How to Rehab Rental Properties the Right Way and Avoid Costly Mistakes

Derek Phillips (00:00)
just because it’s the cheapest way to do it doesn’t necessarily mean it’s the right way. You know, the a lot of these contractors are out here, they they have success by making change orders. You know, that they may see some stuff that they you wouldn’t notice or

on the front end and then they know they’re gonna be able to charge you later for it because you’re in too deep. You already got them halfway paid through the project. You still owe them 20, but here comes a change order for another 20, you know, 20,000. And suddenly your buy box is busted and the whole deal is jacked up.

Q Edmonds (02:01)
Hello everyone. Welcome to the Real Estate Pros Podcast. I am your host, Q Edmonds, and I’m excited to be here today. I have another fantastic guest, and I cannot wait for us to learn from his experience, right? And ⁓ listen, this gentleman be having me in stitches. Like I I’m gonna tell you right now, he’s gonna give you the real. This is a real gentleman that’s knowing real things, but he’s proficient.

at what he does. And so I’m excited. I’m for I’m excited for us again to just see things from his vantage point and to get some real, real good nuggets from him. And so I’d like to introduce you all to Mr. Derek Phillips. Mr. Derek, how you doing today, sir?

Derek Phillips (02:39)
Doing well, Quentin. I appreciate you having me on.

Q Edmonds (02:41)
Absolutely,

man. I’m so glad you’re here, my friend. And listen, I’m the type, sir. I like to dive right in, right? And so I would love for you to tell the people what’s your main focus these days. If you don’t mind, give us a little bit of an origin story, man. Kind of how you got into the space that you’re in. And then, sir, tell us what part of the world you’re in too, man. People love to know geographically what people are. So what’s your main focus? What’s your origin story and where you are? Mr. Derek, sir, you have the floor, my friend.

Derek Phillips (03:10)
Thank you, Quentin. So I’m I’m in Memphis, Tennessee. It’s a super hot investor market ⁓ for multifamily and single family as well. I’m a Licensed General Contractor and an investor in single family homes. I currently have eight rental properties, a commercial office space, and of course my primary residence. So I own ten properties. I ⁓ I founded my company in twenty nineteen, but I come from the real estate investment market. I

Q Edmonds (03:11)
Absolutely.

Derek Phillips (03:39)
I worked for a local real estate investment firm here in Memphis for eight years before I went out on my own. And essentially ⁓ I worked there as a project manager. So I went out to Distress Properties, put together a full turnkey scope of work to have that property ready for a renter. And then what our company did is we bought, we rehabbed, we sold to investors, and then managed the properties.

So, I mean, I like that business model. And you know, it really taught me a lot about what it takes to rehab what some of these properties out here in Memphis, because some of them are just boarded up pieces of junk and they need a lot of work. You know, everything from complete plumbing repipes to panel upgrades to roofs and siding and windows and everything in between. ⁓ as far as you know, where I come from, my my origin is just kind of a

blue collar kind of guy that you know, I I started working in the trade at at sixteen years old and I I started working on a swing stage hanging off the top of high-rise buildings in Kansas City, Missouri. And I I learned I I learned carpentry. I worked for an HVAC company. I worked for a masonry company. I worked for an electrical company. I did roofing for a while, flooring. Like essentially I have physically done every trade that is a part of renovations in single family and multifamily properties.

And you know, I think that made me a good fit as a project manager for this investment firm because I I mean, if I already know how to do all this stuff like physically, personally myself, I know like I know what it takes, I know how long it takes, and I know how much it should cost. So, you know, I really thrived at that company. I was, you know, the top performer in the company as a as a project manager. And I, you know, I was doing double the rehabs and half the time as my next the next competitor near me. So and it

Q Edmonds (05:18)
Yeah, yeah.

Derek Phillips (05:34)
⁓ as far as my investment ⁓ portfolio and how that all started, I bought my first two bedroom, one bath in a in a what I would call a C class neighborhood here in Memphis. And you know, I I bought the house for $13,000 cash. It was a HUD foreclosure. This was 10 years ago. I moved into the house and I rehabbed it myself. Like I’d go to work all day, I’d come home and I was replacing floor joists and you know, running subfloors by myself in there with a string line and a level.

