Nashville Market

[Luke G.]

Hey all,

Wanted to run some thoughts by you:

Been looking in Nashville for a duplex to owner occupy for way way too long. Trying to figure out what is wrong/why I haven’t been able to get a hold of a place that follows the 40% Capital Expenditure rule or the 1% rent/cost rule.

Here’s what I’ve come up with:

Nashville sometime since the beginning of the recovery from the housing crash has become a very different city. Nashville has moved from a 16.99 Price-to-Rent ratio to a 23.18 ratio, which is high for a Metropolitan Service Area of 1.5 million. I’ve found that if you want a place in the greater Nashville area, the best deal you can find is .75% rent/cost. You can find places that are outside of the city or in areas of town I wouldn’t feel safe in, but that doesn’t work well for an owner occupied space.

To further complicate the issue, because Nashville has had such a run up in prices, multifamily sellers are trying to get a premium for their properties. The average sales price for a multifamily has been 10% less than the listing price, with some properties selling for 60% less than listing. And that’s just the multi-families that sell. Almost half, 44% of multifamily houses listed are not selling because the listing price is so far out of market.

Meanwhile my agent is dealing primarily with single family where it’s very common for homes to have multiple offers and sell for 10-20k over asking and encourages me to offer close to listing, which until now has caused me to rule out significantly overpriced multifamily listings.

I’ve thought about giving up and renting for a while until prices come back down, but recently have read a bit more on real estate cycles and am convinced that Nashville is in an expansion period (which is traditionally a great time to buy), rather than a hyper supply period and that if the Hoyt theory holds true, it could be another 10-15 years before prices come back down. One caveat, Nashville is really dependent on healthcare, with many ancillary health services headquartered here, so moves toward nationalized healthcare could affect the local economy in significant ways.

For now, I’m going to look for places that are .75% properties/ gross rent multiplier of 10-11/marginally positive cash flows. I’ve been holding off on having my agent put in offers that are significantly less than listing, but I think I am going to start making offers for what places are worth (aka what I think a property could reasonably sell for) regardless of crazy listing prices.

Thoughts?