All Forum Posts by: Chris Clothier

We would love to work with you, Emily.  Feel free to reach out to our team and we would assist however you need including helping you get started as a wholesaler!  We are always looking and are more than happy to share our resources as you are looking to network.

Best to you - 

Congratulations @Emily Ford!  And welcome to BP ~

Welcome to BP @Sean Dail !  Congratulations on your first house and best of luck with your plans ~

@Jeffery McBride

Welcome to BiggerPockets!  I'm sure you are already starting to realize the valuable benefit of the best online community for real estate investors.  If you have any questions about navigating the site or getting the most out of it, feel free to shoot me a message.  As you are a dad with 4 kids and your time is precious, I can relate!

I was alerted to your post when you mentioned my families' company name, Memphis Invest.  From reading your post, there is not a ton of information, but what you said was enough for me to give you some advice.

Do not be in a hurry to get started investing.  The loan you're looking at is used mostly by experienced investors who have multiple properties and mortgages and are being squeezed into higher cost alternatives to find financing.  As an investor, this is exactly the type of loan I use and I do it for two reasons.  I want to acquire multiple properties at one time and I look to pay off the loan as quickly as possible.

If you can only buy one property and your best bet is to refinance as soon as possible and then re-evaluate where you stand, then you may be moving too quickly.  

I know you have been working with our team and they are trying to work with you to craft a solution to get started.  However, and I have not talked to my team yet, unless you have the ability and a plan to build a portfolio and do it quickly, this may not be your best option at this time. 

Patience is a very powerful tool for a real estate investor if you are looking to invest passively and are comfortable investing out of your area.  Be patient and you will find the opportunities that fit with the company that brings you the highest level of comfort as an investor when you have your financial plan in place.

As @Dean Letfus  so eloquently put it, we do not sell crap properties with minimal renovations and cheap property management.  We absolutely price our properties appropriately to the level of renovation, property management, consistent return and customer service we provide.  Which almost always means our properties sell for higher prices and rent for higher prices on a consistent basis.

That is one of the reasons we have been able to thrive in this industry for 14 years while many, many other companies struggle and even more have disappeared.  We know our value and keep our promise.  With 4,000 properties under management and a majority of our sales each month going to existing investors building out their portfolios, I am confident we will be here when you are ready to move forward.

So Jefferey, do not be in a hurry and feel free to reach out to me if you have questions or want advice from my experiences as a dad of 5 who invests passively with a full-time job!

@Matthew Cain - Welcome to BP!  I'm sure you are already figuring out that this is an awesome place to learn about investing in real estate with plenty of great people and great connections.  

I will second what @Dan H. said and tell you to make sure you really investigate southern cal before completely writing it off as too expensive or too tenant friendly.  Don't just jump at out of state investing without at least investigating southern cal.

If you do decide to look at other areas, this is a link to an e-book that can help get you started in your research safely.  Best thing you can do is know how to research and complete solid due diligence ~

Best to you as you get started!

@Justin C. - Welcome to BP and congrats on finding the best resource on-line for real estate investors!  Binge listening to podcasts is a great start, btw.

I read your post and wanted to give some advice on one of your points:

"A quick question on entity structure and insurance: As I'm planning on investing in multiple properties over the long-term, I'm considering forming a series LLC in Texas, which has several benefits in terms of administrative cost reduction (relative to having an LLC per property). My question is whether (or at what point) should I consider having umbrella insurance? Are there any rules of thumb governing this decision?"

I have never been a fan of the way entities are discussed on real estate forums for two reasons.  

1. An LLC is not required to buy real estate. Often, new investors have read somewhere that they need one for various reasons and the "x's and o's" of investing in real estate successfully get lost to the minutia that doesn't matter like which entity should I use when buying my first property.

I'm not knocking you for asking, I'm advising you that it is less important right now than the aspect of surrounding yourself with fantastic people who are going to give you good advice.  It is secondary to finding your niche and direction as an investor.

2.  It is almost always discussed from a position of fear.  Fear of lawsuits, fear of losing everything, fear of worst case scenarios that we read on the internet when we really want to get scared at night.  Fear is not a reason to use an entity to own real estate.  

An LLC will not prevent you from being sued. More unfortunate than that fact is the one that says you as the operator of that LLC and the one hoping for it to provide you with some security have certain responsibilities that you have to abide by in order for that LLC to actually do its job. If you do not, then it is quickly brushed aside by a judge and you are personally in whatever lawsuit you were hoping to avoid in the first place.

So lets talk reality and solid advice.

Until you have enough assets and especially those outside of real estate, an entity is probably not needed.  Certainly not one for each property.  The expense does not justify the additional work or lack of true need.

