With significant job and population growth over the last several years, the real estate market in Atlanta, Georgia is not one to be ignored. We shine the Market Spotlight on this city in this episode as host Marco Santarelli brings in the ever-trusted local property partner, Jim, back to the show. Together, they discuss the reasons why Atlanta is a great market to invest in, providing statistical data to match. Ranked in the top 25% of all the US markets, Marco and Jim talk about its growth in terms of cashflow and opportunity. They further share some demographic information, turnover and its cost, and building new construction in its neighborhoods.
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Market Spotlight: Atlanta, Georgia
Atlanta has experienced significant job growth and population growth over the last several years, which is a good sign of the housing market there. Although prices have increased considerably over those last years, Atlanta still offers affordable investment properties in various parts of the area, all over the metro area. These properties rent for under 1% of the purchased price along with that strong appreciation potential. That still makes Atlanta a great market to invest in. The problem is that we’ve had a challenge getting inventory there over the last few years, even though we’ve been in the Atlanta market for over a decade. It’s a perennial market for us. We love the market and there’s strong growth. Fortunately, we have some new inventory and coming up in the near future. With me again is Jim, one of our trusted local property partners. Jim, welcome back to the show.
Thanks, Marco. It is good to be here.
It’s great having you back on. We did an interview ago about one of your other markets, but we want to focus on Atlanta, it being the third-largest metro region in the Southeast. For decades, the metro area experienced this rapid population growth to match the demand for all the new jobs being created there. Many of those jobs were in high paying sectors. Give us an overview from your perspective of why you chose Atlanta. Why are you building new construction there? Tell us what your take is on it.
Jacksonville has always been my hub. I’ve been wanting to go up to Atlanta, but I didn’t want to go until the new construction model would work up there. As you said, the growth there has been incredible. In fact, Atlanta is the fifth fastest-growing metro in the country. There are lots of reasons behind that between tech, being Georgia as a business-friendly and landlord-friendly state. Also, the Hollywood stuff has been quite surprising there. It’s almost like a second Hollywood in Atlanta. The things like that and other things we’ll talk about have kept it an affordable city but also with job growth, the affordability index is healthy. We’re seeing great growth. We’ve been wanting to get in there and finally, we’ve found the right deals to make it happen.
Were you always focused on Atlanta? Were you looking at other markets, valuing other markets, then you chose Atlanta because it was strongest and highest on your list?
I’ve looked at lots of markets, Jacksonville being the hub. We’ve branched out from there to Ocala and to the south of Jacksonville. We wanted to go someplace with strong fundamentals. I found even stronger than Tampa was Atlanta. Also, I am getting requests from investors saying, “Are you going to go to Atlanta? Can you go to Atlanta? Will you go to Atlanta?” We try to listen to what people are asking for. The fundamentals were there, but the hard thing was finding the right land. The rehab market there is very competitive and getting bid up. We knew that our new construction model would help. Atlanta was a big-time goal of ours and the first deal that we came across was this townhouse complex. It has been one that took quite a number of months to put together but now, it’s rolling and doing quite well.
The Atlanta Metro has close to six million people. It’s large. It has a pretty robust median household income around $60,000 with a low unemployment rate, relatively speaking. It’s about 3.9%. It is a very good market to be in right now. We ranked over 400 markets on a scale internally here, which you probably know. It’s ranked in the top 25% of all the US markets that we favor in terms of growth, cashflow and opportunity. Most markets around the country have slowed down in terms of appreciation but still on an inflation-adjusted basis. We’re still seeing Atlanta growing at a very healthy rate, which is good. We don’t want it to be too hot. We want a solid trend and we want it to keep up with what’s going on. Is there anything you want to add to that or any comment about what you’re seeing in the market in terms of growth?
Atlanta is a big market. It’s where I had gotten my start, in that large square mileage city, Jacksonville. Atlanta, where my management group has been up there for years, we got to pinpoint where the areas are that we saw the most growth. Atlanta overall has been growing, but we also wanted to pinpoint within it where that was. We found Southwest Atlanta to be our area of focus: Union City, Fairburn, and Chattahoochee Hills. These are areas that aren’t far from downtown, close to the airport, near where the rail lines are going out to and near where Serenbe is. If you’ve looked this up, the Serenbe Farms and village is a self-sustaining community to some of the highest-end real estate in Atlanta. A lot of second homes for the stars and for business people are living out there. We’re not building too far from there. We found in the path of growth where we’re trying to buy A properties and being A. That’s our new construction model. Southwest Atlanta seemed to have the best area of focus. That’s where the growth is going. Union City, Fairburn and Chattahoochee Hills, those were areas that made sense to us. We’ve tried to not only be in Atlanta, but be in that specific area.
