The 5 Best Places to Buy Rental Property in Tennessee

By Mark L. Sette, CFP

Posted on July 8th, 2022

Memphis | Nashville | Chattanooga | Knoxville | Clarksville | Gatlinburg

Aerial Photo of Memphis

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Tennessee has a well-earned reputation for its music scene, picturesque landscape, and southern charm. With the Appalachian mountains, whitewater rivers, and abundance of renowned universities, Tennessee is a fantastic place to live — and one of the best states to invest in real estate.

Real estate investors are drawn to Tennessee by its low taxes, comparatively affordable home prices, and strong job market. What's more, the state's 2021 housing market growth rate of 26% outpaced the national average of 21%.

To find the best markets in the state, Clever evaluated the five most populous areas (plus one notable bonus pick!) based on four key criteria:

  • Affordability
  • Investment potential
  • Rental rates
  • Amenities

If you're looking for the best rentals and best investment apartments opportunities in Tennessee, the next step is connecting with local real estate agents. A great agent can help you snag promising properties, or decide which Tennessee areas will best align with your investment goals.

Not sure how to find local agents? Our friends at Clever Real Estate can help. Clever offers a free service that personally matches you with the best real estate agents from Keller Williams, RE/MAX, and other top-rated brokers.

👋 Contact Clever's licensed concierge team to meet top-rated real estate agents in Tennessee today!

1. The Best Place to Buy Rental Property in Tennessee: Memphis

📍 Population: 639,000

Known for its rich and diverse cultural heritage, Memphis is our pick for the best market in Tennessee to purchase a rental property. With the average home costof $146,000 — much lower than the state average of $282,000 — this area is more accessible to a wider number of potential investors. The housing market has seen sustained growth as well, rising 23% since 2021 and an astounding 104% since 2015.

While the average rental price for a two bedroom apartment of $950 per month is the lowest of the other cities on this list, a lower home purchase price more than makes up the difference for investors. Short term rental income from Airbnb and similar listing services average around $2,238 per monthwith a strong 69% occupancy rate, further bolstering your income potential.

What really sets apart Memphis as a great rental property investment is a diverse music scene filled with tourist attractions. There's a rich food landscape as well, including iconic Memphis-style barbeque located throughout the city and along the Mississippi River. A strong job market gives the area a promising economic presence as one of the up and coming cities for rental property in the state, with an unemployment rate of just 4.3% — beating the national average — thanks to major employers including FedEx, Kroger, Wal-Mart, and hospital systems.

2. Nashville

📍 Population: 671,000

A music mecca located in the heart of Tennessee, Nashville drew more than 16 million tourists in 2019 and shows no signs of slowing down. Known as the “Music City,” Nashville is also home to two professional sports teams, a thriving food scene, and seemingly endless nightlife venues. These are a few of the many factors that make Nashville an attractive real estate investment opportunity as one of the best places to buy rental property.

Home prices in the area have soared recently, rising nearly 30% since 2021 and an incredible 117% since 2015. With the average home cost now sitting at a $428,000, it may be more challenging for investors to find deals given the current market pricing. That said, rental property income potential remains strong, commanding $1,777 monthly for a two bedroomapartment and $4,745 per month as a short term rental.

Although Nashville has the highest home cost of the top five cities on this list, you’d be hard pressed to find a better mix of growth potential, rental income, and sheer number of attractions and activities. Tourism and entertainment dominate the economy, but healthcare, automotive, education, and finance industries have added even more growth opportunities to the region.

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3. Chattanooga

📍 Population: 196,000

Chattanooga may be the fourth most populous city in Tennessee, but it's number one for remote workers in the country thanks to a new, fast fiber-optic network and a growing tech scene. A recent downtown revitalization near the waterfront has also sparked the city’s renaissance and increased the area's potential as a rental property investment opportunity.

The average home cost of $263,000 is lower than the state average of $282,000, which makes purchasing a rental property more affordable here than the rest of the state. The housing market has enjoyed significant growth as well, rising nearly 25% since 2021 and 95% since 2015. Some of the best rentals in the state are found here also, with a two bedroom apartment going for $1,326 and short term rentals averaging $2,922 per month.

