CW Announcement: New Construction in Atlanta Available!

Hey, I'm very excited to announce that we've got some new construction in Atlanta, new construction properties. As you may know, we've done hundreds of transactions in Atlanta over the years and have really liked this market. Prices have gone up. It's been difficult to source properties there after doing so much business. And so many of our clients purchased in the greater Atlanta area over the years and they have become very, I don't want to say very rich because I don't know the rest of their financial lives, but I know their properties have done extremely well. So we are very excited about this announcement and I want to welcome our local market specialist who's going to tell us about these new construction properties. Brand new stuff. But before we do that, let's talk about the macro real estate market and what's going on because there are a lot of conflicting messages out there in the media Right now. If you listen to the news media, you're going to be hearing about the Case Shiller Index. And the Case Shiller Index, at least the primary one that's mostly talked about, only evaluates 20 markets. And of those 20 markets, about 75% of them are cyclical markets. And those are markets that we've never recommended. And they are softening the middle price properties. And the high end properties are really experiencing some significant softness. As I predicted years ago, they've been overvalued for a while, way past the point of fundamentals. But the complete opposite story is happening in the lower end of the market, the market that makes sense for good rental properties. What we call sometimes workforce housing. Now, I don't know that you'd really call this product. We're about to talk about workforce housing because it's brand new, it's nice areas, it's better than that. But suffice it to say that the good properties with good rent to value ratios are really just booming. I mean, there's very low inventory. Everything's selling, you know, lickety split. So let's talk about it more. But on the macro picture, what do you think is going on? Would you concur with those statements I made?

Yeah, absolutely, Jason. I think the upper end, and if this makes sense, the upper middle end is, is showing some softenings. I mean, there's definitely some statistics showing we might want to watch this. But as you said, more of the workforce housing, the things that are more affordable have an absolute need and mostly for an area like Atlanta because there's just such a demand of influx. You know, it's the fourth fastest metro growing area in the country. But the upper end stuff is out of reach for a lot of people as we know, and even the upper middle. So we're really sticking. As you said, we're in, I consider a neighborhoods now, but we're trying to go more for that workforce level because that's what the demand is.

Yeah, good. Well, it's certainly there. Any thoughts about like the real estate market overall? I mean, there's certainly some talk that we're going into a recession and I wouldn't really disagree with that. I think that the economy has been booming for longer than it should have been, you know, so things are going to change. There's no question. I don't know that they're really changing the way the media portrays it. I don't know that an inverted yield curve is really that meaningful, but maybe it is. Who cares? The properties make sense and there's a huge shortage of housing like this, right?

Yes. And I think it's really important to check what is the growth migration looking like, meaning for areas like Florida, as I know you and I have talked in different conversations about it, there's just such a stunning amount of people going there and that old supply and demand really plays a part. Can it extend things and everything I'm seeing from for the more affordable stuff, it's going to because these people need a place to live. And with the jobs coming here and the baby boomer money coming here, there's just a lot of need. So that's why my efforts are in northeast Florida and the Atlanta area, because I just look at population growth and it's just a simple math thing. When you look at it, you say these people need a place to live. It just doesn't make sense right now. So we're not going off speculation where in other areas where population is actually shrinking. That's something you have to be very, very, very aware of when you're investing.

As I've talk quite a bit on the show, people are fleeing these high tax states. Florida is just picking up New York millionaires like they're going out of style. I mean, they're all moving here right.

And left, right and center.

I don't, I don't blame them at all. You know, Georgia is another very attractive market. Atlanta, obviously, you know, it's like the fourth fastest growing city in the U.S. i believe maybe you can corroborate that statement. I don't want to be wrong about that, but Atlanta's booming. Okay. Suffice it to say the market is very, very hot. There. So then we look at what areas. You know, Atlanta is a giant metro. It's sprawling. It's like Houston, another giant metro area. We've done lots of business in Houston over the years. How do you decide what area within that big metro area?

Again, you know me, Jason, by now. For the areas I go, I want to have a strong, steady cash flow, but I want to be poised for growth even within the city. And what we found was southwest Atlanta is where most of the growth is going. There were still some land deal that we could find and the rents were already good and getting better because there's tons of employment there. You're only about 15 minutes from the airport. They're adding a mass transit to extend into Union City, along with a lot of Hollywood stuff that's coming there that we can talk about later in the episode. So we went to Southwest because there's good deals with inside the 285 belt, but inside there there can be some unknown rough spots and we didn't want to risk that. So we focused into Southwest, which would include Union City, Fairbairn and Chattahoochee Hills. And there's some real fascinating things happen out there. Not only the lifestyle and the fact that it's close enough, but has just such high records on so many different things. It's near this interesting place called Serenbe and I would tell people to look it up. It's a super high end, self sustaining community. The village there is beautiful.