Let’s talk about those neighborhoods, these areas that you’ve picked. Describe the neighborhoods, what they’re like. Maybe you can sprinkle in some demographic information if you have it so we can paint a colorful picture for the people reading this about where these properties are located.
You’re only about fifteen minutes from the airport. You’re outside the hubbub of downtown, which can be a little crazy. You’ve got to be careful getting inside the belt of I-285. You’re still going to run into rough pockets but there is a good area inside the beltway that will eventually do, but we want to stay outside the loop. A lot of where we are, you can be downtown in 30 minutes. We’re getting a big pool of people from all different job sources. For our price points, it is $167,000 to $177,000. Atlanta is a townhouse market because of the sprawl with an affordability index of $60,000 average salary. It makes our units very affordable. Also, in areas where there are these self-sustaining communities going, these little villages and more of the hip areas, which we wanted to be close on the fringe with, but also close to commercial.
The price range is $167,000 to $177,000?
Yes, depending if it’s a three-bedroom or four-bedroom. Our average square footage is 1,547 square feet to 1,647 square feet.
Are these three-bedroom, 1.5 or 2 baths?
These are three-bedroom, two-bath and four-bedroom, two-bath townhouses.
On that same price scale or range, what are the relative rents for those properties?
They’re renting for $1,300 to $1,500. That’s our estimate. We usually have had a good reputation of underestimating our rents and getting a little bit more. That’s the conservative range that we’re promoting.
It’s important for the people to understand that this is new construction. It’s all brand new. The appliances and the mechanicals are under warranty. There’s definitely no capital expenditures and there are very low maintenance and repair. Fortunately, none, unless you have a rogue tenant in a year or two that creates a little extra wear and tear or damage. There should be a very low turn rate. Talk about the turnover that you’re seeing and the cost of curing any kind of turn.
We did this with our manager and our building partner. The new construction I knew, because I own both types of properties and I’ve been doing rehabs for years, they’re great properties, but maintenance and repairs cannot be matched with the new construction property. I’ve learned that first hand. After taking hundreds of properties into account and going over maintenance, repairs and turn if a tenant moves out or what it turns over, the combination over the hundreds of these per unit was $365. For flat out maintenance repairs for the year was less than $200. That is an incredible number. The insurance companies reward you if you’re building it right in doing new construction because their risk factor is less.
With having that lower maintenance and repairs, having that lower insurance costs has been really good. We were hoping to continue that trend. Also, we have a 2-10 warranty in place that comes with the sale of the property. That’s two years on the small stuff and ten years on the big stuff. You’re protected. Since my property manager has the ownership and my building partner as well, you don’t have to search around to find the contractor if something went wrong. It’s on file in the office and taken care of, no questions asked right away.
This is a sister company that handles all the property management. You have full service from qualifying and screening tenants, placing the tenants, turning things around, handling collections, evictions, if necessary, minor and major repairs. You pretty much covered soup to nuts.
That’s always been the way we do it. I don’t have any ownership in the management company, but we’ve worked with them for years and they handle my personal portfolio as well.
I like what you described before, you’re building A-properties in B-neighborhoods. Can you color that up a little bit more and take a deeper dive into that for people to have an understanding of what an A property is? Usually, new construction is going to be an A-class type property. Is it a well-appointed property? How would you describe a B-class neighborhood there?
B-class neighborhood as I’ve always been described for many years is where I’ll have no problem getting out and walking up, knocking on the door, asking for my rent and having a conversation with the neighbors. There’s also going to be homeowners and renters in there. The townhouse complex that we bought is going to be a little over a hundred units. There were already 32 existing and these are occupied by owners. That was great for the owner-occupied ratio. That’s a big sign for me for B-neighborhood. What’s the crime rate factor? What is the owner-occupied ratio? Where is it close to? What are the amenities within a two-mile radius? These are the things that I asked for. What I’ve found is new construction, we’ve been doing it a good amount of years now. I like to keep that in an A-property B-neighbor.
I’ve seen a lot of people starting to build A-properties in D-neighborhoods. It doesn’t translate well, not that you can’t make money there, but you know new construction is going to cost you more. If people are willing to go to rough neighborhoods like a D-neighborhood, they’re going to be buying them super cheap and taking that intensive management on to do that. That’s not my model, but I know some people do that. We’ve been strict about that. We have two full-time land guys in each of our markets. The land you can get, you have to get it in the right area and the right price. We try to focus on that. We’re going to make sure we’re getting in that B-neighborhood. Otherwise, we throw it out. That’s why Atlanta is so big, but we got down to that one Southwest market. There are plenty of B areas here. It’s not easy to get lands, but it’s doable and that keeps us very focused on that A-property and B-neighborhood combination.
