Market Spotlight: Stability in Atlanta, GA | PREI 017
Atlanta is a large city located in the state of Georgia. Atlanta is a decidedly white-collar city, with fully 89% of the workforce employed in white-collar jobs, well above the national average. In addition, Atlanta is a major college town. As is often the case in college towns, the many students that live in Atlanta have a strong influence on the local culture and music scene.
The citizens of Atlanta are among the most well-educated in the nation: 46.8% of adults in Atlanta have a bachelor’s degree or even advanced degree, whereas the average US city has 21.8% holding at least a bachelor’s degree. The per capita income in Atlanta in 2010 was $35,890, which is wealthy relative to Georgia and the nation.
In this episode we explore the greater Atlanta market and the reason why it might make sense for you to invest there. We talk to one of our local market specialists, host of The Deal Farm podcast and long-time team member to learn more about the benefits that Atlanta has to offer.
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Market Spotlight: Stability in Atlanta, GA
Today’s show is about Atlanta and the stability and investment opportunities located in that market. Atlanta is a business-friendly city. It is a large transportation hub. We’ve been in the Atlanta market for about eight years. For us, it’s a perennial market. A lot of major companies and corporations have their headquarters there, from Coca-Cola to Home Depot. It is a very broad and diverse economy. It’s not made up of just one sector. It’s very white-collar. There is a large workforce employed in the white-collared job community.
Although Atlanta itself is about 450,000 people, the entire metropolitan area is closer to 6.5 million people. There are many cities all clustered together making it one of the largest cities in the US. Therefore, there are a lot of opportunities because all real estate is local and you can get down to the neighborhood level if you have to in order to find the right deals in the right markets.
I’d like to welcome Ken to the show. Ken is our local market specialist based in Atlanta, Georgia. He is a full time real estate investor. He’s host of The Deal Farm podcast. Ken has a business degree from University of Georgia, a master’s degree from Georgia Tech. He has bought and sold over 600 properties in the Metro Atlanta area over the last several years.
He’s a national speaker and author and he has written multiple articles educating investors on all aspects of real estate investing. He’s married with three kids and currently lives in Woodstock, Georgia. Ken has a vast understanding of how and where to invest profitably in the Atlanta metro area, which is the reason why I wanted him on the show today to talk about Atlanta. Welcome to the show, Ken.
Hey, Marco. How are you doing? Thanks for having me.
It’s great to have you here. I’ve known you for many, many years. Our listeners know we’ve actually worked together for many years. We’ve actually carried and sold a lot of your product to investors around the world. It’s great to have you on our new podcast.
Again, thanks for having me.
Let’s start off by talking a little bit about you. Give us a quick idea of your background, if you don’t mind.
As you mentioned, I graduated from the University of Georgia in 1999. I came out and worked for a large insurance brokerage for five years. Actually, it was a great first job out of school. I loved what I did but just knew I wanted to get into real estate.
In 2005, I quit my day job and jumped into real estate here in Atlanta full time. Here over the last ten years now, have built up what we call a turnkey investment model where we buy distressed properties, we fix them up, we put tenants in place and then we sell them to investors all over the world as cash flowing assets that have been stabilized and are producing cash flow.
That’s exactly why we work with you. The Atlanta market is massive. I’ve read several different statistics on this, between five and six million people. It’s very, very large. Atlanta is known for its food. It’s a major college town. It’s very white-collar in terms of the employment market. It’s one of the largest MSAs or Metropolitan Statistical Areas in the country.
Tell us why Atlanta is a great place to invest. Why invest in Atlanta? Because listeners want to know where to put their money and they always ask us, “Where should I invest?” Why Atlanta?
My family moved to Atlanta in the mid-80s. The plan at the time was we were going to move here, live here a couple of years. My dad worked for IBM at the time. He was going to do an assignment and then we were going to move back to California, which is where we were originally from. We moved out here and literally just fell in love with Georgia, fell in love with Atlanta, fell in love with the South. We have been here ever since. 30 years later, we’re still here. My entire family is still here.
There’s just so many reasons to live in Atlanta and then also to invest in Atlanta. At a high level, you’ve got just tremendous growth. If I look back to how Atlanta looked in the mid-80s, it’s drastically different than what it looks like today because there’s been so much growth in terms of population and business. Even just in the 2000s, from 2000 and 2010, Atlanta was actually the second fastest growing MSA, which stands for Metropolitan Statistical Area, like metro region; second fastest metro regional growth in all of the US. You can see it. Everywhere you go, there’s growth in Atlanta.
