First Atlanta SFH Rented - How'd I do? What Could be Better?

Question

My very first tenant moved in on Thursday, making me officially a landlord. As exciting as this was, I'm the more eager to push to the next one. I bought in a suburb of Atlanta, GA.

The Numbers (all annualized):

Paid Cash: $77,400

Rehab: $21,000 ( estimate was $16k, but when we turned the power on after closing, the HVAC unit was dead).

Closing, commission, legal and other: 10,000

All in: $108,400

Current comps: $115,000

Rent: $13,140

Management: $1051.20

Insurance: $700

HOA: $150

Property tax: $1,527

NOI: $9,711.8

Cap rate: 8.4%

The HVAC unit cost 5 grand and was an unpleasant surprise. But the bright side is it's a 2002 construction and now virtually everything inside is brand new. Obviously not a home-run deal but I'm more or less pleased. Will be happy once I get 70% of that equity out to move to the next deal

So in the grand scheme of things, how do you think this looks? If you were relatively cashed up, would you buy more deals like this to build a SFH "backbone" for your future portfolio, or go straight after bigger deals? I'm looking strictly for cashflow.

Ian R. · Answer

@Rob Barry

$7K commission on a $74K property is very high and definitely not normal.  Typical commission for a buyer's agent is 3% of sales price and paid by the seller, not the buyer. In this case, the buyer's agent probably grossed your $7K "finder's fee" plus an additional $2K+ from the seller. So a very lucrative transaction for him/her. But if the deal still cashflows well for you, just chalk it up to a learning experience. Congrats on your first deal.

Best of luck!

William Shea · Answer

@Rob Barry The numbers look pretty good to me.

I owned two houses in Atlanta as well and I am currently looking for a new property management company.

Can I PM you for information?

Brian Garrett · Answer

Basically right at the 1% rule which in this market in many cities is good.

Greg Moritz · Answer

I'm inclined to agree with most of the above.  That sounds like a good deal on property management (assuming they do a good job).  The deal on the property itself seems decent.  The agent fee seems ridiculous.  Very unusual.  I think they saw some out of town money and decided to take advantage.

Jeff Dimock · Answer

Well done @Rob Barry!  Would you mind sharing who you are using for property management that gave you such a solid deal?

Robert E Bogino · Answer

@Rob Barry Awesome, seems like a pretty good deal.  I invest in suburbs of Atlanta also,  let me know if you need any contacts.

Rob Barry · Answer

@Robin Boyer - Rent is $1095 a month. 1,500 sq ft, 3/2.5 with garage.

@Dan Mahoney - Yeah I suppose it does seem high. Well, it was a way to get started. Whether or not I do more deals the same way remains to be seen. Thanks again!

Dan Mahoney · Answer

@Rob Barry Got it.  Yes, paying a buyer's agent is unusual for single family home purchases in the U.S.  Sellers customarily pay the commissions for both the listing agent (who lists the property) and the selling agent (who introduces the buyer to the property).  That said, I can understand how having an independent buyer's agent would be valuable to an overseas investor.  I can't answer for you whether this service was worth $7,000, but it seems high to me.

Even with the fee, you will earn a good return on investment if your assumptions for rent, vacancy and expenses hold up.

Robin Boyer · Answer

I may have got mixed up I see the rent that must be for the year was curious what it rents for a month because we may be doing this exact same thing. Sounds like you did well if you have a good tenant paying a good rent.

Rob Barry · Answer

@Ryan Johnston - Thanks for the encouragement! I bought in Lithonia, about a mile from the big shopping complex.

@Chase Beasley - 7-8 years is not terrible. At this point I'm really looking to begin scaling up a larger portfolio, and will worry about being free-and-clear on assets next decade. For the next investment.... well I've been thinking to pump the market for a few more of these if I can find them, and get to a cluster of 5-10 under the same management. Though I will admit, I'm beginning to think about giving multis a long study.  I may be moving to Austin in a year and there seems to be much growth in numerous areas in Texas. Austin is a sexy market, but Fort Worth might be more lucrative. Need to study more.

@Dan Mahoney - 1)I was working with a buyer's agent who specializes in these kinds of foreclosure deals and charges a flat $7,000 to source and vet them.  It does add some cost, but the deal still did come in at a slight discount to market price and I didn't have to fly in from the UK. Is it unusual for buyer's agents to charge like this?

2) Yes we shall see. The management is family-run (Husband, wife and daughter team) and they've got some 400 units under management. The seller's agent negotiated the 8% to offer good cap rates to her international buyers and volume to the managment co. Everyone seems very transparent in this and they all came recommended by a colleague who did 30 deals with them. But if their incremental costs creep up despite the very new state of all the fixtures, I can always fire them. But I do appreciate the advice. I'll be sure to keep a close track on expenses and cap rates.

3) HOA was represented per year.

First Atlanta SFH Rented - How'd I do? What Could be Better?

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