Memphis Rent Growth Last 10 Yers.

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Memphis Rent Growth Last 10 Yers.

Hadar OrkibiPro Member
Rental Property Investor · USA / NZ · Member since 2016 · 1k+ posts · 812 votes

Hi Team of Memphis Investors, Experts and Property managers.

I'm doing some research prior to jumping in to the market and seeking to confirm what is the rent growth trend in Memphis. it is known that Memphis is more of a cash-flow Market then appreciation market, but I would appreciate some insight information about the rental growth in Memphis. 

I'm asking that as if one is to invest say $100k for property an say it is returning $12k per year with hardly any rent growth over the next 10 years (or just keeping up with inflation) and no capital gain as bonus then one is going backwards or just holding mediocre investment.

I have researched and found this Freddie Mac report, note page 10. stating that "Memphis will fall short of expected inflation" http://www.freddiemac.com/multifamily/pdf/2015_out...

Also here over 9 Years the rental growth in Memphis is gone up from $809pm to $851pm from 2005-2014 which is "bugger all" and hardly keeping up with inflation.

http://www.deptofnumbers.com/rent/tennessee/memphi...

Also i note that vacancy rates are trading down But seating at around 10.5% according to this info.

Any info and feedback from "Boots on the ground" investors and operators would be much appreciated.

Thanks Hadar

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y

In the mid west I NEVER raise rent.... there are too many other homes for folks to consider.

this is not San Francisco or Portland or Seattle.. were you have 1% or less vacancy rates and rents have risen 20 to 40% over the last 5 years.. but then again no one really bought west coast for cash flow so only the local owners enjoyed the rapid rent rise.

In the mid west and any cash flow market from FLA to IL  ... you get a good tenant you keep them.. Turn over will KILL you in this business..its even better to LOWER rent if you need to to keep a great tenants.

I bought 11 new constructions in Jackson MS back in Katrina days  ( Gozone) and have 4 left.. I never raised rent once.. a few of them have had same tenant the entire time I owned them and since they were brand new hardly any maintenance.. they cash flowed barely.. but my mortgages got paid down and now i have nice equity checks as I sell them off. 

when you look at Mid west performa's that show appreciation and rent grow as a function of your overall return.. I would discount that .... the reason to buy in these markets is to let your tenant pay your home off and make a few hundred a month in cash flow and to own 20 to 100 of them.. thats how you make money in those markets.. not on specualting on rent increases.. its the same.. as people talk about appreciation is speculation.. well so is rent raises in these markets.

As well as West coast I think rents have topped for this run up

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  • Ramar Price
    Irving, TX · Member since 2016 · 140 posts · 19 votes
    10y

    that may change for that i have an teammate of mine that is in memphis that is doing investments with a mentor and where it is more of a rental market its steady.

    0Reply
  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    10y

    Rents are stagnant unless you keep over rehabbing. Generally a newly rehabbed place might rent for say $995. 2 years later it might be renting for $950 as the $995 tenant moves to another newly rehabbed home.  Some areas we are in have had some rental growth but not much movement for 5 to 6 years ago.

    Appreciation we have definitely had in better areas. However I believe you really create your "appreciation" through equity when you buy and then refi the property. Every time it pays itself off you have doubled your money!

    2Reply
  • Hadar OrkibiPro Member
    OP
    Rental Property Investor · USA / NZ · Member since 2016 · 1k+ posts · 812 votes
    10y

    thanks Dean, it sounds to me that the only way to make a market with stagnation of rent and prices work is to enter the market for diversification from growth and no cashflow market. I.e Auckland for us.

    Put 25% in on purchase then 6 month later after "seasoning" refi all or at list 15% of it out. 

    Say you have 10% of the value in the deal as cash, returning reasonable cash on cash return and some equity. 

    If this is doable then it's worth pursuing. 

    For this to happen one need to buy under retail from turn key provider or commit to buying Volume from a provider so they cut thire margines. (Buying bulk). 

