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State guide · TN

DSCR Loans in Tennessee: 2026 Investor's Guide

2026 guide to DSCR loans in Tennessee — no state income tax, 0.67% property tax, Nashville and Memphis markets, Gatlinburg STR, and the best DSCR lenders.

Updated 12 min read
Investment real estate scene representative of DSCR lending in Tennessee

Tennessee is one of the strongest cash-flow DSCR markets in the Southeast and one of the few no-income-tax states outside the Sun Belt big four. Nashville’s music and healthcare economies, Memphis’s logistics density, and the Gatlinburg/Pigeon Forge STR engine have made Tennessee a top-10 DSCR state by volume. Low property taxes, non-judicial foreclosure, no rent control, and the no-state-income-tax posture all stack in the investor’s favor.

This guide covers the Tennessee DSCR environment in 2026: lender availability, taxes, foreclosure and eviction mechanics, and the five metros driving investor activity.

Why Investors Choose Tennessee

Tennessee added more than 85,000 net new residents in 2024 — consistent top-10 growth state. Nashville MSA is the fastest-growing in the state, absorbing corporate relocations (Amazon HQ2 East, Oracle’s Nashville riverfront campus, Mitsubishi Motors NA). Memphis anchors the FedEx global hub, large-scale logistics real estate, and the Mid-South rental demand base. Chattanooga’s EPB gigabit infrastructure and VW plant, plus Knoxville’s UTK tenant base and Oak Ridge national-lab employment, round out a diversified state.

The DSCR attractions:

  • No state income tax on wages, rents, or investment income
  • Low property tax (~0.56% effective)
  • Non-judicial foreclosure with a 60-90 day clock
  • No rent control and no statewide security deposit cap (most counties)
  • Highly active STR market in the Smoky Mountains

DSCR Loan Rules in Tennessee

No state-specific DSCR restrictions. PPPs are permitted on 1-4 unit investment loans. Non-QM lender licensing through the Tennessee Department of Financial Institutions. All major national DSCR lenders fund Tennessee. A number of Nashville-based private capital shops and hard-money-to-DSCR rehab refi pipelines give local operators additional options.

Typical Tennessee DSCR Terms, 2026Range
Minimum DSCR0.75 - 1.25
Max LTV (purchase)75% - 80%
Max LTV (cash-out refi)70% - 75%
Minimum FICO620 - 680
Prepayment penalty5/4/3/2/1 standard, shorter available

Taxes & Carrying Costs

No state income tax. The Hall Tax (6% on interest and dividends) was fully phased out effective January 1, 2021. Tennessee has no tax on wages, rental income, or investment income.

Franchise and excise tax (F&E). This is Tennessee’s unique wrinkle. Most LLCs that elect to be taxed as corporations or file as entities owe the 6.5% excise tax on net earnings plus a 0.25% franchise tax on the greater of net worth or real property value. However, a single-member LLC that is a disregarded entity for federal tax purposes is generally not subject to F&E — the income flows to the member’s (non-existent TN) return. Multi-member LLCs typically owe F&E unless they qualify for a family-owned non-corporate entity (FONCE) exemption. Structure matters significantly in Tennessee.

Property tax. Effective rate of ~0.56% statewide — bottom quartile nationally. County variation: Davidson (Nashville) ~0.75%, Shelby (Memphis) ~1.00%, Knox (Knoxville) ~0.65%, Sevier (Gatlinburg) ~0.40%.

TN LLC fees. $300 to form, $300 annual report (minimum). Higher than most states, but still modest relative to the tax savings.

Insurance. Standard pricing across most of the state. Tornado exposure in West Tennessee adds modest premium. The Smoky Mountains corridor has seen wildfire-driven carrier reshape after the 2016 Gatlinburg fires; premiums rose materially and some carriers require defensible-space inspections.

Foreclosure & Eviction Landscape

Non-judicial foreclosure under TCA §35-5. The trustee records a notice of default (20 days), then publishes the notice of sale for 30 days before conducting the sale. Legal minimum: 60-90 days. Servicer timelines often extend to 90-150 days in practice.

Eviction. 14-day notice for non-payment (reduced from 30 days under the Uniform Residential Landlord and Tenant Act counties), then detainer action in General Sessions court. Hearings usually within 2-4 weeks; writ of possession 10 days after judgment. Total: 14-30 days uncontested.

Landlord-Tenant Law

No rent control. TCA §66-35-102 preempts local ordinances. The Tennessee Short-Term Rental Unit Act (TCA §13-7-601 et seq.) further limits what local governments can do on STRs: cities and counties cannot ban or effectively prohibit STRs based solely on property classification or occupancy, and STRs that were operating before a local ordinance was adopted are statutorily grandfathered.

Security deposits. In URLTA counties (major metros: Davidson, Shelby, Knox, Hamilton, Rutherford, Anderson), deposits must be held in a separate account; no statutory cap in most of the state. Non-URLTA counties have even fewer restrictions.

Late fees. Capped at 10% of monthly rent in URLTA counties.

Notice to terminate month-to-month. 30 days.

Overall Tennessee is landlord-favorable with moderate URLTA protections in the large metros and a genuinely light regulatory touch in the remaining 85+ counties.

Top Tennessee Markets

Nashville. The state’s deepest market. Music-industry tenant base, healthcare (HCA, Vanderbilt), and a massive corporate-relocation wave. Long-term SFR in Madison, Donelson, Antioch; mid-term/corporate rentals strong in Germantown and The Nations. STR permits are restricted — confirm zoning before you write.

