When you are looking for residential invest property, you need to take a serious look at the Memphis area. There are few if any other major metropolitan areas with higher rents and more renters than in Memphis. More than half of the households in Memphis prefer to rent rather than own. Something making Memphis particularly attractive to investors are the number of diverse employers offering well paying blue and white color corporate jobs. Meaning renters are able to afford relatively high rents compared to the cost of an investment.
Foreclosure auctions are still widely available in Memphis and the Shelby County area. As an example, Auction.com previews an upcoming foreclosure auction of a 1,335 square foot home with an estimated opening bid of $22,500. According to zillow.com, the average metro Memphis renter pays about $900 per month. Clearly, that's a superior return on investment compared to what investors will receive in most markets.
According to Auction.com, a slight majority of investors are still flipping houses. What's changed is they are flipping them to other investors that turn the properties into rentals. In many cases, these are turnkey rentals. Properties that are up to code and attractive to long term renters.
The rental market has changed because of the foreclosure epidemic. People that previously owned homes have become renters. These are the people attracting new landlords into the rental market and encouraging existing landlords to expand their holdings.
There are very attractive Memphis rentals on the auction block. Another up coming auction house is a 1,000 square foot house estimated to draw a $20,000 opening bid. Although there are certainly higher priced houses, there are plenty of low priced homes with the potential to become exceptional rentals. Another is a 1,066 square house with an estimated opening bid of $17,500.
From California to New York State, out of state investors have bought more than $1.2 billion in residential real estate in Memphis and surrounding areas. Yet, the rental market remains tight with rents still going higher.
However, there is a real risk involved. Many of these buyers are institutional buyers. Wall Street firms, private equity firms, and hedge funds make up the majority of buyers. If or when these investors decide to liquidate their holdings, it could easily depress the Shelby County real estate market. It's an investor's gamble because it's the institutional buying frenzy that has raised property values over the past several years. On the other hand, if these big buyers continue buying, it will likely continue driving prices up.
Although it's still considered a relatively new investment vehicle, investing in rentals through a real estate investment trust is an option. Generally, earnings have been in the 8% to 12% range with trusts that made major invests around 2009 and 2010 delivering the highest returns. One appealing characteristic of these funds is that they are required to pay out 90% of taxable income to investors each year.
REITs perform a thorough analysis of metropolitan areas before committing investment funds. One of the metro areas attracting the most REIT investment funds continues to be Memphis.
Author bio: Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years. He also draws upon 25 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.