All Forum Posts by: Lindsay Davis

@Dennis Li,

I see that Memphis has been mentioned a bunch of times, but I don’t see Birmingham, Alabama mentioned yet, so I’ll go ahead and put it on your radar. You list a couple of criteria:

1. Positive cash flow, ideally $200+ per door: Definitely achievable in a place like Birmingham, though exact metrics will be deal- and leverage-dependent. In general, you can expect a $110,000 to $130,000 property in a B/B+ suburb like Forestdale or Adamsville to fetch $1,100+ in gross monthly rents.

2. Purchase price less than $250,000: Practically a given—there are thousands of rent-ready properties that are going for this price (or even half this price) in Birmingham.

3. Landlord-friendly: Alabama is definitely one of the more landlord-friendly states in the country. No caps on rent increases, short eviction notice periods, and a bunch of other landlord-friendly laws. The state also sports the second-lowest property tax rate in the country, at roughly 0.45% of the property value per year.

4. Area with good job growth and robust economy: Birmingham ticks all your boxes here: the metro area’s 10-year population growth rate of 5% is in line with the state’s growth rate, its unemployment rate of 3.9% is lower than the nationwide average of 4.1%, and the city gained 16,000 jobs in 2023—the 5th highest nationally. A bunch of major employers, including Coca-Cola, CMC Steel, and Fifth Third Bank, are either moving into the city or expanding their operations there.

5. Locations other than Ohio: Birmingham’s definitely not in Ohio! If you’re curious about Alabama, some of its other markets, like Huntsville, Montgomery, or Tuscaloosa, could also be worth a closer look.

Hope this helps!

@Keegan Felix,

Welcome to BiggerPockets!

I’m going to echo what Tim Delaney and Rick Albert said: $8,000 isn’t a lot to work with, no matter where you choose to invest. Given today’s interest rates, a highly-leveraged arrangement (where you’re putting 3% or 5% down) probably isn’t going to generate any cash flow, so unless you’re comfortable with injecting money into the deal every month, I’d recommend accumulating more cash before you start investing.

Generally speaking, a good place to begin is when you have enough for a 20% down payment, closing costs, and 3 to 6 months of reserves. For instance, for a $100,000 property, you’ll want to have $20,000 for the down payment, roughly $5,000 for closing costs, and maybe another $5,000 to $10,000 in reserves. This means you’ll want to have $30,000 to $35,000 in cash before you get started.

@Vina Merrill,

I don't have much intel on Knoxville, but I’m active as an investor, turnkey provider, and builder in Chattanooga. Happy to give you a quick background about the market.

The median home price in the MSA is about $350,000, but you can find plenty of rent-ready properties in suburbs north of the Tennessee River for under $250,000 or under. Meanwhile, gross rents of $1,800+ for 3-bedroom single-families is an achievable figure, so it’s possible to generate cash flow if you lever modestly.

There’s a bunch of other stuff that’s worth highlighting—the economy, demographics, neighborhoods, new construction, and more. Let me know if you have any specific questions, and I’ll be happy to answer!

@Jon Averette

Great to see that you’re from Tuscaloosa—I’m active in the area as well!

Lucky for you, your own backyard is an excellent (and often overlooked) place to begin investing, thanks in part to Tuscaloosa’s proximity to Birmingham, UA’s steady enrollment growth, and the market’s favorable rent-to-price ratio.

As for your comment about BRRRR, you're right that it's definitely one of the more time- and labor-intensive approaches. That said, it could be a good choice if you're capital constrained and need to recycle equity from deal to deal.

However, if you have capital to deploy and want to take a more hands-off approach, targeting a turnkey, rent-ready offering could be a better approach for your first deal.

Full disclosure: I own rentals and operate a turnkey provider in Tuscaloosa—let me know if there are any questions I can answer for you!

@Jasmine G.,

If you’re constrained by equity, it's going to be tough to find deals that pencil out in this environment. Cash flowing at 5% down was possible about 3 years ago—but that ship may have since sailed.

