Tennessee is also known as the Volunteer State because its residents have a strong tradition of joining the military throughout American history. Luckily for you, buying houses here is completely voluntary (pun intended). In all seriousness, Tennessee is becoming a hotspot for real estate investment. It attracts international investors for a variety of reasons including a strong economy, affordable property prices, and no state income tax.
From the vibrant city life of Nashville to the peaceful Smoky Mountains, Tennessee offers a range of choices for those looking to invest. This guide provides essential information on investing in real estate and DSCR loans in the Volunteer state. Here's what international investors like you need to know in order to succeed in Tennessee's real estate markets.
We are providing the following discussion to you for informational purposes only. All investments, including real estate, involve risk, and we encourage you to invest carefully. The information in this article is not intended to replace or serve as a substitute for any legal, real estate, tax, or other professional advice or service. You should consult with a professional in the respective legal, tax, accounting, real estate, or other professional area before making any decisions or entering into any contracts relating to a rental property.
Many real estate investors use debt-service-coverage-ratio (DSCR) loans because of the flexibility that they provide–especially for international investors.
DSCRs loan enables investors to buy rental properties in the U.S. with less hassle. Unlike traditional loans, these do not rely on the borrower’s personal income–they focus on the cash flow the property generates. As a result, DSCR loans allow for different types of documentation and qualifications, making it easier for foreign investors to purchase investment property.
DSCR loans are designed to simplify the investment process, making it easier for international investors to navigate the complex U.S. mortgage system. Here are the key benefits of DSCR loans:
When applying for a real estate investment loan as a foreign national, it's essential to understand that lenders may have varying requirements. Some lenders may offer more flexibility to international investors than others, so it's important to know what to expect in order to make a well-informed decision. Here’s an overview of the key requirements:
Most lenders: U.S.-based income is generally less scrutinized than foreign income. Lenders will typically ask for proof of U.S. income or extensive documentation of your finances from your home country, such as W2 forms, business income, bank statements (possibly requiring a U.S. bank account2), and other supporting documents.
Waltz: While we review both U.S. and international income, we make this process smoother by asking the right questions and gathering the necessary documents upfront. We place an emphasis on the income generated from the rental property you wish to buy, rather than only looking at your personal finances.
Most lenders: Foreign nationals usually face down payment requirements of 30% to 50%, with some opting to pay cash instead of taking out a loan. Some lenders may also require reserve funds for property vacancies or other issues.
Waltz: Our typical down payment requirement is around 30%, with some cases offering a reduced rate as low as 25%. Depending on your unique financial situation and the property you're interested in, we may require more or less in reserve funds.
Most lenders: Lenders will ask for proof of identification and your current address. If you're applying for an investment property loan, they may require that the loan be under an American LLC, with you as the personal guarantor.
Waltz: We use your passport to verify your identity, even if you’re from outside the U.S. We focus specifically on investment property loans, so we also require that the mortgage be taken out in the name of an LLC. The difference with Waltz is that we provide an Investor Kit, which includes an LLC with an EIN and a U.S. bank account, making the entire process easier for you.
Most lenders: Without a U.S. credit score, foreign investors may find it challenging to secure a mortgage. Many lenders require a minimum U.S. credit score–usually around 640.
Waltz: We don’t require a U.S. credit score for foreign nationals. Instead, we explore alternative options, such as reviewing international credit histories or assessing your assets.
Find out how international investors have benefited from working with Waltz.
Foreign national mortgages in Tennessee offer flexibility regarding the types of properties investors can buy:
Investing in real estate in Tennessee as a foreign national offers multiple benefits:
Tennessee is a beautiful state with plenty of opportunities for work and play, making it a very attractive area for real estate investors. These promising cities offer strong potential returns for foreign national investors.
Memphis
Beyond its iconic association with Graceland and Elvis Presley, Memphis is experiencing a resurgence as a vibrant and dynamic city. Memphis boasts a thriving cultural scene, fueled by a diverse population and a strong educational presence— with top educational institutions like the University of Memphis (21,000+ students), Rhodes College, and Christian Brothers University. The University of Memphis, for example, by itself, contributes about $1 billion to the local economy. Together, they enrich the city’s workforce, economy, and cultural scene.