Q Edmonds (06:03)
Yeah.

Derek Phillips (06:51)
You know, but essentially though, that’s called sweat equity. I build equity into the property by doing this work myself. And I know as your your listeners and an other investors know that the best way to build equity is to get stuff done cheap or or do it yourself, you know, or or whatnot. But ⁓ essentially what I did is, you know, I I found that my next deal, you know, a a year a year or so later, and I I got a property in the high point neighborhood, which is a pretty sought after neighborhood here in Memphis.

And I did the same thing. I moved into it. I rehabbed the whole thing myself. You know, it took me six months. But then I did I did a cash out refinance on that property. And I I took my 50 grand and I bought another ⁓ rental property off in a C class neighborhood. And essentially I just kind of built and then I I leveled up my my properties as time went on and continued to get great deals. And then if you get a great deal on the front end and you can rehab it cheap, and as a contractor myself, you know, I can get stuff done basically at cost.

Q Edmonds (07:33)
Yeah.

Derek Phillips (07:51)
And ⁓ I build equity. You know, that you know, I bought a house in Germantown that I lived in and I rehabbed. And Germantown’s kind of like a A-class neighborhood here in Memphis. But I built the equity, I got a HELOC on the property and I started using that HELOC to you know, acquire properties and not to be long-winded, but I essentially I I ⁓ I moved to Nashville for a year for this company and I sold a couple of properties that I had and I doubled up, you know, I made a hundred K real quick on these these

cheap little rental houses. And that was when the market was really popping. I think I believe that was like, you know, 2017 or 2018 when the the market was still really high and you could get top dollar for all these properties. but yeah, you know, I’ve I picked up a ⁓ I picked up five units in the last year, four units in the last year, six in the last two years. So it’s kind of like I’m one of those home run hitters. I don’t, you know, I’m not just going to jump on every deal that comes my way. I don’t like necessarily have the

capital for that anyway. Like if it’s not if it’s not a home run, I don’t I just have to walk away from it. But, you know, w it in getting these rental properties, it’s you know, after expenses and and maintenance and, you know, turnovers and all that stuff, I still cash flow fifty K a year just from my rental properties. So like there’s a lot of money to be made in the real estate market as long as you’re you’re you’re finding the right deals and and working with the right contractors and and you know

Doing your due diligence on the front and making sure that it’s fitting inside your buy box and it all makes sense ’cause that’s where the home runs come from is diligence and and you know, underwriting. You know, you gotta be you gotta be real smart about this stuff to to really hit home runs.

Q Edmonds (09:28)
Sir,

bro, thank you, sir. Thank you, Mr. Derek, man. Thank you for taking me on the journey, man, from how you started, kind of to where you are now, the ordinary story, making it very clear about what you do, how you’re proficient at what you do. I I man, I appreciate you taking us on the journey, sir. And so, ⁓ you know, you you you gave me that summary, probably within like six minutes, right? But we know this is a lifetime, this these are years of just unfolding moments, right?

Learning different things along the journey. And so, Mr. Derek, I I often have a statement where I say, destiny has no wasted moments, right? Destiny has no wasted moments, meaning we are refining who we are over the moments, over the journey. And we’re borrowing from the success, we’re borrowing from the failures, but it’s reinforcing the people that we are today. So, Mr. Derek, I would love to know, man, throughout the journey, what have what has the journey taught you about yourself? Has it taught you discipline?

Has it made you humble? Has it taught you resilience? Like what has the journey taught you about you, man?

Derek Phillips (11:04)
That’s great question. I love that. let me kind of ⁓ preface this by saying that I’m not a I don’t necessarily believe in luck. You know, I think luck is when preparation meets opportunity. I mean at the at the end of the day, if you’re prepared and you’re disciplined and you’re and you’re ready, the moments kind of show up for for you. You know, almost things almost land at your feet if you’re doing the right things in life. And I don’t just mean professionally, like

Q Edmonds (11:14)
That’s my running definition. Yes, sir. Yep.

Derek Phillips (11:31)
being a good human being in general. Like essentially I’m a big believer in like energies and putting good stuff out into the universe. When I do good and act good and treat people the right way, good stuff happens to me. And that’s just the way it works for me personally. And you know, that’s part of that’s just having integrity and honor and and and telling the truth and and you know being a a high level human being with everybody you come in contact with. Like my goal is to like make someone I want anybody that talks to me or comes in contact with me to be better in some way.

