Memphis, TN - Out of state Investing

[Dock Newell Jr]

Hello,

I am a real estate investor interested in investing in Memphis, Tennessee, and seeking advice and guidance on the best ways to invest in this market.

I have done some research, and I know that Memphis has a growing population and a solid rental market, making it an excellent place to invest in real estate. However, I am still unsure which areas of Memphis are the best to invest in and what types of properties I should focus on.

I would greatly appreciate any advice or recommendations on which neighborhoods to consider investing in and which types of properties are in high demand. Additionally, if anyone has experience financing real estate investments in Memphis or knows of any local resources or experts who can provide guidance, I would be very grateful for any recommendations.

Thank you in advance for your help and guidance.

[Mike Mosee]

Hi Dock,

First thing you do is find a great property manager to guide you & partner with.  We'\ve been investing from out of state in Memphis for over 11 years now with good results.

There is so much to talk about with who, what, where, how to do in an email.   You can reach out to me if interested.

Best,

Mike

[Alex Evans]

Hey @Dock Newell Jr

I hope you are doing well! I am from Memphis originally and would be more than happy to help answer any questions you have about the Memphis area! I can share with you a list of zipcodes that we use to buy in Memphis as well. Feel free to reach out!

[Jack Inman]

@Dock Newell Jr Great choice picking Memphis to invest in! Hard to beat the cashflow that this city can offer. As far as financing - I personally like the local banks. They seem to offer more flexibility when it comes to financing deals. You should check out BankTennessee and Bank of Bartlett - they have been good to me.

As far as choosing a neighborhood - your best bet is to find a good investor-friendly realtor who can help you. Memphis has a lot of "micro-neighborhoods" if you will. Meaning that one street can be great, and the next street over can be totality different. It takes time to learn the nuances of the neighborhoods, but a good realtor can really help you. Personally, I love Sherwood Forest for long term rentals, but there are tons of other great neighborhoods to invest in. 

[Joseph Wood]

Thanks for making this post. I'm interested in buying my first investment property in Memphis. Definitely looking for Memphis information myself.

[Walter Jones]

Memphis is a great market, but it can be tricky. Comps may seem to support a certain rent or price, (high or low) but it may be pulling data from an adjacent neighborhood that's much different.

Plenty to choose from here - good cash flows in the lower priced properties, but an awareness that it comes with less appreciation and rent growth potential. Or give up some of the initial cash flows for a better property with more long term growth.

Solid economy, with the largest commercial airport in the world (FedEx) and the 4th largest railhead in the US. It's sometimes called "America's Distribution Center." A few big Amazon Fulfillment centers, and a huge Nike center. A robust medical community also. 50%+ of the population here are renters. 

Well priced properties still get jumped on pretty quickly - we have a smart pool of local and of out of state investors. Pandemic price increases have stabilized but it's not going backwards, and rent growth has kept up with increased prices. It's no longer a well kept secret here. I sometimes advise buyers to get an under-rented property that may be below market rent, maybe do some upgrades, and after rents are increased you'll be close to or above the 1% rule if you don't start out that way.   

[Rachael Burton]

Quote from @Mike Mosee:

Hi Dock,

First thing you do is find a great property manager to guide you & partner with.  We'\ve been investing from out of state in Memphis for over 11 years now with good results.

There is so much to talk about with who, what, where, how to do in an email.   You can reach out to me if interested.

Best,

Mike

 Hi Mike, 

I agree 100%. When Investing in a new city, you definitely want to consult with a native from that area. Let me know if you need help looking for PM's or need any more advice on Memphis' Investment Market 

[Dean Harris]

@Dock Newell Jr

Trust your property source in Memphis. Ask lots of questions. Make sure that property source own rental properties. I don't mean 2-3 either. Make sure they have several so they can help you navigate through issue that will certainly come up. 

Best of luck!!

[Emily Shay]

@Dock Newell Jr I am an out of state investor in Memphis. I just closed on a property in January of this year and on the look out for the next one.

