Would you Invest in West End Atlanta (Multi-Family) as your long term strategy?

Question

So here is the situation:

Strategy: Long Term Hold 10+ years

Area: West End Area, Atlanta

# of Units: 6

Built in: 1960’s

Property Class = C

Property Status = Due Diligence Period

Contract Price: $140,000

Closing Cost: $2,800

Total Purchase Cost: $142, 800

Down Payment: $37,800 (25% down payment+ Closing Cost)

Mortgage Amount: $929

Rents: $450 * 6 = $2,700

Effective Gross Income = $29,808  (after 8% Vacancy)

Total Operating Expense = $14,900 (Opex)

NOI = 16,000~

NOI after Debt Service = 5,000 ~

CAP= 11.6%

Problem:

1.Although the numbers seem to make sense I am not sure about the potential growth in the west end area of Atlanta. I am hoping the new Falcon’s stadium could bring in some development? Any thoughts on the West End Area of Atlanta?

2.Cap rate seems high however, I have a strange feeling that it could be a headache to collect monthly rents from the tenants – As the area is not fully developed and there are pockets of developed and run down lots. Tenant quality may be a hit/miss.- Any thoughts?

3. Is there other area of Atlanta you would rather spend $140,000k from a long term strategy to maintain positive cash flow levels and gain long term appreciation?

I would love to get thoughts of fellow investors in the Atlanta area and would appreciate your insight on the deal? Go or No-Go

Azeez K. · Answer

Hi @Kerri Mikolaizyk

Thanks for the @mention. This seems like ages ago..fast forward yes I did about a dozen flips in the area. I ended up purchasing the units and selling them at an excellent profit. The area is currently heated and over priced in my opinion. If you have any questions feel free to ping me.

Thanks and best wishes

Kerri Mikolaizyk · Answer

Azeez K.,

Did you end up purchasing?  I see this was 6 years ago, I'm curious how its been for you if you did purchase.  I'm perusing this area for our next rental, but am afraid I may have missed the boat to make money here.

Azeez K. · Answer

@Rick Baggenstoss  thanks for your input and time to respond to the post. I do agree that Ponce/Moreland seems better bet for appreciation. I have been scanning for MF properties in the area for a while but have not had enough luck. Some properties on Ponce seem to expensive.  BTW have you rented your SF residence in the West End area or you planning to fix it up or just hold?

@Michael Power Thanks for the neighborhoodscout.com tip. I did look it up for info on the area and it certainly helped. BTW  did you have any luck finding a MF opportunity in the area?

@Curt Smith  You bring up some great points my friend. I have already reached out to some PM's trying to get their input on the situation. I have also decided against being a PM and hiring someone to manage the property if we go down the path of buying the MF. I am already pretty busy so it seems like managing the property myself will be a big headache and I can't afford to waste time and energy with making petty decisions and dealing with tenants

Account Closed  thanks for the tip on ARM certified property manager. I have already reached out to a few.

The BP community rocks. Thanks all for educating me and providing guidance and support. Have a great weekend.

Paul Timmins · Answer

@Azeez K.

Go to IREM.org search for ARM certified property managers. They passed a battery of tests to become certified. Ask them what areas of Atlanta they like and dislike and why. Find out what they see them selling for per unit and what the expenses are per unit by category.

Stay in contact with 4-5 different ones they are a source of new deals.

Good luck

Paul

Michaela G. · Answer

It all depends on where in West End. There are pockets and there are pockets.

I have properties in Pittsburgh, which is also SW Atlanta, but usually considered a step down from West End and most investors wouldn't buy there. I'm glad I did.

I do think that 140K for 6 units is expensive there - but again, it depends on the exact neighborhood. You can buy 6 SFH in some areas in the West End and get more in rents for each home and have quicker appreciation.

