Does anyone have any thoughts on the Huntsville, AL market? I am looking for cities to invest in and need some insight. All comments welcome and appreciated.
@Kim Rose Huntsville is an amazing market and it is very diverse. Literally $50K homes to $500K with in a few blocks. Are you looking for zip codes with top schools or top rent ratio or highest % of home owners, lowest % of home owners ...
Job growth, income growth, rent increases, good rent to sales ratios all create so much opportunity in Huntsville and surrounding markets. Those things also create intense competition. @Brian Boyd the only thing I don't like in Huntsville is the small MF market. It is hard to say any one thing is the worst investment somewhere but I can't think of something in Huntsville that is worse than small MF. One caveat to that is where you are creating an additional unit(s) in an existing SFH. That is a great investment.
@Brian Boyd Huntsville is a strong market. Lots of job growth and good things happening. With that comes competition though. What type of investments are you looking for?
@Brian Boyd Now is the perfect time to enter the Huntsville Market! The market is strong and competitive and the local economy is growing at a rapid pace.
@Kim Rose Huntsville is an amazing market and it is very diverse. Literally $50K homes to $500K with in a few blocks. Are you looking for zip codes with top schools or top rent ratio or highest % of home owners, lowest % of home owners ...
Job growth, income growth, rent increases, good rent to sales ratios all create so much opportunity in Huntsville and surrounding markets. Those things also create intense competition. @Brian Boyd the only thing I don't like in Huntsville is the small MF market. It is hard to say any one thing is the worst investment somewhere but I can't think of something in Huntsville that is worse than small MF. One caveat to that is where you are creating an additional unit(s) in an existing SFH. That is a great investment.
Small MF is a great starting point for a lot of investors looking to go out of state (unless they've got too much cash and want to skip straight to the point, which I don't know I'd recommend to any new investor in a peak market). Is the tenant pool just not a fan of the small MFR product, Dave? What type of assets and areas are you finding assets in that have the highest possible cap rate + a feasible turnover and management profile? Is small MFR just priced too closely to SFR rentals in these neighborhoods? Is there an abundance of SFR rental units available in these areas?
My experience is that tenants in working class areas see small MFR as a second option to renting an SFR, which is ok in markets where demand is high enough to create a price gap between the two, and supply a steady flow of tenants into both property types. The markets I operate in have great plex performance. When SFR's are available for rent in overabundance, nobody is going to want the plex product to live in unless they are lower quality tenants for the area.
The short answer is too low of rents. In Huntsville, the small MF are renting in the $450 to $675 range for the most part. SFH are in the $800 to $950. The small MF I see are pretty isolated and not mixed in with SFH. That creates a neighborhood of ~$500 rents which creates a challenging tenant pool. There isn't enough headroom to push up the rents and those low rents make for challenging cash flow when you include appropriate CapX, maintenance, vacancy, etc. On top of that, small MF purchase prices are being pushed up which is allowing higher returns on SFH. However, I do not know the suburbs of Huntsville for Small MF. I'm betting there are opportunities there.
@Account Closed opened my eyes to the opportunities in the suburbs of the major markets. I think his thesis makes so much sense - broad macroeconomic trends are the same/similar as the big city, way less competition and generally better rent/price ratios for a higher class of product. If you are interested in small MF, I would definitely look at what Elliott offers in secondary and tertiary markets.
@Dave DeMarinis you better mention that we're not affiliated before that post gets flagged because that's a PLUG, lol! I do appreciate it of course.
That's an interesting point about the low rents, and a valid one. I like to see 2 bedroom units renting for about $700-$800 in C+/B- neighborhoods where we target small MFR. That way, a 100k duplex generates a substantial operating reserve and still cash flows.
Dave, how large are the assets you've purchase in hunstville, and what's the avg price per unit & avg rent per unit that you're targeting? What are the cap rates on the assets you're purchasing, at market value? What asset classes are these neighborhoods?
@Account Closed Yes, we are not affiliated, so mods, please don't pull any posts. I'm SFH in Huntsville and my target was minimum $800 rent for a 3 bed home and 1.1% rent/all in cost and wanting total cost to be <80% ARV. Rents are growing pretty quickly and I'm certainly seeing appreciation as well. As an example.
$60K purchase plus $12K rehab, rent at $800 and ARV of $90K. That same deal in today's market probably rents for $900 and ARV is $100K+.
OK, I'm going to spill the beans. Huntsville completely violates one of the best arguments on BP. Cash flow OR Appreciation? Huntsville takes advantage of the beauty of the AND (as author Jim Collins says).
I don't know the suburbs (other than Madison which is definitely A/A+) but in answer to what I hope you are thinking, I think your model would be very interesting in some of the suburbs.
@Brian Boyd Huntsville is crazy hot right now. A lot of my TN based clients are starting to buy deals there and the numbers are usually pretty spectacular.
@Dave DeMarinis I'm gonna spill some more beans. If you find markets with MUCH HIGHER cash flow than comparable markets investors have identified, then EVENTUALLY when those investors do come across it, they will pay a price that gets them a comparable cash flow to the markets they're already investing in. Some math will reveal that that price will be a higher with a magnitude that is in direct proportion to how much better that market cash flows.
EX:
Everyone buys 100k houses in a popular market, market A, at an 8% cap.
