North Atlanta (Cumming, Alpharetta, Woodstock, Roswell) Single Family (SFH) homes have appreciated tremendously from the housing bottom in 2012 to 2015. With the prices high or higher than the real estate peak, is it smart to invest in SFH's with the intention of renting the house. The appreciation potential in the SFH is very minimal. The investment from private equity sector in SFH's effectively decreased the supply of homes tremendously driving up the prices in the market. What happens when the private equity funds release these homes into the market and when might that be - does anyone know?
Given this situation in SFH's, is it any better to invest in commercial properties - strip malls, professional buildings. Have these types of properties also appreciated tremendously in value from market bottom or are they still good investment? Thanks
Welcome to BiggerPockets! In regards to your question my thoughts below:
Atlanta months of inventory based on closed sales (July 2015) stands at about 3.9 months. 6 months is considered as normal market conditions. Basically, the inventory levels (Supply) low and demand is high. This is causing prices to go high for SFR..the Average Sales Price is up by 51% from bottom of 2011.
In response to your question is it smart to invest in SFH's with the intention of renting?
With the high prices the numbers won't make sense in renting the homes as it would be extremely difficult to cash flow. Read this interesting post Poof -2 Years of Cash Flow on 3 houses gone in a day. I have seen a lot of investors grabbing homes in the 50K price point in Stone Mountain type areas and rent it to Section 8 tenants for about $700-$800. This strategy works for a few but can also present you with hassle factor and time. Even with this strategy you would need to buy a lot of SFR's to make it worth your while. Also check out the post by @James Park on North Atlanta Market Update you will get a good insight in regards to the overall market conditions, population trends, demographics etc. Look at this interesting article on how Blackstone is selling 1300 Atlanta houses in a strategy shift. In addition, I also feel the interest rates will rise soon so the prices will come down and to me it does not make sense to buy a SFR (unless its just a steal which is very very rare) at high price given you will be upside down based on some of these projected trends.
So does it make sense to invest in commercial properties? Depends.. This year we acquired two commercial properties (32 units & 100 units) only because it was a good off-market deal that made sense from our strategy point of view. However, MF prices have soared and most apartments in Atlanta are selling at low cap rates and at these low cap rates its very hard for an individual to cash flow on these apartments. Read this interesting post by @Joel Owens MF Getting Frothy.. so Apartment investing is not making a whole lot of sense in most cases. I don't know much about strip malls and Joel is our resident expert in commercial sector so will be in a position to shed some light on that front.
Hope this helps shed some light on your question. Feel free to ping me or message me if you want to share notes/brainstorm ideas or simply talk RE.
Good Luck and Welcome to BiggerPockets!
I have friends that bought about 10 houses cash in Roswell 3 to 4 years ago for 50k to 60k for 900 rent.
Now they are trading at double that price or more and the can't find anymore to buy.
As mentioned there are other areas close to those levels but what I would consider junkier and not high end areas.
If you buy quality areas for higher prices and you hold permanently with long term debt for retirement than that is different.
For commercial there are still deals but activity is different than a few years ago. Used to 2 years ago a property would sit a few months before getting any action. Now you can still land an 8 cap for a quality center but you can't mess around or it will be gone in 2 to 3 weeks time.
You need big money to play in this space. I usually review PFS statement from the borrower. Typical non-recourse financing is minimum purchase price of 2.8 million with 25% down.
Attaching a number of things I have written on the basis of various articles. Can help a little in the general direction the market in Atlanta. The data focus on the flip potential market.
- Atlanta Market Trends
- Overview: The Atlanta-Sandy Springs-Marietta metropolitan area, which comprises 28 counties in northwest Georgia, is the second largest metropolitan area in the Southeast, after Miami. The metropolitan area is a business and transportation hub for the region because of its central location and readily available transportation options, including three major interstate highways and the Hartsfield-Jackson Atlanta International Airport, the busiest passenger airport in the world, which is estimated to have a $32.5 billion with direct annual economic impact on the metropolitan area.
- Atlanta Population Growth
- Over the last five years, the top 10 Moving Destinations list consistently finds Atlanta at the top.
- Atlanta is a rapidly growing city, and its metropolitan area exceeded 5.5 million people for the first time in 2013. The U.S Census Bureau projected that metro Atlanta's population will reach about 5.7 million by 2020.
