What Am I Missing?

[Mark S.]

Happy New Year, BiggerPockets! Okay, so I need some advice here. I live in a nice A/B class area of brand new homes. I built my house for $173,000 a few years ago. 3/2 w small office, 1,600 sq ft, all brick, hardwood floors, etc. Up until recently, this neighborhood has been 100% owner occupied. I mean, how many landlords are going to take the time and spend the money to build brand new, nice SFRs as rentals? Well, relatively recently, someone has decided to do just that. This person has acquired 5 lots, built 2 houses so far, and one of them just got rented. I was able to find the ad online and the rent is $1,300/month which only includes lawn care and trash removal. The landlord is requiring a 2 year lease, no pets, no smoking. He's probably getting discounts for building this way (not sure how much and PVA isn't updated yet, but I'm guessing maybe as little as $150,000/house?). At first, I thought he was crazy and the numbers don't work for Cashflow purposes (I.e. 50% rule and 2% rule as guidelines), but the more I think about it, I'm thinking he may be on to something. It's a great location, the subdivision is growing (with owner occupants, not just his houses), etc. He may be looking to simply break even or get minimal cash flow, and eventually sell the houses later for capital gains. Seems like an "okay" strategy. He's a younger guy that seems to be just getting started and I'm wondering why he seems to be going "all-in" in this neighborhood. The majority, if not all, the owner occupant neighbors I talked to are pissed as they believe this will bring down our property values (and it likely will). Am I missing something? I'm almost thinking that somehow what he's doing might make sense, but I'm having trouble figuring out exactly how. It's tempting to jump in and try to do the same thing rather than sit back and watch him do it, but I don't want to be that close to my tenants. Thoughts?