Say the name again or maybe spell it if you can.

Sure. Serenbe. S E R E N B E. Serenbee.

Okay.

Yeah, it's in Chattahoochee Hills. It's a super high end, self sustaining community which I know a lot of our friends in California are always like, oh, that sounds so. But this has a big influence on that area out there because there's so much wealth. A lot of the richest people in Atlanta live there. They have a second home there. And there's again this village center that you can go into. It's beautiful and it's bringing that influence out to us and influencing kind of our area, which is again, we like to go to areas where if we can have our cake and eat it too, I want to go to an area of growth where the rents make sense. So southwest kind of had all those things lining up. So we've focused all of our efforts not just in Atlanta as a whole. Because you know, Jason, Atlanta is big, but Southwest atlant is our major focus. We have three full time land Guys going around looking for deals all day long for us right there.

Okay, so you've got your land acquisition people, you're out there scouting for land deals. You picked this particular, these, these markets, I should say. You had kind of a story on the way you acquired this land and what happened in the past. And there's still a few, very, very few deals out there that kind of have a little bit of a hangover from the Great Recession, right?

Oh, yeah. So there's not many. If you're going to find them, they're going to be off market. So the first development we're doing is a townhouse project right there in Union City. Now, it was an interesting story. I know you heard tons of these, Jason, you know, 10 years ago, but not many. Recently a builder built 32 units. Beautiful. Between 1550 square feet to 1650 square feet. Sold them. Owner occupied. Had developed out the rest of the neighborhood, but then went bankrupt. And a speculator that worked at the bank bought the land but then sat on it, didn't know what to do with it. And so we got in contact with him, one of our land guys, and made him an offer which we couldn't believe he accepted. And what's funny, once we started work and all the approvals started to go through, we had three of the largest builders in Atlanta contact us to try to buy us out of the project. But it just wasn't available on the open market. It was an off market deal that we dug for. So it's interesting because the infrastructure was already there. The 32 units that were there were owner occupied. So there was a lot of pride to be had there already. And everything was set up. There's a total of 103 units in there which, which we're now starting to build out. A portion of those with my building partner will go to retail sales, which I don't like to work retail sales. I just work with investors. And the rest will be selling with investors.

Are you saying, you're saying you don't like to agonize with people over, you know, which way the house faces, what color is the carpet, what color is the paint?

I would say 100% correct.

You know, I can't. When I was back in traditional real estate years ago, I can't believe the way people buy a house for themselves. It is so, you know, even the most logical people. Look, I worked in Irvine and Newport Beach. A lot of tech people there, a lot of very intelligent, analytical people. And it just amazed me how it was like, you're Dealing with two different people, right? You've got this, this person who is this brilliant software designer. Then we'll go look at houses and like, oh well, my sofa won't fit here so I better just pass on the $500,000 house rather than buy a fifteen hundred dollar new sofa. I don't know, it's so illogical, I.

Think, unless you've been trained in investing. It seems very foreign and strange. But as you know, there's a pretty simple code when you're looking at it a certain way. And I think I'm so programmed, Jason, to look at. As an investor, it was really hard for me to do all those little things in retail sales. So I'd rather stay on the invest.

The other thing is, you know, this is a good education for our listeners because of course when you can source a better deal for yourself, you can pass that along to the buyers. I'll never forget a couple of those sort of documentary programs that you see on CNBC when there's a holiday and there's no stock market news or on the weekends. One that I watched and I've talked about this before with the CEO of Walmart and Walmart has, you know, been criticized for pretty much everything. But one of the things they're criticized for is for being rather tough on their suppliers. And the reporter with kind of this liberal slant was saying, you know, aren't you just too tough on your suppliers? And he says, look, our job, I'm paraphrasing, but our job, we are the agent of the consumer. We are here to bring them the best quality at the lowest price. That's our job. And you know, they have to source better deals from the suppliers or they can't deliver that. And then the other one, same CNBC type documentary, they were interviewing the CEO of Costco. He was going around the store and you know, looking through a Costco and, and he says, you know, they went to the food area. The reporter asked how can you sell this, you know, this hot dog, so cheap. And he says because our approach is we ask ourselves how inexpensively can we sell the item? Most businesses say how much can we get away with? How much can we charge? Where is their model was how cheap can we make it? You know, and it's just a different philosophy. So when you source the land at a good price and you get a good deal on the land, you can pass that along. The other thing is speaking to the point you made about dealing with investors rather than selling to retail owner, occupant type Buyers is you can really run an assembly line, you can run a machine. You don't get caught up in these little piddly sort of things that slow your machine down, that slow your sales down. Investors, you know, they'll make decisions that are more rational and logical. And so that just speeds up the machine. And like anything but especially in real estate, time is money. Time is money because you've got carrying costs. And if you can sell that property quickly, you minimize your carry cost, right?