    0Reply
  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y

    Pick better markets.

    http://www.mercurynews.com/2016/09/25/bay-area-wag...

    Over the five years that ended in July, the median home price has rocketed up 94 percent in San Mateo County, 74 percent in Santa Clara County and 67 percent in San Francisco, according to figures from the CoreLogic real estate information service. While the median in the East Bay is lower, home prices there have increased even more: up 105 percent in Contra Costa County and up 99 percent in Alameda County.

    2Reply
  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    10y

    You can refi 100% out providing you DON'T buy from turnkeys, you have to buy with equity in the property. US is totally a finance play that's how you make your money. Never as much as New Zealand but you aren't using your own money and non recourse lending so who cares. 

    USA is truly the wild west in that regard. I effectively get an infinite return on my investments now as I have zero money in the deal and it is positive cashflow and paying principal off. BUT if you pay retail you can never do this because there is no appreciation.

    The best way to make a small fortune in real estate in Memphis is to start with a large fortune and keep buying turnkey property at or above retail prices :-).

    3Reply
  • Hadar OrkibiPro Member
    OP
    Rental Property Investor · USA / NZ · Member since 2016 · 1k+ posts · 812 votes
    10y

    I get the infinite return when there is no money in the deal. all my buy and holds are like that now in NZ as its essay to pull the money out when you have 10-15 growth per year. 

    I take it that you guys don't regard yourself as TK @Dean Letfus ,so you leave equity in the deal?

    "The best way to make a small fortune in real estate in Memphis is to start with a large fortune and keep buying turnkey property at or above retail prices :-)."

    Is this sarcastic mate or did i miss something in translation?

    0Reply
  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    10y

    Yes we even changed our name from turnkey to get away from that position. No equity is always bad in my book!

    0Reply
  • Hadar OrkibiPro Member
    OP
    Rental Property Investor · USA / NZ · Member since 2016 · 1k+ posts · 812 votes
    10y
    Originally posted by @Account Closed:

    Pick better markets.

    http://www.mercurynews.com/2016/09/25/bay-area-wag...

    Over the five years that ended in July, the median home price has rocketed up 94 percent in San Mateo County, 74 percent in Santa Clara County and 67 percent in San Francisco, according to figures from the CoreLogic real estate information service. While the median in the East Bay is lower, home prices there have increased even more: up 105 percent in Contra Costa County and up 99 percent in Alameda County.

     HI Bob, thanks for the post and link.

    SF, LA, London, Hong Kong and Sydney in Australia are all appreciation markets.

    Auckland N.Z which I invest in and flip also becoming an appreciation market only. house prices increased by over 75% from the peak of the last boom in 2007 and the median house price is near 1 million dollar. say +800k. 

    The NZ Reserve Bank now introduce Loan to value restrictions to 60% for second property purchases I.e investment property. so now we need at-list 300k for deposit to buy any average house in AKL. although im still active in the AKL market i would like to diversify and make the money working harder for me producing better cash-flow. Cash-flow is king and only cash-flow can pay the bills and send me and my family on 6 weeks holiday every year. I don't believe in "living off equity" as equity can run out and its not reliable as steady cash flow.

    It is known that some markets are appreciation markets and some are cash flow markets, Memphis looks like cash flow market but is lacking solid long term appreciation. 

    The point im making is that each market can't have it all, unless one buy well and force equity out of the asset which is what the pros on the ground are doing in Memphis. its the same in any market.

