Bartlett/Memphis Turnkey Analysis (38134)

[Angelo Wong]

Hi,

Currently analyzing a 4/2 in the Bartlett area.  It is in the neighborhood of Blackwell/Yates St. and the Zillow estimates the surrounding houses are around 115-125K for that kind of property.  The county assessor says the property is worth around 108K in 2014.  Not sure if anyone knows how easy/hard it is to find a tenant in that area?

Looks like turnkey bought it at around 72K.

https://www.redfin.com/TN/Bartlett/3105-Yates-St-3...

They are trying to resell at 119K.

Crunching the math at 8% vacancy, 8% repairs, 9% property management fees, $100 CapEx (too much?) I get around $55/mo for cashflow (renting at $1150/mo)--if I discount CapEx it is about $155/mo.

If I get it at 119K and it appraises for somewhere in the mid-120s, I don't really get much instant equity; though this is a long-term turnkey property that I'd hold so I'm wondering how important that is (it'll be appraised again when I sell in the future anyway)?

I guess another question is: for turnkey A class rental properties, what are some criteria that have worked well?  

I currently have cash flow at about $100+ a month (ideally $200+), CoC at 7%+, income-expense ratio at 1%+, and 150K or less for the house. No idea if I'm too strict or too lax?

Lastly, do I need to be concerned about short-term exit strategies on a turnkey?  Seems like I should be happy enough as long as I rent it out and get some cash flow and down the line if it appreciates too much then I'll be needing to sell.  Though not sure what to do if I grab a turnkey and the PM cannot find a tenant for months?

Thanks in advance for any answers!

[Alex Craig]

I think the value of this home is probably in the mid 120's. It is hard to gain equity via the turnkey model if the home is rehabbed correctly, especially in the suburbs. To do it correctly is expensive and by that, I mean pulling permits on all the electrical, gas and mechanical, vinyl plank flooring in the high traffic areas, upgrading the carpet above the cheap investor grade, new counter tops, ceramic tile, addressing all external issues including the fence and external buildings and tons of other minor details. If you are going to pay retail value (which there is nothing wrong with that), you want to make sure it is renovated to retail for the area, otherwise you really will be upside down. Appraisers really do not consider the nature of the rehab on homes like this, rather they are looking at price per sq ft, year built, size, etc. Looking at other comps and the pictures with those comps off the MLS, at the very least you want updated vanities in the bathroom, new counter tops, ceramic tile, nicer faucets, ceiling fans and something besides carpet in the living and dining room and den.

As for the area, this is certainly "A" class.  Right now is a hard time to rent Bartlett as schools are important to tenants and most are not moving now.  Our Bartlett homes are taking longer then our Memphis homes to rent.  Moving forward, we are not allowing our suburb leases to expire in the months of October to January 31st.  You will get more quality apps in Bartlett and the tenants from what we have seen from our 30 or so Bartlett units take care of the place and they stay longer.  I personally own 2 in Bartlett and always looking to add to my portfolio in that area.

If you are wanting to get out short term, I would focus on area heavily and only invest in "A" class.  The cost to sell is the main thing which makes any investment hard to sell quickly unless you have a lot of equity.  You should budget no less then 10% of the purchase price to sell the home. 6% to the Buyers and Sellers agent, 3% shared closing cost and 1% misc.  Also, keep in mind you if you want to sell on the retail market, the home should be renovated to retail standards, thus why when buying Turnkey, it should be fixed up to retail standards.  Also, at that price, HVAC should be in new condition and so should the roof.  You should experience very little maintenance for the first 3 years on this home, which is an important aspect to Turnkey b/c the first few years should be about banking your cash flow, afterall, you are paying close to retail and with that should come less maintenance cost and hopefully less tenant cost, but the tenant part is for the most part, is a wild card as even the most qualified tenant can lose their job, get divorced, married, transfer, etc.

So long as the home has what I have laid out in the post, I would go for it.  If it does not, I would ask the seller to make it retail ready for the area, using comps in the mid 120's as the standard for the area.