Is Memphis being over-promoted?

Question

First off, I admit that I know very little about Memphis and the purpose of the post isn't to trash Memphis.  I read on many posts and hear on the podcasts that Memphis is the greatest place for cash flow.  However, I've been "shopping" on Loopnet for a while and see hundreds of very cheap units listed there.  Many properties have high vacancy rates and need extensive renovation.  If Memphis is such a great area to invest in, why aren't investors snatching up these units and renovating them like they have in other parts of the country?

James Martin · Answer

Actually Amy there’s many Turnkey Companies here that renovates hundreds of B and A Class homes. For the homes that are in more challenging areas there’s many companies besides mine that purchase and renovate these homes as well. You really need a good manager for the lower class neighborhood in order to minimize vacancy. I wouldn’t suggest these areas if your a newbie or if your investment strategy is long term. I personally own many homes in the 38127 zipcode and have done quite well through the years, but I’m local and I do complete rehabs on my homes. If your looking for great cash flow we have some amazing middle class neighborhoods that rent like hot cakes. Lastly, many of the great deals come from our local wholesalers.

Alex Craig · Answer

@Amy A. I will be the first to say that most of the MF in Memphis that a typical investor can buy is garbage. I live in Memphis, but own very little MF in Memphis, rather we own ours in Little Rock (I own a large portfolio of SF and Commerical in Memphis). Obviously as an active investor of SF and Turnkey Provider in Memphis, I think highly of my hometown market. The MF areas in Memphis where the #'s look good are terrible. Good MF that is renovated well in a desirable area will return 8 to 9%. I promise you that. If someone sends you something different, I can show you why those returns are not realistic. With Fannie Mae lending on MF on loans over $1,000,000 at rates around 3.5%, there is no reason to sell a good asset for a cap rate higher then 8 to 9%.

If the returns are looking better then that, then as Walter White said, "then maybe your best course would be to tread lightly." :)

Dean Harris · Answer

@Amy A.

Loopnet is full of bad deals from sources that cant move the properties. Memphis is full of awesome cash flow opportunities. The biggest catch is that you have to trust your property source and you have to really focus on the right product. Buying a MF property in one of our worst areas because it "Pencils Good" is a horrible idea and strategy. You will lose most of the time on these types of properties. Buying in one of our better zip codes, completing the BRRRR strategy and consistently taking care of your properties will lead you to the success here in Memphis. If are looking for a property that is occupied and cash flowing, I would not buy anything below a $800 rental in Memphis as an OOS investor. Following these simple rules will keep you out of bad situations in our market.

Best of Luck and I am happy to answer any questions based off my personal experience with my portfolio.

Alex Craig · Answer

To put some perspective in the strength of market, thus far, our rental collection during COVID-19 in April is only off 5% from last month spanning across 850 properties. This is likely due to many of the jobs here that drive the economy are essential. Like James mentioned, vacancy can be mitigated through good management, providing a home thoroughly rehabbed and investing in the right areas. Unfortunately, I seen over the years and still today, far to many investors get duped into buying a cheap property in a run down, D class area of town. I would say regardless of the market, out of state investors should be hooking up with established individuals who own real estate themselves or with companies that have been in business for 10+ years with solid plans to be around for another 10 + years (who also own rentals themselves). Experience and stability matters--really, that goes for any industry, look at the Tampa Bay Bucs. They traded youth and inexperience for experience and proven success when they signed Tom Brady and let Jameis Winston walk.

Michael P. · Answer

It’s a little weird that’s its SO flooded with turnkey providers.

Jack Inman · Answer

@Amy A. If you're looking on loopnet then you're probably seeing mostly multifamily. Most of those are in rougher parts of town with higher vacancy rates. Memphis is known more for single family home investing.

Andrew Akins · Answer

@Amy A. Memphis is a very unique market and think having experience as mentioned above in knowing the areas and neighborhoods to buy will is vital.  B and C class type neighborhoods are very good cash flowing opportunities that rent quickly and produced quality tenants in this market. I have worked with out of state investors for 5+ years and local to this market so let me know if I can help out with Memphis or even Little Rock markets as I have experience in both.  Good luck

Arthur Neves · Answer

I have being looking at 38127. I wonder if a well managed, fully renovated MF can have close to 0% vacancy and good tenants. I want to believe that it is possible if the units look good and are priced correctly. Am I missing anything?

Ali Boone · Answer

I'm not going to answer about why they aren't scooping up those properties--could be any myriad of reasons--but is Memphis over-promoted? I've always thought it was. I've been in turnkey world since 2011 (since other people are mentioning turnkeys) and Memphis has been one of the most famous turnkey markets all the while--and I've never been a big fan of it. I don't like the stats of the city and there are a lot of other cities that have higher cash flows and more straightforward investor dynamics. Personal opinion though, and certainly a lot of people on here will argue otherwise.

Todd Dexheimer · Answer

The deals on Loopnet are not deals. Those are typically located in the D class areas, with population decline. Memphis is a strong market, if you buy in the right areas of Memphis. Look for areas with low crime rates and population growth.

Is Memphis being over-promoted?

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