What is with Memphis?

Question

I've already posted my bad experience with investing out of state in Memphis.  Horrible tenants!  Some on this board who SELL the "turnkey cash flow in Memphis" dream to out state (or country) investors come on and just say it depends on the neighborhood.  Blah! Blah! Blah!

Well just happened again.  Tenants moved out after two years and now the appliances are missing!!!  Talked to my current PM (really like the guy and his upfront nature) and he said this is why his company DOES NOT PROVIDE APPLIANCES IN RENTALS.

So again, I will repeat what I've been told  by three separate PMs about Memphis tentants.  And remember these are people who have had to deal with the tenants in this city for years.  Long after the turnkey hucksters disappear:

1. "We don't replace or provide appliances.  The tenants will just steal them, and they know they can get away with it.  The police won't do anything."

2. "9 out of 10 rental applicants in Memphis have poor credit and rental histories."

3.  "You'd be hard pressed to find a rental applicant that doesn't have at least one financial judgement against them.

And, apparently, it doesn't depend on the income level of the neighborhood. My one property rented for 1200 a month and is a very nice neighborhood.

Bottom line:  Yes, lots of renters in Memphis (45% is the figure much touted by sellers).  That's the good news.  Bad news is that they suck.  Figure it this way.  Homes are cheap in Memphis.  Then why so many renters?  Why? Because there is an INORDINATELY high percentage of folks in Memphis who financially irresponsible.  That's the LOGICAL way to think about.

You have to figure in all of the above into your thinking process before deciding to invest there, or anywhere else.

PG

Phillip Gainey · Answer

I overpaid.  Maybe Curt Davis (who sold the properties) will disagree.  Thinking back on it, we shouldn't have paid so much for the rehab they offered.  With the 1st property, we paid 78k for the property, 27k for the rehab.  Then 2 years later had to fork over 6k for new roof.

The property above with the stolen appliances (also bought from Curt) we paid 57k, and 15k for the rehab.

Add to that the fact that the market is very soft, we have decided to do the right thing.

1.  Pay out mortgages even though we have NO RENT to cover.

2. Fix the properties, get good quality tenants, no matter how long it takes.  Maybe go rent to own.

3. Spread the TRUTH about investing out of state in Memphis from turnkey hucksters.

PG

P.S. Curt Davis no longer works for the company "Investor Nation" we bought these properties from.  I don't know how good the deals are he is offering at his current company.

Chris Colvard · Answer

Seems like if you provide appliances then additional security deposit is required.

How much deposit did you require on a $1,200 month lease?

Joe Foster · Answer

All,
Generally do not post, but wanted to add some actual experiences in Memphis and other areas from a passive investor.

Some background.  I do not have the time to be a full time real estate flipper, investor, etc.  My day job pays too well to jeopardize with "tenants and toilets".  That said, I have rehabbed, owned rentals in three states (PA, TX, TN) and have had good and bad tenants. From tenants adding nice landscaping with approval to tenants that used a bedroom as a garbage dump AND left with appliances in PA. Also, I provide private/construction loan financing to multiple "partners".

For me, taking smaller monthly cash flow is acceptable if someone else is managing and doing the rehab.  However, one must still manage the manager. I've had to "help" mine, in TX on several occasions, with less than gentle conversation and even surprise inspections.

Memphis, so far has worked out great, no tenant rollover yet, but lease renewal.  Did I pay more than I could have done it myself for?  Absolutely.  If I have to have carpet installed in my primary residence will I pay more if I hire someone verses, DIY?

Trying to find a SFH deal in my "backyard" (Cary, NC) that is anywhere close to 1% rent is difficult for the passive investor.  For example, the house beside me rents for $1500, houses on the street have recently sold at 300K.

Latest "turnkey" deal in Memphis is coming in at a 1.37 rent to price ratio.  That is not that bad, IMHO for turnkey.  But only time will tell if I loose or win.

Another benefit, for me with "turnkey" and it is not for everyone, is the almost instant access to connections.  Working with some folks in Memphis, Dallas and San Antonio I've increased my network and options incredibly with like minds and good people. I've closed multiple private placements with multiple "connections" all meet through passive/turnkey networking.

I have meet and work with Chris Clothier and his team, they serve a market segment.  Do they make money on the sale of the property?  Sure.  Could I do it cheaper without them?  Yes.  Their prices are public record, I know what they are making, I know there are holding costs, closing costs, overhead and much more, so simple math does not tell the entire story. PriceSold - (PricePurchased+Rehab) not equal to Profit.

