REGIONAL SPOTLIGHT: NASHVILLE, TN
NASHVILLE’S “TALL-SKINNIES” ARE EXPANDING THE INVENTORY T hanks to an unusual zoning practice in Nashville, real estate investors can sometimes literally get "two-for-one" in what
• No state income tax • Four professional sports teams: the Tennessee Titans (NFL), the Nashville Predators (NHL), the Nashville Sounds (PCL), and Nashville NC (USL) • The state also ranks well when it comes to quality of life, routinely garnering a place in the top 20 for “best cities” in which to live, work, and play for residents of all ages. NASHVILLE’S HOUSING “PROBLEM” At this point, you’re probably won- dering wondering why in the world we were so measured in our enthusiasm at the beginning of this article. Well, the answer is simple: To invest in Nashville real estate, you’re going to need some creativity and some vision. Sure, if you already own property in the area then you are certainly in a nice position. Average appreciation in 2017 reached values 40 percent higher than the city’s previous peak prior to the housing crash, and Ten-X (formerly Auction.com) recently ranked the city top in the nation for single-family real estate. However, there are also some warning signals: Not only is the cost of living in Nashville rising exponentially, but there just is not enough housing available. Furthermore, it can be hard to break into this market because there is only so much land available and a lot of it is “taken.” There are already homes on the lots or far-sighted developers bought up the land before the boom and are not looking to sell today. However, with a little creativity, a real estate investor in Nashville can certainly flourish. For example, some investors are purchasing off-market, distressed homes (they are still here just as they may be found everywhere if you know where to look) and tearing the entire house down. Then, they rebuild, placing two tall, skinny homes on the property. There are
now two lots and two homes, called “tall-skinnies.” Although there may only be about six feet between the two homes, these properties are extremely attractive because they are also quite affordable both to build and to buy (see sidebar on p. 36). In some of Nashville’s up-and-coming neighborhoods, you might see 40 or 50 tall-skinnies where there used to be 20 outdated properties. Investors with the financial wherewithal or syndication skills are also thriving thanks to hot demand for multifamily developments, like condominiums, that are more affordable than freestanding, single-family homes but still enable owners to own and build equity. Young professional buyers may find that they can scrape together the money for a down payment in these developments and then, thanks to rising home values across the metro area, build up equity while saving to move into a tall-skinny or other single-family property in a few years. Of course, while the concept of homeownership is extreme- ly popular in Nashville, as it is everywhere, owning single- or multifamily rentals can also be a good route to solid, reliable returns. As in many “hot” markets, Nashville’s rental rates are rising quickly. An investor willing to work creatively with their tenants to create a situation where that tenant may be able to purchase their rental home in the future (using creative financing strategies like lease-options and seller fi- nancing) will not only likely find themselves in possession of a portfolio tenanted with reliable, long-term tenants, but also be well-positioned to sell that tenant a modern home that has commanded top rents. Many investors hoping to attract long- term tenants in the area are either upgrading older properties with more luxurious amenities than might usually be visible in rental properties or are building-to-rent, meaning that they are producing new construction, whenever possible, with the sole purpose of renting the properties out rather than selling to an owner occupant. BEING PART OF THE HOUSING SOLUTION CAN BE PROFITABLE IN NASHVILLE Because the Nashville market is presently so attractive, an increasing number of investors are becoming active in the area. To stay ahead of the curve, look for metro areas that are not yet fully developed and where land prices are still af-
• Most investors are happy to build tall-skinnies that “fit in” with the other houses on the street, and they are often craftsman style or cottage style. If you want to diverge from the look of
remains one of the hottest real estate markets in the country. A keen eye for detail and municipal code will give you insight into your options if you are hoping to build what locals
the rest of the street, howev- er, check your grounds for doing so. Many neighborhoods
are calling “tall-skin- nies,” which are, not surprisingly, tall, skinny homes built very close to each other on the same lot. Here are a few facts to know about these innovative properties: • They are separate, detached properties, but may be built on lots zoned for duplexes. • They do not share walls, but may be extremely close together • They tend to have about 2,000 square feet of living space • They do not tend to have garages • Tall-skinnies may be built in neighborhoods zoned for one- and two-family residential buildings. That code is “R” in Nashville. • Tall-skinnies may also be built in neighborhoods zoned only for single-family homes if a lot was originally subdivided into two or three parcels, but then only one house was built.
have covenants requiring new builds to fit in with the existing
properties. Tall-skinny properties are appeal- ing to real estate investors for many reasons: • They can be built on a single lot, but sell for prices comparable to other single-family homes in the area, essentially creating a two- for-one situation for the investor. • Tall-skinnies look like real hous- es because they are separate, detached homes and can be sold as such. This makes them valu- able because they do not share walls, but they are affordable to first-time buyers. • In many cases, they drive up property values in the neigh- borhoods where they are built because the old property may be purchased for just under $200,000, then the new homes are sold for between $350,000 and $450,000 (median price on a tall-skinny as of December 2017).
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Bruce McNeilage is the CEO and a co-founder of Kinloch Partners. He is a passionate advocate for housing affordability and homeownership, and invests heavily in Nashville, Tennessee, as well as throughout the southeast. Learn more about his projects, including single-family built- to-rent communities and the Solo East and North condominium projects
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