All Forum Posts by: Lindsay Davis

@Michael Dallas,

It’s great that you’re thinking about these factors early. If you choose to relocate, the good news is that you won’t have to move too far. Tennessee has a bunch of lower-crime and fast-growing cities—places like Chattanooga, Knoxville, Murfreesboro, and Clarksville come to mind.

Besides, moving isn’t an irreversible decision. If you move to a different market and don’t feel like it’s serving you well, you can always move back home.

@Chaim Mal,

Local brokers or property managers who have deep expertise in the markets they operate in can add some color to the situation on the ground.

Before asking around for information, I’d recommend thinking about your buying criteria. For example, what’s your budget per unit (or per property)? Are you after appreciation or cash flow? What’s your investment strategy?

If you come prepared with a list of specifics about what you’re after, you’ll be able to get more granular and actionable information that you can use to narrow down the markets, submarkets, and zip codes to buy in.

To expand on what @Denise Evans is saying about buying in the path of progress: UA’s enrollment figures have increased by 22% over the last 5 years and doubled in the last 20 years.

Unlike highly-selective private schools, public universities like UA tend to increase their student body populations over time, so demand is likely to grow for the foreseeable future. Not to mention, on-site administrative and teaching staff are also going to grow in proportion with the number of students enrolled as well. Those professionals, who may move to Tuscaloosa with their entire families, will also need housing in close proximity to campus.

@Tibor T.,

Building a team, steering the project, staying on budget, and holding people accountable is going to be an uphill battle for sure—especially since you’re doing it all the way from Switzerland.

Is it possible? Like @Chris Seveney said, it can be—but it’s probably not the best strategy for someone new to U.S. real estate.

If you still want exposure to real estate here but can’t do fix-and-flips, options like turnkey real estate (where you buy a professionally-managed property with a tenant in-place) may be a better option for you.

There are some groups that even do turnkey specifically for foreign investors like myself—happy to connect you if you’re interested.

Beyond that, investing in deals via a syndicate, private real estate fund, or publicly-traded REITs could also be options, though you’ll be a minority owner and have little operating discretion under these arrangements.

@Hailey Peterson,

I’d like to offer a slightly different perspective here: analyzing "appreciation and demand” from a statewide level probably isn’t granular enough. If you zoom in, you’ll find markets in both WA and TN that are growing rapidly—in Tennessee, for example, Clarksville and Murfreesboro come to mind.

And even markets themselves aren’t homogenous. In some cities, it’s the submarket that matters. In Chattanooga, as I’m sure you’re aware, the Red Bank area is very different from Avondale, even though they’re only a few miles apart.

There’s also an underrated advantage to investing in your own backyard: you’re more familiar with the geography and you know the submarkets off the top of your head. It’s also easier to build a team, check out properties, and speak to tenants.

An out-of-state deal is definitely possible, but you’ll have to leave the heavy lifting to a property manager or opt for a turnkey arrangement. Just my two cents!

@Eric Blair,

I second what @Seth McGathey is saying here. You're taking out a $50,000 HELOC for the down payment (and repairs, I assume), and borrowing the rest. So effectively, you're at 0% down and financing 100% of the purchase.

The $200 in "cash flow" that you forecast is assuming no principal paydown on the HELOC and mandatory amortization on the mortgage only—this, in my opinion, is a pretty risky proposition, and I'm willing to say that you're levering up to a pretty uncomfortable extent.

Consider what happens if rents decline by 5%, or if you need a month or two to get the property leased up, or repairs run over budget…you get the idea. If any of these things happen, you'd immediately be cash flow negative, even if you make interest-only payments on your HELOC.

If I were you, I'd find a way to pony up equity for the deal—not a HELOC!—or skip out on the deal altogether.

@Kyle Vogeler,

Like many things, it depends. If your townhome is in a neighborhood where a large percentage of folks are homeowners (meaning that most of your offers will be made by prospective owner-occupants as well), then a rental with a tenant in-place could sell at a discount, or take a little longer to offload.

However, if you’re mostly fielding offers from investors, then selling a fully-leased rental could actually be beneficial, since the investor closing on the property will get cash flow from day one. Plus, you can even share your bank statements and P&L to show that your tenant always paid on time. I’m pretty sure you’d have investors who would be very interested in that.

@Patrick Michael,

@William Whitley's offered some great, nuanced information. Another rule of thumb would be 1% to 3% of the property’s value per year, with a floor of at least $3,000.

Keep in mind that this would be for routine maintenance only. If you’re budgeting for capex reserves like a new roof or siding, that’d be additional. I’d say $100 to $200 per unit per month would be a good ballpark estimate for capex needs.

@Eric Blair,

Just a clarifying question: are you struggling with getting enough capital to afford a down payment for a second deal, or are you having trouble finding a deal that cash flows once you acquire it?

If you're struggling with the former, perhaps you can see if banks are willing to let you tap (some of the) remaining equity in your former house hack turned investment property via a DSCR loan. That could potentially be an option, even if a HELOC's off the table. However, you may have to speak to a large number of lenders before you get a bite.

If you’re facing the latter, have you considered looking slightly beyond Montgomery proper? I’ve personally been able to find deals that pencil out in suburbs like Prattville, Elmore, and Deatsville, which are about 15 to 20 miles northeast of downtown Montgomery.

@Sas Sel,

You’ll have to do some digging, but there are markets with (some) deals that meet the 1% rule, even in this interest rate environment.

@Ko Kashiwagi mentioned Birmingham as an option—there are definitely pockets of the city with deals that pass this litmus test, especially in suburbs west of the city’s downtown.

Other markets in Alabama, which I haven’t seen mentioned yet, could fit the bill as well. Montgomery, the state’s capital, and Tuscaloosa, home to the University of Alabama, come in mind here.