Memphis is the new Las Vegas
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Chris ClothierBusiness Member
Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes@Diane G. - Just going off your initial post, it looks like you are referencing the fact that at some point in the past, your experience was everyone speaking of Las Vegas as the go-to market and the city seemed to come up constantly as the place to go? I'm trying to give you some lee-way here - a little wiggle room for the point you were trying to make. After reading your responses, it becomes clearer that you have no idea what you are talking about. @Tom Ott, how is the view from the cheap seats? Just wondering when the last time was you were in Memphis to review the market to make a statement about saturation?
If that is the case and you are saying that Memphis is the new Vegas in your opinion because it is constantly being discussed, then ok. Only you know how often you were hearing about Vegas back in the day.
As for the statement about the music stopping and out of state investors over-running the city and fighting for a limited number of residents, I prefer this term to tenants, without understanding the sheer size of the city, the demographics, the dynamics that drive not only the rental but also the investment demand and the delivery of those services, this is just a statement thrown out with no context. It may be your belief, but it's not based on any real backing.
The Memphis M.S.A. has over 570,000 single-family homes and growing between .5%-1% per year. The population is expected to continue growing at a nominal rate as well of .5%-1% per year. I use the MSA numbers because while Memphis is a very large city, a majority of the recent growth in investment has been made outside of the city limits in the outlying suburbs or outer edges of the city outside the city core. You also have a diversification in industries providing jobs in the MSA although a majority still come from health-care, schools, government and transportation/distribution, agriculture and research just to name a few.
Why does it matter? Memphis is not a small city by any stretch and the major job supplying industries are not subject to the up and down nature of a fluctuating economy. So Memphis has always been known as a boring, non-sexy investment city where an investor is not going to strike it rich quickly, but can absolutely build an effective, long-term portfolio. When you consider that all of the major investment companies, whether they be Turnkey companies or institutional buyers are only buying less than .5% of the total number of homes in a year and that number may be a stretch, then you can see that Memphis will not be over-run by investors. The city still stands at roughly 39% of the population renting their housing, which is only slightly higher than the national average and lower than many of the cities just above them in price point and population. There is no chance Memphis becomes glutted with renters and owners fighting for residents.
Now, that may happen in some pockets of the city and I would argue the greater chance of that happening will occur in the most distressed areas of the city where poverty is already going to make investing difficult for out of state investors. So investors should be careful about where they buy...but isn't that what we say about any investment in any city?
Those who say Memphis has received too much attention and is no longer a good option as an investment city - insert the Tom Ott reference above here, can almost always be counted on for offering a different city to invest in where they do business and will make money. Or, they have a bone to pick because their experience was poor. In either case, I hardly think that should lead anyone to conclude Memphis as an investment destination is over.
If investors are patient and take their time before buying. If investors will meet the people they are doing business with and use common sense when buying houses, they can make a very good and consistent return. Right in line with what the city has always offered. Nothing sexy...but certainly consistent.
42 Replies
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Curt Davis I tend to agree with you .. other than some of your major corps pulling out.. which its not likely.. just a trundle along market really.
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Curt Davis also its not like the lifelong renters are all of a sudden going to qualify for loans anytime soon either.. there is just such a huge swath of folks living in the mid west and deep south that simply will rent their whole life as in they have really no asperations to own
out here in our area owning a home is aspiration number 1 for the majority of folks.
- Engineer · Carlsbad/San Diego · Member since 2014 · 285 posts · 97 votes9y
Interesting recent article - http://www.commercialappeal.com/story/money/2017/03/17/memphis-leads-nation-house-flipping/99249996/
Memphis is No. 1 in home flipping.
"Flips and out-of-town investors inflate the price of houses for working Memphis families, which helps keep them in rental housing, Byrd indicated. Renting instead of building home equity eliminates a common way for working families to accumulate wealth."
- Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes9y
Originally posted by @Jay Hinrichs:
@Diane G. on one of your post a reply came back that your comparing oranges to Iceberg lettuce and for sure you are when you compare vegas and Memphis.
What caused the meltdown in Vegas and PhX @David Faulkner well I can tell you
Vegas relys on gambling and tourism in the crash any tourist city and gambling city got hurt
Maybe you're right on Memphis, maybe you aren't Jay ... I don't know, I'm not smart enough to spot in the short term if a market is going to crash ... crashes are always much easier to spot in the rear view mirror ... but that's my point ... I don't have to be smart enough to spot them ahead of time, I just have to be smart enough to spot them and profit from them AFTER they crash (if they do), and then smart enough to mitigate my downside risks. The second is actually much harder than the first, but they are both infinitely easier than spotting a crash in the short term before it happens with any sort of precision. On the risk mitigation front, no matter the market or how strong it looks, I always assume that it will crash the day after I close escrow, and if that would put me into serious financial trouble, I'm not closing ... and as your example on PHX and your buddy's 4-plexes illustrates, cash flow is not some magic wand that single handedly makes you immune from any and all risks (as some newbies seem to think), though it is an important part of the equation, and the quality of that cash flow is every bit as important as the quantity.
