prices and values over the last three years in many major markets means even distressed property buyers will have more difficulty finding deals that generate healthy returns in those inflated markets. OVERLOOKED RENOVATE- AND-RENT MARKETS An analysis of potential rental yields for distressed property purchases on Auction.com in the first half of 2023 in more than 200 metro areas nationwide reveals that many of the best renovate-and-rent returns come in smaller markets that are often overlooked by investors. The top five markets with the highest potential gross rental yields for distressed properties purchased in 2023 were Terre Haute, Indiana; Wheeling, West Virginia; Duluth, Minnesota; Houma-Thibodaux, Louisiana; and Decatur, Illinois. “(These) are markets that have not had massive appreciation,” Garfield said. “No one is going to convince me that Rock Island, Illinois, is overinflated.” Rounding out the top 10 were a similar group of markets: Water- town, New York; Topeka, Kansas; Niles-Benton Harbor, Michigan; Texarkana, Texas-Arkansas; and Lansing, Michigan. AN AUSSIE FALLS IN LOVE WITH SMALLTOWN ALABAMA Local community developer Kerry Wojtala has fallen in love with smalltown Alabama since moving there six years ago from Australia. “If you had asked me … where would you like to live in the U.S. … Alabama would not have been in the top 49 states,” she said. “However,
I absolutely love it. I love the people here. I love the south, even the heat.” Wojtala buys and renovates distressed properties in Coffee County, Alabama, a market too small to show up in the 200 mar- kets analyzed for this article. The closest market ranked on the list is Mobile, Alabama, about 150 miles away. Mobile ranked 22 on the list in terms of highest potential gross rental yields. Although Wojtala primarily purchases single-family homes in her own town of Enterprise, she recently purchased a commercial property in nearby Elba, the county seat of Coffee County, in hopes of being part of a downtown revival there. “Four-thousand, five-hundred square feet of problem to be solved,” said Wojtala, describing the property. “But I’m determined, and there are a few other people in Elba who feel the same passion for the town. … When I first saw it, I just thought, wouldn’t this be cool if it could have new life breathed into it? Wouldn’t it be cool if it was me?” Wojtala, who recently attended a foreclosure auction in Dallas County, Texas, said her smalltown market is often overlooked by the larger investors who show up in places like Dallas. That allows her and other “mum-and-dad inves- tors” like her to compete and win. “Dallas is chaotic and frenetic compared to little old Enterprise,” she said. “I think there are a lot of people that are very put off by fore- closures … It really isn’t that hard. It isn’t something to be daunted by. And there are people that will help … we spoke to an Auction.com rep- resentative recently and needed her advice on how to do remote bidding. So, there’s always someone who can answer questions for you.”
SHIFT TO RENTALS The compression of fix-and-flip profits has pushed more local com - munity developers like Garfield to shift their investing strategy toward renovate-and-rent. A March 2023 survey of nearly 450 Auction.com buyers found that 39% identified renovate-and-rent as their primary investing strategy, up from 32% in a 2022 survey. Furthermore, an analysis of public record data for properties sold on Auction.com shows a dip in those being resold within a year, implying that more are being held as rentals after renovation. The data shows that 37% of those purchased on Auction.com in the first six months of 2022 had been resold a year later, down from 43% for those purchased in 2021 and down from a recent peak of 47% for those purchased in 2018. “We’re trying to stick to turnkey properties,” Garfield said, referring to properties he purchases, renovates, and resells to other in- vestors, typically passive part-time investors who are holding down a day job while looking for an invest- ment vehicle that will help them build generational wealth and save for retirement. “We know we can sell it to investors who are wanting to get out of the stock market.” The shift toward renovate-and-rent is one strategy that real estate investors can employ in a high interest rate environment. That shift aligns them with the shift away from buying and toward renting that is occurring in the retail market as more prospective buyers are priced out of purchasing a home. But not all local markets repre- sent the same opportunity when it comes to the renovate-and-rent strategy. The rapid rise in home
18 | think realty magazine :: november – december 2023
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