Memphis Rent Growth Last 10 Yers.

Hadar Orkibi · 2016-09-25T02:05:09-07:00

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

Ishviyan D.

Investor · Columbus, OH · Member since 2015 · 70 posts · 30 votes

9y

Originally posted by @Alex Craig:

@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.

Alex, what price point would you determine B+ / A properties in Memphis fall into? $75k+? Thanks.

1 Reply

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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Ishviyan D.

Investor · Columbus, OH · Member since 2015 · 70 posts · 30 votes

9y

@Jay Hinrichs Great information, thanks Jay. I am assuming rental prices are generally correlated to home prices regardless of the region...not necessarily in exact dollar terms but at least directionally (home prices go up, rents go up; and vice versa). If you say that rents typically remain stagnant in the mid-west, can it also be assumed that home prices too remain stagnant? I would find it hard to imagine that home prices can increase over the course of 10-15 years and rents go nowhere.

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Dean Letfus

Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes

9y

We have been in Memphis 6 years. Anything rented above $1500 a month has has good rental appreciation, for Memphis. Anything below $1295 has had zero, zip, nada in most areas.

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Alex CraigBusiness Member

Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes

9y

@Dean Letfus really, nada, zip? That is very inaccurate. I raised 3 of my own rents this year. $995 to $1,015 in Colonial Acres, $875 to $895 in Whitehaven and $30 in Raleigh to $925. I feel a good property manager providing excellent service can nudge up rents a little if there are houses in the area that rent for more, so long as said house is nicer then the competition. You are under estimating what a Property Management company whose primary approach is relationship building with the tenant. Also, when our tenants move in for our PM company, we ask them several questions via a survey, one of which is about the price. If they mark that that other properties in the area where more expensive, then that is a great candidate for a small increase. We do not always advise for a rent increase, but we will advise when we think it is possible.

I have noticed lately your post have been negative and telling a online forum that rents have to be above $1,500 to get increases is wrong. Not sure what has changed for you here locally, but maybe you are underestimating providing a retail ready product and the long term value that provides. Maybe it is your management company. Either way, I hope things are going well and would be more then happy to help if they are not.

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Alex CraigBusiness Member

Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes

9y

@Jay Hinrichs Never is a strong word. We survey tenant when they move in and one of the questions is about the rental amount and whether or not it was priced right. When people check "cheaper then other homes they have looked at" and that home is one of our rehabbed homes, then we know this home is a candidate for a increase. Do we always get it, no. Do I always advise the investor to pass on an increase, no. I would strongly advise it if your house is already at the top of the market and doesn't have anything special in the home that would not make a tenant shop other houses. I have learned over the years that if you provide a great home and great customer service based on relationships with your tenants, then you will have done everything you can to keep them from moving. Now if you have provided a great home and the relationship is strong and that home is under market rent, it never hurts to send a letter stating what the increase is and why the increase is necessary. Also, pick up the phone the day after the letter was sent and discuss. If the tenant pushes back and claims they will move, then at that point, the owner and manager can decide what to do, call the bluff or waive the increase. But you do not know unless you ask. Maybe it was my 10 years in in Sales & Marketing for a manufacture where we routinely had to pass on price increases to our customers that makes attempting to pass on increases a standard part of the business. As I type this, I am thinking this would be good to track and blog about in 6 months.

That being said, everything you said has merit and I do subscribe to what you have said, but our investors want this, so we have to make an effort. If we succeed, great. If not, then we keep the tenant. Win Win if you ask me.

901-848-9028

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Alex CraigBusiness Member

Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes

9y

@Ishviyan D. I think once you starting going 80k and up on retail value (not sales price), then you are most of the time in an B area. However, there is always caveats. I am rehabbing a home right now that we are selling for $64,900 and rent will be $795 that is a B area. The reason the home is so cheap is it is only 920 sq ft and a 3/1. 3/2's in the area would get $950. For my own portfolio, I basically have 10 "A" properties and 10 "C" properties. All the "A" properties rent for $1,000 and up with the exception of one in Collierville that rents for $850. My C class properties are all $750 and under.

901-848-9028

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Dean Letfus

Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes

9y

@Alex Craig, I am just speaking generally. I am in no way anti Memphis, I love it I just like to keep it real for people asking from out of state or overseas. It's not an easy market and we buy a lot of homes from burnt investors so no point painting a rosy picture that is not reality.
And I said no growth in most areas. Our own portfolio and our clients are doing really well now. Remember we started buying from Turnkeys who had inflated rents so it has taken years to catch up to market rents. But the reality is Memphis in the low B and below areas get very, very little rental growth.

Memphis average gross rent was $806 in 2005 and $845 in 2014.

Rental growth last 3 years is 3.28%.

People need to know the facts before they invest here don't you think?

1 Reply

Alex CraigBusiness Member

Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes

9y

I am simply going off you and Jay's comment of "Never" and "nada." I think my post agreed and disagreed with you and Jay. I agree they need to know the fact, but they need to hear both sides. Never and nada are very permanent adverbs, assuming Nada is a directive of the word Never.

901-848-9028

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Alex CraigBusiness Member

Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes

9y

BTW, rents are going up in most areas. Personally I am seeing rents rising faster in Memphis then they are in the suburbs.

901-848-9028

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Dean Letfus

Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes

9y

I get you @Alex Craig, as I said just a generalisation. I am sure you see as many burned investors as I do so I did decide a little while ago to be less reserved in painting the real picture. If it puts some people off into other markets that won't be a bad thing for them. I have always said you have to be pretty risk tolerant to get into a market like Memphis.

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Alex CraigBusiness Member

Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes

9y

I have heard the stories of burnt investors, but we really do not see that many as we do not manage "C" class homes are problem homes. But I know what you are talking about. Basically if a investor brings us a home that has had evictions, turnovers or maintenance issues, we will only manage the home if the investor is willing to put the necessary money into the property to get it on track and it has to be in a good area. We get inquires from a lot of Australian investors who bought in 38127, 38109 and the area West of Raleigh-Millington. Really, those are the burnded investors who bought not only in high crime areas, but also bought homes that were rehabbed terrible. Those are tough odds to win.

901-848-9028

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Memphis Rent Growth Last 10 Yers.

Memphis Rent Growth Last 10 Yers.

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