Overseas investors flock to Memphis real estate

February 25th, 2011 3:00am
Unique business concept, marketing reel in clients

Steve Bergsman
Inman News™

Memphis Investment Properties LLC calls itself a full-service real estate company, but it has a unique business concept. It creates turnkey, single-family home investments in its namesake city.

Basically, it works like this: Memphis Investment buys distressed properties (physically or financially distressed) in bankruptcy or directly from banks; repairs and renovates; and rents them to tenants.

With everything then in place, it sells the properties to investors while continuing to manage the rental. At the start of 2011, the company counted about 1,000 Memphis properties under management.

Last year, Memphis Investment inadvertently stumbled upon a new source of buyers: overseas investors. The amount of non-U.S. citizens investing with Memphis Investments had been, to quote Dean Vernon Wormer in the movie "Animal House," "zero point zero" at the start of 2010.

By the end of the year it became 30 percent of new business. In 2011, Memphis Investment estimates it could amount to 50 percent.

And it all began with a phone call from Italy. An anesthesiologist from Italy, who also played in a blues band, decided that Memphis, the home of the blues, might be an interesting place to live. She found the Memphis Investment Properties' website and called.

Craig Jennings, Memphis Investment's director of investor relations, took the call. "She was like, 'Wow, these homes are so incredibly cheap and with euro conversion so good, you should be selling these to foreigners,' " he recalled. "That sparked my interest."

The trouble was, Jennings didn't know how to market to overseas investors, so one of the people he called was Andrew Waite, publisher of the Personal Real Estate Investor magazine in Phoenix.

Waite's response was, "I don't know either, but let me make a few calls."

Waite, who is originally from New Zealand, telephoned a friend there who was a real estate investment teacher and conducted seminars for locals interested in investing in real estate.

"I sent some pro formas, which we put together of performing real estate from the Memphis Investment Properties portfolio, and my associate in New Zealand ended up buying two of them because he had never seen deals like these," Waite said.

"In Memphis, home purchase prices are low, but rents are relatively high," Jennings said.

Indeed, the 2010 median home price in Memphis was $67,100, reported Money magazine. The average home price in Auckland, New Zealand's largest metro area, in a rough comparison, is more than $300,000. But, take your pick, home prices in New Zealand, Australia, Singapore and most of Western Europe are considerably higher than most U.S. locations.

And Memphis, which boasts a population of almost 700,000 people, is cheaper than most other large U.S. cities. No wonder foreign investors are interested.

Waite and Jennings traveled to New Zealand to do a presentation before investors. Other than Canada and Mexico, Jennings had never traveled overseas before.

"I went to speak to a group of about 500 people," he said. "I was absolutely floored. They were so much more adept at buying hard assets. When I was speaking to the crowd, I asked for a show of hands as to how many people had rental properties already. About 85 percent of the people raised their hands."

Jennings signed a few contracts right on the spot.

"I never thought I would be as involved in foreign markets as I am now," he said. "I had to hire nighttime salespeople to deal with the folks from New Zealand and Australia. We start getting calls at 4 p.m., which is their 9 a.m., but it is the end of my work day. I now have a group of people who start work at 5 p.m. and go to 10 p.m."

Jennings is also looking to go back overseas, doing a road show not only in New Zealand but also Australia and Singapore.

"If you jump on stage in Singapore and say American real estate is performing, and by the way we have rule of law and the U.S. dollar may be weak but is going to get stronger, you will find interest," said Waite. "For foreign investors, there's an exchange play, a security play and financial self-defense. Anytime they can put money into secure real estate investments, they are happy."

There is a lot of compliance involved with foreign real estate investments, Waite cautioned. "Investors have got to understand reciprocity and tax treatment between treaties. There are a whole lot of financial services components to it."

What happens on the other side of borders in regard to the treatment of real estate investments in the United States is obscure to most of us, but as far as this country is concerned, there are really no roadblocks.

Just to make sure, I called Richard Keyt, an attorney with Phoenix-based Keyt Law LLC who does a huge amount of corporate formation work.

Foreign ownership is generally done through a corporate entity that is either a corporation, limited partnership (LP) or limited liability company (LLC), and taking Arizona as an example, Keyt told me, there are no limitations as to who can own an Arizona company.

"You can buy real estate as an individual or an entity from outside the United States, but then you have liability issues," he said. "For asset protection purposes involving investment real estate, you should have a corporate ownership structure."

Although the LLC is the choice for most Arizona corporate entities, Canadians buying in the state used the LP, Keyt notes, as it seems Canadian tax law does not recognize the LLC as a partnership.

There doesn't seem to be much in the way of foreign roadblocks in Tennessee either.

"Several people I met in New Zealand have flown into Memphis to see us, check out operations and drive around," said Jennings. "They look at the properties and get a feel for the town. We sold 10 properties to folks I originally met while I was in New Zealand."

Steve Bergsman is a freelance writer in Arizona and author of several books. His latest book, "After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade," has been ranked as a top-selling real estate investment book for the Amazon Kindle e-reader.

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