to put together a diagram like your PowerPoint that explains Title and Mtg etc. As @Jay Hinrichs says both his post and mine are a bit of an infomercial. He of course is selling new builds in SC and I am selling Turnkey in Phoenix. There is a bit of a difference between the two. My market is the guy who wants a great return and has only $50k - $200k to invest in real estate and doesn't want to hassle with bank financing for the rest, similar to Memphis Invest without needing the bank financing, thus the comparison. Meanwhile @Jay's market seems to be the $750,000 to $1,00,000 market in SC. A fine price point & market to be sure but not suitable for most investors. Memphis is quite different from both of these according to the posts I've seen.

Phoenix is having a surge of "in-migration" of people from California, Seattle, and Denver. A lot of High Tech businesses are moving in. Those people have often sold a home and have a far amount of cash. So getting $20k or $25k down is straight forward. Since I can be picky about Tenant Buyers I look for people who have the Option fee. Also, It isn't accurate to say that "you can't just fly in and take a tour and buy one". That can be accommodated, but I always suggest people see the properties, discuss the deal with their attorney and CPA before they commit. When you take over someone's loan I have to verify that you have the ability to make the underlying monthly payment and have enough reserves with the ability to respond if the note is called (Due on Sale) or if the Tenant Buyer leaves. You get to keep the Option fee and I place a new Tenant Buyer with a new Option fee. That will be the 2nd infographic but it is too wordy and wasn't necessary for the comparison of numbers.

Rents are strong. Vacancies are low. Taxes are low. It is Landlord friendly here. I don't include rent increases in the graphic, because that varies by landlord. Appreciation is about 7% per year. I used only 3% appreciation since that is the national average over time. It's only one way of investing in real estate but it popular for folks from California to invest in Phoenix & Mesa since it is closer than Memphis with higher returns.

Disclaimer: I provide Turnkeys in Phoenix

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Jay HinrichsBusiness Member

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

7y

Originally posted by @Account Closed:

Originally posted by @Peter Schuyler:

@Jay Hinrichs

I really enjoy your posts because you demystify all the shiny objects. My first duplex was a new build form a local builder, and when I purchased it below market. he did not make as much profit on this as some of the others, but he showed his numbers, and I was blown away how much he did walk away from even on my below market purchase. It was still a win-win for both of us. Do you build homes for investors or retail?

@Peter Schuyler I'll try to put together a diagram like your PowerPoint that explains Title and Mtg etc. As @Jay Hinrichs says both his post and mine are a bit of an infomercial. He of course is selling new builds in SC and I am selling Turnkey in Phoenix. There is a bit of a difference between the two. My market is the guy who wants a great return and has only $50k - $200k to invest in real estate and doesn't want to hassle with bank financing for the rest, similar to Memphis Invest without needing the bank financing, thus the comparison. Meanwhile @Jay's market seems to be the $750,000 to $1,00,000 market in SC. A fine price point & market to be sure but not suitable for most investors. Memphis is quite different from both of these according to the posts I've seen.

Phoenix is having a surge of "in-migration" of people from California, Seattle, and Denver. A lot of High Tech businesses are moving in. Those people have often sold a home and have a far amount of cash. So getting $20k or $25k down is straight forward. Since I can be picky about Tenant Buyers I look for people who have the Option fee. Also, It isn't accurate to say that "you can't just fly in and take a tour and buy one". That can be accommodated, but I always suggest people see the properties, discuss the deal with their attorney and CPA before they commit. When you take over someone's loan I have to verify that you have the ability to make the underlying monthly payment and have enough reserves with the ability to respond if the note is called (Due on Sale) or if the Tenant Buyer leaves. You get to keep the Option fee and I place a new Tenant Buyer with a new Option fee. That will be the 2nd infographic but it is too wordy and wasn't necessary for the comparison of numbers.

Rents are strong. Vacancies are low. Taxes are low. It is Landlord friendly here. I don't include rent increases in the graphic, because that varies by landlord. Appreciation is about 7% per year. I used only 3% appreciation since that is the national average over time. It's only one way of investing in real estate but it popular for folks from California to invest in Phoenix & Mesa since it is closer than Memphis with higher returns.

