Real estate investors are often searching for the next location to invest in and scale their business. For many investors looking outside of their typical region, the search can feel like they are trying to navigate in the dark, overwhelmed by data and statistics. At Asset Based Lending, our experts keep their ears tuned to the movements of the market and collect the geographical intel our borrowers rely on to stay on top of their game and grow their portfolio.
Tennessee is a state that is emerging as a real estate investing destination. With a 2.3% annual value increase year-over-year, home values reaching as high as $312,000 as of July 2023, and being ranked the 11th best economy in the country by WalletHub, there is ample opportunity for investors to tap into this market.
Through industry tools like Zillow, Redfin, and Norada we perform in-depth research to determine which cities offer the most opportunities for real estate investors. With these tools we determine where investors may have the most success for their preferred exit strategy, which is the best city for fix and flips, buy and hold, and even short-term rentals.
Knoxville
Knoxville Tennessee is located on the Tennessee river on the eastern side of the state near the border of North Carolina. Historically, Knoxville is known for its natural resources, particularly marble, and has gained the nickname Marble City. The median home value in this city is $316,873 as of 2023, and properties appreciate at an average rate of 8% annually. Home prices remain affordable allowing investors ease of access. For long-term investment strategists, Knoxville offers a strong rental market, low vacancy rates, and landlord-friendly laws, making this city a target area.
Alternatively, short-term real estate investors can find great opportunities for fix and flips in Knoxville. With affordable property prices, investors can perform cosmetic updates and sell the property in a short period of time, effectively earning strong profits.
Memphis
The second largest metro region in Tennessee is Memphis, which is regarded as both a great place to live as well as a popular tourist destination. Historically the Memphis housing market is strong, and the property values consistently increase year-over-year, making it attractive for rental property investors. Even in times of national economic turmoil like the housing market crash of 2008, Memphis has remained one of the strongest markets in the country. This is in part due to the affordability of homes in this city and its diverse job market. As of 2023, nine Fortune 500 companies have offices in Memphis, and more are expected to follow.
For short-term real estate investors looking to fix and flip homes in Memphis, they can benefit from the affordable home sale prices, averaging $170,000 as of September 2023. Alternatively, with 53% of Memphis residents renting versus owning their home, rental property investors can positively cash-flow with the buy and hold strategy.
Considering approximately 11 million people visited Memphis in 2022, short-term rental property investors also stand to make significant profits. According to AirDNA, short-term rental properties can stand to make as much as $2,100 in monthly revenue, which is approximately double the average monthly rent for a traditional rental unit. The low cost to purchase and hold a property versus the average cost to rent in this city means long-term investors see high debt coverage service ratios on their investments.
Nashville
Arguably Tennessee’s hottest tourist destination, Nashville is the perfect place for investors looking to operate short-term rental properties. Country music fans flock to Nashville every year to visit places like the Grand Ole Opry to experience the historical significance of this city. In 2022, Nashville welcomed 14.4 million visitors, which is a 13% increase from the previous year.
Considering the high number of visitors that Nashville sees each year, it’s no surprise that operating short-term rental properties is a lucrative real estate investing strategy. Along with the tourism industry, there are many colleges and universities based in Nashville. Many students and university employees opt to rent in Nashville due to home values being higher than the other metro areas in the state.
With ABL’s ability to qualify short-term rental properties using AirDNA, it is much easier for our investors to access this market. Though vacation rental properties can bring in significant profits, it is necessary for investors to research the local regulations. Nashville has enacted rules specific to this industry which requires short-term rental property operators to apply for permits, remain compliant with the local tax laws and follow the Metro Nashville codes which outline allowable uses of properties in each district.
Investors also can also be successful and create consistent monthly cashflow with the long-term rental property strategy. Between the affordable home prices and the growing and diverse job market in this city, investors can find success with both long-term and short-term investment strategies. Young professionals have been relocating to Nashville for new career prospects, which has brough the average age of Nashville residents down to 33. These young professionals come to Nashville in need of housing and they look to the rental market first, and as they make roots here, stay and contribute to the long-term market as they invest in single-family homes.
