All Forum Posts by: Chris Clothier

Douglas,

Thanks for throwing some of your numbers out here.  I do this quite often and it takes guts to put out real data for others to see.  I respect you for opening up a bit.  With that in mind, I was wondering about the underlying data that shows how owners are actually doing in Frayser?  Saying that only 10 out of 142 are for sale doesn't convey much of the picture.  What is the value of those 142 properties?  What is the billed rent against those properties?  How much is being collected monthly?  How much is actually making its way to the owner after maintenance and legal?  How many are vacant and how many have been occupied longer than 12 months?  

Those are the factors that eat investors alive in these areas and it DOES NOT matter what they pay for the property.  They can under pay, over pay, spend too much fixing up the properties or not enough fixing them up.  

This is a severely economically challenged area that is cut off from the rest of the city by the 240 loop and even more cut-off by a reduction in MATA routes.  As businesses and jobs moved inside the loop, communities like Frayser that thrived in the past were cut off by development and depleted of the resources (jobs, transportation, grocery stores, eateries, all of the basics...) that are vital to keep a community alive.  Residents of Frayser have to travel an inordinate distance compared to other communities just to do basic shopping for things like food. 

There are over 300 properties for sale today in 38127 with a ton of those properties in areas that no out-of-state investor should be investing.  Unfortunately, these are the kinds of areas that are not going to rebound without a lot more help from local business, philanthropists, government entities and outside companies that we may not even know about yet.  

Saying that an Ellen video proves 38127 is not a bad investment is a way too big of a stretch.  There are great people trying to do great things all over the place and Community Lift is helping to keep the focus on three neighborhoods in Memphis that really need the help; Frayser, Binghampton and Soulsville.  Hopefully that focus build momentum in those areas.  But even with great teachers and dedicated individuals that a story like that highlights, that does not mean investors - especially out of area investors - should just jump into an area and keep buying up property.  

Your point about management is valid.  In that area in particular, management is key and relationship with the local community is vital if you want to find even a sliver of success.  However, out of state owners can really have no idea how bad one street from the next can be and how simple mistakes like going too far in one direction or the other can be the difference between getting your money back.  NOT the difference in making money.  Not the difference in making a return on capital, but in an actual return OF capital.

As local investors we know this and it is vital that we never take advantage of out of area investors just because they say they know the risks and like the low price points.  As a company, we do our best to stay out of areas that are going to consume too much of our time and resources.  These areas have a higher turn-over rate, a higher rate of unpaid monthly rent, a higher dollar amount per square foot for move-out repairs and tend to sit vacant for longer periods of time between tenants.  As business owners, it makes no sense to concentrate on a zip code like this one that requires more man hours and dollars to manage than other areas of the city that require less.  

That is 12 years of experience and having personally had my butt kicked in the area.  We simply don't go there anymore for investors even though as a company it would be very, very profitable to do so.  It is not worth the reputation to sell these properties to out of state investors, in my opinion.

Now local investors are a different story and same goes for do-it-yourself investors and landlords.  They should have a very good idea whats going on and invest with eyes wide open.  

Again, I appreciate you trying to highlight a positive story on Memphis and trying to stick up for 38127 because BP hates it.  Im not sure that is true, but can understand how that can be conveyed.  The people sharing about 38127 and saying stay away are investors who have experienced the Frayser area.  Most are local, which does not bode well for your argument.  I think @James Martin may have said it perfectly in that this is not an area for holding long-term.  You need to know how to buy right, add value, earn your return and exit the property before you get hung with something you cannot get out of without losing part or all of your original capital.

As for foundations, @Jay Hinrichs we have standard procedures to install soaker systems on every property and every signed lease has terms spelled out for the tenant to keep it operational. A new policy we put in place recently is to have an engineers report on every property we purchase and provide that to the owner. We also have transferable warranty on every property where we do foundation work. After the foundation work is completed, a new engineers survey is completed so on every property, whether work is done or not, there is a baseline measurement so we can track if foundation work is needed. The best foundation companies are going to shoot you straight and stay away from lifetime warranties. They are not worth the paper they are printed on. They will however offer 3-5 year warranties on all piers they install and will make adjustments if needed.

So, I held off from posting on here yesterday because I felt like the best course of action is always to call the client directly if someone is not happy.  That is what any good business owner should always so first.  Second, I listened to what he had to say and immediately offered to buy this property back full price plus cover his closing costs.  No dollar figure, no profit number and no sale is worth my families' or companies' reputation.  I made this offer to Mike based on a couple of things:

1.  He had just closed on the property two weeks ago.
2.  I felt that his experience in closing this property was not up to our standards.  He had too many questions and I felt we did not do enough to answer his questions adequately before he closed.  

During the call he took responsibility for being a grown and informed investor and I took responsibility for my team not making sure he was fully satisfied and completely happy with the property and the numbers. I think he struggled to take me up on my offer because he ultimately made the decision that the investment was the right one for him and he closed.  That showed humility on his part and I appreciated it.  Upon further inspection of the numbers, there are a few things that he and I cleared up.

1.  Taxes are $2,369 on this property.  That is pulled directly from the tax certificate and $40 higher than 2014 which is the number we originally gave him.  The Hud-1 was a little confusing and Mike believed that his taxes may have been over $2,800.  They are not.

2.  The property is in a flood zone, but an small, odd one at best with a drainage ditch located a couple of streets away.  The property was listed with flood insurance when it was sold and we were able to provide insurance at a cost of $150 per month to Mike.  He did a lot of due diligence and worked hard on his own to find adequate insurance and eventually went with a policy that had a higher premium and lower deductible. He felt the insurance we provided had too high of a deductible.  That is a very fair assessment and the insurance costs ultimately eat deep into his return.

