Memphis Invest - Chris Clothier

[Steven Roffer]

I was recommended to talk to Chris Clothier and Memphis Invest at a recent meet-up here in Los Angeles, when the subject of turnkey buying of rental properties out of state came up.  I contacted them and am now having a call with one of their Investment Advisors tomorrow.  

Does anyone here have any experience with them?  Anyone holding property from them?

I have read a number of forums on them and the one negative thing that has come up a few times is that people seem to end up paying more for their turnkey properties. Anyone have any experience with this?

[Jay Hinrichs]

@Alex Craig  and to Chris's credit he probably realized that as well ERGO their 2 year lease program and ditching section 8 tenants all together...

my other personal experience is really large homes you have to be careful with if they do require a heavy duty make ready.. And really the only one who rents a 5 bed home is someone with a bunch of little Indians,  your make ( tenant turnover work)  ready costs are significantly higher than say the nice 1200 sq ft 3 and 2... which in my mind is the sweet spot for rentals.   So again in my mind 27% is an aggressive number to count on for long term with this particular asset... If I was a betting man I would say after a 10 year hold and 3 tenant turn overs that number will be significantly higher.. now if they get lucky and the same tenant stays the entire time and is Gentle on the house then you could hit that.

Some of the new construction I bought for go zone in Madison MS has had the same tenants since the day I bought them Post Katrina.. now those houses probably have hit the 27% mark since they were brand new.. and I have not replace   repainted or done anything to them .. save a garage door that some how got run into but the tenant did not know who could have done it.  LOL...  But these were all 175 to 225k brand new brick homes with scored concrete floors ( which I love in a rental..) but when I bought them they only break even anyway.. they were never positive or if they were 50 to 100 a month and I can tell you , when your that close to break even you never see the money .. or at least I never did but I don't focus on it either.. I am not a very good landlord... probably one of the worst actually.

[Alex Craig]

@Jay Hinrichs  No doubt Chris knows that.  Good thing about Turnkey providers is that they manage homes a little different then regular property managers.  Most PM's that are soley PM's will take a 12 month lease all day long. TK PM's will manage homes to maximize the return to their clients.

I used to cover Madison back in my corporate days.  The people living there loved it and were glad not to he in Jackson. I agree on bigger homes; I think if you have one, it needs to be in a great school district. I own a 5 bed 3 bath in Bartlett and it works wonderful.  Rule of thumb with bigger houses that I found to be true is that they do rent faster (because less of them on the market) and tenants stay longer for the same reason, but the turn cost is 2x as much as a normal 3 bed 2 bath.  But on a home that big, you need to gross no less then $400 a month. On a $150,000 home, you really need to gross $450 a month.  That is where you ask your property manager for a discount on those giant rents to help out.

As for the garage door; in my 22 years of driving, I have never hit one, but tenants hit them all the time and why they call in, they normally say "it just fell off the tracks."  Personally give me a carport on my rental home over an garage any day of the week.

[Carl Dean]

The guys at Memphis Invest are great guys and I have a lot of respect for them considering they are probably our biggest competitor and they are guys with good morals. What I can say is do your market research, in my opinion St. Louis is a better market for B stock (70-100k assets). I look at things like crime when purchasing any B or C class asset (although I don't do any C class anymore. *Under $700 rents or under 65k purchase price, and no HUD housing). Before you purchase the asset Trulia has a crime map on their site to look this up and it is very accurate. When looking at a property crime map for a specific home zoom in twice and different things may appear that are questionable. My advise to my clients is always to go after a B+ or A class asset and leverage with a non recourse loan. If you do this in a market like those in Texas where I have near 100 homes at any given time you will see a very passive return and some great appreciation. I would love to answer anymore questions anyone has, I have dedicated 1 hour of my time each day to this site. Feel free to message me or email me. I have a lot of market data that is credible and up to date that compares markets to each other. I would be happy to share.

[Jay Hinrichs]

@Carl Dean  are you on our Turnkey-reviews.com website if not you should be...

