No matter the type of real estate investment strategy you are interested in, Memphis is a great city to invest your money in. Below are six things you should know about the Memphis real estate landscape.
Economic Development and Job Growth in Memphis
Statistics indicate that job growth expectation in Memphis should continue to increase in the coming years. Apart from FedEx and some other firms who are already in the city, the report shows that manufacturing firms like Mitsubishi, Electrolux and others are already planning to open manufacturing plants in Memphis.
The movement of large companies like this infers that the city’s population will continue to grow. This means that the demand for investment properties (both single-family and multi-family) will continue to rise as well. This influx of new office leases will create job opportunities and stabilize the economy. This means that if you invest in a buy-and-hold or buy-and-flip property in Memphis, you are sowing into fertile ground.
Tennessee Homeowner-Tenant’s Law
Homeowner-Tenant’s law is one of the things to be sure you know when planning to invest in a city. Unlike most U.S. states, Tennessee’s homeowner-tenant’s law favors the property owners. In California for example, an evicted tenant can stay for a maximum of six months in your property without paying. However, in Tennessee, where Memphis is located, the law allows the homeowner to give an unconditional 14 days quit notice to a tenant that violates the rental agreement twice in six months before filing for eviction of the tenant. This is just one of the many of the favorable laws that encourage investors and homeowners into the city.
Rent-to-price (P/R) ratio is a real estate metric that helps an investor to know the types of investment strategy to use in a city. P/R ratio less than 15 indicates a fix-and-flip strategy is good while a city with a P/R ratio above 16 tells that it is good to invest in a rental property. To calculate the P/R ratio of a city, you would divide the median property price in the city by the average annual rent.
Price-to-rent ratio = Average property price / Average annual rent
Therefore to calculate Memphis’ P/R ratio:
The average property price in Memphis is $99,000, while the median monthly rent is $895. So, the average annual rent is ($895 x 12) = $10740.
Price-to-rent ratio = $99,000 / $10,740 = 9.22
Based on the above description and calculation, we can see that it is better to invest in the fix-and-flip investment strategy in Memphis.
Memphis Property Appreciation Calculator
According to an appreciation Index published by Moody, Memphis has rated the best city for property appreciation with an average property price of around $99,000. Over the past years, the value of homes in Memphis has increased by about 4.3% while the median home value in the United States has gone up 6.6% in the previous years.
Moreover, Memphis contains three interstate highways, eight federal highways, seven state highways, waterways, air cargo hubs, and railways. This shows that the city is a center of distribution and the ease of transportation from Memphis to other parts of the country makes it a place to invest. Based on Zillow’s prediction, the national property price is predicted to increase by 4.1% while the property price in the city to increase by 3.4%.
Volatility Level Analysis
For the past 20 years the Memphis real estate market has been very stable. During the housing crisis from 2007 to 2009 when the real estate property’s prices went down 30% in some states, the city’s housing only declined 3% to 4%. This, however, shows how reliable Memphis real estate investing compare to some states.
Housing Affordability Index
Memphis real estate is cheaper and easier to buy compared to most states in the United States. Because of a number of discounted properties and foreclosures, you can buy a house for a cheaper amount. In this city, for every 10,000 houses, 4.2 homes are foreclosed on or discounted, which is significantly higher than the national average value of 1.6.
The city’s affordability index is high, which means that monthly mortgage payments on a property are lower than the comparable monthly rent on that same property. This allows you to have a positive cash flow and a stable ROI every month