    0Reply
  • Alex CraigBusiness Member
    Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes
    10y

    @Hadar Orkibi I somewhat disagree with Dean. In C class and low B, yes, he is 100% right.  However, in B+ and A properties I have had different experiences. My personal experience says to rehab to retail standards for the area and achieve the very top of market rent from the front on a 18 month lease.  Give that tenant great customer service during that time by being friendly (you would be surprised how many rude managers are in our market who have a God complex) and fix their maintenance issues in a timely manner and follow up after the repair to make sure they are satisfied. That is a good business model for a long term tenant.  During that time, if you want, small increases to keep up with inflation, then pass it.  If you rehab it right on the front end, there should be no reason for them to find a better house in 2 years. My strategy has always been, "never give them a reason to move, whether it be from customer service or finding a better home."  You can supply them on the front end with ceramic tile in kitchen and baths, vinyl plank flooring in den, dining and living rooms (more durable and opens up the space), nicer faucets and fans, new counter tops, etc.  Address rotten fences on the front end along with other things that could be a issue down the road. I started doing that in 2011 and I saw my maintenance and vacancy go down dramatically. 

    901-848-9028
    2Reply
  • Jason Bradstreet
    Lutz, FL · Member since 2016 · 21 posts · 0 votes
    10y

    @Alex Craig

    Have you been able to increase rents over time to match inflation?

    0Reply
  • Alex CraigBusiness Member
    Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes
    10y

    @Jason Bradstreet most owners do not increase rents, but the ones who have were able to get modest increases. $15. For me personally, I keep my rents at top of market and if taxes or insurance have not changed, I do not increase my rents.  I am not worried about losing a % or 2 on inflation, mostly because I have rehabbed my properties well and I do not have much maintenance and my tenants stay 3 + yrs. Therefore, I feel like I am way ahead on maintenance and vacancy allowances. That being said, if my insurance went up significantly and taxes went up, I would consider rent raises without worrying on my "A" class.  

    901-848-9028
    0Reply
  • Hadar OrkibiPro Member
    OP
    Rental Property Investor · USA / NZ · Member since 2016 · 1k+ posts · 812 votes
    10y

    Thanks for the comments @Alex Craig, i agree with your strategy of providing the tenants good customer service and attending there concerns and maintenance issues (within reason).

    Im holding some tenants for 5-8 years with some of my buy and hod in Auckland NZ. and that's with increase of rent yearly by $10per week ( in NZ we charge rents 52 weeks of the year) so that's comes to increase of $520pa on rent. and this is in blue collar area. the last 2-3 years we had growth of 7%pa in rent. 

    The point is that i wouldn't feel i could increase the rent by that much if i would have not been attending the tenants basic maintenance needs.

    No doubt tenants who live in A Class area would be more affluent and could probably afford a small $15pa rent increase.

    You would like to know that a friend of mine who is now based in LA purchased a property from you few years ago and he did mention that he is happy with it. 

    What is the typical cost of rehab you are doing for the TK offering Alex? do you rewire and re-plumb the houses? the Mid South Home buyers advert saying that they completely renovate their houses i was wondering what Completely means...

    0Reply
  • Alex CraigBusiness Member
    Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes
    10y

    Rehab cost will be on avg $25,000 if roof, HVAC and H2O tank are replaced.  Add about 3k if it is an "A" class property in granite and additional upgrades.  No, we do not re-wire or re-plumb houses if they do not need it.  No one would re-wire copper wires or re-plumb the DWV system unless these systems needed, assuming DWV is PVC and drains properly. Maybe someone changes cast iron over to PVC, but I doubt it if it is working fine.  If you wanted all new plumbing and electrical, then hte best option here is to buy new.  I have 3 homes built before 1925 and I did not replace any of those items.  Now granted, the original wiring was not in those houses, but I did update 2 of them from fuses to breakers, which is what we would also do on TK.  The guys at Mid South Home Buyers would not do that either. Their site gives a good breakout of what they do and we have scope of work for all all projects too. For my own homes and my TK comes, normally completely rehab is to bring back a property from distress back to retail standards from the area. Most items you can see (faucets, lights, flooring, window finishes, cabinet hardware, etc) are new.  Deferred maintenance is addressed (trees over house, old fences, external storage buildings, walk ways, etc).  The final finishing touches of any TK provider will be the inspection report that will address any items missed.   Most of your top TK providers will consider that a complete rehab. 

