Diving Into New Construction in Nashville

Over the past few years, Nashville has been teeming with new construction. Jokes have abounded about how the crane is the city’s official bird, and how new cranes are nesting outside of loft windows. Indeed, Nashville has experienced new developments at a previously unprecedented rate. The Metro fiscal year that ended on June 30, 2016 had approved a record of over $3.6 billion in building permits. This was a 50% increase over the previous year, which had set a record of $2.4 billion. The past three fiscal years have all set new records for the amount of development dollars pouring into the county. In other words, this city is on fire.

After watching others make good money in the new construction business, I had been watching and waiting for the right opportunity to get into the game myself. In May of 2016, that moment presented itself.

I came across a property in emerging Buena Vista, a neighborhood in North Nashville that has experienced new revitalization, largely due to its close proximity to downtown. The property I looked at included an old house in terrible condition. It had been vacant for years and the yard was overgrown. As much as I like to see the restoration of historic homes, this particular house had virtually no vintage charm remaining and was in too poor of condition for a renovation to make sense financially. The intelligent decision was to tear it down.

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Trying to Build a House on a Lot With No Street

I own a vacant parcel of land in East Nashville that I am attempting to make “buildable.” It was included in a deal that I purchased last year. The seller had a two bedroom cottage on one lot that received the majority of attention, and almost as an afterthought, the listing agent mentioned that the adjacent parcel was also included in the sale. At first glance, the house appeared to simply have an extra large side and back yard, so I’m not certain that all potential buyers realized that there were two separate lots. The listing received plenty of interest from buyers, eliciting nine offers in about 36 hours. I wrote about my reasoning for paying $15,000 over the list price, and one of the reasons was for the potential use of the vacant lot. Before making our “highest and best offer,” I called the fine folks of the Metro Nashville Government to see if the unused lot could be built upon. I was hoping for a simple answer. Now, over a year later, it has become quite clear that the answer is anything but simple.

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The difficulty with this lot, and probably the reason that no house exists on it, is due to a large “wet weather conveyance” (aka a creek) that runs right through it. The creek varies between widths of 20-25 feet across and runs the full length of the parcel. It is large enough that the road stops on both sides of it, creating two dead ends, and one lot with basically no road frontage.

Although dry most of the year, this creek carries quite a bit of stormwater that runs off of Ellington Parkway and the surrounding neighborhood during the rainy seasons. The first step in seeing if this lot would be buildable was to file a “Community Water Determination Request.” Essentially, Metro Water Services storm water division had to assess the water quality and decide if this channel was a stream or not, which would impact the widths of the overlaying easement. In short, if there were fish and crawdads playing in the water, the easements would be larger, and there would be no building envelope available.

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A Hot Spring for Real Estate Investing

As spring 2015 nears it’s merge into summer, it feels like the right time to begin discussing the recent events of real estate investing. I apologize, dear reader, for my recent absence from writing on The Urban Investor site. Due to the increased priority of a new musical project, I won’t be churning out the articles quite as frequently as the “grand opening” of the site. However, real estate discussion is too fun to stay away from for too long, so indeed there will be periodic posts.

ubanThe Nashville, TN market is remarkably on fire right now. According to one report ranking The Top Single-Family Housing Markets it is third in the United States, trailing only Denver, Colorado and San Antonio, Texas. But it isn’t only single-family homes that are garnering attention. Music City is teeming with new developments including condos, apartments, hotels, office space, retail and commercial projects. I wrote about my concerns for a potential housing bubble, and I still have those concerns. However, the demand for Nashville property has shown no signs of slowing down in 2015. In fact, there has only been increased demand since 2014, adding more fuel to the fire.

From an active investor’s perspective, it is a wild and exciting environment. I compare the real estate market to the food chain. Hovering around the top are multitudes of hungry home-seekers. They are waiting for new listings of quality houses they can devour. Some are buyers and some are renters. They want to live in Nashville, and they are having a hard time finding the house they want for the price they want. According to CNN, about 82 people are moving to Nashville every day. These folks are growing increasingly frustrated with the limited inventory of rentals and homes for sale. As their searches drag on, they tend to lessen their demands from their initial checklist of what they were looking for. Often they settle for a house that is either smaller, uglier, or not in the location that was originally desired. Or else they elect to pay more.

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Bizarre Real Estate Listing Photos #14

While looking through the Nashville, TN real estate listings on the MLS, I come across some rather peculiar photos. They reveal some unusual lifestyles and inexplicable design choices that are normally hidden from view. Thankfully, the well-compensated, professional real estate agents think that somehow these photos will help their listings sell, so they make them available for the world to see. Therefore, we have the pleasure of enjoying our weekly installment of Nashville’s most Bizarre Real Estate Listing Photos:

laundry

Sometimes our washer and dryer get a bit tired and need to take a nap. 

bathchair

For those who truly love multitasking we present: *The Bathchair* – wash your feet and check your email at the same time!

