Investing in Cash flow properties, Alabama big cities' suburbs

28 Replies

Hi,

I am planing to purchase some cash flow properties in suburbs of Huntsville, Birmingham and Montgomery. Given the path of growth information for each city, what suburbs/zip codes are currently attractive with B neighborhood and reasonable appreciation + cash flow?

For Montgomery, 36117.  But, some of the older areas in that zipcode will have good cash flow but very little appreciation.  Newer areas will be less cash flow but should hold their value and possibly appreciate.

Greg

Huntsville is my preference for sure but “complicated” There are many neighborhoods where you won’t likely experience the growth that Huntsville is seeing in the press. That is OK, they are very strong cash flow neighborhoods. The neighborhoods that will see the benefit of all the growth in the press for Huntsville don’t cash flow well in a nutshell. 

I posted in the first thread with more details on my opinion there.

The second thread has amazing info and insight on path of progress, including a map

https://www.biggerpockets.com/forums/12/topics/631472-looking-to-purchase-in-huntsville-al-any-advice-or-expertise

https://www.biggerpockets.com/forums/597/topics/520388-huntsville-alabama-path-of-progress?page=3

@Srianil Peddi I LOVE Alabama markets! I personally invest in Alabama. The low property taxes really make the numbers jump over other markets. All three of these are good markets. Overall-  all 3 are very linear markets, you don't go here for a lot of growth or appreciation. You go here for the cashflow. Depending on the neighborhood that will affect your tenant type (risks) and any growth you might have. Montgomery has very low taxes, even lower than Birm. Huntsville is a really hot market (maybe too hot) When they announced the new Toyota factor and the FBI, all investors came out like crazy and jumped all over that market, so it has become kinda crazy there and I personally think too competitive for what it is. Might want to sit back and wait a little bit see if it levels out more. Birm and Montgomery are pretty stable and lots of cashflow avail. 

 DM me. Good luck! 

Hi there, 

I've been doing this for 18 years but in 2011, I checked out Birmingham and it was so amazed at the opportunities that I sold my beach house in Fort Lauderdale of 15 years and moved to Birmingham. I sell turnkey passive income properties, wholesale, buy and hold, flip through my investment company. I am also a broker which supports our investment side of the operations as well as selling flips for other investors. 

The market here has gotten tighter. Most funds came in 2012 and left in 2017. The affordability factor is strong and coupled with low taxes and insurance and mild winters, makes Birmingham the number choice for acquiring turnkey properties. Unlike other markets, you can employ more strategies holding or flipping properties. 

As for zip codes, it really depends on which type of asset you are targeting? Would you prefer to be in a C class or B class area? Is your focus primarily monthly cash flow or appreciation? What's your monthly expectation with net dollars in your pocket? Do you adhere to the 1% strategy? This will drive your ROI which will directly correspond with the zip codes specific to your strategy.

Happy to help with any additional questions on Birmingham.

Hi there,

I've been doing this for 18 years but in 2011, I checked out Birmingham and it was so amazed at the opportunities that I sold my beach house in Fort Lauderdale of 15 years and moved to Birmingham. I sell turnkey passive income properties, wholesale, buy and hold, flip through my investment company. I am also a broker which supports our investment side of the operations as well as selling flips for other investors.

The market here has gotten tighter. Most funds came in 2012 and left in 2017. The affordability factor is strong and coupled with low taxes and insurance and mild winters, makes Birmingham the number choice for acquiring turnkey properties. Unlike other markets, you can employ more strategies holding or flipping properties.

As for zip codes, it really depends on which type of asset you are targeting? Would you prefer to be in a C class or B class area? Is your focus primarily monthly cash flow or appreciation? What's your monthly expectation with net dollars in your pocket? Do you adhere to the 1% strategy? This will drive your ROI which will directly correspond with the zip codes specific to your strategy.

Happy to help with any additional questions on Birmingham.

Barbar Latimer, The 1% rule states that rent received monthly is 1% or more of the value of the property.  Example: $100,000 house rents for $1k per month. It’s a good rule to keep in mind when weeding through listings.  The higher the percent the better but also the harder it is to find.   

East of Birmingham is doing well.  Leeds is steadily growing with Barbers Motorsports park and new shopping complexes going in.   Also, a little further out past Leeds is Pell City.  Anything there close to the lake sells quickly.  Everything there that I have tried to buy has sold above list.  Lots of competition.  Good luck with your search.  

@Shabii Dilmagh ,

Although I have done projects in both Huntsville and Montgomery, the distanced of 90 miles from Birmingham made it challenging to manage logistics, supplies and crews. We focus only in Birmingham. 8%-10% cash on cash is achievable in this market. Most of our turnkey properties we sell adhere to the 1% rule as @Tom Clay pointed out. For example, we have one we just released a few days ago at $84,900 with tenant paying $850/month. COC should be in your target range.

