I purchased my first investment home in 1997. This did not come about because I had grand aspirations on becoming the next Donald Trump. I had never given much thought to owning investment real estate but one day I took a call from a lady seeking a new mortgage to try and save her from a foreclosure. The home was a rental property that she had obtained through marriage (it originally belonged to her deceased husband). Her credit situation was beyond help making a new mortgage impossible but she did have equity in the home, though she was going to lose all of the equity through the foreclosure within a very short period of time. Rather than simply turn her away, I offered to buy the home. To my surprise she was eager to accept my offer and the next thing I knew, I owned a 3 bedroom, 1 bath ranch home in a less than stellar neighborhood south of Decatur. I was an instant slumlord for the low price of $41,000!

It turned out that while the home was cosmetically challenged, it was solidly built and the tenants that were in the home paid the $650 per month rent on time. Between 1998 and 2004, I only saw the home twice! That was a good thing because the neighborhood was not a place I wanted to venture after dark. The rent rolled in, the tenants took care of the minimal maintenance the house needed and I made the mortgage payments. In 2004 I decided that the house was so disgusting that there was no way around doing some cosmetic renovation work. So I spent $20,000 on sprucing the place up and raised the rent to $850 per month. At this point I also did a cash-out refinance on the home for a new loan amount of $90,000 based on the appraised value of $129,000. The cash came in handy while expanding my business!

 In the summer of 2007 the tenants called me and informed me that they were getting divorced and moving out immediately. They were 2 months behind on rent at the time and I never saw nor heard from them again after that phone call.  When I went to see the home, the carpet and paint we had done 3 years before was trashed.

I took a long and hard look at the bigger picture. The neighborhood had clearly gone through some dramatic changes. There were many new construction homes in the area. Many homes in the immediate neighborhood had obviously recently received expensive renovations. The driveways were filled with new, late model European cars. The yards were all landscaped and well kept. While I had not been paying attention, the East Lake area had become “Hot”. I did a bit of research and discussed my home with a couple of realtors who specialize in the area and I learned that nice houses similar to mine were selling for $250K+!

 So I put a crew of guys together and we spent 4 months doing a comprehensive $65,000 renovation and addition to the home. In March of 2008, despite a very weak real estate market and after only 2 months on the market, I sold the home for $225,000.  When I totaled up my costs, I had a capital gain on this house of over $85,000. During the time I had the home my monthly cash flow from it was positive by over $300 per month for all but 3 out of 105 months. It dawned on me that this was the easiest money I had ever made.

 I had a choice to make:  I could either pay a big chunk of the cash I had received from the sale of this home in capital gains taxes or I could roll the money into additional rental homes in a 1031 exchange. Being a good capitalist that despises taxes and determined to chase after more easy money from real estate investing I began looking for good properties to purchase as rentals.

What followed was both jaw dropping and eye opening. The housing market in Atlanta is a real mess. In many areas the prices are so far out of line relative to the incomes of the people living in the area that there is no question that prices must dramatically decrease. But owners are resistant to a negative reality and buyers are few so homes simply sit on the market forever at silly asking prices.

 In the Decatur area where I sold the home I began to look around for other homes that I could purchase in order to renovate and then rent the home out with the plan of holding it longer term. What I discovered is that the prices of home in need of renovation were simply too high to make the process profitably feasible. Purchasing a home for $120K and then doing a $60K renovation so I could rent it out for $1100 per month does not add up. The home prices are too high to make the returns from renting them enticing.

Historically,  rental property has been considered an excellent investment if the monthly rent equaled or exceeded 1% of the properties value.   I am determined to stick to this principal as a hard and fast rule. One of the biggest problems I see in the real estate market relative to values is that prices have been pushed up far beyond historical norms relative to rents and incomes. This is at the core of the burst housing bubble we are now experiencing. I am not interested in short term bubble investing… I am interested in building long term wealth.

So I began researching the broader Atlanta housing market. My goal was to determine which locations and general areas offered the best return on investment in rents and the greatest longer-term price appreciation potential. I did not seek to determine what markets were “Hot”, but rather to determine which areas had the best home value to rent ratios coupled to the best potential for becoming Hot within the next 4-5 years. Buying rental property in neighborhoods that are considered Hot and Upcoming today is not where the real opportunities lie as prices in such neighborhoods have already shot up!

I have looked at literally hundreds of houses. I have attended dozens of home auctions. I have met with many realtors, investors and contractors and researched at length neighborhoods from one end of Atlanta to the other. I have made offers on dozens of houses and I have at the time of writing purchased 8 homes and I have 2 more under contract to purchase.

All of the homes I have purchased are located in prime rental areas and on great looking streets. The homes rent for between $800 and $1300 per month and my investments range from $55K to $95K. In every case, the monthly rent far exceeds 1% of the total amount invested into the home. In each case I have had no difficulty renting the properties and in fact had multiple parties wishing to rent allowing me to pick and choose the best candidates.

What I have learned through this process coupled with what is happening in the broader economy has convinced me that this type of real estate investing represents the greatest investment opportunity going today. By that I mean not only that I expect the returns on investments to exceed that which can realistically be expected from other investments but that I view the real estate investments as far safer. I believe this so strongly I have cut back my mortgage business focus and switched my company’s primary efforts toward my own real estate investing and toward helping others to get involved in the same investment strategy.