Ready to invest in Memphis rental properties?
Memphis is one of America’s most affordable cities, yet it offers a diverse economy, excellent location, and plenty for residents to do.
This makes it a hidden gem in an environment where finding good deals in more prominent markets is getting harder.
Below, we’ll dive into the benefits of owning Memphis rental properties. That way, you can see why starting or expanding your portfolio in Memphis could be wise.
Real estate can be one of the best assets for income investors. Most Memphis rents are trending gradually upwards, signaling potential growth in the future.
Real estate has a low correlation with stock and bond performance. Therefore, it could be a great way to guard your wealth against declines in the stock and bond markets.
Diversifying with real estate is also vital. Some markets cool off while others heat up. Expanding into Memphis real estate could be an excellent choice for diversifying your property holdings.
The IRS offers plenty of tax deductions to real estate investors. Speaking with a tax professional to determine what tax breaks you qualify for and how much is a wise choice.
That said, here are some ways real estate could help investors reduce Uncle Sam’s cut of their income:
Real estate investors cannot use the homeowner mortgage interest deduction. However, they can deduct mortgage interest as a business expense.
That means they can deduct the smaller of the income they earn or the interest they pay.
For instance, if you earn $36,000 in real estate income and pay $12,000 in interest, you may be able to deduct up to $12,000 from your income.
Depreciation lets investors reduce their taxable income to account for property wear and tear. This is one of the largest deductions investors can take.
Costs of obtaining a mortgage, such as closing costs, can be capitalized onto a property’s basis. This could allow the investor to take a larger depreciation deduction each year.
Investors can generally depreciate a US property for 27.5 years at a rate of 3.636% per year. Only the building can be depreciated. Land cannot.
The IRS lets you deduct “ordinary and necessary” expenses paid to manage your Memphis rental property and run your business.
Some potentially deductible expenses include:
Investors have to pay property taxes and insurance regularly. But, fortunately, many can deduct these on their income taxes.
Investors who must travel to manage their property might be able to write off related travel expenses.
According to IRS Publication 527:
“You can deduct the ordinary and necessary expenses of traveling away from home if the primary purpose of the trip is to collect rental income or to manage, conserve, or maintain your rental property.”
Some of these expenses may include:
If you live outside of Memphis, these deductions could help you expand into this market more affordably.
There are exceptions to keep in mind, such as being unable to deduct travel related to improving the property. As mentioned, speak to a tax professional when examining your deduction options.
Memphis has a relatively diverse economy. Major sectors in the area include healthcare, education, government, and trades/transportation/utilities.
The Mississippi River offers the Memphis economy a substantial boost as well. The city serves as a shipping and transportation hub, bringing jobs and wealth to the area.
Major employers in Memphis include:
Being in Tennessee, Memphis has no state income tax and low property taxes — a draw for professionals and retirees. Tennessee’s combined corporate tax rate is 26.1%, just above the median of the 50 states.
Memphis notably rebounded from the pandemic-era slowdown faster than the US. It saw gross regional product (GRP) growth of 6.2% in 2021 vs. the US’s 5.5%. Nashville was the only Tennessee city that bounced back faster.
Memphis is not far from the Midwest nor the Deep South. It sits on Tennessee’s borders with Mississippi and Arkansas, making it the Arkansas-Mississippi-Tennessee tri-state area hub. That puts Little Rock just 2 hours southwest and Jackson 3 hours south. Meanwhile, Missouri is only 2 hours north.
Lots of nature surrounds Memphis. The city sits on the Mississippi River’s eastern bank. Across the Mississippi is the Wapanocca National Wildlife Refuge in Arkansas. North of Memphis lies the Meeman-Shelby Forest State Park.
The city itself is famous for its blues, soul, and rock ‘n’ roll heritage. Elvis Presley, Johnny Cash, and B.B. King each recorded albums at Memphis’s Sun Studio. Residents and visitors can check out the Rock ‘n’ Soul Museum, Blues Hall of Fame, Stax Museum of American Soul Music, and Elvis’s Graceland mansion.
Memphis real estate is reasonably affordable compared to cities of similar size. The housing market is somewhat competitive, with a $200,000 median listing price. Investors may be able to enter this market fairly easily.
Affordability extends beyond housing. In August 2022, Kiplinger’s ranked Memphis as one of the cheapest US cities. Every major living expense category is below its national counterpart. Everything but transportation is lower than Tennessee’s average — but not by much.
Memphis can be a great market for rental investors. It’s one of America’s most affordable cities yet boasts a healthy economy, good location, plenty of history, and a thriving arts and cultural scene.
Overall, investing in Blues City could offer steady income at a reasonable price. Plus, you can diversify your portfolio and potentially save on taxes.
Are you sold on investing in Memphis real estate? Your next step is picking a neighborhood and property type.
Evernest can help you get started. We’ll collaborate on determining your preferences and goals, then we’ll handle the property search.
Let’s talk — fill out our buyer’s form today to get started.
McKenna is an Evernest Content Strategist based in Denver, Colorado. Her expertise spans the real estate and home financing sectors. When not writing, she enjoys picnics, yoga, and antiquing.