If you are looking to invest in the Tennessee housing market, consider Memphis Airbnb. Find out why you should take this step this year.
When investing in an Airbnb income property, there are certain factors that you need to keep in mind if you want to earn solid profits. First, you need to decide on the property type. A house with multiple bedrooms may command a higher rate, but it may not get booked as often as a studio apartment that caters to couples and single travelers.
The second factor is the profit potential. You might be happy to earn a net of $200 per month on Airbnb after deducting your running expenses. But if you paid a total of $300,000 for that property, then you are getting less than 1% return on investment.
The third and probably the most important factor to consider in real estate investing is location. Not all cities and neighborhoods are optimal for Airbnb. If you want to invest in a rental home that gets a lot of bookings and earns high profits, then you need to look at houses that welcome tourists or are in proximity of tourist hotspots.
These three factors are why we are taking a closer look at the Memphis Airbnb investment market. In this blog post, you will learn:
- Why it is a good idea to invest in Airbnb Memphis TN this year
- If Airbnb is still legal in Memphis
- How to search for and select the best Memphis Airbnb
- The five best Memphis neighborhoods for Airbnb
If you need help deciding on whether to invest in the Memphis real estate market this year, keep reading.
Why Is Memphis Airbnb a Good Investment?
Our team at Mashvisor has been writing about investing in Memphis Airbnb since 2019. Looking at the previous articles covering this topic, we found the following interesting statistics:
- Airbnb rental income in Memphis increased from $2,031 in 2019 to $2,775 in 2022;
- Airbnb cash on cash returns also rose from 2.00% to 5.31% in the same period;
- Airbnb daily rate grew from $111 to $121; and,
- Airbnb occupancy rate went up from 59% to 65%.
Despite the COVID-19 pandemic disrupting the travel and accommodation industries in the last two years, it is interesting to see that Airbnbs in Memphis fared better than expected. We also looked at the city’s tourism and housing market trends in 2021.
Memphis’s Tourism Industry Is Bouncing Back
Thanks to the local and state governments relaxing COVID restrictions in the state of Tennessee, Memphis saw an increase in visitors. According to Memphis Tourism, more than 6.8 million people visited the city’s metro area from January to September 2021. These numbers were around 67% higher than in the same period over 2020. Overnight stays also increased by 41%.
While the Omicron variant may have derailed the momentum, the travel demand is likely to pick back up in the spring. And if hotel staffing stays below pre-pandemic levels, Airbnb hosts can take this opportunity to promote their rental properties as the perfect alternative accommodation.
Longer and More Isolated Stays Preferred for Airbnbs
Since traveling is the out-of-home activity that people missed the most, it is clear that the increasing demand for accommodations will continue to show. But the trends will not be the same as they did before the pandemic.
As companies started experimenting with remote working, employees saw this as an opportunity to work from anywhere, not just from their homes. According to Airbnb’s annual Travel & Living Report, Airbnbs in Memphis and other urban areas saw a rise in longer-term bookings that range from one week to a few months.
Also, even while people are starting to feel comfortable about traveling again, they now prefer going to less-crowded destinations. Thus, Airbnbs located in more isolated parts of Memphis earned more and booked more in 2021.
Memphis, Tennessee Real Estate Market Remains Hot
The Memphis real estate market was hot even before the pandemic. But due to a combination of low inventory and low-interest rates, it may remain this way. Home sellers are asking for more money while still getting offers from as many as 70 prospective buyers.
Even though most of the investors who bought these properties turn them into traditional rentals, Airbnb hosts can still make money. As mentioned above, remote workers are traveling to different parts of the country (and even the world) and would stay there for a month or two while doing their jobs. Those who are in lower-density neighborhoods will also attract groups who want a more isolated vacation.
Is Memphis Airbnb Legal?
The regulations surrounding Airbnbs and other short-term rentals in Shelby County–where Memphis is in–are overall positive. Most importantly, they allow non-owner-occupied rentals, so investors from out of state can expand their real estate portfolio here.