I love that combination because when you’re in a B-class neighborhood, which is your blue-collar, mostly some A-collar type of employment, easy to rent, large tenant pool. When you’re in that type of area or neighborhood and you’ve got A-class property like newly renovated or new construction, it stands out. It shows well. It attracts a greater pool of people quickly. It leases up quickly. You get the highest rent. You’re on the top of the range in that area in terms of rental demand and what you can collect. It’s a great combination.
It’s been good for us. It’s been good for our clients. The cash-on-cash return might be a point or two lower but our focus always has been cashflow and growth. I started in California many years ago. I did very well in Central California. I came here several years ago and I went to Northeast Florida because it was a growth market with cashflow and an affordable city like Jacksonville. With Atlanta, we see that same thing. There’s cashflow to be had but also growth. We don’t have to depend on it, but it’s nice to get in its way because growth is a good thing when you’re in a good position, especially if you’re looking long-term 5, 10, 15 years with a rental, like I am. That way, you have new construction to help you with that because it’s that combination of the cashflow and not crazy growth, but a nice statistical growth. That makes sense because of the jobs, the population influx, the lifestyle and warmer weather. That’s where we position ourselves.
Anything else you want to tell us about the properties that you’re building? Anything you want to add to the description? They can certainly contact their investment counselor here and get more information and we can answer all their questions that are not being answered on this spotlight. Is there anything else you want to tell us about them?
This project was an exciting one. Believe it or not, this was a classic, which I didn’t think there are any left. A developer went broke in 2008. When he had built 32 units, they were nicely done. The land was all sitting. It was bought from the bank by a bank speculator. We bought them all out for half by doing the development since some of that was already developed. What we are excited about was it is off markets. We’re finding that the off-market deals have the best bones to them. This one was lost in the shuffle. This started over the last several months. We’ve had three of the largest builders in the area come to us to try to buy us out of the project. We politely said no. They can see that it can be built quickly. Everything’s already developed. There’s already proof of concept there. We’re going to have a total of 92 developed lots ready to go. Townhouses are a popular thing in Atlanta. It’s a townhouse moment. That keeps things affordable. That gives them that house living there in a hip area near Union City and it’s going to be easy to manage. Our management group has already been in Southwest Atlanta. We were excited to get this. Probably, Marco, one of the most exciting things that the big builders are trying to buy us out. We know we did something right.
That’s a great opportunity for you and a great opportunity for the investors coming in and being a part of this project. It’s exciting. I guess the bottom line is that Atlanta has been a very strong, well-diversified market. It’s continuing to grow at about 2% per year in terms of job growth. The last few years have shown an average of 11% in terms of population growth over those years. I always look at trends and that trend seems to be continuing. People are moving in and the market is growing. That puts upward pressure on demand for housing units, both rentals and sales. That’s a good thing for you and me as investors to be there.
The population influx is important right now. I thought, “Where are the Baby Boomers going?” The influx to the Southeast is tremendous and it brings wealth. It brings the needs of jobs. It brings the needs for more property. That’s our, “Where are the Baby Boomers going and what jobs will be created?” I’m not saying Baby Boomers live in our properties necessarily, sometimes they do, but the people that live in our properties are doing jobs that serve the Baby Boomers, if that makes sense.
We have a lot of tailwind and no headwind in this market and that’s a great opportunity. Anything else you want to add?
We’re excited to be branching out into our fundamentals of A-properties in B-neighborhoods and an area that’s poised for growth. That’s always been our model and we are working together. We’re excited to be back in the Atlanta market because I know there’s been pressure from a lot of people out there saying, “Can you get to Atlanta?” We wanted to do it and I think we have.
Jim, as always, I appreciate you being on the show and sharing your wisdom and your opportunities. We’ll continue to put those in front of our network and share that opportunity with them. If you have any questions, contact us here. Talk to your investment counselor. We’ll provide you more information and more details about the opportunities that we have available through Jim, who’s been fantastic. Jim and his team have been fantastic to work with for years. Contact your investment counselor. If you don’t have one, reach out to them. We’ll set up a free strategy session for you and get you moving. If you haven’t subscribed to the show, remember to do so, click the button. We want to make sure that you get every weekly episode. Help us spread the word, visit us on iTunes. Leave us a rating and review. We appreciate that and I do read every single review. Thank you for all the great feedback. Once again, thank you and we will see you all on our next episode.
– – – – – – – – – – – – – –
Download your FREE copy of: The Ultimate Guide to Passive Real Estate Investing.
Identify great tenants using SmartMove. Visit www.TenantScreening.com and Save 25% using podcast code NORADA25.
Try LandGlide FREE for a week by visiting www.LandGlide.com/PassiveInvesting
Get your FREE coffee mug by leaving us a Rating and Review on iTunes. Here’s how.
See our available Turnkey Cash-Flow Rental Properties.
Please give us a RATING & REVIEW (Thank you!)