New investor to Memphis market

[James Tatlow]

Hello BP.

I am an out of state investor that has been researching the Memphis market for buy and hold opportunities.  I have read many times on the forum about the importance of knowing the individual neighborhoods that you are looking to invest in. 

The areas that I have decided to focus on are Hickory Hill and Germantown (zips 38115 and 38141). These seem to be solid B class neighborhoods.  I am looking mainly for small multi-family units.

I am reaching out to experienced investors in this area to help fill in the gaps.  Specifically, questions I have include: 

are these desirable areas to live? 

do these areas experience higher than average vacancy rates?

Do units require extensive rehab after each turnover?

Any information you can provide would be greatly appreciated!

[Alex Craig]

@James Tatlow 38115 and 38141 are Memphis, TN. Germantown is a high end suburb of Memphis with zip codes of 38138 and 38139. It is hard to find cash flow deals in Germantown for under $200,000, but if you can find them, then by all means snag them. I have been looking for 5 years and can't find a cash flow deal there.

The 2 zip codes you have identified for the most part are solid "B" class, but there are "C" class for sure within those zip does, especially in the multifamily space. The "B" classes are desirable to live, but with any "C" class area, the tenant really does not choose the area, the area chooses them. Meaning, no one chooses to live in higher crime, lower rent areas, but because of their financial situation, that is where they end up. I prefer investing in areas people want to live, not have to live. Multifamily in these areas slide down to a "C" class. A good example of this are the multifamily properties on Apple Blossom.  This is an area of 38115 that is "C" class all the way. There are 9 active multifamily listings on this street, all by out of state owners who probably thought they were buying in "B" class.  This area is pretty rough, but if you go N of Winchester and East of Clarke within 38115 and into 38141, then you get back into B class. Memphis is tricky that way.

As for rehab, our avg cost to get a property back on the market after a 18 month lease is $1,400.  But keep in mind you have other fees such as lease up fees, yard maintenance during the summer and utility bills. Most of our tenants end up staying 30+ months.  Turnover is typically high if the following things happen:

1) Bad screening

2) Property is sub-par with nicer houses in the area that give the tenants a reason to move

3) Bad customer service from the Property Management. Communication and swift response is so important for tenant retention. Zillow did a report a couple of years ago naming bad customer service as the # 1 reason why tenants move out.

4) Bad luck -- lets face it, this happens. Tenants lose jobs, get transferred, die, get sick, get married, get divorced or some other life changing situation. I have a tenant in my house that is going on year # 8 and while we take care of her and give her great service, I attribute some of the long stay to luck that no life changing situation has happened that would cause her to move.

Good luck....would love to help out.