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!

[Account Closed]

@Michael S.thanks for that.  I would add that the $144/month ($1728/year) is only about an 3.43% cash-on-cash return (at 20% down).  You would do better in 30-day t-bills (right now ;-)

The hopes an investor might have (if you purchased a property like this) are: 1) inflation to drive rents up, 2) inflation to drive property appreciation, and 3) mortgage rates to drop to refi at a lower rate in a few years.

A lot depends on what someone thinks about the longer-term prospects of neighborhood they're investing in.

[Shane Dreffs]

Hi Zane,

I live and invest in Alabama, but the answer to your question depends on your strategy:

Are you looking for turnkey or distressed / rehab properties, do you plan to self-manage or use a property manager, what class neighborhood, are you buying cash or how much will you put down, are you willing to look at cities just outside of Huntsville? 

Send me a message if you would like to discuss in more detail. 

[Zane K.]

Quote from @Shane Dreffs:

Hi Zane,

I live and invest in Alabama, but the answer to your question depends on your strategy:

Are you looking for turnkey or distressed / rehab properties, do you plan to self-manage or use a property manager, what class neighborhood, are you buying cash or how much will you put down, are you willing to look at cities just outside of Huntsville? 

Send me a message if you would like to discuss in more detail. 

 Hi Shane, 

I am looking for turnkey property. I will use a property manager and am not sure on what class area I will go with at this time. I will be putting down 25%. thank you for the reply and looking forward to your thoughts. 

[Taz Zettergren]

@Zane K. I have a few clients who have properties in Huntsville and they've been pleased, it hits the goals you're looking to achieve. Other great areas to include would be Memphis, Little Rock, OKC and Tulsa. Feel free to reach out if you have any questions about these areas. Best of luck on the search! 

[Lindsay Davis]

@Zane K.,

To piggyback off what @Michael S. said, you’ll find it pretty difficult to find a decent property in Huntsville proper on a $250,000 budget.

Don’t worry, though—in nearby suburbs, your budget will work fine. Meridianville (10 north of downtown Huntsville), Decatur (25 miles southwest of town), or Athens (30 miles west of town) will have plenty of B/B+ properties under $250,000.

Given that cash flow is your primary goal, these areas outside of Huntsville may be a better fit for you anyway—rent-to-price ratios are definitely more favorable outside the city limits than within them.

Still, Meridianville, Athens, and Decatur remain close enough to Huntsville to share in the area’s growth which, in my opinion, bodes well for long-term appreciation.

[Julie L.]

Quote from @Derrick G McIntire:

Hi Zane, I'm a Realtor and Property Manager in Huntsville AL who specializes in working with investors! Feel free to reach out! 

How are the fees for PM?

[Nikki Yankowski]

Quote from @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.  

I appreciate this break down. I really only get superficial information being solely on the seller side, so this was a great insight. 

I will add that when the LO and I ran the numbers it was for a client who manages their own properties here locally which surely helped. We did confirm the zip code and section 8 rent, it is correct. This is a new home and the builders in our area need to be competitive so closing costs were covered by the seller as well.