Top 5 Best Real Estate Investment Markets in Tennessee

With the housing boom of the past few years coming to a halt — or at least slowing down — many investors are asking themselves if now is the time for buying rental property in Tennessee.

It certainly can be, if you know where to look.

Tennessee is often overlooked by investors, but with its low cost of living, growing population, and geographical diversity, there are many reasons this is a great state to own real estate.

Tennessee real estate market overview

Tennessee is home to mountains and lakes, small towns and booming cities. From the Home of the Blues in Memphis to the Appalachian Mountains near Pigeon Forge, there is something for everyone here.

At a population of approximately 6.7 million and growing, Tennessee is already a sizable market for renters. Estimates from the University of Knoxville suggest it may add an additional one million residents by 2040 — that's a lot of newcomers looking for places to live.[1]

Some of the motivations for people moving to the Volunteer State include beautiful landscapes, temperate weather, and no state income tax. And it maintains one of the lowest costs of living in the nation.

With a median home value of about $305,000 across the state and below-average property taxes, Tennessee offers an affordable market to investors buying into a desirable and growing area.

What are the 5 best markets in Tennessee to invest in real estate?

Deciding which market to buy investment properties in depends on what your goals are. What makes a successful vacation rental is not always the same as a good buy-and-hold home.

Some investors focus on appreciation to avoid paying capital gains every year, whereas others like the steady stream of income that comes with solid cashflow properties. We've identified some of the best investment markets for multiple strategies below, but you can also use our rental property calculator to evaluate individual properties.

To find the best real estate investment market in Tennessee, we compiled data across the state. We evaluated the increase in property values, affordability relative to average incomes, and profitability based on the average rents versus the cost to buy a house. The markets below scored some of the highest totals in the state when considering all three of these metrics. Learn more about our methodology.

» LEARN: Complete Guide to Getting Started With Real Estate Investing

Knoxville: Best overall

Knoxville is one of the most undervalued investment real estate markets in the state right now. Between the strong population growth, solid economy, and relative affordability, it's currently the best place to invest in Tennessee.

Located in the hills of Appalachia with a cost of living well below the national average, Knoxville is consistently ranked as one of the best places to live in the U.S.[2]

If you're a buy-and-hold investor, Knoxville's year-over-year appreciation of 26% will help you build your wealth for years to come. As a city of over 185,000 located in the mountains, Knoxville offers plenty of attractions for tourists to make short-term rentals profitable as well.

If you're hoping to combine high-margin investments with relatively stable income, student housing may be more your speed. The University of Knoxville has an undergraduate enrollment of over 24,000 and remains a popular public university in the state.

Regardless of your strategy, Knoxville has the growth and profit potential to be a great real estate investment.

Memphis: Best for cashflow

Located in the southwest corner of Tennessee, Memphis is about as far away from the beautiful Appalachian Mountains as you can get. But what it lacks in landscape, it makes up for in investment value.

Known as the Home of the Blues, Memphis is a city of over 650,000 and is home to nine Fortune 500 companies. Its relatively low price point and solid rental market make it an ideal market for investors looking for the highest return on investment (ROI) in Tennessee real estate.

Besides the strong business sector, Memphis also has multiple professional sports teams, cultural attractions like Graceland, and the University of Memphis. These all contribute positively to the local economy by drawing in revenue from outside the city.

With its historically high rent-to-mortgage ratios and affordable real estate, Memphis is the best rental market in Tennessee for cash flow.

Nashville: Best for short-term rentals

When people think of Tennessee, they usually think of Nashville. This capital city has been one of the most famous music cities in the nation for a while and has lately become a hotspot tourist destination.

With its multiple universities, many music attractions, and professional sports venues, this is a great market to get started in short-term rentals. In the past few years, Nashville has hosted between 12–14 million visitors per year — and that's during an international pandemic.[3]

It is likely that people will continue to flock to Nashville in the coming years, and it will remain one of the best places to own real estate in Tennessee. The year-over-year appreciation of 28.7% shows just how much influx this city is experiencing. The downside is it's becoming a bit expensive for new investors to buy into, but those who do can expect good returns.

Chattanooga: Best for student housing

Sitting near the southern border of Tennessee, Chattanooga is another city that dwells in the hills of Appalachia and consistently draws new residents. With a population just over 180,000, Chattanooga has the economic opportunities of a larger city but the charm of a smaller community.

