By Marc Miller – Broker for Frontgate and Appraiser with DS Murphy
Let’s talk investments. I am not going to waste your time by repeating what you will or have read in the news. I have spent the last few months talking to hundreds of appraisers, attorneys, brokers, agents, landlords, tenants, buyers, and sellers. While the media has pronounced that the sky is falling, this is only partially true.
As we have already seen, some neighborhoods are maintaining their values while others seem to be at the beginning of a downturn. Overall, I believe the metro Atlanta market is still hot, but I do have one concern.
Seasonal summer buyers can traditionally move the market, even if only for a few months. The stabilization of values that we are now seeing is troubling in the sense that our spring/summer bump is not as strong. October will likely bring a slower market, but the key to investing is looking at areas outside Atlanta where we are confident values will, at the very least, hold. When we consider these market movements, in addition to healthy rental rates that continue to thrive, the shift in the market will present an incredible opportunity to purchase rental homes.
In my opinion, the best opportunities will be JUST outside of the metro area. Big institutions, investment groups, and regional buyers have flooded the Atlanta market. *In 2012, you could still operate on a mom and pop investor level and acquire properties at the monthly foreclosure auctions, the BEST place to buy real estate.
You have to leave the city – far enough to get away from the big fish, but not too far away where real estate appreciates way too slowly and the rents can only be pushed so high. Avoid counties like Hall, Cherokee, Rockdale, and Barrow. These used to be “remote,” but current values show that they are as competitive as Dekalb, Fulton, Gwinnett, and Cobb. I have purchased and sold rental properties and flips in Coweta, Walton, Pickens, and Bartow. I have also gone further (Gordon, Union, Troup, Meriwether, Rabun, Greene). These further counties are solid, but they are too far away for me. You can still make good money, but it is harder to manage the process. To do well at this you need to be HANDS-ON.
This is my perspective, and these are my expectations. I do not want to travel more than 60 miles (one hour) from my house. My immediate neighborhood, and this whole metro area is over-valued. There are no fish left in the city. You must go fishing outside the city, but not too far because you’re going to be tired at the end of the day and won’t want to spend much more than an hour in the car on the way home.
That being said, if you live outside the city, and you are okay with lower returns and little appreciation, then some of these rural counties may make sense for you. Also, if you live outside the city, then your 60 mile radius will look different from mine.
A word to my fellow DS Murphy appraisers: You are in a unique position to take advantage of the changing market. You will likely be less busy because of the slow-down, so now is the time to solidify your credentials and, without hyperbole, solidify your financial life. If you make a handful of clever purchases, you will create a stream of income that will be a nice compliment to your salary.
Here are two personal examples:
In 2008-2010, I worked with several investors who built up their rental portfolios. Sam purchased 15 homes in Lithonia/Stone Mountain/Decatur during this time. The average house cost $50,000 (including repairs) and rented for $900. Sam only used cash, so his total investment for this portfolio was $750,000. His annual gross rent was $162,000. The net rent was around $105,000 per year, a 14% net return on his investment. He held the homes for 5 years then sold them for at least $100,000 each, some even more.
In 2017-2019, I worked with Lawrence who purchased 7 homes in Newnan (Coweta County). Each home, including repairs, cost approximately $40,000 and the rents were around $800. Lawrence also used cash so his $280,000 investment earned him an annual gross rent of $67,200, or $48,000 net, an annual ROI of 24%. These homes are currently worth at least double what Lawrence paid to acquire them.
While cash is the most conservative approach, you can also do very well by borrowing money and leveraging your equity. This is riskier, but it offers a solid payout without tying up too much of your cash.
In order to be successful, you need to cut extra costs as much as you can. Manage your own renovations. Your community knows plenty of plumbers, electricians, carpenters, HVAC techs, handymen. List your own sales and rentals and save on commissions.
I believe it is crucial to get your real estate license. The online course is nowhere near as rigorous as your appraisal QE. You will gain access to FMLS, GAMLS, and other local listing services (North GA, Athens area). You can also sign up for HUD and Fannie Mae sites and buy homes directly from the source. This is an excellent place to start. Once you are fluent in these transactions, I recommend adding to your portfolio by purchasing homes on the courthouse steps at the foreclosure auctions. There are hundreds of opportunities each month and the competition is scarce outside of the city.
If you are interested in discussing more in-depth, I can be reached at mmiller@dsmurphy.com. Happy Investing!