Is investing 200k new builds a good idea around Birmingham Alabama?

Question

Hi, I am from Georgia, with everything goes up here, feel like Alabama could offer a better or cheaper place to invest, so I am thinking about investing in Alabama, not inside of Birmingham, but between Atlanta and Birmingham or between Birmingham and Huntsville.

I've seen along I-20 (between Atlanta and Birmingham), or along I-65 (between Birmingham and Huntsville), areas like Oxford, Lincoln, Pell City, Cullman etc,  there are some new builds 3bd/2ba for around 200k - 220k range, rent for about 1.5k, for a buy-hold strategy, I feel comfortable as long as it has a positive cashflow (with 25% down).

The reason I am looking at new builds is because I never done out of state invest, hopefully new builds give me less stress...:)

With all that being said above, does that sound do-able? Will it be able to rent for 1.5k or is it even possible to have a positive cash flow? Would love to hear ideas from you all!!

Thanks,

Jen

Rick Albert · Answer

I'll play devil's advocate, at that price you might as well invest in multifamily units.

3-4 unit properties are selling in the low $200K and with an average rent of $700/unit, you get better cash flow and spread out risk (1/3 units vacant versus the house 100% vacant.)

You do your inspections and make necessary improvements upfront to offset the risks with buying a "used" property instead of brand new construction.

Alternatively, how much of a price difference between new construction and a remodeled home? Keep in mind an older home is just based on year built, but could have a new roof, new sewer line, etc. Rents will likely be similar as long as it is nice. Spending 15 seconds online and I see that older homes sell for about $100K less. That's major in this higher interest rate environment.

Jenny Scott · Answer

@Neely Coble you are right, the cashflow is very slim. The only way I feel doable is on price <= 200k, say if it is 200k, with 75% down, with 30 year 7%, that will give me a monthly payment of $1k per month. Add another $300 for others, that is 1.3k. I think that could give me a big chance that the rent could cover 1.3k and maybe with a small lunch money as an extra. But that is it.

My plan is to buy a property like this, as long as the cash flow is not negative, I am ok. Will just let tenants to pay it off. 10 or 15 years later, maybe it will have some sizable cashflow to support my retirement..:) am I too optimistic?

Jenny Scott · Answer

In term of locations, do you all have any recommendations on those locations?

I am looking at: Oxford: looks like having a great school, Having a few great towns around, like Anniston, Munford, Weaver, Jacksonville.

Lincoln/Eastaboga: even cheaper than Oxford, but not as good as Oxford in term of school. Close to coosa river.

Pell City: Close to Leeds and Birmingham, I heard people saying those are pretty good areas. They are all probably similar as Moody and Odenville.

Cullman:  between Birmingham and Huntsville, location wise seems pretty good.

Or any others?

Are there any realtors in those areas or property managers might give me a little more insight on those areas? Any area to avoid in term of rental investment?

Thanks. Jen

Chad C. · Answer

That sounds a good plan. I have been looking that direction recently too, because I read news another day Honda has built a car-parts plant near Lincoln AL? I am sure that will attract some demands.

Do you have any, or are there any investor friendly agent or property manager in North or East Alabama who can share some insights? I would love to get some connections in that region too, before I really head to that way. Haha.  Thanks everyone!

Jenny Scott · Answer

@Rick Albert thanks for your input, it is definitely good advice. I did a search on zillow both for multifamily (<200k) and older homes (<150k) in Alabama, most of them look pretty creepy, I am kinda new, not sure if I can handle those. If there is any agent or investor here know some decent ones, I would love to hear out, and maybe to work together.

Cory King · Answer

sounds solid overall

Neely Coble · Answer

At today's rates I'm not sure it would cashflow by the time you add taxes, insurance, r&m reserves, etc.

The average rate today on a 30-Year fixed is 7.38%.  If you do 80% LTV on a $220,000 purchase price that gives you a $1,216 monthly payment.  Taxes, fees, etc will add another $300/month.  Then add r&m reserves, vacancy reserves, etc and you are in negative territory.

If you do 75% LTV on $220k it makes a little more sense, but it is still a skinny deal.

I'd love to get others opinions on this.  Am I being too conservative?  I've been bitten before by not being conservative enough in similar deals.

Salvador Auciello · Answer

It sound like a good deal and very good idea.

There are two ways to can get this done and safe money.

1. Go DSCR and up the LTV to 80% if it will debt service if not keep it at 75%.

Second option is get a portfolio loan you are buying more then 3 properties.

DM with any questions if you want to understand blanket portfolio loans.

Caleb Brown · Answer

Seems crazy cheap to get into. If it hits your criteria do it

Derrick G McIntire · Answer

Hey Jen, this is 100% possible. I think $1,500 is a great price for a 3/2 new build and should rent quickly. If you have any other questions, feel free to DM me!

Is investing 200k new builds a good idea around Birmingham Alabama?

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