Is Memphis still a good market for SFR?

Buying & Selling Real Estate
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Is Memphis still a good market for SFR?

Yvonne Sheehan
Investor · New York City, NY · Member since 2013 · 17 posts · 7 votes

Looking to Memphis as my first investment opportunity. Specifically single family rentals with a long term view to supporting monthly cash flow.

Question is this. If Memphis has been on the radar for a while, is the market saturated or still a good investment?

Appreciate the support

Yvonne

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Curt DavisBusiness Member
Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
12y

Dean,

You are a turnkey company.  You sell homes to your clients, rehab them and refer property management.  How is that not turnkey?  Just bc you dont have in-house mgnt?

 You are not getting any better deals then the rest of us and as far a rehab goes, that is all a matter of how someone wants to renovate.  The average home needs $10k-$12k if you do a decent job.  

I will give you some credit, to operate your business from a 3rd world country cant be easy.

You mentioned the home on Newling, here is the actual breakdown:  

$58k purchase price

We then got a $78k loan to cover all our purchase, rehab and additional fees so we are initially all in for $78k.

We advertise for $99,900 but accept a $92,000 cash offer.  

There is a total of $5,260 in commissions  for this home.  

We will have about $1,000 in closing cost when we sell.

The home was vacant for about the first 3 months taking into account renovations and property mgmt advertising time,  $2,340 holding cost while vacant

So when its all said and done the company will make close to $5,400   

Not the huge profit that it looks like.  

Some markets are inflated bc of what we do but this area for example has always bee a $100k-$115k neighborhood so our buyer getting it for $92k is a pretty decent deal.  The house next door was sold for $112k.

I can say with confidence that our mgmt company is as good as Chris's mgmt company!!!

Curt Davis - KAIZEN Realty538 Reviews
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  • Wayne Woodson
    Investor · Nashville, TN · Member since 2009 · 483 posts · 228 votes
    13y

    Memphis is sill a good place for rentals. It was ranked no 4. if you check here..

    http://money.msn.com/retirement-investment/10-best-cities-to-buy-rental-property-thestreet.aspx?cp-documentid=6828239

    However I think Nashville is a better market for the long term investor. Most everyone I talk to from Memphis hates it there and crime rate is super high. I once wholesaled a property in Memphis for $1,500 and it sat on the market for 2 months. That same property would have sold within a day here in Nashville.

    1Reply
  • Christy Byrd
    Involved In Real Estate · Murfreesboro, TN · Member since 2013 · 14 posts · 1 vote
    13y

    Hi,

    I'm fairly new to real estate investment, but I agree with Wayne. From talking with people here Nashville is a great place for the long term investor. Check out Murfreesboro as well.

    Christy

    0Reply
  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    13y

    Memphis is a great market providing you stick to A's and B's. The low end is very difficult to get and keep performing.

    0Reply
  • Thomas B.
    Investor · Memphis, TN · Member since 2013 · 59 posts · 30 votes
    13y

    Hello,

    I haven't been on the forum long, and this is my first post, but being a Memphis investor myself I would have to say Memphis is still a good place to invest. However, Memphis has a lot of bad areas scattered through out even in the best of zip codes and the tenant pool can be difficult to qualify depending on your standards.

    0Reply
  • Jamaal Hunt
    Wholesaler · Brooklandville, MD · Member since 2013 · 149 posts · 29 votes
    13y

    hmmmm interesting. Would anyone say that properties near the university any good?

    0Reply
  • Marco Santarelli
    Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
    13y

    Hi Yvonne Sheehan,

    Yes -- Memphis is still a great market to invest in if you are looking for a stable market with good cash flows and rent-to-value ratios.

    Memphis has high rental rates relative to property prices which is why it's such an attractive market to many investors. You will find property values all over the map, but I suggest staying away from the "very" low prices properties and stick to your B+/B/B- neighborhoods. Although you can still find good cash flow opportunities in the more expensive 'A' neighborhoods too.

    Memphis also is home to 9 Fortune 500 companies including FedEx and AutoZone.

    Our clients found Memphis to be a solid choice for their real estate portfolios, so I suggest you look into it further for yourself.

    Continued success!

    1Reply
  • Chris ClothierBusiness Member
    Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
    13y

    Yvonne Sheehan - Welcome to BP! You've found a great place to network, ask questions and get to know other investors. I can tell you that Memphis is like any other mid-America city. It is a great place to invest in SFR, but in every city you have to be careful, do your homework and get to know who you are working with.

    Don't be in a hurry. Memphis has been a much-talked-about investment city for some time, but that does not mean that the deals are gone and they will not be disappearing anytime soon either. You have plenty of time to be thorough and to really dig into the city and your investment strategy. If you are patient, it is a great city for investment.

    Best of luck to you. Don't hesitate to let me know if I can help you in any way.

    Chris

    Podcast Guest on Show #224
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  • Chris ClothierBusiness Member
    Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
    13y
    Originally posted by Jamaal Hunt:
    hmmmm interesting. Would anyone say that properties near the university any good?