I agree with you for out of state folks buy the best you can.  How do you manage non recourse and low interest rates for one off purchases. ???  do you have a local bank that will do that..  I find that an interesting comment... and would like to hear more on it.  I know some banks will do none recourse with very large downs.

And why do you recommend non recourse for other than the obvious reasons.. do you think that this kind of investing is risky therefor you should have no personal exposure to the loan and can walk with no worries.

I know TExas is a dual action state.. IE for those that don't know in Texas you can lose the property and GET and Judgement against yourself ... Ergo the non recourse aspect.

Glad to have you on the site and like to hear your thoughts on these subjects.

[Jay Hinrichs]

@Carl Dean  Ok I got it foreign buyers and SDRA buyers they need non recourse...

I will hit you off line to further this conversation.. thank you

[Billy Maloney]

@Jay Hinrichs unfortunately yes it does also have county taxes. Its in Cordova.   @Alex Craig I understand what your getting at. Let me say this about the property I purchased. First off its a smaller 5 bath. Its was 100% fully rehabbed I have a 2 yr lease with a tenant who gets a healthy pension every month (Over 100k). Here is how im seeing it and please tell me what you think. 

My PITI is $931, PM is $150. My raw monthly cash flow is 420 a month right where you said. If there are no problems with this 2 year lease then I will have $10,080 for future vacancy and repairs on top of that I already put aside 5k in its own account as a back up. At that point im still bringing in 420 a month and should be looking ok to stay in the positive for future years.

This was my first property, i refused to not take action and just talk about it for so I went for. This was a safer way for me to get started.  It has been a great learning experience.   

Like I mentioned before Im looking to get into better deals that I can go after myself. Finding it difficult to do as an out of state investor working full time, but Ill find a way. 

[Jay Hinrichs]

@Billy Maloney  Sounds reasonable to me good luck with it and welcome to the club of non owner occupied ownership.

[Alex Craig]

@Billy Maloney  If you are paying property taxes in Cordova, then I think you are in a good spot.  A lot of the areas where the homes are not paying city taxes have been bought by Hedge funds.  I have concerns about the long term outlook for the newer construction homes in Cordova/Houston Levee/Macon Rd area.  It sounds like you are in South Cordova off Trinity or Countrywood.  I like both of those areas. A friend of mine just bought his primary residence in Countrywood; you can get lost up in that area, which I think is a good thing as it is insulated from Hwy 64 / Germantown Pkwy

[Billy Maloney]

thanks for the info @Alex Craig. Yah its in countrywood. 38016. 

[Account Closed]

So I just talked with them about the Dallas market and wasn't excited by what I was shown. The two example deals they sent me yielded low cash on cash returns - one under 2% cash on cash return and one around 6% cash on cash return. Their conventional deal analysis is also run with you putting 40% down, which I never want to do. My goal is to put 20% down to conserve my cash. The all in management fee was around 12.75% per year, which is quite steep. That coupled with the low cash on cash return is hard to swallow for me. They also require that you use their management company for 2 years once buying a house through them, locking you in to the 12.75% management fee (above market fee). If you want to not touch a thing and pay for it, they may be a good option. If you want better cash on cash than 10%, you will likely need to look elsewhere. The company does seem to have a good reputation.

[Jay Hinrichs]

@Account Closed  I think what your getting is reality and not puffed up numbers or numbers missing.. I can't speak to the PM fee's.  however from what I know in Dallas and Houston rents have not risen to the same extent as purchase prices so yields are shrinking in todays market, if what your stating is true.

I see this in other markets as well.. but investors still are interested because there is a good chance of appreciation that will make up for and in a lot of markets bring a better return than a non appreciating cash flow asset. 

it truly is a double edged sword and one has to make their own judgement of which way they want to go.   Remember pre 08 the rage was just to break even and have your tenant pay your house off. if you got a little cash flow that was bonus.. the only reason you have seen these high returns is basically post 08 price melt downs.. prices melted down but rents did not.. ergo cash flow went up and % returns went up. Rents in most of the cash flow markets that people market out of state have stayed pretty stable, unlike rents on the West coast that have risen 20 to 35% in some markets.. I know my PDX rentals rents rose 30% in last 3 years.  