Our properties with 1% rule are in B class properties. We have C class properties that are in the 1.5% range but we typically keep them as rentals and rarely sell to our investors. Most of our out of state buyers prefer a more stable property with solid cash flow and a slight bump in appreciation. Remember, Birmingham is a very conservative market so the average yearly appreciation averages about 1.76%. However, we don't focus on appreciation but cash flow, cash flow, cash flow.

You are right on Jonathan. If mgt. can deal with them, the C class properties will return higher ROI but likely you will need to be the BANK which is not bad, on those C class to exit nicely. Just price them where they really are in price. Appreciation- bet 1.76% is right on so minimal on it. C & B' work really well for Tax Deductions too.

I don't think you will find 1% in a neighborhood/zip code that is considered to be also strong appreciation in Huntsville (or any other market for that matter). To clarify, there is no neighborhood or area that has those characteristics. It is possible to "make and create" those types of deals in neighborhoods with strong appreciation outlook (i.e. good schools). To make and create, you need to add value - most likely in both the acquisition and the rehab and positioning. 

I think the definition of B class is also in the eye of the beholder. If you look at the median income of the area relative to the state or larger area, the school ratings and the home values relative to the averages, those three things should be in the 60 to 80 percentile to be B. 

A : 80 to 100

B: 60 to 80

C: 40 to 60

D: 20 to 40

F: <20

I think the most critical thing is to clearly document your definition of the classes based on your criteria and what percentile in that criteria. All grades have viable investment strategies. You just need to make sure it is really clear where you are in the bell curve on the metrics you use to define the class. 

@Dave DeMarinis   the breakdown you presented is very helpful. Thanks a lot! In cities like Huntsville, what cash flow should we expect for B neighborhoods? Obviously to consider a property as an investment we should get some cash flow even if it doesn't follow 1% rule in B areas.

@Dave DeMarinis is absolutely right.  1% rule for Huntsville would be typically C/D class only, with a lot of potential for problems along the way with those type of tenants and lower appreciation potential.    

A/B properties here are going to be around 0.75%, but some with high appreciation potential and the majority with a lower degree of tenant risk.   Hence why the majority of our property acquisitions are A/B.    

@Jonathan Mednick I know this post is a year old, but was curious if Birmingham is still a good area for the BRRRR strategy. This will be our first time investing in the real estate market. We are looking to be under $75k for the purchase price and rehab, then do the cash out refi. However, my concern is that I have heard Birmingham area is cracking down on building permit codes to allow for add ons to the homes. We were also looking at Huntsville and Montgomery. Thoughts?

@Shane Gordon Birmingham is still a very solid market and on most turnkey investors radars even in these challenging times. Your BRRRR works if you've got a solid team on the ground and local infrastructure to support your turnkey operation. All in at 75% of ARV and then refi out to return your principal capital. However, most out of state investors trying to turnkey virtually here in Birmingham do not succeed. The horror stories I can share!

Unless you plan on spending considerable time locally, I would not recommend it. Most turnkey properties we sell are at full market value in the $85K-$125K range (we do not discount the price) and most all of our turnkey investors finance through Fannie Mae lenders. 

Our last turnkey we offered last week was priced at $122,500 and went under contract in under an hour. We will have another 4-6 turnkey properties to release for sale later this month (May 2020). They rarely stay on the market for long.

Yes. City enforcement is cracking down on permit issues but we still pull permits for all our renovations. We currently have about 15 projects at various stages in the renovation process.

@Shane Gordon If you are thinking of BRRRR right now, I would put a huge focus on your 3rd R - Refinance. The market for Non QM loans will be extremely hard to navigate for a new investor. A traditional loan will be more feasible, but you will definitely need strong income and credit. Work with some bankers or mortgage brokers BEFORE starting the BRRRR. You do not want to get stuck with no financing options at the end.

Of course you should always be highly focused on your cash reserves but even more so now.

@Dave DeMarinis could not be more correct. Without a history of investing, it will be very challenging to obtain financing especially on a refi. If you are just getting started with financing turnkeys, expect much tighter lending restrictions even with traditional loans.

We had a pool of 50 houses two weeks away from a refi closing, with a considerable amount of equity to cash out at 75% LTV. The national lender backed out due to the current market uncertainties. We then shifted to local banks and found two. One would not allow us to do a cash out refi but the second bank would based on our track record, experience and solid financials. The underwriting with the local bank is far more extensive than the national lender. Better rates but terms are not as attractive with shorter note period. Obviously we had to compromise to find the right balance for this portfolio. We hope to close by end of this month.

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