In terms of the business climate, it’s incredibly friendly to businesses, which in turn creates jobs. Those jobs obviously also lead to population growth. On top of that, its housing. It’s so affordable here compared to other places. It’s interesting. We end up doing a lot of tours with investors from out of state that want to come look at our properties. It’s hilarious. Their mouths just drop open when they see the houses and the neighborhoods that we’re selling and for what price, especially when you compare those houses to maybe what they could get in their own market. It’s just so affordable.
Right now we’re seeing a ton of appreciation. There’s still a lot of value that we’re recapturing just from the downturn of the late 2000s. There’s still opportunity for appreciation. I just read, in just the last twelve months, just the last year, we’re up another 5%. Buying in real estate now that’s still underpriced, you still have a lot of upside potential.
Atlanta’s a top business city. It’s also a primary transportation hub. It’s just like Memphis. It’s a major transportation hub.
Atlanta’s got the world’s busiest airport. A lot of people haven’t necessarily been to Atlanta, but they’ve been through Atlanta. They’ve been to the airport but maybe haven’t been anywhere else. It’s literally the world’s busiest airport.
On top of that, just where Atlanta happens to be located, with all the major freeway systems coming through the town, I think we can get to 80% of the country through the highway system in less than two days. You’ve got Savannah, which is a major international port just a couple of hours away. You’ve got companies like UPS whose headquarters are here in Atlanta, because it’s just a major transportation hub. That comprises a good portion of our economy.
You’ve got so many companies that have world headquarters there. Coca-Cola is probably the most famous. Home Depot, UPS, Delta, and I’m sure there’s a long list of others.
Actually, fourteen is the most recent number. Fourteen Fortune 500 companies make their headquarters here in Atlanta.
Their comment about the housing there, it’s amazing what you could pick up for $150,000. It’s a very large 2,000 to 2,500 square foot two-storey house. It’s just amazing what you could buy.
The median house price in all of Metro Atlanta is just a little bit above that, maybe $160,000 to $170,000 somewhere in there. There’s a lot of opportunity obviously, below that for investors to still get 2,000 square foot houses for $100,000 with $1,000 a month in rent, something like that. It’s still very doable.
You mentioned jobs before. That’s one of the key things we look for in a market. The other is migration rates. From an economic perspective, Atlanta has very good job growth. It fluctuates around 4%, at least that was the 2014 figures, 4% per year. The cost of living is in line with the national average, it’s slightly below. Forbes again, ranks at number five as the best places for business and careers in the country. Where it was last year, the 47th in job growth. Again, that’s a very good positive sign. We’d like to the see that.
Here’s a key thing. You have positive net migration, so not only do you have organic growth of the population, which drives demand for housing, but you also have people moving into the city, usually because of jobs. That further drives the housing market for both sales and rentals. How do you feel about the economy in Atlanta? What are you seeing going on there?
When you talk about job growth, one of the interesting things to consider too about the Atlanta economy is that it’s diverse. There are a lot of markets that can hang their hat on one specific industry or a few specific industries. When you look at a pie chart of Atlanta and the different industries that comprise Atlanta, there’s really not one industry that supersedes the other ones, which is good for stability. You’ve got transportation. You’ve got education. You’ve got medical. The medical industry is big here, even tourism.
The interesting thing about our economy is that it’s actually a really diverse economy. If you look at Atlanta in all the different industries like on a pie chart, there’s not one slice of the pie that’s really much larger than the other ones. You’ve got transportation obviously, is a big one. You’ve got medical. You’ve got education. You’ve got business services.
Interestingly, most people don’t realize this, but the movie industry has become extremely large here in Atlanta. A lot of movie studios are opening up south of town. There are a lot of movies that are being shot here, TV shows that are being shot. A big part of that is attributed to our regional government that’s created all sorts of tax incentives and business incentives that are bringing these studios out here. Even Tyler Perry is taking an old army base and turning it into a movie studio. It’s an interesting piece of business that we’re able to get. Obviously, people in the South love seeing movie stars walking around town.
Like you said, all this new business is creating not just growth in terms of industry but growth in terms of population. It’s bringing in people, a net migration, into Atlanta. In fact, just in terms of population, the prediction is right now, we’re almost at six million. They’re predicting, I just read this today, by 2030 we should be at seven million and by 2040 we’re looking at eight million people in Metro Atlanta.
That’s great news for real estate investors because you want to be in the path of progress. If you’re there with housing, the worst case scenario is you’re going to have tenants all the time. Best case scenario is you’re going to have tenants all the time with appreciation because that’s driving up the price of the property as the demand increases unless you can keep up with it through supply. Economically speaking, it’s probably one of the greatest cities in the US that has expansion, jobs, sustainable drivers. That’s a good thing to look for in a market that you want to choose to invest in.
