Birmingham Market for SFH Buy & Hold

Buying & Selling Real Estate
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Birmingham Market for SFH Buy & Hold

Eric Baum
Investor · New York City, NY · Member since 2014 · 40 posts · 37 votes

Hi All,

Hope everyone is having a great weekend.  I am an active real estate investor that has portfolios in a few different markets.  I am starting to evaluate a new market and have been intrigued a bit with Birmingham ( I invested strongly in Memphis back in 2010 and 2011 where you could get in strong / premium owner occupied areas and still generate good cash flow) and on very basic due diligence so far it seems like Birmingham has many characteristis / metrics that memphis had a few years ago before the hedge funds and hype change the risk / reward ratio there a bit.

My focus / target for Birmingham would be less the working class neighborhood / formats and more SFHs focused on higher quality (higher owner occupied type neighborhoods, near better schools, rents comfortably over the median rent levels, low crime, etc).  I wanted to see if I could leverage local expertise / investors to better educate myself with where there is a balance of high relative tenant quality / neighborhoods with good cash flow as well.  Want to avoid C areas, but realize A+ areas won't be godo cash flow.  Looking for the elusive sweet spot witha bias to higher quality. I always look for that invvisible rent threshold that seems to divide some of the tenant quality. Seemed to me that rent level in the $900-$1000+ range could be the range that starts to tier tenant quality as I see $700-$800 level to be most common.

I have noticed that there are a bunch of turn-key players that do extensive rehabs such as Birmingham Income Propertues and Spartan.  In some markets, I have built my own ground operations over time and do my own extensive rehabs and in other markets I have partnered with local players like turn-keys if they are truly high quality and offer value that i can't get on my own (e.g if they have so much rehab scale that their rehab costs are far below what I can do on my own, etc).  I couldn't yet get a feel for whether their inventory was in more desrable areas - much of it seemed still in very C type areas.   Any insight is appreicated.  This could be a market that i look to develop a sizable portfolio in, but am still at the beginning of my education and due diligence and always find Bigger Pockets to be such a wealth of knowledge.  And am always looking for local advisors.   I currently have portfolios in Memphis, Chicago, Florida, NY,  Charlotte, and Philly so if I can be of any help to others please let me know as well.

Thank you so much!

Eric

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
11y

@Eric Baum 

  I like B ham its been under the radar for years... I started there in 04.. I really like it as a in between between a Memphis and Atlanta  from my perspective the security issues are better there than a lot of Memphis and other areas. and the city has topography so lots of day lights and better bones .

I will send you over contact of who I work with... but full disclosure J Benoit also does some stuff for us  not directly but through his management and sales efforts.

Good people there in B ham.  as always just look at the quality its no different in the renter class 's as anywhere else.

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  • Joseph Ball
    Residential Real Estate Agent · Groveland, FL · Member since 2012 · 504 posts · 395 votes
    11y

    I think you may want to consider Jacksonville, Florida. I have contacts who do wholesale acquisition, rehab, sale there. The numbers are often good. I was just presented one for $29,500, that rents for $600. SFH.

    0Reply
  • J Benoit
    Residential Real Estate Agent, Investor and Mentor · Birmingham, AL · Member since 2013 · 257 posts · 61 votes
    11y

    Hi @Eric Baum

    Birmingham is a great market and very similar to Memphis as I have come to hear about the Memphis market.  There are many more players in Birmingham than the ones you listed.  I'll email you privately for some details on that.

    It does offer the B Class neighborhoods where you can realize the rents you are talking about.  Acquisition on a turn key will be from 60-100k for the most part.  Rents will be 800-1100 a month. 

    If I can be of more assistance, please ask.

    0Reply
  • Eric Baum
    OP
    Investor · New York City, NY · Member since 2014 · 40 posts · 37 votes
    11y

    Thanks @Joseph Ball .   I do come across a lot of folks that seem to be positive on Jacksonville and on your suggestion will take a look. 

