Affordable real estate prices in Memphis are creating an influx of out-of-state investors who are snapping up local homes for the rental market. As the Memphis Business Journal reports, good homes in Memphis are frequently getting multiple offers the same day they hit the market and are frequently selling for more than the asking price.
Although the Memphis real estate market is hot, the truth is there’s a lot more to like about Memphis besides the great real estate prices.
Located along the Mississippi River, the city is home to Elvis’ Graceland, the Blues Hall of Fame, and some pretty amazing BBQ. Real estate investors in Memphis will find plenty to see and do when visiting their rental property before hopping on a riverboat cruise or hitting one of the clubs on Beale Street.
Best of all, the city of Memphis, Tennessee is very business friendly. Memphis is home to the world’s first hotel chain, first self-serve grocery store, and is known as the city that invented overnight package delivery service.
Read on to learn why Memphis could be an attractive place to invest in rental property.
The youthful and diverse population of Memphis has helped the metro area grow by nearly 4% over the last 10 years. Millennials absolutely love the city, making Memphis perfect for investors in rental property. In fact, the median age in Memphis is just 36.7 years, younger than both the state and the national population.
Key Population Stats:
- Memphis has a metropolitan population of nearly 1.4 million, making it the 42nd largest metro area in the nation.
- Population of Memphis increased by 0.26% year-over-year.
- Median household income in Memphis is $54,859 while per capita income is $30,690.
- Growth in the Memphis MSA is projected to be 2.3% through 2023, with more than 30,000 new residents moving to the area over the next few years.
- Memphis is diversity-friendly: African-Americans make up 47% of the population, White Americans 45%, and Hispanics and Asians 7.7%.
- About 39% of the people living in Memphis are between the ages of 20 and 49 years, a prime demographic for rental property investors.
Annual employment growth in Memphis is once again accelerating, as residents and businesses are drawn to this healthy, vibrant city along the shores of the Mississippi River. The BLS reports that job sectors in Memphis showing the fastest signs of recovery include construction, trade and transportation, information technology, and government.
According to Bloomberg, Memphis has been the #1 metro area in the U.S. for job creation when compared to the average area employment rate over the past 10 years.
Three Fortune 500 companies are located in Memphis: FedEx Corp., AutoZone Inc., and International Paper Co. The metro area is home to literally thousands of large and small companies attracted by the entrepreneurial spirit and business-friendly climate in Memphis.
Key Employment Stats:
- GDP of Memphis is nearly $79 billion, growing by nearly 36% over the past ten years.
- Employment in Memphis has grown by 0.47% year-over-year.
- Jobs in Memphis increased by 1.4% over the last 10 years, outpacing similar sized cities such as New Orleans, St. Louis, Raleigh, and Minneapolis-St. Paul.
- Major employers in Memphis include FedEx, International Paper, AutoZone, ServiceMaster, and Mueller Industries.
- Other major employers based in the Memphis area include American Residential Services (also known as Rescue Rooter), First Horizon National Corporation, Gibson Guitars, Perkins Restaurant and Bakery, and Mid-America Apartments. The Federal Reserve Bank also has a major branch in Memphis.
- Through last year, small businesses in Memphis accounted for 29% of the area’s economic output.
- Communities Unlimited, the Tennessee Valley Authority, and the City of Memphis all have programs to help small businesses grow and prosper. In fact, two local businesses recently teamed-up to launch the $15 million Memphis Small Business Opportunity Loan Fund.
- Memphis Daily News reports that Greater Memphis is a hotbed for high-demand jobs including those in the information technology (IT), healthcare, engineering, business and financial operations, and transportation and moving sectors.
- It’s not only white-collar jobs that are in demand in Memphis. The Mississippi River, five major freight railroads, two interstate highways, and Memphis International Airport – the second-busiest cargo airport in the world - make Memphis a transportation and distribution hub where blue collar workers are always in demand.
- Over 88% of the residents in Memphis hold a high school diploma or higher, while nearly 29% have a bachelor’s degree or an advanced degree.
- The music and entertainment industries help keep Memphis rocking. Live blues, soul, and rock ‘n roll music is literally everywhere. Major motion pictures made in Memphis include Elvis and Me, The Firm, Black Snake Moan, and the unforgettable The Silence of the Lambs with Anthony Hopkins and Jodie Foster.
Real Estate Market
Memphis is ranked as one of the best real estate markets in the U.S. by WalletHub. The report compared 300 cities across the country and analyzed key factors important to real estate investors including median home-price appreciation, activity in the real estate market, and strength of the local economy.
