Is investing in Nashville property a smart idea?

By Erica Sandlin

Real estate investors are currently experiencing a conundrum of sorts in markets across the country.

The shift in mortgage rates and sub-prime numbers has left them questioning whether they should invest now or hold out for better market conditions. Consumer confidence in real estate has fallen about seven percent from last year and new home sales are down about 27 percent nationwide. However, some markets are still showing hope, and there is a light at the end of the tunnel for those who want to invest now, as long as they are conscientious.

Nashville has recently gained attention from investors shopping in up-and-coming areas; Though some precautions should still be taken because of a general market shift, the southeastern city is now being considered a major player in the nationwide real estate investment game. Two types of investments are prevalent in this market: improving fixer-uppers and turning them for a profit, also known as “flipping,” and purchasing and selling condominiums.

Flipping has swept cities nationwide over the past decade. Though not a new idea, this type of quick-turn investment has really taken off as people have caught on that even small investments can yield big returns.

“If you are a true investor, you aren’t anticipating an increase in value,” says Troy Lockemy, a private investor in Nashville who is currently profiting an average of 20 percent to 30 percent on each property. “You make your money by improving the property, then turning it for a profit.”

While the market is showing a downward trend, it is smart to invest in order to flip the property, but banking on appreciation and increased value alone won’t cut it.
According to Lockemy, top improvements include updated kitchens, better flooring, finished basements, new roofs and structural additions to the house itself.

According to Mike Burchyett, a licensed real estate agent for Tennessee’s Keller Williams Realty and nashvillehomesurfing.com, “A challenge for many investors is the current mortgage interest rates. Increased carrying costs have cut into investors’ returns.”

Burchyett’s team at Keller Williams Realty, Nashville BuyerTours, specializes in out-of-town buyers and investors. “Even though Nashville is still seeing appreciation, we are on track to sell fewer homes than previous years, which means investors might have a tougher time realizing a return on investment,” he says.

Though home values aren’t at an all-time high, they are still increasing. According to Burchyett, there was a steady 9.85 percent increase in 2005, 10.66 percent in 2006, and 5.61 percent for most of 2007.

Investors can still feel good about considering Nashville for their real estate endeavors. Continued growth, an increasing population and the addition of major corporate hubs—including Dell, Nissan and Verizon Wireless—contribute to a strong future for those looking to make a profit, as long as they are willing to wait for it. However, all markets, including Nashville, are suffering somewhat, and investors should be wary of making any decisions without full knowledge of their expectations in profit and turn-around time.

The main neighborhoods around greater Nashville that are looking up include Franklin, Brentwood, West Nashville near Vanderbilt University and Green Hills. Franklin, now one of the hots spots in middle Tennessee, used to be mostly undeveloped land and farms. In the last decade, new developments and communities have sprouted up everywhere. The 2007 average cost of a home in that area is around $403,000, a considerable increase from 2006’s average of almost $365,000.

A steady increase of 10 percent to 15 percent in home prices has generated two situations: a buyer’s market and a slow down in sales. Buyers and investors currently have the luxury of shopping around a bit more, and those selling are finding the need to be more flexible and open themselves up to the possibility of slightly smaller profit margins.

Because Tennessee has no state income tax and salaries are on par with many metropolitan areas, Nashville is an attractive alternative for many professionals looking to relocate. In fact, more than 110 people relocate to Nashville every day—that’s more than 40,150 people a year—and they need somewhere to live.

And in Nashville, condominiums are the hot ticket. While the city is currently a buyers’ market and investors are treading lightly, many condo developers are doing extremely well. The sky-scraping towers, adorned with roof-top pools and self-sufficient communities, seem to be the center of attention. In fact, downtown Nashville is beginning to mimic larger metropolitan areas like Chicago, Atlanta and Houston.

New developments like the Viridian, Adelicia and Terrazzo are popping up everywhere and filling up fast. Condos are going for between $225 and $275 per square foot and average 1,330 square feet in size.

Though any investment in real estate in today’s changing market warrants serious consideration and research, Nashville is definitely a city that could be a positive move for investors. The secret is finding an area that is less volatile, doing the research and hoping that 2008 is a good year for the real estate investment world.