Atlanta REI

Friday, June 23, 2006

Good News for the Rental Market

Yesterday Witten Advisors published their 1Q report for their clients regarding the national apartment market and I have to say the news is good. Rental demand is up and 2006 - 2009 is expected to be the best ever for the apartment industry. One point of note is the rent vs. buy spread, which I have written about before. This is the spread between median apartment rent and a median house payment (P&I). Today that spread is almost double. Which means a payment on a median price house is almost double what it would cost you to rent an apartment. Thus, driving more people to rent vs. buy. The last time in history this occurred was back the 80's when we saw double digit mortgage rates. Furthermore, the share of all consumer's income to afford a house payment has grown to 28%, while a rental payment only requires 15% of their income. Nonetheless, the homeownership rate is declining and is in negative territory. Again, the last time this happened was in the 80's.

Employment numbers are strong, but expected to weaken slightly through 2008 then rebound in 2009. Largest numbers of people are moving to Florida, Georgia, Texas and Arizona. Home price appreciation is slowing, but still appreciating and Seattle, Dallas & Houston are among some metros that realized an increase from 4Q 2005 to 1Q 2006.

What does this mean? Along with an expected 4% rent growth, I am glad I am in this for the longterm. If I continue to buy the house right and provide a good quality place to live, I should not have any difficulty in maintaining 100% occupancy and getting a little cashflow.

Monday, June 19, 2006

"See a lot of houses, make a lot of offers."

The great John Adams (not the former president) taught me this one. He is what I consider the father of real estate investing here in Atlanta. He said, "In order to be successful in this business you have to do two things. See a lot of houses and make a lot of offers." Although I do not write about it every week, I do see a lot of houses and make a lot of offers. I usually spend the week identifying properties that fit my criteria and every Saturday morning I am out looking at property. Then, on Monday, I am making offers (if I haven't done so already).

This weekend wasn't any different. I loaded up my 2 year old son and off we went. He loves looking at houses. This week I had limited my search results to only two properties. The first house we saw was an in-town property that had already been rehabbed. This house will be going into foreclosure in August and accoding ONLY to the listing price had considerable equity. Unfortunately, when I pulled up I didn't even want to get out of the truck. I knew from the outside that this house was not going to be worth what they wanted, but I had already set an appointment to see it. The problem? They had taken too many short cuts and did not pay attention to detail. Unfortunately, if I were to buy this house, I would have to tear out all of their improvements and start over. I really feel sorry for these investors because they already owe more than they are asking for it and are going to take a bath on this one.

The second house was a home run. It is located in DeKalb County and like the first one, needs very little rehab. This one only needs the grass cut, new carpet, and appliances (plus damages outlined below). Although, I will probably put on a new roof just to be safe. (A new roof is really not that expensive considering the long term benefit and the great curb appeal it will add to the property) This is scheduled for auction on July 5th. We will attempt a short sale with the bank, so cross your fingers. The sad part is kids have already broke into the property. Half the back door was missing and the window frame around the side window had been torn off. It is a nice neighborhood (less the vandalism to this house) and is right across the street from an elementary school.

The offer is at 64% of the ARV. Therefore, I should be able to buy the house, fix it up, 80% refinance, cash out my original investment plus about $5k, leaving $30k in equity and cashflow $200 a month in rent. Not too bad :))

Friday, June 16, 2006

Stick that in your pipe and smoke it!!!!!!

Climbing interest rates and cooling speculative demand is putting pressure on the housing boom, but as long as jobs continue to be created and builders curb production, the sector will experience a soft landing, according to Harvard's Joint Center for Housing Studies.

"Strong household growth, combined with record incomes and wealth, will lift housing investments to new highs next decade," Eric Belsky, executive director of the center, said in the news release.

Two quotes from an article published on the RealEstateJournal.com http://www.realestatejournal.com/buysell/markettrends/20060615-hoak.html

I love the nay sayers who have posted comments on other real estate investor's blogs. You can hear the jealousy in their comments. They are mad at the world or disgruntled because life just isn't fair. I ask why would someone find it compelling to post a negative comment to someone's blog slamming their success? These are probably the same people who expect the government to take care of them.

The way I see it is if you are investing in real estate for the long term you will do just fine. Any person who bought a property just in the hopes that it is going up 20% next year and thought they were going to sell it aren't investors. I call those people speculators. I know investors who have been buying and selling houses since the seventies. They survived unheard of interest rates, gas shortage, and three economy collapses. Today they are very wealthy and doing just fine. Why? Well I guess all you nay sayers will just have to sit back and watch to find out as I continue to buy houses below market value, fix them up, and hang on to them for LONG TERM appreciation. Oh, and I only assume an average appreciation of 5% per year in my models.