One thing about Real Estate is it is always changing and evolving.

[Account Closed]

Jay,

The market is tight in Dallas/Ft. Worth - I own some there and you are correct - the sales prices are being driven up. I believe the appreciation aspects there are great too. Thanks for the info.

[Chris Clothier]

Originally posted by @Account Closed:

 They also require that you use their management company for 2 years once buying a house through them, locking you in to the 12.75% management fee (above market fee). If you want to not touch a thing and pay for it, they may be a good option. If you want better cash on cash than 10%, you will likely need to look elsewhere. The company does seem to have a good reputation.

 Hi Josiah,

Thank you for posting on here.  I can't speak to the exact properties that you reviewed or the numbers, except to say that we don't have properties that perform as low as you listed, although you may be using your own calculations based on the data we provided.  That is always a good idea if you are more comfortable that way and it does help you to  see if you are comfortable before moving forward. 

I do know that we have had 5 properties put under contract so far this week with most being in Dallas and Houston.  Properties tend to move within a matter of days due to high demand.  

Also, we are managing just under $350 million in asset value for roughly 1100 investors.  Assuming every owner purchased at full value, which is not correct but is an easy piece of data to metric, based on rent paid to owners net of all fees, maintenance, lost rents, uncollected rents - net, net, net - and assuming a cash on cash return (not calculating in any use of leverage) the annualized return for the month of October was 8.08%.  Not all properties perform that way monthly - some better, some worse, but I am confident that even the properties you reviewed will perform better than you expect.  So you are correct with that one statement - we are not advertising nor offering double digit cash on cash returns, but can show monthly factual data for investors to see how reliable and consistent their actual return will be.

Also, I did want to clarify two quick things for you from you post.

1.  We do not require 40% down to purchase a property, but we want to be transparent and direct on the front end.  We are not appraisers, but can easily see data and having been in this business for over 12 years, we are no longer surprised by the values that can come in on properties.  If we feel that a property could appraise low, we always show that on the front end and go very conservative with values.  We would rather you be prepared for a worst case scenario than expect 25% down and then be faced with a decision later if it appraises low.  So, if you were shown a property or two properties that showed 40% down, that is a reflection of us showing you that a bank will lend based on appraisal and require you to bring the difference to closing and we want you to see a worst case scenario on that property.

2.  As for our property management company, you are never required to use our management.  That is not a requirement to do business with us nor are you forced to use our company for 2 years.  

That is a value added service and even those that choose to use our service can opt-out with a 30-day notice.  On our end, I can't recall an investor having ever purchased from us and opted not to use our management as that is where our reputation has really been built.  But again, I wanted you to know that it is not required that you use our management.

It is always our goal to help each investor we talk to figure out if we are a good fit or not - BEFORE - moving forward and without them getting glitter-eyed over unrealistic numbers.  It is good that an investor can redirect their energies if we are all able to see early on that we are not going to be able to meet their expectations.

On that note, feel free to reach out to me directly if you have specific questions or want to ask exactly how our portfolio performs.  You can even reach out to me if for any reason you are not satisfied with the answers you get or the performance of our team while you were talking with us.  I am always happy to listen to see how we can deliver better.

All the best to you and good luck as you continue building your portfolio in Dallas.  I love the market and it is quickly growing into our largest market and may overtake Memphis this year or next.

[Account Closed]

Thanks Chris. Your agent told me I must use your management company for 2 years, with the option to leave after that. I guess he was mistaken on that info. As for the returns advertised, based on the numbers in your excel spreadsheet, a direct quote from your spreadsheet based 'Estimated Annual Cash On Cash Return After Vacancy and Maintenance Allowance' = 6.56% for property 1 and 4.58% for property 2. We know that Vacancy and Maintenance should be included in this number too. You used 5% for vacancy which is believe to be low, I used 6%, and got around 6% Cash on Cash return for this 1st property. The 2nd property shows 4.58% in your spreadsheet, once again, based on your numbers. These properties are based on a 40% downpayment with 55 vacancy. When I run the numbers at 20% down, this second property yields under 2% cash on cash. I can forward you the excel doc if you want to see it. Again, the numbers you sent over say this. As for the management fee being around 12.75% per year, that is also true, is it not? When you consider the 10% per year + 1/3 of the first month's rent for placement. 

