How do you grade neighborhoods for real estate investment?

[00:00:00 – 00:00:15] Brett: It is five o'clock somewhere real estate investor podcast. My name is Brett Bernard, Marissa Miller and Jack Wad from the other side of the pond, Richard is here also. Thank God y' all showed up because I thought I was going to have to talk to Richard by myself. I was going to cancel.
[00:00:16 – 00:00:18] Richard: You usually call me at midnight for that, don't you?
[00:00:19 – 00:00:27] Brett: So anyway, just hang around. We're going to talk about a big mistake a lot of investors make. Grading a neighborhood. We'll be right back.
[00:00:30 – 00:00:54] Sponsorship: We are sponsored by Title Assurance and Escrow, a title company here in Cordova that does all of our closings title work, escrows. And we only use Title Assurance and escrow. That relationship is very important because we can get things done for our investors quickly and easily. So to speak, with Title Assurance and escrow, call 901-737-3333. Ask for Chris or April.
[00:00:57 – 00:00:58] Richard: All right.
[00:00:58 – 00:01:18] Brett: Welcome back. So I want to get into Grading Neighbors. We touched on it a previous episode real briefly. And no, it's the type of neighborhood, Richard. So you take your white British, twisted mind and settle down. It's not because of the color of the people that live there, right? The what is not because of the color of the people that live there. That's not how our great neighborhoods.
[00:01:18 – 00:01:20] Richard: I've never said anything like that.
[00:01:20 – 00:01:26] Brett: You just asked me the last episode we why? Why grade that number, that neighborhood a C. Yes.
[00:01:26 – 00:01:29] Richard: And that's for the C word that doesn't refer to a color.
[00:01:30 – 00:01:33] Brett: Oh, that's what you meant. I misunderstood. Okay, gotcha.
[00:01:33 – 00:01:34] Richard: Wow, you're so fast.
[00:01:35 – 00:02:34] Brett: So, Marissa, you know Memphis pretty well. And we've got Whitehaven. These are all part of Memphis, but we call them by their previous name, Neighborhood. They were way back in the day neighborhood. Whitehaven, which is where Graceland's at. Then we've got Frayser. Then we've got South Memphis, Raleigh, Bure, East Memphis, Midtown, Cordova, Binghamton. All those markets are heavy rental markets. There's a lot of renters in all these markets, but they're completely different in the type of market it is now. You can take a house From Frayser Worth 90,000 a day, go plop it down. And a so neighborhood in White Haven, it's going to be worth 120, period. A lot of people want to live in White Haven. So I was asked, I don't know, four years ago, five years ago, if I could grade a neighborhood for somebody. I said sure, but I wasn't quite sure what he was asking me. Like I didn't know Are you asked me to go down there and tell you if it's a Hispanic or if it's a black people, if it's a lot of white, I mean, what do you. That's what I thought he was asking me.
[00:02:34 – 00:02:37] Richard: No Brits living there. That's what he was hoping.
