This fantastic 4/2 home was built in 1963 but it's been totally renovated with new kitchen cabinets, granite countertops, new appliances, refinished hardwood floors, new lighting, new roof, totally gutted and renovated bathrooms with high end tile, new vanities and luxury vinyl plank. The furnace and condensing units, roof and hot water heater are all new so the systems should be solid for a long time. Vinyl and brick make the exterior low maintenance. Tax records show 1,407 square feet, but this likely doesn’t count the finished areas on the lower level. Huntsville deals are really hard to find, and this property will likely rent from $900-$950 providing a very high return. For a proforma, home inspection report, demographics, 3D Tour and tons of pictures please visit this property by clicking here! I'm glad to talk to you about Huntsville, we have done over 100 properties here and also have properties in Montgomery, and Birmingham!
I recorded a podcast on Huntsville that you might enjoy: Huntsville: Investments Take Off In Rocket City!
can you tell me how your numbers make any sense?
@Leon Kanon , That's a great question that I'll provide a detailed answer to. I think you are referring to the 1% rule here, meaning that something is a "good deal if the rents are 1% of the purchase price."
First off I would say that the 1% rule is getting extremely hard to get in today's strong sellers market unless you resort to C-, D and F neighborhoods (which I would never recommend). It is possible to buy C+ and B- homes at the 1% rule if you source the property yourself and do all of the work, but that's hard to do for out of state investors, and if they were to find a dishonest contractor or a realtor that didn't really know what they were doing, that could be a disaster. I've seen investors try it and loose $35,000 in monies paid for work that didn't get done.
Secondly, Numbers are not always what they seem. Property taxes on this property are $292 per year for owner occupants (homestead exemption) and $584 per year for investors. In many markets (I invest in several) like Wisconsin, Illinois, Ohio, Pennsylvania and Texas this same house might cost $1,500 per year in taxes, so while the rent might be $1,075 per month instead of $950 (and be really close to the 1% rule, meaning this one should rent for $1,090) the taxes would actually eat up the higher rent and so the cash flow wouldn't be any better. Alabama taxes (#48 in the nation) make the $58 month tax burden a lot easier to deal with than $125 month if the property were in a higher tax state.
These Numbers Are Pretty Good: 11.21% ROI, Total ROI With Financing 15.73% and 1.65 Debt Coverage Ratio. The Debt Coverage Ratio is what the bank looks at to determine whether or not they should lend on it. Banks like the DCR to be at least 1 and this is 65% better than most banks would require.
Next, Not All Properties Are Renovated The Same, and it's better to pay $10,000 more for a property that had a $35,000 renovation scope performed than to pay $10,000 less for one that had a $15,000 scope performed. As an investor I care most about my net cash flow and true ROI. I don't want maintenance happening every other month that eats my cash flow. If an investor has to replace a roof two years in, that eats both years of cash flow. A furnace in year four eats another year of cash flow. This house has all new kitchen cabinets, granite, appliances, hot water heater, furnace, condensing unit, roof, plumbing valves, faucets and trim kits, so there is a lot less that can go wrong. Paying a $10,000 premium for having that renovation level done might cost an extra $20 per month, but it's much better than having major CAP X expenditures later that kill returns and require massive cash outlays at timing that might not be ideal. All of our properties have the full renovation scopes so you can see what was done to the property. I hope you appreciate that level of transparency.
Demographics Must Be Compared to Make Sure Apples are Compared to Apples: Many times investors that I coach bring deals to me that they think are awesome. They have been told that the property which beats the 1% rule is in a B+ area, yet when we compare demographics it's in an area that has crime rates 5x the national average, a median income of $26,000, vacancy rates of 17%, in a zip with 9% unemployment and in a city that has lost population for the last 30 years. Our website lists the demographics so you can compare deals we have to others you might analyze. This property is in a zip that has 6% vacancy, 63% Owner Occupancy, 27% College Graduates (strong for a high cash flow zip), and the most frequent income distribution is $65,000-$75,000.
The Direction of The Market Must Be A Factor: Most cash flow markets today are in areas that haven't grown a lot, but have actually lost a lot of population, many times the long term appreciation will be affected by this lack of demand and the over abundance of supply. Huntsville is a market that is experiencing a great deal of job and population growth, so it may perform much better than Detroit, Cleveland, Milwaukee, Tulsa or Pittsburgh in the long term.
Lets say i agree to most of what you've said ...
Why is it on the market for a month without offers?
Also, if the house is in such a good area... why the market rent is so low? ( 900/m?) why is it still vacant, as both of us know you would sell the place way easier if its occupied.
@Leon, we put it under contract the first day it hit the market. The buyer found another property we were selling that he liked better and decided to buy that one instead. The property became available last night at 10:00 P.M. but I wasn't able to place the ad until this morning.
We have not advertised the property for rent yet with a property manager. We haven't been fully satisfied with the one we were using in Huntsville and have just found two other companies we are going to give a shot.
Rents in Alabama are lower than many other states, but the cost of living is also much lower. The rents on this one should be $950 which isn't too bad. In an A area of town this one might bring $1,100 but it would cost $170,000, so the rents don't go up at the same ratio as you climb in asset class.
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