Nashville an Investor Paradise?

Question

I will start this by saying I am relatively new to the market but I must be missing something because I never really see anyone at bigger pockets really talking about it. Nashville, indeed middle Tennessee as a whole, is a perfect market for investors. Sure we have all seen the fix and flip shows, we have seen the gurus talking about "easy" money but I have actually seen a good bit of success for flippers here first hand. In the past two weeks I have seen 5 houses move around 75% ARV after rehab. There are still really great deals out here, which only get better as you move out into the surrounding suburbs. The infrastructure of a great team is her as well, a lot of good contractors out here who know the game and private money to work with. I have even seen hard money lending at around 10% for people on the second loan they get. Tennessee has some of the absolute lowest property taxes in the United States of America overall, no state income tax for residents and a friendly-to-business tax system as well. Nashville has great tourism, great rental migration for work and appreciation generating property everywhere.

Maybe I have been missing the posts about middle Tennessee but if I haven't that means you might be missing the boat on great investments. What do you guys think? Is Nashville the promise land it seems to be or am I missing something?

https://www.biggerpockets.com/calculators/shared/7...

This is just one deal I saw move over the weekend, they actually paid less than the calculator suggests you should to make 50k on the deal. they paid less than 190k for it which means they have more profit potential and/or more wiggle room for set backs.

Maybe I have been missing the posts about middle Tennessee but if I haven't that means you might be missing the boat on great investments. What do you guys think? Is Nashville the promise land it seems to be or am I missing something?

https://www.biggerpockets.com/calculators/shared/7...

This is just one deal I saw move over the weekend, they actually paid less than the calculator suggests you should to make 50k on the deal. they paid less than 190k for it which means they have more profit potential and/or more wiggle room for set backs.

Sean Davidson · Answer

You know what they say.. always follow the money. NIMBYism is a part of the AirBNB debate, but a small part. The movement was driven by the Tennessee Hospitality and Tourism Association (aka the hotel and b&b lobby). Large companies investing hundreds of millions of dollars into these fancy new hotels want to make sure that they will continue to get their sky high rates, and they have the money to buy what they want. Airbnb has really eaten into their market power, especially around large conventions and CMAfest when prices normally skyrocket. But oh well, money makes the world go around. You can cry about it, or try to find the silver linings.

To your economic/political risk point, healthcare is big in Nashville and is definitely a major focus, but remember that we are not a health insurance city, we are a provider city. 2/3 of all private hospital beds in America are managed out of Nashville. If we put those companies out of business, most of the hospitals in the country would be shuttered. I can't see that happening. We also do have fairly strong diversification.. state capitol, bridgestone, nissan HQ and factory, GM factory, LG washing machines, AO Smith water heaters, Beretta, 2 Amazon warehouses, cracker barrel, dollar general, tractor supply, shoneys, as well as a ton of regional offices for all kinds of companies. Yes, healthcare is a major driver, but we are not a one trick pony by any stretch.

There are too many people getting into real estate right now, and I am seeing a lot of people way overpay for stuff.. which is why the investor market is still crazy hot while the consumer market is cooling off a bit. Anyway, we have shifted our strategy and are looking at building townhouses in the low to mid-300s now to accommodate for the fact that there is little inventory i town in desirable locations at that price point. The projects are less profitable, but I believe they are lower risk as well and the demand side is definitely there.

Sean Davidson · Answer

Hey Michael,

I'm in small to mid-size development, so I'll speak from that perspective. There are two prevailing thoughts on Nashville, what I refer to as small town thinking and big city ambitions.

Small town thinking says Nashville has bubbled up and we are just waiting for a correction, possibly in the next 12-24 months. The thought here is that Nashville has grown, but the fundamentals haven't changed. There may be something to this, as it is significantly harder to sell properties this year vs last year. Granted, spring and summer of 2016 you could list a garbage can in the projects and you would get a bidding war. Now, houses sitting for 60 days is not unusual. Definitely not a bear market, but the frothyness has settled on the buyer side. Investors are still nuts though.

Big city ambitions compares Nashville to Austin, Portland, and even SF and Chicago. In that comparison, we are still cheap and have a ton of runway to invest early before we become a "legitimate city." There is something to this thinking as well, as Nashville has incredible job creation, tons of outside investment, and population growth. All of these mega projects are bringing jobs with them. In this scenario, 700k townhomes in Germantown will be 2mm in 10 years.

My personal opinion is somewhere in the middle. I live south of town in Franklin, and prices here have started to spike unexpectedly in the last year. I think the excitement we've seen is giving way to the fundamentals. People are starting to care about crime and schools where a year ago they didn't even consider them. The high end housing is doing well, as is most under 400k. 400-600k is where I'm seeing a lot of softness. We actually just shrank the square footage on an upcoming townhouse project to get the prices down. There is a huge shortage of affordable housing though, so buying rentals in the suburbs would likely go really well right now. Just hard for a family to find anything under 1500 a month in the city.