Now, you’re left with two options: you can either pony up more cash per deal, or you can potentially look out of state for markets with more favorable rent-to-price ratios.

Or…you can wait for rates to decline, but I don’t know how much a 100 or 150 basis point rate cut in the next year will really move the needle.

That said, some firms (usually new construction companies, turnkey providers, etc.) will enter into forward commitments with lenders at institutional rates and then pass cost interest rate savings onto end buyers to entice them to purchase a property. For example, if the prevailing interest rate is 7.5%, a builder could offer buyers a 5.5% rate as a way to make the purchase more affordable. If high rates are your primary concern, you could potentially look around for a similar arrangement.

@Kathy Diamond,

@Stuart Udis makes some great points here—taking the median rent divided by the median home price in a county isn't going to yield any actionable insights. A more granular approach, in which you segment by city block or zip code, is likely going to be more helpful.

I’ll use Birmingham, AL as an example since I’m most familiar with the market. Like all cities, Birmingham features different submarkets. Properties in wealthy suburbs like Mountain Brook or Vestavia Hills won’t meet the 1% rule, but select deals in Forestdale or Bessemer might.

But if you just take the median rent in Jefferson county and divide it by the median home price, it’s going to look like nothing meets the 1% rule—when in fact pockets of it might.

@Breeya Johnson,

Austin is one of the rare cities in the Sunbelt that’s highly unaffordable. If you’re in it for cash flow, you’ll likely find it difficult to find a deal that will pencil out.

Besides, like @Jason Taken said, hundreds of thousands of new units have come online post-pandemic, so there’s a lot of new builds at the moment. Median rents in Austin declined about 8% last year, I believe, and sales prices fell about 3% as well.

If you’re willing to consider other markets in the Sunbelt, you’ll have more affordable locales to choose from. In my view, you could have better luck in areas in the southeast, like Birmingham, AL or Chattanooga, TN.

@Mic Salvador,

Doing BRRRR out of state is going to be pretty tough, unless you're willing to move there and live on-site for the duration of the rehab and leasing process.

I run a turnkey operation out in Alabama and I saw that @Min Zhang already recommended turnkey as a possible alternative—have you given that any thought? A good turnkey provider should handle leasing, renewals, evictions, repairs, maintenance, and rehabs for you. This gives you the benefits of ownership without the hassles of “landlording” or playing general contractor—in my opinion, it’s a more feasible arrangement if you’re looking to live in one state and own in another.

The initial outlay can be pretty reasonable as well. If you start in an affordable Sunbelt city like Birmingham or Montgomery, for example, you can acquire a turnkey rental in a B or C neighborhood for around $120,000. At 20% down plus closing costs and working capital, you’d be looking at about $40,000 to get started.

@Ximei Yue,

You mention that your job is demanding—do you think you'll have the capacity to handle a time-intensive BRRRR project on top of that?

If not, buying a turnkey, rent-ready property could be a better first bet. You won’t be able to unlock instant equity or recycle your capital into new deals, but your high W-2 income (and side income!) should allow you to save for your second deal fairly quickly.

Full disclosure: I run a turnkey operation based out of Birmingham, AL—happy to point you in the right direction and answer any questions that come up!

@Bliss Hu,

At your age, you’re well ahead of the curve. $300,000 is more than enough to acquire your first property, even in New Jersey. You’re right, though, that you’re unlikely to generate much cash flow, if at all, if you invest in your home state.

One option would be to look out of state. Markets in the Sunbelt—like Birmingham, AL, or Chattanooga, TN, for instance—offer far more favorable rent-to-price ratios, so you’re more likely to find cash-flowing opportunities there than if you constrained yourself to NJ.

You also make a good point about the BRRRR approach. I think it can be profitable for seasoned real estate investors who have both the time and expertise to make sure their rehab project stays on budget, but I definitely wouldn't recommend biting off more you can chew and doing BRRRR for your first deal.