Seeking Birmingham, Alabama Turnkey Advice. (Investors Only)

78 Replies

hi @Tyisha G. ,

We purchased a TK property in Memphis and also one in Birmingham.  Our Memphis property was from BuyMemphisNow and has been performing well so far. We had a 2 year tenant in before we closed!  Our Birmingham property has been struggling.  We ended up having to accept section 8 in order to get a qualified tenant.  We have a tenant going through the sec 8 process but they still aren't moved in.  I lost count but I think we are around 3 months of vacancy.  I heard similar things from others in Birmingham. I'm not positive what the main problem is but I think it's oversaturated. 

I recomend finding a good company who's been around a long time, in a good solid long term market. Don't pay too much attention to the "new hot markets." Get something in a good market with a very reputable company. 

Message me if you have any more questions. :)

@David Hodge Thank you for sharing. I'm glad that your Memphis property is going well. Three months is quite a vacancy; I hope the tenant moves in soon. 

Thank you for the recommendation and I will keep in touch. 

@David Hodge I'm sorry to hear that you haven't had a good experience in Birmingham. I truly hope this won't put you off the entire market all together. I believe in Birmingham, as with all places, it's all about your provider. I'll give our detailed stats below for our entire portfolio, so hopefully you'll know that there can be some fantastic numbers in this area. 

@Tyisha G. Memphis is a great market, but I hope you are not completely turned off to the Birmingham market. As with any market there are bound to be bad experiences, but I'd like to share some of our property management company's data, so you can get a sense of how a large portfolio can perform in Birmingham (254 properties currently).

*Disclaimer - Our companies provide full turn key properties from acquisition to renovation to leasing to property management. I am giving our property management statistics to inform how a well managed portfolio in Birmingham can perform. Please do not take this as solicitation.*

First off, we have a very specific portfolio that is ONLY in B-Areas (no C-Areas) and a few A-Areas. We do not rent Section 8. I've described most of our areas in this thread in a previous post. We also have completely renovated properties. Some think we go too far with our renovation, so this can have a positive impact on the numbers below (but it also increases the capital in the property, so you need to weigh that in). We are numbers geeks at Spartan, so we keep extremely accurate records of our entire portfolio. Here are a few specifics for our entire portfolio:

  • Average time from renovation to lease: 29 days. This is after the property has been completely renovated - essentially how long it sits on the market before we get a 2-year lease on the property. 
  • Average move out turn around: 48 days. The extra time here is to account for the clean out and renovation that must take place on the property after the previous tenant moves out. 
  • Average move out cost: $1202. This is the average amount of money spent after a tenant moves out that it takes to get the property back to rent ready. Keep in mind that the median security deposit for one of our properties is $950, thus our average "out of pocket" cost from a move out is $252. This does not include the cost of vacancy which can be calculated from the above two numbers. 
  • Average maintenance ratio: 2.9%. This is the total amount of maintenance costs an average property has over the course of the year divided by the total annual rents received. 
  • Average length of lease: 35 months. This is the average number of months that a tenant will occupy one of the houses in our portfolio. Keep in mind that we only sign 2-year leases, and this is a year longer than the average in the market. 

I'm not sure how familiar with property management statistics you are, but compared to national averages on single family house management, these are stellar. Also, I truly wanted to post this to give people a representation of what you can get in the Birmingham market with a good provider. Of course, we would love to do business with you, BUT I really just wanted to post the statistics to give folks a representation of a large portfolio in Birmingham. In my opinion, our market is an amazing one for turn key properties. 

Sincerely,

Clayton

A great deal of helpful advice, but any answer to which turnkey companies are the best to work with with regards to making more cash flow? Anyone have any experience with a great (or bad) company they would like to share?

My property in Gardendale AL is sitting vacant for last 5 months.

@Sara Hodge Hi Sara, I am relocating to Birmingham in a few weeks and interested in finding out more about the buy and hold/turnkey market out there.  Was wondering if you had any updates on how your experience progressed after starting this post?

@Sara Hodge @David Hodge

Hi Sara and David, I will be visiting Birmingham in a couple of weeks to meet with turnkey providers. Would you mind sharing which TK provider you chose eventually? Can I PM you? Thank you. 

@Christine M. - Good luck on your visit to the Magic City next few weeks. Be careful with some of the areas in the city. If I can be of help just sent me address and usually I can tell if the property is a possibly money maker or not. Good luck. JP

@claytonmobley, 

Average move out turn around: 48 days...that sounds like an awfully long time?  What is being done that would take that long?