Even if it’s just putting a smile on their face. But what I’ve learned about myself, you know, along with just being a good human and having things happen for me, is ⁓ you know, a lot of the disciplines. You mentioned disciplines, like I’m I’m big on discipline, I’m big on systems. Like I I got two baby girls now. I got a three-year-old and a and a three month old. And so I’ve had to start getting up at three thirty in the morning to get to the gym before this f my family wakes up and I start have to start

s serving my family, right? So, ⁓ you know, I spend I spend an hour reading through my meditation books and doing my little prayers and stuff and I do my little meditation and then I hit the gym at, you know, four thirty in the morning, you know, back by six fifteen to get my daughter up ready for school out the door and all that stuff. ⁓ but that’s a discipline and not everybody’s built that way. But like through disciplines and not only that, but other any other thing that I’m trying to accomplish, like these little wins stack up. Like if I start my day winning, you know, like

I’ve already accomplished something before it before the phone starts ringing, before the deals start hitting the table, I’ve already like put good in to my body, my soul, like all of this stuff that puts me in a place to be ⁓ you know, accomplish the the things I want to accomplish. And like the systems in my business. I know that I mentioned I’m a I’m a Licensed General Contractor. I opened my business in twenty nineteen. But the systems now that I put in place for my business to be successful are are a part of that discipline too. And it’s holding

not only myself accountable, but my team. And, you know, I I I try to surround myself with A A players, man. People that wanna win, people that wanna help grow this business. You know, I’ve got people in place that, you know, manage my rental properties, manage the leases and manage, you know, I I don’t have a property management company. I am the property management company. You know, my my office manager here, she handles all of my my rental property stuff. But yeah, I mean

Q Edmonds (13:45)
come on.

Derek Phillips (13:52)
To answer the question, I mean, I I think it all comes back to the type of human being you want to be. And are you taking the action steps necessary to to get to that place, to be that person, to to implement these disciplines to make to make you have success in in whatever you’re doing.

Q Edmonds (14:07)
Sir, thank you for that well thought out reflective answer, man. I I sir, I appreciate you answering that question. One of the reasons why I answered that because at the center of our business is us, right? And so I think being able to reflect on your disciplines, your why, you know, your passion, what gets you up in the morning. It helps us center ourselves and it always keeps us directed at the main goal. And so, man, again, brother, I thank you for that reflective answer, sir. ⁓

Phillips property, man. What’s what’s the next goal for you, sir? What are you looking to solve at scale next? What’s next for you, Derek?

Derek Phillips (14:43)
Well, on the investment side, like my goal is to to get to two more units by the end of the year. So I’d love to have ten cash flow and rental properties by the end of 2026. ⁓ as far as ⁓ scaling my business, you know, it’s it’s a process and especially the market right now is is fickle. You know, it the real estate market in general is is kind of on a downswing. You know, home prices are down, you know, you you it’s hard to sell, it’s hard to buy, you know, but

Q Edmonds (14:50)
Yeah. Yeah.

Derek Phillips (15:12)
in my business, like it also affects the my business because I essentially I’m in real estate, whether it’s the investment or the rip, you know, the remodeling, the turnkey renovations we do for investors or the high-end retail stuff we do for homeowners. So my goal to scale and build a brand, you know, obviously I wear my logos and all that stuff and all my I got wrap trucks all over the city and all that stuff. But to build a brand you’ve got to be visible. You know, so

How am I visible? I’m visible by doing things like this. I you know, I get on other podcasts. I I’m all over TikTok. ⁓ if you want to see my TikToks, it’s Memphis G C. It’s simple to find. but essentially it’s me just ch showing you job sites, trying to be showing you things that are helpful, you know, stuff like that. But it goes back to visibility. Like I I can’t scale, like I I can’t have be a household name until I’m unforgettable. You know, so like I want people to remember this little P P S tape measure.

When they see that or they’re thinking about remodeling their house, they’re gonna think of Phillips. They’re like that’s how I build a brand, that’s how I become marketable, and that’s how like that’s how I scale.

