Why Nashville’s Real Estate Market is Music to Investor’s Ears
Honky-tonks. The bright lights of Broadway. Country music coming from all directions. Music is what put Nashville, TN on the map, but its real estate market is what’s attracting real estate investors to Music City.
Metro Nashville’s housing scene has been experiencing the same red-hot seller’s market happening across the country. Bidding wars and buyers putting in offers well over the asking price are common for desirable homes and neighborhoods both in Nashville and across the nation. Real estate investors are attracted to Nashville for several reasons, but location tops the list. For many, investing in Nashville real estate creates other investment opportunities nearby. Music City is close to The Gulch, East Nashville, Franklin, Brentwood, and Murfreesboro – some of Middle Tennessee’s most popular areas.
As if the area surrounding Nashville wasn’t reason enough, the city appeals to real estate investors because of its national rankings. Tennessee’s capital has been ranked among the top of several housing market reports and forecasts for 2021.
A recent report on Emerging Trends in Real Estate 2021 ranked Nashville:
- 3rd – best overall prospects for real estate
- 10th – homebuilding prospects
- 11th – magnet markets (cities growing faster than the national average)
- 3rd– overall investor demand
Homes.com ranked Nashville third in the country for the newest homes for sale, with 35.4% of listings being built in 2000 or later. Nashville was also ranked second in the country for cities with the most modern homes, built since 2016, with 21% of the city’s listings made up of modern homes. Post-COVID, new construction homes in Nashville are continuing to pop up. Single-family construction permits increased 8% from 2020.
“Builders have a lot of confidence in our market right now,” said Kevin Wilson, Vice President of Greater Nashville Realtors. “The problem is we can’t keep up with the demand we’re seeing in the market.”
Wilson said a lot of the demand was filled by new construction. “We have a rich history in Nashville of local government that was very pro-development and pro-business that’s done a really good job of recruiting businesses into the area, and I think that contributed to the growth spurt.”
While Nashville’s location and national rankings play a part in its popularity, there are five specific factors catching the eye of real estate investors.
1. Amazon’s New Headquarters
Since Amazon announced its plan to open a new office in Nashville, one question has been on everyone’s mind: how will it impact the already rapidly changing city?
In 2018, the tech giant announced it was coming to Nashville and bringing 5,000 new jobs with it. Located in downtown Nashville near The Gulch, the popular online retailer is poised to collect $102 million in combined state and city incentives for calling Music City home. With the announcement of Amazon’s plans, real-estate investors began gearing up to invest more in Tennessee’s capital city.
The addition of 5,000 jobs – with average salaries of $150,000 – will likely push housing prices up. Some neighborhoods and certain types of homes could be in more demand than others depending on the jobs Amazon fills and how employees are recruited. Amazon plans to add about 180 employees per quarter over seven years, so the effects won’t be sudden. The staggered hiring will allow Nashville to absorb the growth brought on by Amazon’s arrival and leave time for new construction starts to meet the city’s housing needs.
Single-family and multifamily housing investment opportunities will be the most beneficial for real estate investors – especially those investors looking for opportunities to invest in corporate housing. In February, Amazon announced a $2 billion commitment to build affordable housing in Nashville and other locations where the company has or expects to have at least 5,000 employees.
There have been concerns about the oft-criticized “Amazon effect” and how it will contribute to Nashville’s already booming population. When Amazon opened its headquarters in Seattle, the company brought 45,000 new people to the area which caused the housing market and cost of living to skyrocket, causing the city to become one of the most expensive in the country.
City officials don’t expect Nashville to have the same issues because Amazon’s plan will roll out over several years, giving the city and its housing market the time to find equilibrium. Officials also believe Nashville won’t experience the same issues as Seattle because its infrastructure is better equipped to handle an influx of people.
2. Fix and Flip Investors Are Profiting
Nashville’s astronomical real estate rise has certainly created prime opportunities for flippers. The city’s market has become competitive as fix–and–flip TV shows gain popularity. HGTV films three different shows in Nashville aimed specifically at fix and flip opportunities. Nashville is a hot market for fix and flip investors. Home flipping ROI percentages in Nashville are higher than the national average, and the actual gross profit has been increasing substantially.
Nearly 7% of all Nashville area sales in Q4 2020 were of fix and flip properties, which is higher than the national average of 4.8%. The median purchase of a Nashville fix and flip was $193,750 with the selling price coming in at $279,950, making the average gross profit a healthy $86,200. Overall average gross profit on flips has increased $27,200 in the last year. Single-family new construction homes are also in high demand, and builders can’t build them fast enough. This also creates opportunities for fix and flip investors who may choose to hold properties instead of flipping them. That gives Nashville investors multiple options to capitalize on Nashville’s fix and flip market.
3. Oracle’s Move to Nashville
Another tech giant is looking to call Nashville home. Oracle, a multinational computer technology corporation currently headquartered in Austin, recently proposed building a campus on Nashville’s East Bank along the Cumberland River. The new Oracle campus would create 8,500 jobs in Nashville over the next decade with average salaries of around $110,000. The new project, if approved, would be the most significant job deal in Nashville’s history.
