This started with a desire to find investment properties that produced actual cash flow. We are headquartered in the Atlanta metro area where the market is, and has been, over-heated. A cash-flowing property around here is as rare as a social-media addict without an opinion.
We wanted cash-flow because we didn’t want bet solely on appreciation. Appreciation has been strong in recent years – it’s nice to have, but not so nice when you depend on it. To find those elusive, cash-flowing investments we spent two years researching smaller markets just outside of Atlanta. This is where our strategy took on an entirely new dimension, thanks in large part to “Gwynn” (the names have been changed to protect the innocent…and not so innocent).
“Gwynn” had a cluster of rental properties for sale in what has now become our core market. We liked the fact that one unit was rent-ready so it could generate income while we renovated the other two. To our surprise (Shock? Dismay? Disgust?), the unit that was “rent ready” was anything but…and in the time it took to schedule the tour, the unit had already rented. We considered the entire place uninhabitable: it had a 2’x2’ hole in the ceiling, two broken windows, a sheet of loose linoleum covering the kitchen floor, no air conditioning, and one of the bedroom floors had no structural support – it bounced like a trampoline.
We walked away thinking this was a gross exception, not the rule. We were incorrect. Because there is such a shortage of affordable housing, property owners were renting places that were uninhabitable for unreasonable prices. We didn’t start out with the stated goal of driving slum lords out of business, but after this experience our mission began to crystalize. We knew that what we saw was unacceptable, and that it created opportunities.
After some expensive education (mistakes) we had a blinding glimpse of the obvious: we were not going to find any cash-flowing properties that would meet our livability standards (You know, the basics: a roof that doesn’t leak, a floor that won’t collapse, windows with glass, that kind of thing). People don’t sell well-maintained property that cash-flows – they sell property with 10 years of deferred maintenance and a problem tenant.
We have adjusted our strategy accordingly, but we still have “The Cleveland”…our first investment…with 10 years of deferred maintenance and a DIY landlord who took the cheapest approach on every repair (but we lucked out on the residents).