Narrowing down the multi-family search: Memphis or Las Vegas?

Question

I have $150k in cash to begin building my REI portfolio. I have looked at so many markets and I keep coming back to Las Vegas and Memphis for multi-family (mostly fourplexes or small apartments), but can't decide between the both of them.  Memphis is the better bang for the buck, but it has some challenging neighborhoods.  Vegas looks good; however, they have limited supply and high HOA fees.  Anyone have any market insights to share or other places to look?

Jay Hinrichs · Answer

Not sure most of the 4 plex's in vegas have HOA;s they tend to be older props and you want to be choosy to make sure you pick a good area. in Memphis it wont matter as much since the town is dominated by renters.. but just dont buy super low end looks good on paper.. you will regret that move.. and in Memphis the City you have double tax  city tax and county tax.. where as Vegas tax rates are VERY low and that is one variable that you cant manage or get around.. Same with Indy low tax rates there make it attractive..  Along with in Vegas is you get a nice stucco building with tile roof and desert landscape SUPER cheap to own and operate cap ex wise compared to the mid west / rust belt

Stace Caseria · Answer

@Alex Alanis I'm doing a similar analysis, but have different markets in mind. Just curious what measures you've used to compare the two to each other? Like other investors, I'm using the standard 6: Unemployment trends, population growth, population age, job diversity, top employers and business categories, supply and demand, and other factors (like is the city a top-ranked destination for corporations, is there news of a military base closing, etc.).

But while the popular wisdom is to look back 5 or so years for an unemployment trend, I also add a 12-year look back to see what happened after 2008 with regards to jobs and recovery. I also like to get some informal information from some people I know who are in their 20s, asking where are their friends moving to, what cities are they visiting, what's a "cool place to live" these days. What I'm trying to find is not the current up and coming place (because the institutional investors with data scientists on their staff have already found them), but the markets after that coming after that.

I had been looking at Reno as one possibility but have since changed my focus to something a little closer to the eastern seaboard. DM me if you're interested in the research I did on that market.

Eric Johnson · Answer

@Alex Alanis,

Craig, mentioned pretty much the trends I see happening. Vegas is starting to see higher appreciation rates and you're far more likely to be able to capitalize on that appreciation 3-5 years down the line. Two problems, one is never relying on appreciation for a deal to work and two, over saturation in the purchase market. You need to have solid connections with brokers who can get you these multifamily assets at a price that will work for you. In Tennessee, you will see lower price points and you want to be in for the long-term cash flow play. To me, this is always better than trying to play the appreciation game. You can count cashflow, you can't determine appreciation, that in itself is a risk you are taking. I also believe in Tier 2 markets and standard markets, I have seen a lot of investors go to Indianapolis market because of the positive changes there. Detroit is also on the forward curve, years ago it was bad, but I personally funded over 48 units in Detroit last year.

Never purchase in an HOA, I automatically decline the deal if I find the property has some sort of HOA attached to it, even if it's a very cheap monthly fee. They still can tell you what you can and cannot do with your property. Too many headaches.

Eric Johnson · Answer

@Ryan McKimm I agree with you about knowing the market. You definitely should NOT buy blind.. however, you will be accruing equity whether or not the market appreciates (at any pace) because of debt pay down. I don't think investors should even underwrite appreciation in their analysis.. assume half the current historicals if you have to... If you have solid financing in place, don't over leverage, and you are cash-flowing in a C+ or better neighborhood, just hold it and hold it... no reason to sell..

Ryan M. · Answer

Personally, if I were you I'd pick the area closer to home, Las Vegas. I wouldn't touch one of these Midwest (where I'm from) or other low priced cities unless you know them very well. They are cheap for a reason and may cash flow, but 10 years from now you may be lucky to get what you paid today.

Ryan M. · Answer

HOA's can also be positive. The rules keep neighbors and tenants from turning their front yards into weeds or parking lots, etc. which hurt your value.

Account Closed · Answer

@Alex Alanis

Not sure what your ambitions, goals, risk tolerance, or timelines but I've had a lot of success doing promissory notes collateralize by real estate in my back yard. Turns any nest egg into a NNN lease secured with west coast-metro area collateral.  With that capital I'd rather earn $1,800 a month doing nothing then buy into an out of state project but that's because I already have a day job.

Marlen Weber · Answer

Account Closed whichever market you end up choosing, keeps us posted and best of luck.

Chris Boselli · Answer

Hi @Alex Alanis, from my experience Memphis is a largely SFH dominated market and you need to be extra careful with multi-families. Not saying you can't find a good deal worth pursuing, but generally speaking from my experience smaller multi-families can be in not-so-great neighborhoods often surrounded by a lot of other multi family properties which attract the $400-500/month tenants. Again not saying there aren't some good multi family deals in Memphis, but I know it is largely a SFH dominant rental market. Be sure to consult with local agents, PMs, and other experts and do your due diligence!

Narrowing down the multi-family search: Memphis or Las Vegas?

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