Much like Amazon, Oracle’s arrival and the jobs coming with it have the potential to create problems in Nashville’s housing market. The campus would be roughly twice the scale of the Music City Center and five times the investment of Amazon’s new Nashville campus. Because of Nashville’s tight housing market, local real estate agents are concerned about how these factors could affect the city’s housing market.
“We don’t have places to put people right now,” said Maria Holland, an agent with RE/MAX Homes and Estates Lipman Group. “We’re going to need more builders because we can’t meet the demand. If we want to be able to fit thousands of newcomers, we have to act now.”
Much like Amazon’s development plans, Nashville will have time to prepare for Oracle’s arrival. The tech giant plans to have 2,500 jobs in place by 2027 with the remaining jobs in place by 2031. The staggered hiring will allow Nashville to absorb the growth brought on by Oracle’s arrival while allowing builders, developers, and real estate investors time to search for investment opportunities.
If the project is approved by Metro Council, Oracle’s location will create several real estate investment opportunities in the already popular East Nashville as well as the neighboring cities of Madison, Goodlettsville, and Hendersonville.
4. More Than “Music City”
Nashville is consistently ranked as one of the most popular cities in the country for many reasons, chief among them the wide array of places to visit and things to do. The city is home to the famous Music Row, The Grand Ole Opry, and The Ryman Auditorium, but it’s also known for its history. Nashville is home to The Hermitage, President Andrew Jackson’s home, a full-scale replica of the Parthenon, and a 42-foot-tall statue of the goddess Athena covered in gold leaf.
Because of its numerous attractions, museums, and famous residents, Nashville is constantly breaking its own tourism records. In 2019, more than 16 million people visited Nashville – an increase over the previous record of 15.2 million set in 2018. Obviously, 2020’s tourism numbers dropped significantly because of COVID-19’s effect on the city’s tourism industry. While Nashville’s tourism industry saw considerable growth in January and February 2020, March brought devastation to industry leaders, workers, and travelers. Between March and December, the state lost $303 million in revenue. More than 52% of the jobs lost during March were in the leisure and hospitality industry.
But, to the naked eye, Nashville’s $7 billion tourism industry appears to be back. COVID-19 restrictions have been lifted in time for summer travel and have once again filled the honky-tonks that line Broadway.
During Memorial Day weekend this year alone, Nashville saw a huge surge of tourism which helped boost the city’s economy. Nashville International Airport said they saw about 50,000 passengers per day traveling through the airport, making it the busiest the airport has been all year. It’s estimated that the city will see $1.14 billion in hotel revenue in 2021. Rob Mortensen, head of the trade group Hospitality TN, which tracks the industry across the state, said business conventions account for about 40% of the city’s business in Nashville.
5. Nashville Keeps Growing
Once known as the Capital of Country Music, Nashville is now also one of America’s fastest-growing cities, and its economy is often cited as a successful model. The city’s major industries include healthcare management, automobile production, finance, higher education, insurance, music production, printing and publishing, technology manufacturing, and tourism.
Nissan North America, HCA Healthcare Inc., and Vanderbilt University are the three largest companies headquartered in Nashville. The city’s sprawling healthcare sector alone employs nearly 570,000 people, a significant number in a city of almost 700,000 people.
Meanwhile, the city’s music industry contributes $5.5 billion to the local economy, for a total output of $9.7 billion within the Nashville area.
Tennessee’s capital is attracting more than just raucous weekend visitors. The city has added nearly 400,000 new residents in the past decade, and metro Nashville is expected to add over 128,000 new residents by 2030. Attracting them are 40,000+ businesses, a growing metropolitan area, and some of the best neighborhoods in Middle Tennessee. Of course, Amazon and Oracle’s relocation to Music City will add to that growing number.
What Does Nashville’s Growing Market Mean for Investors?
Investors who are considering where to invest in real estate should consider Nashville. When a city has a booming economy, a lively tourism industry, nearby suburbs rife with investment opportunities, and companies relocating to the area and creating thousands of jobs, it isn’t hard to get people there. Like the rest of the country, Nashville has a housing supply problem which means it possesses huge potential for real estate investors.
A RE/MAX National Housing Report for May 2021 shows that Nashville is one of four metro areas with the lowest number of days on the market. According to the report, Nashville homes were on the market for 12 days before getting sold. Comparatively, the report showed that nationally homes were on the market for 28 days before being sold. So, while single-family permits are up in the area, Nashville remains one of the biggest seller’s markets in the country making it ripe for real estate investors looking to build new construction homes to sell.
While inventory might be harder to find, investors with strong real estate investment strategies can still profit. It’s now more important than ever to have a lender capable of helping you:
- Secure a loan with the best price and maximum leverage for your next rental investment
- Close properties quickly and certainly
- Run your construction or rehab projects smoothly
Lima One Capital offers that and much more for real estate investors. We are experts in financing new home construction for builders on urban in-fill, spec homes, model homes, and teardown/rebuild projects. Our team of experienced professionals will help guide you through getting a new construction loan for your next investment.
If you’re looking for hard money lenders in Tennessee or interested in new construction financing in Nashville, call us to learn more. Get started today and scale your rental property portfolio with Lima One, the nation’s premier lender for real estate investors.
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