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Wednesday, June 13, 2012

Flipper: Making Money Investing in Atlanta Real Estate

"They call him Flipper, Flipper, faster than lightning,
no-one you see, is smarter than he"


Do you think it's still possible to make money flipping houses in Atlanta?  The answer is YES!  Now is a great time for investors.  In fact, investors have been fueling the Atlanta market during this recession gobbling up unprecedented deals and unprecedented low finance rates.  There are a few important things to know about investing in real estate, and I have outlined a few for you here. 

According to local investor expert,  Peter Pasternack of "Flip this House" on A&E and previously on HGTV, there are several points for an investor to consider when looking for investment properties.  Peter and his business partner Brian Trow own the successful design/renovate/build firm, Foundations LLC.

What is the investment strategy?  There are two strategies.. buy and hold or renovate and flip.  If you want to buy and hold, you would spend on average a maximum of $10,000-15,000 for cosmetic updates (paint, flooring, lighting).  The bones of the investment property must be good, footprint of the house must be good and positive cash flow must be realized upon renting.  Right now the rental market in Atlanta is HOT.  Last year, Atlanta became the number one city in the U.S. where it is more expensive to lease than to own.  The trend is expected to continue for the forseeable future.
 
For a renovate and flip strategy, Peter says that a great model to follow is to look in transitional neighborhoods where there are older homes, newer homes and renovations.  This is important to find good deals and opportunities to add value without overimproving for the neighborhood.  A good model is to find a two bedroom, one bath home - add 400 square feet to create a three bedroom, two bath home.  Open up walls to create a larger, more updated feel inside.  Fence in the backyard with a nice privacy fence (imperative for intown buyers).

As an investor, you need to know your buyer demographic and who your competition is.  What are buyers expecting in terms of finish quality, appliance package, lighting package, architectural style, etc., in the neighborhood?  A qualified Realtor who works with investors can be an important part of your team.  Also, look for the ability to add a garage.  It costs approximately $12,000-15,000 to build a one car garage and it will add $17,000-18,000 worth of value to the house.  If there is not a deck or other outdoor living space, create one.  Creating outdoor living space is not only cheap, but highly desirable in our wonderful climate.

Structural Considerations
An investor should consider the exterior integrity of a house- what is the condition of the roof, siding, windows?  Are there any foundation issues such as sagging, sinking or tilting?  Is there or has there been any water damage such as previous flooding, mold, etc.?  If there is a basement and the investor does not intend on finishing or renovating the basement to add value, but there are water intrusion issues, the investor should not buy the house.  What is the interior integrity of the house?  Check out the walls, floors, bathroom, door frames, cracks, etc..

Lead Based Paint
In April, 2010, new legislation from the EPA was inacted that requires contractors to test and remediate for lead based paint for any part of a home (built prior to 1978) that is being renovated.  Testing for lead paint might be an important part of your inspection/due diligence phase of purchasing an investment home to avoid very costly surprises!

Mechanical Systems
Look for expensive repairs from HVAC, plumbing and electrical systems in the house.  It is best to buy a sound ugly house that is "cosmetically challenged" for greatest return-lowest risk.  Eliminate all the buyer red flags that might slow or prohibit the re-sale of the house.  Make all the repairs, handle all potential buyer objections before a buyer has a chance to object.

Return on Investment
As an investor, you should have a goal in mind of what your return on your investment will be.  Most investors have a minimum dollar amount they need to capture, but they will strive for 20% profit. 

Example:  After Repair Value (ARV)                           $200,000
                  Less Expenses
                  *Holding costs/ Realtor commission             $20,000
                  Repairs                                                           $75,000
                  Cost to acquire property                                 $65,000
  
                   Total Expenses                                           ($160,000)
                   Total Profit                                                    $40,000

                  *assume 10% total of ARV

If you are an investor, want to be an investor, or know someone who wants to invest in Atlanta Real Estate, please contact me and I will be happy to help you.  There are still fantastic bargains to be had in the market, and I know of some great areas that investors should consider now.

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