All Forum Posts by: Jackson Long

Dear goodness @David Lee Hall, III can I have some of that beer???

With all of the crazy changes to material and land cost- is there a current "not totally made up" rule of thumb for the cost of new construction?  One of places with or without labor.

OMG you guys wrote a book while I was on the road today.  Hey thank you for the mention @Bob Beach

I didn't want the thread to get nuked early on- but I am an investor turned property manager.  The original post is based on those experiences.  I am basically romancing guys like Bob by doing honest work for a decent price because that is how I approach being a property manager.  I looked at all of the... basically fraud... in Memphis and thought "what if I just did like... a decent job and didn't try to screw people over?" and here we are.

I actually love most of this side conversation and sorry for trying to shut it down.  What I wanted to do was maintain the integrity of the post's topic so people interested in that could search and find it.  Because if I drop some more amazingly helpful tips NOW- nobody is going to see them  They are going to see the conversation get into meta economics and then start hitting the scotch or something.

Hey guy who offered to buy my portfolio.  Sure- you want to pay retail for it- its all yours.  I moved my focus to PM because I couldn't grow my portfolio easily enough in the current market.  And there are literally tens of thousands of poorly managed rentals out there that my approach could help.  Uh- due to the whole "on a road trip" thing and the MASSIVE swing this post has taken I am going to bow out unless someone specifically needs me.  So just to sum up...

If you are already invested in Memphis and your property seems like it SHOULD be doing okay- but isn't...  Let me know and maybe we can figure it out.  Even if I am not the answer I am happy to look.  But I figure every time I can show an investor that a ladder shouldn't be charged to them by the property manager when a gutter was fixed... I make the world just a little better.

I don't advocate throwing darts at maps.  Throw them at globes- it is much funnier.

Also I think I slipped into RANT MODE because housekeeping is knocking and I am late.  Didn't actually make yellowstone- they don't let you enter the park from the west.  Even though the MVUM shows trails going in it is verboten.

None of this was intended to be about being rich.  That was a reply to someone trying to interject a totally different conversation as if it were a valid argument.

Investing low income vs medium...  This can be argued both ways and both ways are valid- but pound for pound you are going to make more money in a D+ neighborhood than a C+ neighborhood.  You revenue will be more erratic so you need steady nerves and to be able to handle an unfortunate misstep early on if you get unlucky.  And you are EVEN MORE at the mercy of bad PM if you are using them.  That's it.  Otherwise it is sticks and renters and a spreadsheet.

Everyone who is saying buy funds and keep your day job is confused about why this website is even here- or a troll.  You look silly- stop it.  This is a corner quick mart (the Memphis sub forum in particular) and you are ranting about how you sometimes will shop at home foods, but really one must insist on farm-to-table.  This is a place for people doing a thing and wanting to do it better or wanting to do a thing and trying to get enough information to feel comfortable doing it with, OFTEN 20k or less.  Everyone thinks you are awesome for buying something for 10m and welling it for 50m.  That story is not relevant to ANYONE who is getting tricked out of their money by a dishonest PM.  Which is what this topic is about.  I repeat there is NOTHING WRONG with what you guys are doing- but it isn't helpful to shout about it here.

So back to the topic- people can do this wrong in a hundred ways.  Those ways are not intrinsically tied together- if they were we would count them in chunks.  Buying low income for cashflow does not necessarily mean the house is in ill repair, the tenants are bad, that there is no process or oversite, that maintenance is ignored, that the area has no future, that the buyer just wants to collect a couple hundred bucks a month and then sell it to the next chump.  Those are all bad things and can be done one at a time-