[00:02:37 – 00:05:14] Brett: I don't know what is worse than an F, but if Brits were living in there, yeah, I'd be below enough for sure, for sure. So I went out and, and I went to this street and it was a bad street. I mean, a lot of homes were boarded up, wasn't anything in good condition. Maybe a few average condition homes on the street. So my mind was like, that's an F period. Gwen was with me. As we circle the block and came back around, we found we missed two construction dumpsters in two of the homes. So Glenn immediately goes, well, then that's, that's we're in a D plus and this is going to be about a C minus and then a C and then a C plus. Eventually. Fraser View is the name of the street. And you drive down Fraser View now and it has gone from a D minus to A. I would classify it as a B minus now. Every single home's got a new roof, has been remodeled, and Terry built two brand new homes at the very end of the block in the COVID So it's, it's come up tremendously. So grading a neighborhood has nothing to do with the ethnicity of the tenants, the type of tenants, what country they're from, what color their skin is, what religion they are, has nothing to do with it. But as an investor, you need to understand that it's important that you learn how to do this because a lot of investors will call the first agent that answers the phone, say, I want to buy a rental property. That agent's going to waddle on down to, you know, some area of town, find the biggest piece of crap that's still standing up that they can find, run some bogus numbers on it that don't make sense to anybody and then say, look, this is a great buy. $100,000 rents for $1,000 a month, and you buy it and then six months later you're ripping your hair out because that agent didn't know what she was doing or he didn't know what he was doing. And that happens. We get a lot of listings from sellers that are dumping properties that they got involved with with an unqualified agent. Whitehaven has everything from A to F. Frayser has everything from probably B to F. Raleigh is probably B B to F. Cordova hovers between probably a D plus and a B minus. Now let's talk about what that means. So as an investor, you can understand how to evaluate your property. You can have a brand new home sitting in an entire neighborhood of abandoned homes. And that is a horrible investment, right? If you paid 100 grand for it, it was rent for two grand a month. That's still a horrible investment. You've got to put yourself into the, what we call the sweet spot, which is a C C neighborhood. That's a sweet spot. That's where you get the biggest bang for your bucks, where you can still buy a house for $100,000, rent for a thousand dollars a month, or it's $140,000, but you're written 14, $1500 a month rent. So CNC plus neighborhoods is where most investors spend their time. So let's talk about Whitehaven. You know anything about Whitehaven?
[00:05:14 – 00:05:18] Marissa: Not much. Not, not, not for Whitehaven, probably more.
[00:05:18 – 00:07:50] Brett: South Whitehaven is a B plus neighborhood. B plus market homes are in the 2, 300,000 range. A lot of professionals live there. All the homes are in good shape, taken care of. Yards are manicured, no abandoned homes. As you move north, it drops to a B minus, then goes to probably a C plus, then a C. And there's some areas in there that hit the C minus and the D. So as you get on these streets, take 20 homes for example, and you drive down this street and 10 of them are boarded up and abandoned, no work going on. Grass is 2ft high. And the other 10, say three more of them are fully remodeled and the rest of them are just an average condition. Looks like somebody's lived there for 30 years and hadn't really done a lot to a property. But they've, you know, taken care of. It's not falling down. That is AC neighborhood. If everybody would say, well, it's got two remodel homes, it shouldn't be. It should be more, should better in a seat, no? Now, if that trend that we see on that street continues, then that gray will go up. So when you buy a home, you want to look for something that has got activity. I can literally go down the street in any of these markets, drive down a street, find a street with two remodels, a couple of older homes with new roofs on them, yards are manicured, and then turn and literally go one corner away and there's 12 abandoned homes with 10ft of grass in front, vacant lots everywhere. Literally just right behind this Nice C plus street. So when you buy a home you can't have an agent that's going to do, oh well this is 38109 or oh, this is 38117. Well that's great because just because it's got the same zip code doesn't mean it's a great purchase. You can get a home on a bad street. I've got a poor couple right now I'm dealing with who called the first agent that answered number one, sold them two properties in a D minus neighborhood. They overpaid for them. One of them is vacant now has been broken into. The other one's rented way under market and they're both two bedroom, one baths, which is, that is nothing but a notebook full of negatives for me. And it's in 38106 and a really shaky part of 38106. So in that, that instance, she asked me to tell her what I thought about the neighborhood. So I drove out there and I put it at a D. And she was shocked because she was told by the agent that sold it to her, her agent, that this was an up and coming B neighborhood. This is on its way to where you know this is going to be one of the nicest places in this, in the whole 3106 area. And that was absolute lie will be.
[00:07:50 – 00:07:52] Marissa: As far off from a D. Yeah.
[00:07:53 – 00:07:58] Brett: Well it is, it is. This neighborhood is, has never moved since she bought the property.
[00:07:58 – 00:08:04] Richard: So do you have people that call you up and say, well I looked at it on Google street level.
[00:08:04 – 00:08:10] Brett: True. And I don't know why anybody buy anything in Memphis. You look at Google street level, they.