Originally posted by @Bobby Kohler :

@claytonmobley, 

Average move out turn around: 48 days...that sounds like an awfully long time?  What is being done that would take that long?

 I have one turnkey SFR in Birmingham. It has more "drama" and headaches than I would have ever imagined. At the current time, we have removed the tenant and are doing make ready. Amazing how a house that rents for $750/month could have $4,000 of make ready only one year after it was a fully rehabbed turnkey. 

The last year has been a story of late payments, terrible communications from the Property Manager and a tenant that was allowed damage the home without recourse and manipulate the PM. The PM company has made a change to the mgmt structure and has promised a quick make ready and a quality tenant.

After the re-tenanting process is completed, I will update everyone on how it went. I am hoping that the PM mgmt change delivers the results that an out-of-state investor needs to be confident investing in Birmingham.

Have a great day! 

Who was the turnkey company and what is the name of your PM?

@Bobby Kohler Apologies for the delay in responding here, I don't thing the @ trick worked. Of course, you and I have already corresponded on this issue via PM, but I'll post my answer here as well to ensure the correct info is out there.

Firstly, my post above is a bit outdated now and our average time between move out and new move in is down to 38 days. As I mentioned to Bobby, this is due to the fact that we never defer maintenance and execute the following make-ready work between every tenant: replace carpet (where necessary), new coat of paint, patch holes, fix lights, thorough top-to-bottom deep clean, update landscaping, replace window coverings where needed, tighten or replace fixtures, handles, etc. The 38 days also includes an average of 4 days to get the go-ahead on updates from the investor. 

Bear in mind that this is an average, so often we are able to turn over a property much more quickly, but the few times that it takes longer push up the average wait. Our average time to first lease on a new-to-us property is 28 days (down a bit from last post) because we are able to start marketing it when the rehab is 80% complete.

It is also worth noting that we no longer install carpet in new properties. Now we install like-wood high-quality vinyl with a life of 15 years, so our average turnover time should come down as the percentage of properties in our portfolio that are carpeted goes down over time. We just don't have the data for that yet.

Bobby's concern was the loss in rental income that these waits would entail. And, of course, while a shorter turnover is always preferable, it is important to look at context -as in, how often will this potential income loss actually be an issue? Firstly, our minimum lease is two years, but our average is still 34 months, which means that many of our tenants stay much longer. On average, therefore, we only have this tenant turnover about once every three years.

In addition, it's important to look at the overall occupancy rates of any provider your are considering to get an idea of how much of an impact tenant turnover waits (or other vacancy) will have on your bottom line. At Spartan, we track our occupancy rate religiously and update it daily, so we know for sure that our occupancy rate for the past 52-week rolling period is 97.2%. Our mid and short term rates are even higher - up around 98% +/- 0.2% depending on what period you look at, so we expect our long-term rates to continue to be great. (And here is a note for any new investors looking at turnkey - ANY good provider should KNOW this number for multiple look-back periods, not estimate, not give you "oh it's great, around 100%". If a provider is not seriously metrics-driven, walk away). It's also worth noting that our maintenance rate is down from my last post, 2.6% rather than 2.9% - also a result of our high-quality refurb process.

Anyway, all this is to say that the turnover wait time is an important concern but needs to be considered in context. Ours is due to the fact that we never defer maintenance and make sure every property is faultless inside and out, which helps us attract quality tenants that stay longer and treat properties better. Our average net move-out cost is also down to only $202 - but again that's an average, so many are $0 which are offset by a few bigger move outs (our highest ever was $3k). In addition, we expect this average time to continue to go down as our portfolio grows due to our use of vinyl rather than carpet.

I've seen a number of posts and threads about a Birmingham company that cost a lot of investors a huge amount of lost time and money (@Doug Johnson I think this is who you are referring to with your all-drama SFR) and it's such a disappointment to see people turned off of TK and Bham because of that kind of shady business practice. There are still some truly high quality TK outfits around -Spartan (of course), Memphis Invest, Decas etc - but unfortunately investors do need to take ownership of their due diligence to avoid these kind of scams that are all glossy marketing and no substance.

