Real Estate News & Commentary

It’s not Rocket Science, It’s Economics

Expertise: Real Estate Investing Basics, Landlording & Rental Properties, Real Estate News & Commentary, Mortgages & Creative Financing, Real Estate Wholesaling, Personal Development, Flipping Houses, Business Management, Real Estate Deal Analysis & Advice
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If you've read my blogs over the last several months, you've probably noticed that I've been fairly bullish about what I think real estate values are going to do. You've also probably noticed that I tend to lean a little heavier on the appreciation side of investing than most investors. While I whole-heartedly agree that cash flow is an essential part of a long term real estate investing plan, I also believe that it makes sense to understand market dynamics so as to increase the possibility of capturing as much appreciation as possible.

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One of the primary concepts that originally sold me on real estate investing was the ability to combine leverage with appreciation.  Basically, it’s the idea that you can put up 20% of the cash to buy a property, but 100% of the property increases in value.  Combine this with some intelligent research into specific markets, and you have a recipe for huge profit potential.

Case in point is the market I operate in – Atlanta. I've been active in this market since 2005 and have never seen anything like what's been going on here over the last year. We've watched the hedge funds and other institutional buyers swoop into our market, buying up huge portfolios of properties in a very short period of time. I've also witnessed an REO market heat up very quickly with multiple offer situations on almost every house. Couple this with double digit decreases in inventory over the last 3 years and its doing exactly what your Economics 101 professor would have told you – pushed prices upwards.

Just last week, I was looking back over the power point presentations I was giving in early to mid 2012 where I was predicting exactly what was going to happen in our market.  Eventually, these market forces are going to operate the way you would expect. It really isn’t rocket science and it doesn’t require a crystal ball. Decreasing supply and increasing demand in any industry will always end with an increase in prices.

The Proof is in the Pudding

Sure enough, Clear Capital just released their market report for February and Atlanta led the nation with 3.5% growth over the last 3 months. Honestly though, it didn’t take a genius to see the writing on the wall last year.  I worked with numerous investors in 2011 and 2012 who were closely watching what was happening and specifically came to me to buy properties in Atlanta because they saw the potential in this market.

I know some investors will still scour at the thought of trying to time markets and invest for upside potential, but I can’t help but think that the investors who invest just a little more time in market research will end up more profitable in the long run. I would love to hear from you on this – what dynamics are you seeing in your market and what do you think the end result is going to be?

Ken Corsini is a seasoned real estate investor and business owner based in Woodstock, Georgia. Ken is best known for his role on HGTV’s hit show “Flip or Flop Atlanta,” and has flipped over 800 hou...
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    Mark Ferguson
    Replied over 7 years ago
    I don’t count in appreciation, but it sure is nice! I cash flow enough on each property now, but with appreciation it lets me refinance and take more money out of my rentals. With rates as low as they are it doesn’t effect my cash flow that much and I get enough cash out to buy at least one more property with three time the cash flow as the increase in payment from the refi.
    Ken Corsini
    Replied over 7 years ago
    Mark – agreed – use the appreciation to pull out some cash and reinvest. Although obviously want to make sure you don’t over-extend .. I’m sure there are some folks on here who employed this strategy in the mid 2000’s that got burned.
    Terry P
    Replied over 7 years ago
    Good idea Mark. As a noob since 1-13-2013 I have come to realize how important it is to understand your market. I don’ think it was until I tried I really started seeing what that means. I’m very detailed, love facts, not opinions. So I am gathering the following to understand the puzzle. Rocket Science? perhaps not, but I can imagine it gets easier with experience. I will not make my first move until I have a good understanding. I think with that the target profits should be higher, and I can even sell the talent. 1.Obtain a RE license and access to MLS, get out into the market. 2.Join local builders association for data on where houses are being built, city build concessions, codes. 3.Research area and local demographics for median home value, median income, median age, population growth. Source: city and county offices, 4.Network with local management companies, associations, developers, builders, REI’s. 5.Cross ref data identify trends, supply and demand, opportunity for high ROI. Any other ideas?
    Lee Keadle
    Replied over 7 years ago
    In Charleston, SC we’re also seeing investors buying homes by the hundreds. Multiple offer situations are not the case for every house the way that you described – but many buyers right now are having to go to their 2nd or 3rd choice home because of losing in these situations. We’re down to just over 4,000 listings in our MLS. So we’re seeing on a lesser scale the trends that you’re describing. My team hasn’t been this busy since probably 2007, so these are good signs for the market!
    Ken Corsini
    Replied over 7 years ago
    Lee – thanks for the post! Interesting to hear that Charleston is experiencing something similar.
    Replied over 7 years ago
    Appreciations depends on investment type. I have NNN Walgreens, they pay same rent for 75 yrs???!!! If they reniew lease after 25 yrs guaranteed period. So, no chance of appreciation, unless interest rates go highr than 6.11% I am paying now on CTL loan, which can’t be refinanced without hefty penalty. At present you can get a loan at 4-4.5%, so will get less than what I paid, but am happy with my 4.5% COCas a retiree, with lots of depreciation write-offs!!! LTV on NNN can be as high as 1.05%!!!! but will give negative cash flow. I have 77% LTV to get cash flow.