3.  Lastly, the property was occupied with a paying tenant at closing.  They had signed a 2-year lease and paid the first year in full.  There was some confusion as to was he receiving the full rent from day one which only added to his angst.    

I want to be clear that we do not have a policy nor do we have a guarantee that we will buy properties back from investors.  We do, however, work very hard to make sure that every investor is fully informed and fully prepared and happy with the investment that they make.  We do not deal with these types of situations often if ever!  

But in this case, I thought that we as a team could have done better before Mike closed and met his expectations.  We didn't in this case and, with such a short period of time having passed, I did not hesitate to offer to buy the property back 100%.   

Mike was extremely professional and helpful to me yesterday on our call.  Ultimately it was his demeanor on the call and his handling of our conversation that made this an easy call for me and hopefully I earned the ability to get a "do-over" with him on other properties in the future. 

 As for this one, it is a great property and it will perform.  I have complete faith in the incredible team that we have in Dallas.  However, with it being located in a flood cert. zone and lenders requiring that insurance there will be little room for error.  It will either go into a Clothiers' personal portfolio or possibly an investor with a larger portfolio who will use this property to round out their holdings. 

And there he is....

Apparently he was chiming in just as I was singing his praises.  Listen to what he says.

Best of luck! 

@Martino Romeo - Reach out to @Derrick Craig here on BP and connect.  When it comes to MF and maybe even SF as well, but I know MF for sure, he should be able to give you some real time advice on how that segment of the Memphis market works.  Derrick has a good reputation for the hard part, management, in these areas so I would start there.

I have not had any success in Memphis at the price points you are talking about and have stayed away from Multi-Family for a few reasons, but mostly so I can concentrate on SFH. Either way, if you are interested in MF at that price point in this market, I would start my education with Derrick.

It would be helpful if you keep the forum updated on your outcome and progress.  Again, make sure you reach out to Maverick.  Like Jay said earlier, one of the owners, Matt Bowles is a good guy and not the type to wipe his hands of an issue.  If he has, then that would be a change in the way he has operated.  I would encourage you to hold them accountable to help you and I am sure they will.  Regardless of what anyone thinks of that business model (marketing buyers to Turnkey companies), my experience and knowledge of Matt is that he is absolutely a stand-up guy.  We have not done business together, but I have not heard of negative feedback either.  Either way, maybe you can keep the forum updated so at a minimum there can be some closure.

Also, @Jay Hinrichs, post a link to your e-book on here if you can.  There may be other readers that can benefit from it as well as Ann. 

Kevin, there is noting wrong with reservations and having your antenna up.  It should help keep you from making mistakes.  So it is good to be cautious.

As for GRP, Ken Corsini and Dave Emrich are both high quality individuals and I have a great deal of respect for them and their company.  I have not conducted business with them, but I can tell you that they have an excellent reputation for solid business practices.  I have participated in mastermind groups with them and been at different real estate events in the past with them and I always appreciate the opportunity to share and listen.  They are high quality people I highly recommend them because they do business the right way!  

Are you saying that you run ads in a market advertising a property, to gauge interest and pricing for a neighborhood before buying?  If so, kudos to you because that is a fantastic idea and one any investor can duplicate for no cost.  That is a really, really good idea.  @Al Williamson, next book you write full of great ideas for investors should maybe include this one from @Matt R.   I had not heard of someone doing this before so it is certainly original!

@Ann Howell, I've read through this entire thread over the last couple of days and there is some really good advice hidden throughout the thread.  The comments that seem to ridicule you, especially for your decisions to continue purchasing turnkey properties, are just part of the experience here and that is unfortunate.  Turnkey itself is gong to bring a lot of negativity and the assumption is almost always made that only fools would buy this kind of investment.  Don't be discouraged and don't spend too much time dwelling on that side of it.  I would instead pay attention to a few points made by some of the commentators.

Before highlighting them, let me encourage you that you can find deals in Houston even with taxes and insurance.  Turnkey IS NOT your only option.  It may be the only option that you see right now, but you do have options as an investor.  We have purchased roughly 90 properties in Houston this year staying North of I-10 and West of 45.  We do an average renovation of $35k and add in our profit margin.  Yes, we do operate as a professional company and this is what we do for a living, but that does not mean that you cannot find these same deals locally.  The price points are a little higher, $130k - 170k, than what you paid, but the deals are out there and you can find them.  Just be encouraged that you can do it locally.  There is a BP meet-up group there in Houston that can also help and whether you invest locally or not, I would encourage you to attend.  Look it up and go spend some time with other investors.

@Account Closed e-book, whitepaper, book, whatever it is and possibly he will link it here.  I have written one as well about how to protect yourself as a passive investor.  Turnkey is just a buzz word as so many others have said and Jay gives some good advice on specific steps to take to protect yourself.  You are already knee deep as an investor, but this will really help you to at least stay on top of good habits and accountability to yourself as an investor.

Lastly, keep your head up and stay positive.  Surround your self with good people, good mentors and do your own due diligence.  Hopefully you find some good companies in Bham to assist you and you are able to stabilize this property.  As for your next two purchases, if you hold yourself and the companies more accountable, then you will have at a minimum learned good lessons.  Best of luck  

 When was the last time you asked for pictures of your property or an inspection of the interior?  

We are having no issues renting properties in the Cordova area, however, there are several properties for rent right in that particular area.  It may be that your property is not showing as well against the others or the price is too high as was already suggested,

FYI, once a property has been shown to 5-7 quality tenants and it does not rent, there is a problem.  Price, smell, layout, size...something.  It should not take more than 2-4 weeks to have enough showings to qualified renters to know what issues you are facing.  I would look for new management as soon as possible and have a third party inspect the property for you and alert you to any issues.