- A third of the population is between the ages of 18 and 34. This compares with less than a fourth in the U.S. Population and household growth will surpass the U.S. over the forecast horizon, supporting demand for retail, construction, and education and healthcare.
- Job Situation
- Metro Atlanta's unemployment rate (May 2015) is 5.9%, Ranking 44 of 48 for Large Metropolitan Areas.
- There was an over-the-year gain of 83,200 jobs, or 3.4 percent, from 2,483,100 in April 2014. This was the largest over-the-year job growth for April since 1999.
- The rapid pace of economic expansion is keeping Atlanta’s housing market buoyant. Home prices rose, about 9 percent in 2014 according to the Case-Shiller index. The strong demand from investors is leading to a sizable reduction in the inventory of foreclosed properties. This, in turn, is leading to smaller discounts on foreclosure sales and hence, higher overall prices.
- In September 2014, 4.4 percent of home loans in the metropolitan area were 90 or more days delinquent, were in foreclosure, or transitioned into REO status, a significant improvement from the peak rate of 11.6 percent in January and February 2010 (Black Knight Financial Services, Inc.).
- In late 2014 approximately 23 percent of existing home sales were distressed home sales compared with 44 percent of existing home sales during the 12 months ending July 2010.
- New Homes: New Home starts are rising and will slowly but surely become a major factor for Metro Atlanta real estate. Sales increased 29 percent, to approximately 12,600 homes, and the average price of a new home increased 3 percent, to $295,700. In 3-5 years, new homes could return to 40%-45% of the inventory and
- Metro month’s supply of inventory (Feb' 15') is around 5.7 months.
- Housing remains affordable with the median priced home now costing 1.4 times the median annual income. Nationally, the median priced home costs about 1.7 times the median income. Housing demand is also being supported by low mortgage rates and easier access to credit.
- Local and regional trends have contributed to a significant increase in the real estate market. Strong demand from investors is leading to a sizable reduction in the inventory of foreclosed properties. This, in turn, is leading to smaller discounts on foreclosure sales and hence, higher overall prices.
- At such prices and low inventory of Disserted properties, It’s hard to find Houses more than 50% below fair market value – that will be able to rehab and resell the properties at 10-20% below market value – and still make a considerable profit.
- The longer term outlook is favorable. Strong population and income growth will support robust demand for housing and drive above average home price appreciation.
- what is the key to success in this market ?
@Ananda Rajeurs - This advice is definitely worth millions! Thanks @Azeez K. , @Joel Owens and @Yoni Rozenstein . Also to add, if you are seeking more knowledge, it would depend on what you need this money of yours to do? If you need to park tons of money, or just want safer investments, with consistent returns, but not as much appreciation needed then all those cities named are good places but Azeez hit the nail on the head. It could be hard to create higher cashflows unless you do the following. Or if you need appreciation, buy some land, then develop it, or build some commercial property that Joel can sell for you in the end.
@Ananda Rajeurs - This advice is definitely worth millions! Thanks @Azeez K. , @Joel Owens and @Yoni Rozenstein . Also to add, if you are seeking more knowledge, it would depend on what you need this money of yours to do? If you need to park tons of money, or just want safer investments, with consistent returns, but not as much appreciation needed then all those cities named are good places but Azeez hit the nail on the head. It could be hard to create higher cashflows unless you do the following. Or if you need appreciation, buy some land, then develop it, or build some commercial property that Joel can sell for you in the end. The following should be done for SFRs:
1. There are some great areas for rentals in those cities mentioned. Find the agents who know the areas for many years(and search Craigslist for rental listings there)
2. Those good rental areas are usually priced for owner occupants closer to $200k. This means find some distressed sellers.
3. Get on some autoupdate MLS searches from those smart local agents. Then make some offers and make more.
4. Blackstone knows what they are doing, but also bought tons of foreclosures from the same neighborhoods that will likely have more in the coming months. Find those areas where they are selling and drive for dollars and find that next homeowner before they hit the county courthouse or turn their keys back to the banks.
Thank you. The format of your post is very informative not only about Atlanta - in that it gives me a solid template of what info is conclusive in any market. THANK YOU!
@ Ethan @ Yoni @ Azeez - thank you so much for the valuable comments. Lots to think about and plan to make strategic long term investments. Does anyone know how to invest in billboards in Georgia?
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