Need advice - my first investment in Memphis

[Aditya Namjoshi]

I live in California and plan to make my first out of state investment in Memphis. Need advice from experts if this looks good from numbers perspective and are there any pitfalls that I should be concerned about. The property is in a low income neighborhood in zip code 38127. Plan to make this a cash offer. 

[Jackson Long]

@Aditya Namjoshi "check yourself before you wreck yourself"

The only good thing I see there is that your total purchase price means you won't lose "too much" money when it all goes to ****.  Here are some things to think about/know:

1) Have you actually been out here or are you doing the whole thing remotely?  You should really spend a couple of days out here doing non-tourist stuff to get an understanding of the market (and not with people who want to sell you stuff).  Failing that you need to work with someone you know.  I cannot stress that enough.

2) Management.  I've yet to see a single example of a quality trustworthy management company out here.  Without fail they will view you as a profit center.  Whatever amount they charge for management will be a reasonable enough number.  Then every time money trades hands relevant to the property they will make more money from you.  Replace locks/rekey for a new tenant? Double the cost of just hiring a vendor.  500 dollars to turn a unit for a new renter?  Oh the dump fees are not included your actual bill is 700.  And so on and so forth.  We worked with a company when we first got here that overcharged/falsely charged us about 10k over as many months.  It was a nightmare getting that money back.  And lastly, you are a tiny little piece of their business- when your property is vacant you are losing 300 bucks or whatever a month (double that if you are leveraged) and they are losing 30 bucks.  The level of urgency to fill your property will be very low.  I live in a borderline area (much nicer than 38127) and there are consistently 1-3 vacant properties on the street with well known management companies- these tend to sit vacant with the signs in the yard for 6-9 months.

3) Location.  That is a **** part of town.  The socioeconomic level of your tenants will be low.  There is high correlation between people who want to rent a house for 600 bucks in the hood and people who will treat your house like ****.  The only good thing I can say about it is that it doesn't look like you are overpaying by MUCH relative to the actual value.  However, relative to your rent, its not a good deal.  Also, should you change your mind and decide to use leverage rather than all that cash- you will find it almost impossible to find someone willing to do a mortgage that low.  And if you decide you want out- it will be tough to sell without losing money.

4) Memphis is the wild west of buy and hold investing.  There are more hustlers, wholesalers, and crooks here than you can shake a stick at. I've been operating here about 2 years now (boots on the ground) and I would guess that over 50% of the professionals I've interacted with are unscrupulous.  It is freaking absurd.  There is money to be made- but it is not just sitting on a table for you to pick it up.  Ever hear the phrase "there is no such thing as a free lunch"?  Well out here they don't even have Happy Hour.  (I literally just wrote that joke- but I am going to use it a lot I think)

I don't have anything to sell or services to offer or referrals to give you.  So if you want to reach out I am happy to give advice or specific feedback on vendors I've worked with.  Its not that everyone here is bad- its just that the good people are doing their own thing and the bad people are actively looking for suckers.