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Friday, March 23, 2012

Flipping Houses in Atlanta (1/3)

Atlanta Real Estate Investing

Flipping houses in Atlanta can be a very diverse business, just like the city itself. In the years that I have been investing in real estate and flipping houses myself I have gotten to know and see the work of different "flippers". This has given me the opportunity to learn about the different markets within this city.

The cool thing about this is that I have learned that in this city you can make money in real estate in 100 different ways...

Atlanta is a city of 5 million and although Atlanta, the City, is a definite area inside of what we locals call "The Perimeter" (the area inside I-285 loop), the Atlanta metro area consists of 13 counties! Bottom line is, it's a huge city which is why there are so many micro-markets within it.

Therefore flipping houses in Atlanta can vary widely. For starters there is the type of homes I purchase and renovate, all of which you can see in the Flip That House page,  you can see a distinctive pattern there. They are all in subdivisions, they are all in the north and northwest sections of Atlanta, they are in the $55-130,000 price range (except for House #8) and they are all three or four bedrooms with two baths.

So…if you are considering flipping houses in Atlanta it is good for you to know there are basically two types of markets, the suburban market mostly located outside of the perimeter and the market within the perimeter that consists mostly of older homes in established neighborhoods within the city of Atlanta and Decatur.  

The Suburban House Flipper

As you can guess this is where I fall. Since this is generally located outside the perimeter, by looking at the map above you can see that it’s a gigantic area!. 

Buyers typically work inside the perimeter but wish to live outside. This can be due to the fact that you get a lot more home for your money outside rather than inside and more land too. There is also the consideration of finding better schools and possibly lower crime although in some locations that might be more perception than fact.

There is too much area to cover here to condense into one brief generalization but you can expect to find higher prices in the north and northwest areas outside of the perimeter, moderate prices in the northeast and west and the lower prices in the east and south. Although you can find a $700k+ home in all of them they are more prevalent in the north/northwest.

The one thing all these areas have in common is they are all suburbia land…subdivision after subdivision of unending development connected by Atlanta’s immense highway system. Where people are not afraid to have to drive 30, 40, 60+ minutes one way each day to go to work…crazy I know.

A typical flip scenario in these areas can go like this:

  • Low – Buy a 3/2 (3 beds, 2 baths) for $20-40k. Since this is all developer land most of the houses are built after 1975 so you will rarely find a 2/2 or 2/1. Rehab can be anything from paint and carpet to a full rehab that includes roof, all flooring, full kitchen and baths etc. But due to the price level and size of the house a minimal rehab would be $5k and a full one can be $20k.
    This house would then go on the market for $60-100k and your target buyer would be a first time home buyer with an FHA loan. Possibly a couple where both of them work hourly jobs. This makes loan approval the critical factor in being able to sell it. You would have to be very picky to make sure they have the income, not too much debt and are working with mortgage person that knows what they are doing so as not to waste your time by accepting an offer from someone that will never get approved for a loan.
    You can potentially expect to profit anywhere from $10-30k in these lower priced deals. The obvious advantage of this price range is that the cash outlay on your part is the lowest.
  •  Mid – This is now a 3/2 or 4/2, possibly with a basement that you can buy for $75-200k. Again, you can find houses that only need paint and carpet or, like House #8, because they have so much deferred maintenance and they are larger in size and higher end price point, rehab can be $20-$50k or more. You can see an actual scope of work here and here and a budget here.
    I have found that the big difference here is that your buyer has an easier time getting approved for a loan. They are probably professional(s), college graduates and this could be their starter home or their next one. Profit potential of $20k all the way up to $100k if you hit a home run.
  • High – In this range you are buying something for anywhere between $300-800k and reselling for $400k to $1M+. As you can imagine a rehab here can be $60k to much, much more. But the profit potential is very high. Although I have not played at this level (yet) I have followed deals like this and have seen profits of $100k at the low end to $300k+ on the million dollar houses.
    The numbers here are a result of location...meaning that you find a distressed house in a very good location surrounded by higher end homes. Because the area is still valuable you can bring the house up to par with the surrounding homes and then ask market price for it. One of the great advantages of this price range is that you are going to be surrounded by few other distressed properties therefore making it easier for the house to appraise at the higher price once it’s rehabbed.

For all the scenarios above the one thing in common is that you are going to rehab the house to the same level and finish as the ones around it. This is important!

This means that if the houses in the neighborhood have been updated with vinyl dual pane windows and have had their roofs replaced then you would probably have to do this to your house if it still has original construction single pane vinyl windows and the original roof…even if they are in good condition still!

If they have finished basements and yours does not, guess what you are going to be doing to your basement?...

If the surrounding houses have hardwood floors, modern 12x12 tile in the baths and granite countertops and yours has shaggy green carpet, 3x3 pink tile and Formica counters…get my point?

This is why I like this type of flipping, because there are a lot of similar properties to mine that guide me as to how I should rehab mine. This point is a big contrast to the other category of flipping houses in Atlanta which are the properties located in “the city” or inside the perimeter. I’ll discuss that in the next post…

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