Sorry I need to interject this as well- often people are trying to get into remote markets either completely remotely or with just one or two trips to the market in question.  In the case of Memphis there is an entire side of the industry here that exists 100% to take advantage of these people.  One cannot- over the 4 day trip they planned to do boots on the ground research- learn enough to outsmart the guys who AS THEIR FULL TIME JOB are trying to trick them out of their money.  And anybody who says "buyer beware" or "should've done more research" is either clueless about the world or also a shark.  When Bubba gives you a firm handshake and tells you about how all he does is help people and you are scared as you prepare to make one of the biggest decisions of your life- it is NEAR IMPOSSIBLE to not be influenced.  And when you meet four different flavors and they all say the same thing it is so close to impossible to avoid that that it is probably mathematically indistinguishable.  And the only reason this sub market of vultures exists here (yeah yeah there are con artists everywhere- but in Memphis it is industrialized) is BECAUSE there is so much money to be made in the rental market here.  You don't setup your... uh...  What is the thing where they move the cups and you need to track which one has the ball in it?  You don't setup your con table in the middle of skid row- there is no money to be made.  You setup at the train station where the eager prospectors are disembarking with their shovels and dreams.  Also there is no shame in getting taken advantage of- just learn from it.  I had my lunch eaten repeatedly when I got here.

Where was I?  Oh right- each mistake is its own thing- and yes there are people who like to make ALL of them- but it is a disservice to be in a discussion about how to identify and avoid one of them and say the entire business model is bad and people who do it are dumb because how can you ever expect to be successful if you make ALL OF THESE MISTAKES.  And also- maybe most important to this whole thing- THOUSANDS AND THOUSANDS of people are already invested in Memphis and struggling so even if your buy an index fund and a condominium development in Miami advice wasn't silly (in this context) it would also require time travel.

Appreciation investors- not going to bother calling out names.  You don't need to be defensive- what you are doing is awesome.  But the road is littered with the corpses of guys who tried it and failed- and they aren't represented here because they are just gone.  Probably trying to day trade now.  Was 08 so long ago that we are just pretending the markets will always rush upwards?  And yeah "just hold onto it until the price goes up" is swell if you can afford it.  If you have infinite money and infinite time it close to a guarantee.  Nobody has that.  And your WONDERFUL AND I AM VERY JEALOUS OF THEM success stories just means that you had enough of each to make it through.  Power to you.  Now- to circle back to the actual point you seem to be trying to dismiss...  What about the guy who has 20k and wants to start?  Explain to me your "I only invest in CA" appreciation play for him.  Actually don't.  Because everybody on here has heard a podcast or read an article or whatever about how you can syndicate with 10 other guys and do a bunch of research and see the trend in how every 7th month along a particular access in this city a new Starbucks opens and that means all you need to do is put your life savings on the line and in 9 months you will quintuple your money and then you can buy your first apartment and blah blah blah.  This is the Memphis forum guys.  If you Memphis is your best appreciation play market you are probably doing it wrong (although, we are booming) and if your whole thing is just hanging schtick is just hanging out telling other people your way is better.... go get a more productive hobby.

@Account Closed Let me try again a bit more direct.  You are giving some anecdotes about your experience that loosely translate into "it can be tough to pay the bills with a regular job- I am smarter than that and so I invest in internet start ups! Its the only way to get rich!"  Speculating for appreciation has made A LOT A LOT A LOT of money for a lot of people.  You can also lose your shirt with a single bad choice.  No matter how smart you are, no matter how much you know, no matter how careful you are- it is at its heart a lottery.  Its not a business it is a game of chance.  Investing for cashflow can be a business.  It is much less exciting- but has a much higher probability of success over time.  It is repeatable. 

@Account Closed okay last reply before I head into Yellowstone!  This is something that I think can be debated quite a bit.  Just off the top it is a totally different set of maths depending on your debt service strategy.  Further, I use 10% because it is "common" and easy to work with.  You can easily pay anywhere from 6-12% and there are even other models.  Unless you are super conservative (and that is okay if you are) your spreadsheet should look fine even at 10%.  That is why people buy these houses.  The problem is that that the 10% isn't representative of the actual cost- and that is why the properties fail.

