I want to just say thanks for your patience. I’ve been away for about eight weeks. I haven’t done an episode in almost two months. The reason for that is because I’ve been traveling extensively here for actually the whole year but mostly throughout the summer. I spent about two and a half weeks traveling through Italy and up to Paris. That was a family vacation. The rest has been all business related. I’ve been traveling everywhere from Kansas City to Dallas to China. I actually just got back from Shanghai, which was just an amazing trip. I might talk a little bit more about that in my next episode because it’s quite fascinating what is going on in terms of investment capital and foreign investment in the US. Aside from that, I plan to get back on a weekly recording schedule here as best as I can. I still have a lot of travel coming up here over the course of this month and the rest of the year. I’ll do my best to continue to deliver content and bring on some great guests.
In the meantime, I want to announce something that we haven’t done for a long, long time and we rarely do, and that is a combination of an educational seminar/property tour where you can actually just kick the dirt and walk around and see various properties in a market at different stages of development; from acquisition to demolition to renovation through to completion, so you can see everything that gets done, who’s doing it and how it gets done. That’s combined with some amazing speakers, everything from finance to 1031s and whatnot. That’s all packed in about a day and a half. It won’t be a long drawn out four-day event. It will be short, sweet, you come in on one day, you have a day and a half of networking and education and property visiting. Then you could leave in the second half of that day or the following day. That’s what this episode is about. It’s investing in Memphis, Tennessee and some information about our upcoming property tour.
I have a great guest. He’s one of our team members out in the local market. He knows the market very well. Memphis has been a great market for us. It always has been. It’s a perennial market. It’s very strong. The real estate market there in Memphis continues to grow. It has been what I call a perennial cashflow market. You don’t see wild fluctuations and appreciation. They’re strong, steady, stable rates of return in cashflow. If that’s what you’re looking for, it’s a perfect market because it’s got everything you could possibly want aside from hypergrowth in terms of price appreciation. We don’t have an inflated market but we do have what a lot of investors want, and that is solid, steady, consistent income and rates of return.
We’re going to dive into that and bring on James, our partner here. Stay tuned.
If you missed our last episode, be sure to listen to Daniel Amerman – Inflation, Deflation, Debt and the Coming Housing Crash?
Enjoy the show!
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Investing in Memphis and Our Upcoming Property Tour
It’s my pleasure to welcome James to the show. James is one of our team members in Memphis, one of our perennial markets. We’ve been there for a long time. We do a lot of business with James and his team. I wanted to bring him on the show today to talk about the Memphis market, why it’s such a great market and has been for a long time in terms of investing. On top of that, we have an upcoming investment and property tour coming up. James, welcome to the show.
Marco, thank you so much for having me.
It’s great to have you on. I know we do a lot of stuff with you. All our investment counselors love working with you and your team. They’re just such great people and very responsive. We have a lot of great product that comes out of that market so clients are always happy and we love happy clients. We’ve been talking about this upcoming investment educational seminar and property tour combination, which we’ll get into in a moment. Let’s talk about Memphis first. Memphis has been a perennial market for us. It’s quite an amazing market because back in 2008, during the largest real estate crash in US history, Memphis only declined about 3%. It’s been very smooth, steady and flat in that sense. You’ve got some accolades as well; US News & World Report ranked Memphis number one as one of the ten best cities for real estate “steals.”
Another interesting thing about Memphis is that a lot of Memphians, if that’s what you call yourselves, the number of people that rent as opposed to buy far surpasses the national average. It’s quite an interesting market. Tell us a little bit about Memphis and why we should be investing in Memphis, Tennessee?
Memphis is a very predictable town, almost to the point where it’s boring. Every year, you see a slow and steady 3% gain in appreciation but the rents follow that as well. A lot of my investors have come down because they’re looking for a place that’s predictable to invest. One of the reasons I think it’s so predictable is our employers. Our biggest employers are FedEx, the headquarters is here in Memphis, Tennessee. We have the world’s largest air cargo hub and FedEx also has two other campuses in town where the corporate offices are. Even in the slow economy, they continue to hire. They never went through massive layoffs. They’re very predictable. Nike just put in a three million square foot facility where every shoe, every piece of apparel that Nike distributes North America comes out of Memphis. Most recently in the news, Amazon is looking at Memphis as their second headquarters since Seattle is already full.
You are a logistical hub too. As far as I know, there’s a new interstate road being built or a highway, the I-69 and that’s supposed to go from Canada down to Mexico. I don’t know what the status is of that construction but it’s supposed to go through four major cities in the US, Memphis being one of them. What’s the status on that?
