Learn from my mistakes, I Am

[Cal C.]

I moved to Atlanta in 2004, one of the things I planned to do was to become a landlord. Atlanta at the time lagged behind most of the rest of the country as a whole in RE prices and had seen only modest price increases over the previous few years. I had come from Northern VA where the RE market was so crazy that when my house set for on the market for 17 days, I became very concerned. Normally houses went over a weekend and with an escalation clause.

So to me Atlanta house prices were great and I thought what could go wrong even if there is a housing bubble, Atlanta won't be too badly affected because it had lagged the red hot markets. The houses I bought between 2004-2007 were mostly new or nearly new construction and I used 100% financing on almost all of them. I believed that buying new properties meant I would have little worries about maint. and since I had put almost nothing down (basically just closing costs) even if a house wasn't cash flowing an appreciation rate of 3-4% over 5-10 years would still make me a very nice ROI on my initial investment. I also benefited from depreciation.

Well you can imagine what happened once the housing bubble burst. Lesson learned there was if something is unsustainable it won't go on forever (hint-Massive Federal debt). Atlanta home prices, even though they trailed many other markets' home prices reached 1997 levels in 2012. Those 6-7% interest rate 1st mortgages and 9-12% second mortgages became a significant drag. Now my houses weren't only not cash flowing they were losing significant value. I was forced to continue to put a significant amount of money into houses I had previously anticipated would be just about out of my inventory.

Did I panic, well yes. But instead of just writing off the losses I realized there were some great deals to be had and interest rates were fantastic. I was able to secure some 95% LTV 30 year fixed low interest loans albeit with fairly high closing costs. I called the concept dollar cost averaging. In 2010 I began buying houses again and this time I was much more cognizant about cash flow and finding undervalued properties (Hint: Foreclosures)

Everyone of the properties I have bought since 2010 cash flows well over $200 a month and I bought them for between $40K and 117K. My average initial investment in each property is a little over $16,000. My cash on cash returns are well over 15% and principal reduction is an additional bonus. More importantly each one of the properties purchased after 2010 is worth substantially more than what I paid for them. I did sell one dog last year and ended up making a nice profit on that one even after having the outside AC unit stolen a few weeks before closing. I have one on the market right now and it is getting lots of calls (no offers yet) at a price more than 70% higher than what I paid for it a few years ago. I didn't want to sell it but HOA stopped allowing rentals.

After 7-10 year of paying down the principal the 2004-2007 properties are mostly still underwater even with a nationwide housing recovery and with the hedge funds/Private equity buying up 25% of all houses sold in Atlanta, that's five times the national average. Yes those houses are still losing money, but having the additional properties certainly helps me keep them which I will until they have actually made me money (disregarding opportunity costs) even I have to keep them for 30 years. It would be great if I could refi them, but I'm not having any luck in that regard though most are Harp 2.0 eligible.

Lessons I learned

1. Whenever possible buy cash flowing properties.

2. Buy undervalued (foreclosed) houses

3. Don't count on appreciation to save your bacon.

4. Just because something has happened for fifty years (housing appreciation as a whole) doesn't mean it can't stop suddenly.