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.
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.
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.
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.
I’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.)
I just finished writing the property tax checks for 2014. This year was a bad one. The worst yet. Almost $15,000 bad. The total is for eight properties. The taxes in Nashville, TN are due at the end of every February for the previous calendar year. I expect the expense each year. It is not a surprise. But just because I know I have to send off thousands of my dollars, doesn’t soften the blow when it happens. I wait as long as possible, until the deadline every year. I don’t want part with the cash until the threat of a penalty (interest) is about to be enacted. So I write this article with a full understanding that I run the risk of sounding like an old curmudgeon complaining about taxes. I know that governments need funding to operate on the local, state, and federal levels. However, I want to take time to explore the subject of taxation, specifically property taxes.
When calculating returns and “crunching the numbers” for potential investment properties, conventional wisdom suggests that one figures in a loss of income due to vacancy. This figure is typically in the range of 7-10%, but differs depending on the local economy. It is wise to be prepared for unexpected repairs and vacancies, but wouldn’t it be nice to have no vacancies? Wouldn’t it be nice to turn an expected loss of income into profit?
Real estate agents say that potential buyers make a decision of whether to buy or not within the first few seconds of seeing a house for sale. With such a small opportunity to make an impact, it is imperative for sellers to make the best first impression possible. In recent years there has been a growing trend of homeowners and flippers hiring staging companies to dress up their properties. Staging a house doesn’t come cheaply. If a seller spends the money on staging, do they recoup that cost in the final sales price? Does staging help a property sell quicker? Is it worth it?
-staged bedroom and dining room