Investors in Atlanta, Georgia, are taking what is often seen as a losing proposition- the purchase of foreclosed homes and turning it into a long-term winner. How? By not just flipping the homes with minimal repairs for resale but renting them to the growing number of people in need of housing, including those who’ve lost their home to dire financial circumstances.
As part of a ground-breaking study done by the Georgia Institute of Technology’s Urban Institute’s What Works Collaborative that looks at this new trend not only in Atlanta but three other cities as well. The study found that between 2008 and 2011 more than 8,000 foreclosed home purchases were made by investors in the Atlanta area. The buying trend seemed to focus earlier on high volumes of buying in areas with high poverty and vacancy rates, but as housing troubles spread, the investors followed.
The researchers found that investors were spending as little as $19,000 and as much as $70,000 to purchase and renovate the homes. Most investors interviewed said they expected an annual return rate of between 8 and 15 percent from renting the homes. Most properties were purchased directly from the bank due to not selling at auction. Many of the investors bought the properties in bulk although they often ran the risk of purchasing the house sight unseen that were possibly in very poor condition.
Quite a number of the investors maintain the properties themselves while others hired outside companies to handle rent collection and repairs. Doing this does lower an investor’s returns and weakens their relationship with their tenants. Some investors found that the management companies’ incentives didn’t always match up to theirs such as managers who receive incentives for gaining new tenants which in turn reduces motivation to retain existing tenants and meet their needs.
Since 2011 there has been a new trend to hit the Atlanta area. Big name national private equity firms are snapping up distressed homes in large numbers, particularly in areas with high appeal. Local investors say the big companies are buying the homes at auction, often paying too much for them. This has left local investors to wonder what the big companies will do with properties that turn out to be unprofitable. As related case studies develop in other cities, the Institute’s researchers are keeping an eye on the growing trend to see how it plays out in Atlanta as well as the other cities involved in the study.