Memphis - Property taxes, Insurance, Utilities

[Nathan A.]

Hello,

My business partner and I are looking at some 100+ unit properties in Memphis and are getting hung up on real estate taxes, insurance, and utility expenses.  Is there a reason they are so high? Example: There is a 120+ unit complex that we are looking at that had over $100,000 in utilities that were for water, sewer, and garbage.  Taxes and insurance were around $60k each. Any info would be great. Thanks!

[Jonathan McGee]

@Nathan A. I would say this is part of the reason why Memphis more commonly known for single family investing and not so much multi-family. For starters, you do have to consider that in Memphis you have to pay both city and county taxes which can skyrocket on commercial properties. Several complexes the owner is responsible for water, sewer and garbage. These are based off each individual unit and by tenant. I do believe you have the option to select your own garbage company so you can try to save there, but I'm sure sewage is a fairly consistent cost and water is gauged by the tenant usage. 

These additional expenses can really hurt the numbers on a multi-family investment, especially if it is in a low C or D area where the income is not offsetting the incurred costs. I've noticed that with your B/C+ units, it seems you as the owner are not usually paying for water usage which helps tremendously on costs. 

Usually the rent rates are increased to levy the additional costs, but advertised to tenants as only having to pay electrical utilities.