Birmingham Alabama SFH investing

[Kevin Tran]

Hi Everyone,

Im looking to invest in SFM (less then $125K, 3Beds) in the Birmingham & surrounding areas.  

In my research so far, Birmingham seems to have potentially good cash flow.  However, the area has 2x the national average of vacancy (B'mgh 10.89% vs US 5%), also the new delinquent  and foreclosure rate is trending up (B'mgh >1600 units).

So my questions are:  

1. Are Jefferson and Shelby counties experiencing decline in job growth or population growth.

2. Is the real estate in B'mgh area too invested already, and now some over leveraged investors are getting into trouble?

3. Please share your thoughts on SFH investing in B'mgh area, the good and bad.

Thank you.

[Jason Cory]

Originally posted by @Kevin Tran:

Hi Everyone,

Im looking to invest in SFM (less then $125K, 3Beds) in the Birmingham & surrounding areas.  

In my research so far, Birmingham seems to have potentially good cash flow.  However, the area has 2x the national average of vacancy (B'mgh 10.89% vs US 5%), also the new delinquent  and foreclosure rate is trending up (B'mgh >1600 units).

So my questions are:  

1. Are Jefferson and Shelby counties experiencing decline in job growth or population growth.

2. Is the real estate in B'mgh area too invested already, and now some over leveraged investors are getting into trouble?

3. Please share your thoughts on SFH investing in B'mgh area, the good and bad.

Thank you.

Jefferson & Shelby County are still growing 

Birmingham data includes a 7 county MSA not just the city limits.

Within the city limits the vacancy is low for SFR.

Investors are over leveraged that have purchased based on the 1% rule. These are the units that have increased the vacancy rate. These investors are in trouble whether or not they have realized it yet. 

It's better to purchase within the city limits for a lessor price that to go out of the city. Those are owner occupied areas not rental areas.

Birmingham is still a good place to invest so long as you invest for your goals not because it's easier to get financed/appraised. The appraised value in these areas is for someone to buy & occupy not rent out. Those are 2 completely different appraised values.

If you're buying to rent you should buy in predominantly rental areas. 

Feel free to look at other posts I've made. I've harped against buying for the 1% rule since joining BP. That will never change since my background is appraising prior to investing. 

Buying for income should only be valued by the income approach in rental areas.

Buying for sale should only be valued by the sales comparison approach in owner occupied areas.

Unfortunately, BP pushes TK for income based on the sales comparison approach. Square peg, round hole. It will always eventually catch up to investors. 

[John White]

Will you give us an example of good rental areas in Birmingham and a safe way to evaluate?
I have found that local contractors have no rhyme or reason how they estimate repairs.
Any advice you have will be helpful

[Jason Cory]

Originally posted by @John White:

Will you give us an example of good rental areas in Birmingham and a safe way to evaluate?
I have found that local contractors have no rhyme or reason how they estimate repairs.
Any advice you have will be helpful

 Anywhere within the city limits has rental demand. 

It's likely your contractors aren't estimating correctly because the scope of work is incomplete so they have to guess & build in assumptions because the direction isn't clear. 

Contractors are easy if the scope of work is complete. 

[Spencer Sutton]

Birmingham is a competitive market and unless you live here and source motivated sellers yourself, you are likely going to pay too much. 

It's my experience that out of state investors pay too much and they're not educated on the areas enough. They believe TK providers who say that Centerpoint is a B area when it's clearly not a B area. 

Here are my thoughts on some popular Birmingham areas:

A - Mtn Brook, Vestavia, Homewood

B - Alabaster, Calera, Trussville

C - Centerpoint, Pleasant Grove, Hueytown 

D - East Lake, Ensley, West End

F - Wylam, Inglenook, and a lot of other places

There's a lot more that could be said about how to invest in Birmingham real estate for long-term wealth creation. Patience is the biggest key. Have a long-term goal, be disciplined, and do your homework.

This didn't really answer your questions above, but I hope that it's helpful!

[Estes Gould Hughes]

I can help with a couple of pieces:

1) Population growth in Birmingham is lower than it is in other growing metro areas, but it's not declining. Populations are moving within the city (more people downtown/in the city limits than previously), though, which I think could lead to some of the statistics you list.

2) Job growth is kind of hard to measure in this area, along with population growth, because it's comprised of so many different municipalities. But new projects are suggesting that things are going in the right direction. An Amazon center in Bessemer, which will bring in 1500 jobs, is the largest economic development project the city has seen in years.

[Kevin Tran]

Thanks everyone for your insights.  I plan to learn everything I can about B'MGH and the surrounding areas before investing.  I rather miss hundreds of opportunities than losing money.  My goal is for income generation, and I plan to either pay cash or put 50% down for each property.  I don't like leveraging too much as I'm very cautious.  

