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VOL. 126 | NO. 42 | Wednesday, March 02, 2011

In Tough Economy, Rental Property Investments Shine

By Sarah Baker

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With the housing market depressed and credit tight, Memphis’ home rental business doesn’t appear to be losing steam any time soon.

Last week, Memphis Investment Properties LLC hosted a three-day tour for a group of 19 New Zealand investors that bought 16 houses for a total $1.08 million.

The tour not only exceeded CEO and founder Jim Reedy’s expectations as far as the amount sold but also in the overall turnout and interest.

“A lot of these guys won’t buy when they first come here, but once they see the city and feel comfortable with it, they’ll go back and within a 30-day period, they’ll buy houses from us, from pictures and YouTube videos and stuff like that,” Reedy said.

About 40 percent of the homes were sold in Raleigh’s 38128 ZIP code. Other popular areas included Whitehaven’s 38116, Southeast Shelby County’s 38141 and Park Village’s 38118.

For example, Memphis Investment Properties sold a 1,100-square-foot, single-family rental in Raleigh with three bedrooms, two bathrooms and an enclosed two-car garage for $49,900 that rented for $825 per month. Bought with cash, the monthly cash flow of the property is $627.40 and yields a 15 percent return on investment.

Memphis seems to be a no-brainer for investors trying to rebuild their nest-egg savings – to everyone but the locals. About 80 percent of Memphis Investment Properties’ investors are outside of Memphis. And Americans as a whole don’t see the value of investing in property, said one of the leaders of the tour.

“It’s an investment vehicle that’s not really highly promoted or valued. I think it has much better returns than the sheer market, but everybody in America who does invest seems to be in Wall Street,” said the tour leader, who declined to be named.

Memphis is 48 percent rental compared to about 28 percent nationally, Reedy said, a number he can see jumping up to the 60 percent range.

“Without investors buying some of these neighborhoods, the prices keep declining. But when investors buy and renovate them, it usually causes other guys on the same street to start renovating their houses.”
 – Jim Reedy, CEO and founder, Memphis Investment Properties LLC

“A lot of people portray home sellers like us, buying houses at the foreclosures and fixing them up and selling them to investors and leaving the homeowner out. That’s not the case,” Reedy said. “It’s all in the renter’s hands if they want to be a homeowner.”

Even though the top 12 residential sellers in 2009 were banks, more private investors moved to the top of the list in 2010, according to real estate information company Chandler Reports, www.chandlerreports.com. Memphis Invest LLC sold 178 homes averaging $60,201, followed by Memphis CashFlow GP (128; $57,671) and Memphis Investment Properties (109, $48,210).

The average Shelby County home for the month of January sold for $50,000 or less. While the average sale amount for homes in the county increased 1 percent to $124,278 in 2010, the average sale amount increased due to higher average price on bank sales, which made up 32 percent of all sales last year.

“Without investors buying some of these neighborhoods, the prices keep declining,” Reedy said. “But when investors buy and renovate them, it usually causes other guys on the same street to start renovating their houses. These investors sort of set a floor on prices where they won’t drop any further.”

Those renovations are not only revitalizing neighborhoods, but also helping local companies grow. Over the last two years, Memphis Investment Properties has increased its management and construction staff by 25 people.

Meanwhile, Memphis Invest has generated more than $650,000 in payments to local companies so far in 2011 through 44 renovation jobs and smaller general contracting companies like plumbers, electricians, pest control, lawn companies and locksmiths including Tony Scott.

“Since I’ve started doing business with Memphis Invest, I’ve added one more truck, two more employees and doubled my equipment,” said Scott, owner of The Lockman. “They have helped me to double my business in what are very tough times for a lot of companies. Today they account for close to half of my business and keep all of my crews very busy.”

Memphis Invest plans to sell more than 300 properties this year, generating more than $4 million in renovation revenue. The company said it will also manage more than 1,000 properties through its property management program in the Memphis metro area at the close of 2011.

Memphis Investment Properties has a goal of selling 300 homes as well. Compared to 2010 when the firm hosted three investment tours, Reedy said this year’s goal is one a quarter.

Continuing on last week’s momentum, a group of eight Australians will arrive in Memphis on Sunday for a few days. One of the Australian investors is anticipated to purchase 10 to 12 homes on his own.

“There are multiple bids on a lot of houses that we purchase,” Reedy said. “There’s a lot of activity here in Memphis.”

Chandler Reports is a division of The Daily News Publishing Co. Inc.

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RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 63 269 16,682
MORTGAGES 85 313 21,745
FORECLOSURE NOTICES 0 56 4,322
BUILDING PERMITS 0 209 39,587
BANKRUPTCIES 65 287 15,829
BUSINESS LICENSES 16 67 5,558
UTILITY CONNECTIONS 126 413 23,986
MARRIAGE LICENSES 22 94 5,129

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