    I do get wary, even when the numbers are strong with a $600 rent. I know every market is different but I like to be closer to the higher part of the rental range as usually there I find that a $600 tenant can be very different than a $1000 tenant (which is why I prefer SFH to duplexes - while the duplex may offer higher combined rent, the quality of each tenant can be much lower than the SFH tenant, and of course the more turnover / transient nature). My priority is usually on removing variance / variability from the return, so often I see the best gross return doesn't often return the highest net yield which is what i watch. As a result, I usually find the sweet spot is almost any market is above $800-$900 rent for a SFH and in many markets much higher than that. What areas and type of tennat quality are you seeing there at that level of rent and purchase price?

    Much appreciated!

    2Reply
  • Joseph Ball
    Residential Real Estate Agent · Groveland, FL · Member since 2012 · 504 posts · 395 votes
    11y

    Since I don't work Jacksonville myself, I couldn't answer your excellent question. My work is centered in several counties in Central Florida. Most of my business is in houses under $75,000. Most rent for $800 and less.

    0Reply
  • Eric Baum
    OP
    Investor · New York City, NY · Member since 2014 · 40 posts · 37 votes
    11y

    Thank for the response and feedback @jon

    1Reply
  • Eric Baum
    OP
    Investor · New York City, NY · Member since 2014 · 40 posts · 37 votes
    11y

    Sorry about that - hit the wrong button.

    Thanks for the repsonse and feedback @J Benoit .  I sent you a PM - much appreciated!

    Thank you Joseph as well!

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Eric Baum 

      I like B ham its been under the radar for years... I started there in 04.. I really like it as a in between between a Memphis and Atlanta  from my perspective the security issues are better there than a lot of Memphis and other areas. and the city has topography so lots of day lights and better bones .

    I will send you over contact of who I work with... but full disclosure J Benoit also does some stuff for us  not directly but through his management and sales efforts.

    Good people there in B ham.  as always just look at the quality its no different in the renter class 's as anywhere else.

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    2Reply
  • Eric Baum
    OP
    Investor · New York City, NY · Member since 2014 · 40 posts · 37 votes
    11y

    Thanks @Jay Hinrichs !

    I highly appreciate it - I put a lot of value / weight to your opinion / recommendations / contacts.  Thank you.

    Are you finding neighborhoods that are B quality and better that you are still seeing consistent and strong cash flow?  Want to try and stay up-quality in this market, but as an active investor my hurdles are much higher than passive investors.  Might hope is B'Ham being a bit under the radar still has a good balance of good quality / higher owner occupied areas with suffificent cash flow.  In other markets, to get decent cash flow, the trend has been to go down in quality and I rather avoid that ;)

    Have a great weekend,

    Eric

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Eric Baum 

      I like what I had there... there are new schools etc. I bought exactly what you describe I sent you the contact info.. you will be in good hands.. and the product is self evident.

    what I like is the thievery is not nearly as intense there as other areas of the south and mid west.... and the houses are not on slab ( foundation issues) and were built just that much better than many markets at that price point. 

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  • Leo Qu
    Cupertino, CA · Member since 2014 · 8 posts · 5 votes
    11y

    @Eric Baum New investor just starting out here. A few things you said in your posts are very interesting, and I would appreciate your insight.

    When you say Birmingham has very similar characteristics to Memphis that attracted you a few years ago, what characteristics or metrics do you mean? One of the most confusing things for me as a newbie is how to identify the target market.

    Right now I'm thinking about Cleveland and Springfield, but that is only based on very simple googling and comparing rental/sale ratios on Trulia/realtor.com

    Would love to hear your thoughts.

    2Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Leo Qu 

      as a Cupertino High graduate circa 1974  welcome to BP... careful trying to pick out of state via the internet.. I wrote a quick little E book on the does and don'ts of out of state investing you may want to give it a read.. pm me and I will send it along.. nothing earth shattering but a pretty simple little guide that will keep you out of shark infested waters.