[00:08:10 – 00:08:13] Richard: Have to be sure that they're looking at the most recent pictures.
[00:08:13 – 00:08:14] Brett: Yeah.
[00:08:14 – 00:08:17] Richard: I mean you can go back several years on something. The gay street view.
[00:08:17 – 00:08:22] Brett: So our new constructions, if you look them up on Zillow, there's still the old abandoned home sitting there.
[00:08:22 – 00:08:23] Richard: Right.
[00:08:23 – 00:08:32] Brett: They don't have a picture of the brand new home because it was torn down and a new house is built. But yeah, a lot of people do that. You need to look at that. You need to try to find, I think somewhere in there you can see what date the picture was taken.
[00:08:32 – 00:08:45] Richard: That's right. I mean you can go back maybe 10, 12 years. So you can certainly see over a period of time how the street has changed. Yeah, but you can't see how it looks right now.
[00:08:45 – 00:09:43] Brett: No, no. The only way you're going to do that is just get you a good agent that's going to go out there and take pictures. Every time I go look at a property for somebody, I take pictures of the home inside and out. Hot water heater, air conditioner, furnace, open up all the sinks and look underneath and take pictures and send all those to them. And then I go outside and take pictures. Neighborhood. I've been asked many times, why are you taking pictures of my house? I just say I'm going to praise her, I'm going to praise this home. I'm just get some examples. And I send them pictures of the street and in that text I will tell them this is a C plus neighborhood. And I'm showing them pictures and evidence of why it's a C plus. Because if they go on Google Earth and look, they're going even on Zillow, look at their street view. That street looks nothing like the pictures I just sent to them. It's improved quite a bit since those pics were taken. But as an investor, you've got to look at those. You have to. Memphis is such a street by street type city. Our rental markets are literally block by block. You can go from an F to a B literally in a block, maybe two, three minutes.
[00:09:43 – 00:09:43] Marissa: Yep.
[00:09:43 – 00:09:56] Brett: You take east Memphis as an example, four blocks from Berkeley, which is a C neighborhood. C plus you've got Belmead, which is million dollar, two million dollar mansions. You go on the other side and you've got the same thing.
[00:09:56 – 00:10:01] Marissa: Even by like not far from U of M. You got U of M.
[00:10:01 – 00:10:03] Brett: Is probably the most cut up I've ever seen.
[00:10:03 – 00:10:25] Marissa: You have one side of the railroad tracks that's completely literally the other side of the tracks. Yeah, you have the other one side of the tracks. That's you know, if minus, minus, minus. And then you have literally on the other side where you can see these homes from the opposite side of the tracks and you're having B neighborhoods be.
[00:10:25 – 00:10:26] Brett: Like very wealthy people live there.
[00:10:26 – 00:10:29] Marissa: It's crazy how they're. It's when you jump across on the.
[00:10:29 – 00:10:43] Brett: Other side of Highland and it's all student housing. So while those homes are not in super good condition, they're not in dilapidated condition. But that same home on the other side of Highland is worth three times as much because it's a student.
[00:10:43 – 00:10:44] Marissa: It's crazy.
[00:10:44 – 00:10:47] Brett: Students are renting there and parents are paying the rent. So they're getting more money for them.
[00:10:47 – 00:11:06] Marissa: Yeah, it's crazy how different even, even like outside of the student housing, like just the houses themselves where they're owners or renters or you know, whatever, they're so different on Opposite sides of the truck. Like the deal that I just had with Robin. That home was for 140, but on the same street across the street from him. Those are all new.
[00:11:07 – 00:11:07] Brett: 3 and 400.
[00:11:07 – 00:11:14] Marissa: They're probably in the 300. Yes, they're in the 300, 400 thousands. And then two minutes around the corner five years ago, maybe one minute around.
[00:11:14 – 00:11:18] Brett: The corner five years ago, that street was about a C. Barely.
[00:11:18 – 00:11:19] Marissa: Yeah.
