Investing in the USA ~ Update May 2013

Posted on Saturday, May 18 2013

USA Real Estate Investment Update.


So we are nearly half way through 2013 believe it or not and the USA is a completely changed market according to some but what is really happening.

I have been based here since last July and even one thing is certain, no one in the media or political spectrums can agree on what is really going on. Things are good, things are bad. The recession is over but the recovery is weak.

The housing market is healing but foreclosures and value declines persist in many markets.
Now none of us can say what is really going on here, this economy is huge and the government is so divided it could take decades to see the effects of what is done now and this is a ginormous ship to turn around.

What I can talk to you about however is the Memphis market and what I am observing here over the last 4 years and especially the last 6 months.

Real Estate Market Healing?
This is a common headline here and it is based on a number of statistics showing that foreclosures are declining, days on market is reducing and available inventory is shrinking.

Well in Memphis a large hedge fund came to town last August and a number of local wholesalers stepped up their marketing to meet the demand from overseas buyers.

The effect on Memphis has been shrinking inventory and stiff competition in most traditional buying methods. But make no mistake this change is somewhere between 75 and 100% fuelled by the hedge fund.

In April the total listings in Memphis were 4923. And that is a 15% reduction over a year ago. 15% of 5000 is in round numbers 750 right. And since last August the hedge fund in Memphis has closed well over 800 homes, probably closer to 1000.

So is the Memphis real estate market genuinely “healing”? I would say no BUT there are some more retail sales to home owners which is a fabulous sign. In any city where the population is under 1.5 to 2 million and you see prices heading north look for hedge fund activity before you decide things are getting better.

Prices rising?
There is no doubt that base prices have moved in Memphis. Courthouse step values have risen and MLS listings are probably up around $10,000 average over a year ago. So many people are paying more than they were no doubt.

Our company has increased our allowance for maintenance but has refused to reduce our net yield number and we still find plenty of deals so whilst homeowners and unsophisticated buyers are paying more the same high evel of returns are available you just have to move faster.

Rents Rising?
In a market as small as Memphis we see the hedge fund activity affecting rents in a number of ways.
Firstly the fund over rehabs as its yield requirements are tempered by their desire for minimal maintenance costs and management issues.

This means that there are several hundred high quality rentals available that would not normally be there. They are asking top rent but they are also superior quality so this has a negative impact in some areas where “average” rehabbed properties have to accept lower rents to get tenants because they are competing with the fund inventory.

This is offset of course by the general increase in number of people renting meaning there is little if any over supply of homes and everybody has to live somewhere right?

The general trend with rents $ wise is definitely increasing however lower quality homes will sit longer or need to be very realistic about rental returns in C grade locations.

The holy grail in many ways of US investing is getting cheap US money as either an exit strategy or just to leverage net returns. Well the bad news is money is still hard to get but the good news is that we can get people qualified over tiem to get cheaper money but even the “hard” money industry is starting to come back to this market.

I am starting to see slightly lower interest rates and more out of state lenders willing to lend in Memphis. I expect this easing will continue and we may see some 8 to 10% money soon in Memphis!

The US market continues to be an attractive market to generate solid cash flow. The Memphis market in particular continues its predictably boring behavior with definite signs of incremental improvement. Memphis has never been a boom/bust market so is never going to produce dramatic gains or drops.

The US dollar continues to languish as to most leading economic indicators so I believe there is still a window at least through to the next US election to buy well at a discount now and not only achieve currency gains but have exit strategies to home owners.

And perhaps most importantly in terms of exits there are definite signs of relaxed lending meaning investors can refi at lower rates and recycle all their capital.

If you’d like any more info on this market or an info pack please email me anytime

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Expert's Bio

Dean Letfus

Dean spends his time between the USA, Fiji and New Zealand helping hedge funds and individual investors buy cash flowing real estate in the Memphis market. He works with top professionals in those cities and is considered better at finding deals than most of the locals. Turnkey has clients in 9 countries and specialises in providing end to end solutions regardless of your budget.

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