Memphis offers a relatively affordable cost of living compared to many other major cities, with an average home value of $148,884 and a median monthly rent of $1,322. The rental market has been experiencing steady growth, with a year-over-year increase of $72. This is a great option for investors focused on cash flow.
Nashville
Nashville is a vibrant city known for its rich music scene, growing tech sector, and thriving tourism industry which recently attracted 16.3 million visitors in 2023— offering a unique blend of big-city amenities and Southern charm. This combination has made Nashville a highly sought-after destination for short and long-term rentals. Tennessee, known for its thriving short-term rental market, boasts average annual earnings of $67,510 per host, with Nashville contributing significantly to this number. Even traditional rentals remain profitable in Nashville, with a median monthly rent of $2,200.
Clarksville
As the fifth-largest city in Tennessee, Clarksville benefits from a robust economy driven by the presence of a state university and an army base. While Clarksville boasts a majority of owner-occupied households, the rental market is also thriving, with 44% of the population renting. This presents a positive opportunity for foreign investors seeking to generate rental income. Although home prices have been on the rise, averaging $309,784 with a year-over-year increase of 2.1%, Clarksville still offers a relatively affordable standard of living compared to other parts of the state.
Knoxville
The iconic Sunsphere, a landmark from the 1982 World's Fair, further enhances the city's appeal, attracting tourists and contributing to the demand for accommodations.
Knoxville offers a compelling investment opportunity, particularly in student housing, as it is home to the University of Tennessee. With thousands of students each year, demand for rental properties remains high, thereby creating consistent income potential for investors. Additionally, Knoxville's vibrant cultural scene and outdoor recreational opportunities make it an attractive destination for both residents and visitors. Furthermore, it is important to highlight that the affordable cost of living also attracts families– especially those looking for a more affordable alternative to nearby Nashville. For instance, the average home price in Knoxville is approximately 23.35% lower than in Nashville, making it an appealing choice for families wanting a balance between affordability and accessibility.
While Tennessee offers many potential advantages, there are several factors to keep in mind as you explore this state:
Refinancing an investment property involves replacing your current mortgage with a new one. The process generally includes the following steps:
Rate-and-term refinancing lets you change the terms of your mortgage, such as your interest rate or length of the loan. In some instances, this can help lower your monthly payment. As you explore a rate-and-term refinance, it’s important to consider both the short-term savings and the long-term costs.
Do you have significant equity in a rental property? If so, Cash-out refinancing could be a way to access those funds. This option allows you to tap into your property’s equity and unlock extra cash, which can be used for things like property upgrades, debt consolidation, or a down payment on another property. With cash at closing, it opens up more opportunities for expanding your investment portfolio.
Learn more about refinancing.
Work with Waltz
Getting a DSCR mortgage as a foreign investor may seem challenging, but with the right steps, it can be a straightforward process. Just follow these steps with Waltz to make your investment journey easier:
1. Find a profitable investment
Start by identifying a property with strong rental potential. Focus on areas that align with your investment goals and financial objectives.
2. Gather essential documents
Prepare necessary documents, such as a valid passport, proof of income, and property details (like rental income expectations). Lenders may also request proof of assets or a credit report from your home country.
3. Select a lender experienced with foreign nationals
Choose a lender familiar with the needs of foreign investors.They should be knowledgeable about verifying foreign income and working with investors who don’t have a U.S. credit history. Look for a lender like Waltz, who specializes in foreign national loans.
4. Set up an LLC and U.S. bank account
Most lenders will ask you to set up a U.S.-based LLC and a U.S. bank account to qualify for a DSCR loan. If you don’t have an Employer Identification Number (EIN) or other necessary documentation, setting these up can take time. With an Investor Kit, you can quickly set up an entity and including the proper documents within days.
5. Submit your loan application
Before submitting your loan application, consult with an account executive to clarify any questions. Make sure you have all the required property details, financial documents, and income proof to ensure a smooth and efficient application process.
6. Perform due diligence
This step involves inspecting the property, getting an appraisal, and submitting any extra documentation the lender needs to confirm the property's condition and value. It's also an opportunity to review your term sheet and make sure everything meets your expectations.
7. Complete the purchase process
Once due diligence is completed and your loan is approved, finalize the transaction. Sign the required paperwork (which may be done virtually if you’re outside the U.S.), transfer the funds, and complete the deal to officially own your new rental property.
