As the Nashville real estate market continues to flourish, you may be thinking about purchasing an investment property. If so, you’re in good company! Wise investors are setting their sights on this thriving and promising city, whether or not they live in the area.
There are multiple reasons to consider purchasing an investment property. For one, there can be substantial long-term gains if you are able to hold onto the home for several years — sometimes even 10, 20 or even more.
In the immediate term, you can turn it into a rental property to collect rental income on a monthly basis. With the rental option, you can choose to rent it out on a short-term basis, which typically produces more money but can require more management. Or you can rent it out to tenants on a long-term basis, which can produce less income but usually involves less headaches (and midnight phone calls). Not to mention, the long-term option is a bit more stable and predictable!
And here in Nashville, there is no shortage of renters, of both the short- and long-term variety, as it is a popular tourist destination and a renter-heavy city due to rising housing prices. This means the rental market is quite lucrative for investors of all kinds!
Before you begin your search for an investment property in Nashville, consult our list of tips and strategies!
Work With a Realtor With Experience in Investing
First and foremost, you’ll want to work with an agent who has plenty of experience with investment properties, either for their personal portfolio or other clients. They will know what to look for in a good investment property, the exact neighborhoods to search in, and all of the details you’ll need to know after the transaction.
For example, your agent can connect you with various businesses you may need to contact, including contractors for repairs, painters for a new paint job, roofers for a new roof, etc.
Keep an Open Mind
When we think of an investment property, we often think of a small 2-bedroom, 2-bathroom single-family home. However, there are many different types of investments to consider, including multi-family opportunities, commercial properties, and more. It’s important to keep an open mind during the process and explore a variety of options, depending on what the market brings you!
Don’t Base Your Decision on Emotions
As much as we try to make the real estate process purely transactional and business-like, there will usually be some emotional components. We’re all human, after all!
However, try to base your investment decisions purely on facts and figures, as opposed to emotions and feelings. You don’t have to envision yourself living in this home — in fact, you may never occupy it! Filter your search through a “return on investment” lens, asking yourself if each particular property has the potential to produce favorable results, in either the short or long term.
It’s All About the Location
Location is the single-most important factor to consider in real estate — and investment properties are no exception! Renters and future buyers will be looking to live near the city’s best restaurants, parks and coffee shops — or near the heart of downtown.
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So, a wise investor will look for the smallest or most affordable homes within the best areas — or better yet, in the areas that will eventually become the most desirable areas.
Currently, some of the best places to invest in Nashville include North Nashville, The Nations, Sylvan Park, parts of East Nashville, Madison, Bordeaux-Whites Creek, and Bellevue. Many of these neighborhoods are relatively close to the heart of the city or are equipped with a variety of restaurants, bars and attractions.
Overestimate How Much Money You’ll Spend
When it comes to budgeting for an investment purchase and the maintenance required thereafter, there is no such thing as saving too much. Any good investor will make sure they have several thousand dollars saved up in case of an emergency, like an HVAC system that breaks in the middle of the summer, a roof that starts leaking during the winter, or a foundational issue that arises during the inspection.
Because investment properties are typically a little older or more run-down, you should simply prepare to spend more than you would with a typical home purchase.
Stay Up to Date on Short-Term Rental Laws
If you’ve been paying attention to the Airbnb laws in the state of Tennessee over the last several years, you know that they are constantly changing and causing disputes.
If you plan on using your property as a short-term rental, make sure you know exactly what is required of you beforehand.
In Nashville and Davidson County, you must receive a permit from the Metro Codes Department prior to listing your home on websites such as Airbnb or Vrbo.
Click here for more information about operating a short-term rental in Davidson County.
Take Taxes Into Account
While there certainly are financial benefits involved with owning an investment property, it’s important to be prepared for the taxes required — especially as our taxes have fluctuated quite a bit over the last several years in Davidson County. Use this calculator to determine just how much you’ll pay in property taxes on an annual basis, depending on your location and assessed home value.
Keep in mind that Tennessee is one of the only states that does not collect income tax, but it does impose franchise and excise taxes, which are relevant to investors.
Learn more using this comprehensive guide to Tennessee real estate taxes!
Don’t Skip the Inspection
It is never a good idea to skip an inspection, whether you’re buying your primary home or an investment property. And we’re not just saying that because we’re a home inspection company!
We’ve simply seen enough instances of buyers skipping an inspection, only to find out there are major issues with the home that they are then liable for post-transaction. Don’t make this mistake! Make sure you get a detailed inspection on your property to uncover any major issues, such as structural damage, a leaky roof, or mold, so you can make an informed decision — or at least be aware of any repairs you will need to make.
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Give us a call if you have any questions about the home inspection process — or schedule your inspection today! We promise you peace of mind or your money back.
Work With a Property Management Company
As soon as you’ve purchased your home, you’ll want to team up with a property management company if you plan to rent it out.
There is so much involved with managing a property than you might realize — and it’s worth letting the experts take care of the logistics. A property management company can help you market your rental, help you choose the right tenant, communicate directly with tenants, handle any maintenance or repair issues, collect rent, and even pursue evictions if needed.
A property management company is especially valuable if you own multiple rental properties or plan to build out your portfolio.