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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The Difference Between Speculation and Proven Value

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The $40,000 property that at this point has more questions than answers.

Last week I looked at an investment property in Nashville, TN that is about as cheap as it gets right now, priced at $40,000. I had previously driven by the property and given it a bit of thought, but I needed to see the inside before I knew what investment options were in play. After meeting the owners and viewing the inside, it turns out that there are a few different strategies for this property. But it seems the most profitable options are all reliant on a higher future value. Guessing that the value will rise is speculation, where the expected profit comes from the future value, not the present value. Regardless of if the guessing turns out to be correct or not, the investor is still taking a leap of faith.

I don’t buy on speculation, but typically only buy properties at a discounted price of their current market value. Of course I try to buy in areas where there will be significant appreciation, but I’m not basing my whole purchase on a future value that may never come. I choose to buy proven value, where my purchase price is 65-70% of market value. But with such a cheap price of $40k, and new construction infill creeping closer and closer to this location, should I take a gamble? Should I bet on future value and speculate?

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Can An Area’s Growth Become a Negative?

The rapid growth, increased media attention, and overall hype of East Nashville in the past few years elicits differing opinions from its residents. An interesting article titled, “After the Gold Rush” featured in The East Nashvillian discusses some locals’ views about the frenzy of positive attention. One concerned resident, Joshua Hedley shares his thoughts:

“I’m happy the city is growing. There are so many great things I want people to get a chance to experience. But with growth comes change, and some of those great things are taking a backseat to some not so great things. The little mom and pop organizations that made the area special are fading away. The chicken fried steaks and mashed potatoes are turing into gluten free braised tofu salads and pan-fried, raspberry-infused kale chips. So whats wrong with that?

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The Torrid Pace of East Nashville’s Development

The ever-expanding East Nashville renewal continues, as multiple large development projects carry momentum into 2015. Renovations, new construction infill, and small commercial openings are barely newsworthy, due to the sheer volume that this area of town has experienced over the past decade. In the past two years the pace has accelerated even more, as the inflow of investor dollars has raised the bar, and announcements of major projects has become the norm.

Aerial Development broke ground this fall on East Greenway Park, a 62 single family home project on ten acres near the corner of Eastland Ave. and Rosebank Ave. The houses will range from 1,200-2,500 square feet, with price tags from $225,000 to $375,000 and up. Aerial purchased the land in May, 2013 for $600,000, and received SP (Specific Plan) zoning for the site, allowing higher density for a cottage development. The growing company has already completed dozens of new construction infill throughout East Nashville, and over 100 new houses in all of Nashville. This will be their largest project so far.

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Here’s the Skinny on Tall, Skinny Houses

The tall, narrow houses that have become common infill around Nashville are not a welcome sight in many established neighborhoods. New construction is part of the growing process of a city, but the “tall skinnies” don’t blend in with the surrounding housing stock of most Music City neighborhoods. Nashville’s Metro Government was getting enough negative feedback that the Metro Council passed a new ordinance 33-1 in September 2014 to limit the height of two “tall skinnies” when they are built on one lot. Councilman Anthony Davis said, “It’s very important for East Nashville neighborhoods. This is a win for them. They really wanted something to put some controls on the infill we have going on.” What effect will this have on future development? What does it mean for investors and concerned residents?

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Two examples of tall, skinny houses. Note the small “umbilical cord” between the houses on the left.

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