North Alabama Snap Shot

[Nikki Yankowski]

I know a lot of people hunt for flips but in a market where the population is growing exponentially many investors in our market are buying new construction. Pre-Sale contracts can allow a buyer to build a year's worth of equity with just $500 earnest deposit. Other benefits of new construction included a home warranty, all new appliances, and ability to have all your properties match. As a friendly environment for business' and manufactures' Madison county is expected to continue it's growth. 

[Michael S.]

As @Joshua McMillion alluded to, I think this is a great topic for further discussion, especially for those who are OOS and not really familiar with North Alabama.

First off, I myself have had success with this type of investment model previously - we bought a new construction home in a subdivision roughly 8 minutes from downtown Huntsville in 2019, as it was a new small subdivision attached to an existing established community.  Needless to say, the positives are that we've had excellent appreciation with the property (who hasn't?) and no significant expenses since acquiring the property, since it was new construction with a reputable builder.  The negatives are that it really doesn't cash flow - granted, our criteria for cash flow is based on a commercial loan with a 15 year amortization, not a personal loan at 30 year amortization.  But we consider cash neutral with our stringent criteria to still be a win given the appreciation.

However, I have been looking at a lot of the new communities being built around North Alabama - and I would be very cautious with these opportunities.  I do think that you still could essentially "flip" new construction as @Nikki Yankowski references above - get a contract, and flip the property immediately after taking possession a year later.  However, I think your margins will be tighter, so run your numbers very carefully.  I would be very careful with the areas north of Huntsville on this, where as I actually think the higher priced areas in Madison and Athens are better opportunities for new construction "flips".  If I was going to pursue a new construction flip right now (which I am not), I would go for an Athens subdivision personally.  

Here's the big risk - if the margins do not work out, these properties will be upside down as rentals.   In other words, if the property didn't appreciate enough to flip, you will be cash flow negative on a rental - for example, in Toney, you will not be able to get enough on rent to justify a $300k house.  Why?  If someone is going to spend that much on rent, they can get a nice rental house in Huntsville or Madison proper instead of all the way out in Toney.  Heck, they could rent in Blossomwood or Jones Valley for how much you'd have to charge in rent for a $300k house in Toney.  

Again, my post is for discussion purposes only - I figured providing a real life example of how the new construction model can work, but also the risk associated with it at this time, might help some OOS make whatever choice is best for them.