Folks here asked about using you and I am just trying to make sure they understand what I have seen. 

[Account Closed]

Chris,

Based on your response below, you are asking people to pay more than the appraised value for their homes, putting them in an upside down position. How is this a good idea for your buyers? Would you pay more for a property than it is worth? I think I know the answer to that question. Why do it to your buyers then? 

Your response earlier:

'1. We do not require 40% down to purchase a property, but we want to be transparent and direct on the front end. We are not appraisers, but can easily see data and having been in this business for over 12 years, we are no longer surprised by the values that can come in on properties. If we feel that a property could appraise low, we always show that on the front end and go very conservative with values. We would rather you be prepared for a worst case scenario than expect 25% down and then be faced with a decision later if it appraises low. So, if you were shown a property or two properties that showed 40% down, that is a reflection of us showing you that a bank will lend based on appraisal and require you to bring the difference to closing and we want you to see a worst case scenario on that property.'

[Chris Clothier]

Originally posted by @Account Closed:

Thanks Chris. Your agent told me I must use your management company for 2 years, with the option to leave after that. I guess he was mistaken on that info. As for the returns advertised, based on the numbers in your excel spreadsheet, a direct quote from your spreadsheet based 'Estimated Annual Cash On Cash Return After Vacancy and Maintenance Allowance' = 6.56% for property 1 and 4.58% for property 2. We know that Vacancy and Maintenance should be included in this number too. You used 5% for vacancy which is believe to be low, I used 6%, and got around 6% Cash on Cash return for this 1st property. The 2nd property shows 4.58% in your spreadsheet, once again, based on your numbers. These properties are based on a 40% downpayment with 55 vacancy. When I run the numbers at 20% down, this second property yields under 2% cash on cash. I can forward you the excel doc if you want to see it. Again, the numbers you sent over say this. As for the management fee being around 12.75% per year, that is also true, is it not? When you consider the 10% per year + 1/3 of the first month's rent for placement. 

Folks here asked about using you and I am just trying to make sure they understand what I have seen. 

 Josiah,

If that is what you were told on management - and I am not questioning that - then you were told wrong.  That is not nor has it ever been our policy.  Please do send the spreadsheets you were sent to me.  I would like to review what you were sent.  

The management fee is 10% of collected rent plus first months rent.  We divide that into thirds for purposes on the sheets because of a mixed inventory and a shorter track record in Dallas.  So I have no problem with you stating it as 12.75%.  

Through 11 months we have only turned over 18% of our entire portfolio under management which would be the 4th year in a row to have lower than 20% turnover.  I think we can adjust the 1/3 number down to 1/5, but again, we haven't out of wanting to be more conservative.

[Chris Clothier]

Originally posted by @Account Closed:

Chris,

Based on your response below, you are asking people to pay more than the appraised value for their homes, putting them in an upside down position. How is this a good idea for your buyers? Would you pay more for a property than it is worth? I think I know the answer to that question. Why do it to your buyers then? 

Your response earlier:

'1. We do not require 40% down to purchase a property, but we want to be transparent and direct on the front end. We are not appraisers, but can easily see data and having been in this business for over 12 years, we are no longer surprised by the values that can come in on properties. If we feel that a property could appraise low, we always show that on the front end and go very conservative with values. We would rather you be prepared for a worst case scenario than expect 25% down and then be faced with a decision later if it appraises low. So, if you were shown a property or two properties that showed 40% down, that is a reflection of us showing you that a bank will lend based on appraisal and require you to bring the difference to closing and we want you to see a worst case scenario on that property.'

So I know that you are an appraiser and you may have felt that was an attack or placing blame, but it was not.  My company has a long track record of how we work with clients and I have a very long record here on BP of being very up front. 

We are very well-versed in the value we bring to the market place.  That is a consistent and reliable return on investment and tailored to investors who want to invest for the long-haul.  The return they get and the manner in which it is delivered both are strong factors with our investors choosing to purchase our properties at the price we choose to list them.  