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The Ideal of Leveraging Vs. The Ideal of No Debt (Part 2)

While writing Part 1 of this discussion, I quickly realized how lengthy it could become. The problem is that there are so many details and variables to consider in this debate. From monthly cashflow, to opportunity cost, to tax implications, the analysis gets complicated. I read through a very thorough article about a similar debate to “Pay Off Mortgage Early Or Invest” on the Financial Mentor site. Many of the points raised in that article are relevant to ubanthis discussion, although that debate is about paying off the primary residence mortgage early or investing that extra money into a low-cost index portfolio. The debate I am having here is whether it is better to leverage investment properties and borrow as much as possible, or have no debt. Of course there is a very large range of options in between the two extremes, but if one extreme is indeed better, then wouldn’t it make sense to maximize it to the fullest?

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The Ideal of Leveraging Vs. The Ideal of No Debt (Part 1)

There is no shortage of real estate investing advice that discusses the power of leverage in purchasing properties. Experts talk about how to buy houses with “low down payments,” or even “no money down.” It seems these strategies are sometimes touted because there is a larger market of people who will buy a book about how to get started investing with little money. After all, there are more Americans who barely have any money saved than the number of Americans who would buy a book about how to buy houses with, “cash savings over $200,000.” However, if an investor can borrow money at 4% and get a return of 14%, why wouldn’t that investor capitalize on using other people’s money and maximize profits?

ubanMeanwhile, there is another group of financial experts (Dave Ramsey being one of the leaders) who advise against having any debt at all, including real estate. The thinking from this group is, “Why lose 4-5% by paying interest to a lender when saving the cost to borrow can directly increase profits?” I find myself thoroughly understanding both sides of the argument, but unable to decide which approach is better.

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Bizarre Real Estate Listing Photos #13

While looking through the Nashville, TN real estate listings on the MLS, I come across some rather peculiar photos. They reveal some unusual lifestyles and inexplicable design choices that are normally hidden from view. Thankfully, the well-compensated, professional real estate agents think that somehow these photos will help their listings sell, so they make them available for the world to see. Therefore, we have the pleasure of enjoying our weekly installment of Nashville’s most Bizarre Real Estate Listing Photos:

stuff

Our realtor recommended that we repaint the living room walls. We opted for a different strategy: covering the walls with as much stuff as possible. It worked!

sheds

Then papa shed said to his son,”Time is flying by. You’ve shot up to 640 cubic feet, and I have a receding roofline. But I can’t complain, life is good.”

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House of the Week – Franklin Pike

A grand, historic home located at 4220 Franklin Pike, Nashville, TN 37204 is the House of the Week. “From Indian lore to civil war battles, this incredible one of a kind property is a dream home for history buffs,” according to listing agent Melanie Baker with Zeitlin & Co., Realtors. The house has four bedrooms, two bathrooms, and 3,148 square feet of living space priced at $995,000. It is, “nestled on 2.3 acres of mature trees and gardens.”

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How to Read and Understand a HUD Settlement Statement

Every real estate closing done at a law-abiding title company will include the settlement statement. This two page document is required by the Real Estate Settlement Procedures Act (RESPA), a program administered by the U.S. Department of Housing & Urban Development. It is a standard form that itemizes all charges for the parties involved.

hudI’ve had two closings in the past two business days, one as a seller and one as a buyer. As a seasoned investor, I am now quite familiar with the columns and numbers on the settlement statement, and it is easy for me to understand. But it hasn’t always been that way. I remember trying to follow along as the closing attorney would quickly flip between the two pages cross referencing different charges, pointing at real estate commissions, government recording fees, and the prorated county taxes. It is a lot of information to take in for the average buyer or seller. And when thousands of dollars are involved, it is important to know how to read and understand the settlement statement. (Warning: This is by far the nerdiest and potentially most boring thing I have ever written about. Proceed with caution.)

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Identifying Undervalued Neighborhoods

I remember having a conversation about nine years ago with a very wealthy individual about what neighborhoods would have the best future appreciation in the local real estate market. She replied, “That’s easy, the same neighborhoods that have always had the best appreciation.” I nodded my head in agreement. It seemed like the perfect answer. But there was something in me that didn’t totally buy in. If neighborhoods appreciate at the same rate they always do, then how are gentrifying neighborhoods with rapid increases of home values explained? What causes the exceptional upward momentum of rising prices?

By the time I had that conversation, I had witnessed several neighborhoods in Nashville, TN experience rising property values that did not line up with their historic appreciation rates. They were beating their previous track record. Those neighborhoods had been undervalued, but began over-performing to compensate. Renovations were being completed by homeowners and investors alike. ubanAs more dollars poured into the improving neighborhoods, others took note and wanted to buy in as well. Activity furthered more activity, and successful flips led to more investment projects. I watched with a desire to understand what market forces were at work. And I began to anticipate what neighborhoods might be next. I knew that being able to identify undervalued parts of town would be key to future investment success.

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