Memphis Airbnb Regulations
According to Shelby County’s code of ordinances, owners must first secure a short-term rental permit for each Airbnb property that they own from the county clerk’s office. They must also display the permit number on the respective property’s listing online. The procedure for short-term rental permit application goes as follows:
Memphis Short-Term Rental Permit Application Procedure
- In the application form, the property owner must include the following information for each Airbnb unit:
- Maximum guest capacity per night
- Site plan, drawn to scale, showing each unit and other structures and site features
- Assurance that their unit/s will not interfere with their neighbors’ rights to enjoy their respective homes
- Proof of ownership of the Airbnb property
- Verification of insurance covering fire, hazard, and liability damages for no less than $1 million per occurrence
- A Compliance Verification Form, which certifies that their unit/s comply with applicable building, health, and life safety codes
- Acknowledgment stating that they have reviewed and understood the county’s short-term rental ordinance and requirements
- Any citation on the property issued by the local law enforcement or regulatory agency in the last 12 months
- At least one adult person or property management company residing or located within 50 miles of the Airbnb property that will manage the rental
- The owner must then pay a non-refundable application fee of $100 upon filing the application to cover new applicant screening.
- Before issuing the permit, the county clerk’s office may choose, but are not required, to inspect the property on-site to confirm that it complies with the requirements. They may also do this when renewing the permit.
Airbnb Violations and Tax Collection in Memphis
If there are any allegations made against the Airbnb property pertaining to a violation of the county code, the owner must respond in person at the county clerk’s office. Otherwise, their permit may be suspended for a maximum of 30 days.
Airbnb will be responsible for collecting and remitting the occupancy and sales taxes to the county. Shelby County also levies a privilege tax amounting to 5% for each guest, which Airbnb hosts should charge. The money collected from these taxes will be used to pay for the administration costs of enforcing these Airbnb regulations.
How to Choose the Best Memphis Airbnb Property
As mentioned in the introduction, there are several factors you need to consider when searching for a lucrative Airbnb property. We already discussed why Memphis is a great location for this type of investment. That does not necessarily mean that you can buy the cheapest house in Memphis and hope that it will earn as much as other rentals in the area.
Fortunately, there are real estate investment tools like Mashvisor that aid investors in analyzing rental properties. So even those who want to start investing in real estate can start building their portfolio with little to no learning curve. To know more about how we will help you make faster and smarter real estate investment decisions, click here. Or, you can keep reading below:
Find the Memphis Neighborhood With the Highest Profit Potential
Not all of Memphis is created equal. Some areas are great for Airbnbs, while others are better for a different rental strategy. It is up to you, then, to figure out which is the best neighborhood for how you want to invest. Using our heatmap, you can immediately see which parts of the city have the highest Airbnb cash on cash returns.
Simply enter the location you want to analyze (e.g. “Memphis, TN”) on our search box, then you will be directed to our Property Search page. On the map section, select “Heat Map Dataset” and choose the metric you wish to highlight. For a short term rental strategy, you can pick between Airbnb Cash on Cash Return, Airbnb Rental Income, and Airbnb Occupancy Rate. The map will then highlight the best areas according to your selected metric in green.
Determine Which Property Type Is Optimal for Airbnb in the Neighborhood
Once you have narrowed down the neighborhood you want to look into, you could access that area’s analytics. While still on the Property Search page, type in the neighborhood of interest on the search box, then select the link containing the neighborhood’s name under each listing. This will open that area’s analytics page. There, under the Insights tab, you will find the optimal property type, number of bedrooms, and rental strategy for the neighborhood.
You could decide to follow these recommendations. But if you already have a certain type of property in mind, you can then analyze its profitability by going to the Rent Analysis tab.
Look Into Your Competition
Under the Rent Analysis tab, you will find the following information for Airbnb:
- Historical rental income of active Airbnb listings in the last 12 months
- Average Airbnb rental income in the same period
- Historical Airbnb occupancy rate
While the last two show the average performance for all property types, you can specify it to only show the average for a certain property type or the number of bedrooms.
These numbers are based on real data collected from active listings on Airbnb. Under the Historical Rental Income section, we also listed every Airbnb property we collected data on. You can click the link of each listing to open their Airbnb page and understand what makes them profitable.