As to PM, make sure that you'll ask their prices. Many PM don't want to deal with SW Atlanta or they have such high minimums per door per month, that can end up being a huge chunk of your rents. $ 115 mm per unit at $ 450/unit rent? If they want first month's rent for turnover, does that happen everytime there's turnover or just once a year? What if they put in bad tenants and you have to evict them after 2 months? 3 new tenants per unit per year will get the PM much more money than managing will - just saying - choose well

Personally, I like SW Atlanta, because the returns can be great. Also, I fully expect the Beltline to happen in the next 5-10 years. They just got 18 million to finish the Beltline path/park in West End. So, if I were to buy, I'd want to buy close to were the Beltline will run. I wouldn't buy to speculate and hope, but rather see that as an additional icing on the cake on a property that's cash flowing nicely already. The Beltline will make the prices climb in the neighborhoods around it imho

Azeez K. · Answer

@Joel Owens - Firstly, let me tell you I am a big fan. Your response are detailed and provide a great insight and I have learnt a great deal simply by reading your responses. I mentioned a special thanks to you in my new member intro as well.

Anyways, Yes the landlord pays for water and based on preliminary numbers we received during the due diligence it seems there are some water leakages that need to be fixed. This is causing the water bill to be in 800/month mark which is very high IMHO

We are certainly looking to get a price reduction due to some of these issues. I am hoping that over the next couple weeks I am able to uncover more facts on this pursuit. However, will keep you posted as to how this plays out over the next couple weeks.

Thanks again. Enjoy your weekend.

Joel Owens · Answer

Hi Azeez,

11 cap is low for that area.

Does landlord pay water??

If so go 60% total costs. Atlanta has some of the highest water rates out there.

450 x 6 = 2,700 X 12 = 32,400 X .40 (60%) costs = 12,960 NOI

12,960 NOI / 140,000 = 9 cap.

I do not like that is from the 60's. You have lead paint and possibly galvanized pluming to deal with.

I would either wait and save up more money or go in with a partner for a better asset in a different area. I went down a few years back looking and it's really rough stuff I wouldn't touch no matter the price.

I think it is way overpriced and you need to get a reduction to take this on.

Curt Smith · Answer

@azeeze   There's a national trainer group by Charlie Dobens, Duncan Wierman who offer training on how to buy and negotiate MF deals.

Surprisingly they say to bring a PM in at the contract initiation and ask them to do the DD, write a report and give you a capex plan.  Even have several PMs in for DD.  They are competing for your business and they are experts.  The inference is that the PM will do the walk through and DD free.   I've not done this, just relaying this tactic.

If you PM, you will get called at 12 midnight with plugged toilets, water over flowing down the stairs etc.  How's that work for you?  :)

I would be invovled with tenant selection though.  I feel the PM contracts are too weak re motivating a PM to select problem free tenants so you would be well served setting the standards for tenants.  Look up landlording/tenant selection here.  I've posted a few times my tenant selection criteria.

curt

Rick Baggenstoss · Answer

In the *historic* West End, I like SFRs for buy and hold and for rehabs . However, I imagine it will be a long time for the multi family to appreciate significantly, and it will be painful along the way - far greater than 8% vacancy.

My assumption is the SFRs will be the lead the West End appreciation. My guess is it's a 20 horizon for a fully recognized turnaround in the area similar to Oakhurst. If this were a small part of your portfolio, then it might be a good high risk/high return bet.

BTW, I own (rehab) a SFR is the West End many folks on BP discouraged me from buying so I'm not opposed to the area.

Moreland/Ponce seems like a great place for multi-family appreciation.  That area is undergoing a significant change and would meet your 10+yr window and would have good income and appreciation.

Good luck!

Rick

Michael Power · Answer

@Azeez K.  We have been actively looking in this area as well for MF opportunities.  Anything West of Joseph E. Lowrey Blvd is just not safe, (North & South of Joseph E. Boone Blvd).  The whole area is dangerous, (burned out buildings, vacant/abandoned properties, high drug/crime activity in the open, etc).  The new stadium will certainly breathe much needed life in the area, but it may be years before development moves out that far.  Tenant quality is a certain issue and PM service may not be had no matter how much you pay.

$140k for a 6-plex seems high for these areas and the building is most likely full of deferred maintenance.  Further South of I-20, things are a little better.

Your numbers look reasonable and you ROI looks to be 13%.  I can think of alternate investments that can return better with far less risk, (HML).  When you weigh the risk element here, (rent pay reliability and PM cost), that ROI approaches zero very fast.

If this is the neighborhood you are considering, look at neighborhoodscout.com and review where you are considering.

Mike P.