Disclaimer: I provide Turnkeys in Phoenix

Mike to be fair I only sell properties that I own.. period and then I only sell them on the MLS becasue i want top dollar and all cash.. so my knowledge not one BP member has ever bought a property from me and thats 200 plus new builds in the last 5 years.. the investment properties in Charleston are just a few I have done and they could have gone either way.. but just happened to go to 1031 investors.. but i don't build looking for investors.. I have looked at doing some production housing for investors.. but no real money in it margins are too small.. however I do know some builders especially in Texas and a few other markets thats pretty much all they do is build SFRs for investors.. and Reedy had some in Memphis i know i walked through them.

However it is good to understand that your selling these deals to others taking a fee of course .. you deserve it just like i deserve a profit on my new builds and Reedy deserves a profit on Turn keys etc etc.. I do believe though a model with sub too does pose more risk ( as remote as it is ) but there is always a risk of the senior loan being called.. And knowing how nervous nellie so many investors are just the risk of this .. will have them looking at Owning the home and the mortgage.. but like we have bantered about over the course of some time I like sub too for my personal portfolio when i wanted some rentals. or was doing foreclosure rescue ( which is now illegal in OR and WA in a sub too rent back model which was my model..).. however the difference is your taking smaller investors like you said that may not have the wherewithal to cash out a called mortgage or refi it.. that's always the risk to that model.. I did have 2 called out of over 200 i did sub too over the years.. so while rare it does happen. a

Lastly for sure your entitle to a profit in your model.. I would expect it.. you have to find a seller willing to sell sub too and that is not that easy.. then you have to find a buyer/lessee with 20k and that is not that easy.. especially when they are putting up 20k and if the underlying failed they would lose their 20k.. there are what ifs and what will happen in this model that only cash solves. so unless your back stopping these folks IE you will personally pay off a mortgage in a meltdown then those buying and selling in this model need to understand the risks.. and that in itself is much more complicated and more moving parts than simply going on a bus tour to Memphis picking a house getting your own mortgage and renting that sucker out.. !!!!

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Jay HinrichsBusiness Member

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

7y

Originally posted by @Clayton Mobley:

I am not a Memphis investor, so I certainly can't give an opinion on that aspect of this deal. As a turnkey provider, however, I can say that I'm usually a little skeptical when folks use things like tax breaks, appreciation assumptions, and raised rent assumptions to sell something.

I see that those 'returns' weren't actually worked into the ROI (although perhaps on another jacket they were?) but presenting things like 3% appreciation and 3% annual rental hikes, as well as all the tax deductions sort of muddies the waters. These are all 100% great aspects of rental investments, don't get me wrong, but they should be the icing on the cake of any turnkey model. ESP the appreciation and rental hikes. You don't know where the market is going (no one does), and since the prop is still vacant as-is, it would seem even the current rent is a bit high (as others with more knowledge of that area have noted). Using those future potential gains on a pro forma is a bit misleading. Turnkey is about cash flow, and everything else is a bonus in the end.

I have zero interaction with any of the companies you listed, and we don't compete in that market, so this is certainly not about them as businesses or people, specifically. But whenever I see numbers that include all those hypothetical bells and whistles it sends off a little alarm in my head - new investors especially can get caught up in all that potential and lose sight of the numbers that are more based in reality (or, hopefully, based on historical data).

Clayton in those areas those are Blue Sky proforma's end of that discussion and in fact many are talking about rent reductions right now.. there had to be a time of over saturation of rentals in some of these markets.. ergo supply demand is the real factor too much supply demand goes down rents follow.. or you better have the shinniest object to rent if there is competition.. rents simply dont rise eyar in and year out in these markets i have been funding this stuff for going on 20 years.. and NO way no how does rent increase year over year at a 3% clip... rents would be over 2500 a month on those houses based on where they were when i started funding them at the turn of the millennium

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Jay HinrichsBusiness Member

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

7y

Originally posted by @Clayton Mobley:

On the flip side, vacancy happens to us all. And sometimes buying in late summer ends up with a little more of that vacancy for the exact reasons you noted - rehab takes you into winter, when almost no one wants to move, esp in places that have reeeaaaal winter. Doesn't mean it's a bad investment or a bad team, sometimes timing is just not on your side.