    One thing about the South as opposed to the N mid west or North East is the winter is not as brutal.. people tent to move from cold to warm so in migration instead of out migration.

    Well except for Californians moving up to the Northwest that is colder and rainer than N ca and S ca...

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    0Reply
  • Eric Baum
    OP
    Investor · New York City, NY · Member since 2014 · 40 posts · 37 votes
    11y

    Hi @Leo Qu ,

    Welcome to Bigger Pockets and congratulations on become a real estate investor.

    Great question and every investor will probably have a different answer but here is what I look at (both macro and micro factors).  Keep in mind it doesn't mean I only like markets that meet all of these - just in a perfect world these are things I like:

    • I like areas that have more mild winters (as snow and harsh winters do contribute to some wear and tear on roofs and exteriors)
    • I look for areas that have taxes and insurance that have low / very reasonable rates as a % to market value (something you don't see often in the northeast).   You could find areas with strong rent to purchase price ratios, but that can be misleading if you have tax or insurance rates (think Texas or Rochester)
    • I want cities where population trend is increasing (that means over time there should be continued demand for properties / rentals).  Also you want to see above average job growth if possible and relatively good unemployment rates.  Overall, you want to invest in a market moving in the right direction versus stagnation or decline
    • I like the market to have a diversified set of industries / employees - that way if one industry declines in the future or a company goes out of business or moves it doesn't depress the city (think of upstate NY when Kodak when out of business)
    • I like purchase prices to be more reasonable and closer to $100,000 for the median property price.
    • I like a city that has a relative high percentage of the population that rents so I know there is a large and vibrant rental pool.  Like to see 40%+
    • I look at historical and present vacancies rates and time to tenant to get a sense of the strength of the market.  I like to see vacancy rates below 10% and time to tenant no longer than 3-4 weeks
    • I look at crime maps and want to know that the neighborhoods with median income and rental levels are failry safe and near good school districts
    • I look for favorable rent to price ratios - as everything else can be good, but if the market can't cash flow well in the neighborhoods I am comfortable with then it won't work.  I like to be well above the 1% rule and closer to 1.5%+
    • I prefer areas that from the onset do not have increased risk for natural disassters.  For example, Oklahoma has great markets but I just don't like that their is consistent tornado risk or areas that have high consistent flooding risk.  You can protect against random events and it can happen anywhere, but I rather not invest in a market where I know going is there is consistent risk.
    • I don't buy for appreciation (I don't speculate) but I like investing in areas where there is a good possibility of appreciation because areas that appreciate are usually growing, have strong demand, etc so a good indication that long term micro-economics are strong
    • I look for areas that have shown more consistent historical price performance.  Doing the boom years did they go up streaky or slow and steady and when the market crashed did they get crushed or hold  their own a bit relatively.  I rather invest in markets with less extreme swings than more extreme swings
    • All things being equal I prefer the south east versus the mid-west - I  think there are good demographics shifts there over time happening there.
    • How is the state policies towards landlords - I prefer landlord friendly states / markets versus tenant friendly.  What is avg cost of eviction, etc

    There are more, but wanted to give you a flavor.  What I meant in comparion to Memphis, is when I was evaluating markets a few years ago, Memphis scored pretty high and at that time thay also had extremely high foreclosure in the pipe which at that point was another metric.  Overall, you could purchase in 2010-2012 in what I would consider A areas (new homes, mostly owner occupied areas, strong schools, etc) which normally would be tough at cap rates (returns) that were closer to C type properties (the more risk you take on a property, the more return you should expect for that risk).  Normally,  you couldn't get great cash flow on A+ properties, but back then you could.  But since then Memphis has appreciated a bunch, hedge fund and tons of investors have flooded the market constraining inventory and now returns are compressed or you have to lower qualiity standards / neighborhoods to maintain return levels (which I don't like).  It seems to me that perhaps B'ham offers a chance to get into solid owner occupant neighborhoods but still at opportunistic cash flow (so kind of where Memphis was a few years ago).  So interested to see if there is the right balance of good quality tenants / homes with solid returns.

