Is It a Good Time to Buy Investment Properties?
The Nashville housing market was going strong even during the pandemic, when most businesses struggled to grow. The rapid growth in the local real estate market and the surging demand for rentals indicate that purchasing a Nashville investment property can be lucrative in the long run.
However, are these factors enough to decide if you should buy an investment property? Smart investors often consider multiple factors and assess their readiness to purchase and sustain a rental in the initial stages.
If you are an investor looking for a real estate investment in Nashville, here are a few to consider –
Your Financial Readiness
The first aspect of consideration while making any purchase should be your financial readiness. Even if you find a unit at a competitive price, you need to have enough funds to cover its costs. If you do not have the required finances, now may not be the right time for you to purchase a rental.
Here are some of the costs involved while buying a unit:
The down payment for investment properties is typically higher than that for owner-occupied homes. If mortgage insurance is also not an available option, you will be required to secure at least 20% of the down payment. Therefore, you may have to opt for a bank financing option like a personal loan to secure the down payment.
Closing costs include title fees, recording fees, escrow fees, loan application fees, HOA fees, credit reports, underwriting fees, appraisal fees, pest detection fees, and legal fees. These could cost anything between 3%-6% of the unit’s purchase price.
Fixer-uppers are also a popular choice of investment as they provide the opportunity for the investor to flip the house. However, even though the asking price is low, getting the unit rent-ready can demand a significant expense. The costs of renovating a fixer-upper are approximate $30,000-$50,000. The maintenance alone can cost anything from 2%-5% of the purchase price annually.
You also need to consider expenses for maintenance, inspections, pest control, and loan repayment. Once you assess these costs, you need to analyze if it is feasible for you. If you think that the house may become a financial burden, or if you are in debt, then now is probably not the best time to buy it.
On the contrary, if you can conveniently pay for the home or easily qualify for a loan and cover the costs, now can be the right time to purchase a Nashville investment rental.
Property Costs in Nashville
According to studies, Nashville ranks high in the home investment favorability score. It is one of the main reasons why the home prices in Nashville have increased by over 55% in recent years. Therefore, you need to study and compare the prices of homes in the capital city to know if it is a good time for you to make the deal.
Nashville has over 120 neighborhoods that house plenty of spacious investment properties. The region ranks among the top 10 cities with the highest inbound growth, boosting the rental market. There has been a 10% year-over-year growth in the city’s rental prices, making it feasible to purchase a house.
Recent studies show that the median sales price of a home in Nashville is nearly $429,900, whereas the median listing price per square foot is $243. If your budget is less than $400,000, you will currently have difficulty sourcing the right property in a great location.
Considering Whether It is a Buyer’s Or Seller’s Market
Nashville has been a seller’s market for many years, meaning the demand for houses is much larger than the number available. The demand is likely to remain high considering the city’s quality of life, affordability, educational and professional opportunities, and excellent healthcare.
It might not be best to wait for the market conditions to flip to a buyer’s market. Even in a seller’s market, you can find a unit at a competitive price if you do the proper research. Market trends are often clear indicators of whether or not now is an appropriate time for you to invest in a home.
Identifying a Suitable Time to Buy an Investment Home
According to ATTOM Data Solutions Reports, December is the best month for the buyers to get their desired homes at the best prices, as the market is slower-moving. You can spend as little as 1.5%-2% over the value of the unit if you buy it in November or December.
On the other hand, people tend to move to and from cities the most during the months of May-August due to reasons like school vacations and availability of free time. This period is when the home prices are sky-high, making it a challenging time to buy a rental.
Your Readiness to Become a Landlord
Buying an investment property is an excellent source of earning passive income, especially if you can rent it out as soon as you get possession. However, you need to think it through. Becoming a landlord can be time-consuming and tiresome. You may have to consistently deal with tenants, advertising agencies, contractors, vendors, and attorneys.
You may also have to check the home’s curb appeal, respond to the tenants, look after maintenance issues, and carry out other tasks. A property management company can efficiently handle these responsibilities at a monthly management fee which can be up to 10% of the monthly rent. Therefore, if you are ready to take up the landlord responsibilities, it is the right time for you to get an investment property.
The right time to purchase an investment property depends on the type of house you wish to invest in and your available capital. If your financial readiness is compatible with the house you want to invest in, now is a good time.
Managing a rental investment all by yourself is not an easy task. At Omni Realtors and Property Management, we can help you with your property management responsibilities. We have operated in the Nashville real estate market for over 15 years and can help you make the most out of your rental home.
For more information, contact us at Omni Realtors and Property Management.