My first Multi-Family in Nashville

14 Replies

Hello all,

This is my first post and I am working on my first multifamily deal in Nashville from the West Coast (I'm based in LA).  I am looking at a 2br/1ba and 1br/1ba multifamily that's listed at $500k.  I had my first success on a single family that I just closed so will be 1031ing the money over for the down payment.  I am planning on putting $150-$175k down and the income off the units is projected at $1400 and $2100.  

Would love any thoughts or feedback on the Nashville area.  From the research I've done it seems that the rental market is strong down there.

Thanks in advance for your suggestions

Ali

That is awesome that you are taking on a nearly coast to cost transaction. Im still very new to the business in Nashville with only 2 deals under my belt. I must say that returns on this sound very slim, at best you are looking at a 1% on your cash and renting below a 1% on the purchase. I would be interested in what part town this one is in but i could probably guess (west Nashville but i may be wrong). The MLS out here is are for people looking to pay market price, if you are looking for something closer to 1% rule (purchase @100k rent for 1k or .7%-.8 vice purchase @500k rent 2100 best case is 2100+1400/500k=.007% ) there are many investors that could get you better deal than that one from the looks of it.

I will say this if the lot is able to be used for 5-10 units as a new construction build then 500K may be warranted. In Nashville new construction is whats going depending on your area you are buying. I hope this provides some insight.  

Nashville is not California. I assure you-you do not have to settle for those returns out here.

Thanks for the feedback Jamie.  The property is located near Vanderbilt and close to downtown.  I am still running some numbers and seeing it will make sense from my end.  There is a tenant already in one unit and I think there's good potential on the 2nd as a short term.

Would love to learn more about your experience with properties in Nashville 

I started in real estate in January as a wholesaler. I have done two deals on tear downs. The trick in nashville is finding a deal where you returns are on the low end 15%for new construction. Now if your looking for rentals if you are using property management, you can buy for 85 times rent (rent=1k, 1k*85=85k purchase) rehab then rent at 1% and cash flow decently depending on area. A couple investors I know are building rentals vice flipping for profit. Be its all int the numbers! Good luck if you need anything.

@Ali MirRasekhian I'm a buy-hold investor in Nashville. $500k seems very high for two units. Depending on the area, you are usually btwn $600-$850/month per BEDROOM (rule of thumb, not to mean you are actually renting out individual bedrooms). So it seems the rent figures they are projecting are very inflated. You should have a property manager give you an estimate of rent rolls, not the RE agent who is just trying to make the sale. 

@Jamie Parker mentioned the 1% rule, so we would like to see you getting about $5k a month in gross rents on a $500k purchase. But from my experience this past year, it is getting harder and harder to find these deals, especially if you don't have boots on the ground. If you are working with a realtor, make them work harder to find you better deals than $500k for $3500 in gross rents. 

Best of luck and feel free to contact me if you have more questions. 

You can buy cash flowing duplexes and even triplexes in Los Angeles for $500k. Why invest so far?

Few months ago I came across a triplex in Hawaiian Garden, close to Long Beach for 400K. So the deals do exists even in LA

Thank you everyone for the feedback! I have been looking at options here in LA as well as Nashville.  Nashville attracted me because of the high influx of people moving there and conversations I've had with friends who live and invest down there.  

@Amit Kal  The area I was looking at is in the West End area near Vanderbilt.  

There is one tenant already in there paying $1400 for 1br/1ba then the other has been used as a short term rental and the statements that the seller has sent me shows an average of $3100 per month, which I know can fluctuate significantly.

I think from what everyone has been saying makes a lot of sense and this is a deal I should walk away from and keep my eyes open for something else.

I have been looking in LA specifically in the Hawthorne/Lawndale area as well.

Ali from Venice...I'm also Ali from Venice :) I also used to live in Nashville (going there next weekend actually!). My only thought would be- do the numbers actually work out for cash flow? I've not known Nashville to yield well for cash flow, and certainly not an MFR for $500k (unless it has an insane number of units).

Does this one expect to cash flow?

Originally posted by @Ali Boone :

Ali from Venice...I'm also Ali from Venice :) I also used to live in Nashville (going there next weekend actually!). My only thought would be- do the numbers actually work out for cash flow? I've not known Nashville to yield well for cash flow, and certainly not an MFR for $500k (unless it has an insane number of units).

Does this one expect to cash flow?

 No. The debt service alone is almost 2,400 a month. Once you pay a property manager 380, your taxes will be close to 380, and your insurance will be close to 380, and cap ex is 380 (I am using 10% for everything). You cash flow 200 a month. HORRIBLE DEAL 

@Ali MirRasekhian $3,500 per month and 500 K purchase price??????? What's wrong with this picture?  Unless you are purchasing with a hefty equity position, this is not a deal, FOR YOU.  For the seller I'd take a buyer like you day in and day out!  I'd pass unless you have some other interest in the property.

I'll avoid rehashing what everyone else has already commented about the property price, rents, and the deal. However, as a Vanderbilt alumna and being familiar with the area, I would caution you to be careful when choosing property in that area/near the University. While Vanderbilt is like its own little affluent world, surrounding neighborhoods can quickly change from desirable to lower income. A good example is the Edgehill community (which I've heard is being targeted for improvement). It is within walking distance of West End and the University yet a very poor area with a moderate to high crime rate. Good luck though!

Be careful on the STR side of this duplex. If its in the area you say it is, there are no permits available which means they are probably proposing giving up the permit and having you go in right after to get it. I hear it can be done, but if you are out of state, definitely risky. Also consider the costs of the STR. 15.25% off the top for taxes plus a mgmt fee if you are not going to manage yourself. Also the amount of traffic and noise will more than likely run off your long term tenant more regularly boosting your vacancy numbers. Not saying dont consdier that strategy, just throwing out things to be careful of and consider.

Sorry for the delayed response but I greatly appreciate every one's feedback and advice.  I ended up sending a low offer with a high down payment which was countered and we rejected.  After reading the comments and reworking the numbers based on the advice you all gave me I do agree it was best to walk away and find something else.

I am still looking in the Nashville area but have expanded me search around Los Angeles as well.

I would love any recommendations on additional resources for me to use when analyzing new deals.

Thank you again everyone!

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