For what you are planning, I would say there are numerous areas that are filling in. If you bought a new construction on the edge of Germantown, there is no doubt in my mind that in 5 years you will make a few hundred K. The number of restaurants, amenities and the proximity to the new job centers and huge projects down there is unheard of for those prices in most cities. I see new homes in Germantown and Salemtown all being over $1mm, Historic Buena Vista in the 750s, and North Nashville in the 500s in 5 years. I personally don't touch east Nashville as it is just hard to get to and there are no jobs, but if you stay on the south side around 5 points I think it's a good play, or if you are insanely brave, patient and naive about government, you can bet on the light rail project.

We have a potential buyer on a house in Historic Buena Vista who wants to make slight modifications so that he can Airbnb a room out, since the extra 1500 a month makes the house more affordable for him to live in. Seems similar to what you are talking about, and I think he will make a killing once the new mixed use project is built on Rosa Parks and Garfield.

Sorry for the long post, that's just my 40 cents. I obviously love Nashville and believe it will continue to grow long term, regardless of any temporary hiccups. Let me know if you have any questions or if I can help you in any way.

Avery Carl · Answer

I'm a buy and hold investor, don't have much experience with flips.  As for me, I was able to get what I consider great deals in the past few years, but as the market has risen I've been pushed out to suburbs and other areas (which is fine).  Prices are skyrocketing and ROI is significantly less than it was, say, 3-5 years ago.  As with anywhere there are definitely deals still out there, but I don't consider it the investors paradise that it was several years ago.

Carrie Carlton · Answer

Investor owned Airbnb permits are no longer being issued in Nashville. There is some serious legislation pending around  it. So do your research before you depend on those numbers. I bought 15 units in Nashville  from 2012 to 2016. I love Nashville, but I don't think the deals are out there as before.  I am a buy and hold investor not a flipper so I am speaking from this perspective.  Over the past year, I have seen softening in the high end rental market, but a strong need in affordable and low end market.  I have a quadplex in Old Hickory/Madison that I initially wanted to update but I have not seen the return on investment on the apt I have done. I invested heavily in East Nashville and updated a few places there but the return on investment really was not worth it. Like I said the demand for affordable places has increased greatly, thus I plan to just maintain places.

Brian Levredge · Answer

There's 100 people a day moving to Nashville, so I'm told.  When I was last there I counted 42 construction cranes right around downtown.  That's explosive, obviously.  My only concern would be that you might be buying in during the late innings and if the market turns into a bubble you could be in a tough spot.  Chattanooga is a much smaller market and while things are hot (for here) it's stabler long term, imo.  Hard to go wrong either way though.  I moved from SoCal to Chattanooga in 2012 and it was one of the best decisions I ever made.

Allan Smith · Answer

I would have to agree more with Avery. Also, I'm not sure how you know how profitable these flips are that you are seeing without know the rehab budget.Nashville has just about gone crazy. Every seller I talk to has at least a handful of letters from other investors that have called or will be calling.

Scott Lawlor · Answer

Thank you Gerald, I will definitely be going to the event. Looking forward to it.

Johnathan Sanders · Answer

@Sean Davidson That was incredibly insightful. I can say that the last party I went to had a group of 4 people (me included) speaking about getting into real estate. Two of them are working on getting realtor license. It made me think of what was said on the podcast about "when the cab driver wants to get into real estate."

As for the light rail project, I laughed pretty hard at that one. I grew up mainly in Hermitage right by the Nashville Star line. I always wondered why it was the "star" with only a straight line service. Maybe it's just a reference to the music industry? That's been... what... 15 years now? More?

With healthcare being so huge in the area, I only wonder what may come with WHATEVER they do in Washington. Some of those companies could easily go under (or up?) with modifications to laws.

Finally, as @Carrie Carlton mentioned, there has been lots of legislation issues surrounding airbnb. The whole NIMBY issue getting thrown around as usual. Why someone doesn't like the idea of there being folks that come in, buy stuff in the area, use our services, and go on about their lives... I'll never know. They decided that they didn't want people to just buy as investments, because they want people engaged in the community. Personally, I've never met someone who DIDN'T care about the area their investment was located but who knows.

It's common for me to see 2 or 3 people on my facebook friend list every month who can't find affordable places to live in and around Nashville these days. Unfortunately, I start looking at housing prices and quickly see that they won't really find the prices they need with property values at their current levels. Never really know what to tell them.

Gerald Pitts · Answer

@scott lawlor,

Don't think I can tag you from my phone, but here you go.

https://www.biggerpockets.com/forums/521/topics/476258-nashville-bigger-pockets-meet-up?page=1#p2937694

Scott Lawlor · Answer

So I am currently hunting for my first deal in the murfreesboro area and houses are rarely staying on the market longer than 2-3 weeks. I have less knowledge of up in nashville though. I am curious if there are any Bigger Pocket Meetups active in the area.

Nashville an Investor Paradise?

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