Q Edmonds (16:18)
Yes, sir.

Yes, sir. man, I love it. I love it, man. I love your introspection. I absolutely love it, man. All right. So I love getting every guest. I love to get their philosophy on this one word, right? So Derek, when you hear the word relationship, what rings true to you? Specifically in business, but when you hear that word relationship, what comes to mind for you, man?

Derek Phillips (17:25)
Man, relationships are what make this work. Period. Like it’s the literally the most important thing that we do, not only as humans, but as humans in business. Like I’m I’m, you know, I was in a B and I group. I’m not, you know, with that, but ⁓ I I’m a part of a Chamber of Commerce, you know, like I’m networking. I’m doing things like this, you know, I’m I do all the things. I’m going to the luncheons, I’m going to the first Friday coffee meetups, I’m shaking hands, giving out business cards, and I’m talking to anybody that’ll listen to me because like

building relationships, that for me, that’s how this world works. Literally everything revolves around the human relationships that we make in business and personally. Because like that that whole preparation meets opportunity thing, a lot of these opportunities are built on relationships that you make. So for me, relationships are are the whole keystone that that build the arch, man. So like it holds it all together. So like one of my biggest focuses is building strong relationships with especially people in the real estate market here in Memphis.

Q Edmonds (18:22)
Absolutely, my friend. But listen, Derek, I want to make sure we won’t leave any stone unturned, right? So is there any topic that I have not brought up that you would like to talk about? Is there any other words of inspiration, education, motivation? Like maybe you came here with a thought on your mind that you wanted our viewers to make sure that you let them know what that thought was. I kind of just want to open up the floor just for you to land that message if it’s something like that, man.

Derek Phillips (18:49)
I didn’t necessarily have anything specific in mind. You know, I just, if when I do these podcasts, I just want to come out here and be real and chop it up. I I’m not here to promote necessarily anything. I mean, I mean I’m honestly here to just try to spread some information and give my experience with whatever it may be we’re talking about. ⁓ I’ll touch quickly on hiring bad contractors. I get called every day about people wanting me to come fix some work that chuck in a truck came and came in there and messed it up.

Q Edmonds (18:55)
Yes sir. Yeah.

Yes, sir. Yes, sir.

Okay.

Yeah.

Derek Phillips (19:19)
And I’m coming to fix it. But like at the end of the day, you’re gonna pay more for me and it’s gonna cost you double because you already paid eight the the other guy and then now you gotta pay me to come back and fix it. Right. So I would say when you’re even in the real estate market, like

just because it’s the cheapest way to do it doesn’t necessarily mean it’s the right way. You know, the a lot of these contractors are out here, they they have success by making change orders. You know, that they may see some stuff that they you wouldn’t notice or

on the front end and then they know they’re gonna be able to charge you later for it because you’re in too deep. You already got them halfway paid through the project. You still owe them 20, but here comes a change order for another 20, you know, 20,000. And suddenly your buy box is busted and the whole deal is jacked up. ⁓

for me as a you know I I mention this to people all the time. Most real estate investors don’t work with me because they can’t afford me or they think they can’t. They got to learn the hard way first. You know all my repeat c clients in the investment world

They had to learn the hard way first, typically. You know, they hire the cheap guy, the quality is is pitiful. You know, their their maintenance calls are through the roof because the the poor quality of work. You know, they’re not tightening faucets down this leaks, the toilet’s leaking from underneath, it’s not sitting on the wax ring correctly. Whatever it is, the list goes on forever and ever and ever. ⁓

Your time. That’s your most valuable asset. Like what’s it worth to you? For me, it’s there’s no price tag on it. It’s it’s ⁓ you know, worth more than anything I can think of because we don’t get it back. We c we can make more money, we can get another property, we can do this, that, and the other, but we don’t get our time back. So what I try to tell people is like, look, maybe I cost ten or fifteen percent more than the other guy, but that comes with freedom, peace of mind, and your time. The best thing that we have. So like