Memphis. A cash-flow market but with elevated vacancy. Low entry prices, B- and C-class SFR pipelines with 10%+ gross yields, and a deep turnkey operator ecosystem. Shelby County’s eviction volume is high, which cuts both ways — fast but requires active management. Memphis rental vacancy has risen to approximately 12.0% in Q1 2026 — the highest of Tennessee’s major markets — reflecting new supply and softer demand; stress-test at 12-15% vacancy rather than a national average when modeling Memphis DSCR deals.

Chattanooga. Rebounding market; VW Atlanta plant suppliers, EPB gigabit, and outdoor-tourism adjacency. Moderate price points, growing long-term rental demand.

Knoxville. UTK student rentals, Oak Ridge federal employment, and Great Smoky Mountains tourism adjacency. Steady market.

Gatlinburg / Pigeon Forge / Sevierville. The STR engine. Cabin rentals generate $60K-$200K+ annual revenue on mid-market properties. Sevier County zoning is permissive for STR. Peak-season underwriting (October leaf season, July-August) drives premium numbers; off-season revenue drops significantly — lenders typically use trailing 12-month average, not peak.

Special Considerations

Franchise and Excise tax structuring. The biggest Tennessee-specific consideration. A single-member disregarded LLC avoids F&E; a multi-member LLC or a corporate-elected LLC typically does not. If you’re buying TN property through a multi-member partnership, review F&E exposure with a TN CPA before structuring. For solo investors, the simple single-member LLC is cleanest.

Gatlinburg/Sevier STR underwriting. Lenders have deep comfort with Sevier County cabin STRs. Expect AirDNA comparison, trailing 12-month platform statements, and conservative haircutting of peak-season revenue in the DSCR calculation.

Memphis tenant base. Memphis has higher eviction and delinquency rates than the rest of the state. DSCR lenders don’t formally discount Memphis DSCR calculations, but experienced Memphis operators stress-test at 12%+ vacancy (reflecting Q1 2026 actuals) rather than the national average — vacancy has risen materially in recent quarters due to new supply absorption.

Entity Formation

Form in Tennessee if holding TN property. $300 to form through SOS, $300 minimum annual report. Single-member disregarded LLCs generally avoid F&E; multi-member LLCs typically pay. The Wyoming parent / Tennessee operating LLC structure works for anonymity and — importantly — the Wyoming parent can be structured to preserve the F&E-friendly single-member status of the TN LLC.

See our entity-structure guide for the full setup.

How to Get Started

Tennessee is a rate-competitive, landlord-friendly, full-PPP-flexibility DSCR state — the shop is won on pricing, program fit, and STR expertise if you’re buying in Gatlinburg or Nashville. Our free matching tool at /get-matched sends your scenario to TN-active lenders.

Run your numbers through the DSCR calculator, check rates, and compare lenders at /compare/best-dscr-lenders. Tennessee pairs well with Georgia, North Carolina, and Florida for Southeast portfolios.

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Frequently asked questions

Does Tennessee have state income tax on rental income?
No. Tennessee fully phased out the Hall Tax on investment income by 2021. There is no state tax on wages, rental income, or interest/dividends. Tennessee does have a franchise and excise tax that applies to most LLCs electing to be treated as entities (not disregarded) — pass-through rental LLCs generally avoid this, but the structure matters.
How fast is foreclosure in Tennessee?
Tennessee is a non-judicial foreclosure state. Typical timeline is 60-90 days: 20-day notice of default plus a 30-day minimum publication period before the trustee's sale. One of the faster foreclosure clocks in the country.
Is there rent control in Tennessee?
No. Tennessee state law (TCA §66-35-102) preempts local rent-control ordinances. No TN city can cap residential rents.
What is the Tennessee property tax rate?
Tennessee has one of the lowest effective property tax rates in the country — approximately 0.56% statewide. Davidson (Nashville) runs around 0.75%; Shelby (Memphis) slightly higher at ~1.00%; rural counties often below 0.50%.
Are Gatlinburg and Pigeon Forge DSCR STR loans common?
Yes. The Smoky Mountains corridor (Gatlinburg, Pigeon Forge, Sevierville) is one of the most active STR DSCR markets in the country. AirDNA data is deep, cabin rentals generate premium revenue during peak seasons, and specialized STR lenders (Easy Street, Visio, Lima One) compete heavily. Sevier County has minimal STR restrictions compared to Nashville or Asheville, and Tennessee's statewide Short-Term Rental Unit Act (TCA §13-7-601 et seq.) further limits how aggressively any local government can restrict STRs — legacy STRs in place before a local ordinance are grandfathered.
What STR rules apply in Nashville?
Nashville Metro regulates STRs under a dual-classification system (owner-occupied vs. non-owner-occupied). Non-owner-occupied permits are limited by zoning district and often capped. DSCR STR underwriting in Nashville requires proof of valid permit and the specific zoning designation. Tennessee's Short-Term Rental Unit Act preempts outright local prohibitions but permits reasonable health-and-safety regulation, and it grandfathers STRs that were operating before a local ordinance was adopted.
Are prepayment penalties allowed on TN DSCR loans?
Yes. Tennessee allows standard PPP structures on 1-4 unit investment property loans. Full pricing flexibility is available.
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