BRRRR in Memphis Challenging Areas

[James Martin]

For starters this not a post trying to persuade you to buy in low income areas. Personally homes that rent under $800 a month are the properties that I target that usually are located in less than desirable areas. It took many years of practice to figure out how to successfully purchase, renovate, rent and repeat this process. So I purchased this home back in November 2018 located at 3123 Kingston Street Memphis, TN 38127. The purchase price was $11,000 for this home. Due to our workload and the holidays we didn't start work on this home until January. The renovation amount was $15,000 with a total investment of $26,000. The home right next door sold for $55k and my appraisal came back at $49,000. The rent amount for alike homes in the area range from $550 to $615 a month. To rent it quickly we chose to bring it to market at $595 a month on a two year lease with a 3% increase on the second year. Some of the keys to our success in theses areas have been just straight up total renovation of the home. We replace roofs, cabinets, alarm, HVAC systems, water tanks, topping trees just everything to make them solid and attractive to our tenant clients. Once we qualify someone there's a good chance they may have to enter into our payment program that acts the same as a pretax deduction. This has really been helpful with collecting timely rent and eliminating late fees. For some its over kill but we send out a text messages and emails on the 30th of the month alerting the client that rent is due. Also, section 8 has been a great avenue for a lack of better words "Guaranteed Rent". Its quite easy for us to pass their inspection process due to the condition of our homes.  From there we do our company inspections every quarter for preventive maintenance items. This also allows for us to make sure that there are no pets according to what we agreed upon at lease signing. We're also able to gauge if there's an adult that's potentially staying at the home that was not originally listed on the lease. Once a lease is close to the expiration date we plan a final walk through with our maintenance team onsite. Once completed we go ahead and remove the water tank, A-coil and condenser unit and store away for safe keeping's. We board up the back and side, but leave the front exposed for curb appeal. Doing the last month of tenancy we have already marketed the home to potential renters and have reached out to them to start scheduling showings. What we've found is that you have to be very aggressive and hands on in this price point. My strategy is simple, don't overpay market value and strictly buy for cash-flow. It doesn't bother me one bit if I'm at ARV once my renovation is completed. Homes that I bought at value in 2005 was considered terrible in 2008 but I cash flowed the same. Now the very same homes that was not so attractive 2008 has come back with a little more market value. (Side Note: its hard for some people to stick to their original strategy and jump from one investment to the next when they hear bad news about the economy. It was frowned upon if you bought in these areas in 2008, but now with a bull market some may consider you smart in 2019. The point is that I didn't do anything different from my original goal which was cash flow).  To sum up this post; truly if your not savvy or working with a company that understands these types of investments I recommend you stay away. For me it makes all the sense in the world giving my age. Some time in the distance future I plan to sell off my inventory and purchase in areas that rent above $900 a month. You tend to see the world differently and your needs change as you get older. 

[James Martin]

Originally posted by @Derek Dewayne Hopson Jr.:

Good read. When I get my finances in order I'm thinking about investing in the "less than desired areas" in home my town. The houses are about 5,000-10,000. Most need about another $10k-$15k rehab. However, the rents are just too low in my home town for these properties (between 400-500) month for a 3bed/2bad. 

After reading your post, I'm learning towards giving this a shot.

 The rent amount is fine if your buying and rehabbing with all cash from your savings or 401K.  Remember any area can be challenging but not all streets are the same. For example I own a home at 602 Burdette which most would consider to be in a not so attractive area. What I noticed on this particular street is that most of the neighbors own their home, very few bars are on the windows and lastly the local power company is almost never on this street disconnecting and reconnecting services. Now one street over it’s totally different and the opposite of what I just typed. Reach out before you purchase if you have more detailed questions.