WHAT is investment property

Real property (or real estate) purchased for the sole purpose of earning an return on said investment.  This can be attained either through rental income or capital gains via selling a property.  Investment property can either be a long-term endeavor, short-term or a combination of both.  Long-term investments (utilizing the buy and hold strategy) typically entail rental management.  You purchase a property and rent it out allowing the tenants to pay the mortgage, taxes, insurance and repairs. Rental property can either be short-term (1+ year lease) or short-term (Air-BnB or Vacation Rental by Owner, VRBOs,  nightly to monthly rentals).  Rental markets change as often as housing market so at some point it might make more financial sense to sell your short-term rental or convert your long-term rental into a short-term rental. 

WHY own investment property

Diversification! Ever heard the phrase, "Don't put all your eggs in one basket"? Of course you have.  In my opinion, that is the number one reason to invest in real estate.  Stocks are great, mutual funds are wonderful and there is also a place for a beefy savings account, but investing is all about leverage. Owning real estate can allow you a lot of income producing opportunities.  

OK, I may be over simplifying things here, but the point is - every needs a home.  You must run the numbers and finding a 'good deal' is the tricky part, but renting for the short-term or long-term or buying a house to flip there is some big money in it if you do it right!

WHO can own investment property

The short answer is "anyone". But here are a few unsuspecting types of investment property owners and landlords:

First Time Home Buyers

If you live by yourself you can get roommates who can pay rent directly to you allowing you to live rent-free!  If you own a 3 bedroom, 2 bathroom house with a $1000/mo mortgage, charge $500/mo rent and your roommates are now paying your mortgage.  Even if you only have roomies for 3 years, that allows you to save $36,000 and you still have 3 years of equity built up in your home.  Friends are the best roommates, but make sure you still have them sign a lease. Contact me if you need help with this process. 

Maybe you like your personal space too much for roommates.  Can you add a 2nd entrance to your home with minor remodeling?  Install a kitchenette and rent out to a student. There are a lot of potential renters out there - just because you need a full-sized kitchen to be happy does not mean everyone wants the same amenities. If that will not work for your home consider investing in a duplex or triplex.  You can live in one side and rent out the other.  Keep up with maintenance on both units and when you decide to sell, if you price it right, it should move quickly. Multifamily units are often times the easiest way for someone to become a landlord and real estate investor and start earning passive income.

Upsizers & Downsizers

So you are starting a family and will quickly outgrow your house and it is time to start the property search.  Do you HAVE to sell your house to buy the next one? Nashville is growing at an astounding rate and in turn property values are increasing at a similar clip.  It may be possible for you to do a cash out refinance or get a home equity line of credit on your current home and use the proceeds for a downpayment to buy a second home.  Convert your first home to a rental property and let your tenants pay your mortgage while you put away funds for future repairs. You may not make much monthly income on your first rental while you are still paying a mortgage, but real estate investing is all about the long term. Just wait until you've paid off your mortgage! Whenever you have tenant turnover you can have your REALTOR run a comparative market analysis to see if it is beneficial to sell given the current market. 

Empty Nesters

Do you have a child in college out of town?  Does your student live off campus? Are you looking for a real estate investment avenue?  Co-sign on a house with your child and let them get roommates who will pay down the mortgage for you.  My recommendation is do NOT spoon feed this to them. They will not take care of the property as well as you like. Make them put their portion of monthly rent into a separate account only touched for maintenance and major repairs. Then make them coordinate the repairs.  This gives your child an understanding of home ownership and sets them up for "real life" when they finally get that degree. 

WHERE to buy investment property

Near universities:

Belmont  |  Hillsboro Village  |  Music Row  |  Downtown  |  West End  |  12th South

PROS: These houses will be easy to fill at certain times of year and there will always be a need for housing near universities.

CONS: Can be higher turnover and likely to need more repairs and maintenance between tenants.

In walkable communities:

The Gulch  |  Downtown  |  Mid Town  |  West End  |  12th South  |  sobro

PROS: Best option for short-term rentals (ie. Air-BnBs, VRBOs, monthly rentals), highly sought after, property values are near guaranteed to increase.

CONS: Hard to find good deals and if you find a 'good deal' it is likely it will need a lot of updating or rehabbing. 

In popular neighborhoods:

East Nashville  |  Green Hills  |  west meade  |  Brentwood  |  Creive Hall  |  Belle Meade  |  

PROS: These highly desired neighborhoods will always have a lot of buyers. Typically easy to find renters who cannot afford a mortgage.

CONS: You will pay top dollar for these properties and can be the riskiest investment depending on when you purchase vs. when the housing market takes a downturn.

In up-and-coming neighborhoods:

Woodbine  |  Donelson  |  Wedgewood houston  |  madison  |  hermitage  |  Old Hickory

PROS: Best place to find good deals and ypically more homes for sale in these areas that are not as competitive as other areas allowing more room for negotiation.

CONS: The best deals may need a bit of work so you either need cash on hand or a rehab loan. May take awhile for these neighborhoods to appreciate in value, but when they do say "hello" to equity! 

WHEN to buy investment property

As we all know, the Nashville housing market has cycles.  Typically winter is slower giving buyers more buying power and making it tougher for sellers to sell.  Conversely, summer is busier making it easier for homes to sell faster and more difficult for buyers to get a good deal.  With that said, the best time to invest in real estate is WHEN YOU FIND A GOOD DEAL!  

If you are looking for a home that is turnkey ready and waiting on a tenant you will need to pay more attention to housing cycle. If you plan to buy a seriously distressed property for cash it might be just as easy in summer as it is in winter.  Your best bet is to talk to a licensed Realtor, mortgage lender and title attorney to run the numbers on your potential income.