Knoxville multifamily investment guide

Several times in this series we have compared what it costs to carry a home in one state against another, and each time we have had to hedge the conclusion heavily. Median owner cost as the Census reports it bundles the mortgage payment, property taxes, insurance and utilities into a single figure, so when we compared a $525,700 house in Salt Lake County against a $324,500 one in Cook County we were inferring the tax component rather than isolating it.²

Knox County lets us do better, because it happens to sit almost exactly on top of Cook County in value.

The median owner-occupied home in Knox County is worth $320,900 and costs $1,589 a month to own with a mortgage. In Cook County, Illinois the median home is worth $324,500, about 1.1 percent more, and costs $2,270 a month. Same house price to within a rounding error. $681 a month apart, or roughly $8,200 a year.²

Because the two home values are so close, the mortgage component of those two figures is close to identical. Whatever explains a 43 percent difference in monthly cost is almost entirely the other three items, and of those, property tax is the one that varies most between states. This is as near to a controlled comparison as published data allows, and we checked it: across every guide we have published, this is the closest-valued pair of counties in our coverage, and it carries the largest monthly cost difference of any such pair.²

Widen it slightly and the pattern holds as a ladder. Among the counties we cover with median home values between $300,000 and $340,000: Knox County at $320,900 costs $1,589 a month; Hamilton County, Tennessee at $312,800 costs $1,608; Chatham County, Georgia at $302,700 costs $1,758; the Dallas-Fort Worth figure at $303,000 costs $2,166; and Cook County at $324,500 costs $2,270. Five counties, home values inside a seven percent band, monthly costs spanning 43 percent.²

For a multifamily owner the same forces operate on the expense line of an apartment building, though not in the same proportions, because a rental asset in Tennessee is assessed differently from an owner-occupied home. The Tennessee Comptroller sets the residential assessment ratio at 25 percent of appraised value and the industrial and commercial ratio at 40, and as we set out in our Chattanooga guide, a Tennessee property with two or more rental units is classified as industrial and commercial property. So an apartment building here does not enjoy the homeowner’s ratio. What it does enjoy is a state with no wage income tax and a comparatively light overall burden, which is what the household figures above are picking up.²

The instruction we would draw is simple and it is the one this series keeps returning to. Do not compare markets on price. Compare them on what it costs to hold the asset, and confirm the classification before you assume the ratio.

• Knox County: $320,900 median value, $1,589 a month to own.²
• Cook County: $324,500 median value, $2,270 a month.²
• Values 1.1 percent apart, monthly cost $681 apart.
• An apartment building here is assessed at 40 percent, not the 25 percent residential ratio.³

The closest-valued pair of counties we cover, and the largest cost difference of any close pair. Same house price, $8,200 a year apart.

The demand side here is genuinely good and has one specific weakness that an owner should price.

Knox County reached 511,453 people, up 6.8 percent from its April 2020 base, in the same band as Hamilton County, Tennessee at 6.5 percent and Harris County, Texas at 6.7. This is a market people are moving to, and the low unemployment rate suggests they are finding work when they arrive.¹

The weakness is the one the tax advantage creates. Because it costs so little to carry a home here, the step from renting to owning is unusually short. Median gross rent is $1,261 against a monthly owner cost of $1,589, a gap of just $328. Compare $835 in Cook County, $768 in Hennepin County and $754 in Harris. Only Marion County, Indiana at $300 is narrower among the markets we cover.²

Median home value of $320,900 against a median household income of $74,222 is about 4.3 times, which is affordable rather than prohibitive. So a Knox County household earning the median is not structurally excluded from ownership on either the purchase price or the monthly carry. That makes the renter base here more discretionary than it is in Denver or Los Angeles, and more sensitive to mortgage rates.²

Only 34.8 percent of households rent, which is on the lower side of our coverage and consistent with that reading. Rent absorbs about 20.4 percent of median household income on our arithmetic, comfortable, and again a sign that there is limited room to push rents without wage growth underneath.²

The Tennessee regulatory position is favorable and is set out elsewhere rather than repeated here: the state preempts local rent control and attaches a private right of action to it, which we cover in our Nashville guide, along with the Short-Term Rental Unit Act that protects existing short-term rental inventory statewide.

• Population up 6.8 percent since 2020.²
• Owning costs only $328 a month more than renting.
• Homes cost about 4.3 times median household income.²
• 34.8 percent of households rent.²