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Wednesday, March 28, 2012

Flipping Houses in Atlanta - Flipping in the City (2/3)


In the first part of this series  I talked about the predictability and uniformity that you find in the suburban areas of Atlanta or outside of the Perimeter. On this post I will show you the difference when investing in properties located mostly “In Town” or inside the Perimeter and it is one interesting way of making a living…

I say this because it requires you to be in tune with what is going on. Single family homes in this area are grouped into neighborhoods instead of subdivisions like the previous category. This makes a big difference...


When dealing with neighborhoods you now have history (think Martin Luther King, etc.), culture, plenty of social interactions, accessibility options (you can walk to places) and many other issues that are unique to life within the city.


All of this and more make for a very diverse real estate market where you can have a $300k, 2,000sft. completely remodeled house sitting right next (and I mean right beside) to a $50k, 1,100sft. shack from 1962!

 

To better illustrate, these videos show you one such property. Aaron McGinnis* is an active investor and general contractor in Atlanta who has helped me rehab House #7 and House #8. He just bought this property and is getting ready to tear it down and start all over again:









As bad as this house is what you don’t see is that 2 houses down there are very nice looking recently remodeled homes in the $200-300k range. It is this contrast between houses right next to each other that baffles me about flipping in the city.


Flipping houses in Atlanta in these areas requires knowledge and perspective. You have to become very familiar with what is going on in terms of trends and market movement, what is on the market, what other flippers are doing (there is a lot of competition) and drive around a lot and see a lot of houses.


You have to do thorough “homework” before you can decide if a property is a good deal and what kind of rehabbing you are going to do. Remember, you don’t have the same cookie-cutter approach that you find in subdivisions, every house is different. The one common thing I have found is that the house are old, mostly between 1950-1970. Some as old as 1920’s with the newest ones being from 1970’s.


So what is a “typical” scenario for flipping a house in this part of Atlanta?


Although there is no such thing as typical a flip in this area can go something like this:


You buy a property anywhere between $15-100k. In the nicer areas a “rehab project” can be bought for more than a $200k+…Then depending on what you have found to be selling in the area for that same square footage, finish, bed/bath combination, etc. you are going to rehab this property in one of these ways:

 

  • Simple – you keep the same floorplan, you are just going to modernize. If you want to stay at this level you have to pick something that is mostly up to code, that is not functionally outdated, meaning that it works for the way we live now. Then you procced to update it by putting in new appliances, fresh paint, repair what is not working, possibly refinish the floors since most of these houses have hardwoods, etc. so that your rehab budget is about $20-40k. 
  • Medium – You take that same house but short of adding new square footage you tear almost everything out down to the studs. This of course is if it’s still there…you can find many houses with not years but decades of disrepair, that have been abandoned, where the AC, if there is one, has “walked” away, etc. Or maybe mold moved in and took over so you still have to strip everything down.

    Virtually all of the older houses will require new electrical and/or plumbing to bring up to code, or have rotted or weakened subfloors and/or foundations that need to be rebuilt. In many ways it is easier to take all the old stuff out and start all over again. Also, stripping down gives you an opportunity to rearrange the floor plan to a more open and modern layout or gives you the chance to add another bathroom, an extra closet, a kitchen island, etc.
    The neat thing about this is that it now opens up numerous possibilities and gives you and your team the opportunity to get creative. Most investors in this range can spend anywhere from $30 to $100k+ in a total rehab package. In the end they have a house where almost everything, except for the framing, is new and has very modern and stylish finish while still leaving the same square footage as the original.

    It appears to me that there is good demand for this type of totally renovated property in the city. Especially from younger buyers that want the social opportunities of living in the city but don’t want to buy a project and don’t need a lot of square footage. A house rehabbed like this can sell anywhere from $80k to $200k+ depending on the neighborhood. 


  • All Out – you take an old, decrepit and functionally outdated house and either add significant square footage to it or just plain tear it down and start all over again.

    This is where you take a 1,100sft. 2/1 and turn it into a 2,000+sft 4/2 either by adding a second story, and addition of the back or building a brand new house. This is not a rehab anymore you are now in a construction project and the difference between you and a home builder is quantity…


    Needless to say this is not for beginners and you must be good at estimating both construction costs and the market value of whatever it is that you are going to be building in order to figure out if the opportunity is worth it.


    In this scenario you might buy something for $50k, spend $180k in construction and then sell it for $300k or more. If you do this same thing in the more upper scale neighborhoods like Inman Park, Buckhead, Druid Hills, etc. then resale value can be $500 to $700k or more. Of course you would have to build with luxury finishes and ultra modern conveniences. Everything from granite everywhere, crown moulding everywhere, high end appliances, ¾” hardwood floors in entire house, large spacious bathrooms with both showers and hot tubs, large walk in closets, finished basements and more. But if you can do this then six figure profits are possible!


In the 3rd and hopefully final part of this I will walk you through one such rehab. It is mostly an all out rehab where the investor took an old and functionally outdated house and short of tearing it down did everything else to it. 

You'll like this one...Go to Part 3

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2 comments:

  1. That is quite a disaster! Why is there so much trash and the house is so torn up? Was there some kind of accident or vandalism?

    ReplyDelete
    Replies
    1. Kate, good question and I forgot to go into that. The trash was left over from the last owner but it also happened that the morning I was there with Aaron and took this video apparently someone had been making this house their "overnight hotel"...

      We assumed some homeless person had been sleeping here for a while and a lot of their trash was around the house.

      As far as the rest of the house goes I am not sure what happened but the floor in the bath had just rotted and caved into the crawlspace. Obviously there was years of neglect on this house and it would have been too much trouble to try and repair it all which is why Aaron decided to just tear it down.

      I'll let him chime in with more details...

      Delete

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