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Thinking of buying in Franklin, Tennessee? Get our financial spreadsheet tailored to the city.
Some people have lost a lot of money in Franklin, Tennessee's housing market.
We've all heard of that person who bought a charming historic home in downtown Franklin in 2018, expecting prices to keep skyrocketing. Instead, the market dipped, and their property value dropped by 15%.
With high mortgage payments and maintenance costs, their rental income couldn't cover expenses, giving them a negative ROI. They ended up losing thousands of dollars every year.
But then, there are the success stories.
Some folks prepared well, using a solid spreadsheet tailored to the Franklin market. They bought a multi-family unit in the Westhaven community during a market dip in 2010. They renovated it, adding energy-efficient appliances and modern amenities. Young professionals and families loved it and paid premium rents.
Over the years, the property value more than doubled, and their rental income kept rising. Their ROI is over 10% annually because they bought smart and renovated wisely.
Thinking of buying in Franklin? Want to be one of the successful ones and see some nice cash flow hitting your bank account every month? Let us give you some advice now.
Don't lose money on your next property in Franklin!
Unprepared first-time buyers often end up losing money. Invest only after reviewing all the performance metrics. Get our spreadsheet tailored to Franklin, Tennessee.
NOI, Cash Flow, Rental Yield and ROI in Franklin, Tennessee
Net Operating Income (NOI)
NOI, or Net Operating Income, is crucial for property investors in Franklin, Tennessee, a city known for its charming historic homes and growing rental market.
Simply put, it measures your property's profitability after subtracting operating expenses from rental income.
The formula is straightforward: NOI = Rental Income - Operating Expenses.
If you have a historic home in the downtown area that earns $50,000 a year in rent and costs $15,000 annually to maintain, your NOI would be $35,000.
In Franklin, a high NOI, say $40,000, indicates a well-performing investment, given the city's increasing demand and rental prices.
A low NOI, like $5,000, might suggest excessive maintenance costs or underperforming rent, both common issues in older properties or less desirable neighborhoods.
Cash Flow
Cash flow is the lifeblood of your property investment, especially in a city like Franklin where property values and mortgage payments are on the rise.
It’s calculated by subtracting your debt service (mortgage payments) from your NOI: Cash Flow = NOI - Debt Service.
For instance, if your NOI is $35,000 and your annual mortgage payments are $25,000, your cash flow is $10,000.
In a city with growing property prices like Franklin, positive cash flow means your property is generating excess income, which is crucial for long-term sustainability.
A positive cash flow of $1,000 a month can provide a cushion for unexpected expenses.
Negative cash flow, where expenses exceed income, could mean you’re over-leveraged or the property isn’t as profitable, a common scenario in high-cost areas like Westhaven.
Rental Yield
Rental yield is particularly important in Franklin, where property values are steadily increasing.
It measures your annual return as a percentage of the property's value: Rental Yield = (Annual Rental Income / Property Value) x 100. For example, if you have a townhouse in Fieldstone Farms worth $500,000 and it generates $40,000 in annual rent, your rental yield is 8%.
A high rental yield, like 9%, is excellent in Franklin, indicating a strong return relative to the property costs.
Conversely, a low rental yield, like 4%, might suggest that the property value is high relative to the income it generates, which is a common challenge in upscale neighborhoods like LaurelBrooke.
Return on Investment (ROI)
ROI measures your overall profitability, factoring in all costs and income, which is vital in Franklin’s dynamic housing market.
The formula is: ROI = (Net Profit / Total Investment) x 100. Suppose you bought a property in Ladd Park for $600,000, spent $50,000 on renovations, and it’s now worth $800,000.
If your net profit is $150,000, your ROI would be 25%.
In Franklin, a high ROI, like 30%, reflects a strong investment given the significant appreciation potential and high rental demand.
A low ROI, like 5%, may indicate either high acquisition and renovation costs or that the property is not appreciating as expected, which can happen in areas with slower growth or high maintenance needs.