A recent article in the Memphis Business Journal notes that fewer new homes are being built due to a shortage of qualified workers and the rising cost of land development. The imbalance between supply and demand helps to keep prices high and the demand for rental property in Memphis robust.
Key Market Stats:
- Zillow Home Value Index (ZHVI) for Memphis is $108,237 through November 2020.
- Home values in Memphis have increased by 13.7% year-over-year and are projected to grow by another 11.8% in the next 12 months.
- Over the past five years home values in Memphis have increased by 54%.
- Median sales price of a home in Memphis is $172,500 based on the most recent report from the Memphis Area Association of Realtors (MAAR).
- Home sales prices in Memphis have increased by 19.0% year-over-year.
- Inventory of homes for sale in Memphis is only 1.5 months and has decreased by over 60% year-over-year.
- Of the 164 neighborhoods in Memphis, Central Gardens is the most expensive with a median listing price of $409,500, according to Realtor.com.
- Most affordable neighborhood in Memphis for buying a home is Binghampton where the median listing price is $65,000.
Strong Renters’ Market
The rental market in Memphis is being driven by the low supply of homes and the demand for housing in smaller, secondary markets. As the Memphis Business Journal reports, the shortage of homes “has been caused by an influx of out-of-state investors snapping up local homes for the rental market.”
Of course, the shortage of homes on the market for sale also keeps Memphis a great housing market for investors. Combined with the diversified economy, strong job market, and excellent quality of life, Memphis may offer the perfect winning trifecta for rental property investors.
Key Market Stats:
- Average rent in Memphis is $856 per month according to the most recent report from RENTCafé (as of Oct. 2020).
- Rents in Memphis have increased by 5% year-over-year.
- Over the past three years average rents in Memphis have grown by more than 15%.
- 75% of the rental units in Memphis have monthly rents of $1,000 or less.
- Renter-occupied households in Memphis account for 42% of the total occupied housing units in the metropolitan area.x
- Affordable neighborhoods in Memphis for renters in Memphis include Alcy-Dunn, Orange Mound, and Southgate where rents average less than $560 per month.
- Some of the areas in Memphis with the highest rents are Downtown Memphis, River Oaks, and Mud Island where monthly rents go as high as $1,337 per month.
Historic Price Changes & Housing Affordability
Two of the many metrics real estate investors use to determine the potential performance of rental property in a given area are historic price changes and the affordability index.
For example, an investor with a longer-term buy-and-hold strategy may look for a market where historic price changes have a slow but steady increase. Affordability is one way of measuring the potential demand for rental housing and whether people will choose to buy or rent, everything else being equal.
The monthly Freddie Mac House Price Index (FMHPI) report examines the change in home prices in every metropolitan area in the U.S. The most recent FMHPI for the Memphis, TN-MS-AR MSA reveals:
- October 2015 HPI: 115.37
- October 2020 HPI: 165.24
- 5-year change in home prices: 43.2%
- One-year change in home prices: 13.2%
- Monthly change in home prices: 1.2%
To review the change in home prices and overall housing affordability in the top 100 U.S. markets, Kiplinger turns to ATTOM Data Solutions:
- Since the last real estate cycle market peak in May 2006, home prices in Memphis have decreased by 7.6%%.
- Since the last real estate cycle market bottom in March 2012, home prices in Memphis have increased by more than 49%.
- Memphis has an affordability index of 1 out of 10, meaning the metro area is one of the most affordable places to own a home in the U.S.
Quality of Life
CBS News recently rated Memphis as one of the 10 cheapest places to live in the U.S. Rents are affordable, the economy is firing on all cylinders, and the cost of living in Memphis is 5% lower than the national average.
Key Quality of Life Stats:
- Memphis in May International Festival attracts musicians, performers, and visitors from around the world.
- The Beale Street Entertainment District is home to clubs that have hosted some of the greatest blues musicians ever known, including Louis Armstrong, Muddy Waters, and B.B. King.
- Memphis boasts nine months of “patio weather” with mild winters and average summer temperatures that barely break 80 degrees, an education system that consistently attracts national recognition and honors, and a healthcare system that includes the University of Tennessee Health Science Center and St. Jude Children’s Research Hospital.
Get Out the Map
Where to begin your search? Roofstock created a heat map of Memphis based on our Neighborhood Rating, a dynamic algorithm that enables you to make informed real estate investment decisions by measuring school district quality, home values, employment rates, income levels and other vital investment criteria.
DARK GREEN: 4-5 star neighborhood
LIGHT GREEN: 3.5-4 star neighborhood
YELLOW: 2.5-3 star neighborhood
ORANGE: 2 star neighborhood
RED: 1 star neighborhood
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