You know, if you don’t wanna go deal with problems like going to pick up a five gallon bucket of paint for your subcontractor or deal with all the answers and questions and calls and all the things that come with trying to, you know, run in your own own rehab, you know, you might spend a little more, you know. With me, you know, you get a year warranty. So if you get a maintenance call from something that wasn’t done correctly, I come back and I fix it for free. So like all these little things, all these little happenings that occur during a rehab or you know, the tenant process of having a

rental property, all that stuff’s gonna add up and it’s gonna bite you. So, you know, hiring a quality quant contractor and betting these contractors. Look at their Google reviews. Check out their website. If they don’t have a website, ⁓ it’s not the end of the world, but they’re probably not a pro. You know, it’s real professionals have Google reviews, have, you know, are on Chamber of Commerce, are, you know, have a a legit website that you can look at, have re referrals and references that you can you can call, you know, that

can say, hey, we worked with Derek. We had a great experience and this is why. Like these are the things you want to look for. And you can check people’s their licenses, their contractors’ licenses. Like you’re not supposed to do jobs over 25,000 if you don’t have a contractor’s license in Tennessee. But I see all kinds of crazy stuff going on. You know, like pull the permits, guys. You know investors all the time try to get me to not pull the permits and it ⁓ almost every time it bites them because then we’ve got a whole rehab done.

Q Edmonds (22:06)
Yeah.

Derek Phillips (22:30)
And we’re pulling walls down so that we can expose the plumbing and electrical for the cause they got caught. You know. I’m like, listen, just spend the extra fifteen hundred bucks that I charge to do these permit costs and then you’re not spending eight thousand dollars to pull sheetrock down and tile up and redo a bunch of stuff or more. And ⁓ for me it’s like if we just do things the right way the first time, in the long run, you’re gonna save a ton of money. So I guess if there’s a message like hi hire a good contractor, you

Q Edmonds (22:34)
Yeah, so

Derek Phillips (23:00)
It can be me or not me. I don’t really care. Like I would I just want people to win. You know, like when my clients win, I win. And you know, we continue to do business together. It doesn’t like if you have a great experience and you we put out a great product that’s under warranty, you you do we move on to the next one and you know that you’re you’re dealing with the right person. So just yeah, vet your people.

Q Edmonds (23:20)
Yeah,

yeah. Man, Derek, sir, thank you, man. I thank you just for your insight, for your words of wisdom, your nuggets, your experience. You giving us, you know, time and experience, saving us time and experience with your time and experience. I appreciate that, man. if someone wanted to reach out to you, connect with you, collaborate with you, learn more about what you’re doing, how can they get in contact with you, sir?

Derek Phillips (23:46)
It’s easy. ⁓ I mentioned the TikTok. You can ⁓ always see me there joking around having a good time. But ⁓ you can you can reach out to our office. The phone number here in Memphis is 901 436 3646 You know, check out our website. All of our go all tons of photos and videos are on there from all of our past projects. all our Google reviews are all connected right to it. It’s ppsmemphis.com, like Phillips Property Solutions.

⁓ check out the website, check out what we do and ⁓ I’m sure we can be helpful.

Q Edmonds (24:19)
Yeah. Well listen, sir, let me say three things to you. And it’s gonna sound like I’m repeating what you’re saying, but I stand by it. ⁓ I wanna thank you for your time. I truly believe time is our most precious commodity, man. And so you showing up today lets me know what you value. And so I appreciate you giving us the value of your time. And so thank you so much, man, for coming on today. Secondly, thank you for your story, man.

Thank you for what I call the gift of your transparency, the gift of your authenticity, right? Showing up as your real self. I believe that’s a gift. Thank you for coming in, planting seeds. Because I believe seeds have a way. ⁓ you plant them. You may never see the growth, but the seed is there and that thing can grow at any given time. So thank you for planting some real seeds today. Lastly, man, thank you for your mindset. Thank you for the way you think and bringing that mindset to this platform.

I greatly appreciate you coming on today, sir.

Derek Phillips (25:16)
Thank you, Quentin. I had fun, man. It was a blast.

Q Edmonds (25:17)
Absolutely. Thanks,

man. Listen, y’all heard Mr. Derek. Look into the show notes. His information is there. Get in contact with him. Hire a reputable GC. Get in contact with this guy. But definitely make sure you are subscribed here because I promise you we’re going to continue to bring up amazing people just like Mr. Derek. So, sir, I say thank you again. And everyone else, listen. Y’all have a fantastic day.