Chattanooga
Chattanooga Tennessee is located on the southern border of Tennessee and Georgia, making this a great city for residents needing to commute between the two states. As with Nashville there are a fair number of colleges and universities in this city, and these populations contribute to the strength of the housing market. There is ample opportunity for short-term rental property investors to benefit from the student and university employee population in need of housing.
The median home value in Chattanooga is approximately $294,00 as of September 2023, which lands below the national figure. With home prices as affordable as they are, fix and flip real estate investors can access more kinds of property from single family to apartment complexes for their fix and flip projects. In this city, the average sale price for homes listed on the market is up 11.3% to last year indicating that this is a strong seller’s market.
The increase in list price from 2022 to 2023 shows that the demand for housing is outpacing the supply in Chattanooga. This presents an opportunity for long-term and new construction real estate investors to scale their business. Chattanooga’s housing inventory is down to approximately 1.8 months as of October 2023, presenting builders with the opportunity to take advantage of the high demand for housing.
Alternatively, the strong appreciation rate of almost 3% year over year, coupled with the favorable rent-to-value ratio is a perfect combination for rental property investors. In Chattanooga the likelihood of your rental property producing positive cashflow is much higher than in many metro areas around the county.
Johnson City
Johnson City Tennessee ranked 20th on Summer 2023 Wall Street Journal/Realtor.com Emerging Housing Markets Index for low cost of living and thriving economies for the third time. This city has a strong job market with an unemployment rate below the national average, contributing to the strength of the housing market. This is a great area for both fix and flip investors as well as rental property investors as the home values are affordable.
There is a strong demand for housing indicated by the rising median list prices. Since August 2022 the median list price has increased 16% to $360,009. Johnson City is a strong seller’s market and many homes listed for sale are benefiting from buyer competition, resulting in many homes selling above the list price. For investors looking for a new location for their next fix and flip project, Johnson City offers the opportunity to tap into the buyer demand with updated homes primed for selling for top of the market prices.
While there is so much competition for home buyers, the rental market in Johnson City is growing. As individuals find sale prices climbing beyond reach, many people need to pivot back to renting. For long-term real estate investors, Johnson City offers a consistent pool of renters. Johnson City is a 50/50 split between homeowners and renters making it a compelling market for long-term rental property investors.
Clarksville
Rounding out our list of the top 6 cities to invest in Tennessee is the fastest growing city, Clarksville. Located at the northern edge of Tennessee bordering Kentucky, this city shares Fort Campbell between the two states. Fort Campbell is the nation’s second largest military installation and contributes heavily to the robust economy.
With such a large military presence in Clarksville, the demand for rental property in this city is strong. Active-duty military personnel stationed at this military base and who require housing accommodations look to the rental property market. This consistent pool of renters gives rental property investors the opportunity to find positively cash-flowing properties to scale their business and grow their portfolio.
As the demand for housing outpaces the supply, many investors specializing in residential new construction can find room to contribute to this market. Between 2020 and 2021, Clarksville experienced a 58% increase in single family building permits issued to developers. The influx of new construction is a direct result of the growing population and increasing demand for single-family homes.
Conclusion
Targeting your next real estate investment can be a cumbersome task, and working with a lender that helps guide borrowers through the process can be invaluable. Narrowing down each state to a handful of cities or neighborhoods is the first step to figuring out the viability of a location.
Between the popular tourist destinations like Nashville, attracting thousands of visitors and generating even more for short-term rental properties, and areas with diverse job markets like Memphis, which draws in young professionals looking to advance in their careers, real estate investors can find the perfect fit for their investment strategies in Tennessee. When borrowers work with ABL they have a partner in their lending journey, helping to keep their finger on the pulse of the housing markets across the country.