Yep, absolutely. Well, you know, properties we've closed on in the last two weeks, this is actually interesting. I don't think I've even contacted you, that we just had a client of yours have to get a special notice from the bank or something or a reappraisal because the appraisal on one of our new constructions in southwest Florida came in too high. The appraisal came in too high. And he actually said, well, you could charge more. I said, we're a volume business. We want to pass along the discounts to our buyers who are investors, because the numbers have to work because most of our investors that buy one, buy four. So that passing along is so important. We love to hear stories of the appraisal coming in higher six, eight months later in these growth markets. But like you said, if you don't get greedy and you work to pass along the cost, you get into the land. Right. Certain things in the area has already been developed so you can save on those. You can pass those discounts onto the buyer, get a really nice yield and then continue to do more. Which is why, you know, we've loved working with you for several years now.

Right, right. We've been off on a little few tangents here. Tell us more. You've talked about how you acquire the properties and you can pass along a good price. Is there anything else you want to say about.

No, I just. I really enjoy with the new construction models. As you know, I was a rehabber for almost 20 years, but then about five years ago went into new construction. I love being able to give the 210 warranty. I think that gives a layer of protection for out of area investors to give a more steadiness and visibility for what lies ahead. So that's something I encourage for everyone. Just the new construction really has merit if the numbers work because you do get that extra layer of warranty, which is nice to have.

Okay, good. What else about the properties? Anything else else you want us to know there? Properties?

As you know, this first townhouse complex that we bought out and are building out. We were really happy with the pricing that we got these down to. Again, the models will be in the 1500 square feet to 1600 square foot range. And we're building just about $100 a square foot, which, as you know, Jason, is really good. That's for four bedroom, two and a half baths, three bedroom, two and a half baths. With our normal upgrades, as you know, we've. We've really researched that. We always do wood plank flooring. We always do granite countertops, stainless steel appliances, and a nicer master bath with tile because those were always the things that marked off. So again, we're taking our formula that we've been doing and continuing to do it because if it's not broke, don't fix it. And we seem to have such a retention and desirability that we're keeping to that model. For some people that are already involved with us, we are continuing that same style.

Good stuff. Okay, what about your team, the property manager? This is where the rubber really meets the road. You got to get a good property and a quality location. And with following all my ten commandments, but especially commandment number five, the property must make sense the day you buy it. Just tell us a little bit about your team and the management and what goes on after the fact.

Well, my team here in northeast Florida, the property management company that I've had a working relationship for a very long time, they're also in Atlanta. They've been there managing for five or six years already, but we're now with bringing in new construction, even more excited. So the management team has been up and going. They handled for a number of private fund groups in Atlanta for several years, so they've had a presence there. And now with the new construction, managers love new construction because everybody's happier. The investor, the tenant. So they've had a great track record with us here and for the last five years in Atlanta. So we're excited to bring more of the new construction into that. So the people that have probably already worked with me, some people listening out there, it is our same team just growing our new key up that way. And we've already been settled there for quite a few years.

Good to hear. Before we wrap it up, let's talk a little bit more about the numbers on the deals and how those numbers look you mentioned. I don't know if we did it in this interview, but I know we talked about it directly. I'm not sure if it was on this interview or not. A projected cash on cash return of about 10%, I believe.

Yep, about 10%. And that's for this first development. We might be able to get them little higher because we do have two developments that we're doing due diligence on behind it. That would be quads, and that would grow it from there. But for this first group of the existing townhouse project, we're looking about about a 10% cash on cash, and that's both for the three bedrooms and four bedrooms.

Okay. On the townhome product, one of the things that I do not like is high association fees, and that was one of my concerns about this. But you solved that concern right away, didn't you?

Yes, I did. Yeah.

Because these are really. I mean, this. This is. I like HOAs, but I like the minimalist HOA. I don't like the maximalist one that is just all over you and they charge a fortune and they're agonizing over, you know, whether you leave the hose uncurled on your porch. Right. It's just beyond ridiculous. You know, we get these little tyrants that run some of these HOAs, but I do like the one that'll keep my neighbor from putting his car on the lawn on blocks or painting his house purple or whatever. Right. So talk to us about the hoa, what it does, and how incredibly low the dues are.