This is how a good property investment looks like in Franklin
If you're making a property investment in Franklin, Tennessee, these are the performance metric values you should be aiming for.
| Metric | Threshold for Good Value | Potential Reasons for Good Value in Franklin, Tennessee |
|---|---|---|
| Net Operating Income (NOI) | Above $50,000 | Steady rental income due to the city's growing popularity among families and professionals, efficient property management reducing operating costs, properties in desirable neighborhoods like Westhaven or Cool Springs. |
| Cash Flow | Positive and above $800/month | Strong rental market with consistent demand from professionals working in nearby Nashville, manageable mortgage payments due to favorable interest rates, and proximity to top-rated schools and amenities attracting higher rents. |
| Rental Yield | Above 5% | High rental demand driven by the city's quality of life and economic growth, relatively affordable property prices in emerging areas like Ladd Park, and potential for rent increases due to limited housing supply and high demand. |
| Return on Investment (ROI) | Above 8% over a few years | Significant property appreciation in neighborhoods experiencing development, strategic property improvements adding value, effective property management keeping vacancy rates low, and favorable local policies encouraging real estate investment. |
How much cash flow can you generate in Franklin?
Get a clear view of your next investment, with all the metrics explained and reviewed accurately.
A real-life example of a successful property investment in Franklin
Here is what a good property investment in Franklin, Tennessee could look like.
Imagine you purchase a multi-family unit in the historic downtown area of Franklin, a charming and rapidly growing suburb of Nashville known for its vibrant community and excellent schools.
You buy a four-unit building for $1,200,000. Each unit rents for $2,500 per month, giving you an annual rental income of $120,000.
Your annual operating expenses, including maintenance, property management, and taxes, amount to $40,000.
You have a mortgage with annual payments of $60,000.
If we input everything in the real estate spreadsheet tailored to Franklin, we would get a comprehensive view of more than 200 metrics.
But, as for now, let's check the 4 metrics we mentioned before.
Detailed metrics
- Net Operating Income (NOI)
Calculation: $120,000 (rental income) - $40,000 (operating expenses) = $80,000
This high NOI indicates strong profitability, thanks to high rental income and controlled expenses.
- Cash Flow
Calculation: $80,000 (NOI) - $60,000 (mortgage payments) = $20,000
Positive cash flow of $20,000 annually (or about $1,667 monthly) shows the property generates extra income after covering all costs, providing financial stability and flexibility.
- Rental Yield
Calculation: ($120,000 / $1,200,000) x 100 = 10%
A rental yield of 10% signifies a solid return on the investment relative to the property’s value, highlighting its profitability.
- Return on Investment (ROI)
Assume you sell the property after five years for $1,500,000. Your net profit, considering purchase price, renovation costs of $50,000, and selling expenses of $30,000, would be $220,000.
Calculation: ($220,000 / $1,250,000) x 100 = 17.6%
An ROI of 17.6% over five years indicates significant appreciation and effective management, making it a lucrative investment.
This is how a bad property investment looks like in Franklin
These are the performance metric values that indicate potential issues in your real estate investment in Franklin, Tennessee.
| Metric | Threshold for Bad Value | Potential Reasons for Bad Value in Franklin, Tennessee |
|---|---|---|
| Net Operating Income (NOI) | Below $30,000 | High operating costs due to local service fees, lower rental income from properties in less popular neighborhoods, or elevated vacancy rates during off-peak seasons. |
| Cash Flow | Negative or below $300/month | Mortgage payments that exceed rental income, unexpected maintenance costs, or challenges in tenant acquisition due to competitive rental market. |
| Rental Yield | Below 4% | High property acquisition costs with modest rental returns, an oversupply of rental units, or properties situated in areas with lower rental demand. |
| Return on Investment (ROI) | Below 6% over a few years | Slow property appreciation in certain neighborhoods, high property management fees, frequent vacancies, and local regulations that may affect rental profitability. |
Don't lose money on your next property in Franklin!
Unprepared first-time buyers often end up losing money. Invest only after reviewing all the performance metrics. Get our spreadsheet tailored to Franklin, Tennessee.
A real-life example of a disastrous property investment in Franklin
Here is what a bad real estate investment in Franklin, Tennessee could look like.
Imagine you purchase a multi-family unit in a less desirable and underdeveloped part of Franklin, far from the bustling downtown area and popular attractions.
You buy a four-unit building for $1,200,000. Each unit struggles to rent for $1,200 per month, giving you an annual rental income of $57,600.
Your annual operating expenses, including maintenance, property management, and taxes, amount to $50,000.
You have a mortgage with annual payments of $70,000.