    Does that make sense?  Feel free to PM with other questions or I can help point you into a few markets to consider.

    Cheers,

    Eric

    10Reply
  • Matt Leavell
    Involved In Real Estate · Nashville, TN · Member since 2014 · 70 posts · 26 votes
    11y

    Hey @Eric Baum 

    I am in the SFR market in Birmingham and would be happy to offer another resource for insight into the market. Many of the things that you have mentioned do hold true in the market. Let me know if I can be of any help.

    0Reply
  • Leo Qu
    Cupertino, CA · Member since 2014 · 8 posts · 5 votes
    11y

    @Eric Baum  that's an awesome list to get a beginner started. Thanks a lot. I sent you a PM

    0Reply
  • Martin Yung
    Tampines, Singapore · Member since 2014 · 68 posts · 21 votes
    11y
    Eric Baum Birmingham AL seems good, however one key point is the population has been dropping since 1970, any idea why people are leaving this city?
    1Reply
  • Timothy Trewin
    Clarksville, TN · Member since 2011 · 42 posts · 12 votes
    11y

    Eric,

    I just started hearing about Birmingham as well and it has truly intrigued me. It is a market that I am going to have to look into as a possibility. Thanks for bringing that up for others to know about.

    0Reply
  • Matt Leavell
    Involved In Real Estate · Nashville, TN · Member since 2014 · 70 posts · 26 votes
    11y

    @Timothy Trewin 

    Hey Timothy,

    If I can offer you any advise about this market, please let me know.  Happy renting!

    1Reply
  • Frank Anastasi
    Jackson, NJ · Member since 2014 · 5 posts · 0 votes
    11y
    Hi. Great questions. Would you be able to pass along the info you received for B'ham? Sounds interesting. Thank you. Frank
    0Reply
  • Larry Fried
    Investor/RE Broker · Eugene, OR · Member since 2014 · 3k+ posts · 968 votes
    11y

    Hi and welcome @Leo Qu

    For Leo and others interested in Birmingham, a company I work with is offering a free webinar this Tuesday evening on Birmingham.  Yes there will be a  property pitch, but there is no obligation at all, and I expect it will be informative about those just learning about Birmingham.  You can see the posting in the events https://www.biggerpockets.com/forums/521/topics/160785-birmingham-cash-flow-properties-webinar?page=1#p1078466 

    0Reply
  • Eric Baum
    OP
    Investor · New York City, NY · Member since 2014 · 40 posts · 37 votes
    11y

    @Martin Yung 

     Great question and something I noticed as well and digging into. What I can see is that there is a lot of momentum now happening in the city from a job gowth, employer base, and recognition of it being seen as an upcoming business center that I think is causing migration of the type of demographics / segments that tend to lift cities with time.  That said, would love to get feedback / thoughts on this from some of the local experts.

    @Leo Qu Glad I can help.  I have been in real estate for a long time so I have had the benefit of making almost every typical mistake along the way which has really helped to hone and refine my strategy (and I met great peopel along the way that helped me) and I am happy to try and help others the best I can.

    @Matt Leavell Thanks for the respone and offer of assistance. I am always grateful for any knowledge that can be shared.  Would be interested in your sense from a property management perspective where you see vacancy rates today, how long it takes to tenant a property, and which neighborhoods you like and which ones you don't (and potentially) why?  Always great to get a feel for where the consensus is in the market.  What do you see as average purchase price and rent levels in the different types of neighborhoods (A,B,C).  Any information you have the time to share is always appreciated.

    @Frank Anastasi No problem.  Send me a PM and I'll make sure to keep you in the loop as I get information or thoughts that I think are valuable.  Will be starting to do some more due diligence the on the market over the next few weeks.