- Real Estate Investor · Memphis, TN · Member since 2016 · 940 posts · 695 votes9y
@Meghan McCallum - Great question. Personally, I do not care if I'm outbid by a local Memphis investor or OOS investor. Sure, I'd rather get the deal but it just forces us to more creative and raise more capital. :) There are plenty of local investors finding deals here. There is a "boots on the ground" advantage; between local networking and simply knowing the city better we can find deals that others might not be able to take advantage of.
As a local, I think the additional investment in Memphis is a great boost to the city. I've offered help to many OOS investors thinking about Memphis (either on their own or with a TKP). Happy to do so and think this is a win-win.
Having such a great variety and quality TKPs in Memphis could also be an exit strategy for local investors who have property and want to sell or find a deal and can wholesale it to one of them.
We are extremely new to the Memphis REI world (only 4 years here) so I won't pretend to be an expert. There are plenty of true Memphis experts on this thread and in the BP world. But we do think this is the hottest we've seen the market, but because the price points and barriers to entry are still relatively low, I regularly meet people who are just now starting out and are excited about local investing.
Thanks for asking that; gave me something to mull over while enjoying my coffee. :)
- Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes9y
While both cities have had a big jump in out of state investors, the metrics are totally different. Vegas was expanding their inventory at an explosive rate while Memphis has investors purchasing existing inventory
- Investor · Memphis, TN · Member since 2016 · 279 posts · 257 votes9y
@Jay Hinrichs- I couldn't agree more. I'm here. I'm buying here. I'm staking my future ability to eat on living and working in Memphis, which I why I request substantive data when presenting a "run like the wind" from wherever it is claim.
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Hersh M. I don't at all agree with the assessement that flipping or the fact that Memphis has a lot of turn key type companies is keeping folks from owning.
prices have not shot up there like other areas.. they are consistant and you can buy any number of thousands upon thousands of homes for 120k or under and in todays interest rate environment these mortgage payments plus tax and insurances are the same or lower than rent.
the issue in these areas is simply demographics.. and as stated the perception that many have they don't want to OWN homes.. homes in non appreciating areas like these are liabilities to the homeowner .. easier to rent and let the landlord fix everything and pay the taxs and insurance.
you have a huge amount of the population that will NEVER qualify for a mortgage under todays guidelines.. this started changing in 02 to 04.. when I first started lending in Memphis and in the deep south my vendors were all flipping to retail.. then as credit got tougher they found this new thing called turnkey it also ran parallel to the real estate value run up in CA and other high priced markets.. when high price markets no longer could hit anywhere near the 1% rule.. SMART entrepreneurs brought their product to those who wanted that type of investment and the TK industry was basically born.. You don't see flippers or realtors advertising their LA or Silicon valley flips in Memphis right ???? its all price point driven.. and the fact is CA investor is a market maker ... there are 40 plus million in CA with HUGE purchaseing power.. and an affinity to own real estate you see it on BP daily.. I am in CA I am priced out I am going to look to a place I can buy something anything hopefully it will cash flow.. when in fact if you buy a rental and the tenant simply pays it off that's a great thing any positive cash flow over the years is icing on the cake.
IN our area ( I was raised in Cupertino) this is defiantly how it works.. and even a little negative cash flow is OK because you will off set that over time with massive appreciation... and or worse case scenario the tenant paid off your 600k rental and now you have a 600k asset paid for.
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes9y
@Diane G. let me start by saying that I do not live in Memphis or invest in Memphis, but I am continually hearing about investing in Memphis. I hear it on podcasts and read it on forums. I asked myself the same question, which is how much rental growth can the area withstand? I found it strange that rent to value ratios were pretty good while at the same time property values were not appreciating quickly. I would expect increasing demand to increase prices, so it has left me wondering what is going on.
I have researched population growth in Memphis and there are lots of articles talking about how there has been little growth. Articles mention lots of people moving out and even the greater metro area hasn't done very well. Job growth seems to be an issue.
http://www.smartcitymemphis.com/2016/01/16736/
http://archive.commercialappeal.com/news/governmen...