    I have found it tough to make money near the University of Memphis because the rent ratios to price do not pencil out the way they do in other parts of the city. The prices are too high and the rents are tough to get and maintain. Other investors may do very well there, but I prefer to be in the suburbs and in areas where there is more demand for stable, family homes.

    Good luck to you -

    Chris

    Podcast Guest on Show #224
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  • David Avetisyan
    Rental Property Investor · Glendale, CA · Member since 2013 · 685 posts · 334 votes
    13y

    I do not know the TN area very well, but from the research that I have done I liked the following over Memphis- in no particular order:

    Nashville & Murfreesboro

    0Reply
  • Jeff Cook
    Real Estate Investor · Atlanta, GA · Member since 2013 · 27 posts · 1 vote
    13y

    Beware of long distance investing. There are plenty of properties in the NYC area that are worthy of investment for the small investor. Memphis is a great market as previously mentioned and is poised for substantial growth becasue of FedEx and releated aeroplex developments.

    0Reply
  • Jamaal Hunt
    Wholesaler · Brooklandville, MD · Member since 2013 · 149 posts · 29 votes
    13y
    Originally posted by Chris Clothier:
    Originally posted by Jamaal Hunt:
    hmmmm interesting. Would anyone say that properties near the university any good?

    I have found it tough to make money near the University of Memphis because the rent ratios to price do not pencil out the way they do in other parts of the city. The prices are too high and the rents are tough to get and maintain. Other investors may do very well there, but I prefer to be in the suburbs and in areas where there is more demand for stable, family homes.

    Good luck to you -

    Chris

    Fair enough. That is pretty much my niche market I have interests in. I'll talk to my teacher for further details and the such on what zipcodes I should consider. Funny thing is there were a few houses that even I could get lol. Was very nervous about placing a bid.

    Wayne Woodson I was seen a few of those and my mouth dropped on the prices. I was like no way.

    0Reply
  • Alex CraigBusiness Member
    Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes
    13y

    Jamaal Hunt

    For the most part Chris is right, but there are deals that come up from time to time. We get high rents to students in the Rhodes College area where even purchase prices at $100k - 110k still make sense. But you have to be really carefully as their is a fine line of where to buy in that area; one or 2 streets variation off the beaten path can make a huge difference over there. I am buying a tri-plex for my portfolio near the University of Memphis tomorrow where I hope to be "all in" at $100k and I am expecting $1,600 in rent. Some investors are scared away from student rents, but this has been a very successful niche market for us. We always make the parents co-sign on the lease, therefore, if there is any excessive damage, we can go after the parents for repairs. To date, out of 7 or so student houses we manage, we have not had any issues.

    Bottom line.......there are deals, but the good ones will go to local buyers within a couple of days of being on the market. My suggestion if you are interested in this type of property is to get on local buyers buying list. That way, when they come up, you will be one of the first to know.

    901-848-9028
    0Reply
  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    13y

    Its kind of a strange question as almost every city has potential. There are some obvious exceptions where populations are declining dramatically like Detroit but like Chris and Alex I find Memphis to be a great market. You have to find your sweet spot of course. The U of M area is spotty as already stated you have to really know your streets. Generally you can chase high quality in areas like Germantown, Collierville and BArtlett or East Memphis or you chase a mix of yield and hopefully some growth in many zip codes including 38116,7,8, 38122, 38141, 38125 and many more.
    Should you invest in Memphis? is too generic a question. What are you hoping to achieve is the first question. The one thing to understand I think that is mission critical is that Memphis is NOT a capital growth city. What you buy now may not increases in value for 2 decades. But it will pay you good money in cash flow. So if u r OK with that then go for it!
    I think more than most US cities the biggest thing is to buy well. Pay too much now as many people do you will need to own it like a tattoo, for life!

    0Reply
  • Sean McKelvey
    Investor · Culver City, CA · Member since 2013 · 9 posts · 1 vote
    13y

    All very interesting comments. Yes, for years now, Memphis has been promoted, 'guru'ed', work shopped, investor summited, and a ton companies are selling turn key real estate to out of town investors. One does wonder about saturation. I am curious about the exit strategy in Memphis. I want to have my cake and eat it too, as I am trying to balance stable, reliable cash flow with equity appreciation. Anybody know the stats on appreciation in Memphis, ... I have heard a lot of anecdotal reports that for many generations Memphis has been the same.

    0Reply
  • Chris ClothierBusiness Member
    Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
    13y

    Hey Sean McKelvey - good point for you as an investor and what your approach is. Memphis is definitely not a traditional appreciation play market. Historically appreciation will hum along nice n steady almost tracking inflation so you are talking 1-3% with a few spikes higher here and there. It is a good capital protection market as there are not major dips either. Right now, investment properties continue to be bought at discount well below a traditional market value, but that is due more to the economic crisis and its toll on the economy and not due to inflated housing prices when the housing market began to collapse.

    I do think there will be modest appreciation in some parts of the city that are good for investors, but that will be due to a return to normal value and then a continued tracking with inflation after that.