[00:11:19 – 00:11:22] Richard: So and just for our listeners, when you say the other side of the.
[00:11:22 – 00:11:49] Brett: Tracks, that is literally, literally the other side of the railroad track. So you got by the university, you've got railroad tracks that run through and on one side, Orange Mound is what they call it. I mean it was, it was a really bad place. And you cross over the tracks and go three blocks and you've got two million dollar homes on a golf course. You know, you could walk out of the street, out of a house and throw a rock across the railroad tracks and hit one of the mansions if you wanted to.
[00:11:49 – 00:11:50] Richard: Did you try?
[00:11:50 – 00:11:51] Brett: Not yet.
[00:11:51 – 00:11:51] Richard: Okay.
[00:11:52 – 00:12:15] Brett: When I drink too much I might though. So it's important for our listeners and investors and people thinking about investing to understand how Memphis is set up. And just know simply because you get on Google view and you see a beautiful mansion, you know, that's great. But if you could drive street, drive around two blocks behind it, it goes from A to F. Like that.
[00:12:15 – 00:12:15] Marissa: Very quick.
[00:12:15 – 00:12:26] Richard: Let's create a mental picture of driving through a C neighborhood. What am I likely to see? Am I going to see cars up on blocks? Am I going to see run down cars?
[00:12:27 – 00:12:28] Brett: There's cars on blocks everywhere.
[00:12:28 – 00:12:36] Marissa: You might see a few, but it shouldn't be oversaturated with cars, cars that are broken down, a bunch of flat tires, broken windows.
[00:12:36 – 00:14:32] Brett: What I would classify as a C neighborhood is if you drive down, you obviously you'll see a beautiful brick home, fresh paint, new roof, completely over the top, manicured yard. Well, that tells you there's someone that's been living there for 40 years, probably retired, bought that house when they had their job at FedEx. They retired and still live there. And then next to it you'll see a couple of properties that are in okay shape. You know, may one needs a roof. Some of them have, you know, peeling paint, grass is cut, but there's not, you know, all the fancy rose bushes and manicured sidewalks and all that. And then as you go down the street, you'll see another beautiful, beautifully kept house, not updated. It looks like they just bought it in 1979. And then manicured it, and it just looks identical. You go in it, same thing, but the house is in perfect condition, even though it hasn't been updated in 40 years. To me, that's a C, C plus neighborhood where every home is livable. You don't have four or five vacant lots in the middle of the street from, you know, people ban in homes that were torn down or taken back by the city. Cars being on the street, that's everywhere. But, you know, you don't see cars up on blocks. You know, you don't see cars on blocks in the street. Obviously, the person, the lady that retired, a gentleman that retired, has been living there for 40 or 50 years, still wants to live there. That's the CC Plus. And I would say the majority of our rental markets in Memphis are that. But a lot of investors make mistakes. And I don't want to go to Fraser. Oh, I don't want to go to Whitehaven. They've looked at properties or have been or had someone tell them. You don't want to go into Frayser. I mean, you go into Frayser, you go into East Memphis, you go into Whitehaven, it literally changes from A to A to F, where either direction you go, you're going to run into it. So you can't really necessarily take a zip code or a market and just decide, that's not for me. I mean, it's almost like not investing in Chick Fil A because you're a liberal and God owns. It's a Christian conservative. You're investing to make money. You know, you're not investing because of politics.
[00:14:32 – 00:14:33] Richard: Right.
