Hello, fairly new to BP and ready to jump back in soon - Memphis?

Question

Hey BP folks!

Although I joined BP last year, I'd still say I'm a new member as I haven't really dove in...until today! :-) What a wealth of info and the ability to network is priceless.

Me: 56, California SF Bay Area (East Bay) native, in the tech industry, starting to think seriously about retirement, 4 SFH rentals in SLC area, Albuquerque area, Dallas area, and Memphis (TX and TN are paid off).

I am seriously considering growing my rental investment portfolio until we can quit working comfortably. I have a few things to figure out - one being the infamous "all cash vs. leveraged" debate. Since my focus now is retirement and cash flow - leaning towards all cash purchases but totally understand both pros and cons. Anyone in a similar position as me in terms of retirement focus/cash flow?

I am also leaning towards investing more in Memphis since that property has done pretty well for me (after I fired a ridiculous PM!). Any realtor/turnkey companies/PM recommendations are highly appreciated since I haven't purchased there since 2009.

Anyway, very excited to explore this next chapter and see what's possible. I'm seeing a financial planner who will help me model different scenarios after he inputs all my financial data. Will get those results in a few weeks. That will also help my decision making.

Anyway - open to any and all thoughts and advice about the Memphis (or any other good) markets. I look forward to exchanging lots of thoughts and ideas here.

Best,

Ron

Jonathan McGee · Answer

Welcome back @Ron Ripley! I may be biased since I am located here, but Memphis is definitely a profitable market and you can still find deals at 70% or less below retail. As stated previously, there are a few reputable turnkey companies here in Memphis as well as a handful of successful wholesalers and investor friendly realtors. Feel free to give me a shout if you have any questions or looking for tips!

Wish you the best on your road to retirement!

Ali Boone · Answer

Haha. Slowwww down Ron! ;) But it's true...don't put the cart before the horse. Don't worry too much about LLCs or those options before you even have a property. Worry about property shopping first.

(But in case you do have LLC questions and how should you do it, check this one out-

https://www.biggerpockets.com/renewsblog/2013/08/1... )

Did you read in the leveraging article where it talks about the math of paying cash or financing? That explains why you make more with financing. It's how much you make in comparison to how much you put in. It's the cash-on-cash return that matters in an analysis. You'll see that typically cash-on-cashes for financed properties are much higher than for all cash. And then yes, more tax benefits with more properties.

Back to exposure for a second... I think umbrella policies can cover you fine for the most part, but I also am a big fan of just kind of keeping my mouth shut about how much I own. If someone really wanted to find out, of course, they could but I assume don't make it easier for them. Since I'm a writer on here and on here all the time, people always ask me how many properties I own. I really don't disclose it because I don't want someone to know if I'm worth going after or not. There's tons of people on here who will say they have some number of properties, but I just think that's giving yourself more exposure to liability if you say a high number of properties. I would rather people have no idea if I own 0, 1, 5, or 100 properties...just so they don't know if I'm worth their time. Obviously I don't own 0 or 1 because I talk about my properties all the time (more than one), but that's as much as I've given up in that department.

Exiting my soapbox now...

Ron Ripley · Answer

@Ali Boone - thanks so much for your response. Great info - I did read that article on cash vs. leverage and found it extremely helpful. You also make very good points about financing before retirement so you can show a W2! That's just the type of feedback I need - lots to think about. The only part that I am not getting is how someone's returns are higher when they finance, since when you finance - you have a mortgage payment to deduct from the rent each month. Is it due to the tax advantages from mortgage interest, etc. plus you can buy more properties with less $? If I'm on the right track here - has anyone ever worried about having too many properties? I know that sounds weird, but the more properties, the more "exposed" you are. Which actually leads me to my next question. I am starting to think about the proper legal framework on my rentals to protect my personal assets/credit (such as an LLC, S-corp, etc.). Is that the best way to go? I heard somewhere that you have to do an LLC for each property? I just googled it and learning more about this. I am sure I can search on BP too.

I know, slow down Ron! My wheels are always spinning - which, I suppose is a good thing. I believe that knowledge is power. :-)

Thanks again

Ron Ripley · Answer

Thanks to everyone who responded - some great insight and info. Really appreciate that and looking forward to much more networking here with this community!

Ali Boone · Answer

Hey Ron! Well a couple things I can respond to...

As far as the cash vs. leverage, check this article out that breaks the options down-

https://www.biggerpockets.com/renewsblog/2015/04/1...

My one thought on that is if you think you may want to leverage, it'll be easier to do it before you retire just so you can show easy income. I stocked up on mortgages before I quit my job a few years ago for that same reason. You'll still have income coming in after retirement, but W2s are a lot easier to deal with on the loan front. You can go either way of course, but if you were to leverage the same amount that you would put down as cash payments, you'd make a ton more.

Then for Memphis....if you last bought in Memphis in 2009, that was a very different market than what it is now. Since then it hit it's boom, hedge funds bought everything up and are now selling them back (which makes for a wonky dynamic for buying properties there....financially) and it's in general just post-boom. Not the worst place to invest by any means, although never been my preference, but just know it will be completely different than buying there in 2009. I think there are quite a few other markets with generally better market fundamentals and much higher cash flow.

Tom Ott · Answer

Hello and welcome! I hear Memphis is crawling with investors these days. Have you looked at other markets? Maybe in the Midwest where housing is still very affordable, but there are fewer investors.

James Wise · Answer

Welcome to the site Ron.

Curt Davis · Answer

Welcome again to BP !!! Several turnkey providers here in Memphs.  Prices are higher.

Hello, fairly new to BP and ready to jump back in soon - Memphis?

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