As I said above, if a provider is not truly metrics-drive and can't give you detailed, figures-based information about ANYTHING - vacancy, expenses, maintenance, turnover, lease terms, PM fees, leasing fees, appraisals, purchase price components, etc - then you need to run. If someone asks a question like Bobby's and the provider can't or won't give a solid, thorough answer in a timely manner, then that should be a massive red-flag. Any provider worth their salt should not only provide this info up front and answer all your questions, but they should show that they are accountable to you even after you write a check. We back up everything we do with a 100% money-back guarantee and, while no one has ever taken us up on it, our clients like knowing that we have skin in the game and are dedicated to ensuring their satisfaction with every facet of their investment - the returns, the communication, me, our staff -  everything. 

Sorry, I know that went a bit off-topic ;) I just finished reading some pretty disappointing threads and I always like to take any opportunity to remind newbies that they should 100% ask a TON of questions of any provider they consider and make sure they understand all the data before moving forward. If you're proactive about understanding an investment, the shady providers will out themselves pretty quickly by being vague, hard to get a hold of, or trying to redirect you when you ask a question they don't want to answer.

Anyway, I'm on vacation and promised I wouldn't get sucked into the BP rabbit hole (clearly I failed today)....so I'll leave it at that ;)  Best of luck to all!

Clayton

Originally posted by @Clayton Mobley :

@Bobby Kohler Apologies for the delay in responding here, I don't thing the @ trick worked. Of course, you and I have already corresponded on this issue via PM, but I'll post my answer here as well to ensure the correct info is out there.

Firstly, my post above is a bit outdated now and our average time between move out and new move in is down to 38 days. As I mentioned to Bobby, this is due to the fact that we never defer maintenance and execute the following make-ready work between every tenant: replace carpet (where necessary), new coat of paint, patch holes, fix lights, thorough top-to-bottom deep clean, update landscaping, replace window coverings where needed, tighten or replace fixtures, handles, etc. The 38 days also includes an average of 4 days to get the go-ahead on updates from the investor. 

Bear in mind that this is an average, so often we are able to turn over a property much more quickly, but the few times that it takes longer push up the average wait. Our average time to first lease on a new-to-us property is 28 days (down a bit from last post) because we are able to start marketing it when the rehab is 80% complete.

It is also worth noting that we no longer install carpet in new properties. Now we install like-wood high-quality vinyl with a life of 15 years, so our average turnover time should come down as the percentage of properties in our portfolio that are carpeted goes down over time. We just don't have the data for that yet.

Bobby's concern was the loss in rental income that these waits would entail. And, of course, while a shorter turnover is always preferable, it is important to look at context -as in, how often will this potential income loss actually be an issue? Firstly, our minimum lease is two years, but our average is still 34 months, which means that many of our tenants stay much longer. On average, therefore, we only have this tenant turnover about once every three years.

In addition, it's important to look at the overall occupancy rates of any provider your are considering to get an idea of how much of an impact tenant turnover waits (or other vacancy) will have on your bottom line. At Spartan, we track our occupancy rate religiously and update it daily, so we know for sure that our occupancy rate for the past 52-week rolling period is 97.2%. Our mid and short term rates are even higher - up around 98% +/- 0.2% depending on what period you look at, so we expect our long-term rates to continue to be great. (And here is a note for any new investors looking at turnkey - ANY good provider should KNOW this number for multiple look-back periods, not estimate, not give you "oh it's great, around 100%". If a provider is not seriously metrics-driven, walk away). It's also worth noting that our maintenance rate is down from my last post, 2.6% rather than 2.9% - also a result of our high-quality refurb process.

Anyway, all this is to say that the turnover wait time is an important concern but needs to be considered in context. Ours is due to the fact that we never defer maintenance and make sure every property is faultless inside and out, which helps us attract quality tenants that stay longer and treat properties better. Our average net move-out cost is also down to only $202 - but again that's an average, so many are $0 which are offset by a few bigger move outs (our highest ever was $3k). In addition, we expect this average time to continue to go down as our portfolio grows due to our use of vinyl rather than carpet.

I've seen a number of posts and threads about a Birmingham company that cost a lot of investors a huge amount of lost time and money (@Doug Johnson I think this is who you are referring to with your all-drama SFR) and it's such a disappointment to see people turned off of TK and Bham because of that kind of shady business practice. There are still some truly high quality TK outfits around -Spartan (of course), Memphis Invest, Decas etc - but unfortunately investors do need to take ownership of their due diligence to avoid these kind of scams that are all glossy marketing and no substance.

