Investing in Single Family Houses

Last week, my fiancee and I started driving around parts of west Atlanta looking at apartment buildings and apartment complexes that are currently on the market. While I enjoy checking out potential properties, my fiancee loves it! After years of watching HGTV, she is obsessed with the idea of rehabbing and flipping houses. When we first discussed moving here to Atlanta, we actually talked about doing some house flips along with the apartment investing, but when the market started to turn, it became apparent that flipping houses wasn’t a good way to try to make money in real estate anymore.

But, after our apartment sight-seeing trip last week, she was again jazzed about the idea of finding a house to rehab and flip. To be fair, she doesn’t much care about the flip part (i.e., the making money part); she’s all about the rehab part. So, I started thinking about alternate exit strategies for rehab investments, and decided to see if the types of properties currently on the market in this area could be rehabbed and rented.

Keep in mind that not all parts of the country have real estate markets where houses can be easily rented. For example, in California where we used to live, it was very difficult to find a house for less than $500,000. At that price, even with a 20% down-payment, the monthly mortgage payments would be over $2500. Accounting for property taxes, insurance, maintenance, etc, there was no way a $500,000 house could rent for enough money that the owner could make a profit on the rental payments.

But Atlanta is a little bit different. The market here is such that home prices are relatively low compared to rental rates. For example, it’s not uncommon for a $60,000 house (with mortgage payments of $300 per month) in parts of Atlanta to rent for over $600 per month. Even with all expenses added in, it’s still possible to make a profit. Additionally, with the large number of homes currently on the market — and the large number of foreclosures currently being sold by banks — it’s currently possible to find houses at 50-70% of their appraised value. While that appraised value is meaningless in a market where you can’t sell your house, if you can hold that property for a couple years until the market rebounds, you can make a nice little profit.

So, I spent the weekend investigating the real estate market for single family homes in our area (talking to agents, looking at Craigslist, driving through neighborhoods), and after playing around with the numbers, I think there could be some major value in buying single family homes, rehabbing them to the point where their appraised value far exceeds the purchase price, and then holding and renting them for the next several years until they can be sold for a nice profit. Combine that with the fact that we have a good friend in Atlanta who is a contractor and is always open to new business ideas, and as anyone who knows me might have guessed, I spent the better part of the weekend putting together a 30 page business plan.

I still have a lot more investigation to perform before I know whether I have a feasible business idea, but I just may be able to grant my fiancee her wish of being able to buy and rehab houses for the next several months (or years?). There would be nothing better than figuring out a way to keep the fiancee happy while making money in the process.

I’ll talk more about my business plan over the next couple posts…and hopefully will have enough information in the next week or two to decide whether to move forward…