Turnkey - If you had to choose - who would you prefer and why?

[Axel Meierhoefer]

I have been narrowing the field of potential organizations for my 4th property and beyond. I have had calls and emails with Memphis Invest, Spartan Invest, Norada, and Metropolitan

I know there are many more out there but if you only had those 4 and had to select one, which one would it be and why?

Your comments will help me decide who to do the next deal with

Thanks for your help and comments

Axel

[Chris Clothier]

@Axel Meierhoefer - I hate to pop-in on a forum where you are asking for opinions on companies including mine.  But I wanted to make two points that I thought were important for anyone reading your forum.  

Don't be fooled when companies comment on forums where you are asking about their competitors especially the comments about Memphis being over-heated, over-bought or being a market that has been picked over.  Memphis as a metro-plex has over 550,000 single-family homes.  You can find companies that work in different parts of town and some over-lap, but the fact remains that only a small fraction of the homes have been purchased by Turnkey companies.

It is a narrative that is definitely pushed by commentators who have a vested interest in steering investors toward other markets (preferably ones they make money in) and it is not simply TK companies.  You often see the same thing from promoters and individuals here on BP who get paid referrals to push investors in certain directions.  Memphis, like many top 25 markets by MSA size, is a big city and its demise as an investment city is greatly exaggerated.

Now, the real issue in Memphis, Dallas, Houston, St. Louis, Oklahoma City, Little Rock - and I am sure in every other major, secondary and tertiary market in the country, is that everything is more expensive.

The cost of housing is way up.  The cost of labor and materials continues to go up.  Even when factoring in the efficiency and buying power of spending millions of dollars annually, the costs of everything continues to go up.  

Many investors miss the warning signs of this increase in pricing.  Rents are not appreciating as fast as the price of housing.  Rent ratios are being squeezed.  As an investor, this is where you really, really have to be sharp and pay attention.

The same property you could have purchased for $60,000 - $70,000 a few years ago, and you would have been investing in the lower end of a Turnkey property value range, and in what I believe would be a higher-risk property, you are paying closer to $100,000 for today.  

So, investors see a higher price and they equate that with a lower-risk better value, but the property is still the same property that carries the same risk for you as it did when an investor paid $60,000.  It just costs a lot more risk now.

The properties you see being advertised for $50, $60, $70,000 today are the properties that would not have even been considered a few years ago.  Partly because they are in such low end areas, but also because of an abundance of lower prices and better located homes a few years ago for investors to choose from. 

There are fewer properties to choose from today so what looks like a good deal today is actually a very, very risky investment that, in some cases, would not have been considered nor available to investors a few years ago.

You have to keep that in mind.  Not just in Memphis, but any city you are considering.  Today, as an investor, you have to define the value you are receiving very differently than simply price.  Price is what you pay and value is what you get as Benjamin Graham so eloquently put it.  

You have to make sure you are investing for a return "of" capital first.  So you need to buy the best asset you can find regardless of price.  It will be significantly higher than it was a few years ago.  And once you have identified the best assets, you look for the best way to earn a return "on" your capital.

Return of capital first.  Return on capital second.  It doesn't matter which city you are investing or who you choose to work with.  The better the assets and the better the systems, processes and experience of the company, the lower your risk goes and the higher the likelihood that you will earn both a return on and a return of your capital when you need it.

If you patiently follow that simple mantra right now, I am sure you will find a great partner with the opportunities that fits your needs.