[00:14:33 – 00:17:26] Brett: So look at it that way. Look at a particular street and when you decide to invest, look at it from an investment perspective. And you start off simply by grading the neighborhood. And if it's below a C, stay out of it. Because I don't care how much you're going to pay for it, and I don't care how much rent Zillow tells you you're going to get for it, you're going to lose money on that deal. Because in neighborhoods that are Ds and Fs, where no one's invested money yet, no one's gone in and bought in rehab, there's a reason behind that. There's no value there, or most of the homes are abandoned. So even if you rehab the home and put it up for rent, and there's 15 homes and 12 of them are abandoned, who wants, who's going to rent that house from you just because you own the property you've rehabbed it and it's, you get, you can get this much rent, doesn't mean someone's going to want to live there. And our new construction, we deal with that all the time. And that is, you know, sometimes some of these guys were just, you know, vacant lot in the middle of the worst neighborhood in Memphis. Oh bam. Throw up a new house and then it sits there for six months and nobody wants to buy it. Well, that's. Why would you want to live there? No. Well, neither do they. We've had some MHA tenants tell us that they didn't like the house in the neighborhood, and that's a fair assessment. Had the builders gone in and really evaluated the neighborhood prior to just jumping out and buying up 100 lots in it, they probably, I would advise them to not do that or buy them and sit on them. Just buy them and sit. Let's wait a couple years because eventually someone's going to go into that neighborhood, that's a D neighborhood and someone's going to buy that first house and rehab it. And that's going to get the attention of another investor who's going to jump in there, maybe buy two and do it. And it's like lighting a match. Once you light it, it takes off. I would say overall, Frayser, I mean, seven years ago that's where all the shootings were, cop gunfights. I mean it was just gang infested, drug infested, crap hole, Raleigh taking off the way it did and then getting overbuilt now and overpriced. Now that money started pouring into Frayser on the east side and it's just slowly working its way across. And now you can go in any single neighborhood in Frayser and see at least three to four remodel homes on every street and every couple blocks a brand new construction home. So much that the city now is putting a bike lane and repaving all the roads and redoing all the curbs and sidewalks and putting bike lanes on them. Seven years ago I would have been like, you're out of your mind. But it is literally a C solid C C market now. So my buddies and my investors that I've dumped in there in the last couple years that purchased homes for 60,000, $70,000 and rehabbed them. I mean they're sitting on properties worth $115,000 a day and they're getting $1300 a month rent for them. And their whole investment probably was their down payment, which was probably 10, 15 grand out of pocket, maybe total, and put five grand into it. And turned into a rental property. But a lot of investors will miss that opportunity simply because they get emotional about the neighborhood. They get emotional about, well, I wouldn't want to live there. I've had investors in my truck that did that. So I really don't like this neighborhood. Or you're not living here, you're here to invest. Right.
[00:17:27 – 00:17:28] Marissa: And you don't like Chick Fil A.
[00:17:28 – 00:17:31] Brett: But if Chick Fil A offered you stock, you'd take it in a heartbeat.
[00:17:31 – 00:17:48] Marissa: Especially investors that aren't from here, they're probably a little more taken back by the neighborhoods versus a born and raised Memphis. You know. Yeah, the investors can say, I don't want to live here, but for Memphian, it's probably a normal neighborhood environment, you know, for them.
[00:17:48 – 00:17:58] Richard: We talked about that a little bit on last week's podcast because Jeff was talking about how he was a lifelong Memphian, lived here for 50, whatever years.
[00:17:58 – 00:17:59] Brett: Yeah, 58.
[00:17:59 – 00:18:06] Richard: You know, the reality of the city compared to what media portrays nationally is just not a true picture.
[00:18:06 – 00:18:08] Marissa: Something that I may not terrible.
