Flips or Rentals in Chattanooga TN?

Question

Hey everyone, my name is Adam and I'm 23. I've saved up $40k and I'm looking to make my first investment but I'm not sure if I should try a flip or buy a rental in the Chattanooga area.

I was originally looking in Nashville but everyone is saying all the good deals are gone, so now I'm considering Chattanooga. Does anyone in the area have any advice or want to  possibly partner up? I have a good connection with a hard money lender so if nothing else I can bring money to the table. Any advice would be greatly appreciated!

Jeffrey Holst · Answer

You can buy duplexes in Chattanooga in solid neighborhoods for 125-150K all the time, heck I have a few id probably sell at that price.  And I definitely mean you should buy and hold.  I personally wouldn't be scared of tying up my cash.  You should keep a reserve of 10K or so but unless you are 100% set to do flips which I think are much riskier than buy and hold then getting as much cash deployed at the highest return you can find as soon as possible should be the goal. IMO

Jeffrey Holst · Answer

@Adam Lowe flipping is getting harder in all markets this late in the cycle and given the ten years if price appreciation we have seen.  It can be done but it's also a good way to not make money particularly if you are new.

My vote would be buy and hold. Perhaps a brrrr but definitely buy and hold something that cash flows well.  With 40k you could put 20% down and a 100k to 150k property get solid locked in long term financing.  The rest will make a nice safe reserve.  If you keep saving and roll your returns into that fund you should have enough to do a second property fairly quickly.

The trick is real estate is to not lose money on your first deal and to get the ball rolling. Once you do it becomes easier.  I'd probably target a duplex for my first deal.

Teague Anderson · Answer

A simple buy and hold duplex is a great way to get your foot in the door.  There's not that much risk, and you'll establish relationships with an agent, inspector, property manager, maybe some contractors, and get familiar with the market.  After that you can start following some wholesalers to see if you can BRRRR your second property.

Flipping seems really tight these days.  One error in your estimating, and your profit goes to zero or negative.  At least with a BRRRR, if you end up leaving some money in the deal you still have a cash flowing property, assuming you didn't borrow everything for the purchase and fix up, which I wouldn't recommend.

Eric L. · Answer

@Adam Lowe sounds like your be better off doing a BRRRR. Buy and holds are better long term, but flips can make cash. The question is are you planning on partnering with someone experienced in flips? They CAN be tricky finding the right deal for a first flip. Might be good to find someone with experience,  give them a cut for helping you find it, then cash them out at the refinance.

Either way, its important that you decide what your strategy is if this is your first deal. You dont want to take on too much.

Sean Wilson · Answer

Hey Adam, I've been investing in Chattanooga for a little while now, and I have to warn you that looks can be deceiving.  There are a lot of 2%+ cashflow or better deals that will see very minimal appreciation, and you'll be lucky to get your money back out of them.  Search through this forum, as there are threads that date back from years ago with warnings to out of town investors about things that are too good to be true.  There is also a lot of investor activity going on in Chattanooga, and a lot of flipped houses on the MLS right now.

I'll second those above that suggested the BRRRR strategy, as that's what I have used for years.  The key here is the R that stands for Refinance, because that is where you get your money back so it isn't wrapped up in one property.  If you have a W2 job to leverage until you have cashflow, there are quite a few local lenders that will give you commercial loans with much more favorable rates and terms than hard money.  You can then carry the commercial loan long enough to Renovate property to conventional loan standards and season the title long enough to be eligible for a cashout refinance.

Luke Carl · Answer

@Adam Lowe  do you want to flip houses? Or do you want to buy and hold? Or both?

Hit the vote button while you’re at it ;)

Luke Carl · Answer

Sounds like you’re new? For 40k just put a conventional loan on a 100-120k-ish property and start making some cash.

Plant your flag and the business will grow.

(And yes.... Nashville is a waste of time)

Sean Wilson · Answer

Hey @Adam Lowe, the financing is sometimes called a portfolio loan, as it is a loan that is kept in the bank's in house portfolio.  Most small/regional banks and credit unions offer them.  The key is to find a bank where the decision is made in the local branch, and not sent off to a corporate office somewhere.  I'll send you a PM with who I've used, but also search this forum.  There have been quite a few posts about which small banks offer in house commercial loans.

Adam Lowe · Answer

@Jeffrey Holst

I’ll have to seriously consider that strategy moving forward.

Eric L. · Answer

@Adam Lowe

That's my problem as well. I know several guys in clarksville doing flips if you want an introduction.

Flips or Rentals in Chattanooga TN?

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