“Rarely do we find men who willingly engage in hard, solid thinking. There is an almost universal quest for easy answers and half-baked solutions. Nothing pains some people more than having to think.” – Martin Luther King, Jr.
Of course, if you’re reading this, then you’re probably a person who is working hard looking for new ideas. Good job! We hope to reward your diligence with this episode of The Real Estate Guys™ radio show.
We’re big fans of looking for clues in the news. It helps us gauge the mood of the market, track trends and recognize opportunities. Best of all, there are thousands of reporters in the world all dutifully watching various aspects of our wonderful world and whipping up headlines to catch our attention. And thanks to the internet, search engines and mobile computing, we have access to virtually all of it in the palm of our hands. Amazing.
The challenge is that sometimes those sensational headlines don’t always tell the whole story. In fact, sometimes the headlines are more like head fakes.
Case in point: Recent reports about the Memphis (and Atlanta) real estate markets make it seem like real estate investment opportunity there is in free fall. But having been to both places, those gloomy headlines don’t quite line up with our first hand observations. This gave us an idea for this episode, so we decided to compare mainstream media headlines to main street real estate reality and see what the real deal is. More, we wanted to see where the opportunities might lie.
Troweling into today’s topic:
- Your host and a man we all dig, Robert Helms
- Your sometimes dirty co-host, Russell Gray
- The Godfather of Real Estate, Bob Helms
- Our gem of a guest and our main man in Memphis, Terry Kerr
After a few weeks of having our heads in the macroeconomic clouds, we come back to earth for a reality check with our good friend Terry Kerr.
Terry is a very successful real estate investor and entrepreneur in Memphis, Tennessee. Whenever we want to know what’s happening in Memphis residential income property, Terry is on our short list of people to call. So when we saw a few “gloomy” headlines cross our desks, we thought it would be fun to call Terry and say “Whussuuup?”
Since we needed a new episode, we called Terry from the studio and broadcast the whole thing. Now you get to listen in too! And even though we talk about Memphis, there are lessons for all investors, no matter what market or markets you’re mesmerized by.
So we start out talking about what we’re reading in the mainstream press. Falling prices, increasing vacancies, more foreclosures. Eeeeek!
“Whoa!” says Terry. “Those mainstream headlines are not my main street reality.”
Terry tells us that his occupancy “has never been higher” and confides in us his secret to occupancy success: below market rent for an above market property. Brilliant! And in a market that is “plagued with vacancy” according to the news, this tactic is working beautifully for Terry. And because the cash flows are SO strong in Memphis, his properties are still very profitable.
In fact, we take some time to talk about how accepting slightly less than market rent can actually IMPROVE PROFITABILITY by minimizing vacancy and turnover expenses. Yes, it’s common sense. But you’d be amazed at how many investors push the rents in their quest for profitability. We call it jumping over dollars to save pennies.
This takes us down the path of taking a market weakness and turning it into a competitive edge.
Terry’s properties are cheap. Er, we mean, inexpensive. Actually, his properties are quite nice. When we visited and toured several properties and neighborhoods we were very pleasantly surprised at how nice they are. Not what we expected in the $60,000 and less price range.
The problem with these “appetizer” properties is that it can be hard to find lenders who want to do loans for them. We investors, we get excited about a $12,000 down payment. But the too big to fail banks aren’t falling all over themselves to make $48,000 loans.
But while lack of conventional funding might hinder the success of lesser investors, Terry turned it into an advantage.
Leveraging his successful track record, Terry made a deal with some local banks. He guarantees the loans and the banks finance his buyers. Then, Terry’s team manages the property for the investor so he actually controls the condition and cash flow of the property.
We don’t know about you, but that’s the kind of motivation we want our property manager to have!
And, as you might guess, having financed over 300 properties this way, he’s never had a loan go bad. Very impressive.
What’s even better, Terry is now able to help people – like foreign nationals and others – who are locked out of conventional financing to start or expand their investment real estate portfolio.
So while some people may glance at the headlines and think there’s no money to be made in a place like Memphis, creative investors like Terry Kerr are finding ingenious ways to not merely survive, but thrive. These are great lessons for all real estate entrepreneurs everywhere.
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