If we input everything in the real estate spreadsheet tailored to Franklin, Tennessee, we would get a comprehensive view of 200+ metrics, and we would know, before buying, that it's a bad investment.
But, as for now, let's check the 4 metrics we mentioned before.
Detailed metrics
- Net Operating Income (NOI)
Calculation: $57,600 (rental income) - $50,000 (operating expenses) = $7,600
This low NOI indicates weak profitability, due to low rental income and high expenses.
- Cash Flow
Calculation: $7,600 (NOI) - $70,000 (mortgage payments) = -$62,400
Negative cash flow of -$62,400 annually (or about -$5,200 monthly) shows the property incurs significant losses, straining financial resources.
- Rental Yield
Calculation: ($57,600 / $1,200,000) x 100 = 4.8%
A rental yield of 4.8% signifies a poor return on the investment relative to the property’s high value, highlighting its lack of profitability.
- Return on Investment (ROI)
Assume you sell the property after five years for $1,000,000. Your net loss, considering purchase price, renovation costs of $50,000, and selling expenses of $30,000, would be $280,000.
Calculation: (-$280,000 / $1,250,000) x 100 = -22.4%
An ROI of -22.4% over five years indicates significant depreciation and poor management, making it a disastrous investment.
What initiatives should you take to improve all the performance metrics of your real estate investment in Franklin, Tennessee?
When you are looking for a property
To boost your cash flow potential in Franklin, Tennessee, take these steps before buying a property.
| Specific Strategy/Initiative | Impact Potential | Metric(s) Impacted |
|---|---|---|
| Analyze Proximity to Cool Springs: Focus on properties within a 15-minute drive to the Cool Springs Galleria and major employers like Nissan North America and Community Health Systems. | High | ROI, Rental Yield |
| Plan Everything and Make Different Scenarios: use a solid spreadsheet already tailored to Franklin’s housing market | High | NOI, Cash Flow, ROI |
| Understand Local Legislation: Familiarize yourself with Franklin's zoning laws and short-term rental regulations. | High | NOI, Cash Flow |
| Compare Rental Rates: Use rental comparables from similar units in desirable neighborhoods like Westhaven and Fieldstone Farms to estimate potential rental income. | High | Cash Flow, Rental Yield |
| Review Financial Records: Obtain and analyze the financial history, including previous rental income and expenses, for multi-family units in Franklin. | High | NOI, Cash Flow |
| Assess Property Condition: Hire a professional inspector to identify any potential costly repairs or renovations needed in older Franklin properties, especially those in historic districts. | Medium | NOI, Cash Flow, ROI |
| Investigate Future Developments: Check for planned infrastructure projects like new schools or commercial developments in neighborhoods like Berry Farms. | Medium | ROI, Rental Yield |
| Partner with a Local Realtor: Engage a realtor who specializes in Franklin properties to access exclusive listings and local market insights. | Medium | ROI, Rental Yield, NOI |
| Assess Property Management Companies: Research and interview property management firms with strong track records in Franklin. | Medium | NOI, Cash Flow |
| Check Environmental Risks: Ensure the property is not in flood zones or areas prone to tornadoes, and verify compliance with Franklin's environmental regulations. | Medium | ROI, NOI |
99% of successful investors meticulously planned their investments!
Don’t make costly mistakes with your next property in Franklin. Make sure you have all the necessary information and data before making a decision.