I agree with many of the statements already made here in that the city can be almost street by street in some areas on terms of the quality of the neighbourhoods. A good realtor AND property manager (I prefer a PM who is also an investor as mentioned by @Dean Harris) will be so key in helping you with not only rental estimates but letting you know about the caliber of the surrounding neighbourhood. Whenever I send my PM a question about rental estimates, I always ask if they manage (or even own!) other properties in that area and what else they can tell me about the surrounding area.

I think the inventory of single family homes is huge in Memphis. There are also a lot of multi-families (both small and large). I think if you can decide the type of property you're looking for, a zip code to hone in on, and then a good realtor and property manager you're well on your way.

Would love to connect and swap notes further if you'd like.

All the best.

[Bryana Harris]

Hi! I’m new to the real estate field & just recently worked with an out of state client who was going down the same route! I’ll reach out!

[Mike Mosee]

Hello

We've successfully invested in Memphis since 2011 with a mix of SFRs & small multis , all because of the trust we have in our property management team to steer us.  All the properties were purchased site unseen on their recommendation & has been spot on .   You will hear many horror stories so my two cents is to find that company who's looking to your mutual success & respond to you in a timely manner.  If you want a referral we're glad to share.

Best,

Mike

[Jason Sousa]

Quote from @Dock Newell Jr:

Hello,

I am a real estate investor interested in investing in Memphis, Tennessee, and seeking advice and guidance on the best ways to invest in this market.

I have done some research, and I know that Memphis has a growing population and a solid rental market, making it an excellent place to invest in real estate. However, I am still unsure which areas of Memphis are the best to invest in and what types of properties I should focus on.

I would greatly appreciate any advice or recommendations on which neighborhoods to consider investing in and which types of properties are in high demand. Additionally, if anyone has experience financing real estate investments in Memphis or knows of any local resources or experts who can provide guidance, I would be very grateful for any recommendations.

Thank you in advance for your help and guidance.

• Memphis (*Dont invest in 38002,38106,38108 iffy, 38109,38114,38126,38127*) GOOD Areas **38016,38018 38117,38118,38128,38133,38134,38135,38016 38111 University is ok

Memphis B areas, better tenants:

These areas are:

Bartlett (38134, 38133)

Cordova (38018, 38016)

East Memphis (38117)

South East Memphis (38125)

A little bit of a lower class would be: 38122, 38111, 38116, 38141, 38115

[Hans Baum]

Quote from @Mike Mosee:

Hello

We've successfully invested in Memphis since 2011 with a mix of SFRs & small multis , all because of the trust we have in our property management team to steer us.  All the properties were purchased site unseen on their recommendation & has been spot on .   You will hear many horror stories so my two cents is to find that company who's looking to your mutual success & respond to you in a timely manner.  If you want a referral we're glad to share.

Best,

Mike

 Hi Mike, can I reach out to you sometime? I'm moving to Memphis and planning to invest there. 

[James Wachob]

Work with someone who understands the market and is very familiar with different neighborhoods where there is a lot of demand for rental properties. Also, having a good Property Manager to manage your properties is key to having a successful rental portfolio. I'd like to be your contact for anything REIT related in Memphis, TN.

[Michael Smythe]

@Dock Newell Jr recommend you focus a bit higher than asking which neighborhoods to invest in.

Suggest you take some time to understand how the local neighborhoods are ranked by Property Class/tenants and what to expect from them.

See below for how we do this in Detroit and use as template (this is a copy & paste):

Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.

If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.

So, when investing in areas they don’t really know, investors should research the different property Class submarkets.

Here’s our OPINION for the Metro Detroit market (use as a template for your target area!) that we’ve learned in our 24 years, managing almost 700 doors across the Metro Detroit area, including almost 100 S8 leases.:

Class A Properties:
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% the more recent norm.
Tenant Pool: Majority will have FICO scores of 680+, zero evictions in last 7 years.

Class B Properties:
Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
Tenant Pool: Majority will have FICO scores of 620-680, some blemishes, but should have no evictions in last 5 years

Class C Properties:
Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.
Tenant Pool: majority will have FICO scores of 560-620, many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.

Class D Properties:
Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation
Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
Tenant Pool: majority will have FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.

Make sure you understand the Class of properties you are looking at and the corresponding results to expect.