All Forum Posts by: Brian Levredge

I originally started investing in TN from CA 16/17 years ago and then moved here about 12 years ago. It's a great place to invest. You're not going to 1031 flip houses though, as someone else pointed out. A couple other things to think about. You're talking about having both an "active" (flips) business and a "passive" (rentals) business, which for tax purposes are two different things. Don't co-mingle them in the same LLC. You run the risk of converting your passive taxation to active income and that's not good.

TN does not have a personal income tax, but it definitely has a business income tax.  It's called the Franchise and Excise (F&E) tax and it's levied on all entities in the state that offer legal protection to their owners with limited exceptions.  So your flipping entity would be subject to the F&E tax.  Your rental entity (1-4 unit, max 4 properties) may not due to the FONCE exemption for closely held family businesses, but I would check with a CPA who is familiar with TN tax law on that matter whether two brothers qualify rather than a husband and wife.  

You're better off using a TN LLC because the law still requires foreign filing for out-of-state entities so you might as well only pay one set of filing fees, annual reports, and all other related expenses rather than two. And avoid doing a TN Series LLC for rentals. They suck. When you talk to the CPA they should be able to help you strategy because having rentals in conjunction with active trader income while being a full time real estate profession opens up unlimited passive losses to you so you can pay a much lower or no income tax. Best of luck.

Quote from @Jordan Craig:

Hi! For a bit of context, my wife and I recently moved to Tennessee and after renting for a bit we are just about to close on our first property. It's a duplex in Chattanooga (technically Red Bank) and we will be house hacking for the next couple of years to build some momentum and experience. The property is a duplex on a street entirely full of duplexes and even a triplex or two. 

The basement is empty and we are looking to finish the space and turn it into another unit. Since I'm a contractor and we will be living in the property it will be easier to pull permits for the work. What steps do I need to take to make sure I can get this going as smoothly as possible especially when it comes to resale in the future? Should zoning be the first issue and what steps are needed for that? Should it be utilities? (Both of the current units are separately metered) Would it be something else I've missed?
Thanks in advance!

Congrats on the purchase. Red Bank is opposed to multi family which is odd given the concentration of it within the city.  Regardless, start with zoning. If you are zoned for a triplex then you can see what they will require, which will most likely include sprinklers in the whole building. If you don't have the zoning already I wouldn't waste my time.  They won't give it to you.  

Quote from @Lee Miller:

Hi! Has anyone done this in Chattanooga? I see some larger single family homes in areas that appear to be zoned R2 that, at least from a physical perspective, seem like they could work for this. The goal here would be to increase rental income. For context, I'm based in the SF Bay Area in CA and looking into buying my first OOS rental after house hacking locally for 10 years. I realizing the duplex conversion strategy is more complex I probably wouldn't try it on my first property, just want to get a sense of what's possible in the Chattanooga market :) Thanks!

Not saying it isn't possible but it's an uphill climb.  The city has been trying to decrease density in areas it wants gentrified for a long time.  Their pivot to ADUs more recently is an attempt to increase affordable housing in many of those same areas.  But that's still a far cry from converting an R1 to R2 . But assume you found a property they would allow you to do it on.  You would need to bring everything up to code currently and that's going to be cost prohibitive. Most likely all new mechanicals, windows, a fair amount of framing, insulation, etc., etc. You'd basically be doing it entirely new.  

I own a PM and construction company in Chattanooga and am an active investor in the that market and Northern AL though not in Huntsville.

Quote from @Lacey B.:

Hello :) I am looking to buy a property to run as an Airbnb in Chattanooga. I know they have regulations but it seems from the government website you can operate in commercial zones (C-2 C-3 C-4 C-5 UGCCC, IX, RF, RV, CX, SH). I tried to look at their short-term overlay map but can't get access. Does anyone know where these zones are located? One place I am looking at is St. Elmo area but can't find much info online about where I can buy and operate. 

Thanks!

 Those zones tend to be along busy traffic corridors. The hospitality industry lobbied pretty hard for that to happen to give them an edge since those are areas where hotels are located as opposed to residential zones.  Probably going to be tough to find something in St Elmo that checks those boxes.  Tangentially, there are a fair amount of former STRs now being sold around town in part because of the regs and also saturation.  

I can only speak for myself but have been building (specs) in Chattanooga for about ten years now.  

My primary exit strategy in building is to sell the house to an owner occupant.  I've been pretty successful doing that and have done so in different parts of town here over the years.  

Zoning desirablity would be R1.  I prefer infill where there are proven comps/neighborhoods.  As an aside the City of Chattanooga is changing its zoning rules in November so some things may change soon.

Yes.  Location matters.  Typically the higher the lot price the more expensive the house you must build to make the numbers work.  So in N Chatt a lot can easily run 150k-200k and you have to build a 1MM+ retail house to make it worth your while. But that's a smaller pool of buyers here.  You'll want to look in areas that have better regarded schools than others parts of town.  

Much that is outside the city limits is on septic.  So you need to make sure it percs if on septic.  Sewer is often at the curb so no need to cut the street and tie in.  But if you do that's 15-20k easy these days.  

A couple years ago, on a cost per ft basis, existing home sales started exceeding the cost to build new so that drives things.  Plus we get a lot of people moving here from out of market and when coming from Chicago, New York, or Los Angeles, it looks like everything is on sale here comparatively speaking. 

Quote from @Eden Meng:

Hi @Brian Levredge- Since Chattanooga is my market of interest in a very near future, would you mind sharing with me what is the average price per squared footage for cosmetic rehab for fix and flip project?

Thank you,

Eden

Kind of depends on your scope but here's rough breakdown.  All prices are per sq ft, labor and materials, based on 800 sq ft unit:
Demo $1
Paint  $3
Electrical $1.50
Flooring (LVP snap and click): $4.75
Granite $3
Appliances $3
Cabinet refinishing: $1
Tub refinishing $1

I've been both flipping and building specs in Chattanooga (I live here) for about ten years now.  Also own rentals, a PM company, etc and have bee investing here since 2009.  

Quote from @Scott Russ:

Hopefully this type of post is allowed here.  River Gorge Ranch is a high end mountaintop development 15 min from Chattanooga.  I purchase in Feb of 2023 for personal use (not investment), but life has taken me in a different direction.  Not looking to recoup anything I've put in...I'd just like to sell and move on.  Lot is in phase 1.  Neighbors have already broken ground.  1.84 acre bluff lot with partial pond and small creek.  Close to main gate and village square.  Purchase for $273K.  Will sell in the very low $200's (depending on closing fees, etc.).

 Are you still looking to sell this?  

We pay a shade over $5000 for a 2 ton