Yeah. So that's a great point, Jason. As you know, we've learned early on was, thou must control thy complex. So we for this complex, since we bought out the project, our management company there also is overseeing the HOA that gives complete control and to keep up the integrity of the neighborhood, the HOA on this is only $20 a month. And we've stepped in and funded up the HOA, so there'll be no backfunding, and it's only $20 a month for each unit, and that will pay for keeping up the integrity of the neighborhood, avoiding all those things you just said, Jason, of cards on blocks or, you know, extra funky painting happening on the exteriors or things and taking care of common areas and making it look really nice. We're making this a very nice complex, but it's only $20 a month. Each individual person will have a normal homeowner's policy on their property for interior and exterior. So in five years, if you want to paint the outside, you have to come to the HoA, which is controlled and managed by our property management company, to request the color. So, again, little things like that. But we've kept it at a low amount to serve the purpose of really What a HOA was supposed to do, Jason, keep up the integrity of the neighborhood and the common areas. And that's what it will do in the individual policies, will take care of the unit itself. But I love the fact that mean.

The individual insurance policies.

Yes, sir. Yeah, so the individual one on that. So, yeah, we've pretty much solved that. We already went through this, as you know, in Jacksonville with the townhouse complex, as we did here, and that worked really well. A nice low HOA that keeps the integrity and the safety of the investment, but also doesn't need into cash flow. We don't want those ones where It's a silly 4, 5, $600 a month. And the fact that we control it, we have written the HOA guidelines. So that's very good for everyone. And that keeps us in a safe position, but also keeps up the integrity of the neighborhood and the investment.

Yeah. And I'll tell you if you think depending on where in the country or where in the world you. You're listening to this. If you think 4, 5, $600 a month is crazy. No, it happens all the time. The first home that I bought in Newport Coast California, my HOA dues were like $481 a month, and that was in the 90s. Okay. So I can imagine that home today. They're probably paying 6, 700 bucks a month now. It was in just incredibly expensive. But I will tell you, Kobe Bryant was my neighbor not too far away, the daughter of the St. John family. You know, the dresses, the famous clothing company was one of my neighbors too. Not, not right nearby neighbors, but you know, on the, on the next block over. But yeah, $481 a month in the 90s. So it's amazing how expensive some of them get. Tell us about your track record with our clients in some of our other markets. We had many clients purchase from you in Ocala and some other markets had some pretty good results, right?

Yeah. And new construction is a little different because you don't close in 30 to 60 days, you're going to wait six to 12 months. And people go, is it worth the wait? And now with the stats coming back, we know it is. So for your clients in Ocala, Jason, who closed on that first group of properties, there were several dozen, I think, over the year. The average person was stepping into, once they closed, 25 to $30,000 worth of equity. And this was my favorite part, the average units. The units were renting for an average of $75 more than we projected the year earlier. That's the advantage of doing new construction in growth markets. And then a client of yours who I know we both know very well, he called, very excited to say, what else do you have? Because I just got my appraisal on the one we're closing and it was $37,000 more than what you contracted the property to me six months ago, which is. We're thrilled about that. We're thrilled to hear of the upside occurring because that's what we tell people. Stay with us through the new construction process. You're putting your deposit against a large asset. That's an appreciating scaling up market. So I love to see our new construction model doing what it's supposed to do. Be working their money before they even close on it.

Yeah, that's phenomenal. It really is. You know, one of our clients, Muthaya, he's been on the show several times, he had an appraisal come in recently. Right. That was pretty, pretty awesome.

Yeah, that's who I was. I didn't know if I was allowed to name him, but Mathia, we're a big fan of him. He's a client. Yeah. And he said I want another property because I just got an appraisal for just, I think it was just at $37,000 more in sales price. So we were thrilled to hear that.

$37,000 above the purchase price. Wow. That doesn't happen too often. Sometimes they come in below the purchase. Purchase price. So. So congratulations to Muthai on that one and all the people who are getting an extra 75 bucks a month on rent. And you know, you may not think that, that $75 is a lot, but if the base rent is A, for example, $1,000, you know, that's 7.5% more than you expected. And when that trickles down to the cash on cash return, it increases your return phenomenally. I mean, it sounds like just a little bit of money, but when you're leveraging that purchase, that 75 bucks makes a huge difference in the return. Oh yeah. So. And I don't have the calculations in front of me. I wish I did, but you know, that's something we should demonstrate on a future episode. So good stuff. Well, hey, contact our investment counselors about this. If you're not working with one of our investment counselors, just go to jason hartman.com, fill out any form on our website. We'll be happy to help you with this. Brand new construction Atlanta properties. The inventory is very limited, so reach out to us today and we'll be happy to help you. Thanks for joining us and telling us about this. Appreciate it.

Thanks for having me, Jason. Appreciate it.

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