Hello Bigger Pockets,
In August of 2020 I formed an LLC for investing in rental properties focusing on the Atlanta metro area. The BP website has provided information and experiences that were extremely helpful for creating the business plan for the LLC. The plan was to invest in Class B /C properties (and neighborhoods) with the following investment criteria:
CoCROI >= 8% (assumptions property management 10%, repairs and maintenance 8%, replacement reserve 8%, vacancy 5%, loan - interest rate 5%, 25% down, 30 yr loan)
Over the past 5 months I have found very few properties that have met the criteria and have begun to focus my search on the following areas: Marietta, Smyrna, Austell, Hapeville, East Point, and Atlanta.
My understanding is that the market is very tight right now (sellers’ market - due to low interest rates and low inventory). Through analysis of many different properties, I have also concluded that I am likely to meet my CoCROI numbers with multi-family class C homes in class C neighborhoods.
Do you all think it is possible to get 8% return in this real estate market or do I need to change my strategy by reducing my CoCROI expectations or reduce the condition of the home / neighborhood to meet my numbers.
Thank you again to all of the contributors to this site. The information here is invaluable.
What cash flow are you looking for? IMO those #s are doable. What price point are you looking for? I would cast my net wider though, especially since you’re already planning to use a property management firm. Check out Rome, Dalton, and Athens.
I have not set a goal for cash flow. Maybe I should, but I have been focused on the return on capital invested. The price point is $350k and under. Do you find the properties in Rome, Dalton, and Athen tend to generate higher returns (better price-rent-ratio with similar rental demand) than those in the Atlanta metro area.
@James D. Beaty you should see higher cap rates in tertiary markets like Rome and Dalton nowadays, but that typically comes with more market uncertainty and less sound fundamentals. Athens has cap rates similar to ATL as the two markets are seemingly becoming one as ATL expands east. Unfortunately I don't think you'll find returns are more favorable in Athens compared to other submarkets of ATL.
My recommendation would be to niche down on 1 or 2 counties and then be ready to get aggressive with your terms (reasonable DD, higher EM, shorter contingencies) when the right opportunity arises. I'd also make sure that you understand the timeframe that your lender needs to perform underwriting, appraisal, etc.
Deals are generally being awarded to those who move the fastest and have the strongest terms nowadays.
Another way to look at would be rather than adjusting your criteria to match current market realities, adjusting your approach to deal flow in order to achieve your stated goals. If you only rely on the MLS, you probably will have to look at secondary or tertiary markets to achieve those returns. If you can find a few good wholesalers or even better - market directly to sellers yourself, you could potentially exceed your goals in the markets you're interested in. Just some food for thought. Best of luck to you!
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