From a housing perspective, Atlanta has gone crazy the last few years. We’ve seen the average price of what we sell in the Atlanta market go up considerably. What I’ve seen over the last 20, 30 years is the average appreciation rate in Atlanta has hovered around 2% to 3%. But in the last two to three years, I’ve seen it go up to about 9% to 10%. That’s an incredible jump. What do you think is driving that?
All the things we just mentioned. Historically, if you look at Atlanta, we never really had a bubble. We weren’t like a Phoenix market or a California or Florida that had just a crazy run up and then a crazy crash. We’ve always had steady appreciation in line with our business and population growth. The prediction is that it’ll steady out and we’ll continue to see that same trend of probably 5% to 10% appreciation year over year.
Most people would say that the real estate market probably dropped farther than anybody would have expected because again we didn’t have that big run up. For a number of years, it was just 2009, 2010, 2011, real estate was just way undervalued. There were some really good buys. As the economy came back around and people started moving back to Atlanta and jobs were being formed, there was a pretty quick recovery back to our pre-recession pricing. That’s where you saw that quick spike. Now we’re starting to steady back into what we’ve seen for the last 15, 20 years, which is just going to be steady growth, steady job growth, steady housing appreciation.
That’s a principle called Regression to the Mean where you have property values that go above the mean and then below the mean but eventually, they come back and average out to whatever that long-term trend is. I think from what you’re saying that you’re still below what that mean trend line would be.
We haven’t quite recovered all the way to where prices should be. We’re almost there. Like you said, you’re going to see that trend line probably fit in with where we’ve been for the last 15, 20 years, just probably right around 5% to 10%.
Let’s talk about rental market. Can you comment on what you’re seeing in terms of the rental market, its strength? Rental prices, are they flat? Are they going up?
I don’t have a figure in front of me but last time I looked, a couple of months ago, the trend has been, rents are up; that’s probably a number of different reasons. There’s no doubt that it’s a strong rental market. We’ve never not rented a house. We’ve done hundreds and hundreds of houses and we’ve never had a house that didn’t rent. Every house rents. Most of them rent within the first two to three weeks. It’s a very strong rental market. Of course we know the areas to buy and that have the best rents, especially in terms of price-to-rent ratios.
Even nationally, if you look at rents, in many areas they’re strong right now because so many people aren’t buying. They’re opting not to buy right now in an area like Atlanta where you’ve got a strong influx of people. I don’t think that our new housing is even keeping up with the demand, which is great for investors. If you can’t build enough new inventory to keep up with the people that are moving into Atlanta, they’ve got to live somewhere. A lot of our houses are getting filled just as a result of a lack of supply. In terms of answering your question, Atlanta, no doubt, is extremely strong rental market.
One of the quick metrics I look at, it’s just a litmus test, is the rent to value ratio; the gross monthly
rent divided into the acquisition or purchase price. I like to see 1% as a floor now. You can go down to about 0.8% and still have a very good property in a good area that generates good cash flow and a rate of return. I loosely say that a 1% rent to value or RV ratio is a balanced and healthy market. If I see that number go down, as I’ve seen it in some markets like in the Texas markets, that sometimes means that the appreciation is accelerating faster than the rental income.
The one thing about Atlanta that I’ve noticed is that although that RV ratio has come down a little bit, it’s still very healthy and attractive. A lot of the properties are still floating around 1%, 1.1%. Granted two, three years ago, I remember those were 1.2%, 1.3%, you’d have better cash flow, better rates of return. But it’s still a great market. The numbers still make a lot of sense and there’s a lot of opportunity there. You shop it around too. You have to look at different markets, like you can go to Stone Mountain or Decatur and find the deals that you can’t find elsewhere.
You brought up a good point, too. When you’re looking at different markets, sometimes it’s not an apples to apples comparison. You might be looking at a market with not much anticipated appreciation at 1% price to rent ratio. But when you compare that with an Atlanta with a 1% price to rent ratio, the cash flow might be the same but in Atlanta, you also have the added benefit of appreciation.
Let’s talk about some investment opportunities. You can give me a general idea or you could talk about a specific deal. What are investors looking at today? What would you say is a typical or average deal? Because I know that’s changed in the last three years.
We do B properties and A properties. In our world, a B property is a house that we’re going to sell for less than $80,000. We always have a handful of houses usually between $70,000 and $80,000. We call those our B properties. We call them B properties because they’re going to get a little bit better cash flow but probably won’t have as quite as much upside potential in terms of appreciation.