Instead, you should absolutely make sure you are properly insured.  Layer your insurance by having each property proerly insured and then obtaining a policy that umbrellas over all of your properties.  At the same time, you can add an additional layer by getting an umbrella that covers everything from your home, your cars, your properties, your business dealings, etc...

Being properly insured is your best bet against the nightmarish scenarios that so many people use to sell the need for the LLC. Unfortunatley, those peddling hte most fear usually have a DIY course where you can set up your own LLC's from home or they sell you a super expensive entity and structure that you may not need.

Either way, I don't suggest you start to seriously look at entities until you have acquired a sizeale portfolio and have assets outside of real estate you will want to protect.  I did not use an entity until I had well over 50 individual houses and even then, I used one entity to divide my personal and real estate filings.  However, I have always been insured in layers.

@Michael Conway - 

I have never been a fan of rating neighborhoods ABC or D.  It makes no sense, tells an investor really nothing and is easily abused.  If you could, please describe how you define a B/B- neighborhood and a few commentators could probably tell you price points you are going to pay to find that.  For local investors, Semmes is probably ok and there is absolutely community pride and pride of ownership in the Orange Mound area.  That being said, there is no way many would rate this a "B" area neighborhood the way most investors use those terms unless they were trying to make a sale to an out of area investor.  

I think as a new investor, it is not a good idea to buy far from home with a max all in of 50K and expect to be in a B neigborhood.  It is not a good idea anyway, but especially not if you think you are going to get houses in the upper half of quality in a city.  Most think of that classification as upper-middle class, median price range and above for both home and income of the resident.  I think it is good to clear your mind of the idea that you will pay 50K and get a home in something you would describe as "B", but we'll see how you describe your ratings.

One other thing to think about.  You are most likely not going to be all in on a property for $50,000 and command a rent much higher than $500 - $595.  Assuming 25% of income for rent, which is probably low for what most people actually pay, you are talking about a resident earning between $26,000 and $30,000 before taxes.  That is a resident that will be insecure in all areas of life.  Food insecure, medicine insecure, transportation insecure.  Meaning that in a life and especially in an emergency they may be faced with making decisions between food, medicine, transportation and living expenses.  The first thing to be cut, skipped or delayed is rent because everything else is essential to earning a living.

That is a big, broad brush picture but in general will be pretty close.     

 Warren, I have no issue with your initial posting or any of your follow-up and certainly don't think you were defaming my company.  You were asking questions and responding to what was being asked or even what advice you were getting.  One of the problems with a forum is that everything is in a vaccum.  No one knows your decision making and often all of us who comment are only commenting based on what info. we have.  So I rarely take exception with what is said, especially when you are simply trying to make the best decision.

Just a little food for thought for you.  You have to remember that the word Turnkey is nothing more than a marketing term.  It does not signify anything anymore.  With many properties that are marketed as turnkey and even companies that market themselves as turnkey, you will still deal with capital expenditures.  Why?  Because it is human nature to compete on price and competing on price means cutting corners.  

The alternative, and part of what I discussd above, is buying the highest quality you can find.  Not just in terms of house, but also in terms of service to not only you but also to the residents of your investment properties.  The highest quality homes, renovations, management.  The highest quality services, technology and a fully-staffed company that can actually offer and deliver on all of those services.  There is so much more that goes into successful passive investing than just buying at the lowest cost possible.  You certainly do not want to over-pay.  But you do want to get the proper value out of your invesment.  

Certainly there are companies other than Memphis Invest that offer a great value for the price you pay.  I have listed on here many times other companies that I personally know and think do a great job for passive investors.  Most of them are selling at a high price point and do extensive, extensive renovations to their properties on the front end.  They may still compete on price to a small extent, but for the most part they value their benefit so much that they simply will not chase a sale.  Companies that compete on price will always chase the price to the very bottom to get the sale and that is never good for the investor.  

You made a great point about one less home to maintain vs. one less home to earn an income.  You have to look at your basket of dallars to put toward your investment return.  If you are choosing to invest in properties, you still have the same number of dollars to spend.  Should you buy one property that is super expensive, yet fully renovated, commanding a higher lease and attracting a higher qualified resident?  Or should you buy 10 super cheap properties that allow you to spread expenses over multiple doors, yet almost certainly will have higher turnover rates, consistent maintenance, longer vacancy and a more challenged resident from the stand point of qualifications?

Both come with different, but high risks.  Yet, you use the same basket of dollars to build your portfolio.  So, what you are looking for is earning a return on every dollar. More houses does not necessarily mean more of a return and neither does buying one expensive property.  What matters is how that return is actually delivered.   