[00:18:08 – 00:20:43] Brett: Yes. Right. So, yeah, a gunshot, somebody getting shot, it's going to make the news and people are going to say, oh my God, it's, you know, it's murder capital of the world. No, it's not. I'd walk through 3106 at midnight by myself before I'd step foot anywhere in most of neighborhoods in Detroit, period. And I usually live there. And trust me, I've watched people pull guns on the, on the highway and shoot at each other while I'm literally behind them. Memphis is not, not that bad. You know, grading a neighborhood, I think, is if you set your standard as an investor that I want CC plus or higher, that will get you at least kind of get you away from the garbage. That's going to do nothing but cost you money and you're going to lose money. Now I've got an investor that was here last weekend and she about to retire. She has four or five homes in Frayser and they're performing well and she loves them, but she's about to retire, so she's now wanting to step up her game. So now she wants to buy in Cordova and she's going to spend $190,000 for a house in Cordova and only get $1,800 a month rent. Financially, it doesn't sound like a good investment. But for someone who's about to retire, who wants no headaches, just wants to get a mailbox check every month and have someone take Care of the house, have a professional tenant that lives there. That's her next move. She did the C neighborhoods and she's gotten great returns on. But now she wants to stabilize her portfolio by having three or four nice homes in Cordova. They're going to bring in four or five, six grand a month in rent. That's going to cost her half a million dollars. But if you do the math on that, that's still better than what she's going to get if she dumps that money in the stock market. I would say that if you come to Memphis, you're in here in markets Cordova. Cordova's straight C plus to B, maybe B plus or some B plus areas, but you're going to pay for that. If you want a safe, very limited risk investment, that's where you go. But you're going to pay for that. If you want a true investment and a good return on your investment, then you've got to go to the CNC plus neighborhoods. And if you can give us a call at 916-92-7401 or go to our website mymenphasinvestmentproperties.com we can actually help guide you to those neighborhoods. If you call me, say, brett, I want to buy $30,000 in F neighborhoods. I'll find them for you. As long as you know what an F neighborhood is. I would generally say that 99% of my investors, and I know pretty much all of Glenn's investors were in C&C plus neighborhoods. We have a few Japanese guys that bought in Caraville, Germantown and Cordova. I've got one investor, Mike only buys B neighborhoods. Michael, he buys the lost seven Cordova. Todd Riccio, same way he buys lost stuff in Cordova. He always wants. He's got a standards brick. Lisa, 32 with a two car garage in a B neighborhood.
[00:20:43 – 00:20:56] Richard: Well, I think an important thing to reiterate that we've said many times even on that 190,000 that someone might invest in Cordova. The 20% down is all the money you're putting in. That's $38,000.
[00:20:56 – 00:20:56] Brett: That's right.
[00:20:57 – 00:20:58] Richard: Maybe some closing fees.
[00:20:58 – 00:21:06] Brett: Yeah. And again, and that's your investment. The, the biggest, the biggest thing for her is, is that she's paying cash.
[00:21:06 – 00:21:07] Richard: Right.
[00:21:07 – 00:22:10] Brett: So if she was doing a mortgage, that's the difficult part, is that her note's going to be 14, 1500. Right. So you're really making nothing. Matter of fact, you know, there could be some months where you're coming out of pocket Paying it. But she's not as concerned with that because she's paying cash number one and she's using it for retirement cash flow. She self manages it now. She used to be with our buddy, but she left and now she self manages her own properties. When you're young, you can be aggressive, but don't be stupid. Right? That's like going out and you know, buying a crypto comes out tomorrow and it's penny a piece and you go out and buy a million shares of it because you think you're rich off of it. And in 10 years from now, it's still worth a penny. Don't do that to yourself. If you want to be a good solid investor, get to a C neighborhood. Memphis is a great market for that. And I would say you can go to C neighborhood anywhere. I heard Cleveland, Ohio is doing fantastic in the rental market. Little Rock has kind of fallen off a little bit, but we've all got C neighborhoods that produce good cash flow. So to sum it up, I don't grade a neighborhood by the people that live there. I'm not racist. I don't care what color you are. I do care what country you're from.
[00:22:10 – 00:22:11] Richard: I'd noticed that Britain.
[00:22:12 – 00:22:56] Brett: I just don't, I just don't think I could put somebody in a neighborhood where a lot of Brits lived. Well, Britain is what a boring place to live. Food would suck. God, it would stink that suck anyway. So I don't grade it based on color, skin or the type people live there or people's religion. I base it on the style of the home type of home. And that's another. You can, you can change your grading simply by a styled home too. If it's a bunch of wood frame, wooden and aluminum siding and no brick homes, you that I will adjust for that because that also adjusts down your value and your sellability. That property, when you get ready to get rid of it, it also affects your leasing and how much you can get rent. A lot of people don't think about that. A brick home or typically rent. You can get more rent for a brick home than aluminum sided home. Because people drive up and they like the curb appeal better. It looks better.