Then we have our A properties that we call anything $80,000 and above. That could be anywhere from $80,000. We even have some we sell as high as $135,000. Obviously, the closer you get to $135,000 then the nicer the neighborhood, probably the better the area, the better the school system, the more opportunity for appreciation. You might sacrifice a little bit on cash flow, not much, a little bit of cash flow but in exchange you’re probably getting a slightly higher caliber tenant and probably a little bit more opportunity for upside potential.
What is a typical investment grade property look like? Is it a single-storey, two-storey? Is it a three or four bedroom? What is the average price range for your property?
We sell a lot of properties right around $100,000 with $1,000 in rent. That’s probably an 1,800 to 2,200 square foot house. A lot of times, you’ll get a one or two car garage. It could be anywhere from a quarter acre even up to a half acre.
You get a lot of land with that price.
You do. It’s funny because it depends on the age of the home. If you buy a house that was built in the 70s or 80s, you probably get a larger lot, something built in the 90s, 2000s, probably a little bit smaller lot. They were just giving a little bit more land back in the day.
If listeners want more information on what you have available, they can contact one of our investment counselors and we can give them more information than what we actually post up on our website even though there’s quite amount of detail up on the site.
To that point, our properties are constantly turning over. You might see a property on your website today, it might be gone tomorrow but there might be three more behind it that you haven’t even posted to your site yet. It’s always worth calling in if you’re interested in Atlanta, just see what the actual available inventory is.
That’s why we work with you for so long because you always have inventory coming and going. One last question, are you seeing a change in the different tiers of property prices in the Atlanta market? I’ve noticed that the sub $80,000 market has all but dried up. There’s very little that I’m seeing today under $80,000. Is that a trend that’s continuing or are you going to see more sub $80,000 properties coming?
We still get some that come in under $80,000. Our inventory in general, our supply is so much drier than it had been. Foreclosure rates are way down, they’re actually below the national average. There’s not a lot of distressed inventory in Atlanta. A lot of the lower priced stuff was gobbled up the last couple of years from some of the big hedge funds that came in town.
That said, we still do. We do a lot of off-market marketing for properties. At any given point in time, we usually have something in our inventory that’s sub $80,000, granted it’s trickier to come by than it used to be, but they’re still available.
Ken, anything else you want to share with our listeners before we wrap it up?
I just appreciate the opportunity to talk with your listeners. I’ve enjoyed our relationship for the last five, six years. We’ve done a lot of houses together. We welcome investors. A lot of people that want to make an investment in a market outside of their own, they might be hesitant, they’re not sure. If people want to come out and fly out to Atlanta and see the houses, touch them, look at the neighborhoods and make sure they’re comfortable with them, we welcome that. We do a good job in terms of the rehab. If anything comes up in the inspections, we’re Johnny-on-the-spot to take care of them.
It’s very important to us and our team that we provide topnotch customer service. It’s an asset that will give you great cash flow for years to come because the reality is, the only reason I stay in business is referrals. It always comes back to you having a good experience and telling somebody else about your experience in Atlanta. Hopefully, you buy another house from me and maybe you tell a friend or two and they buy a house from us as well.
To that point, I actually want to just mention to our listeners that there was a recent example that even I was surprised with. We have a client that was purchasing some properties from Ken’s company. After his inspections were done, there were some surprises that came up that even you guys didn’t even know about.
What I found interesting, surprising, pleasing, and I was impressed with is that, you and your partner jumped on top of it, went back over there, took a look at what the situation was. If I recall, I think the total repairs came out to about $13,000 that you guys fronted out of your own pockets to correct and cure those problems for this particular client. That is stellar customer service. I want to thank you for that.
It’s money well-spent because to me it’s marketing dollars. If you have a good experience, you’re going to tell your friend about it and hopefully you’re going to buy another house from us.
Five star, that was just exceptional. Ken, I appreciate your time, your wisdom and your relationship with us. It’s fruitful for our clients so we’re going to keep working with you guys. I’ll put your contact information in the show notes. If our audience have any questions, they can contact us and we’ll certainly help them out.
Thanks so much for having me, Marco. I appreciate it.
Thanks, Ken. We’ll talk to you soon.
There you have it. I hope you learned a little bit about the Atlanta metro area as well as the investment opportunities and the potential that is there in that market. We’re very bullish on the Atlanta market. If you have any questions about it, give our investment counselors a call at our office and we can give you more information about the market and the opportunities there.
If you’re on our website, download our free report, The Ultimate Guide to Passive Real Estate Investing. We talk about a lot of great things in that report to help make you a better investor.
If you have any questions or topic suggestions, be sure to submit that through our website. We have a voice mail system there too. If you haven’t done so, please leave us a rating and review on iTunes, that really helps us spread the word. I hope you have a great week. Thanks for listening. We’ll see you on the next episode.