Memphis Investment Property Underwriting Checklist
5 min read · Updated
The short answer
Underwriting a Memphis rental means verifying four things in order: that the rent is real and collectible at that address, that the expense assumptions reflect Shelby County taxes and actual bound insurance quotes, that the property’s condition and title carry no inherited liabilities, and that the deal still works when vacancy and repairs run worse than planned.
Key takeaways
- Verify rent at street level. Memphis rents vary sharply within a single ZIP code.
- Get a bound insurance quote for the specific address rather than using a rule of thumb - premiums vary widely by ZIP, roof age and claims history.
- Model the post-sale reassessment. Buying at a price above the current assessed value can raise the tax bill materially.
- Budget capital expenditure separately from repairs. Older stock consumes roofs, HVAC systems and sewer lines on a schedule.
- Check environmental court and code enforcement history - violations transfer with the property.
Current Memphis inventory on Ownerfi
Figures from Ownerfi’s active Memphis listings, updated as inventory changes. Use them to calibrate where inventory sits, not as a substitute for verifying the specific property you are underwriting.
- Active Memphis listings
- 352
- Offering owner financing
- 28
- Lowest list price
- $10,000
- Median list price
- $129,950
- Highest list price
- $799,000
| ZIP code | Active listings |
|---|---|
| 38108 | 42 |
| 38122 | 39 |
| 38109 | 37 |
| 38127 | 37 |
| 38128 | 26 |
| 38111 | 24 |
| 38106 | 22 |
| 38107 | 20 |
Step 1 - Establish real income
Start with what the property will actually collect, which is not the same as what a listing or a seller’s pro forma claims.
- Verify market rent at street levelUse current comparable rentals within a few blocks, not ZIP-wide averages. Memphis rents can differ substantially across a short distance, and a ZIP-level figure will overstate rent in weaker pockets.
- Check the existing lease if occupiedRead the actual lease. Confirm the rent, term, deposit held, any concessions, and the payment history. A tenant paying below market on a long lease is a real constraint on your first year.
- Apply a realistic vacancy and credit loss allowanceInclude both physical vacancy and non-payment. The appropriate allowance is submarket-specific and is meaningfully higher in the lowest-priced ZIPs than in Midtown or East Memphis.
- Confirm the rent is collectible, not just achievableAsk a local property manager what they actually collect at that address, and what turnover looks like. Gross potential rent that is never fully collected is not income.
The expense lines investors get wrong in Memphis
| Line | Common mistake | What to do instead |
|---|---|---|
| Property tax | Using the seller’s current bill | Model the reassessment at your purchase price; confirm whether both city and county rates apply |
| Insurance | Applying a percentage rule of thumb | Obtain a bound quote for the specific address, roof age and claims history |
| Capital expenditure | Folding it into repairs | Reserve separately per unit per year for roof, HVAC, water heater and sewer |
| Property management | Omitting it because you self-manage | Include it; it is a real cost and it is what a future buyer will underwrite |
| Turnover | Assuming long tenancies | Budget make-ready and lost rent at a realistic turnover frequency for the submarket |
| Utilities between tenants | Assuming the tenant always pays | Include vacant-period utilities, especially winter heat to prevent pipe damage |
| Code compliance | Assuming a clean record | Check environmental court and code enforcement history before closing |
Step 2 - Memphis-specific condition and title risk
These are the items that turn an apparently good Memphis deal into a loss, and most of them are cheap to check and expensive to miss.
- Foundation - regional expansive clay soils make movement common. Get a structural opinion on any visible cracking, sloping or door misalignment before waiving diligence.
- Sewer line - scope the line on older properties. Collapsed or root-infiltrated laterals are a recurring, five-figure Memphis expense.
- Electrical - ungrounded or knob-and-tube wiring and undersized panels appear regularly in pre-war stock and affect both safety and insurability.
- Plumbing - galvanized supply lines are common in older housing and often need full replacement.
- Roof age - insurers price and sometimes decline on roof age. Confirm it before assuming a premium.
- Title - tax sales, heir property and unreleased liens appear more often here than in newer suburban markets. Order a full search and buy title insurance.
- Occupancy - establish whether anyone is in the property and on what basis. An occupant without a lease is a legal process, not a scheduling inconvenience.
- Prior investor churn - a property sold several times in a few years with no permits pulled usually means deferred maintenance was passed along rather than fixed.
Step 3 - The go/no-go tests
Once income and expenses are verified, the decision reduces to a small number of tests. Run all of them; a deal that passes one and fails another is not a deal.
- Does net operating income, built from verified figures rather than the seller’s pro forma, support the price you are paying?
- If financed, does the property cover its debt service with margin - and what happens to that margin if rates are higher at refinance?
- Does the deal still work with vacancy one step worse and repairs 20% higher than budgeted?
- Is there a realistic exit - can you sell to an owner-occupier, sell to another investor, or refinance? Properties below conventional minimum loan amounts have a narrower buyer pool.
- If the purchase is seller-financed, is there a documented plan for the balloon that does not depend on conditions being better than they are today?
Frequently asked questions
- What vacancy rate should you use for a Memphis rental?
- There is no single correct figure, because it varies substantially by submarket. Allowances appropriate for Midtown or East Memphis will understate losses in the lowest-priced North and South Memphis ZIPs. Ask a local property manager what they actually experience at that specific address, and include credit loss as well as physical vacancy.
- How much should you reserve for capital expenditure on an older Memphis house?
- Reserve separately from repairs, and size it against the actual remaining life of the major components - roof, HVAC, water heater, and sewer line. On pre-war stock where several of those are at or near end of life, the reserve needs to be substantially larger than on a recently renovated property. Get ages during inspection rather than assuming.
- Do Memphis property taxes go up when you buy?
- They can. Assessed values are periodically reappraised, and buying above the current assessed value can result in a higher bill than the seller was paying. Model the tax line on your purchase price rather than on the seller’s current bill, and confirm whether both City of Memphis and Shelby County rates apply to the address.
- What is the biggest underwriting mistake investors make in Memphis?
- Using city-wide or ZIP-wide averages for rent, vacancy and expenses instead of verifying at street level. Memphis conditions change sharply over short distances, so an average blends submarkets that behave very differently and consistently overstates performance in the weaker pockets.
- Can you buy a Memphis rental with owner financing?
- Yes - Memphis has a large stock of older homes owned free and clear by long-term holders, which is the seller profile most able to carry a note. Underwrite the property exactly as you would for a cash or financed purchase, then separately assess the note terms: the interest rate, whether prepayment is permitted, and how you will satisfy the balloon.
