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Advice to an Atlanta buyer in the golden age of real estate


That’s a photo of the house that I lived in from 1965 to 1971 in Savannah, GA. Many will point to a number of geopolitical pivots after the “Golden Age” of mid-20th century America and tell you that 1965 was certainly toward the end of the golden age. I’ve read that 1973 ended the “expansion” period post-WWII. I could go on…

Well, this article is not about that golden age – it’s about the golden age of real estate happening right now!

I communicated with one of my clients about making an offer on a really cool resale priced in the $200’s today, and they’ve decided to make an offer.

I spoke with the agent who represents the seller to get a feel for what’s up with this “estate sale” and she said that they have had one offer and it was all cash. A low offer.

In nearly 6 months, just one lowball offer. The seller countered and the buyer never came up. The buyer returned one week later with a little better offer, then left after being rejected never to return.

The agent then went on to tell me what she thought the seller might do this month with a decent offer, and then what they would do if they don’t get what they want – she says that another failed offer ultimately will motivate them to quit and just rent it for $1700-1800 per month for the next few years.

I suggested to my client that they make any offer they want – the agent says the seller will counter it, and respect the offer and the process.

Which brought me to advise my primary resident, non-investor purchaser client on two of today’s rules in Atlanta:

Rule 36. If my client bought this house for more than $180000 as a cash investor then they would be overpaying, right? 1% rule, right? But my client is not an investor, and lifestyle choice is more important than the month to month performance of the real estate investment.

If I’m wrong about rule #36, then I suggested that my client ignore rule #17 and then I told them that I’ve got some quadplexes in Cumming that I would like to show them.

Rule 17. Atlanta is a buy city – the rent vs. buy ratio on Trulia is outlandishly awesome today

Buying Trumps Renting in 98 Out of 100 Major Metros

After years of home price declines and tightening rental markets, homeownership is now more affordable than renting in all but two of the 100 largest metros – even in expensive real estate markets such as New York, Los Angeles and Boston. Only in Honolulu and San Francisco is renting often a better deal than buying. However, buying a home in these markets might make sense for people who plan to stay in their next home for at least five years and can benefit from the mortgage-interest tax deduction.”

See the Spring numbers here – Atlanta is #8 at 6.5.
Here’s their methodology:

Sample Price-to-Rent Ratio Calculation (after adjusting for property attributes and neighborhood attributes):

  • Asking Sales Price: $200,000
  • Asking Monthly Rent: $1500

Price-to-rent ratio: $200,000 ÷ ($1,500 x 12) = 11.1

Interpretation Key:

  • Price-to-Rent Ratio of 15 or less: Buying a home is a better deal than renting for people planning to live in a home for at least five years. However, if the buyer is planning to live the home for less than five years, buying could be a better deal if the index is 10 or less, depending on moving and closing costs.
  • Price-to-Rent Ratio of 15 to 20: Renting or buying a home could be a better deal, depending on a prospective homebuyer’s tax bracket and if they plan to itemize their tax deductions.
  • Price-to-Rent Ratio of 20 or more: Renting is a better deal than buying a home, except for people planning to live in a home a very long time (fifteen years or more).

Note: These interpretations take into account estimates of the additional costs of homeownership or renting, such as insurance, maintenance and so on.

Here’s a link to the methodology page online.

I then gave my client some homework:

What is the mortgage payment at $200,000 vs. $225,000 vs. $250,000 with taxes, MIP and insurance, etc?

How does that compare with $1800 per month rent at this particular house?

Knowing that, and sticking to the two simple rules, should help with making an informed decision as the negotiation progresses.

Good advice, huh?

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