[00:22:56 – 00:22:58] Marissa: Brick homes are just sturdy too.
[00:22:58 – 00:23:11] Brett: Yeah, they can all catch fire, they can all blow over and tornado can rip them all down. But buying brick over siding, you pull up into a home, it's got architectural shingles on it. Costs the same as putting three tab shingles. But guess what? Architectural shingles look way better.
[00:23:11 – 00:23:12] Richard: They do.
[00:23:12 – 00:23:17] Brett: Curb appeal is still important to someone who's renting. Just because they're not buying it doesn't mean they don't care about curb appeal.
[00:23:17 – 00:23:21] Marissa: When you rent, you still want to feel like you're in your home, you.
[00:23:21 – 00:23:42] Brett: Know, and I tell a lot of my rehabbers, this man, add a couple of thousand dollars extra in your budget and landscape the front yard. Instead of people pull up and you want market rent for this house. And there's construction crap all over the yard, little pieces of it. Not a single flower bed anywhere. A bunch of overgrown bushes. Yeah, the house looks good, but you can't see it.
[00:23:42 – 00:23:42] Marissa: Yeah.
[00:23:42 – 00:23:49] Brett: First place, put a couple grand in the landscaping, and you would be surprised at how many tenants may drive by that house and say, wow, I'd love to live there.
[00:23:49 – 00:24:02] Marissa: Yeah, definitely would help out with the house. You know, you really don't know what the inside of the house looks like until you get in. But if you see the front yard in this landscape nice and looks well, well, that would encourage you more to like, oh, I want to see the inside.
[00:24:02 – 00:24:11] Brett: The landscaping situation could also change the greater that street. It really can. Because it's not just always about the condition of the house. It has a lot to do with the atmosphere.
[00:24:11 – 00:24:22] Marissa: Yeah. It just has to do with process, visual, just the thought process of who owns the home, where your mind was when you thought to put this on the market for rent. You don't want to just rent any old thing.
[00:24:22 – 00:25:17] Brett: So I'm just trying to encourage people to have an open mind when they go into buying a rental property in Memphis. Do a common sense grade of the neighborhood or the street that you're on. Don't get emotional about it. Don't attach yourself to it, because if you do, you're going to make dumb mistakes. And then don't go the opposite direction either. Don't just say, I'm going to go out in the hood and buy 50 homes for, you know, $300,000 and make it become a millionaire. You're not. You're just not. Because everything in that home is going to be gone before you can get it rented and you're going to lose your shirt. C is probably the least not. It has more risk than B, and A has a hell of a lot less risk than DNF. C neighborhoods, you can get the 1% or better CNC plus 1%, maybe 12, 13, 14% gross. RSRI. You can't get that in BNA. Now in DNF, you can get 18% on paper, but I guarantee you by the Time you do your books at the end of the year, you're probably going to be one and a half if not in the negative, not in.
[00:25:17 – 00:25:20] Marissa: The red from having to put money back into constantly.
[00:25:20 – 00:25:59] Brett: Yeah, I can give you a perfect example of that. I had an investor that I fired. I finally got rid of him. I just said, I can't do this anymore. He wanted to buy homes for $35,000. Actually, Glenn gave them to me. It's one of his. One of his. Here, give him a Brett. Why was it, I mean, I just got my license. I was all fired up. Yeah, I'm going to do this. Great. So he goes, here, I found these five homes. Can you go check them out for me? I had never even been over there. Sure, I'm going. Drove up, I'm not gonna lie. I was a little nervous about driving down the street. And as I drove down the street, everybody was watching me. And as I parked in front of the first home and got out, everybody was walking down that street toward me.
[00:26:00 – 00:26:02] Marissa: Yeah, they probably knew, listen, these weren't.
