Advice on Chattanooga STR Investment

[G Borman]

Hey BP Community,

My wife and I are gearing up to invest in Chattanooga's STR market, and we're seeking advice!

1. We are interested in Downtown, North Shore, and St. Elmo

- Any hidden regulatory hurdles (permits, zoning) or noise ordinances?

- Any success or failure stories about these areas?

- Underrated neighborhoods we’re missing?

2. Assembling Our Team – Recommendations Needed!

- Investor-Friendly Agents: Who specializes in STR acquisitions in these areas and knows cash flow analysis?

- Lenders: Experienced with STR properties

- Also Seeking: general contractors, property managers, cleaners, or insurance agents.

3. Critical Considerations & Pitfalls:

- Regulations: Beyond city licenses, are there neighborhood-specific STR caps or new taxes brewing?

- Seasonality: How steep is the off-season (Jan–Mar) dip? 

- Market Shifts: New developments (attractions, infrastructure) that could boost/hurt these areas?

All advice (even cautionary tales!) is appreciated!

Gregg & Gwen

[Tyler Divin]

Hi Gregg & Gwen, my wife, Meghan, and I are vacation rental managers in Chattanooga and North Georgia (ChattaStays). We're glad to help answer any questions.

Regulatory - Start here https://chattanooga.gov/pay-and-apply/permits-applications/s... Long story short, you can't get a new permit in residential zoning in Chattanooga or Hamilton County.  A lot of townhomes downtown are zoned to allow non-owner occupied STVR, and let it, but the permits are limited to 25% of the project, so you have to ask, and it's constantly changing on new projects.  Don't believe what the developer or the real estate agents say; only what the city says matters. 

There has been a significant influx of townhome development in Chattanooga. I checked about six weeks ago, and there were 44 on the market in the greater downtown area (which is probably a record for Chattanooga); today, I see 67. Additionally, multiple townhome projects are currently under construction in various stages, so I think it's fair to say it's a buyer's market for townhomes.

I don't know of any new taxes or regulations brewing.  Our big overhaul that culminated in the ordinance I linked happened in 2023, which included fee increases and a halt to the issuance of new permits in residential zoning.  Everyone seems to be happy or used to where it sits today.  Some residential homes on the market have existing permits, and existing permits can be transferred, but again, you have to check with the city.  We looked at one for a client a few weeks ago, and even though they were advertising it as having a transferable permit, the permit had expired and could not be renewed because of the zoning.

The positive side of our regulation is that it has limited the number of STRs we have, so annual revenue, occupancy, ADR, and RevPAR are all trending up.

Underrated neighborhoods - I would say Highland Park and St. Elmo, but again, you have to be able to get a permit.  Lookout Mountain, GA, on the bluff (no permit required), and the Rising Fawn, GA area, offer cabins with hot tubs and a North Georgia mountain feel with their own set of attractions (Cloudland Canyon State Park, McLemore Golf Club, Chickmauga Battlefield, Lookout Mountain Flight Park, Rosie Mae's Coffee Shop with Llama's, etc).

For downtown townhomes, rooftop decks with a mountain view of Lookout Mountain and/or the city can reach income levels that those without them cannot. I'm aware of at least one off-market townhome that features a rooftop deck with views, which the owner would be willing to sell.

Only about 10% of the STRs in Chattanooga have hot tubs, so if you have a way to add one, it's a difference maker.

I don't know any investor-friendly agents. Not saying they don't exist, but STRs are not moving very well in Chattanooga right now. Most agents focus on the owner-occupant sales, and I hear a lot of misinformation about permits and revenue floating around. We'll see if the STR buying market heats back up with the return of 100% bonus depreciation.

I have a great property manager recommendation, best in town if you ask me :)  I also have a great insurance broker who underwrites a lot of STRs and is very knowledgeable.  I can recommend some GCs, but I would have to understand the work before making the right recommendation.

Seasonality does trail off hard after New Year's, but picks up again starting the 2nd week in March with Spring Break.  Overall, Chattanooga is a great market.  Barring January and February, the rest of the months are more consistent than, say, a mountain or beach town.  More than 11 million people live within a two-hour drive of us (Atlanta, Nashville, Knoxville, Huntsville, and Birmingham).  We're those town's 3-day weekend/quick/easy/affordable trip town all year.

We're glad to help regardless of whether you use us or not.