Out-of-state buyers need to be careful during a turnkey property closing in Tennessee. Unexpected taxes, per-page charges, and the overconfidence of the no-attorney-required law can cause issues if you’re not careful. Investors may end up spending more money than they wanted, ending in a sour closing that takes time to recoup.

The good news is that the Memphis real estate investing market is bursting with potential opportunities.

We’re here to help guide you through the most common Memphis closing process pitfalls that out-of-state buyers face so that you can skip the stress and focus on your real estate business ventures instead.

1. Tennessee Realty Transfer Tax

Many out-of-state investors find it easy to overlook or misunderstand the property deed transfer tax applied during closing. It’s important to take a closer look at the law in Tennessee and how they work in comparison to your home state. This prevents any surprise charges at the end of the process.

The tax states that for every $100 of the real estate purchase price, there’s a recording and transfer tax of $0.37.

The common issue is that investors sometimes assume that the seller is the one to pay this tax. That may be the case in your home state, but it’s not always the case here in Tennessee. Many contracts intend to split this bill evenly between both parties, while others expect the buyer to take care of it.

Keep this tax in mind when going through the closing process, and make sure both parties know who is responsible for the bill.

2. Mortgage Tax on the Deed of Trust

Another tax that’s easy to overlook is the mortgage tax that’s applied to the loan, with a first $2,000 exemption. It’s a state tax that can go under the radar if you’re from a different state.

Depending on the size of the loan in question, the $0.115 per $100 tax can scale more quickly than you might expect.

To make sure this doesn’t surprise you during closing, make sure to do a clear title search and ask for it to itemize this tax on the closing statement. Then, double-check that the first $2,000 exemption is noted correctly as well.

3. Per-Page Charges

Per-page charges and recording fees aren’t only a thing out-of-state buyers forget about. These charges are the kind that many first-time investors don’t realize are part of the process.

The biggest issue is that local fees can vary from one area to another.

Ask the title company to provide you with a written estimate of these charges beforehand. Ask them to include both the running rate to go with the estimate so you can check that everything is above board and nothing is amiss.

4. County-Specific Closing Costs

Investors who assume that their home state’s local zoning laws and customs are going to work in Tennessee are often in for an unpleasant surprise. This kind of pitfall can put a damper on your otherwise wonderful investment.

Don’t forget to do your research for any other county-specific closing customs that you may have overlooked. Ask your agent and title company for assistance in figuring out what to expect.

Then, make sure you go through every single line of the closing agreement and check for correctness before ever signing your name on it.

5. No Attorney Required Issues

Although Tennessee law states that there’s no attorney required during the closing process, that doesn’t mean it’s a good idea to ignore your investor legal protection. Having an attorney not only helps ensure things go smoothly but also gives you ultimate protection if something goes wrong.

Small defects in the paperwork can cause issues to skyrocket before you even realize it.

It’s in your best interest to hire a real estate closing attorney who knows all about local Memphis laws. It may dip into your earnings, but the peace of mind their assistance brings is often worth the cost.

Frequently Asked Questions

Why Is It Called “Turnkey”?

A turnkey property investment is called “turnkey” because of its streamlined execution. A provider takes care of all the nitty-gritty details of preparing the property. Many turnkey properties are already tenanted, so even that step is finished before buying.

This is all done so that the investor only needs to “turn the key” in the door to get started. It’s a great choice for people who want to get into investing but don’t want to deal with the stress of things like finding tenants, doing maintenance, and figuring out local coding laws.

What Are the Advantages of a Turnkey Project?

Turnkey projects are appealing to many real estate investors because they provide a fully finished, ready-to-go product that can be put on the market in no time. Other advantages include:

  • Quicker turnaround times
  • Easier to invest out-of-state
  • Steady cash flow
  • Simpler management

What Is the 2% Rule for Properties?

This rule is a general guideline for how to set tenant rent. The idea is that the rent should be around 2% of the property’s purchase price to ensure a constant and worthwhile cash flow.

The main thing to remember with this is that it’s often seen as an outdated idea. It’s a good starting point, but it’s better to adjust the rent around current area rates and the demographic you’re trying to attract.

What Are the Different Types of Turnkey Projects?

The main differences between common turnkey projects depend on the intended use of the building itself. Most turnkey projects fall into one of the following categories:

  • Residential
  • Commercial
  • Industrial
  • Healthcare
  • Hospitality

Getting Help With Turnkey Property Investments

As an out-of-state buyer, Memphis real estate investing can seem overwhelming at first. The key to ensuring your time and money aren’t wasted is to connect with a trusted management company to guide you through any potential pitfalls.

Memphis Investment Properties is here to help your turnkey property business thrive. Since 1979, we’ve assisted investors with property opportunities that can help grow their business and real estate portfolio. We even offer a 90-day leasing guarantee so that your turnkey properties will protect your interests even if they’re vacant for longer than expected.

Contact us today to learn more about how we can help you expand your real estate business with Memphis investment opportunities.