Is Atlanta Overheated?

Question

I've been driving and scanning online, and perusing broker feeds, looking for small rental opportunities in the greater Atlanta area. Currently, I have a couple properties and would like to add two more. I'm wanting to buy in the 150k to 200k range, and get rents that approach the magic 1%.

However, in the metro Atlanta area, this seems to be a thing of the past. I am not equipped by skill or temperament to do major rehab. Paint and paper, fine.

What I have been finding is that the real estate market here is heated to the point where this is easier said than done.

Are other Atlanta investors finding the market too hot to handle, or am I jus too cheap? I'm curious about the experience of others.

Michaela G. · Answer

It seems to me that your price point is too high. When people can afford rents of $ 1500-2000 - they can usually buy cheaper than that.

Increasing value does not increase the rents in the same percentage.

Some years ago I rented a $ 1M house in the San Francisco Bay area for $ 2495.00 .

So, if you were to look in the 100,000 range you'll probably find houses that rent for $ 1000.00

Richard Balsam · Answer

The way it was explained to me to understand ROI for each $100K invested:

The first $100K invested should be a minimum of $1000 in rents. This is everyone's 1% rule of thumb.

The next $100K invested ( house value is $200K) - rents would be somewhere near $1500+/- per month. The 2nd $100K would generate only $500 or so additional per month. This should be the maximum value for an investment property if rents can only support $1500 in an area. Of course, there are exceptions such as in areas with crazy rents. But that is not the "norm".

The 3rd $100K would only allow approx. $250-300 or so additional in rents. This is why there aren't a lot of $300K rentals - doesn't make sense based on holding costs, taxes, etc to only receive $1750-1800/month. The 3rd $100K would only allow $250-300/month- not worth investing this last $100k.

Most investors would be better off with three $100K houses, renting for $1000/month than one $300K house renting for $1800/month. Much better ROI for each $100K invested.

Stephen Grass · Answer

Thanks for the various good opinions. Lots to think about, and I appreciate the input.

Chinmay J. · Answer

You can still make the 1% or even 2% rule work by investing in 2-4 unit MF units. Who said you have to invest in SFH !.

Zac Caudell · Answer

@Stephen Grass I just posted a buy and hold SFH in Gwinnett County in the marketplace. The purchase price is $99,900 and it needs $8k-10k in repairs. The house has been renting for $1200. Here is the link, let me know if you're interested. Thanks.

https://www.biggerpockets.com/forums/517/topics/412766-buy-and-hold-in-gwinnett-county---430-month-cash-flow

Dan Mahoney · Answer

@Stephen Grass I'd like to challenge your thinking on this.  The 1% rule is a rule of thumb that I believe is incredibly misleading and should be retired.  As many others have pointed out in these forums, if you buy a single family house for $50k and rent it for $500/month you are going to lose money over the long term unless the area gentrifies.  (Capex will eat up all your profit).  Similarly, if you buy a house for $300k, you can have positive cash flow well below $3000/month rent (if the house is in good shape).

I'll second @Michaela G. that there is rent-ready single family inventory available in the City of Atlanta for $90-120k that will rent from $900-$1,200/month.  The numbers are better if you buy a fixer-upper and do the rehab but you stated your preference was not to do that.

Jeff Pollack · Answer

@Stephen Grass, you won't find anything in the Atlanta Metro in that price range that meets the 1% rule. At $150k you are well past the inflection point where rents stop tracking with home value and are in areas that make for nice places to live, but lousy places to own an income rental property. To meet the 1% rule you'll need to be below $100k and in C neighborhoods.

Andrew Daniels · Answer

@Stephen Grass I have a property you may be interested in around the Lawrenceville area.  PM me for details.

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