Tennessee's four big metros each have a different supply of small apartment buildings. Memphis has older Midtown buildings at moderate prices, Nashville has scarce and expensive infill, and Knoxville and Chattanooga sit in between.
In short: LendingStreet makes DSCR loans on 5, 6, 7 and 8 unit residential rentals in Tennessee, sized on the building's rent rather than your income. Expect a 620 minimum credit score, a 1.0x standard minimum ratio and leverage that varies by program, often a little below what a fourplex gets. In Tennessee, the state transfer tax and mortgage tax at closing, storm insurance and local short-term rental rules are the items to check.
Memphis has the deepest supply, with brick sixplexes and eightplexes in Midtown, Cooper-Young, Central Gardens and near the medical district, plus small complexes in East Memphis and Whitehaven. Prices per unit are moderate, so ratios often work, but condition varies widely.
Nashville has small buildings in East Nashville, Sylvan Park, the Belmont and Vanderbilt areas and along older corridors, but supply is thin and prices are high. Knoxville has them in Fort Sanders near the University of Tennessee and in older neighborhoods north of downtown. Chattanooga has small buildings in North Chattanooga, Highland Park and near UTC.
| Area | Typical buildings | What to check |
|---|---|---|
| Memphis: Midtown, Cooper-Young | Brick walk-ups | Condition, roofs, insurance |
| Nashville: East Nashville, Belmont | Infill and older small buildings | High prices; tight ratio |
| Knoxville, Chattanooga | Campus-area and older buildings | Student turnover, hillside lots |
Underwriting adds up the rent from every unit, using signed leases and the appraiser's market rent opinion, and divides it by the full monthly payment: principal, interest, taxes, insurance and HOA dues if any. Standard programs look for 1.0x or better.
Taxes and insurance carry more weight on a 5 to 8 unit building than on a single-family rental, because the bills are bigger and they sit inside the payment. A tax bill that is $300 a month higher than you planned, or an insurance quote that jumps at renewal, can move the ratio more than a modest change in rate.
Because 5 to 8 units is treated as residential on our programs, you qualify on rent with no W-2s or tax returns. What changes from a fourplex is leverage: purchase loans go up to 80% LTV on some programs, but 5 to 8 unit buildings often get less. Plan your down payment with that in mind.
| Term | What to expect |
|---|---|
| Property type | 5 to 8 unit residential rental |
| Loan amount | From $150,000, no stated maximum |
| Purchase LTV | Up to 80% on some programs; often lower on 5-8 units |
| Cash-out LTV | Up to 75%; varies by program |
| Minimum DSCR | 1.0x standard; sub-1.0 programs exist |
| Credit score | 620 minimum |
| Income documents | None; qualifies on rent |
| Borrower | LLC standard; sign for the loan personally |
Tennessee charges a transfer tax on the deed and a separate mortgage tax on new loans. Both are paid at closing, and the mortgage tax applies to your new DSCR loan. On a 5 to 8 unit purchase these taxes are a real cost, so ask your title company for figures early.
Tennessee has no state income tax on wages, and property taxes are moderate overall. Counties reappraise on cycles of four to six years, and Davidson County's recent reappraisals raised values sharply. Use the current bill and ask when the next reappraisal is due.
Middle and West Tennessee see severe storms and tornadoes, including the 2020 tornado that hit East Nashville. Insurers look at roof age and claim history, and wind deductibles are common. Memphis also sits near the New Madrid seismic zone, so earthquake coverage is worth asking about.
Older Memphis buildings often have original windows, aging roofs and older plumbing. A full inspection helps you price both repairs and insurance. If the building is near a creek or the Cumberland River in Nashville, check the flood map.
This example is illustrative and not a quote. An investor buys a Memphis Midtown eight-unit building for $880,000. Each unit rents for about $1,000 a month, so gross rent is $8,000. Property taxes are budgeted at $700 a month and insurance at $600. The owner also pays about $400 a month in utilities and common-area costs, which affect cash flow but are not part of the DSCR payment.
At 75% LTV the loan is $660,000. On 30-year amortization, principal and interest is about $4,615, so the payment with taxes and insurance is about $5,915 and the DSCR is about 1.35x.
That clears the 1.0x standard minimum. After the owner-paid costs, about $1,685 a month is left before vacancy, repairs and management, which is why a realistic expense budget matters as much as the ratio.
| Item | 75% LTV |
|---|---|
| Purchase price | $880,000 |
| Gross monthly rent | $8,000 |
| Loan amount | $660,000 |
| Principal and interest | $4,615 |
| Property taxes | $700 |
| Insurance | $600 |
| Monthly payment (PITI) | $5,915 |
| DSCR | About 1.35x |
Tennessee law does not allow local rent control, so rents follow the market and lease terms. The Uniform Residential Landlord and Tenant Act applies in the larger counties and sets rules for deposits and notices.
Nashville restricts short-term rentals in residential zones, especially for properties where the owner does not live on site, and requires permits. Other cities have their own rules. Most 5 to 8 unit buildings are underwritten on 12-month leases.
The same 1.0x minimum applies across the state, but the path to it differs. In Memphis, moderate prices often let a building clear the ratio at standard leverage, but higher repair and turnover costs mean your real cash flow depends on management. In Nashville, rents are higher but prices are higher still, so leverage often has to come down.
Knoxville and Chattanooga often fall in between. Run the numbers at a few loan amounts before you set your offer.
Gather these before you reach out and the appraisal and underwriting move faster.
Our investor loans are business-purpose loans on non-owner-occupied property. Share the property address, rent roll, purchase price or current loan, and your target loan amount. We will size the ratio with real tax and insurance figures and show you what each loan amount does to it. Get a quote with the form below or call (877) 298-1001.
If the building has nine or more units, it falls under commercial financing instead; see our multifamily loans page.
Yes. Tennessee charges a mortgage tax on new loans, plus a transfer tax on the deed. Ask your title company for both figures.
Nashville restricts STRs in residential zones and requires permits. Most 5 to 8 unit buildings are financed on long-term leases.
No. State law does not allow local rent control.
Often, on the ratio. Memphis prices per unit are lower relative to rent. Condition and management still matter.
On our programs, 1 to 8 units is residential, so 5, 6, 7 and 8 unit buildings qualify for a DSCR loan on rent. Nine or more units moves to commercial financing.
Purchase loans go up to 80% LTV on some programs, but 5 to 8 unit buildings and larger balances often get less. Plan for 20% to 30% down plus reserves, depending on the program and the ratio.
No. The loan qualifies on the building's rent. You need a 620 or higher credit score, reserves and entity documents if you buy in an LLC.
Vacant units can often be counted at a market rent the appraiser supports, but some programs want a minimum number of units leased. It varies by program, so tell us about vacancies up front.
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