Memphis Remains One of the Top US Markets for Real Estate Investors
Memphis has earned the title of one of the top five cities in the country for real estate investment.
The city landed in the fifth spot for investment home flipping behind Tampa, Miami, Birmingham and St. Louis, according to a recent report from Realtor.com that ranked U.S. markets. The report cited both older, lower-priced homes and a strong rental market as beacons for investors.
George Ratiu, senior economist at Realtor.com, said investors have flocked to the Memphis market for many reasons, but largely for its nationally low cost of living.
“Investors are attracted to Memphis due in large part to its economy and affordability. Memphis is a major global and domestic transportation hub,” he said. “On the housing front, Memphis is an affordable market, with a lower cost of living and benefiting from Tennessee's lack of income tax.”
"On the housing front, Memphis is an affordable market, with a lower cost of living and benefiting from Tennessee's lack of income tax."
George Ratiu of Realtor.com
Tennessee is one of only nine states without a state income tax on wages.
The trend of urban redevelopment, said Ratiu, has helped create an influx of real estate investment in the city within the past decade. According to the report, 16.1% of the total home sales in the city in the second quarter of 2019 were investment property sales.
“The city has been part of a broader, national trend over the past decade of urban revitalization,” Ratiu said. “Not only have downtown cores seen a renaissance, but so have the suburbs, through an increase in mixed-use developments, providing live-work-play options to younger professionals and families alike.”
Large investments in the city core such as the One Beale or Union Row mixed-use projects are excellent signals to smaller real estate investors, says Brad Reedy of Reedy and Co., a property management group in Memphis.
“If guys like that are willing to take on a $200 million project, then someone on the fence might make a move," Reedy said. "They see someone taking all this risk with massive multifamily projects, and now their own four-plex or eight-plex seems worth the risk.”
The rental rate in Memphis is another draw to both native and outside investors. ZIP codes with high rental rates in areas such as South Memphis and Hickory Hill have seen a significant amount of investment, said Lee McWaters, president of the Memphis Area Association of Realtors.
For existing homes, South Memphis was up 27% year to date on average sale price, Whitehaven was up almost 17%, from $64,000 to $75,000, McWaters said.
“Same with Hickory Hill, up 11% from $110,000 to $122,000. You’re seeing double-digit increases in those areas, and in other areas you’re seeing more traditional appreciation levels,” McWaters said.
Even as some economists say the housing market is now slowing down, Memphis will likely retain significant real estate investment, according to Reedy.
“Memphis lags your coastal towns and big markets by a few years. Some of those markets are cooling off, and Memphis might as well, but it will always be a hot spot simply because of the percentage of people who rent,” Reedy said. “I see it continuing on this trajectory for the foreseeable future.”
In 2017, 39.71% of households in the Memphis metro area were renters, according to data from the American Community Survey completed by the U.S. Census Bureau. Figures for 2018 are currently being compiled.
The next decade or so will likely see changes in terms of newly built housing and renovations of existing properties. As millennials and a younger demographic begin investing, buying and renting, real estate investment will continue to shift toward environmentally-conscious housing.
“These houses with better insulation and solar power are saving the tenants money in the long run. Like in Midtown, those houses that haven’t been renovated are extremely poorly insulated with single-pane windows,” Reedy said. “There are cons from a builder or investor standpoint based on the price, but I think millennials and people of this generation are willing to look past that in order to be more environmentally friendly.”
Both Ratiu and McWaters noted a similar trend, and added that work proximity is becoming another important issue for younger generations.
“As millennials comprise the largest share of homebuyers in 2019, they are making decisions today with broader effects in housing markets, and I expect those to continue impacting development trends over the next few years,” Ratiu said.
“I’m working with someone now who is a single young adult, and he’s just put a contract on a one-bedroom condo Downtown because that’s where he works and he wanted to be near the trolley line so he doesn’t have to use his car,” McWaters said. “I think you’re going to see more of that.”
- Frank Lanigan