As a turnkey provider in Memphis, TN where cash flow is king, I have been very fortunate to be able to meet and provide cash flow properties to hundreds of investors across country and the world. When I first got into the Turnkey Real Estate business in 2008, most of the investors we worked with subscribed to the Andrew Carnegie philosophy of, “The way to become rich is to put all your eggs in one basket and then watch that basket.” Meaning, investors found the individual they liked to work with, would buy as many properties as they could with that provider within that market. Fast forward to 2011, this philosophy has been replaced by “live where you want to live and invest where the numbers make sense.” Now when we work with investors, it is not unusual for our investors to have properties in multiple markets around the country. It makes sense to spread out your portfolio across as many different markets in an effort to diversify your portfolio, similar to what individuals do when investing in various mutual funds. Each market has its niche, but the bottom line is each market cash flowed. Also, each market had a driver- something that drove the economy, created jobs that supported a working population that needed a place to live and earned an income to pay for that place. The thought was each market had drivers that would continue to support the working population.
Seems like a fool-proof plan right? Well, it is, with one exception- the impact of Wall St and Institutional Buyers having the same idea. Within a short time, these buyers deployed billions of dollars and bought homes all over the country, including in markets where most individual investors have chosen to buy property. When the first fund came to town, we were in a good position; Memphis Turnkey Properties was just making a name in the market, the www.turnkeyinvestproperties.com site was vastly improved. We made a game-changing decision to invest in areas where hedge fund activity was minimal and focused on higher rents. We also make the decision to dramatically improve our renovations to almost a retail ready status—this would become instrumental in helping us rent out houses for top of market rents, even in areas we operated in where hedge funds were also active. However, this article is not about what we did in the past (I just felt it was worth mentioning as to not scare away future and current investors—please refer to our blog Memphis Turnkey Blog for more details on what we have done to eliminate the hedge fund impact) instead, it’s about a strategy that makes sense now!
Today, savvy investors should get away from the mindset of investing in “name brand” markets only (with obvious drivers that in reality, have less impact on your property then one might think). Of course when we talk drivers of Memphis, we are going to talk about Fed Ex. But Fed Ex only employees 30,000 people in Memphis. There are close to 1 million people living in the Memphis metro area. I would say maybe 3 or 4 of our properties are employed by Fed Ex and I believe they are all part time employees (many HUB employees are part time). We have far more nurses and other healthcare professionals living in our houses than any other profession. It’s true that FedEx is the driver that makes Memphis the distribution capital of the United States. And that does lead to a lot of jobs, but we have more nurses and various other healthcare jobs that live in our properties than any other profession. We also have a decent amount of teachers living in our homes (don’t all markets have schools?) Given this fact I’d say it’s safe to say that regardless of the market you invest in, schools are a major driver. What about hospitals? Don’t all people get sick? In the last month we have placed a college professor, nurse, banker, self-employed business owner, a yard man and a Federal Reserve Analyst. That tenant base could be from any city in the United States. My point is, investors are running to the same markets because those markets have Fortune 500 companies that employ thousands of people. But the reality is that more than likely, the tenants living in these homes do not work for these companies. I guess one could argue that these Fortune 500 companies that drive the economy keep the city a relevant and desirable place to live.
But outside of Detroit, I can’t think of a “Cash Flow” city that has seen such a downturn because the dynamics of the market driver has changed. I can tell you one thing that has changed in all the major markets where investors have been purchasing—and that is large pools of buyers and hedge funds have deployed billions of dollars to purchase thousands of rental homes. Like I mentioned earlier, we had a great plan to compete against these funds that would continue the success of our personal and investor portfolios—but not all Turnkey providers have done this. Actually, from what I can see, most Turnkey providers in my own market are operating virtually the same way in 2014 as they did in 2011 before the funds arrived. I still purchase property in Memphis and we continue to put our investors into properties that are going to give them the best chance to win. But as investors research alternative markets, why not consider slightly smaller markets- that are not on anyone’s radar and have not seen the emergence of large fund investors?
This, of course, leads me to Little Rock, AR and our Little Rock Turnkey Properties operation. But before we go into details of why this market makes sense, let me tell you how I came to the realization that you don’t have to invest in the name brand markets to be successful. In the past 2 weeks, I have met 2 different individuals who own rental properties outside of Memphis. One owned property in Chattanooga, TN and the other owned in Johnson City, TN. Neither city is huge by any stretch of the imagination, Chattanooga has a population of 170,000 while Johnson City has around 67,000 people. The formula these investors used was quite simple- own good houses, in good middle class areas and manage them well. Neither of these markets have major drivers (i.e. FedEx), but they have people, and what do people need houses to live in! Not everyone is meant to own a home and these people live all over the United States.
This is why I love Little Rock—it has people, people that need a place to live- and our company (Little Rock Turnkey) provides houses for people in that market. The metro area has about 724,000 of them. And Little Rock also has low property taxes. According to the last census, Little Rock right now shows only 34% of the homes are owned by investors with the rest being owner-occupants. We all know that renting is becoming a more viable option after the housing crash—that is not a theory, but well-documented in several national news outlets, including the USA Today and Wall Street Journal. The demand for rental homes is just not in the major metro markets—it is all over the United States. Our houses on average are spending less than 30 days on market before they are rented. So let’s review what we have in Little Rock.
- People (724,000 metro area)
- 34% rent and our houses rent on average 30 days or less, AKA as DEMAND!
- Fewer foreclosures than in major markets –(is less supply and more demand good? Of course!)
- Low Property Taxes
- GREAT homes (I didn’t discuss this above, but the pictures at our Website– http://www.littlerockturnkey.com tell the story)
- Great Property Management
- Absence of institutional buyers and individual investors
What markets are you purchasing in right now that can claim all 7 of those qualities? But if you insist on having metrics and drivers how about this:
Little Rock is:
- # 1 city to live in the US for markets under 1,000,000 in population – Kiplinger’s July 2013
- 2nd most diverse economy to Chicago, meaning, several different companies over several different industries make up the workforce. This is probably a good reason the Little Rock economy trailed the National Unemployment Average during the recession
- 2nd Cleanest City – Forbes 2011 (This is an important one if market drivers is top on your criteria list)
- 7th Best Metro economy in the US – Brookings Institute
- 22nd out of 361 metropolitan areas to do business –Forbes 2005
- When the downturn was as its worst, Little Rock was named Top 10 strongest Real Estate Market – Forbes 2009
So….great metrics, drivers and most important of all, 7 reasons why this market makes sense over other major metro markets. To summarize, the bottom line is there is still a demand in major markets, just make sure your team has a firm plan in place for the changes that have recently happened in those markets. But there is also demand in these micro markets too. If you are spreading your wealth across the country, you should seriously consider these types of markets too, namely Little Rock, AR, after all, they have 7 reasons to invest that no other major market can claim right now.
Visit www.LittleRockTurnkey to see what we are doing and why Little Rock is quietly becoming one of the best cash flow markets in the Unites States.