Thoughts on Huntsville, Alabama?

[Zane K.]

Hi Everyone, 

I am looking to purchase out of state rental properties. I would like to stick to my max purchase price of $250k. My goal is cashflow with appreciation being a bonus.

I am would love to hear your experience with long term rentals in Huntsville around this purchase price. 

Any insight to this market would be greatly appreciated!

[Michael S.]

@Nikki Yankowski

Interesting.  Let's explore the example you gave a little further for educational purposes. 

So let's say the purchase price is indeed $252k.

20% down, 30 year fixed rate loan at 7.5%

Monthly payment would be $1,410

Property Taxes would be at least $2000/yr given that it is not homesteaded - so at least 165/month

Insurance will be around 80 to 100/month - we'll say 80/month

So we are now at 1655/month before vacancy and capital expenses.

You quote renting to a Section 8 tenant - I'd add $2400 in cap ex per year then.  That's another $200/month.  

Now we are at 1855/month.

One month vacancy per year.  That will cost at least 2179/year without including utilities.  So at least another 180/month.  

Now we are at 2035/month.

You quote $2421 on Section 8 rent - that seems really high to me for Section 8 based on my research, but let's go with it anyway for this example.

10% to property mgmt - another 242/month.  

So let's see what the net looks like:

2421 rent - 242 (prop mgmt) - 2035 (expenses as outlined above) =  (+) 144 / month.

So, Nikki proved me wrong - you can find a positive cash flow property with 20% down assuming the rent amount of $2421.

As such, this could be a possible play for a new investor who is looking for solely hands off  turnkey. 

Now, that said, let's give the contrary view, and why I wouldn't personally do that deal:

-Limited appreciation potential for at least 3 years on this property based on location and demand, and no opportunity for forced appreciation

-Risk with Section 8 on cap ex 

-I look for cash neutral on 15 to 20 year notes

-positive cash flow of 144/month does not excite me, especially since I prefer appreciation potential 

-I avoid rentals that require more than $2000/month in rent to work given lack of demand at that price point in North Alabama

Again, I ran this example just for educational purposes.  Do your own due diligence and don't take my viewpoint for your own investment strategy.