As a passive investor, I'm not in this to feed my family and squeeze every last dollar out of the investment. So, I prefer to have a paid support staff that finds homes, performs the rehabs gives me the option to take or pass.

In the end, we all need to place a value on our time and determine if we have the time, talent and treasure necessary to do the work or does it best serve us to hire a contractor. If the investment and value that contractor provides is worth the premium, then it is a win win.

Bienes Raices · Answer

Leaving aside who is wrong or right in this situation (since we can't know from an internet forum), I'm sorry this happened to you Phillip, and I hope you can find an exit strategy for these properties. I know you have been posting a lot about the issues you've been having.

Phillip Gainey · Answer

If it has nothing to do with you, I won't.  If it does, as in this case, I will.  I mentioned that your no longer work for IN.  Please read my P.S.

I said you probably disagree with my contention that we paid too much for those properties.  Evidently, I was right.  You seemed to indicate so in your response to my post.

BTW, I spoke with Tom and he mentioned you had an email exchange.  His opinion seemed to be that you were full of excuses and basically passed the buck.  Blamed the contractor.  But wasn't the contractor's services part of the "package" you sold?

PG

Phillip Gainey · Answer

Maybe they should add the Shelby County eviction court to their list of stops.  Meet some of their future tenants.

Wouldn't it be easier to join a local RE club.  They'll tell you the truth about dealing with tenants there.  No marketing hype.  Also, you can develop contacts and meet "bird dogs" and buy the same REOs/SS/Foreclosures the turnkey guys buy.  You could out bid them and still pick the properties up for way cheaper.

Members of local REI clubs can steer you toward good rehabbers you can hire for way less.  IOW, cut out the middle man.  Of course, turnkeyers don't want you to hear that.  And if they sell you a "wonder, solid" property with high priced rehab and it needs a new roof in two years.  Well, they had nothing to do with that!  That's not their fault.  Why, you must be a "Memphis basher"!
Ever take used car back to a used car salesman?

I guess what I am saying is deal with OTHER INVESTORS, not salesmen.  Of course, this takes work and is difficult if you are out of state.  Which brings up the whole question of whether an investor (especially a passively minded one) should even invest OOS.

PG

Jason S. · Answer

There was a time I was investigating Memphis and found it was a very unique place.  Turns out I have a friend in CA who has had a lot of success out there.  He has even had several friends invest out there hok up with his contact with a mere $500 - with $500 they buy a home with HML, they re-hab the home, they then re-fi it at some LTV I do not know, and then rent it out and manage it - all turnkey.  He and his friends own many of these for years so something must be good.  Pretty wild really, I have never seen another place in the country like Memphis.  All Turnkey.  So you are right - What Is Up With Memphis.

Whenever I see people from Memphis I shake my head, I could not believe what an interesting place it is.  Does anyone know a place that is similar?

Phillip Gainey · Answer

Curt,

I am only repeating what MEMPHIS property managers are telling me,  which jibes with my own investment experience in Memphis.

Of four Memphis tenants I've had, 3 of which were managed by a PM YOU RECOMMENDED:

One ran off with the last month's rent in their pocket.

One had to be taken to eviction court twice in 6 months and fin
ally evicted (had 5 evictions in 2008, got past PM you recommended).

One moved out this month the appliances!  Also didn't pay final months rent.

If I am biased against Memphis TENANTS, it is based on my experience and what PMs have told me.

Maybe you should be more upfront with clients about the quality of the tenant base in Memphis.

Also, please refrain from sending me private messages threatening to talk bad about me to my current PM who happens to work at the same company you do.

Are you a member of the MAAR?  If so, you are subjecting yourself to a COE complaint.

Have a nice day.

PG

Phillip Gainey · Answer

Forgot to add:

4.  We no longer invest in most minority neighborhoods.  Not worth the extra hassles. That pretty much eliminates Memphis (and Detroit for that matter).  This is not a political decision, just a business one based on our experiences.  And this is not a "hood" versus "not hood" issue.  The trouble we've had in Memphis was not in the "hood".

We try to invest in neighborhoods where the racial demographics is close to the national average.  If that raises eyebrows, and sounds "ballsy" on my part, whatever!

Dean Letfus · Answer

This is all true Phillip so just needs to be factored in to your numbers.  All tenants supply their own appliances and have bad credit.  It is still a fantastic market to invest in and create cash flow....

What is with Memphis?

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