My Out-of-State Search: Step 5a: Due Diligence on Atlanta

I should confess that last year when I first started my search, Atlanta was the market that jumped out as being a good option. So, I’ve been tracking Atlanta for some time – and have done more research into Atlanta than any other finalist.

Here’s what I’ve done to learn about Atlanta:

· Followed the market for around 12 months.

· Reviewed 1000+ MLS listings.

· Probably completed 100 pro formas

· Set a forum notification for Atlanta (which I turned off 2 days later due to the crazy volume)

Here’s my review of the Atlanta market:

Size. Atlanta is huge. At first, I thought that this would be a benefit, but what I’ve found is that RE resources in Atlanta do not support the entire city. This means that if you want to look in the NW area and in the E area, you will need two separate RE agents, PMs, etc. In fact, even if you want to look in the NW area – you may need multiple agents to see all of that… psh.

Climate. Atlanta has the best (i.e. most moderate) climate of any city on the short list. Most people would find it nice but moderate in the summers, and I would find it nice but moderate in the winters.

Economy: Big Employers. Atlanta is a wonderful combination of Fortunate 500 companies, and I heard somewhere that it is in the top 3 for the number of companies with a presence in the city. This creates a lot of stability for their economy.

Economy: Big Industries. Atlanta is a transportation hub. It has a huge airport – maybe the largest in the US, and while this looks like a good thing, it has some negatives such as high amount of noise. The Airline industry is also a bit shaky for a couple reasons such as a high failure/MA rate, fair number of low paying jobs, and the ease of another airport offering incentives to draw business out of Atlanta.

Economy: Recent History. Atlanta’s economy has been hit with negative after negative over the past 15 years. These include a disproportionate hits from the .com crash, the financial crash , and the housing market crash (both in local prices and in that they are the HQ for huge housing companies such as Home Depot). Yet despite these barriers, Atlanta’s market has done respectable…. Sub-par, but respectable.

Pro Formas. At a shallow-level, Atlanta houses can perform well. With that said, Atlanta has a very high vacancy rate and expensive property management, so I’ve had to modify my pro forma assumptions quite a bit. Still, things cash flow adequately well on paper.

Property Management. PM is rather expensive, and seems to be pretty crappy within Atlanta. I’ve reached out to 3-4 companies, got 1-2 responses, and spoken with 0 competent people.

House Reviews. Atlanta probably has the most attractive houses of any city in all of the US. The number of 2500+ Square Foot houses with an open kitchen, nice finishes, large porches, huge lots, on a cul-de-sac backing to a green space is mindboggling!

Hedge Funds. The secret of Atlanta got out some time ago, and investors have played a huge role in the Atlanta market over the last 15 months. This is badbadbad because it has driven purchase prices up, driven rents down, increased vacancies, and made traditional financing almost taboo.

Rental Market Review. Simply put, it’s looking like the influx of SFRs as rentals has made the rental market in Atlanta (at large) unhealthy healthy.

Housing Market History. Atlanta over-built in the 2000’s, and still has a lot of houses for the population.

Housing Market Review. Outside of the widely-published markets such as Vegas, Phoenix or Detroit, Atlanta has had one of the more volatile markets over the last 15 years. I think the over-growth in the 2000s combined with the big economy hit s in 2007-2009 decimated the Atlanta housing market, and resulted in a ton of distressed inventory. But since that time, especially in the past 15 months, the market has rebounded incredibly well, and frankly – faster than I expected. In the current state, as a financed buyer, this would be a challenging market to work in.

Overview. Although I think the economy will grow, the population will increase, and the distressed inventory will soon work itself out, Atlanta looks like a high-risk, high-return type of market. Why? Investors. Specifically:

Will investors continue to buy for the next few years? If so, what will that do to the market?

Will investors start to sell in the next few years? If so, what will that do to the market?

How will the recent mass-actions of investors and answers to the two questions above impact the current/future rental markets?

Summary

All told, we do not know how the big influencers (both hedge funds and SFR investors) will act in the near future. But even if we did know how they will act, I don’t think we would know the impact their actions would have. Indeed, coming up with a scenario where prices and rents both increase by 30% over the next 3 years is feasible. Similarly, a situation where rents decline and the housing market slips back into a state of distress is equally as feasible.

A true high-risk, high-reward market.