When you are holding a property
These initiatives will help you get performance metrics while you hold your property in Franklin, Tennessee
| Specific Strategy/Initiative | Impact Potential | Metric(s) Impacted |
|---|---|---|
| Regular Maintenance: Schedule consistent maintenance to avoid costly repairs and maintain property value. Franklin's humid climate can be tough on properties, so regular checks are crucial. | High | NOI, Cash Flow |
| Maximize Rent: Adjust rent annually based on Franklin's market rates and tenant feedback. The city's growing popularity means rental rates are on the rise. | High | NOI, Cash Flow, Rental Yield |
| Energy Efficiency Improvements: Implement energy-saving measures like solar panels or energy-efficient appliances to reduce utility costs. Franklin offers incentives for green initiatives. | High | NOI, ROI |
| Leverage Tax Benefits: Utilize tax benefits available in Franklin, such as property tax abatements for energy-efficient upgrades. | High | ROI, Cash Flow |
| Tenant Retention Programs: Offer incentives like lease renewal bonuses or upgrades to retain good tenants. Franklin's community-oriented culture values long-term relationships. | Medium | NOI, Cash Flow |
| Renovate Units: Upgrade units between tenants to increase rent potential and property value. Franklin's historic charm can be enhanced with modern amenities. | Medium | NOI, ROI, Rental Yield |
| Engage with Community: Build relationships with local community groups and attend neighborhood meetings to stay informed and involved. Franklin's tight-knit community can offer valuable insights. | Medium | NOI, ROI |
| Monitor Market Conditions: Keep an eye on Franklin's real estate market trends to make informed decisions about holding or selling the property. The city's growth trajectory can impact your investment strategy. | Medium | ROI, Rental Yield |
| Property Management Services: Hire a reputable property management company with experience in Franklin to handle day-to-day operations. Local expertise can make a significant difference. | Medium | NOI, Cash Flow |
| Implement Smart Technology: Install smart home devices like thermostats and security systems to attract tech-savvy tenants and reduce operational costs. Franklin's tech-friendly environment makes this a smart move. | Medium | NOI, Rental Yield |
When you are selling a property
Some tips for when you are selling your property in Franklin, Tennessee.
| Specific Strategy/Initiative | Impact Potential | Metric(s) Impacted |
|---|---|---|
| Emphasize Historical Significance: Franklin is known for its rich history. Highlight any historical aspects of your property, especially if it’s near landmarks like the Carter House or Lotz House. | High | ROI, Cash Flow |
| Proximity to Nashville: Market the property's easy access to Nashville, appealing to professionals who want a quieter suburban life while being close to the city. | High | ROI, Rental Yield |
| Highlight School Districts: Franklin is known for its excellent school districts. Emphasize the property's location within top-rated school zones to attract families. | High | ROI, NOI |
| Engage Local Realtors: Partner with realtors who have deep knowledge of Franklin’s neighborhoods and can effectively market the property to the right buyers. | High | ROI, Cash Flow |
| Market Unique Neighborhood Perks: Highlight specific neighborhood benefits like proximity to parks, historic downtown Franklin, and local dining spots. | Medium | ROI, Rental Yield |
| Compliance with Local Regulations: Ensure all property upgrades and renovations comply with Franklin’s building codes and regulations, which can be a selling point. | Medium | ROI, NOI |
| Offer Turnkey Solutions: If selling to investors, provide fully furnished or turnkey solutions, emphasizing the ease of renting out immediately after purchase. | Medium | ROI, Cash Flow |
| Highlight Walkability and Transit Access: Market the property's walkability to downtown Franklin and access to major highways, which is highly valued in the area. | Medium | ROI, Rental Yield |
| Smart Home Features: Advertise any smart home technology installed, such as security systems or smart thermostats, appealing to the tech-savvy market. | Medium | ROI, NOI |
| Professional Photography and Virtual Tours: Use high-quality photos and virtual tours to attract out-of-state buyers, a growing market in Franklin. | Medium | ROI, Cash Flow |
Buying in Franklin, Tennessee? Monitor all your performance metrics right from the beginning
To maximize your ROI on your next property investment in Franklin, Tennessee, it's essential to plan and monitor your performance metrics right from the start. Our comprehensive tool is designed to help you do just that.
Introducing our all-in-one, user-friendly spreadsheet for Franklin real estate investments.
This powerful tool comes pre-loaded with the latest market data specific to Franklin, including sale prices, rent per square foot, and occupancy rates, saving you time and effort on research.
Our spreadsheet provides crucial metrics such as NOI, LTV, cap rate, and net yield, offering precise and accurate calculations. Each input and indicator is clearly explained, making it easy to understand and use, eliminating the need for complex calculations and confusing spreadsheets.
You can run various scenarios by adjusting parameters like interest rates, rental income, and operational costs, allowing you to see how these changes impact your investment. This feature helps you identify hidden risks and opportunities, ensuring you make well-informed decisions.
Our dedicated team is available 24/7 to assist you, ensuring you get the most out of this tool.
Don't leave your investment to chance. For more details, please check our detailed article about how the spreadsheet works.
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Our tool covers everything: NOI, COC, Cap Rate, Gross Yield, Net Yield, LTV, ROI, and numerous other metrics and charts.
