Am I on the Right Track?

Question

I'm brand new in real estate investing and my primary goal is to hold long-term single family homes under $50k in areas with a healthy economy, decreasing rental vacancy rates and population growth. For instance, Memphis, TN has increased in job growth and population within the past year.

Additionally, researching different markets is something that I'm spending time working on. To my other fellow investors, what is your buy and hold sentiment on Memphis and would a property like this be ideal?:

https://www.trulia.com/p/tn/memphis/89-s-pkwy-e-memphis-tn-38106--2124703190?mid=1#lil-mediaTab

I see that there is a 'buy as is' on the listing, being something that I'd try to avoid. What would be some pointers you could give me on seeking properties under $50k built from the 1900s-2000?

Stephen Akindona · Answer

@Tanner Stell, I’m from Memphis and 100% of my portfolio is here in Memphis! Memphis is a great town to invest in, but it’s important to note that buying properties that will sell fixed up at 50k will put you in the low end of the spectrum and it’s hard for out of state guys to make any money with those assets.

I know local guys that are successful in the low rent areas but they work extremely hard managing their OWN properties. I doubt you will find a property manager that will work that hard on your behalf. For more success over time but properties that have an ease of management element. Higher rents between $900-$1300 which usually means higher priced homes. Look at some of the reputable turn key options in Memphis unless you have built a team here of realtors, property management, contractors etc! Hope that helps!

Jonathan McGee · Answer

@Tanner Stell I'm from Memphis and as a fellow investor, I probably would pass on this house unless you can get it for $20k. The particular zip code is not great, however I've seen people have success here. The rent rate is about $700/mo maximum, although you could Section 8 it for more. I see that it is being used a boarding house. I wouldn't hold my breathe on that as guaranteed income, especially in this market. Unless it is being professionally managed and there are individual rental agreements on each person, you'll be getting lucky receiving payments.

The other issues are the foundation as it appears it has a basement and also a retaining wall, so you're looking at some potential work in the future. It's up to you, but I'd keep my eyes open and continue looking. Feel free to reach out if you'd like to chat.

Good luck on your venture and glad you are looking into my hometown!

Sean Tagge · Answer

Hello @Tanner Stell this property is in a rough area as mentioned above by other memphis guys I have seen people be successful in this area but they are local and manage the properties themselves and buy properties like these cheap for $10-20k. A boarding house makes it even rougher to manage you will most likely be collecting rent payments in cash on a weekly basis which makes it hard because whoever would manage it for you would have to be there weekly knock on the door and collect. I suggest you do not invest in this area if you are out of state and especially if you are newer to real estate. I also suggest you stick to better areas in like the 100K+ ARV range you'll have better chances for appreciation. I would suggest you look in zip codes like:

38118

38116

38117

38128

38122

38141

38115

Derrick Craig · Answer

@Tanner Stell

First you have to look at comments this home is currently a boarding house, I don't trust anything the owners say about them. I honestly would pass on this particular property as your first investment.

Annette Hibbler · Answer

My advice is not to automatically reject "As Is" properties. These are generally priced under market which is what you'll be looking for. Many times the property only needs some cosmetic work that you can easily take care of such as painting, new carpeting, and touch-ups. Obviously, due diligence is important to determine repair estimates so take a contractor with you whenever possible.

Nathan Gesner · Answer

Just because a property is listed "as is" doesn't mean you can't ask for repairs. If they reject your request, walk away or decide to continue. There's no harm in trying.

Mike D'Arrigo · Answer

@Tanner Stell Unless you are local, experienced and very hands on, I would not recommend properties under $50K that don't need work. That would put you in a D class neighborhood in Memphis and most markets. Medium home price in Memphis is around $140K so you have to ask yourself what kind of neighborhood you'll be in for less than $50K.

Scott P. · Answer

I wouldn't rule out "buy as is."

It could simply be that the owner doesn't want to spend time or money on the property.

Just check it out thoroughly, have your inspections, etc., before you decide.

Jack Inman · Answer

@Tanner Stell The other comments are right on the money - boarding houses are hard to manage for an out-of-state investor. If you want to stay below 50k then something like 5057 Longbranch may be worth considering. But, sub 50k properties are more likely to have problematic tenants.

Jim Goebel · Answer

@Tanner Stell

I don't know much about Memphis, but you didn't share where you are from and if you have flexibility in picking a market?

The one time I visited Memphis and spent a little time there, I wasn't very impressed.  However, that visit wasn't representative of what the market has to offer and I haven't evaluated the market as a possible investment target.

Am I on the Right Track?

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