All Forum Posts by: Jason Cory

I don't know the market in Louisville so I can't comment on the purchase price or return but allow me to give you a thought from an appraisal standpoint. 

One bedroom units for MF are the equivalent of 2 bed houses. Both rent higher per foot than a 2 or 3 bed unit or 3 or 4 bed house. 

A 1 bed unit is similar to a 2 bed house in terms of functionality & potential pool of tenants. The starter home if you will. As families grow they need more bedrooms. This in turn will do 2 things for you.

1 - give you a single occupant, likely elderly 

2 - limit your ability to rent in the event of vacancy.

It is considered functional obsolescence. This is negative/detrimental effect to value. 

The sweet spot for MF units is 2 bedroom & 3 bedroom for houses. 

Expect issues with the appraised value due to all being 1 bedroom unless the appraiser is a yes man for the bank. If he calls balls & strikes he'll hit it for functional obsolescence because it offers limited utility with no potential value add. Utility is basically what the occupant, owner can do with a property from recreational activities to lot topography to available space with the interior/exterior. 

Something to consider prior to investing that amount in something that will always have a ceiling with income & your ability to sell down the road since it will always lag behind the market in terms of appreciation. 

I have done this extensively in Birmingham. Feel free to search my posts about how to accomplish your goals in Birmingham. 

 First, there is no such area that doesn't include bullets. This is Alabama & everyone carries a firearm. Even places like Alabaster have shootings. Centerpoint has gone in the toilet.

Bessemer, where Amazon is being located is the #2 city for crime in the United States. These companies locate where Real Estate is cheap & politicians will give them unheard of incentives thinking it will clean areas up. It never does. See major city crime rates for reference where there is a heavy commercial presence. 

I've bought, sold, & rented hundreds of houses in the city limits of Birmingham & never been broken into or had trouble. I've been robbed at gunpoint twice, once in Alabaster & once in Auburn. 

If you're buying for cash flow you need to buy in the city where tenants not owners drive demand.

Forget the stigmas & what you've heard. There is no safe investment in Real Estate or investment in general including the stock market.

If you buy to rent in the suburbs you will lose money eventually. Cash flowing $100-200 a month isn't investing spending $100k. Suburbs are flips not rentals. The next downturn will have many investors on BP in a financial crisis with some losing the house they live in because they bought sunshine & rainbows instead of investing the right way in Real Estate. 

The areas you referred to as bullets have late 70's to early 80's new car prices buying a house. There is only one direction it can go & it's not down. 

Don't buy because you think it's easy. Real Estate is a full time job. Nothing about it is passive. Too much money on the line. 

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. 

Right now you won't make money in the zip code. Every time you renovate in this area the crew will liberate you from the work done/money spent. Get a tax certificate & wait a couple years if you do anything in the area. Buying is outright investing suicide in 35204.

 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. 

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. 

 Unfortunately Birmingham is the epicenter of the Civil Rights Movement. Needless to say you will have to abide by the local codes that has a zero-tolerance with discrimination

Be gentle about living next door to people that are paying you. Every investor wants space from their tenants because it causes unintended headaches & potential lawsuits. Imagine you fix something & it's not to their satisfaction. Imagine a tenant stops paying & it becomes a tense situation next door. Your family will pass the situation every day. 

I would advise you buy & rent a house 1st. One structure, one tenant, one potential issue starting out. 

Multi unit could very well overwhelm you starting out. 

From a financial standpoint let's look at the numbers.

Assumption debt is $1,692/monthly 

Rent amount $2,500

Add 10% management fee of $250

$2,500

- $1,692

- $250

= $558 cash flow monthly 

$558 × 12 = $6,696 annually 

$6,696 ÷ $240,000(assuming principal paid from $260k) = 2.79% net return without any maintenance expenses 

Horrible return for that level of financial investment 

Or 

$60,000 to spread out as downpayments 

That's 3 $100k houses or 6 $50k houses 

$3,000 in rent using the 1% rule for 3 $100k houses (still...horrible return for that level of financial investment)

$4,500 in rent averaging $750 per with 6 $50k houses. 

I would much rather have 6 houses than 3 or 1. 

If you needed cash in the event of a life emergency it's easier to clear a house for $50k than it is for $100k. You have 5 houses still & able to still cover debt. Sell 1 house with $100k & you're left with 2 while back at break even or losing money. 

Real Estate works on 4 year cycles with mid term elections. If a blue wave shows up come November a lot of people on the 1% are going to lose their backside.

Democrats give entitlements. Republicans limit existing entitlements issued by Democrats. Go entitlements when renting. They never go away regardless of who holds the chambers of Congress. 

Flip that house & buy 6 houses then rent to Section 8 tenants. 

Best of luck to you.