Markets for A or B class neighborhoods

10 Replies

I was wondering if anyone knows about any areas which has a better cash on cash return than 5 to 7 percent for properties in the A or B plus neighborhoods that are relatively newer 1990 or later built. I describe A or B plus neighborhoods as places where professionals would feel comfortable living with good school districts or close to vibrant parts of the town. Thanks!

Payal, are you talking about SFHs? If so, probably not. Also, it would be better that you ask your question with cap rate as the metric, not CoC return. CoC return entails a loan, so if you want to use that as the metric, you will need to provide what your financing terms and rate will be as well as the price range and expected LTV.

Hi Wes,

I am looking for properties in the 200K price range, though I would be willing to go up to 300K if I find a good return. I prefer SFH, but am open to other types. I plan on putting 25% down, interest rate will be around 4%. The cap rate for most properties I am looking currently is around 5% to 6%. I know lower class neighborhoods give better returns, but having less tenant headaches and house that doesn't require too much maintenance hassles is important to me.

Payal Zilaro Center Point area of Birmingham Alabama is a sweet spot for B class cash flowing properties. I know a couple great turnkey providers there too. PM me of you are interested. I'm closing on one any day now out there.

Hey @Payal Z.

You described A/B neighborhoods as the following: "...places where professionals would feel comfortable living with good school districts or close to vibrant parts of the town".  

In Birmingham you will find those in Mtn. Brook, Vestavia, Homewood, Hoover, and varying parts of Shelby County. 

While Centerpoint has some great rental areas and rental houses, it is not a place where young professionals live and the school districts are really bad.  The areas I listed above have some of the nations best schools and young professionals can be found everywhere.

Hope that helps!

@Payal Z. that you won't see a lot of young professionals in these areas. Most gravitate towards downtown in the loft district and move to the areas where Spencer described.

Thank you. I appreciate your input. I will study those areas.

@Payal Z. just wanted to clarify I assumed you meant in LA or CA, which is why I said probably not. From my knowledge, Houston is also a good possibility. Keep in mind expenses are much higher there (mostly due to property taxes and insurance).

If you guys are satisfied with 5-9% returns, you should come to Houston. 10-13% cash on cash for a standard rental in a stable middle class neighborhood. 

Our rental properties seem to be pretty popular with you Californians. Seems like I hear from a few different people from there every month.

5-9% returns in Birmingham are for A class properties. With B properties, you can expect 9.5%-11% return. With C class 11%-13%. That is the averages but many of our investors have been receiving returns as high as 15-18% mostly with their C class  investments. With higher returns comes greater risks.

I don't think you can really quantify a neighborhood like that.  I invest only in Class A and B neighborhoods, and I wouldn't do a deal if i was getting less than 15% return.  Granted, most of my purchases need to be rehabbed, but as long as you are putting in lots of offers its very possible, and not that difficult to get higher returns in the best areas.  

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