While Memphis may not immediately appeal in concept to real estate investors, the market is rife with opportunities for investors of every kind. When we look at the Memphis real estate market, we find that, while not on top-of-mind like bigger, primary markets, the unique circumstances in Memphis craft a recipe for investment success.
But what makes it that way? And why should you, as a buy-and-hold real estate investor, be paying attention to Memphis, Tennessee?
Looking at how the market has progressed through the year and its track record, we have more than a few reasons.
The Memphis Economy Tops in Growth
One of the biggest indicators of a market’s investment potential can be found in its economic health. According to data compiled by Yelp, Memphis is among the top growth markets in the nation. This is based on statistics of consumer demand and business growth. The study points to the success of these cities being rooted in strong real-estate-related growth.
Out of Memphis’ various business sectors, we’ve seen demonstrated increases in the private investigation, immigration legislation, bookkeeping, and life coaching industries.
A low cost of doing business on top of robust essential industries (like transportation) and the capital investment into these industries means that Memphis, even without the growth in the aforementioned industries, has a strong economic backbone. When we’re looking for ideal investment markets, this is key.
Be sure to check out: Entrepreneurship, Incentives & Pushing the Memphis Economy Forward
Investor Interest Shifts to Tier 2 Markets
In real estate, there are different tiers of markets. Often called primary, secondary, and tertiary markets, these markets offer different climates and opportunities for investors. Primary markets are the big players on the world stage — New York City, Los Angeles, San Francisco, and the like. Secondary markets (or tier two) like Memphis have seen greater investor interest over the years. This is because secondary markets, while not as glamorous, offer something every buy-and-hold real estate investor needs: price stability and affordability. These are two highly attractive factors for buy and hold investors.
In primary markets, we’ve seen how housing prices skyrocket the face of great consumer demand. While this can be lucrative for the investing elite and investment trusts, it is not a sustainable strategy nor easily scaled due to the upfront cost. Even where prices rise, tier two markets tend to offer price stability, which is even more valuable for an investor.
Tier one primary investment markets remain beyond the reach of many investors due to the cost of entry.
High Renter Population
The Memphis market offers both an affordable and sustainable investment career in addition to its steady outlook due to a strong and growing job market. Part of what makes Memphis such a solid investment choice is its populous renter market. Nationwide, the rate of owner-occupied housing sits somewhere around 63 percent. In Memphis, that percentage shrinks to 47.5 percent. This means that over fifty percent of Memphis residents are renting.
With the market’s relative affordability why is that the case? It comes down to credit. Memphis residents tend to have poorer credit compared to the rest of the nation. Consequentially, many struggle to meet new lender standards. Not only this, but the market is attractive to a millennial demographic, many of whom are reluctant to buy a personal residence when they are already wrestling with student loan debt.
Finally and perhaps most importantly, Memphis offers cost-effective investment opportunities. Even if we only consider secondary markets, Memphis is still among the more affordable. This has advantages for both the owner and their residents.
If we look at the statistics, the median home price in Memphis as of summer 2019 was $135,000. Across the nation, we’re seeing an affordability crisis. People are being priced out of markets not only as potential buyers but as renters, too. According to this study, 71 percent of Memphis properties are considered “affordable.” This standard of affordability is based on one-third of one’s pre-tax income going towards the mortgage.
As of 2019, the Memphis market is heating up. This affordability alongside economic advantages and opportunities have put a squeeze on inventory, resulting in growing prices. Homes are selling faster and at a high price point, but not at the cost of market affordability. In fact, price growth has been comparably stable compared to other bursts of market growth.
This stability provides lasting, long-term investment opportunities and market access that should not be taken for granted, particularly by buy-and-hold investors.
Capitalize on this key investment market — start with Memphis Invest today!