    Cheers,

    Eric

    0Reply
  • Frankie Woods
    Investor · Arlington, VA · Member since 2012 · 1k+ posts · 491 votes
    11y

    @Eric Baum 

    Great thread!  Thanks for breaking out your thoughts on what makes a market good from an investment point of view.  It really makes a lot of sense.  I'm currently investing in those C neighborhoods in STL, but I may need to re-evaluate my methodology.  However, STL has been considered an "up-and-coming" city now for a couple of years.  Fingers crossed!

    0Reply
  • Cameron Ellis
    Investor · Memphis, TN · Member since 2013 · 171 posts · 49 votes
    11y

    @Eric Baum I spoke with a VP of acquisitions at one of the largest REITS currently buying, and they are moving to start acquiring in Birmingham at the beginning of 2015, and I'm sure they will bring more players along with them. Maybe a good time to get in and start buying before prices sore like MemphisMemphis

    0Reply
  • Eric Baum
    OP
    Investor · New York City, NY · Member since 2014 · 40 posts · 37 votes
    11y

    @Cameron Ellis Thanks for  the head's up.  I can't seem to escape those pesky REITs, PEs, and hedge funds following us everywhere :)

    The good news is they often focus on the cheaper properties with highest rent ratios so sometimes there are some niches that can survive their onslaught (higher quality neighborhoods / price points with slightly lower caps)

    0Reply
  • Jonathan Mednick
    Birmingham, AL · Member since 2013 · 149 posts · 44 votes
    11y

    Greetings @Eric Baum,

    My group along with @J Benoit is the largest turnkey operator in Birmingham offering properties to both domestic and international investors with acquisitions, renovations and property management.  I have personally turn-keyed approximately 300 properties in here over the last three years. We can certainly assist you, @frank anstasia, @Timothy Trewin and any one else interested in the Bham market.

    If you or anyone else would like to discuss the Birmingham market in depth, PM me.

    0Reply
  • Matt Leavell
    Involved In Real Estate · Nashville, TN · Member since 2014 · 70 posts · 26 votes
    11y

    @Eric Baum 

    Hey Eric, sorry for the delayed reply.  This week was a busy one for sure.  To answer a few of your questions,

    Vacancy rates vary by the season of course. This article we just published shows rates for 2009-2014 from the Census Bureau. From our experience as a property management company our vacancy rate hovers around 5%. The amount of time it takes to lease properties in Birmingham really depends on the time of year and the rate. We strive to obtain a highly qualified tenant rather than just throw someone in that fogs a mirror. If you list the home at a fair market value and market it through a company with strong marketing tools, it should take a matter of weeks. If it is over-priced or not competing well against the other inventory on the market, then it will take longer. The exception would be during the holidays like right now when the rental market is much slower and the only people moving are the ones that HAVE TO. I would rather take a month or two longer to get a tenant at a $100 lower rental price that ends up staying in the house for 6 years. Over the long-term that investment will spin off a higher ROI than assuming evictions and consistently having to turn the property.

    As far as neighborhoods go, there is value throughout the city, but it really depends on your preference. There's opportunity to acquire B- to C homes. An example would be purchasing a $55,000 home which would rent for $750 and have a retail value of $75,000. You have to market for these deals but they are there. With enough marketing, you will find other deals that retail and rent for the same, but your ARV may only be around the $35,000 - $45,000. I know that you said that you were interested in better properties, so if you would like additional information, on higher end neighborhoods, let me know.

    I would be positive of the area that you are purchasing in however.  Property prices are not as high in this city as they are in other cities and sometimes "investors" forget that and get themselves into bad situations.  They pay $60,000 thinking it is an amazing deal and set themselves up for failure from the beginning.  Another common fault is basing the investing decision on what the tax records indicate a property is "worth".  Many of the investment areas in this city leave only investors as your end-buyer for the property.  There is not retail market in the neighborhood.  Many people forget that investors only pay so much, and they at the same time forget that a property is only worth what someone will pay for it.  Just because you are willing to pay $60,000, doesn't mean that the next person will!

    Just my 2 cents.

    1Reply
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