Friday, June 09, 2006

YUP! HUD Foreclosure

Well, it seems as though I was correct. My agent has confirmed that the house had been foreclosed on in April. It is a HUD foreclosure, which explains why it hasn't been locked up yet. It usually takes them about two months before someone makes it out to winterize the house. I'm not sure what they are going to list it for, but I can tell you that it will be too expensive for me.

Since my agent feels real real bad and very embarrassed, she is giving me first peak at the next few deals to make up for her mistake. I am going to look at a house that she is going to list this weekend. It is supposed to be foreclosed on in August. I have until Saturday afternoon before it hits the MLS.

Note to self: Check the tax record before I look at the house. LOL

Monday, June 05, 2006

House #3 - REO?

On Friday I was digging in a little more on house #3. I had pulled the tax records to see how much the owner had paid for the property. According to the tax records the bank actually owns the property. To my surprise I discovered that the bank had already foreclosed on the property. Immediately I called my agent to see if this was true. She said she had no idea. She said that the seller lives in New York and she had instructed the seller to make sure that she had changed the mailing address, so maybe the seller isn't even aware that the property has been foreclosed on.

Unfortunately, the foreclosure auction in Georgia is this Tuesday, so my agent usually goes underground the weekend before the auction trying to get last minute deals done with the banks. (If you remember, my Duluth deal went through the weekend before the auction.) Therefore, she would not be able to focus on my deal until Tuesday.

That's not a problem because her and I were under the understanding that this deal was not due to be foreclosed on for at least another month or so. If it has already been foreclosed, then we will make an offer to the bank (which we sort of already did, but the contract is between the seller and I not the bank). Interestingly enough, I did ride by the property on Sunday and my agent's sign is still in the front yard. So, if it did foreclose in April (like the tax record says) and they listed it with an agent, I wonder why they have not secured the property yet? They also have yet to put their sign in the front yard. Something does not make sense here. The good news is that the owner paid $88K back in 2000 for the property. With strong comps selling in the $110's and an average 5% appreciation a year added to the purchase price of $88k I feel real good about my ARV.

If I were a betting man, (and I am) I would say this house is LONG GONE!!!!

Ohhhhhhhhh....on second thought, what if this is one of those scams. Where a person has found a house to be foreclosed, is pretending to be the owner, and is hoping some newbie investor who does not do their due diligence, shows up with cash and buys the property.

Scenario:

Seller: My house is in foreclosure please help me!!!!!

Investor: Ok I'll help. Let's do a subject - to deal. How much cash do you need?

Seller: I need $5,000.

Investor: Ok I'm too cheap to hire an attorney to do a title search and handle the closing for me. Just sign this quit claim deed to me and I will give you $5,000 and start making your payments.

Seller: Ok thanks for the $5,000

Investor: Sure!

Hmmmmmmmmmm

Thursday, June 01, 2006

House #3 Under Contract

It has been awhile since my last post. I have taken some time off since the birth of my son. I'm glad to report he and mom are doing just fine.

Now on to real estate.

The house that I looked at in the neighborhood near my in-laws (Hampton), is now under contract. Like the Duluth house it is a short-sale. The lady who owns it has already moved out and it will eventually head into foreclosure. Although it is not that far along yet. I am not sure how far behind she is, but my miracle agent says she thinks the bank (Countrywide) will accept our offer of $70,000. It is a four side brick three-bedroom two-bath house with a covered carport built in 1965. It needs landscaping, soffit repair, new roof and a leak needs to be fixed in the master bath. It has hardwood floors underneath carpet, so we will just pull the carpet out and refinish the wood floors. The kitchen cabinets can be resurfaced and we will replace the countertops. Short-sales move pretty slow, so I don't expect closing on this deal until sometime in July.

I have yet to come to a final decision on the exit strategy. I expect the ARV of the house to be somewhere around $100,000. Everyone knows I am a big buy and hold guy, but I think I may just want to sell this one or do a lease purchase. My big reason for not wanting to hold on to the property longterm is because I don't think this sub-market will be moving in the right direction in the next two to three years. Therefore, it will become more management intensive as the quality of tenant goes down and my appreciation will slow, too. However, I am a big buy and hold guy. LOL.