Multifamily Memphis TN

23 Replies

I'm going to investing in multifamily (class B&C) in the Memphis TN market.  I really like what I see especially in the right areas of Memphis.  Are there any investors in that market?  I'm looking to build a team (atty, contractors, etc) and looking to connect with other multifamily investors in that market.  Any suggestions from BP family...thanks! 

Can you tell why you choose Memphis instead of Atlanta? Do you think you you can fill out tenants and keep enough occupancy?

I like the Atlanta market as well. Based on studying the local market cycle in the Memphis market and looking at other factors.  For example, rent and occupancy trends.  In terms of occupancy, I only look at multifamilies with a track record of high occupancy located in the right areas in the Memphis market based on solid job growth, etc.  

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I saw one property was for sale with high occupancy rate, while right of the neighbour property has half of occupancy rate. Both are in good location .

I like the potential the Memphis market has. I don't own anything there yet, but my partner lives there (specifically Cordova). We're actively searching for the same thing... other partners, contractors, property management co's, etc. I'm fortunate to have my partner being the "boots on the ground" in Memphis. He knows a lot about the good and bad areas and we're looking for B-C properties with a value add, would like to be around 20 units for our first purchase but I'm open to anything really, as long as the number make sense.

@Stephen Steric That's great to hear. I'm planning a trip there in November to see the Memphis area and look at a multifamily with a broker. Let's stay connected! 

Juan, I won't be able to make it there in November, but send me a PM with the dates/details, I'll ask my partner if he can meet up with you.

@Juan McLemore

I'm sorry Juan but I just don't understand the fascination with multi family in B-C areas of Memphis.

Memphis is a city with an excess inventory of single family housing in the B-C neighborhoods so your pool of available qualified tenants for multi family will be marginal at best.

Also the property tax rate on multi family is considerably higher than single family.

It all adds up.

I do have both single and multi family properties in Memphis/Shelby county which might or might not add credibility to my opinion

@Dean H. As a multifamily and single family owner in that market you certainly have credibility. With that said, it depends on the B-C neighborhood. For example, a asset (purchased at the right price) near to Cooper Young with solid underwriting, a solid reposition plan and solid execution would work extremely well in the Memphis market.  I know of an investor that has one such asset in close proximity to that neighborhood.    

@Juan McLemore - I would agree with @Dean H. , there could be one investor who might have purchased at right time but there are whole bunch of quads and apartment complexes around cooper young totally boarded up, some of them with international investors. PM me if you find something worth while. I have seen many duplexes packages from  distressed OOS investors.  

On another note I have been told that large home owners population is migrating to Georgia.

Thanks

Vivek

@Vivek Khoche location, location, location...not anywhere in the area you’re referring too. 

Hi Juan. I have just closed on a 80-unit multifamily in Memphis, TN this week. It is a syndication.

What size properties are you looking for? I always pay attention to the crime maps of the properties I research. Many large properties seem to be high crime magnets.

My recent acquisition is located in the Cooper-Young neighborhood, with low crime. The Frayser area has a bad reputation, meanwhile Nike opened its distribution center there 2 years ago, so it may be turning around.

Being out of state, like me, the key to the market is the property manager for most of the team members your look for.

PM me and I will share my contacts with you.

(201) 429-5353

I agree with what @Dean H. has said; the excessive tax for multi family is a huge turn off for me. Yes, it’s nice to have all of your “doors” in one vicinity, but at the end of the day, in my opinion, logistically speaking, it makes no difference unless you are self managing. And the costs for multi are much higher than SFR in Memphis. And all it takes is that one neighbor to ruin it for anyone in that complex which could cut into your returns. This is just based off my personal experience

313 461-9889

Hi Dean and Rashard, could you please explain how the multi family tax is different from SFR?

I am studying Memphis Multifamily market for my 1031 exchange.  Any one have experience/insight with 50+ unit apartment complex at Memphis? What's the average cap rate, vacancy rate?  

@Juan McLemore , I've been investing in Memphis for a couple years and I have a team there, they've been great to us.  One of them has fixed and flipped several apartment complexes so he might be a good resource. Feel free to PM

@Stephen Steric , Cordova is nice. I agree, it is super helpful to have boots on ground in Memphis because it is unique from areas in Colorado or California where we understand there are "good" and "bad" areas.

Memphis has some really good options in the Multi-Family areas as well as the SFD market. Its important that no matter where you invest that you have some boots on the ground that will shoot you straight. You must be careful to source your properties carefully in Memphis. Like other cities, you can go from a really good area to a really bad area pretty quick. Just know that there are many different investment routes you can take. I chose the SFD route first because of the heavy cash flow. As a life long "Memphian", 38108, 38122, 38118 & 38116 have been my most successful zip codes. 

Good Luck and welcome to Memphis!

Dean Harris, Real Estate Agent in MS (#s-40616) and TN (#00286759)
(901) 619-6170

Juan - The grass is always greener on the other side. Atl is a great market, some would argue better than Memphis. Ive invested in both and prefer Atl. Just my 2 cents. Im sure you can kill it in either market.

@Patrick Anibaldi - I agree ATL has a solid market too! One positive variable is Memphis acquisition is a play as I travel back/fourth routinely to visit family in Little Rock. Which is about 1.3 hours from Memphis. Let’s keep getting is done! 

Looking for the input from experienced multifamily investors in Memphis, TN...

We are currently looking at a property that is under the PILOT program. 

For people who don't know it, in a few words, the PILOT program offers significant tax brakes for 10 years if the owner invest $1M in renovation. This benefit will stay with the property pending application to the HEHFB (PILOT board). [ FYI, we are not overly concerned by this application thanks to the Property Management company who has experience with this program and because closing is contingent to getting our application approved.]

How do you anticipate the impact of the end of the PILOT tax brake on a re-sale or re-fi, if a re-sale/re-fi was 2 years prior to the end of the program?

(201) 429-5353

Philippe- In terms of large assets I would venture to guess the "future buyers" of a resale would be able to uncover the end of a PILOT program in their due diligence period.

Once the 2 years of PILOT were up it would have a drastic effect on NOI. If I were a "prospective buyer" looking at that instance, I would try to leverage it against you in negotiations.

Respectfully,
James

Hi @James Little

Thank you for your answer.

I should have been more specific in my question, I am buying with 8 years left in PILOT program and I would like to model a sale price (thanks to the cap rate and NOI) with 2 years left in the program.

The broker suggested to prorate the taxes increase up to the end of the program. This is how I modeled that: current taxes under PILOT $24K (year 1 of my ownership), taxes after PILOT $100K (year 8). I increased the taxes every year between $24K to $100K. At year 6, I get $78K in taxes - the year of my projected sale, $89K year 7 and $100K year 8. I wonder if this is good model to show the impact on the NOI for a potential buyer.

Another way to model how a buyer could look at their acquisition year 6 of my ownership is to use the $100K taxes at sale/purchase , even though the PILOT program would continue for 2 years therefore generating $150K in extra cash.

(201) 429-5353

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