My goal is to set up a trusting team comprising of property manager(s), agent(s) and handy-man/contractor(s), so that I work with to manage my investments.

I would appreciate any recommendations on PM/agents/contractors. 

[Josh Anderson]

Originally posted by @Spencer Sutton:

Birmingham is a competitive market and unless you live here and source motivated sellers yourself, you are likely going to pay too much. 

It's my experience that out of state investors pay too much and they're not educated on the areas enough. They believe TK providers who say that Centerpoint is a B area when it's clearly not a B area. 

Here are my thoughts on some popular Birmingham areas:

A - Mtn Brook, Vestavia, Homewood

B - Alabaster, Calera, Trussville

C - Centerpoint, Pleasant Grove, Hueytown 

D - East Lake, Ensley, West End

F - Wylam, Inglenook, and a lot of other places

There's a lot more that could be said about how to invest in Birmingham real estate for long-term wealth creation. Patience is the biggest key. Have a long-term goal, be disciplined, and do your homework.

This didn't really answer your questions above, but I hope that it's helpful!

I feel like everyone's rating will be different, and really slanted if you only invest in higher end parts of town, which sounds like you might.

We invest in the lower end, for rents as the return rate is much better, and section 8 is easy peasy to work with.

There are plenty of parts of Ensley, Wylam, and Inglenook that are great to invest in, they are street by street.

Heck, I could classify Eastlake as a C

So being in the hood with our houses. I would make this analysis

A - Hoover, Mnt Brook, Homewood, Pelham Trussville, Alabaster 

B - Clay, Pinson, Centerpoint, Pleasant Grove, Leeds, Moody, South point

C- Tarrant, Inglenook, Eastlake, Birmingham, Norwood, 

D - Ensley, West End, Titusville, Midfield, Fairfield,

F - I don't personally have any F area, I think there are good streets in every area if you are a out of state investor I would avoid anything below a B, as you can get sold a house on a bad block and overpay 

[Ronald Lit]

What do you know or think about GroundFloor.com?

[Jason Cory]

Here is a post about Birmingham markets by class. I used to appraise & they were defined by market conditions. 

In no ways would Eastlake be classified as a C area. They had 84 armed robberies in 2017 compared to 19 for North Birmingham(supposedly our worse area). 4 times the armed robberies equates to a tanking market in Eastlake. 

Do your due diligence. One wrong move in Real Estate can cause a domino effect to your entire life. 

[Spencer Sutton]

You make some good points, @Josh Anderson. 

I would also say there are other aspects of owning rental property that come into play for investors. 

Some other key factors:

1. The age of the home - the areas that I described as D/F above are mostly older homes that come with more frequent repairs and usually higher utilities for the tenants.

2. These areas usually don't get better, they get worse - If you buy in Tarrant, Inglenook, West End, etc... there is a much greater chance (99%) that the good street turns worse over the course of several years. I have owned rental houses in some of these areas since 2004 these streets typically go the other way.

3. The investor timeframe - If you're a wholesaler/flipper, you can buy deep, take greater risks, and make a profit in this market. If you're a long-term rental investor, you have to think 10, 15, 20 years down the road. You're thinking through rehabs, possible evictions, vacancy, vandalism, etc... Buying in the rougher areas can turn into a recipe for disaster for out of state investors who aren't extremely careful.

I love Birmingham and want more investors to do well. I just believe out of state investors don't need to believe all of the hype and take due diligence seriously before buying in some of these popular Birmingham areas.

[Kevin Tran]

Would you say that the demand for SFH rental is greater in A rated neighborhoods (Homewood, Mt Brook, Vestavia etc), albeit, difficult to cash flow?

[Spencer Sutton]

Hey @Kevin Tran , I do believe that there is strong demand for the nicer areas. However, they're much tougher to comp correctly from a rental perspective. That's mostly because there aren't a lot of rentals in the area and that each home tends to be unique and not a cookie cutter like the one next door. We manage several houses in Homewood and Vestavia. We may have one or two in Mountain Brook...not a lot of rentals in that municipality. Hoover is a great area to buy rental houses in if you can get comfortable with the numbers.

[Kevin Tran]

@Spencer Sutton, thanks so much for the insight. 

[John Patton]

In reference to classifying some of these neighborhoods in Birmingham as C or D or F. The class C ones I have  some rental homes in. The Class D ones I do not because they steal and shoot guns there and I don't go there anymore. And the F ones I left behind 25 years ago when I had guns pulled on me a couple of times in Airport Hills and Eylton Village. With that said good luck, stay safe and be armed. JP