As I said above, if a provider is not truly metrics-drive and can't give you detailed, figures-based information about ANYTHING - vacancy, expenses, maintenance, turnover, lease terms, PM fees, leasing fees, appraisals, purchase price components, etc - then you need to run. If someone asks a question like Bobby's and the provider can't or won't give a solid, thorough answer in a timely manner, then that should be a massive red-flag. Any provider worth their salt should not only provide this info up front and answer all your questions, but they should show that they are accountable to you even after you write a check. We back up everything we do with a 100% money-back guarantee and, while no one has ever taken us up on it, our clients like knowing that we have skin in the game and are dedicated to ensuring their satisfaction with every facet of their investment - the returns, the communication, me, our staff -  everything. 

Sorry, I know that went a bit off-topic ;) I just finished reading some pretty disappointing threads and I always like to take any opportunity to remind newbies that they should 100% ask a TON of questions of any provider they consider and make sure they understand all the data before moving forward. If you're proactive about understanding an investment, the shady providers will out themselves pretty quickly by being vague, hard to get a hold of, or trying to redirect you when you ask a question they don't want to answer.

Anyway, I'm on vacation and promised I wouldn't get sucked into the BP rabbit hole (clearly I failed today)....so I'll leave it at that ;)  Best of luck to all!

Clayton

Thanks @Clayton Mobley for a great post.  It would be great if Memphis Invest and Decas would also post their occupancy, average turn around time for re-leasing, maintenance % and average make ready costs.

@Doug Johnson - I want to make sure this is not taken out of context, or at least isn't seen as a knock on a company like Spartan.  I'm happy to see that Clayton takes such a clear stance on metrics driven decision making.  The data will always tell you which way to go provided that you are not getting lost swimming in it.  

When presenting to consumers (or even yourself for that matter) data can be used both positively and negatively.  It can tell whatever story you want it to tell.  As a consumer, it is important to make a huge distinction and it is why it is so important to really know who you are buying from when you buy passive investments far away from where you live - turnkey or not.  

Companies that track and actively talk about their numbers are going to be in a better position to have success and to help an investor be successful.  Nothing more and nothing less.  Certain data points matter, but less than the fact that they are being tracked.  As an example, the length of time in business and number of properties managed are very, very important key factors when looking at data.  Numbers and data may not matter as much early on as a company is growing. As a company reaches, say 1,000 properties under management and has been through a full cycle of move-outs and even begun to have their clients experience cap-ex, then these data points take on true meaning.

For now, it is much more important when evaluating a market to find quality partners.  One way to differentiate between partners is to find out who is on top of their business and poised to make good decisions as they grow.  So, as an investor, you need to visit companies you want to do business with and look at their operation.  Anyone can spout data and anyone can pull a number out of their backside to make it look like they track data.  Pay attention to what your eyes tell you and if a company talks a good game and has lots of data and is clearly unorganized and understaffed...well, there is your answer about the value of data.  If a company has their act together with a well-trained staff and clearly defined roles, then their data is going to have some meaning to it.

This forum is not about my company, but we've been mentioned a couple of times and here are your answers Doug.  Memphis Invest began publishing this kind of data and monitoring it long before many TK companies active today existed, including Spartan.  When we started, we challenged other companies in the industry to the same.  We also routinely host TK and PM companies here in Memphis who want to learn best practices.  We have an abundance mentality and have no problem sharing with other companies.  The best way to build the reputation of the industry is to help investors clearly differentiate. 

Clayton took a tour of our offices several years ago and today has a partner who used to work for our company.  I am sure from what I know of him he would have made his way to his current course without ever meeting our company, yet, I am also sure that having met us and having a partner that used to work with us has had a heavy influence on the way he operates.

As for your question itself,  today we manage 3,648 properties in three cities Memphis, Dallas, and Houston.  As of this AM, we have 64 properties vacant being marketed and 58 properties undergoing renovations.  That is a total of 122 vacant properties or 3.34% vacancy rate.  None of the current properties has been vacant for longer than 41 days and 11 of those have leases waiting to close.

We sign only 2-year leases.  An average length of stay in our properties is at 49 months.    

So far for the year (thru July 31), we have paid out $19,887,000 in rent to our owners and they have paid $972,000 in maintenance and capital expenditures.  *** That is an important distinction. 

