Alabama Rental Market

[Patrick J.]

I am really curious about the Alabama market. In particular, why do renters rent for $800/month in Birmingham or Montgomery when they could get a mortgage for $200/month??

Also, why is there no appreciation in those markets?? Everyone always says you can expect "3%" appreciation per year as if that's true around the entire country but then you have places like Alabama with zero appreciation.

What are investor strategies investing in those parts of Alabama?? What kind of cash on cash return are you getting? Do you buy cash or finance? How many years before you recoupe your intial investment? Thanks (:

[Matt Bell]

@Patrick J.

Very little appreciation in B and C class rentals. We invest here for the cash-on-cash return which for the vast majority of our properties is infinite since we were able to BRRRR all of our money out of the deals. I also do some personal investment in higher end rentals where I just put 20% down and my usual cash-on-cash return is 15-20% and I am seeing some appreciation in those of around 10% total in the last 2-3 years. We currently have 21 rentals we did BRRRR on and I personally have 7 rentals where I did a down payment.

There are various reasons why people would rent for $800 when a mortgage would be cheaper.  (1) They have not saved up the down payment; (2) They cannot qualify for the loan for various reasons; (3) they do not want to be responsible for maintenance of a property; (4) they plan to move in the near term and do not want to have sell a property that probably has not appreciated much a couple years down the road; (5) They don't even realize a mortgage could be cheaper but have a renter mindset because of how they were raised.  There may be other reasons but the few of our tenants I have known and spoke to directly (we use property management since we are out of state) reasons 3, 4, and 5 are most common.