[00:26:02 – 00:26:58] Brett: Just people that were out for a Sunday. Watch these. These were punks. And you could tell they were up to no good. Cars in the middle of the road, music bumping. They just, you know, they're being kids. So I go in the house and it. Not a bad looking little house. Window units didn't have central air. Went back and I said, well, I mean, it's pretty rough area town. I'd say it's certainly worth 35,000. What are you gonna rent it for? He said, 900 bucks a month. I'm like, okay, cool. Wrote it up, got the deal done. He paid cash. We closed two days later. He says, can you meet my contractor over there? Because I'm gonna get him to do to fix the steps in the back. I don't know, some other stuff. He had to, sure. So I got over there two days later, door kicked in. Drywall ripped out. All the copper wiring gone. All the faucets gone. All the light fixtures gone. Doorknobs gone. And two windows in the back had been removed from the sash, like unscrewed and taken out.
[00:26:58 – 00:26:58] Richard: Wow.
[00:26:58 – 00:27:47] Brett: It's almost like a rehabber who needed some materials, went over there and got what he needed and left. He spent 12,000, $13,000 getting that house back. So now he's at almost 50,000 for that house. He's gonna get $900 a month rent for. And this is absolute true story. So his contractor redid everything, got the house rent ready epm put it up for lease. I was the leasing agent. Still, a couple weeks after all that was done, they found a tenant that wanted to see it. So I went out and met the tenant to see it, and same thing had happened. They destroyed the house again. Again. This is all within 30 days or well after rehab, so 60 days. So he then soaked it up, got the house rehabbed again, and said, I've got to get a tenant in here and get in it right away. I don't know if he ever even rented a house. I showed it a bunch of times, but he ended up putting money in the house.
[00:27:47 – 00:27:48] Marissa: Did he ever board the windows up?
[00:27:48 – 00:28:12] Brett: And then he ended up calling me and said, I need you to sell this house. Like, what do you want for it? He goes, just get rid of it. He never got a tenant in six months. Probably never had a tenant. Was all into his house at 70,000. I think we got rid of it for like 45. He lost 30 grand on it. All because he just went in the wrong neighborhood. All because he didn't take the time to research what he was doing. He looked at numbers on paper and says, wow, that is a hell of a return. And he made a huge mistake.
[00:28:12 – 00:28:16] Marissa: One of those too good to be true. Oh, but he based off of the number.
[00:28:16 – 00:29:15] Brett: Two more before he finally. And I finally just said, look, I'm not doing this anymore. Said, I've told you to get in. See neighbors. Well, I'm not spending 110 grand on a house. Well, then go keep buying. But you need to call somebody else because I'm not doing anymore. I mean, let's face it. I made 3% off of 35,900 bucks for all that. It wasn't worth it. So that's a good example as to why you just need to grade your neighborhoods, understand what you're doing. And if someone like me tells you no, then fire me. Just say you're not my agent because you're not telling me what I want to hear. Because if I tell you no, I mean, no, you're going to lose money. No, these people are not smarter than we are. No, they're not the greatest investors on the planet, but the good investors have good agents that they. They. They listen to. Right? They confer with. They bounce ideas off of. They take advice from. So just get you a good agent, grade your neighborhoods properly, and you. You'll do fine. You'll do fine. Don't buy any neighborhoods with British people living in them. That's my only advice to you.
[00:29:15 – 00:29:18] Richard: Says you says me as you call me at midnight.
[00:29:19 – 00:29:22] Brett: I didn't call you at midnight. Not recently.
[00:29:22 – 00:29:24] Richard: How can everybody get in touch?
[00:29:24 – 00:29:50] Brett: 901-692-7401 or you can go to our website mymemphasinvestmentproperties.com actually, we have all of our homes that are listed for sale there. You can go check them out. We'd love to hear from you in the comments. If you like the show, subscribe, we'd love to have you add you to our list and you can go on the website. Our email addresses are there. You can send me emails with topic ideas. If you've got a specific question, or if you just want to talk about maybe getting started investing, shoot us an email over. We'd love to talk to you.