Is investing in multifamily in Memphis worth it?

Question

I have noticed in many parts of Memphis Tennessee where properties sell around $15k per unit. Why aren't more investors gobbling up these properties? What is wrong with Memphis? am I missing something?

Derrick Craig · Answer

@John Canchola

If you don't live here in Memphis, and or if you don't have an experienced PM team in Memphis that knows how to manage the $15k per unit areas then you are setting yourself up for failure. Memphis is not going to give you much appreciation in value, in my opinion it is strictly a cash flow play. It also can be a disaster if you invest in the wrong property, in rougher area, and with bad PM team or try to manage it on your own out of state almost impossible!!

It also can be a very lucrative move, I purchased this 16 unit Multi-Family apartment location 24 West Colorado, Memphis TN-7/29/09 for $49,900... I put about $30k-$40k into rehabs and repairs, I took me 6 months to stabilize it and find good paying tenants, since it was vacant and had squatters in it when I purchased it. It has been 93%-100% filled since 3-1-10 each unit rented for $325 a month which is $5,200.00 a month or $62,400.00 a year.

John Canchola · Answer

@Dean - That would remind me of Detroit back when my dad (partner) were convinced by a Sacramento Financial Advisor to fly out with him and his Attorney partner in 2004 to buy units at $5k each. We were even offered surrounding lots for free. We didn't buy or take up any of the free properties. Unfortunately the professionals bought up as much as they could and bankrupt their portfolio a couple of years later. Seriously.

@Derrick - I commend you for taking risks and they paid off for you. Congrats. My dad and I did buy a class F 40 unit property in a class C neighborhood in Galveston Island Texas in 2006. Drugs and thugs for 20 years. We turned it around in 9 months and had it with families waiting on a list to move in a year later. We went in blind and rolled up our sleeves and fortunately it has paid of for us as well....lots of work though!.

I appreciate it Derrick for sharing that we would be buying for cash flow only. That's what we are after really in our early stages.

You're the second person to mention that they bought units in Memphis for under $5k per unit. Maybe I am probably going to be paying too much at $11k per unit on a 100 unit property in the surrounding area of the International Airport ...do you think?

Management as we have experienced it ourselves first hand I can agree can make or break you. On that note, would it be too much to ask if you could direct us to a good and reputable property management company in that local area?

Also, I am now getting mixed signals because I just read that Memphis vacancies are going down, jobs are picking up, and a wind of change for the economy is looking promising. So does that mean that those of us doing our economical and demographics homework may be buying at the right time in the Memphis market? or this just smoke in mirrors?

Curt Davis · Answer

@John Canchola

The reason @Derrick Craig has had some level of success with his multi family unit building is that he is local. Also he didnt buy from a wholesaler, he purchased direct.

It will be difficult for you to buy direct, hire a reliable and trustworthy contractor and then find the right management company to turn the place around.  This is why people buy here from turnkey providers, they can do it on their own.

I would tell you to stick with turnkey single-family homes.

I have a friend who has access to decent class C+ / B - multi family in Little Rock, AR if that is something you might be interested in. I have seen them myself and they are much nicer then anything for the same price I see here in Memphis.

Dean Letfus · Answer

Sadly many parts of our city are a zoo. You just can't keep places rented and can't get paid. I have been offered a 40 unit complex for free. But my manager wouldn't even drive down the street.

Dean Letfus · Answer

A wise move David :-)

David T. · Answer

We recently passed on a deal at under $6k per door for a large multi-unit complex in Memphis with c+ potential. The people who bought it went with a very low end Section 8 rehab. It's a very tough place to do business with a lot of gangs on the streets and those guys are not going anywhere.

You can make your money there, but you also take your chances. Best of luck with it.

Jay Hinrichs · Answer

I have a friend that I have done some business here in Oregon with.. he is a pretty large foreclosure buyer and redemption rights buyer.

He followed me to Atlanta 3 years ago I bought 45 SFR's he bought 50 we both made a lot of money spinning them to hedge funds 12 months ago.

He then tells me he is going to buy this 80 unit building in Memphis for 400k its 80% vacant. ( you can find all sorts of vacant apartments in Memphis like this.) since I had done 150 plus rehab loans in Memphis in the day before the GFC I have been there many times and have my vendors there ( still do) I told him he would be crazy to buy that building and try to rehab and manage it from PDX>. But he did not know what he did not know and did not want to hear it.. Remember we have no Ghettos in Portlandia so he was born and raised here and just did not understand.. So against my pleadings he bought it ( said he would fix it up put in a BBQ pit bench's BB court fix up the grounds and people will love to rent from him.. I said well I don't think so but have at it .. And remember I told you so.. So he thought he could put another 400 to 600k in it get it rented up and sell it for a 15 cap and make 500k... Well fast forward he does all of the above.. property peaked at about 80% after getting totally hosed and stolen from by GC he ended up having to send his local Portland guy out there one week a month.. so that's airfare hotel food for a week .. The BB court BBQ and other brand new items including the play structure were basically destroyed or stolen with in 30 days.  2 murders other violent crime then within 18 months right back down to 50% or less vacancy.. he had a private money loan from a larger lender here in Oregon at 10% so not to bad... he is now in it all in about a million.. He sold it 6 months ago for 600k  liked his wounds... The ONLY one's who can make these work are those that live there and have the assets in place...

But you don't know until you try and for everyone who post on here who made it work I say to you your the rarity and the lucky 5 to maybe 10% of investors that made it work.

Melodee Lucido · Answer

@John Canchola

Derrick offers excellent service in property management in areas like this---but each property is handled on a case by case evaluation. I have worked with Derrick and do not get paid to endorse him. He is simply someone who is straightforward, honest and is trustworthy. He handles properties for my buyers regularly.

As far as demographics go, rentals are up as Gen Xers can't afford to buy, the baby boomers don't want houses that tie them down anymore and many families are still recovering from the past years of craziness.

As has been stated Memphis is a cash flow town---and that is what you are looking for. I think it will be a good place to buy for a long time for those that know what they are doing. None of us have a crystal ball but I do believe that if you can find something that the numbers make sense on---get it now!!

Best of success to you!

Is investing in multifamily in Memphis worth it?

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