Buying vs. Renting: The Nashville Market

How buying your own home can help you build wealth

In Nashville, single family homes have appreciated 10.2% in 2020.

That is to say if you bought a house for $305,000 back in January, which was the average home price for Davidson County and the surrounding areas, then by as of this writing in December 2020, that same property would be worth roughly $336,110 on the open market. That’s a gain of $31,110 in 12 months, averaging about $2,592 a month.

That’s with no improvements whatsoever. That is just property values rising over time, which is called appreciation. It’s as simple as that.

Now, you’re thinking, surely that's just a freak thing in 2020 with the pandemic and historically low mortgage rates driving up demand in the housing market right? Nope. Let’s look at a little history here in Nashville.

First, I’ll tell you a personal story and one I’ve seen play out for clients of mine.

My wife and I got married in 2012 and bought our first home in July of 2013 in East Nashville after renting in the neighborhood something like 8 different times over 6 years. We loved the area and we were just barely able to afford a home that would work for us. We worked and saved for our first 3.5% down payment FHA loan. We bought it at $198,000 having no real understanding of the investment potential other than we loved the house and of course hoped it might go up in value over time as we started our family there.

Over time we made the place our own. We knocked out walls, changed fixtures, painted, improved the back deck, fenced the backyard, and improved the kitchen. Fast forward to 2016 and we’ve got 2 little boys running around and a 150 pound Bernese Mountain dog named Louie. We were out growing our little space and it was time to look for our next home.

We sold that house in April of 2017 for $344,000. That’s a gain of $146,000 in just under 4 years, minus some honestly minimal expenses. By improving the property and loving it until it was time for us to move on to our next home for our family, we were able to make enough money to buy our dream home in Inglewood, a 1930’s log cabin. Since then we’ve been restoring that cabin and loving every minute of it.

Also, one note here on how markets, including the Nashville housing market, work. I know it can feel weird to buy a home at one price and sell it at a much higher price. There are implications like rising rents, rising home costs, and gentrification. However, free markets respond to supply and demand, it’s really as straight forward as that. There is nothing a single home owner or Realtor or developer or anyone for that matter can do to move a market higher or lower on their own. For over a decade, Nashville has experienced more demand for housing than supply, causing prices to rise over time. It’s not “flippers” or developers pushing prices, its the market responding to the supply of new homes and renovations.

I should say, buying a home is not all about money. It’s much more about the house and how it makes you feel, the community, and where you want to hang your hat at night. It’s an emotional purchase. However, just for the sake of this post, I just want to talk about the money part.

Nashville actually has a reputation for being one of the best long term real estate investments in the entire country. Let’s look at data from Zillow since 2012 when the market really began to take off after recovering from the housing market collapse of 2008. Which by the way, Nashville, like everywhere, saw home values go down during that period of recession, but the market almost just flattened out. From a real estate point of view, Nashville made it out much better than a lot of major cities did and then bounced back with a huge boom. I’ll explain why in a second.

Back in January of 2012, the median Nashville home value was $176,000. As of October 2020 that number is $352,000. Zillow is often wrong about some of this stuff and don’t even get me started on their “Zestimate” numbers (they are wrong), but in this case these numbers seem to check out.

That’s a 50% gain in value on average over an eight year period. If you bought that average house for $176,000 back in 2012, again without improving the property in any meaningful way, that investment is now worth around $352,000, giving you an upside of $176,000. You doubled your money and ideally lived in a home you loved and cherished and took care of.

Let’s compare that to eight years of paying rent which on that average house might be about $1200 - $1500 a month. On the low end at $1200 a month, you paid your landlord $115,200 over 8 years.

So, to be clear, renting equals a loss of more than $115K and owning equals a gain of $176K over the same time period.

Are you picking up what I’m putting down? This is how home ownership can help build wealth over time.

I mean…. he is just the best.

As Mark Twain famously said “buy land, they aren’t making it anymore”.

According to Neighborhoodscout.com, Nashville’s average appreciation rate for the last ten years sits at 6.37%, which puts Nashville in the top 10% nationally for real estate appreciation. Of course buying property, especially your first house, is not that easy. It takes planning, saving, weighing risk factors, doing your homework, and finding the right people to trust to help you...like a good lender and a great agent.

➡️ Like this guy, Yea, I know, shameless plug. Also, I know it’s a ridiculous picture. Aren’t horse races fun? (not pictured, the 4 mint juleps I had)

However, once you’ve gotten your foot in the door, especially in a booming market like Nashville, the financial upside you can experience over time, while literally doing NOTHING at all, is tremendous.

Now, property, like any investment, involves risk and of course when there is potential to make money by investing in an asset like a home, there is a risk of buying a bad property. I mentioned earlier the average property saw a 50% gain over 8 years but some properties in more sought after areas like 12 South and East Nashville more than doubled in value while some others stayed stagnant. Like I said, do your homework. Also, get a good inspection so you don’t buy a money pit.

Now, you’re probably thinking this can’t go on forever and the party is probably almost over, especially with a global recession looming due to Covid-19 and the economic fall out. Here is why I think you’d be wrong and it goes back to what I said about Nashville surviving the 2008 recession mostly unscathed (again, from a real estate perspective).

Nashville is very unique in a lot of ways.

We have a thriving tourism economy, music industry, large university population, and maybe most of all, we’re a gigantic hub for healthcare. Of course it’s all taken a beating in 2020 but even tourism will return to normal one day. Unlike more expensive tourism destinations, Nashville is an easy, relatively cheap weekend trip for millions of people in the midwest and southeast. When money is tight, people will be spending it in places like Nashville before they blow it in Vegas. My guess is, the spotlight of Music City on the national stage will continue. Even if we don’t see continued hockey stick style appreciation graphs like what we saw from 2012 - 2020, the appreciation rates should stay stay steady and rise over time.

Secondly, property values may have risen steadily for more than a decade here, but Nashville is STILL cheap by the standards of most major cities. Google average home prices in places like Seattle, Los Angeles, Chicago, Miami, even Austin, and you’ll see Nashville, for all it’s boom town hype and massive growth in recent memory, is still a cheap date by comparison.

We have a Goldilocks factor I don’t expect to stop anytime soon. We’re the best “big town” in the country. You get all the cultural benefits of living in a major city combined with the convenience of a smaller town. There are James Beard Award winning restaurants, hundreds of acres of parks, the most talented musicians on the planet, and yet I can still drive from one end of town to the other in twenty minutes. From a real estate perspective, we still have a lot of growing to do and with companies like Amazon shifting thousands of jobs our way and people fleeing more expensive cities to work from home in more affordable places like Nashville to stretch their legs, my guess is we’ll continue to see growth and all that comes with it.

Of course, there is an argument for why that growth and those rising home prices can be negative but I’ll save that for another time. For now, its happening in real time for better or worse. With mortgage rates being as low as 2.5% at the moment and lending still happening despite the national uncertainty, buying a home, or two, is as solid as an investment as I can think of.

If you want to explore it more, shoot me an email.