All Forum Posts by: Chris Clothier

 I agree with you that these are very different investments.  You are 100% correct so its hard to correlate loss-aversion on this.

And you and I actually agree on your second point.  I was careful to use the word TURNKEY when discussing these low price point investments.  Perhaps your father bought his properties turnkey and was completely passive.  I doubt that is the case, but would love to know if your father was hands-off.

That is where investors get absolutely screwed on these investments.  They require a lot of work and attention.  I too know many investors who buy very low cost properties and own them for cash and collect rent weekly and a few collect monthly.  Either way, they are not relying on a passive investment company to manage the properties.  They are not buying in cities 1,000 miles away from where they live.  They are buying in the same city they live and know on the front end the amount of work it will take to make them profitable.  And many are very profitable with scale.  Either way, they know, as you point out, exactly what to expect.  I would love to know if your father was a hands-on owner at these price points or if he was passive, buying out of state and relying on a turnkey type company to manage them. 

When these properties are offered as Turnkey investments is where the trouble begins.  The economics simply do not favor the investor.  

@Brian M. - 

This is not a negative, but you just showcased a classic mistake that investors make when buying these lower price, junk properties...and to be transparent, I made the same mistake when I first started investing.  It is called "loss aversion".

We are conditioned to be more fearful or a loss than hopeful for a gain.  The difference in this scenario, and while I don't agree totally with @Diane G. I think she illustrated the point well in this case, is that when buying the low price, $40,000 junk property from a turnkey company as an out of towner, you are almost always guaranteed to lose.  The economics do not allow for a property renovation, properly permitted and all deferred maintenance issues addressed.  At the same time, the neighborhoods are not in high demand or else the properties would not sell to wholesalers and renovators so cheap.  There is no demand at-all for these properties.

So in a worst case scenario as you state, the amount of money to be lost may be smaller, but it has a much higher probability of occurring than say a California property not appreciating over time.  

The comparison is a bit extreme because most people who can buy property in California that is appreciating are not buying these low cost turnkey properties.  Most are opting to buy a higher priced property in better locations and with a more experienced team.  

But, I thought your comment was perfect to point out that while the amount of money risked is smaller, it is almost guaranteed to be lost when buying these price points in these locations Turnkey.

@Vivek Khoche,

I accept your apology and absolutely believe that no harm was intended with your post after reading your response.  We share the same goal of encouraging passive investors to be more active in their due diligence and patient with their decision making.  There is no need to rush and certainly no need to accept anything a Turnkey company says at face value.  That is why your post struck a nerve. 

I want to emphasize one point.  My family and I have been in the Turnkey real estate niche dating back to the early 2000's.  Certainly back before the word "turnkey" became mainstream and lost all meaning.  We have seen the absolutely best and worst in the Turnkey investment space.  One thing I am certain of ~ Turnkey companies have earned the reputations that they have.  Anyone can market anything and words are just that...words.  Our reputations are earned by our actions.  

Many companies have disappeared and others simply ignore their public reputation.  We have seen companies de facto steal from their investors and conduct business in the most crooked manner.  We have also seen very good business owners set a low bar for the way they operate.  They are upfront about their lack of care for the long-term success of their investors and instead fall back on the notion that the investor knows the risk they are taking.  Either way, we do not operate in that manner.

We have worked very, very hard through the years with our incredible team to earn our reputation and we are fiercely protective of that reputation.  We are not perfect, but we own our mistakes and our successes equally.  More than anything else, we have earned our reputation by our actions.

I appreciate your re-post and have no ill-will towards you at all.

Best - Chris 

@Account Closed - I'm not sure who you are, nor your fascination with my company and the investment city of Memphis in general, but you have now crossed the line with your posts.  You are posting about a company in Chicago that does not even resemble my families company in terms of size, service or delivery and you suggest that their bankruptcy is something that the original poster should consider when doing due diligence on Memphis Invest.  

You can post this wherever else you want to post and say whatever you want to say here on the forums, but if you even come close to suggesting that this company filing bankruptcy is what an out of state turnkey investor can expect to happen to my families' company, you will be hearing from our attorney.  

This is not the right forum post to be linking this article and I suggest you remove it.  Wherever else you want to post it - have at it.  But this one is not the right place.

@Lee Warren,

I am going to echo @Steve Babiak on this.  It is vital that you have a high-level of trust in a relationship and this is a prime example of why you should never take anything on faith.  Always use a third party inspector to "inspect what you expect" in your property and from your provider.  The properties are only a small part of the success equation when buying out of state.  The condition of your property as far as deferred maintenance and the ability of your property manager are much more important.  Otherwise, it does not matter how good the property is or how good the location is or even how it looks on paper.  Poor craftsmanship, deferred maintenance and poor management can destroy your return and your confidence as an investor.

The TK company could have easily made some human errors on this, but the list of issues stacks up to look less and less like human error and more like a poorly run company.  You were correct that the marketing in no way matches reality on this property.

At best, you need to cancel this property and reset expectations with the company. Be patient if for some reason you still want to do business with them.  You really need to protect yourself before moving forward.  

@Diane G. - Just going off your initial post, it looks like you are referencing the fact that at some point in the past, your experience was everyone speaking of Las Vegas as the go-to market and the city seemed to come up constantly as the place to go?  I'm trying to give you some lee-way here -  a little wiggle room for the point you were trying to make.  After reading your responses, it becomes clearer that you have no idea what you are talking about.  @Tom Ott, how is the view from the cheap seats?  Just wondering when the last time was you were in Memphis to review the market to make a statement about saturation? 

