What do you think? Cheap homes in Atlanta

Question

Hi all, what do you think of $40-$50K homes in Atlanta that bring in $750-900/mo rental income?

My realtor called today and asked if I would consider- she has another investor that wants to sell his $795/mo rental income property for $50K.  Checked out the comps, the whole area is full of 3/1's for that price, and as low as $25K.  Don't know the conditions of any of these.

Clearly these are between 1.5% and 2%, depending.  I know there are a bunch of Atlanta investors out there on BP, and recently moving here from NJ- you can buy so many homes ITP for less than $50K, and especially south of 20.  Granted these cheap homes may never appreciate, which leads to my next question- other than buy and hold for cash flow, what could be exit strategy #2 and #3?

This is my first post.  You guys are a supportive and encouraging group!

Rick Baggenstoss · Answer

I'm fond of cheap homes ITP (inside the perimeter).  If you check the historical sales prices, you can find some are still selling at 50% discounts from 2004. These were not fraudulent sales.

The block/school district matter for your appreciation.  Make sure you check it thoroughly (not zillow) so you're picking the best home.  The schools won't be 9's, but avoid the 1's/2's great school ratings.

Some of these areas are good flips and good buy-n-hold. There's a lag time for the prices coming back, but you can see they're appreciating.

Most of what I've seen needs some rehab not just paint. Be prepared.

Rick

Paul Timmins · Answer

@Patrick Gross

Atlanta is one of the top markets for student housing. Returns can be 2-4 times more.

Paul

Buddy LaRue · Answer

As far as I'm concerned, it all boils down to the returns.  You have to run the numbers to see where they land to determine if you should do the deal or not.

Especially when it comes to lower priced houses, I prefer a 100% return on capital gain and a minimum of a 10% cash on cash return.  If I can get a property for that, I'll do it; keep the property for a year or two then sell it if it's in an area I don't like.   At least I've made some money off the deal.

Joel Owens · Answer

I looked in Atlanta about 3 years ago. I didn't like what I saw. Over assessed taxes, high crime, old houses with the foundations doing waves etc.

I just do not want that type of investment or drama with those types of tenants. The local investors who buy houses typically go for the outlining counties in the 20 plus Atlanta MSA area. The taxes are the lower, the rents are just as good or better, and the appreciation is more because the areas are nicer.

Some wholesalers and turn key companies like to sell the marginal stuff to frankly out of town investors or internationals who will overpay for things or buy in the wrong areas. The re-sellers know it won't fly with the local investors as they know better and will rip apart their proposals.

The key being any investor that has capital to deploy is to surround yourself with good people you can trust. People who will put your success first ahead of their own needs to make a quick buck off of duping someone.

Investors tell me that many sellers and brokers/agents just try to push things down their throat whether the property is right for them or not. Even buyer brokers try to TALK THEM into buying something to make a quick commission. I tell clients sometimes on the commercial side we might find the right property in 2 months or 6 months but that it takes time. I have no problem telling a client not to buy something and the reasons why. I also tell them if they are not evaluating something properly for lack of knowledge why the investment might work for them. At the end of the day it's a team effort with whomever you are working with.

Some people love the dumpy houses in Atlanta. It is just not my thing and will never will be. Many investors buy these houses as a starting point and then sell off years later to dump the headache for nicer areas when they can get afford to have less yield.

Steve Lohbeck · Answer

@PG i am a newbie and I am looking for good deals in Alabama.

Patrick Gross · Answer

I appreciate the Good feedback guys! Here's how this has been evolving- This is a local businessman who, after my interest, has said he has four homes in the area that he is willing to sell. He wants to get out of rental properties, as he's getting out of his other businesses as well. He is also offering owner financing. I'm not afraid of renovation-I'm in the remodeling business myself- But after I buy, I'm not looking to sink more than maybe 10 grand into each one.

I'm going to check them out this weekend. I don't think the neighborhood really supports many homes more than 60K so putting any money into fixing these may not be worth it. Rick's guidance on the school systems is really helpful to-haven't even checked that out yet.

Thanks for all the interaction.  More to come!

Rick Baggenstoss · Answer

@Ali Boone I may have misunderstood @Patrick Gross  strategy.  Patrick - Are you looking for turnkey or fix and hold?

Turn key at $40k is, as Ali states, bad news ITP, if not impossible.  You can buy a decent house in a decent neighborhood in this price range that requires some work.

In the area you're looking, you might like houses like this at $70k already fixed up:  (Not my house or anyone's I know)

http://www.redfin.com/homes-for-sale#!lat=33.752178&listing_id=20976468&long=-84.25515000000001&market=atlanta&sst=&v=8&zoomLevel=17

Or, you can fix it yourself

http://www.redfin.com/GA/Decatur/3231-Canary-Ct-30032/home/23834884   Note the AC is missing, paneling on the walls, old kitchen, maybe an older roof, but you'd likely come out less than $70k.  Neither of these are streets, I'd recommend.  Just trying to make a point that you could invest wisely in the area.

You can fix it up even more and do something like this:  ( in full disclosure, a property of mine 'til Thursday).

http://www.redfin.com/GA/Decatur/1406-Sandy-Ln-30032/home/23898519

Note the appreciation in the area as the foreclosures have been waning.  Few flips in the area to-date.

A lot of people, don't understand the school dynamic in this area.  One of Georgia's best elementary schools is covers this area and is creating some influx of owner occupants, investment, and stability.

If you go too far south or east, things degrade, schools change, distance from Decatur square, etc. all will create a drag on your appreciation and/or rent.

Good luck to you all.

Rick

Ali Boone · Answer

Then you bring up the perfect point against Patrick buying these @Rick Baggenstoss... if the properties need "major overhauls" or any significant amount of work, and he bought this house for $50k while all the homes around it value between $25k and $50k, then he is dead in the hole and overpaid. If this house is $50k, and comps around it max at $50k, it better not need any work. If it does, it's priced too high. Simple.

Thanks for the offer but I don't deal with properties under about $80k. No interest. I also don't want any properties that need work. I'm not a fixer-upper or flipper.

Rick Baggenstoss · Answer

@Ali Boone and @Marco Santarelli  $40k homes ITP are not ready to rent.  It does not mean they're in areas to be avoided.

More than likely, you don't have a complete HVAC, old wiring, you have old windows, a bathroom which is lime green, baby powder blue, or pink, linoleum floors, and a cobbled together kitchen, and a weird garage conversion.

Fix it up for $20k and you have a keeper.  You have to address the energy efficiency, first and foremost.  The windows usually have to be replaced.  New kitchen, new bath or a great refinish, and paint.  You'll have a great property for some time.

Or as Marco suggested, buy it fixed up for $70k and skip the painful part. Just don't be fooled into thinking that the $40k house is ready to rent and has been well maintained.  $40k means it's past due for a major overhaul, but it's still a good deal if you don't mind putting in the work/$.

@Ali Boone Ping me when you come back to Atlanta and I'll change your mind.

Rick

Marco Santarelli · Answer

Hi @Patrick Gross,

Welcome to BiggerPockets!

My suggestion, if you have the capital for it, is to focus on the $70k to $100k market.  You can buy very nice turn key homes that have good cash flow and R/V ratios.

Good luck!

What do you think? Cheap homes in Atlanta

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