It opens in six months. The infrastructure comes through Memphis coming from Canada to Mexico. It’s a NAFTA Superhighway, so free trade zones along the way. Memphis just built a huge free trade zone for Interstate 69. Of course, we have Interstate 40 that goes east to west, all the way across America coming right through Memphis, and Interstate 55 from Chicago to New Orleans comes right through Memphis as well. Memphis is called an aerotropolis. What they mean by that is it has all four major forms of transport. You have the Mississippi River with an inland port where we bring oil and grain, cotton, up and down the river. We have four Class 1 railroads, which there are only three cities in America that have that. Warren Buffet just built a new intermodal unit here. Then the interstates are some of them of course, then with FedEx’s presence, the world’s largest air cargo up.
You’re not in the middle of US but you’re a logistical center in terms of rail and cargo and water transport. Do you think that’s driving the industry and business to the market? Is it bringing jobs in or is it relatively flat?
It’s slowly gaining in population, if that’s what you’re asking. We don’t have just a massive explosion, which is good, that’s how we stay slow and steady and predictable. There’s warehouse after warehouse being built where companies are shipping their goods from Memphis out to North America.
The last time I checked, Memphis was one of the largest distribution centers in US and they had, at last count, over 600 trucking companies. I’m sure that’s probably grown because land transport is so important to this country. So much of our products are shipped by truck.
That’s one of the reasons FedEx is doing a billion dollar addition to their airport. They can fly a plane in, off load, put it on eighteen-wheelers and be in most places overnight. They don’t have to reload a plane and fly it somewhere else. There are 600 truck companies, you’re right about that, 3800 logistic companies in town, whether it’s one of those four types of shipping.
What about the economy in terms of diversification? That’s one of the things I like to look at in a market when I start looking at a market from a 40,000 foot view and then I work my way down. You have transportation, shipping. I know you have a fairly large medical footprint there. Do you want to add to that?
The medical footprint is huge. It’s something I’m really proud of. Memphis is home to St. Jude Children’s Research Hospital, the most amazing place on Earth. They’re saving babies from pediatric cancer. They’re doing a $1 billion addition to their campus right now. The state, federal and local government put in another $8 billion to redo the area around St. Jude to make it very attractive, to get the youngest, brightest minds here to Memphis to help with the problem of pediatric cancer.
What’s the population of the Memphis Metro?
1.4 million.
It is growing, because the last time I checked I remember it was about 1.3.
We’re growing steadily.
Tell us about the housing market. I know a problem that we’re having and a lot of people are having around the country is inventory levels becoming tighter and tighter. That’s shrinking the supply, and demand is still very strong if not getting stronger for both homeowners wanting to buy their first home, a second home and investors looking for rental properties. That has created a squeeze on everything; squeeze on inventory, squeeze on cap rates. What are you seeing in the Memphis market?
It’s tougher and tougher to find houses. Keeping a large inventory for our investors that are asking for quality properties is always a challenge. What we’ve done to circumvent that is we have a team that is meeting with motivated sellers; people going through a divorce or bankruptcy, inherited property. We’re negotiating to buy those homes so that we can fully renovate them, bring them to 2017 standards and they still cashflow for our investors. Right now, Marco, we have 33 turnkey properties available. The other thing we’ve done to solve this problem is we build brand new homes as rentals. Our new construction is very popular with our investors.
The Memphis market has a very wide range of product and price. You’ve got everything from very low-end on up to your multi-million dollar houses. Why don’t you describe a typical investment property? For our listeners, what is a typical investment property? What is the price range? Maybe we can describe the neighborhoods after that.
My typical investment property is a three-bedroom, two-bath home that’s been fully renovated, brought to 2017 standards as way of new roof, new mechanicals, all hard surface floors, no carpet. It’s a one-story ranch, very typical Memphis house, and sales price is $89,000. That same house would rent for $895 a month.
As far as a rent-to-price ratio, it’s right around that 1% which is often a target that we try to achieve, if not better.
Most of my investors are really happy with that ratio if it has that full renovation.
That’s a great target for a fully renovated home. What about the top-end of that investment grade rental property? What’s the high-end on price?
My new construction goes up to $200,000. That house is going to rent for $1,700 a month. The tradeoff being that it’s brand new should have less repairs in the future, a really high quality renter. Our investment range is from as low as $65,000 to $200,000.
How would you classify these neighborhoods on the $80,000, $90,000, $100,000 properties as well as the new construction?
We’re very specific about not the zip code but the neighborhoods we invest in. All of my properties in the $89,000 are going to be what I call a B-Community. It’s about 65% rentals which is the average in Memphis. You had mentioned that earlier, more Memphians rent than buy; 65% renters versus homeowners. The $200,000 home, I would classify that as A-neighborhood. It’s mostly homeowners.
