New investor deal Alabama too good to be true?

Question

My friend offered me a deal in Birmingham Alabama for 100k single family unit. He said it will rent for $1100/mth to a section 8. over the past few years it’s tripled in value (currently at all time highs). Based on the pictures I saw it looked like a low income area.

Any advice on how I can get more confident in this deal? What would you do or ask to evaluate? Am I missing something or is this a no brainer?

Bob Stevens · Answer

I get deals like this or better weekly in my market. Its all about your team and knowledge.Your friend seems to have connection. I jsut flipped a 3/2 for 105k rent is 1400, I have 25 I will close on in a week or so, all are 105k, all will have rents from 1100- 1500. There are deals everywhere :)

All the best

BTW in response to your question, run the comps,

Greg Parker · Answer

@Jason Lee

I can help you pull comps, and I can usually look at the map and price and tell you if it is a good deal in just a few minutes.

We can also PM after you find a good property.

Greg

Vadim F. · Answer

@Jason if you want to pull comps, you can just go on redfin or zillow, switch solds and look for similar solds in that area. That should give you a general idea.

Anthony Dooley · Answer

Gathering more information is the smart thing to do. Deals like that are pretty common in the South, but just because it's cheap doesn't make it a no brainer. It is a low income area, which is what section 8 is all about. The question you should ask is, "why havent' the local investors already bought it?" I see wholesalers from out of state do this all of the time in my area. They get a beat up rental under contract because it sounds cheap, then list it for sale without rehabbing it using comparable sales information. Needless to say it doesn't sell. If you are going to hold this property and use a professional manager, this could be a good deal for you. Do you trust your friend enough to buy it blind? Why doesn't your friend buy it?

Emeka Attoh · Answer

No amount of advice can help you. If you have the funds to buy it, buy it and experience what it feels like. The worst that can happen is you lose some money over the years(might not happen).

Fear and indecision never makes money.

Lindsay Davis · Answer

Hi @Jason Lee

This looks like an interesting deal, though renting out to Section 8 tenants comes with a few quirks that you may want to weigh before diving in head first.The first is that the Department of Housing and Urban Development (HUD) will pay at most between 90% and 110% of an area’s fair market rent (FMR) when it comes to Section 8 tenants. For you, this means figuring out whether or not you can actually earn $1,100 a month in gross rents on a Birmingham property given HUD’s FMR ceiling.

The second thing to (always) do is to get a general home inspection to see how well the property’s been maintained by the previous owner. If significant deferred maintenance is uncovered, the deal could be an issue, since housing authorities often have more stringent repair and maintenance requirements for Section 8 properties.

As other folks on this thread have mentioned, don’t skip out on due diligence. Also, be sure to review rent comps by working with a local agent or by crawling around Zillow and other online rental marketplaces.

Nicholas L. · Answer

@Jason Lee

this is a tiny fraction of the information we'd need in order to be able to evaluate properly

what are ALL MONTHLY EXPENSES?  what are COMPS?  how would you be financing?  what would your friend charge to manage it?  how much capex does it require?

for all we know monthly expenses would be $1437

need way, way more info

Dan Portka · Answer

My advice, take a few months to study real estate investing. the market is trending down from its high, no need to rush into this deal.

Jason Lee · Answer

How does one get comps? Also are you reccomending sales comps or rent comps? Do I just hit up a random realtor in Alabama?

Jason Lee · Answer

Don't know the exact area somewhere in Birmingham. In general, is Birmingham an up and  coming location or one of those markets that is poor appreciation but steady cash flow?My friend would actually manage the property for me and he said he has screened section 8 in the past. Should I be more concerned about section 8? I don't know much about it other than its likely low income and it's basically government assistance. He told me his tenants overall are good hard working people. I'd like to believe so too, but sometimes things just sound too good to be true. I'm skeptical but also in a position where I can afford to take some risks.

New investor deal Alabama too good to be true?

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