    901-848-9028
    2Reply
  • Tristan H.
    Rental Property Investor · Memphis, TN · Member since 2013 · 56 posts · 29 votes
    10y

    I agree with @Alex Craig . My wife and I have a small buy and hold portfolio in Memphis, and we would much rather hold on to a good tenant than raise rent and gamble on a tenant leaving, i.e. avoid the tenant search, lost rent and turnover costs associated with a changeover in tenants. We may be wrong, but for us the math is simple: even if you have a good team and can turn over the vacancy fairly quickly, the lost rent + the aforementioned direct costs are equal to roughly 1 month of rent ~ 8%. Will the rent increase be enough to make up for the increased turnover in tenants? Our position may too conservative, but as they say, a bird in the hand... 

    3Reply
  • Hadar OrkibiPro Member
    OP
    Rental Property Investor · USA / NZ · Member since 2016 · 1k+ posts · 812 votes
    10y

    Thanks you for sharing the rehab info Alex now i have more of a picture of the level of work done.

    The cost of rehab sounds lower in the US then in NZ. New Kitchen bathrooms, floor covering, paint throughout, light fittings etc - what we call cosmetic Rehab ("Reno" in Kiwi) would cost around 50k-60k for 3 bed house one bath and with new roof you can add another 15k. labor and material are expensive in NZ. Sound like in the states you get bigger bang for the buck.

    We also own one house which is pre 1930s and never replaced the wiring or plumbing. But prior to purchase we had to have the wiring and walls checked for insurance assessment.

    In NZ Some Insurance companies will not provide cover with old wiring and Scrim & Sarking walls as they are very flammable. 

    Cheers H

    1Reply
  • Hadar OrkibiPro Member
    OP
    Rental Property Investor · USA / NZ · Member since 2016 · 1k+ posts · 812 votes
    10y
    Originally posted by @Tristan H.:

    I agree with @Alex Craig . My wife and I have a small buy and hold portfolio in Memphis, and we would much rather hold on to a good tenant than raise rent and gamble on a tenant leaving, i.e. avoid the tenant search, lost rent and turnover costs associated with a changeover in tenants. We may be wrong, but for us the math is simple: even if you have a good team and can turn over the vacancy fairly quickly, the lost rent + the aforementioned direct costs are equal to roughly 1 month of rent ~ 8%. Will the rent increase be enough to make up for the increased turnover in tenants? Our position may too conservative, but as they say, a bird in the hand... 

     In Auckland in the last 3-4 years 5%-8% rent increase pa was the norm and expected by tenants. some areas had bidding wars like auctions on rentals. you will have 30-40 people coming to the showings. this City has around 40k-50k new migration incoming a year for the last few years.

    I never lost a tenants do to rent increase, I use property mangers for all my buy and holds as i don't invest where i live. and i take their feedback regarding rent increases.
    I only self manage one Commercial property which is the only investment we own in our town.

    0Reply
  • Tristan H.
    Rental Property Investor · Memphis, TN · Member since 2013 · 56 posts · 29 votes
    10y

    @Hadar Orkibi I completely understand the difference in the two markets. In most large cities the market forces rents up. In Memphis, I don't feel that tenants in "B" and "C" markets are used to rent increases, and most realize that they can shop around and find plenty of reasonably priced alternatives.

    It was amazing when I lived in Washginton, DC and rent increases slowed due to the crisis/lots of high-end inventory coming online. Some landlords still were able to force through healthy rent increases. A new building would come online, charging $2,000 for an area/quality that normally costs $1,800. Management would attract tenants by offering a free 13th month of rent for signing (pointing out to tenants that this makes the rent roughly $1,800/month for the first year), but they would effectively pass on a rent increase by charging full rent for any subsequent years. I would wager that a high number of tenants stuck around and received the effective rent increase.

