Are you considering investing in Tennessee real estate? Do your research and ensure you have the right tools in place before submitting an offer. Certain resources can help you determine your budget and choose the best investment. We recommend the following resources that every Tennessee real estate investor should have in their toolkit.
1. A thorough business plan
A business plan is a must for any type of business. Whether you plan to invest in a short-term vacation or long-term rental property, you should strongly consider creating a business plan before buying a property.
A thorough business plan forces you to consider your goals and how to achieve them. Lenders or investors may require you to have a business plan before obtaining funding, too. You can create your own business plan from scratch or download and fill in a template online.
2. A good insurance policy
A good insurance policy can prevent excessive losses. Many factors threaten your property's value, including natural disasters, damaging tenants, or simple mistakes. Without a thorough policy, you could potentially end up paying for any damages yourself.
Price shopping your insurance options is always a good idea. You’ll also want to be clear and honest with the insurance adjuster about the intention of your property. Never withhold information, such as if it is a vacation rental or investment property, as this could potentially void your policy. Some real estate investors may even require tenants to take out their own renter’s insurance policy as an extra layer of protection.
3. A trustworthy lender
Your lender may be more important to your real estate investment journey than you think. Many real estate investors take out a mortgage loan to fund their projects, and with so many loan options, having a lender willing to help you choose the best one can be beneficial.
Some real estate investors in Tennessee may opt for a home equity line of credit, which means borrowing against any equity you’ve built in your personal residence.
A hard money loan is another popular choice, but this loan type has a few noteworthy downsides. For one, hard money lenders typically charge a higher interest rate, which doesn’t make them the best option for long-term real estate assets.
Hard money lenders also typically have faster repayment periods. This means if you can’t pay off the mortgage within a few years, you may need to refinance your loan into another one.
A good alternative to these loan types is a debt service coverage ratio (DSCR) loan. A DSCR loan in Tennessee allows interested investors to purchase a real estate asset without meeting the usual strict credit or income requirements. A DSCR loan considers the profitability of a real estate asset rather than the borrower’s debt-to-income ratio, making purchasing your first investment property more realistic.
4. A knowledgeable contractor
A knowledgeable contractor is always a good idea when considering a real estate investment project. Before submitting an offer on a property, you’ll want to estimate the repair and renovation costs to ensure it makes financial sense.
Without construction or repair knowledge, calculating an accurate number can be difficult. Bringing a knowledgeable contractor with you to view the property helps you better predict your estimated costs. Working with a good contractor can also help you minimize building costs and ongoing repairs for tenants.
5. A good tax preparer
Investing in real estate requires a lot of upfront costs and expenses. Tennessee and the federal government allow investors to write off eligible expenses, which could reduce your taxable income. Working with a good tax preparer can ensure you keep good bookkeeping records and take advantage of all available write-offs.
Choosing a local tax preparer in Tennessee also helps you prepare your state taxes. A good tax preparer is also important when improving and expanding your real estate business.
6. A real estate lawyer
Networking with a real estate lawyer can also be a good idea. The purchase, sale, and rental of real estate assets require the completion of contracts. Without previous knowledge of state or federal law, it can be difficult to understand what you’re signing or what you expect your tenants to sign. Working with a real estate lawyer ensures everyone involved in the transaction has clear expectations.
7. An experienced real estate agent
Real estate agents offer much more value than listing properties and helping buyers find their dream homes. Many real estate investors work closely with a trusted, experienced real estate agent to learn about newly listed properties before their competitors do.
A real estate agent can also help you understand a property's current and potential value. This knowledge of the local market in which you want to invest can be extremely valuable in helping you avoid overpaying for a property and ensuring you get a high enough offer when selling.
Real estate agents also typically have good connections in the rental industry, meaning they can help you list and lease your property faster. Additionally, some states allow you to negotiate real estate commissions. If you work closely with a real estate agent for all your listing needs, they may be more willing to offer a lower commission price.
8. A good network of real estate investors
Every investor should have a network of other industry professionals they can turn to for helpful advice. You can join beginner investing groups in your area or seek networking opportunities online. The right connections can be especially important to a new real estate investor because you can learn from the previous mistakes of more experienced investment professionals.
Real estate investment groups also often share educational tools and resources to help newer investors acquire their first property. Networking with other investors is also a great way to fill the void if you’re missing these must-have resources. Simply ask other successful investors how they found a dependable property manager or the right rental contractor.
9. A dependable property manager
If your real estate investment plans include renting out a property to tenants, you may want to consider a property manager. Property managers manage much of the tenant-landlord relationship, including screening applicants, showing the property, collecting rent, and handling repair requests.
A dependable property manager can be a valuable tool that allows you to focus on other projects or investments, helping to expand your investment assets.
Property managers offer a wide range of pricing options. It’s important to consider how a property manager’s fee fits into your costs. Make sure the price structure makes sense for your real estate goals, and if it doesn’t, consider negotiating or reaching out to other property managers who may fit in better with your budget.
10. A real-estate-focused wealth advisor
You might consider a real-estate-focused wealth advisor once you add a few investment properties to your portfolio. It can be difficult to determine when to acquire a new property or how much money you should reinvest back into your property. A wealth advisor can help you keep track of your goals while ensuring your business plan is still profitable.
A wealth or financial advisor can also help you protect your credit when using financing as your primary investment source. They’ll also offer valuable insight into the importance of timing investments to ensure no expensive financial surprises in the form of taxes or fees, helping you protect your bottom line.
11. An educational background
While a college degree isn’t a requirement for real estate investing, expanding your knowledge in the industry can be valuable. Some real estate investors may work toward obtaining their real estate salesperson license to save on commissions.
Others may enroll in investment classes that specifically cover real estate topics. Staying up-to-date on your area's latest state and county rules as they pertain to real estate rentals can also be beneficial as you pursue more properties. Many of the most successful investors also spend their free time reading books or listening to real estate podcasts to acquire as much information as they can.
12. A flexible mindset
The world of real estate investing is continually changing. Flipping and selling properties may make more financial sense in one year. The next year, it may be more profitable to purchase a home, renovate it, and then rent it out to tenants. The best investment plans may also vary depending on where you live and the local real estate market.
Many investors find that they frequently change their business plans and, thus, their real estate investment goals. Having a flexible mindset can help you better adapt to these changes. Learning to shift and adapt to the current economy and the market is crucial to succeed as a real estate investor in today’s world.
Preparation is key when investing in real estate. A clear business plan helps you set goals and track progress toward them. The right lender can help you choose the best loan for your project while paying the least fees. A good tax preparer and lawyer can also help you manage the day-to-day aspects of real estate investing.