@Michael Plante You find a partner who aligns your interests with theirs.  Message @Ken Klingler

@Account Closed You sort of took a bit of a left turn there about not investing for cashflow.  The stories of people who had dramatic success with appreciation plays are super exciting and everyone loves to hear them.  But so are stories about winning the lotto.  The cashflow route works and is highly "plan and execute to-able" and what I mean by that is there is a formula and if you follow it you can do well.  **** can happen of course, but it is like getting a degree in CS and becoming a programmer.  If you follow the steps you are HIGHLY LIKELY to succeed (just watch out for wolves) but you don't "become rich".  But to extend from that and say "that is why I write hit songs" is a little silly in the form of advice.  Even though you can make a list of things that mitigate your risk and increase your odds of success- you are still gambling.  Lots of people love to gamble.  Those people buy stocks or properties on the coast.  There is nothing wrong with it- but even though they are both "real estate" they are not remotely comparable.

Hey @Bob Beach and @Xiao Xiao here is the post I promised.  I am happy to talk more about any of this at any time.  I am traveling at the moment though so you can also fee free to reach out to Ken Klingler or Jack Inman.

Also I am making up ALL OF THESE NUMBERS because I am typing from a Motel 6 in the middle of nowhere.  They are representative though.

Why is my Memphis investment property losing money?

Answer, you are probably using the wrong property manager. Let me give you a quick breakdown of the problem. The traditional property management business model is inherently broken. For a successful partnership (client/provider) you want synergy. You want aligned interests. This is exactly how traditional PMs do-not-work.

Ideally it should look like this- you have a 1k a month rental and they charge you 10% a month. In a year the property earns 12k. Property manager takes 1.2k and you keep 10.8k. Great. But sometimes you lose tenants and putting in a new tenant requires work and the PM should get paid for this- they usually charge half a month's rent. So if the property turns once a year and you lose a month of occupancy (best case) it looks like this instead property earns 11k. PM makes 1.1k but PM also makes 500 for the lease up so now their annual take goes from 1.2k to 1.6k 30% increase!!! And the owner profit goes to 9.4k (1k*11-10%-500) a reduction of 13%.

This is just the tip of the iceberg but shows how right from the start a traditional PM wants a different set of things than the owner.

Now the PM is ALSO going to manage the rent ready. And say that rent ready might cost a local owner with his own team something like 500 paint, 250 carpet cleaning, 250 in miscellaneous repairs. The PM will say something like “we use our own people to get the best cost”. Instead of 500, 250, 250 it will be 475, 225, 225! Except that they will charge a 10% service fee so instead of 1k total you pay 1,018. Now wait- the property was vacant for a month- so it needs the lawn cut twice and a visit from pest control. And with every transaction the owner’s profit goes down and the PM profit goes up. It gets hairier too! Previous tenant never reported a leak issue. On the walk through mold is noticed. (btw this is a true story) so a remediation specialist is called out. Well they make their money selling moisture barriers and whatever else. You may get lucky and they say nothing needs doing- but in all probability they will come up with 3k in work that should be done. A PM should be the one to say “hey wait, do we really need to spend that money?” except that if you agree to that work- they just made another 300 dollars. 300 dollars is 25% of what they would make in a regular year in our ideal scenario.

At this point the property manager has increased their revenue on the property by 100% and the owner has lost about 35%.

So, YES it is important to think about “how much does it cost to paint” and “how often do you need to replace the flapper in the toilet”, but what is far far more important to consider is who is making money off of what transactions. A property doesn’t go from 2% cash on cash return to a loser because the paint cost 20% too much. It goes from 2% Cash on Cash to a loser from a thousand conflict of interest cuts.

Thanks for the shout out @Bob Beach!  I was thinking about you a bunch today while on the trail (for those of you not keeping up, I am on an epic offroad road trip) and an article I would like to write about the AC situation we just dealt with.  We can chat about it offline but anyway...  @Xiao Xiao I am going to make another post in a minute- I will tag you.  Please tell all of your friends after. :)