As a buyer, I have paid above what an appraiser says is the value of a property many times because I am buying for a specific benefit.  It is not perceived it is real.  The return I get on my capital is much more important to me in some cases than a value an appraiser gives me.   I have placed many assets into my portfolio in appreciating markets or in path of progress areas, where the value I get both immediately in return and experience and over time, is more important than a number an appraiser says the property is worth. 

Last month, we had 28 deals close with financing.  Of those 28, 23 were shown to the investor on the front end as possible appraising below purchase price.  So yes, we do show that to investors and we do expect them to see the value of our company.  That is not hidden.  Of those 28 that closed, 27 appraised above the range that we gave and only one came in with a value inside the range.  We did have 30 possible financing deals and two investors chose not to move forward after deciding not to put above 25% down.  Their earnest money was returned no questions asked and we sold those properties to other investors.

So, You and I probably differ in our approaches to investing which is perfectly fine.  I thanked you earlier for leaving your comments.  You have left your thoughts on the experience you have had and the lack of value you see in that process.  That is perfectly fair and I have no argument with that.  I simply wanted to correct the statement about required management and I regret that you were told that by one of our team members that it was required for two years.  It is not.    

[Account Closed]

Chris,

I appreciate the response. My response here was to the investors considering doing business with you guys and wanting to know what people outside of your company thought. They need to know that they may be asked to pay more for the property than it is worth. In that scenario, if there is a crisis and they must sell, they could experience issues being upside down. I watched this happen a lot in 2008 as an appraiser and investor, and don't want these investors here to experience foreclosure. 

Most every seasoned investor gives this advice: buy with a good margin of safety in case prices drop or you need to sell quickly. In my eyes, that margin of safety equates to buying under market value and putting enough down on the deal. Many recommend at least 20% equity and buying below market. In your possible scenario, a buyer could pay $140,000 for a property worth $120,000 today in the hopes of the property appreciating in the future. It seems like a slam dunk from your end, but very risky for the would-be investor. 

[Account Closed]

Chris,

Just emailed you your spreadsheets that you requested with the previous mentioned numbers.

Josiah

[Account Closed]

Chris,

At the end of the day, I wish you guys success in your venture and my hat is off to you for going your own way. No hard feelings, just trying to help those asking questions. Thanks for the conversation. 

[Chris Clothier]

Originally posted by @Account Closed:

Chris,

At the end of the day, I wish you guys success in your venture and my hat is off to you for going your own way. No hard feelings, just trying to help those asking questions. Thanks for the conversation. 

 Absolutely Josiah.  I feel the same way and appreciate your points and your willingness to engage.  Best of luck to you as well.

[Chase Gu]

"My PITI is $931, PM is $150. My raw monthly cash flow is 420 a month right where you said.  If there are no problems with this 2 year lease then I will have $10,080 for future vacancy and repairs on top of that I already put aside 5k in its own account as a back up.  At that point im still bringing in 420 a month and should be looking ok to stay in the positive for future years."

Hi, Bill. Thanks a lot for sharing your experience. I am a little confused by "raw monthly cash flow" of 420? How is different from the real cash flow of $195 you mentioned earlier? I am also looking into turnkey investment properties and I am interested in knowing the numbers (i.e. cash-on-cash and cap rate).

Thanks!

[CJ Wallace]

I am looking at working with Chris Clothier at Memphus Invest myself. 

As far as the cost goes, I know that there are two aspects I have to look at:

1. The cost of working with them

2. The cost of doing it myself

Since I don't know as much as they do, I plan on using their intellectual capital as leverage. At least, that how I look at it. Good luck on your endeavors.

[Jason Lam]

@Billy Maloney I just found this thread as I’m looking at Memphis Invest. How has everything been now that you have owned a property with them for a few years? Any major maintenance issues or other tenant issues?

[Billy Maloney]

@Jason Lam all good man. My tenant just signed a 3rd - 2 year lease a month ago. I recently had the ac serviced but other than that there one only one small repairs. I now have 10k built up in reserves from the income to use any future repairs.