Rental income is strengthened even more by a diverse economic footprint which includes healthcare, manufacturing, oil and gas, and mining, in addition to a growing tech startup scene. All these aspects make Chattanooga an intriguing prospect to get your own slice of the growing rental property marketplace.

4. Knoxville

📍 Population: 390,000

Home to the University of Tennessee, Knoxville boasts gorgeous scenery and a fascinating history. Knoxville hosted the World’s Fair in 1982, which kicked off an extended economic revitalization that helped make the area the appealing rental real estate market it remains today.

With the state’s flagship university located in the city, the population is younger than the rest of the state, with an average age of 32.7compared to greater Tennessee's 38.5. This provides the area with a stable rental market as the average two bedroom apartment costs $1,327 per month. Short term rental income such as Airbnb properties average $2,540 per month and a higher than average occupancy rate at 74%. Home prices are also rising at a healthy rate, increasing 28% since 2021 and 94% since 2015 to bring the average home purchase cost up to $307,000.

The largest public power company in the United States, the Tennessee Valley Authority, is located in Knoxville and is a major employer in the area. Other industries that makeup the economy include transportation, retail, education, and restaurants. An hour’s drive away, residents and tourists alike can find respite in the vast Great Smoky Mountain range. All these elements make the real estate investment opportunity unique and diverse, appealing to a wide variety of potential renters.

5. Clarksville

📍 Population: 178,000

Clarksville is one of the oldest cities in Tennessee, dating back 1784 and named after George Rogers Clark, of the same Clark family sent to explore land west of the Mississippi with Merriweather Lewis.

Housing costs have remained on par with the rest of the state, averaging $280,000. Property values have risen as well, though not as fast as some other cities in the state, rising 28% since 2021 and 76% since 2015. Rental income has remained steady too, with the average two bedroom apartment going for $1,175 per monthand short term rental income nearing $1,980 on a monthly basis.

Though these numbers are strong, the real secret to the opportunity in Clarksville as a rental investment property lies in the quality of living, as the city was recently named one of the 100 Best Places to Live by Money magazine. Housing affordability, plentiful outdoor recreation options, a robust job market, and economic stability all create an environment where a rental property can flourish in one of the up and coming cities in the state.

Bonus Pick: Gatlinburg

📍 Population: 4,004

A true resort town located in the heart of the mountains, this area is home to a gorgeous, expansive Great Smoky Mountain National Park that covers more than 520,000 acres. As you might expect, tourism is the major economic driver here as plentiful shopping, restaurants, hiking, and sightseeing opportunities abound.

The tiny local population limits long term rental prospects, so Gatlinburg instead stands out as one of the best cities for Airbnb investment in the state. Home prices have risen dramatically, soaring an astonishing 192% since 2015 and a notable 54% increase since 2021. Although the average home now goes for $552,000, short-term rental investors are seeing impressive monthly income. A typical Airbnb earns $5,226 per month — which is the best on this list.

Just an hour’s drive from Knoxville, it’s easy to escape from the city to enjoy the idyllic natural landscape, making this area especially attractive to short term renters. Although the housing market has risen substantially, the data suggests that short term rentals are still thriving and have kept pace with housing appreciation.

Next Steps for Your Rental Property Investment

From Memphis's comparatively accessible home prices to Gatlinburg's thriving tourism scene, Tennessee offers a wealth of real estate investment opportunities.

Serious about investing? You need an agent — and our friends at Clever Real Estate can help you meet the best agents in Tennessee and beyond. Clever offers a free service that matches home buyers and sellers with top-rated realtors from Keller Williams, RE/MAX, and other national brokers. It's free to meet agents through Clever, with zero obligation!

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FAQs

What is the best place to buy rental property in Tennessee?

Memphis is the best place to buy rental property in Tennessee, followed by Nashville and Chattanooga. Learn how population growth, job opportunities, and home values impact rental property investments.

Is rental property a good investment?

In general, rental property is considered a sound investment, but a rental property's success or failure depends on both local market conditions and business strategy. Learn how to spot good investment opportunities — and save time, energy, and money — before buying a rental property in Tennessee.

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Posted in Buying a House, Real Estate Investing