Real estate investing in Tennessee: Nashville STR, Memphis cashflow, no state income tax

Why Tennessee gets a serious look

Tennessee has the same headline tax pitch as Texas and Florida — no state income tax — but at a fraction of the property cost. The trade-off is that Tennessee's three major metros (Nashville, Memphis, Knoxville) are far smaller and behave very differently from each other. Most investors who succeed in TN specialize in one specific submarket rather than running a state-wide portfolio.

The dominant stories:

Nashville: tourism + healthcare + music industry, premium pricing, STR-heavy.
Memphis: industrial + logistics (FedEx HQ), low prices, class-C cashflow, heavy out-of-state-investor exposure.
Knoxville / East TN: university + slow-growth, smaller market, lower investor activity but reasonable cashflow.

Tax picture

No state income tax on wages. The old "Hall income tax" on interest and dividends was fully repealed effective 2021. Rental income flows through entirely to federal. (Caveat: pass-through entities pay a franchise + excise tax on net earnings, which catches LLC-held rentals at 6.5%. Single-member LLCs treated as disregarded entities can sometimes avoid this; consult a CPA.)

Property tax runs around 0.65% effective — among the lowest in the country. Davidson (Nashville) is higher at ~0.80%; Shelby (Memphis) is ~1.20% (the state's highest among major counties).

Sales tax is high (~9.5% combined state + local) which mostly hits flippers buying materials, not buy-and-hold landlords.

Run your specific TN deal through the Rental Calculator. For Nashville STR deals, the Airbnb Calculator is essential because hotel-equivalent occupancy taxes apply.

Landlord-tenant law

Security deposits: no statutory cap. Common is one month. Must be returned within 30 days of move-out OR within 30 days of demand by the tenant, whichever is later.
Notice to vacate (late rent): 14 days minimum statutory.
Eviction: detainer action in general sessions court. Filing fee ~$135. Trial typically 14-21 days after service. Writ of possession 10 days post-judgment. Total timeline: 5-8 weeks for non-paying, uncontested.
Rent control: prohibited statewide by T.C.A. §66-35-102. No municipality can impose.
Required disclosures: lead paint (federal), methamphetamine contamination history if known.

Moderately landlord-friendly. Slower than GA/TX, faster than tenant-friendly coastal states.

Nashville: the STR question

Nashville is the most STR-regulated of any major Sun Belt city. Two categories matter:

Owner-occupied STR (homestead exemption): permitted citywide if it's your primary residence.
Non-owner-occupied STR: prohibited in most residential zones. Only legal in specific commercial-overlay zones (downtown, parts of Midtown, some pockets of Germantown and East Nashville).

Investors targeting Nashville STR must verify zoning at the parcel level via the Metro Nashville STR portal BEFORE close. A deal you bought assuming STR rights may be illegal at close. The Airbnb Calculator is only useful AFTER you've confirmed the zoning math works.

Nashville long-term rentals are tighter than they look. SFRs in East Nashville and Inglewood at $400-650k rent for $2,400-3,400. Price-to-rent 18-22. Cashflow is thin; you're betting on appreciation and the tourism flywheel.

Memphis: the cashflow play

Memphis is one of the country's deepest class-C SFR markets. SFRs at $80-160k, rents $900-1,400/mo. The 1% rule isn't aspirational here — it's the floor. Cap rates 10-14% on paper.

The reality of Memphis investing:

Heavy out-of-state-investor concentration. Roughly 25-30% of all Memphis SFRs are owned by out-of-state buy-and-hold operators (mostly through turnkey providers). Inventory you're being shown by a turnkey vendor has been priced and rehabbed for that market.
Class-C operational drag. Eviction frequency runs 15-25% annually in some Memphis sub-neighborhoods. Discount projected NOI 15-25% from the proforma.
Insurance: hail-prone region, claims-heavy. Quotes $1,500-2,800 for SFRs are typical.
Property management is non-optional. Self-managing from out of state is a path to losses. Budget 10-12% PM all-in.

Run any Memphis deal through the Cash-on-Cash Calculator with the realistic 15-20% NOI haircut applied. If it still pencils, it's a real deal. If it only pencils on the proforma, walk.

Knoxville and other smaller TN markets

Knoxville: University of Tennessee anchor, ~700k metro. SFRs $200-350k, rents $1,400-2,200. Modest cashflow + modest appreciation. Lower-traffic investor market.
Chattanooga: revitalizing downtown, growing tech. $180-320k SFRs, $1,300-2,000 rents. Up-and-coming but small.
Murfreesboro / Franklin (Nashville exurbs): premium school districts, $400-650k entry, thin cashflow, appreciation play.

What to underwrite carefully

Memphis crime + neighborhood-specific operational data: don't underwrite from a turnkey provider's proforma. Pull MLS comps, sex-offender density, school ratings, and visit the property if at all possible.
Nashville STR zoning: parcel-level check before close, not "the agent said it's STR-eligible."
Franchise + excise tax exposure: if you're holding TN rentals in a multi-member LLC, the 6.5% F&E tax can bite. Talk to a TN-licensed CPA.
Roof / HVAC age in Memphis SFRs: low entry prices come with deferred maintenance. Inspections + reserves are non-negotiable.

The investor's bottom line

Tennessee is two completely different investments in one state. Nashville is an appreciation-and-tourism play with STR zoning as the primary risk variable. Memphis is a class-C cashflow play with operational execution as the primary risk variable. They require different skills, different management partners, and different underwriting assumptions.

Specialize. Don't try to run both from a desk in another state with the same playbook.

For Nashville STR: Airbnb Calculator + careful zoning check. For Memphis cashflow: Rental Calculator + Cash-on-Cash Calculator with conservative NOI haircuts.