Memphis? Memphis. Memphis!

[Chad Baird]

What's up with Memphis? Hey BP a friend pointed me in the direction of Memphis and said that it is where I should be looking at my next round of investment properties. What should I expect in Memphis? What cap rates I should be shooting for, price points, appreciation and cashflow are expected?

I live in San Diego and my last round of properties I bought back around the 07-08 time frame were in NC, TX and CA. I'm looking for cash flow on this go around.

Any insight would be greatly appreciated. 

[David Hutson]

@David T.,

Many of the areas I invest in are probably what you would consider bad.  I'm looking for a decent looking street with the 3-4 houses on each side of the prospect home kept up well.  Yards cut, no parking on the grass, no garbage piled up everywhere.  I like to see pride of ownership/rentorship.  That won't guarantee the house will perform well because any neighbor can change and the next door neighbor can totally trash a house in the future.  I feel if many of the neighbors keep their homes up it will spread and much of the time, not always, the other neighbors don't want to be the people with the bad looking house.  Owners, if they see it, will not want their home to be the bad home on the block also.  I'm fine with the low-income, high rental neighborhoods since everyone needs somewhere to live as long as the houses are in good shape.  I don't focus as much on crime because criminals have cars to and drive to the good areas to steal ac condensers also.  They don't only commit crime in the bad areas.

Here is what I'm doing with a wholesale house I'm in contract for today: I start with looking at photos on Google and Trulia, then any recent listing photos.  Next I drive by or have someone there drive the area.  If all of that is good I'll sign a contract and then have someone walk the house to see what needs to be done inside.  If there is a tenant inside I can see how they live and if they are following the lease.  This house I'm buying now has a dog in one of the photos.  I read the lease and it states no pets so I know that will be one thing I will have to work out with the purchase and the PM company. 

I had the person walking the house take photos.  I received 149 good photos of the interior and exterior of the home.  That gives me info on whether I want to continue with purchase or revoke my offer.  From there I get a bid on what needs to be repaired.  For a tenanted home I'll negotiate a credit for items that are worthy to be given at closing.  Then close upon the agreed timeline and then either fix the immediate needs items or save the cosmetic issues for when the tenant leaves.

I don't treat any of the homes as personal or try to have homes as nice as I want to live in.  It's a business and people need homes to live in.  I keep my houses updated, fix broken items quickly and ensure I have great property management.  I have fired a few property management companies.  If they don't perform or don't want to ensure my homes perform I use another.  I currently work with three PM companies in Memphis and just fired one.  You need to watch them.  Some try to be the cheapest and won't do all the needed repairs.  So here is why you need to have someone watching over your PM's if you aren't sure they are taking good care of your homes.  (short tangent below)

I recently had a house that had a window air conditioner in the wall to cool the dining room.  We installed a whole house a/c system and when the a/c company completed the installation the maintenance people took the a/c unit out of the wall and patched the siding on the outside.  When the tenant moved out it was vacant for two months.  I couldn't figure out why.  I took the home to another PM I use and when they did the walk through they told me their was a framed hole in the dining room.?.? I determined that they didn't patch the hole on the inside of the wall.  The new company patched the hole and it rented within two weeks.  This is the biggest problem I have found with the PM companies.  They don't always do a quality job on the turn.  If you have a home that is vacant for a month have someone walk the home and take video or photos or videochat with you.  I have only had a few homes go vacant for more than a month and each time I have found the rehab was done poorly and that was the reason for it not renting.  Once I fix the small issues, usually under a few hundred dollars, the homes rent within two weeks.  Spend the money to get a quality turn completed.  If you half *** the turn you will end up with a half *** tenant, if anyone at all.