As an investor myself, I always advise other investors to make a wise decision weighing the risks of both strategies.  Most passive investors are going to be safest buying in median price ranges for the markets they are buying and focusing much more heavily on the service they and the residents of their properties are going to receive.  That is where the difference is made.

Now active investing is different, but for passive investing, keep in mind that you only get to put your dollars to work once.  Quality is much more important that quantity when it comes to actually earning the return you expect.  Above all, you want to make sure that your expectations are going to be met by your investment.

As always, best of luck as you move forward and if you want to expand on your expectations, feel free to reach out. 

Hi @Warren A. - 

I was alerted to your post when you mentioned Memphis Invest and thought I would answer your two questions and give a bit of perspective.  First on the property itself and are you paying too much and really how can you determine a fair deal.  

We price our properties based on what we determine they are worth with our services.  At the same time, we show you as an investor what an independent appraiser may say the home is worth.  I believe in this scenario we showed you $120,00 to $130,000 and have explained that $120,000 is a low end appraisal that we are willing to stand by.  I could not care less what a realtor with less than three years experience and only part of that time in the DFW metroplex thinks.  

We have completed over 850 deals in the DFW metroplex in the last 4 1/2 years and we do not often miss on our projections on price. We also do not miss on rent projections. We understand the market and know exactly what makes it move. Every property we sell is listed in the MLS and we sell properties to owner occupants. We understand exactly how to push our properties to the highest values possible and more importantly how to deliver upon the promise we make to our clients.

We recently completed a transaction one mile down the road for $124,900 at $112 per sq. ft.  That property closed in September and was quite a bit smaller at 1100 sq. ft.  The other comparable sales for this property are also quite a bit smaller and range from $83 to $86 per sq. ft.  

The property you are looking at is 1,745 and we have it priced at $82 per sq. ft.  

With the exception of the property we recently sold, nothing in the comparable range has the amount of work or detail we have put into this particular property including an engineering report with $6,000 in warrantied foundation work, a new roof, completely replumbed under home replacing all cast iron piping, new electrical system installed, new flooring, new garage motors and doors and interior touches such as counter tops, backsplash, paint and finishes.  

We feel very confident in the pricing of the property especially when combined with our companies property management services.  

Not all readers or even commentators will agree with this statement and that is ok.  Charlie Munger once said that "price is what you pay and value is what you get".  If we do our job correctly and have run our numbers accurately, you should see a 13% to 16% return on your levered investment.  At the same time, you should be able to confidently go about your daily business knowing that your passive investment is being well managed and be comfortable that with the renovations on the front end, you should not have to worry about cap-ex in the near future.  

The value of the investment is how well it does its job.  In your case, you are looking for a reliable return and a cash flow on your property.  Our company and this particular property should do both.  All of this is calculated into our pricing and we are extremely comfortable that what we sell are fair deals for our clients.

As for the conversations with our company, it seems just from reading this post that maybe we are moving a bit quickly and possibly are showing you properties that are outside of your comfort zone.  We absolutely push the value of every property we sell and include the value of our services.  Yet, we are also transparent and up-front about what a property may appraise for including on the low end and never want an investor to go into a deal without being fully informed.

As for the question about ARV. That number is only important when you are looking at a property to purchase pre-rehab. You want to know what it will be worth when you have completed your renovations. I have advised in the past that an investor should know how to look at a shell of a property that they are buying for dimes on the dollar and determine what the value of that property will be after their repairs. That includes doing a minimal repair and selling it quickly for a low profit and doing an extensive renovation and maximizing that properties value. Even pushing it to the very top of the value range. But ARV will not necessarily equate to a comparable value.

Lastly, do not forget that 10 different trained appraisers can come up with 10 different values on the same property.  And since appraisals are subjective, all 10 of them would be right!  What you should be most concerned with as an investor is are you getting the value that you expect from your investment.  If you are not comfortable or cannot say yes, then it is ok to not move forward.  

As for your LLC question, I only moved to using an LLC when I had other substantial assets to protect. If you are considering an LLC, make sure you are not considering it out of fear, but out of simplifying the separation of your business, personal and investment taxes. LLC's are not overly complicated but they are worthless unless you are willing to keep up with the paperwork and compliance correctly.

For security, your best bet is to be properly insured. At which point that you need to have greater security, then an LLC becomes relevant.

Hopefully, that helps.  You can reach out to personally Warren if you have any further questions or even want to give me feedback about your initial conversations with our company.  This is your investment and you need to feel comfortable and confident.  The last thing we want is an investor who jumps in too quickly and has questions later.  All the best -   

  I'm already on it for you.  And whether you buy it from us or not, if we agree to manage the property we still expect to perform and deliver excellence, so I'll be happy to help.