Given its broad appeal to residents of all kinds, there are many ways to make money investing in Chattanooga real estate — but the most lucrative opportunities exist in student housing.

Both the University of Chattanooga and Chattanooga Community College are popular public education institutions in the area. They have a combined enrollment of nearly 20,000 students — and all of them need safe, affordable housing.

The high appreciation rate and strong rent-to-value ratio in Chattanooga suggest this market offers great cash flow out of the gate and high appreciation for the long term. This makes it the perfect opportunity to start investing in student housing rentals.

Johnson City: Best emerging market

With a population of just over 70,000, Johnson City tends to be overshadowed by its bigger neighbor, Knoxville. However, Johnson City has gotten more recognition as one of the most diverse metro economies in Tennessee and a top retirement destination in the nation. It was also featured as one of the top 20 emerging housing markets on Realtor.com.

The median home value of $223,000 means you'll be able to enter the market at a reasonable price. With a population growth rate of 1.1% annually and property values appreciating 22% year-over-year, you'll have no difficulty renting out your units in the future.

This market might also be one of the best places to buy land in Tennessee. This is usually a more speculative approach to real estate investment, particularly if you can't make money on the land right away. But if the area continues to grow, land will likely appreciate in value over time, making it an investment worth exploring.

How to find undervalued properties in Tennessee

Whether you're investing in short-term rentals in Nashville or buying for the long-term in Johnson City, it's imperative that you buy your property at the right price to maximize your return on investment (ROI). Below are some suggestions for approaches that will help you do that.

1. Use investment software

The hardest thing for most real estate investors is finding great deals before someone else scoops them up. Some professionals do this full-time, giving them a huge advantage on getting there first.

Using software like DealMachine will help you stay ahead of the pack when looking for your next real estate purchase.

DealMachine's real estate software helps Tennessee investors find and research distressed homes, and get in touch with owners fast via batch skip tracing and direct mail campaigns.

Download the DealMachine app for a 7-day free trial and a $15 credit for marketing costs.

Other technology that could be useful to real estate investors includes:

• Flipperforce: The Flipperforce app helps BRRRR method investors analyze home values to calculate the maximum purchase price to offer on a property before making a purchase.
• Stessa: Stessa's software allows you to easily track the performance and financial status of all your properties in one easy-to-use app. It provides regular reports on how profitable your properties are and can be linked to your financial accounts for automatic updates.
• Neighborhood Scout: This website is one of the leading market analysis tools in the nation, providing in-depth analysis of crime statistics, employment data, and appreciation rates at the neighborhood level.

2. Invest in foreclosures, auctions, and off-market properties

For most conventional homebuyers, sticking to the MLS and Zillow for their home search is sufficient. But investors need to consider every opportunity available to them if they are going to find and close on the best deals possible.

One great way to do this is by looking for foreclosures, auctions, and off-market properties. Distressed properties often involve more cash, risk, or work, but the payoff on these can be huge compared to conventional homes that are move-in ready.

» MORE: How to buy foreclosed properties

If you're not interested in or not able to do the work yourself to renovate a property, you can use HomeAdvisor to solicit quotes from up to four local professionals to compare rates for high-quality service.

3. Partner with an investor-friendly agent

Working with a top agent who is an expert in the local market is a tried-and-true way to consistently find good deals and negotiate like a pro — because that's what they are.

Besides understanding local trends in real estate and knowing which areas to target and avoid, great agents also know how to locate deals before other buyers get to them. They can also alert you to laws and regulations that may impact your decision on which properties to invest in.

Working with a Clever agent means you'll have a top, local professional on your side, and you may also be eligible for cash back on your purchase after closing!

Methodology

Using data from the U.S. Census Bureau and Zillow, we've compiled median home values, average household incomes, median homeownership cost, and median rents to evaluate the real estate market trends for cities all over the nation. We then scored each city on appreciation, rent-to-income ratio, and rent-to-mortgage ratio to determine which cities were most profitable and affordable for real estate investors.

The cities with the highest total scores were then evaluated on less quantifiable information like economic diversity, quality of life, and desirability of destination to determine the top five markets in each state. We broke these markets down into five distinct categories to account for the various goals and approaches to real estate investment our readers may identify with.

Frequently asked questions

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