You find market B, which is very similar to market A, just less popular. You buy a 67k house at a 12% cap. Once the folks from market A discover market B, they will eventually be willing to to pay 100k for your house, which gets them to an 8 cap. -------------
This, ladies and gents, is how you identify appreciation opportunities in "cash flow" markets. With a substantial effort, you can even exert some level of control over appreciation- which I'm sure the general BP population will deny.
I just bought an 8 unit at a 27% cap rate (you read that correctly) in one of these market B situations in a C+ area and haven't done a thing to it. At what cap rate do you guys think the investors from market A next door will pay for it?
Just caught up on this thread after being inactive for a while through a move and the holidays. My wife and I are licensed Realtors here in Huntsville, so if you all have any questions please let us know!
My wife and I are investing newbies looking to start buying and holding cash flowing rentals. The Huntsville market is our local market so that is where I would love to begin to build a portfolio. I know the area well. I'm just unpracticed in finding deals.
@Cameron Pletcher - the Huntsville market is crazy right now with an oversaturation of buyers and less than 1000 properties in total available based on the recent real estate data. Madison proper is probably even worse because of the excellent schools and the huge number of owner occupied buyers. If you want to find deals, you will likely have to look in slower appreciation areas - Athens, Decatur, Hazel Green. These are not areas I invest in, but that doesn't mean you can't find a possible cash flow deal in these regions. You may have better luck in the Birmingham area right now. However, the other option is to simply get the word out to friends/family/neighbors/colleagues that you are looking for a rental property - you may be able to pick up an off market deal this way. Good luck.
@Cameron Pletcher - the Huntsville market is crazy right now with an oversaturation of buyers and less than 1000 properties in total available based on the recent real estate data. Madison proper is probably even worse because of the excellent schools and the huge number of owner occupied buyers. If you want to find deals, you will likely have to look in slower appreciation areas - Athens, Decatur, Hazel Green. These are not areas I invest in, but that doesn't mean you can't find a possible cash flow deal in these regions. You may have better luck in the Birmingham area right now. However, the other option is to simply get the word out to friends/family/neighbors/colleagues that you are looking for a rental property - you may be able to pick up an off market deal this way. Good luck.
Michael,
Thank you for the insight. I was doing some research and I think you are absolutely right. And as a local homeowner who has seen my house increase in value by 15% in the last year I think it is definitely a sellers market in Huntsville right now. 2-3 years ago was the time to get in. I did start broadening my search area to Guntersville/Athens/Decatur but the number of properties out there right now wasn't encouraging especially with the pricing people are wanting for them.
I might change directions. My wife and I would love to get cash flowing beachfront properties down in the gulf AL/FL both so we can vacation yearly and invest at the same time.
@Michael S. is right, most of the great deals currently are in Harvest, Athens, Decatur.
I am personally looking at some parts of decatur right now as I feel that some of the growth in Huntsville might flow into these areas but again it is just speculation. I am seeing that in good parts of decatur listings are having multiple offers and are selling quickly.
@Michael do you know anyone who might know more about decatur?
Hey Gordon, the Huntsville area has certainly become a very hot market with quality, well-priced properties staying on the market for a day or two before going under contract. With that said, I believe there are a still opportunities for buying decent deals in the market that will cashflow but a person has to be very selective and willing to move quickly when the opportunity arises.
As to Decatur, its population has basically been level (0.2% annual growth) for the last 5-years and is a bit too speculative of a play for my taste. I would gravitate towards Athens instead. It's a better market that has seen solid growth for the last few years and is projected to see annual growth of 2.5% for the next 5 years. Home prices are starting to heat up but are still better than Huntsville right now.
I own a number of investment properties in Alabama and am looking to add more in the Huntsville/Athens market in the near future. Also, I am a broker based in Birmingham that stays active in the Huntsville area so let me know if you are needing any help in the area.
@Gorden Lopes - I've honestly never evaluated Decatur for investment properties, nor do I plan to. The growth rate that @Jacob Franz quoted you above is the exact reason. With the explosion of growth across this area, Decatur has seen essentially nothing in this regard. That's a red flag. So if you consider Decatur, assume minimal to zero appreciation, and make sure it is a strong cash flowing property to make it worthwhile. I've lived in this area for a long time - the only reason I have ever been in Decatur is for the Jack Allen Soccer Complex, which is a fabulous facility. Otherwise, I've had no reason to go there. If you are going to consider North Alabama outside of Huntsville or Madison, would look at Athens, Harvest, Hazel Green / Meridianville, or Cullman.
Some great points being made. My husband and I just found out we will be moving to Huntsville in December. We plan on buying our second investment property that we will be occupying while living in Huntsville. This has directed my focus to the Madison area. We also plan on buying an additional property next year while we gain more knowledge of the area. With our particular situation we are, I believe, “house hacking“? Forgive me, as my investment lingo is lacking. Newbie!! Paying the house down before we leave and then maximizing our rent potential. In this scenario, we have contemplated a new build. Is there room for negotiation? Is this a big no no? Pros/Cons? Any thoughts?!
Congrats on the move! Carmel, CA to Huntsville, AL is a big move!
House hacking is definitely a great way to get started in Huntsville. With new builds you will pay higher prices but Madison has some good newly built communities. If you need help with some local agent then I can definitely give some references.
Just curious, are you guys moving because of work or family?