Evaluating a property listed by a turnkey in Memphis

[Sneha Deshmukh]

Hello BP community,

I'm a newbie in real-estate world and am interested in dipping my toes with SFH long-term rentals in Memphis. I am looking for out of state investment due to low entry capital and a renovated property with property management. My goal is cash flow with decent appreciation. Since I am not local and cannot have my boots on the ground I am looking at a turnkey who is local to this area. Below is the property evaluation projection for a B class property (zip code: 38127). Considering the high interest rate, the projects and COC return seems too good to be true. Am I missing something?

[Chris Clothier]

Quote from @Sneha Deshmukh:

Hello BP community,

I'm a newbie in real-estate world and am interested in dipping my toes with SFH long-term rentals in Memphis. I am looking for out of state investment due to low entry capital and a renovated property with property management. My goal is cash flow with decent appreciation. Since I am not local and cannot have my boots on the ground I am looking at a turnkey who is local to this area. Below is the property evaluation projection for a B class property (zip code: 38127). Considering the high interest rate, the projects and COC return seems too good to be true. Am I missing something?

 Hi Sneha,

Welcome to BP!  Without knowing more than what you've shared, my two concerns are the classification of area and $170,000 of price appreciation in 15 years.  You've listed the zip code as 38127 and I'm not aware of any pockets in that zip code that I would list as B class.  For reference, I don't use the alphabet coding because it is easy to dupe investors into feeling comfortable with an area without having to get into detail.  In my opinion, when an investor uses alphabet classifications, B class should be areas that are above median value, median income, primarily owner occupant and in financially stable areas.  38127 as an area is primarily below median value, income and primarily rental properties and definitely an area challenged for economic development.

With that being said, houses in this area are not valued at $170,000 to begin with so expecting $170,000 in appreciation is not practical.  I can't comment on the actual value since I don't know where it is actually located, but even the brand new properties sold at top value are sold to investors with the only real expectation of resale is to another investor - not owner applicant.

I would suggest you be patient and don't rush into judgement good or bad.  Continue to research companies and cities and when you feel more comfortable, visit the company you want to work with and visit the homes you have researched through them.  The main thing you are doing is seeing if the story you are told about the houses, the areas, the company themselves matches what you see on the ground.  If you are patient, there are some high quality companies both in Memphis and other cities, and this company you're talking to may be one of them, that have reputations for being spot on with their data and operations.