Most companies require maintenance accounts which are not counted toward rent and are not counted in maintenance percentages.  At the same time, most companies will require owners pay all overages out of pocket before work starts.  Memphis Invest operates differently.  We do not require maintenance deposits.  We pay a vast majority of maintenance expenses up front and deduct from rental income.  So our maintenance number includes all cap ex as well as routine maintenance and has any contribution from owners added back.

Total maintenance and cap-ex year to date are right at 4.6%.  Over time, we have seen this number move toward 5% as the over-all portfolio experiences cap-ex instances.  

Long post - but two lessons.  

1.  The length of time and size of portfolio matters when looking at data.  Since few companies operate with this type of data and many are relatively small and young, other, more subtle factors matter more than the data.  Like...

2.  The fact a company is actively trying to use metrics to build and drive their business is what REALLY matters.  Companies that are willing to spend their two most precious resources - time and money - on building a metrics-driven business should ultimately succeed and help their clients succeed. 

@Sara Hodge - your forum took on a life of its own!  I have not purchased from any Birmingham companies but am familiar with several that operate there as you can tell from my above post and have hosted several in our offices.  We share a few clients with Spartan and personally know one of the partners over there.  They are intelligent and paying close attention to their clients and building a high-quality company.  My advice - use your eyes and pay attention.  Although location and the house itself are important, nothing matters more than you partner!  You will be able to figure out who is going to help you be succesful.

Best of luck!

Originally posted by @Doug Johnson:
Originally posted by @Bobby Kohler:

@claytonmobley, 

Average move out turn around: 48 days...that sounds like an awfully long time?  What is being done that would take that long?

 I have one turnkey SFR in Birmingham. It has more "drama" and headaches than I would have ever imagined. At the current time, we have removed the tenant and are doing make ready. Amazing how a house that rents for $750/month could have $4,000 of make ready only one year after it was a fully rehabbed turnkey. 

The last year has been a story of late payments, terrible communications from the Property Manager and a tenant that was allowed damage the home without recourse and manipulate the PM. The PM company has made a change to the mgmt structure and has promised a quick make ready and a quality tenant.

After the re-tenanting process is completed, I will update everyone on how it went. I am hoping that the PM mgmt change delivers the results that an out-of-state investor needs to be confident investing in Birmingham.

Have a great day! 

 Well, it has been another month without a tenant and no cash flow.  It has taken over a month to do a make ready.  I am trusting that the PM will do what is necessary to make this right.

@Doug Johnson

Which PM are you using?

I purchased 1 property in Birmingham. Luckily I inherited a tenant , so no turnover costs yet but property has below market rents and maintenance costs seem to be trickling up each month. I am not sure yet the potential returns will be close to what I assumed when buying. I am in a holding pattern now to see if things will eventually stabilize and the returns start.

In gen it feels turnover costs will be much higher than other mid west markets due to time to find qualified tenants. 

@Account Closed also has 2 SFHs in the Centerpoint area may be he can chime in too.

This post has been removed.

Hi @Sara Hodge and @David Hodge .. I know this is an older forum but just wanted to get an update on your decision to invest in the Bham area. I am looking to do the same thing and this would be my first buy and hold property. I currently live in Texas so i'd be an out of state investor as well.  I don't think I'm looking for a turnkey rental as you did since i'd like to get something in the 20-30k range and then get the rehab done. I'm guessing that price range in automatically section 8. Well anyway just wanted to see if Bham was a good choice for you.

This has been one of the most informative posts that I’ve ever read on BP. Great for BHAM and other markets, also when considering TK. I have not bought from proper TK companies, but have inherited tenants with purchases from other investors with mixed results, but mostly good.

I don’t tend to look at my investments as turn key, even when they have tenants in place, but reading about a couple of the TK providers has been very helpful as I look at buying a small portfolio from another investor in BHAM.

Any updated comments to investing in BHAM? @Sara Hodge How has your experience turned out and are you still actively investing in that area or now just taking cashflow?

I’m interested in what property managers are using. I had issues with paying 9 hours of labor on just a small plumbing issue. I have four in Birmingham centerpoint.

Yes I agree love Alabama, got a house in Pinson, Alabama right on the line with Birmingham. 

Love the property taxes versus Texas, that's why I invest out of state, more cash flow. 

$70K for the house about $8K on the rehab rented first week on the market at $875 cash flowing about $370.

Zip code 35215 

Anyone have any input on the Brookside area (35214) of Birmingham? Looking at a property, $73K, vacant, but market rent is ~$850. Anyone have any experience in the area? 

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