Fingers crossed they find you a tenant soon!

Best of luck,

Clayton

then one rental i sold in Charleston last year we missed the collage students moving in by 30 days.. we got a CO mid sept.. needed it mid Aug.. so did not sell it until the following march.. and those guys had a ten 31 and it was north of 1.2 mil but they had to let it sit until Aug.. then its a cash cow from then on out.. we lost about 40k in negative cash flow but still made our 20% profit on gross.. which was OK..

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Clayton MobleyPro Member

Birmingham, AL · Member since 2014 · 875 posts · 947 votes

7y

@Jay Hinrichs exactly, blue sky. Raising rents consistently year after year just doesn't happen long-term so including those assumptions in the pro forma is a little misleading. You know I hesitate to put anyone on blast, esp in a market that isn't my own, but that's just a little thing I noticed that, esp for new investors, can really do a lot of damage to expectations vs reality in the long run.

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Jay HinrichsBusiness Member

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

7y

Originally posted by @Clayton Mobley:

@Jay Hinrichs exactly, blue sky. Raising rents consistently year after year just doesn't happen long-term so including those assumptions in the pro forma is a little misleading. You know I hesitate to put anyone on blast, esp in a market that isn't my own, but that's just a little thing I noticed that, esp for new investors, can really do a lot of damage to expectations vs reality in the long run.

yes using a proforma that includes annual increase in value and annual increase in rents to then drive a bottom line HUGE IRR over time is totally just best case blue sky proforma at work.

but some will realize it I think many wont.. they will just go right to the bottom line and they will see your proforma at a 9% return ( just guessing for the benefit of this conversation) and then look at this other proforma and see 30% at the bottom and then think to themselves I am making an investment that is going to make me 30% why would I even look at the 9% one.. there is a reason this is done this way.. and its called MARKETING... keep in mind Commercial brokers do this every day with every flyer I see on apartment complex's the cap rate is almost always derived by best case blue sky not actuals its up to the buyer to decipher actuals.. and when you buying in the SFR turn key space you have NO actuals you have what your turn key providers is telling you things should work out to.. rent should be this.. and since I just rehabbed it cap ex over time should be this.. and turn over costs should be this.. and so on and so forth..

so no way to know what your going to make on any rental until you owned it 5 years and have actuals. Market plays a factor.. and of course one great tenant that stays 5 years make a difference turn over every 18 months on average like a lot of markets no way your going to hit the proforma numbers

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Peter Schuyler

OP

Fort Myers Beach, FL · Member since 2016 · 225 posts · 124 votes

7y

I wish I could say everything is going well, it has now been 148 days since first marketed, I have owned the property since Sep 28th, with no qualified applicants. Security deposits seem to be the Achilles heel for some reason. We have offered two incentives, the area might demand lower rent this time of year.

I'm not impressed with this Market at this point, or it might just be the PM, hard to tell. But the end result is this investment is now losing money, Sorry Warren Buffet, I broke the cardinal rule. Its way to early to dump and run.

I have noticed Reedy has other listings with as long dates or even longer that could be a marketing tactic or the truth (simple Zillow search shows this). They will not share any other investor details for privacy reasons, even though I was willing to share mine with other investors/owners.

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Clinton Davis

Rental Property Investor · Memphis area · Member since 2018 · 103 posts · 51 votes

7y

im sorry to hear of your investment woes so far. what has the management company done to try to get tenants in place? have you lowered rent at all? as I said earlier $950 for that area is pretty high....

what are the money requirements? first months rent plus security deposit? first and last month with security dep?

i know when i was trying to find a tenant for my sfh it was impossible to find someone with first and last months with deposit as well....my target client just doesnt have $3k to dish out when moving into a new place. so I started accepting first months rent with security deposit. and that is in North mississippi....in hickory Hill...I can guarantee it will be next to impossible to find someone willing to pay first and last month unless you can get lucky with the upcoming tax season but then again....thry might not be able to afford the place anyway.

you will find a tenant but maybe try lowering your expectations for roi....7% is better than 0%....

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Memphis Investment Properties Turnkey Case Study

Memphis Investment Properties Turnkey Case Study

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