In several posts, I've mentioned Memphis as the best metropolitan area to invest in turnkey rentals (it's still accurate). However, getting from distressed foreclosures to turnkey rentals presents a great opportunity for those that prefer flipping houses instead of being landlords.
Several reasons make Memphis attractive for flipping houses. First, RealtyTrac lists Memphis as the fifth most profitable city for flipping houses out of 600 metropolitan areas studied. It comes behind number one ranked Orlando, followed by Las Vegas, Phoenix, and Tampa.
What Makes Memphis a Better Choice
You might think that the other four cities would be better choices for flipping properties. However, the competition is much higher because of the high rankings. RealtyTrac's ranking was based on the percentage of increase over purchase price for houses that resold within six months of the previous purchase. For these houses, Orlando showed and increase of 63%. Memphis came in at 42%. But the fact is, it's much more difficult to find these deals in Orlando (and the other three hottest cities) than it is in Memphis because there are significantly more investors focused on the other cities.
The Shiller Home Price Index is the most closely watched housing price index covering prices in the nations 20 top cities. The most recent data was released on July 30 shows the national average rose 11% year-on-year.
However, Memphis significantly out paced the average with a13% increase in home values from first quarter 2012 to first quarter 2013. When considering Memphis, also keep in mind that it is ranked the number one rental market in the nation. RealtyTrac finds the average rental in Memphis is producing $628 per month in positive cash flow. That number means there is no shortage of investors looking for rehabbed houses ready for well-qualified renters.
Why Now is the Time to Flip Memphis Houses
As investors, we all know how hard the market crashed during the Great Depression. Today - real estate is back. During the extended crash, flipping houses for a decent profit was next to impossible. With average value appreciation now solidly in the double digits and Memphis renovation projects bringing in more than 40%, in less than 6 months, rehabbing is again highly profitable.
As a house flipper, you are probably aware that the FHA has a regulation not to insure mortgages on properties that are bought and resold within 90 days. It's intended to stop fraudulent investors from buying damaged houses and cosmetically hiding the problems to flip them for a fast profit. Unfortunately, this rule also made it difficult for legitimate rehabbers to get a loan. However, the FHA temporarily waived this rule back in 2010 to stimulate the real estate market. The rule was scheduled to become effective again this past January but the FHA decided to extend the waiver until 2014. That means the next few months may be the height of the rehab and flip market and Memphis has all the right reasons for investors to jump on board.
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.