There’s a variety of product that investors can choose from and we’d like to see that range. Let’s talk about the investment seminar and property tour. We have been talking about putting on this event. It’s basically a one and a half to two-day event coming up on Friday, October 6th and October 7th. Why don’t I let you describe for our listeners what it is, who we’ve invited to be there and how that’s going to play out?
This is a really exciting time. A lot of my clients like to come to Memphis, meet the team, take a tour of our campus and then get out and see some properties. Friday, everyone’s going to come to the office. We’ll have it set up like a classroom. We’ll have a National Lender that can help explain about getting your first ten properties with that Fannie Mae, Freddie Mac loan that we have available to us. I also have a self-directed IRA company coming to teach us about how to set up your first IRA, or if you have one already, how to turn that into a real estate investing. Then myself, I’ll be talking a lot about Memphis, the market and what we do to separate ourselves from other providers.
The suggestion is for people to come in on Thursday evening, check in, be ready to go for 9 AM on Friday morning. That’s an all-day event with some networking and whatnot in the evening. Then Saturday would be our bus property tour starting at 9 AM, correct?
That’s right. Friday, we’ll meet up at 9 AM. We’ll have a day of listening to the speakers. A real strength is having the investors get to talk to each other about what’s working for them, what’s not working for them. That evening, we’ll board a bus and we’ll go downtown and we’ll have a rooftop dinner overlooking the Mississippi River and downtown Memphis. The next morning, Saturday at 9 AM, we’ll board that same bus and we’ll go out and we’ll see about twenty properties. We’ll see homes that are recently purchased and nothing has been done to them. We’ll see homes under renovation and of course we’ll see plenty of properties that are finished and ready for the tenant to move in. You’ll see a whole spectrum from beginning to end of how this process works.
I highly encourage people to go if they’re thinking about investing and they’re not sure about the market yet. It’s worth taking a look at the Memphis market. The fact that we can tour different properties is very educational and eye-opening, we love when our clients go out to a market and they meet with our team and we give them the tour because they can see the quality of the neighborhoods and how clean they are and the type of environment that these properties are in. Not only that, they can see the quality of the work. They can see properties that are in the pre-renovation stage, during renovation and post renovation. They can see that transition so they understand what is being done and the extent of that scope of work. I really encourage people to come out. It’s really educational.
I’ll make another comment. When I go to these events, whether they’re educational events, marketing events, property events, etc., I always find that I get a lot of value out of the networking; the events, the dinners, meeting at the hotel bar, whatever the case is in the evening. Networking with other investors and learning from them is by itself more value than any cost that is paid to get to an event like that. It’s pretty powerful. It’s really good for investors to come out and meet other investors and talk and learn from others.
Marco, I do want to extend this to you. For any of your clients, any of your listeners, I do want to let them know that the ticket for this event is going to be free. They’ll just pay for their travel and lodging. We want to put them up, we’ll feed them, have some good Memphis barbeque while we’re here and have a good time, but actually a lot of education and seeing some properties as well.
I know that all our investment counselors are aware of this event. Should we just have listeners contact us directly through the office here and coordinate that through our investment counselors?
Yeah, call Steve, call Melissa, Ron, all those guys and then they can coordinate everything.
Anything else you want to add in terms of the Memphis market, Memphis properties or the investment seminar and property tour coming up on Friday, October 6th?
I’ll just touch one more time the power of having inventory to choose from rather than maybe picking from three or four properties. When you’re working with a team that has at least 30 properties available at all times, they’re going to hit different price points, different types of neighborhoods. Depending on your investment strategy, you can pick and choose what’s best for you.
I think there’s one more thing that we should add, a lot of the properties that will be available on investment seminar and property tour are actually being held exclusively for people who are on this tour. We’re not posting them up on our website. We probably won’t have them available to our investor clients, only because they are being held for people who are attending this event. They will have first dibs at it. Is that true?
That’s correct. I’ve picked just the top five in three different categories: my lower price, my mid price and my new construction, and held those exclusively just for this event.
I’m planning to be there and I’m hoping to meet some of our clients and investors that we work with. I might bring some of my team as well. We look forward to meeting all of you out there. James, this has been great. It was a quick, sweet, concise episode. I appreciate you being on the spot with everything. Is there anything else you want to add?
Just the last thing, the reason I picked this week of October is the weather. This is the week that the leaves start to change colors. It’s always beautiful in Memphis, Tennessee the first week of October. Come on out, you’ll have a good time. You’ll learn a lot. You’ll see some great properties and the weather will be beautiful.
I’m looking forward to it. If anyone has interest in this investment seminar and tour, contact us at the office here, speak to your investment counselor, we’ll get you more information and we can get you registered. Again, the cost is free. All you need to take care of is your accommodations and transportation. James, I appreciate you being on the show today.
Thanks, Marco. I appreciate it.
Thanks for coming on the show, James. We’ll talk to you soon.
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