I recently had a phone consultation with a turnkey vendor from Memphis, Tennessee. Although this company is headquartered out in Memphis, they also operate in some key Texas markets — Dallas Fort Worth (DFW) and Houston. Currently, my rental portfolio is allocated across the following locations: San Francisco Bay Area, Chicago, and Indianapolis.
Before checking out of the corporate world for good, I would like to acquire some rentals into the aforementioned Texas markets. Right now, I am unsure if I will go with DFW, or Houston… Maybe when the time comes to make a decision, I’ll choose neither and elect to go with Austin instead. Who knows? Anything is possible. 🙂
Check out this latest Forbes article highlighting the ten fastest growing cities in America. Take it with a grain of salt, but it’s of no surprise to me to see Texas all over that list.
Since I plan on acquiring at least one more rental property this year, I decided now would be a good time to do some research. Here is what I learned about the turnkey company out in Memphis.
- As mentioned above, this company operates in three markets: Memphis, DFW, and Houston. If you are interested in a few of those locations, working with this vendor could potentially be your “one-stop shop” to help you diversify.
- Vertically integrated company. This is a huge plus in my book. They run everything in house. Most importantly, they own the property management company.
- The representative told me that most of the properties they acquire were built between the 1960’s to 1980’s range. The Memphis properties are typically the oldest in age, followed by DFW, and then Houston. If you desire a newer construction property, like myself, your odds of finding one will probably be better if you start out in Houston.
- Properties priced at $100,000 and under are the main target. Single family homes make up the bulk of their acquisitions but they do occasionally purchase duplexes, triplexes, and quads. Only residential properties, however. No commercial buildings.
- At the $90,000 purchase price range, most SFHs will rent between $850/month to $950/month.
- I asked about financing and the representative told me that most buyers put down 20% for properties 1-4. For properties 5-10, expect to put down 25%. These numbers are lower than what I would expect. In the other markets I invest in, you need to put down 25% for properties 1-4 and 30% for properties 5-10.
- Property management fee is 9%. This rate is the same for all three markets. The 9% rate falls in line with what I would expect since Chicago charges me 8% and Indianapolis charges me 10%. Seems reasonable.
- Owner distributions are made via ACH, so you can expect a direct deposit into your account each month.
- They use a web portal to help make it easier for the investor to keep tabs on the property. You’ll be able to login, look at statements, maintenance work orders, lease agreements, etc.
- I was told that most tenants sign 2-year leases. As a long-term buy and hold investor, this sounds great to me. I’m not the type of investor who believes in raising rents every year. In fact, one of the main reasons I invest in SFHs is because I want low tenant turnover. My own preference is to locate fabulous tenants who want to stay long-term. This model seems to align with my own philosophy.
- The company targets blue collar working class individuals. They do not accept Section 8 tenants.
Here’s the impression I got:
- Company seems to be very well run. I communicated with two people (one through e-mail, one through phone) and they were both very friendly and professional. Very willing to answer any questions I had and the replies were prompt.
- Company appears to be very customer-centric. This is especially good for new investors who are buying for the first time. After purchasing, they will assign an agent to you who will follow-up and contact you once each week, for the first month. This phone call is intended to keep you updated on all happenings of the property (rent collection, maintenance items, etc.), and I guess to calm any nerves/fears you might be experiencing. You can think of it like hand-holding, which is something I would have wanted if I was buying real estate for the first time (and out of state!). After the first month, an agent will continue to phone you once each month, moving forward.
- If you want to build a long-term portfolio, the company will also assign a strategic planner to help you chart out a gameplan. This is the first time I’ve ever heard of something like this. Most turnkey companies appear understaffed as is, so I was surprised to find a company that would allocate funding for resources such as this.
- Company makes an effort to build a relationship with each individual tenant. They offer educational courses (not sure what this means, and I didn’t ask to go into details), and they provide a gift basket when the lease is signed (nice touch!). Once a lease expires, the company will make a strong attempt to retain the tenant, provided things went well. They might offer little things such as carpet cleaning coupons, or the like, to get the tenant to stay.
- I only briefly glanced at a Pro Forma, but it is very obvious that you will be paying a premium for any property you purchase through this company. When working with a turnkey vendor, this kind of goes without saying. You pay for convenience and service. However, with rising interest rates and purchase prices, the returns may not work out for you. Don’t expect 15% cash-on-cash returns…
This phone consultation was very brief, so I didn’t get to go into too many details. I still have a ton of questions to ask, but I will save those for when I make the trip out to Memphis. At this time, the plans are still up in the air as my schedule is somewhat tight right now. If I don’t make a trip out there by April, I may decide to just postpone it until later this year, most likely after my round-the-world expedition in August. So, maybe September will be a more realistic date. We shall see…