Is Chattanooga saturated with investors?

Question

I recently went to Chattanooga to buy a home or 2. It seems the area, particularly Highland Park which seems to be the hot area now, is saturated with investors to where there are very few deals. Everything I have come across seems to suggest that I missed the boat by about 2 years. It seems the fix and flip thing is not a viable option, although I'm perfectly fine with buying and doing a LTR or STR.

Any thoughts on this ladies and gentleman?

Brian Levredge · Answer

I've lived out here six plus years now.  The market has definitely heated up across all segments.  Since we're about halfway between Nashville and Atlanta we've got a fair amount of out of town investors coming in which is also driving prices.  That said it's still a healthy market but for those investors looking for two to three year ago prices (and I include myself there) we're going to need to readjust expectations.

Sean Wilson · Answer

@Matthew Swearingen Chattanooga does have a lot of investors, including quite a few from out of town and out of state.  As for whether or not it is saturated, that all depends on your expectations and your exit strategy.  As someone who is relatively new to the Chattanooga market (<1yr), but not new to SFH investing, here are my observations:

The good

• The average $/sf is fairly reasonable compared to markets of similar growth trajectory (again, all a matter of perspective and expectation)
• The rent to purchase price ratios are reasonable (>1%) in many of the sub-markets
• Their is still an inventory of distressed properties, unlike some markets

The challenges

• The desirable areas have a large inventory of "flipped" houses currently on the market
• A lot of the sub-markets are street-by-street, and the "up and coming" areas are either very early in the cycle or are over priced
• The 2% cashflow properties don't currently have a good resale value, so recovering your initial renovation investment could be difficult
• Traffic has gotten bad, and will continue to be a challenge as Chattanooga continues to grow

If you are serious about investing in Chattanooga and want to do it successfully, you are going to have to do a substantial amount of research and invest a significant amount of time into learning the markets.  RE investing isn't what it was a few years ago, and it will be very easy to lose money if you aren't strategic and familiar with the local market.

Dan Beaulieu · Answer

Chattanooga is still a great market. You really just have to turn over more stones than before, and as @Brian Levredge said, "readjust expectations." There are still great deals to be had, and we still fund a TON of them for investors.

Matthew Swearingen · Answer

Hi Sam

Im not sure I completely understood your response. Am I a day late and a dollar short or still potential?

Have you invested in Chattanooga?

Sean Wilson · Answer

Hey @Matthew Swearingen, I'll do my best to answer your questions:

1.  Let's take a hypothetical house in one of these sub-markets.  Say you can buy it for 30k and it needs 20k of additional investment (work, holding costs, etc).  Total investment of $50k.   Let's say the property could rent for $1000/mo, so that makes it a 2% property.  What you will find in certain areas of Chattanooga is that the ARV on a rental grade renovated home with these numbers could be $50k or less.  Therefore, with transaction costs you would be losing money.  Even if the area becomes a "hot" market for new construction sometime in the future, the best you are probably going to do with appreciation is the land value increasing and making it a good candidate for a tear down.  There are certainly exceptions to this, and that is where the research and local market knowledge are extremely important.

2.  I don't know what the next "up and coming" or "hot" market is.  I don't play in gentrification areas, and I'd bet the investors that do are keeping pretty tight lipped.  Some of these sub-markets are small enough that investors can come in and shift the neighborhood, but unless you have the capacity to do that or are part of a team with that kind of capacity, you would just be hoping to get lucky and ride on some other investors' coat tails.

I can't explain why some areas are street-by-street, but that has been my observation (and the observations of others) in many of the sub-markets.

Matthew Swearingen · Answer

@sean Wilson

Thank you Sean. Question to a couple of your answers.

1. Why do the 2% cash flow properties no have good resale from a subjective standpoint and numbers.

2. It seems Highland Park has reached that saturation point. I noticed many strrets have already have upped homes, in process of rehab, etc. So what's the next area to be they "hot" area?

I found a home literally a street over that I thought would be a great flip. Agent said that one street over is in Avondale area and crime rate it high. Literally one street over from 4 homes newly rehabbed and selling for 250k.

Im perfectly fine with buy and hold as well.

Sam Shueh · Answer

You are the 10th California investor flocking to there looking for deals. Suggest you work your number see what is out for you on 11th hour before a price correction. Use your common sense to make a decision. This is 10th year into an economy that has cooled off since 2018. The momentum is not there even the mortgage interest rate is close to the bottom.

Is Chattanooga saturated with investors?

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