6 months ago, while driving to a rental house of mine located in a Class D hood, I noticed two brand new houses where being built in this neighborhood. I made the assumption that some house flipper had bought two severely dilapidated houses at a tax sale, then had both houses bulldozed and then poured concrete slab foundations for each new future house. Both houses are on adjacent streets just 200 feet from each other and the construction of each new house proceeded at the same pace since the same builder was building both houses.

Now, fast forward to today. Those two brand new houses are now finished and to my surprise, they were never intended to be flipped. These two new houses were built from the ground up for the rental market here! Both 3/2 houses were listed on Zillow yesterday at a monthly rents of $1,250, which for this Class D hood is mind boggling. Market rents for this D hood are $600-$750/month tops.

The street address for each house follows. Go on Zillow if you want to see these 2 identical brand new houses.

1009 Vinson Ave. Gadsden, AL 35903

604 Blythe Street, Gadsden, AL 35903

My only question is: is there any business logic in building brand new houses in Class D hoods? Less than a block from these two new houses are other houses where tenants have junk cars sitting on concrete blocks and household garbage scattered in their front yards! It is a typical D hood.

NE,

I was going to say the same thing as Ken... Hands down I think that's the answer.

Ken,

Ken,

Roy you might be surprised what you can find using county records and Google.

I searched for info on 1009 Vinson.

The property is owned by RAC GADSDEN, LLC.

RAC GADSEN, LLC appears to be owned/controlled by Michael Colvard of Glencoe AL and Frank Gillen of Miami FL. Other entities involved include RAC Real Estate Acquisition Corp and My City Builders, Inc.

They acquired the property as a vacant lot from the City of Gadsen. Probably for a little of nothing.

This is going on all over the country. The city files dilapidation liens against unoccupied properties that might need some repair or just be ugly. If the owner can't satisfy the city then the city tears the house down and sells the property to a builder. Or the owner has abandoned the lot and the city takes it for cleaning and mowing liens.

It's "funny" how in certain small towns it seems to be only one builder that buys all the lots.

Yep, I sold a double lot to a builder that I got on a tax sale. His mode of operation is to build brand new 2/1/2 (2 bed, 1 bath, 2 car garage) duplexes and rent them to Section 8 for top $. Lots of Govt money going into these areas for redevelopment, and as long as you agree to take their rent rate, you get 5 years of tax abatements too!

I want to say he was getting $695 per side, and that was pre-Covid run up. Think he was "all in" cost-wise at about $60,000 per unit, so doing a little better than 1% rule for brand new units. Wonder how they're holding up?

This program only works for new or significantly upgraded housing... my humble abodes don't qualify, and I'm not sure I'd want the Govt messing with my stuff anyway.

Its all part of a push out,

and its happening a lot in small town America.

Out with the old, in with the new.

Things will only go (farther) down hill in C, D hoods,

if someone doesn't take action.

A fine example is Lebanon TN.

Just Tim

I checked the county tax records too. I was not familiar with RAC LLC that was listed but I am very familiar with the RE Rentals company that manages these properties and 800 other local rental properties. RE Rentals does not have a good reputation in this town but that is neither here nor there.

Small Potatoes: These new houses are listed at 1,250 square feet. Assuming they were built cheap at $100/sq. ft. that means the cost basis would be $125,000 each. And the listed rents are $1.00 per square foot.

For comparison sake, one block over, I have a 1955 vintage 2/1 that is 750 square feet and I get $750 rent or $1 dollar per sq. ft. However, I did not have to spend $125K to obtain my rent. I paid $10K for the house and another $10K to rehab it. So, I get $750/month on $20K house. Current house re-sell value is around $60,000. Do the math.

Mapleaf18 - I know those Class D hood churn-n-burn SFH you mentioned all too well. Most investors are scared to death over the thought of buying one and rehabbing it. Not me, I became wealthy beyond my wildest dreams over these type houses.

gentrification.

ROY

Just think in a few years you will be able to buy the house for your price. It is about the money. If an agency provides the money someone will find a way to spend it. Some times good some times a bridge to no where.

Logic - probably none

Roy,

My city is doing the same thing. They made a list of 50 houses that are vacant or "dilapidated" (in the eye of the beholder).

Big popular news! The politicians look like saviors of the community - removing the "blight" by talking the owners who cannot afford the repairs into selling to the city for $5000 thru a grant designed ONLY for tearing down houses.

How about HELPING the family repair their home.

Then they GIVE the vacant lot to a Habitat for Humanity type agency that gets donated labor and such. Nobody ever talks about the people who lost their home.

Combine this effect there are no more buildable lots in my town. New young investors are buying old small houses, tearing them down or building over them - larger, garages, all new, top rents. People pay their rent for these nice new pretty houses without considering the neighborhood.

Instant gentrification.

This is really good news for you, Roy! YOUR props on that street just went up in value. Sell them to this builder!

BRAD

There ae so many things an investor can do with a piece of land. The one thing they can't do is move it.

A D neighborhood is one where the majority of the folks living there don't have a job. So you can have a couple real nice places surrounded by not so nice.

I suppose if your aim is strictly for cash flow purposes, you can make the numbers work for you. Boy though, in a class D location, there tends to be so much turn over that it is tough to justify not picking up a class C place. Class D places typically not appreciate. I like my blue collar residents, they can buy a place. A class D location, is a headache to manage, so I hope you are making the numbers reflect that.

Ray in PA

You are a better man than I am Roy.

I have to shift to nicer locations as I step up.

Now I don't want you think that I am an investor snob at this point. I picked up three dumps at the tax sale not because any of them were A or B units. Nope, I picked them up as these three I was able to pick up for 10 cents on the dollar. I have been working on that first one rather steadily in getting upgraded. When I tell you upgraded - tomorrow for example the excavator will be digging so we can install a new water line. It should be completely rent ready in late April or early May.

If it is a system on this place, it will be replaced.