9/1/13: Something to Appreciate – Equity is Happening (Again) in Major Metros

It’s baaack!

Yes, it’s true.  Equity is back and it’s happening in major metropolitan real estate markets.

Surprised?  You shouldn’t be.  These cycles and their causes are highly predictable.  It’s seldom an issue of IF, but more of WHEN.

And while it’s fun to talk macro-economics while in the 30,000 foot clouds of conversation, it’s also important to descend to the street level and find out what’s happening on the ground.

So for this episode, we sit down with returning guest Ken Corsini and pick his brain about what’s happening in one of the USA’s best appreciating markets over the last year:  Atlanta, Georgia.

Sunbathing in the studio in scorching hot Scottsdale, Arizona for this sizzling episode of The Real Estate Guys™ Radio Show:

  • Your smokin’ hot host, Robert Helms
  • His smouldering co-host, Russell Gray
  • Special guest from Hotlanta, Ken Corsini

For those who may have forgotten, “appreciation” is occurs when the price of something you own actually goes UP over time.  And the increase in value over debt and down payment (your cost basis) is called “equity”.  Dust off those memories.  Is it coming back to you now?

Housing prices are on the rise in many major marketsEquity happens in different markets for different reasons.  We’ve spent a lot of time since the mortgage meltdown getting our minds around the macro factors that float all boats.  That is, when central banks like the Fed (and the European Central Bank, the Bank of Japan, etc.) initiate a barrage of “stimulus” (a.k.a., Quantitative Easing, printing money, debasing currency, etc.), it floods the market with liquidity. This liquidity eventually flows through the global economy and puddles up in various asset classes.

But  WHAT those asset classes are, and HOW the money gets there, is an inexact science at best.  It’s like squeezing a balloon.  Pressure in one area is going to create a bulge somewhere else, but you don’t always know where.  And too much pressure, and the bubble springs a leak.

For quite awhile, the excess liquidity has been sucked into the sponges of bank’s balance sheets.  That is, even though there’s tons of money out there, banks haven’t been lending.  But the market abhors a vacuum, so private money  started to mobilize in the form of hedge funds, and money was deployed to heal ailing asset classes (it’s called “scooping up bargains”).

Obviously, single family homes were a decimated asset class.  So it’s no surprise that hedge funds started gobbling up inventory.  And with builders not building, and a growing renter population needing homes to rent, a perfect supply and demand imbalance was forming.

Meanwhile, much of the really distressed inventory was being rehabbed and re-purposed.  The result?  Neighborhoods started looking nicer and therefore increasing in value.

Another contributing factor to pushing prices to the upside are commodity costs.  When prices rise for things like lumber, steel, copper, concrete and the gas that moves them from point A to point B, then when a demand in a market for new inventory screams loud enough for builder’s to build, the new stuff simply costs more.  This pulls the old stuff up right along with it.

Sure, there are some headwinds, especially in the form of a weak jobs recovery and rising interest rates.  No one is saying we’re out of the woods.  But if we were, then there’d be a lot less opportunity, so this is an exciting time.

So coming out of the macro-economic clouds down to the street level, our market case study for this episode is Atlanta, Georgia.  We ask our pal, Ken Corsini from Georgia Residential Partners, a turn-key property provider in Atlanta, to tell us what he’s seeing as he’s out every day buying, selling and renting houses in the suburban neighborhoods of Metro Atlanta.

We find out that Atlanta home prices are up over 20% in the last year.  Wow!  Equity happens!  At least for those who got into the market more than a year ago. (Hmmm….we recall doing a market field trip to Atlanta in June 2012…were you there?  Just sayin’….)

So, Atlanta’s interesting for a lot of reasons.

First, it’s a huge metro.  So it’s not really ONE market, but many.  We like that because inside of that 20% appreciation are over and under achieving neighborhoods.  This is where the knowledge of a great local team can really help an out of area investor.  In other words, proper sub-market selection can stack the odds in your favor.

Also, Atlanta was one of the more beaten up markets coming out of the recession.  As such, it attracted lots of big investors like hedge funds.  It offered an economy of scale that a big fund can’t find in Smallville.  Most of don’t think of buying houses by the dozens, but that’s what funds do.

Now some might think that competing with hedge funds for inventory is hard work.  And it can be.  But there are also some advantages of investing alongside those funds.  Namely, they grab entire neighborhoods and pretty them up.  It’s easier to do when you have a gazillion dollars to invest.

But big funds also leave scraps that Mom ‘n Pop investors can grab.  Then, when the big money pushes up the market, Mom ‘n Pop get to ride the appreciation wave too.  It’s like when you were a kid and your Dad would jump in the pool and create a big wave.  Maybe you can’t do it yourself, but you can still have fun by being in the pool when Dad makes the big splash.

So take a listen to our conversation with Ken Corsini.  Then think about where you were a year ago and what you wished you would have known and done.  Then think about your life a year from now, and consider what you might want to do today.  Oh, by the way, we have another field trip coming to Atlanta (shameless self-promotion), so if you want to meet Ken and see Atlanta with your own eyes (plus hang out with yours truly), we hope you’ll join us.  Click here for more info.

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