There are tremendous cash flow deals out of state. That is probably why there is more and more interest in expanding your investment options. For those of you interested, I thought I would share my experience with you. I would like to start by saying that I, by no means, am an expert at out of state investing, nor am I giving any financial advice. I am simply sharing my experience.
About three years ago I came across an opportunity to buy two houses for $35,000 in Memphis, TN. I was told by the seller they each will rent for $600 a month. I looked up the addresses online and viewed the properties and neighborhoods on Google Maps. These were solid brick 3 bedroom houses. The seller also told me he wanted to finance $22,000, reducing my money at closing. The terms we negotiated were 7% interest rate on a 30 year amortization. The payment on this loan is $150 on combined rental income of $1,200 per month. This is one of those things that appear too good to be true, but after speaking with Stephanie, my wife, we decided to take a trip to Memphis to get to know the area a look at these two houses.
We like the area and had fun on Beal Street. We even got a chance to visit Graceland. The houses already had tenants with very little maintenance issues. We decided that it made since to purchase, so the following week we closed on our first two out of state deals. We had one little surprise. In Memphis, both the city and the county charge property tax, and they are quite a bit more than we have in Colorado. We only looked at the county tax rate, so the city tax was the surprise. The deal was still super strong, and knowing about the city tax would not have changed our decision to purchase, but it was a surprise none the less and was a lesson learned.
Since our first purchase we have been attracted to turn key real estate deals in Memphis. We now own nine, with two being in our self directed IRA. Each rents for $600 to $700, and except for the first two, all prices have been $30,000 to $40,000 a piece. We have private financing on all of them with real short amortization schedules. We had to put 50% down on each and they all have positive cash flow and will be paid off in five years. After two tries, we seem to have found a solid property management company and the deals are running smoothly. I occasionally get statements that make me question what the management company is doing, and often times I feel I am paying too much for maintenance issues, but the numbers still work. As mentioned, each deal required a down payment so this is not the little to no money down strategies I also use. It works for Steph and me because we had some money to invest and were looking for some quality returns.
I have been extremely happy with my decision to move to a different market and with the time limitation that I have, a turnkey purchase was definitely the way to go. Turnkey just means a property that is ready to rent and already has management in place and sometimes already has a tenant in place. You typically will pay full retail price for these homes but in some markets, full retail is still a great deal.
With all this said, I have not heard of too many investors having success rehabbing properties outside their area. Typically a rehabber does not do well if they are not physically in the area to manage the project. I would never try to flip a house or buy a house to rehab if I was not there to manage it.
If you have some cash lying around and are looking for investment options, turnkey rentals might be a great way to go. I, of course, would not be doing my job if I did not also mention that private lending is also a great way to invest extra cash without worrying about maintenance issues, vacancies and property management companies. You can get more information about private lending by downloading our FREE Private Lending Report.