    You made a good point on the values over multiple generations, but that really is only holding true is some very rough parts of town. Not necessarily over the whole market in general.

    Podcast Guest on Show #224
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  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    13y

    Sean McKelvey you are right about your cake. Memphis is hard to exit to be frank. Especially some of the turnkey players sell their deals based on cheap financing and people are paying as much as 20 grand over retail based on leveraged cash flow. I am stunned by some investors ignorance in this regard. You have to know this market pretty well and buy well to have an exit strategy. Once you get into the high b's and low a grade areas things change as there is definitely a rebounding home owner market developing here. But the traditional "cash flow play" can be like a tattoo here, you may have it for life :-)

    0Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    13y

    Hey Yvonne Sheehan! I will say that if you are going to buy in Memphis, I've heard no better reviews than from the investors who buy the turnkeys from Chris Clothier with MemphisInvest (you're welcome, Chris :) ). Chris is an awesome guy, hung out with him in person, and never heard a bad thing about any of the buys.

    With that said, the times have changed tremendously in Memphis since a few years ago when investors started flocking in there. The hedge funds have barreled in, causing inventory to be much less than what it used to be and the returns are a lot lower than they once were. Although that has happened in several other markets as well, and the returns around the country are lower than what they were even a year ago, but Memphis has been one of the hardest hit, next to Atlanta now and then Phoenix last year. There are other markets that are more in the infancy stage of expansion, whereas Memphis is much further on the mature side now.

    Any reason why Memphis or just because you heard of it as one of the big ones?

    0Reply
  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    13y

    Ali there has been no drop in returns here in Memphis that I have seen, they are still high. You have to work harder for the deals but we have seen no decline in returns in fact we have increased our yield requirements if anything as rents are strengthening more rapidly than prices.

    0Reply
  • Justin B.
    Investor · Gaithersburg, MD · Member since 2013 · 660 posts · 441 votes
    12y

    I purchased 2 SFH's in Memphis in 2013. Both rented fast and had great cash flow ($150/month each even with using a PM). Both my houses were ~$70k range in the Bartlett area. We plan on buying more there in 2014.

    0Reply
  • David T.
    Specialist · Las Vegas, NV · Member since 2013 · 639 posts · 176 votes
    12y

    I went to Memphis to invest and got a good kicking. There are better places, keep looking. Also, check the cost of the flights. Expensive!

    0Reply
  • Steve Chaisson
    Nashville, TN · Member since 2013 · 86 posts · 40 votes
    12y

    I was born in Memphis and my sister lives there. If I were inclined to invest there, I would definitely talk to the guys at Memphis Invest @Chris Clothier . They are nationally recognized for running a solid turnkey operation. There is a feel that you have to connect with to understand Memphis the right way. If you don't live there you really need some solid boots on the ground to guide you.

    0Reply
  • Melodee Lucido
    Real Estate Investor · OR · Member since 2012 · 390 posts · 133 votes
    12y

    It cracks me up when I hear of Memphis being saturated and not as great a place to invest anymore. I have to say, it makes me think that the people saying that have ulterior motives to influence people into other areas.

    Memphis ROCKS! I have great properties coming in all the time and my buyers are super happy to grab them fast. It's all about doing your homework---just like anywhere else. It's about taking time to get to know the investors there and forming relationships with the ones you like.

    If people are getting hurt there then I would guess they didn't price compare and adequately research the properties they bought. It's never wise to just JUMP in without sound due diligence.

    Success to you all!

    0Reply
  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    12y

    I'm with you Melodee, it in fact is getting better as the funds slow down and inventory loosens up.

    0Reply
  • Tony T.
    Foster City, CA · Member since 2013 · 17 posts · 2 votes
    12y
    Originally posted by @Dean Letfus:

    Sean McKelvey you are right about your cake. Memphis is hard to exit to be frank. Especially some of the turnkey players sell their deals based on cheap financing and people are paying as much as 20 grand over retail based on leveraged cash flow. I am stunned by some investors ignorance in this regard. You have to know this market pretty well and buy well to have an exit strategy. Once you get into the high b's and low a grade areas things change as there is definitely a rebounding home owner market developing here. But the traditional "cash flow play" can be like a tattoo here, you may have it for life :-)

     Dean, thanks for this post...I went to Memphis last year and after a weekend, bought 4 homes from turnkey providers in Memphis without really thinking about an exit strategy. Don't get me wrong, I'm not trying to exit, but if I were...can I assume that by purchasing from a turnkey provider that I significantly "overpaid" for the property initially and therefore I've got essentially got a "tattoo" as you put it?

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  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    12y
    Tony, you didn't over pay but probably paid close to retail or within $10,000 of retail. Does not mean you paid too much because most investors use conventional financing, all that really matters is the home appraising for sale price or greater. Plus when purchasing from turnkey providers there is a slight premium for the service. Also homes we sold to investors two years ago for say $62,900 I would sell for $72,900 or more today and that is just what has changed in certain areas of our market in the last few years.
    Curt Davis - KAIZEN Realty538 Reviews
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