Rental Property Flip Flop

October 24, 2007

For years it has been difficult for landlords in Atlanta Georgia to buy properties in affluent areas and make a profit renting them out.

The reason for this is that the rents have not kept pace with the housing prices. Prices have been steadily rising in the sought after neighborhoods and school districts, and it is now difficult to find a home inside the perimeter in a good school district under $300,000. Most neighborhoods are priced considerably higher. Yet the rents are still fairly low. There are clean well maintained homes in good Buckhead neighborhoods that take several months to rent at $1800.00. Yet the same house may sell from $450,000 to $500,000 and even with 20% down the payment will be $700-$1000 higher than that! 

If an investor were to put 20% down on a $400,000 house your principal and interest at 7% (which is normal for investment property), the payment would be $2,129.00 and that doesn’t include taxes and insurance which would easily add $600.00  more! Yet the house that will sell in a normal market for $400,000 will rent for $1,800 to $2,000 at the most! The payment would be $2,729.00 per month and they would be lucky to rent it for $2,000.00 per month! Doesn’t sound like a great investment!!!

 

But the Times they are a changing!

Why are the rents so low? There are literally thousands of apartments,lofts, condos and multi use high rises under construction right now inAtlanta. The builders apparently have no shortage of optimism.

 The quality of construction is high and the developers offer great deals to prospective tenants. They will waive deposits and give the first month free to a credit worthy renter. Some are even offering second month (prorated over the year) free, and these are frequently brand spanking new units with master baths, walk in closets, upscale kitchens and solid surface countertops. Units that used to rent for$850 -$950 are now renting for $695-$795. Luxury units that used torrent for $2300-$2500 are now renting for $1500-$1750. This affects the rental prices homeowners can get for their houses if they are transferred and can’t sell in the sluggish sales market. These kinds of trends drive more people into foreclosure.

Because of the debacle with the sub prime loans, and the abundance of foreclosures in the Atlanta market the tide has finally started to turn.Because of the high volume of foreclosures, and the abundance of lower priced homes on the market the investors can now find positive cash flow.

It’s not so much that prices have fallen across the board, as much as the number of opportunities for discounted properties has increased. It used to be that an investor could come into a high rise or town home development early and buy a unit at the initial price and by the time the project was finished the prices would have risen to the point that the investor could sell as the developer was selling the last few new units and make a nice profit. Those days are over. Those investors have been left holding the bag so to speak because some of the complexes have strict limits on how many can be rented out and some of these investors, now can’t sell or rent! So now we see some of these investors cutting their prices and getting out, and many more foreclosures in the newer properties and better areas. It is finally now possible to get a bargain that is discounted to the point where you can get positive cash flow as an investor.

If you go out of the affluent areas there have not been virtually any houses for sale under $100,000 for the last ten years anywhere inside the perimeter, Now we have over 500 houses for sale under $100,000 and 250+ under $75,000! I have seen decent brick ranches for sale for $65,000 in quiet working class neighborhoods, and I recently sold a 3000 square foot brick two story on a full basement for 137,000 about 15 minutes from downtown. Move in ready with a decent kitchen, new (black) appliances and refinished hardwood floors throughout. Yes it is very possible to find rental property with positive cash flow and that is the FLIP FLOP

 

Posted by danconnolly | Filed Under Investment Property 

Comments

Got something to say?