    0Reply
  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    10y

    @Alex Craig, I hear you mate but I think it's a fine line sometimes whether it's worth it or not. I defer to your greater experience of course but let's say you put an extra 5K in to get an extra $150 a month.  That will take 3 years, (34 months) to recoup your cash and you have the same maintenance going forward, (being tenant wear and tear).  So the benefit in retail rehab at acquisition is often marginal?

    1Reply
  • Alex CraigBusiness Member
    Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes
    10y

    @Dean Letfus On a leveraged purchase, that 5k in upgrades cost $1,000.  If you have a $500 a month mortgage payment and over that 5 year period, the property rents quicker, then you have made up that $1,000. I disagree it would be the same maintenance. Ceramic tile will last longer then rolled vinyl. Vinyl plank flooring will last far longer then carpet. Better faucets are likely to last longer then the $25 builder grade.  It is a no brainer to provide finishes that will reduce vacancy by positioning the property to be more attractive to tenants shopping for a new home and reduce maintenance by being more durable and having a longer lifespan. 

    901-848-9028
    0Reply
  • Alex CraigBusiness Member
    Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes
    10y

    @Dean Letfus I learned this the hard way with my own properties. I started buying in 2007 and through 2011 on my $0 down purchases, my tenant turns were expensive and the vacancies were to long.  I finally decided to invest into each of my properties when they went vacant with upgrades and it was a game changer with my portfolio.  

    901-848-9028
    2Reply
  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    10y

    @Alex Craig.  I agree. I tend to buy homes that already have tile etc. to minimise that. We are of course unleveraged being non residents.  After 6 years I have found no issues with vacancy or rent levels once we started our own acquisition. I'd rather keep the money in my pocket and pass the discount on to my clients, providing the home is already in great shape of course!

    0Reply
  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    10y
    Originally posted by @Alex Craig:

    @Dean Letfus I learned this the hard way with my own properties. I started buying in 2007 and through 2011 on my $0 down purchases, my tenant turns were expensive and the vacancies were to long.  I finally decided to invest into each of my properties when they went vacant with upgrades and it was a game changer with my portfolio.  

     Yep our experience always dictates our strategy. That was why we fled the lower end of the market after so many hassles.

    0Reply
  • Alex CraigBusiness Member
    Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes
    10y

    @Dean Letfus to renovate lightly or over renovate. Turnkey or Non-Turnkey.  Trump or Clinton.  All arguments RE professionals are very passionate about and can defend all day long!

    901-848-9028
    2Reply
  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    10y

    Has to be Trump, or Batman. Always vote for Batman when you can :-).

    We kiwis do not understand you guys obsession with politics at all so it's all quite amusing to us!

    1Reply
  • Jon Q.
    Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
    10y
    Originally posted by @Hadar Orkibi:

    Hi Team of Memphis Investors, Experts and Property managers.

    I'm doing some research prior to jumping in to the market and seeking to confirm what is the rent growth trend in Memphis. it is known that Memphis is more of a cash-flow Market then appreciation market, but I would appreciate some insight information about the rental growth in Memphis. 

    I'm asking that as if one is to invest say $100k for property an say it is returning $12k per year with hardly any rent growth over the next 10 years (or just keeping up with inflation) and no capital gain as bonus then one is going backwards or just holding mediocre investment.

    I have researched and found this Freddie Mac report, note page 10. stating that "Memphis will fall short of expected inflation" http://www.freddiemac.com/multifamily/pdf/2015_out...

    Also here over 9 Years the rental growth in Memphis is gone up from $809pm to $851pm from 2005-2014 which is "bugger all" and hardly keeping up with inflation.

    http://www.deptofnumbers.com/rent/tennessee/memphi...

    Also i note that vacancy rates are trading down But seating at around 10.5% according to this info.

    Any info and feedback from "Boots on the ground" investors and operators would be much appreciated.

    Thanks Hadar

    Similar to Cleveland, et. al....It's a cash flow market that is unlikely to provide much appreciation.  Study population growth (US Census) and job growth (Burea of Labor Stats) forecasts for this market, which are largest predictors of demand and...appreciation.  They are not strong.

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