Investing in Memphis/Question on neighborhoods (Baxter: section 8, best neighborhoods, real estate)

[debmeg]

Hi all,

I've come across an opportunity to invest in real estate in Memphis. I don't have a lot of money, so we're talking buying a cheap home (approx $40k) that will be rented out and run by a management company. I'm assuming given my budget that we're not talking about the best neighborhoods, but I'm not from Memphis, and although on the one hand I'd be quite happy to rent this property out for years and just have a small amount of passive income coming from it, I also wouldn't want to buy in a neighborhood that is actually bad, or getting that way. While we can't ever predict totally what's going to be in 10 or 20 years, I want to know that i'll be able to make some kind of profit on the property should I decide to sell it in 10 years - or at the very least not lose money because the place has become a ghetto.

So - the properties that are available to me all seem to be in an area called Overton, or Frayser. The properties themselves seem very decent, but neighborhoodScout.com doesn't seem to think it's all that great an area. I'm not going to ever be living there myself but this is probably the only investment I'm ever going to make and I want to know it's a decent one.

Any advice please?

Thank you so much,

Deborah

[eastmemphisguy]

Frayser is already a ghetto. Crime, gangs, the works. I'm sure there are people who make money there, but it seems to me that having just one house is a big risk. If your tenant doesn't pay the rent, your investment suffers substantially. If your tenant damages the property, your investment suffers substantially. If you have a great tenant, you could make a nice profit, but it's a high risk/high reward strategy. The key to any investment is diversification for risk management. Depending on your situation and attitude, you can have some money in a risky place, but I wouldn't do this if you can't afford to lose your money. Also, don't forget about taxes, insurance, and routine maintenance. Real estate asks a lot of you in the best of circumstances.

[jabogitlu]

I understand what eastmemphis guy is saying - buying a low-cost house in a swing neighborhood in Memphis can be a roll of the dice if you are not very educated on dynamics in Memphis. However, Frayser is not a ghetto. There are many very decent, respectable middle class people living in Frayser. The first thing you have to understand about Frayser is that it's the size of a small city itself. There are multiple neighborhoods in the 38127 zip code (commonly understood as Frayser). Some of them are much better than others.

In general, very bad neighborhoods in Frayser include Ridgegrove (area around Sunny View, Sunny Dale); Rugby (Overton Crossing @ The Oaks, The Elms, Pinedale Ave, Birchdale Dr, etc), the area around Westside Park, the area around Steele & Baxter. In general multi-family housing in Frayser attracts a bad crowd so housing around the units is also depressed in value.

Good neighborhoods in Frayser include Georgian Hills, parts of the district west of Thomas St, as well as the area between Vieh Park (to the left), Whitney Ave (to the north), James Rd (to the south) and Rangeline (to the east). This is a few different neighborhoods including Skyline Circle. The large area between University (west), Frayser Blvd (north), Rangeline (east) and Whitney (south) is fairly decent and improving very quickly.

Most of the rest of Frayser can be hit or miss. To repeat, I'd skip out on houses close to multi-family units. Personally, I would also skip out on houses on dead-end streets (in general), or in otherwise "isolated" areas (e.g., look up Hindman Ave & Steele St on google street view).

Home prices are up 13% over last year in Frayser and they have been rising year over year. A lot of this is investors (like the OP), so who knows what the future will be for this neighborhood - if investors decide to flood the market prices could drop drastically. Still, houses in Skyline Circle and Georgian Hills will always be solid houses and decent neighborhoods.

I'm not a realtor or anything close, but I do a lot of work in Frayser involved in housing so I have my own "feel" for almost every street up there. If you're thinking about investing you can PM me if you like. I can share my own opinions at least.



Oh yeah - not sure what you mean by "Overton." If you mean Overton Crossing, yeah, that street generally goes through bad-to-fair neighborhoods in Frayser. There are other areas in Memphis that could be Overton (like Overton Park, which isn't exactly lower-end housing prices). Maybe there's a neighborhood called Overton I don't know about?

[thatswanlady]

I would strongly discourage you from doing this, for reasons that aren't even Memphis-specific.

1. Unless you're a seasoned investor/landlord (and even then...), buying property in a city that you don't live in and are not familiar with is an extremely risky prospect. Buying the house and just trusting the property management company to do their job is likely to leave you in a very bad spot. Seriously, go hang out in the Renting sub-forum for awhile and read some of those horror stories. Being a landlord is not for everyone, and it's certainly not a good idea to have your first/only landlording experience in a city in which you don't live and so far as I can tell, have never visited.

2. Buying a lower-income property has a set of risks all its own -- namely, that a lot of your target tenant demographic will be either Section 8 OR young people trying to cram as many people in a house as possible under the radar to make living as cheap as possible. Please don't misunderstand me -- I'm not at all saying that ALL Section 8 tenants or young people living cheaply are awful and will destroy your property. Not at all. There are many people in those situations that respect property and just want a good place to live. But again, spend some time in the Renting forum and you'll see that your chances are statistically much higher in these groups. There are a lot of reasons landlords convert to Section 8 housing, but again, unless you have a lot of experience in this realm, it's not for the amateur. Trusting that your property management company will just do all of the hard work for you and you'll simply collect a check each month is likely to leave you with an uninhabitable house -- and actually, that holds true whether you're renting out a $40k house or a $400k house.

3. Okay, this one is specific to Memphis. Bad parts of town work differently in Memphis than they do elsewhere. There are some parts of Memphis that should be avoided altogether unless you're extremely familiar with the city and extremely open to risk. However, there are other parts of the city that are uniformly considered bad, but the reality is that the degree of "badness" varies strongly street-by-street. Frayser instantly comes to mind here, but there are others. There are some terrible parts of Frayser, but there are also some beautiful streets with well-kept homes and families that have lived there for decades with an investment in keeping their street nice. In a way, this can be trickier to navigate than the uniformly bad parts of town because it can be much harder to tell what you're getting into unless you really get out there and experience the neighborhood and talk to the neighbors.

To sum up: Please re-think this plan. It's not as simple as finding a house, finding a property management company, and kicking back while the checks roll in. Is there no way to find an investment property wherever you currently live? At least then you could periodically check on the property. If you're dead-set on doing this, go read in the Renting forum as a good start, then come to Memphis for awhile and check out the properties and the neighborhoods.