I wouldn't say that Memphis is the next Las Vegas, because you will recall there was a major run-up in Las Vegas property values before the crash. There was also significant population growth and job growth was fueled by tourism (every job is Las Vegas is fueled by tourism, because without it they wouldn't need construction workers, teachers, doctors, etc). Memphis is interesting because it doesn't have significant property value growth, population growth or job growth. The indicators to me actually show a flat or stagnant local market, not a boom town.
Before all the local investors tell me I am I have no idea what I am talking about, let's establish a couple things. A turnkey provider selling properties in Memphis would NEVER admit a market was flat or headed for trouble. It goes against their business. I get that and respect that, but also understand the bias does taint your input. Secondly, a local investor has a different experience than an out-of-state investor. They have eyes on the ground and know which streets are better to invest on. They can stop by the property or meet with the property manager face-to-face. Local investors will do better in a market. There are out-of-town investors that have had real trouble in Memphis. They are posting on BP with their stories. Prime properties are snatched up by local investors, leaving less desirable properties for out-of-state investors. People may want to deny this, but it is just logical it would happen this way.
Here is a thread about an investor who purchased a property last last year from an investment firm who is exiting the market. Many investment firms purchased properties in the depths of the down turn, but most are exiting at a profit. He purchased lower than they paid, so it does beg the question of why they are leaving Memphis at a loss?
https://www.biggerpockets.com/forums/311/topics/41...
At the end of the day, I look to job growth and population growth as indicators, but you have to take it further and look at the type of jobs. Some jobs are more permanent and recession proof. I am not here to say Memphis is headed for trouble, but it also doesn't have strong indicators compared to other cities.
- Rental Property Investor · Hong Kong, Hong Kong Island · Member since 2014 · 188 posts · 114 votes9y
Las Vegas or Orlando had been growing very fast until 2006, and there was a large inventory of new houses built for a homeowner while credit dried up. Valuation was not supported by rental yield or a rental market. Investors were scared as the narrative was that vacancy could stay there because these were holiday destination.
Memphis population does not grow so much, so the question is not whether people will be able to buy houses, but whether some renters will lose job and get lower pay, putting slow downward pressure on their pay.
Memphis blue collars will pay their rent, the risk is more a long term risk that rent (and therefore value) does not increase as quickly as other places. It is all a question of yield. Arguably, the long term pay increase differential between class A and class C dwellers is no more than 2%.
- Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes9y
Originally posted by @Diane G.:
These days, you can't stay on BP for more than 5 minutes without seeing a thread about investing OOS in Memphis...
It is absolutely becoming the new Las Vegas, in my opinion...When the music stops, and it will and it always does, Memphis will be a ton of OOS investors competing for limited numbers of tenants....
I'm sorry, but I disagree. Every market is different, making comparison's like this of little usefulness. There are many, many variables that differ between these markets...just take a look at population and job growth to name the two strongest determinants of property value. FYI: Las Vegas is far surpassing Memphis and anywhere in TN in the distant future. If you'd like a source for this, just take a look at the US Census for 2000 to 2030 and the Bureau of Labor Stats, both available online.
- 9yKuba F.Pro MemberReal Estate Investor · Los Angeles, CA · Member since 2013 · 2k+ posts · 694 votes
The following brain fart is not supported by data....
From what I'm seeing and hearing prices are not going up, and population growth is flat. I keep track of my house at Memphis State that I sold 10ish years ago and it's still worth the same, so much less in terms of opportunity cost. There's no influx of home buyers out there, and OSS and local investors are basically trading risk on existing inventory.
IMHO there's enough inventory that locals are "happy" to let go to OOS investors, and OOS investors have the risk tolerance to take on, especially if management is taken care of and nicely packaged.
Of course there's always spillover into better areas and increased competition with locals there. My friends on the ground tell me it's getting hard to find a house that hasn't already been renovated.
So the only problem I see is that eventually competition between OOS and locals is going to make it impossible to make a buck, and OOS will go eat another area. But for the moment as much hubris as there is about Memphis, I'm not hearing that we're anywhere near that point there.
- 9yHadar OrkibiPro MemberRental Property Investor · USA / NZ · Member since 2016 · 1k+ posts · 812 votes
I don't think that the fundamental in Memphis vs Vegas and Phoenix are the Sam. They later 2 are known to be boom and bust market while Memphis is more steady and less or no appreciation. (Depend on the area)
Yes between 2009'- 2013 the market dropped in Memphis but also Vegas and Phoenix crushed.
Another big different is over supply of new construction, this was a big issue in Nevada. While not really an issue in Memphis.
Memphis is getting a lot of publicity this time around, this is do to the power of Good marketing and affordability. It is probably one of the most repeated keyword on BP.
No matter what, you make your money when you buy 90% of the time.
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