Chattanooga multifamily investment guide

This is the most consequential thing in this guide, it applies across Tennessee rather than only in Chattanooga, and it is stated in the state constitution rather than buried in an assessor’s practice.

The Tennessee Constitution, Article II, Section 28, provides that "residential property containing two (2) or more rental units is ... defined as industrial and commercial property". That provision is codified at Tennessee Code Annotated Section 67-5-501(11), which defines residential property as "all real property that is used, or held for use, for dwelling purposes and that contains not more than one (1) rental unit", and states that "[a]ll real property that is used, or held for use, for dwelling purposes, but that contains two (2) or more rental units, is defined and shall be classified as ‘industrial and commercial property.’" A parallel statement appears in the definition of industrial and commercial property at Section 67-5-501(4). This language is quoted in Tennessee Attorney General Opinion 25-016.

The consequence is in the assessment ratio. The Tennessee Comptroller states that "real property for farms and residential property is assessed at 25 percent of appraised value, and industrial and commercial property at 40 percent."

So a property with two or more rental units is assessed on 40 percent of appraised value instead of 25 percent. That is a 60 percent larger assessment base for the identical building at the identical appraised value, and the threshold is not an apartment complex. It is a duplex.

Two refinements from the Attorney General’s opinion are worth carrying into a model. An owner who occupies half a duplex and leases the other half has a property containing only one rental unit, and it qualifies for the residential classification. And the courts have held that separately parceled single-family homes could be classified as industrial and commercial property rather than residential, where the rental units were part of the same development and were owned and managed by the same entity. A scattered-site single-family rental strategy in Tennessee should not assume the 25 percent ratio survives aggregation.

We did not cover this in our Nashville guide, which addressed the state’s rent-regulation statute instead. It applies there identically, and any Tennessee acquisition should be modeled at 40 percent.²

• Residential property is defined as containing not more than one rental unit.
• Two or more rental units is classified as industrial and commercial property.
• Residential is assessed at 25 percent of appraised value; industrial and commercial at 40 percent.
• An owner-occupied duplex with one leased half remains residential.
• Courts have aggregated separately parceled homes under common ownership into the commercial class.

The line is not an apartment complex. It is a duplex. Two rental units moves the assessment from 25 percent of value to 40 percent, and it is in the state constitution.

Hamilton County authorized 1,887 residential permits in 2025 against a housing stock of 176,983 units. On our arithmetic that is about 1.1 percent of stock, and only Cook County at 0.22 percent, Ramsey County at 0.30 and Los Angeles at roughly 0.6 percent are lower. For contrast, Savannah permitted about 3.1 percent, Raleigh-Durham 2.6 and Huntsville 2.1.²

Construction employment agrees: flat at 0.0 percent, on 14,600 jobs. The builder workforce is neither expanding nor contracting.¹

The reason is visible from the air. Chattanooga sits in a river gorge between ridges. The Tennessee River and the surrounding topography physically limit where large-scale housing can be built, in a way that is unusual in the Southeast and much closer to how supply behaves in a constrained coastal market.

For a value-add owner that is the single most favorable structural feature of this market, and it is worth more than a growth statistic. Low supply protects occupancy and protects the exit, because the submarket that competes with you at disposition will look much like the one that competes with you today. Los Angeles has the same protection and pairs it with regulation that makes the strategy unworkable. Chattanooga has the protection without the regulation.

Population growth of 6.5 percent since 2020 to 390,833 is respectable rather than remarkable, roughly in line with Charleston and ahead of Atlanta, Dallas and Miami.²

• 1,887 permits against 176,983 units, about 1.1 percent of stock.²
• Only Cook County, Ramsey County and Los Angeles build less among the markets we cover.
• Construction employment flat at 0.0 percent.¹
• Ridge and river topography is the structural reason.

Los Angeles has supply protection and regulation that makes the strategy unworkable. Chattanooga has the protection without the regulation.

We would transact here. The supply constraint is genuine and structural, affordability is comfortable at about 19.7 percent of median income going to rent, and the employment base is stable even if it is not growing. The tax treatment has to be modeled correctly from the first draft, and the plan cannot depend on the market improving. Our method is set out in how we evaluate a market, and the full ranked list is on the markets index.¹²

• Is the property in Tennessee or Georgia, and which county?
• For a Tennessee asset with two or more rental units, is the tax modeled at 40 percent of appraised value rather than 25?
• If the strategy is scattered-site single family, does it survive being aggregated into the commercial class?
• Did the rent and sale comparables come from the same state as the subject?
• What is the developable land within three miles, given the ridge and river constraints?
• What rent growth is assumed against a $355 monthly gap to ownership?²
• What share of the projected return comes from operations rather than the exit?

Model a Tennessee multifamily acquisition at 40 percent of appraised value. If your pro forma used 25, the tax line is understated by more than half.