@Sara Hodge First off thank you so much for starting this thread. This is a great dialog about the best zip codes in Birmingham for rental investment. Full disclosure: I own a turnkey real estate business and a property management company in Birmingham. I only enter the conversation for informational purposes, however. I have a lot of experience in "B" Neighborhoods in the Birmingham Metro Area. As we do not participate in "C" areas, I have limited knowledge here.
@TJ Sayers did a great job mentioning some of our most popular turnkey areas. I wanted to take the opportunity to go into a little more depth about the positives and negatives of some of the different areas that we like.
5 Best Turnkey Areas / Zip Codes For Class B Properties in Birmingham, AL
- 1. 35215 - Center Point/Roebuck Area - This is a fantastic area where you can get a lot of bang for your buck. There is currently high rental demand in this area, and properties priced accurately generally move off the market quickly from a leasing standpoint. There are also still some good deals out there in the area, and depending on whether you use a turnkey provider or do the renovation yourself, you can expect somewhere between 8.0%-10% ROI (with a Turnkey provider) all the way to 11-14% (if you go at it alone and know what you are doing). Recently this market has become a little saturated with many new entrants - primarily local investors but also some national players like Sayco and Havenbrook. In my opinion, long term capital appreciation looks good in the area as well as the fact that there are an increasing number of owner occupant comparable sales that are bringing the average sales price in the area up. Disclaimer: there is NO way to know which area will be good from a capital appreciation standpoint 5 or 10 years down the road. These are just assumptions based off the data that we have.
- 2. 35023 - Hueytown - This is another great area to get a good return for a reasonable price. Hueytown boast a slightly higher owner occupant to tenant resident rate, so you will find better comparable sales in the area, and thus sometimes a higher price of acquisition in this area. You should be able to still get 8-11% return in this area if you find the right deal. If you have to pay a little higher price, this may be offset somewhat by the huge impact this area has to grow with the new additions to the Mercedes Plant in Vance Alabama. Hueytown is conveniently located between Birmingham proper and Vance, so people wanting to live closer to the city often find their home in Hueytown verses the VERY rural Vance. Mercedes-Benz will have the capacity to manufacture 300,000 cars per year in 2015 (up from 185,000 in 2013)! The cool thing is they have no plans of slowing down. It's also worth mentioning the last 5 out of 6 leases we've signed with tenants in that area are working for Mercedes.
- 3. 35235 - Grayson Valley/Chalkville/Roebuck/Center Point - This zip code grabs several areas, but is primarily located in the Clay Chalkville school zone. This zip code snuggles right beside the 35215, but in this area, you can usually expect to get a small premium in rent verses 35215. In the southern part of the zip code (Roebuck area), you are close to Saint Vincent Hospital West where you get a lot of good qualified tenants. In the northern part of the zip code, you have the Clay Chalkville school zone that generally has a higher rating than comparable schools in Center Point and Roebuck. There are a good number of tenants looking to get their kids into the Clay Chalkville school zone, so if you buy here, that is definitely something you should take into consideration because there are parts of the 35235 that are not zoned for Clay Chalkville.
- 4. 35127 - Pleasant Grove - This area is very comparable to the Hueytown area (above), but it covers a slightly less dense geographical territory. We really like this area due to the Mercedes growth mentioned above, but it's also an area where there is a higher owner occupant rate. This is great for resell value and long term capital growth, but sometimes this can cause the property to sit vacant for a little longer between move-out and re-lease. Fewer tenants in the market = longer time to re-lease.
- 5. 35126 - Pinson/Clay - This area is a little more rural, but you need to remember you are investing in Alabama, and people like spots away from the city. There are also a lot of tenants in this area, so your time to re-lease after move-out is not bad. This zip code usually boast a better school zone (Pinson Valley), so there are quite a few people looking to relocate to this area. Even though it's a little further out, the I-59S commute into work is one of the easier travel routes in rush hour traffic (when compared to going north or south on I-65 or traveling on the dreaded HWY-280).
- 6. 35068/35071 - Fultondale & Gardendale - Okay, I promised the top 5, but I didn't want to leave these areas out. This is a high owner occupant area that was highly affected by the foreclosure crisis and has already come back a good bit. You might be hard pressed to find the same ROI deals in this area, and it may be beneficial to settle for 7-9% ROI because I believe the capital appreciation play is really good in these areas. The school systems in these two areas are a good bit better than the other school systems mentioned, and there is very little land left to build in these areas. Combine that with its close proximity to the city center, and I think your long term ROI may be better here than in any of the other areas. If capital preservation is a BIG factor for you, hunt for deals here. They can still be found on occasion.
There are several other areas worth mentioning that I would also recommend for Class B Investment: parts of 35214 - Forestdale, 35210 - Irondale, parts of 35022 - Bessemer, and any Hoover zip code: 35243, 35226, 35244, 35242. There are also some good areas south of Hoover (Pelham, Alabaster, Calera, Helena, etc.), but these can be quite a trek for your property manager, so make sure you have that figured out before investing too far from Birmingham proper. Again please keep in mind that I am a turnkey provider doing ONLY Class B (some Class A) properties that are not Section 8, so my opinions have a bit of a tilt, but hopefully this was a good breakdown on some good rental areas in the Birmingham MSA. Also, keep in mind that the ROIs mentioned above are based on all cash deals, so use your personal financing specifications to adjust accordingly. One more note, PLEASE be careful with any zip code including the ones mentioned above because there can be large swings in any one geographical area.