Estimate Your Cash Flow and Long-Term Returns
Now that you know which neighborhood to search in and what type of property to look for, it is time to find your Airbnb property. To do this, go back to the Property Search page or click “Find properties in this neighborhood” on the neighborhood page. From there, you can narrow down the search results by selecting:
- Cash or mortgage (either payment method can change the cash on cash return)
- Minimum cash on cash return
- Minimum cap rate
- Budget range
- Minimum number of bedrooms and bathrooms
- Oldest year built
- Square footage
- Minimum rental income
- Property type
- Neighborhood
- Property Status (For sale, pending, sold, foreclosure)
You can also sort your search results by certain criteria, such as the lowest to highest price. When you see a property that interests you, click on its address to open its listing page. Aside from the listing information, you will also find on that page our Property Valuation Analytics, which estimates the rental income, expenses, cash flow, cash on cash return, and more.
You can use this information to decide whether you want to invest in the property, or you could customize the analytics by entering your own numbers on our Airbnb Calculator. You can find this powerful tool a few scrolls down the page. There, you can edit the rental income, occupancy rate, and expenses to calculate more accurate results that fit your situation.
If you are using financing, activate the Mortgage Calculator to enter your loan details, and our calculator will include this in its estimates. You would want to have a positive cash flow at the end of each month and a 10-year investment payback balance that matches or even exceeds the property price.
5 Best Memphis Airbnb Neighborhoods
To help you start your search, we used Mashvisor’s analytics to find the five best neighborhoods for Airbnb based on the active Airbnbs’ performance in the last 12 months.
#1: Raleigh
- Airbnb Rental Income: $2,559
- Airbnb Cash on Cash Return: 8.05%
- Airbnb Daily Rate: $305
- Airbnb Occupancy Rate: 62%
- Median Property Price: $197,875
- Average Price per Square Foot: $88
- Days on Market: 38
- Walk Score: 41
#2: Cordova
- Airbnb Rental Income: $2,909
- Airbnb Cash on Cash Return: 7.95%
- Airbnb Daily Rate: $151
- Airbnb Occupancy Rate: 65%
- Median Property Price: $290,414
- Average Price per Square Foot: $96
- Days on Market: 68
- Walk Score: 3
#3: Shelby Forest-Frayser
- Airbnb Rental Income: $4,202
- Airbnb Cash on Cash Return: 7.76%
- Airbnb Daily Rate: $198
- Airbnb Occupancy Rate: 72%
- Median Property Price: $359,900
- Average Price per Square Foot: $60
- Days on Market: 56
- Walk Score: 25
#4: Hickory Ridge-South Riverdale
- Airbnb Rental Income: $3,036
- Airbnb Cash on Cash Return: 7.35%
- Airbnb Daily Rate: $158
- Airbnb Occupancy Rate: 53%
- Median Property Price: $254,005
- Average Price per Square Foot: N/A
- Days on Market: 74
- Walk Score: 63
#5: Midtown
- Airbnb Rental Income: $3,765
- Airbnb Cash on Cash Return: 7.25%
- Airbnb Daily Rate: $107
- Airbnb Occupancy Rate: 78%
- Median Property Price: $326,764
- Average Price per Square Foot: $210
- Days on Market: 44
- Walk Score: 85
You may have noticed that Airbnb Downtown Memphis is not in the top 5. This is mostly because the cash on cash return for properties in this area in the last 12 months is only 4.24%, which is way low compared to the neighborhoods on the list.
Find Your Next Memphis Airbnb Property Using Mashvisor
This year is an exciting one for Memphis tourism, which means it is also a great time for Airbnb investors to buy a property here. Even as travelers’ behaviors change, Memphis remains to be a great destination for families who want an isolated vacation or remote workers looking for a change of scene. Although the real estate market has been hot for a few years now, investors can still buy a house here and earn big returns from renting it out on Airbnb.
Whether you are new to the industry or have several properties in your portfolio, making money in real estate becomes easy when you have the right tools at your disposal.
To get access to our real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.