All Forum Posts by: Lindsay Davis

@Patrick Michael,

@William Whitley's offered some great, nuanced information. Another rule of thumb would be 1% to 3% of the property’s value per year, with a floor of at least $3,000.

Keep in mind that this would be for routine maintenance only. If you’re budgeting for capex reserves like a new roof or siding, that’d be additional. I’d say $100 to $200 per unit per month would be a good ballpark estimate for capex needs.

@Eric Blair,

Just a clarifying question: are you struggling with getting enough capital to afford a down payment for a second deal, or are you having trouble finding a deal that cash flows once you acquire it?

If you're struggling with the former, perhaps you can see if banks are willing to let you tap (some of the) remaining equity in your former house hack turned investment property via a DSCR loan. That could potentially be an option, even if a HELOC's off the table. However, you may have to speak to a large number of lenders before you get a bite.

If you’re facing the latter, have you considered looking slightly beyond Montgomery proper? I’ve personally been able to find deals that pencil out in suburbs like Prattville, Elmore, and Deatsville, which are about 15 to 20 miles northeast of downtown Montgomery.

@Sas Sel,

You’ll have to do some digging, but there are markets with (some) deals that meet the 1% rule, even in this interest rate environment.

@Ko Kashiwagi mentioned Birmingham as an option—there are definitely pockets of the city with deals that pass this litmus test, especially in suburbs west of the city’s downtown.

Other markets in Alabama, which I haven’t seen mentioned yet, could fit the bill as well. Montgomery, the state’s capital, and Tuscaloosa, home to the University of Alabama, come in mind here.

@Dustin Rabon,

Congrats on getting started with your first deal—that’s really exciting stuff!

I see that you’ve listed Birmingham as your location. I’ve had a good amount of success doing buy-and-holds in the Magic City for about 15 years. Happy to share what I know if you have any specific questions!

@Ethan Koyle,

You’ve got pretty interesting sources of financing at your disposal. On the home equity front, Rafael Gonzalez is right—you can take a second-position mortgage, like a home equity loan or a home equity line of credit, without having to refinance your first mortgage.

That said, any second-position loan you take out will still be priced at prevailing interest rates, so just a heads up.

The 401(k) loan could be an interesting option, since you’re ultimately borrowing from yourself. One thing to note here is opportunity cost: by borrowing against your 401(k), you’re forfeiting investment opportunities in the market that could potentially yield returns in excess of the interest you’re paying yourself.

In my opinion, however, the biggest risk of borrowing from your 401(k) is the risk of defaulting, either because your deal went wrong—or simply because of clerical error. If you default, the entire unpaid balance of the loan will be considered a distribution, and you’ll pay income taxes plus an early withdrawal penalty.

As for which is better…I think you’d have more luck asking your CFP or CPA. This is just some food for thought!

@Priscilla C.,

I saw @Terra Padgett pitch Birmingham and Huntsville as potential out-of-state markets. I wanted to piggyback off that and mention Tuscaloosa, since most investors outside of Alabama aren’t familiar with it.

This college town (population: 113,000) is home to the University of Alabama’s flagship campus, and is situated about 50 miles southwest of downtown Birmingham.

It’s a pretty interesting market. The city had a track record of long-term growth going on thanks to rising student enrollment at UA, and that means rising demand for medium- and long-term rentals around campus for students and staff. Happy to answer more specific questions if you have any!

@Lawrence Mitchell,

No need to apologize—you’re asking great questions and I’m happy to help! We’ve personally found success with single-families and duplexes across suburbs in western Birmingham—so think neighborhoods like Adamsville, Forestdale, Sylvan Springs, Pleasant Grove, Bessemer, and so on.

As for house hacking itself, I think it’s a good way to get started if you’re strapped for cash and want to lighten your carrying costs a bit. You’ll probably find it difficult to generate positive cash flow with a house hack, though, since you’re owner-occupying a portion of the property.

If you’re super aggressive about maximizing rental revenue, I imagine you could buy a duplex, fully rent out one unit, and then live in the other unit while taking on roommates. At this point, you’d probably be living for free, and may even have some cash flow to boot.

Let me know if you’d like any more details—happy to share what I know!

@Seth Masters,

Welcome to BiggerPockets! It’s tough to find a deal that works in San Diego, so looking out-of-state—as you’re hoping to do—may be the right call.

I’m based in Birmingham, so feel free to use me as a resource if you have any questions about Sunbelt markets. Rent-to-price ratios are generally more favorable in flyover states, so cash flow could be easier to achieve in a Sunbelt market, if that’s what you’re after.

@Lawrence Mitchell,

Great question. I know that you can filter exclusively for multifamily listings on both Redfin and Zillow. If you go to the “Filter” tab on either site and scroll down to “Home Type”, you should be able to uncheck condos and select “Multifamily”. Let me know if this works!

P.S. I also find the "Max HOA" and "Year Built" filters pretty useful, especially since mandatory HOA dues and deferred maintenance can both significantly dent in cash flow.

@Shaylynn O'Leary,

Thanks for sharing information about your background.

While I don’t have much intel on the locations you listed, I was curious to know if you were open to considering similar markets in the Sunbelt.

I saw @Justice Bowers mentioned Birmingham, and I wanted to piggyback on that and bring your attention to other markets in Alabama.

You mention that while cash flow isn’t a priority, you’re looking for a more affordable market. I imagine that high-growth, high-appreciation markets like Tuscaloosa and Huntsville could be worth looking into.

And really, the state as a whole could be a solid place to invest: it’s got some of the lowest (~0.40%) property taxes in the country, and its laws are pretty landlord-friendly.