If that is the case and you are saying that Memphis is the new Vegas in your opinion because it is constantly being discussed, then ok.  Only you know how often you were hearing about Vegas back in the day.

As for the statement about the music stopping and out of state investors over-running the city and fighting for a limited number of residents, I prefer this term to tenants, without understanding the sheer size of the city, the demographics, the dynamics that drive not only the rental but also the investment demand and the delivery of those services, this is just a statement thrown out with no context.  It may be your belief, but it's not based on any real backing.

The Memphis M.S.A. has over 570,000 single-family homes and growing between .5%-1% per year.  The population is expected to continue growing at a nominal rate as well of .5%-1% per year.  I use the MSA numbers because while Memphis is a very large city, a majority of the recent growth in investment has been made outside of the city limits in the outlying suburbs or outer edges of the city outside the city core.  You also have a diversification in industries providing jobs in the MSA although a majority still come from health-care, schools, government and transportation/distribution, agriculture and research just to name a few.

Why does it matter?  Memphis is not a small city by any stretch and the major job supplying industries are not subject to the up and down nature of a fluctuating economy.  So Memphis has always been known as a boring, non-sexy investment city where an investor is not going to strike it rich quickly, but can absolutely build an effective, long-term portfolio.  When you consider that all of the major investment companies, whether they be Turnkey companies or institutional buyers are only buying less than .5% of the total number of homes in a year and that number may be a stretch, then you can see that Memphis will not be over-run by investors.  The city still stands at roughly 39% of the population renting their housing, which is only slightly higher than the national average and lower than many of the cities just above them in price point and population.  There is no chance Memphis becomes glutted with renters and owners fighting for residents.

Now, that may happen in some pockets of the city and I would argue the greater chance of that happening will occur in the most distressed areas of the city where poverty is already going to make investing difficult for out of state investors.  So investors should be careful about where they buy...but isn't that what we say about any investment in any city?

Those who say Memphis has received too much attention and is no longer a good option as an investment city - insert the Tom Ott reference above here, can almost always be counted on for offering a different city to invest in where they do business and will make money.  Or, they have a bone to pick because their experience was poor.  In either case, I hardly think that should lead anyone to conclude Memphis as an investment destination is over.

If investors are patient and take their time before buying.  If investors will meet the people they are doing business with and use common sense when buying houses, they can make a very good and consistent return.  Right in line with what the city has always offered.  Nothing sexy...but certainly consistent.

Eric,

Feel free to message me and I'll be happy to give you my cell.  We can set up a quick call and I'd be happy to answer questions.

@Eric Hyde -  Welcome to this site!  Three weeks in and I'm sure you are realizing this is a powerful resource.  Let me know if you have any questions navigating the site or getting the most out of BP.

As an out-of-state investor, I would caution that your list of areas to invest is going to be smaller than a local investor or smaller than even some local property management firms would be willing to manage. On that note though, Memphis is no different than any other major metropolitan area.  If you use common sense, you can find great deals here, great partners here and find the exact investment return and experience you are expecting.

As an out of state investor, here is a list of zip codes that you should at a minimum be aware of:

38002 - Lakeland area

38053 - Millington area (Very Selective)

38016 - Cordova area

38017 - Collierville area

38018 - Cordova area

38109 (East of Neely, Very Selective)

38104 (Very Selective)

38111 (Very Selective)

38114 (Very Selective)

38115 (Very Selective)

38116

38117 - This is Memphis proper, but an area known as Whitehaven - worth noting.

38118 (Very Selective)

38119

38122 (Very Selective)

38125 (includes county only areas, no city taxes)

38128 (Very Selective)

38133 - Bartlett area

38134 - Bartlett area

38135 - Bartlett area

38138 - Germantown area

38139 - Germantown area

38141

When I say very selective, that means it is just as easy for local investors to get duped in these zip codes as it is for an out of towner, so as an investor, my company is super selective on what we will and where we will buy and manage.  Meaning - we will say no a vast majority of the time in the zip codes regardless of how good the deal looks.  If I didn't list it, it just means we don't buy in that zip code at this time.

IF you are going to work with someone to help you buy houses, this is a pretty good zip code list to start with.  Please remember, that just because the zip code is listed does not mean that any and every house in that area is a good investment - especially as an out of state investor and NO MATTER HOW GOOD THE NUMBERS LOOK!  

Best of luck to you and let me know if you have any questions!

Thanks for the inclusion @Jay Hinrichs

@Abby Li.  

First, welcome to BiggerPockets and congratulations on finding such a great resource. This is an excellent place to meet other like-minded investors and to bounce some of your investment ideas and strategies off of other investors.

Thank you very much for the trust you have placed in my families' company. Whether you decide to move forward with us or not, we will certainly do everything we can to help you move in the right direction.

I am very familiar with JWB Capital and would recommend them to you as a provider. They absolutely work hard to conduct business in the right way and with their clients' best interest in mind. I think you have zeroed in on a very high quality company to work with there as well.

If you are attending FIBI and are interested in syndicated opportunities, be sure and try to connect with @Jeremy Roll. He is one of the founders of FIBI and a very well-respected voice in that space. Jeremy may be whom you spoke with at the FIBI event, but if not, I would definitely try to connect. He has very good insight and advice on deal review and deal selection. It would be a very valuable connection for you.

Again, welcome to the site and please feel free to reach out if I can help you navigate and get them the most out of BP.

Best, Chris

 You are welcome ~