All Forum Posts by: Lindsay Davis

@Muhammad Rehan,

I second @Greg Parker's comment about Alabama, especially if your goal is to generate positive cash flow.

I personally have a hard time believing that rentals in either Fayetteville or Pflugerville can deliver cash flow after accounting for all expenses. Specifically, it looks like you're including PITI and HOA dues in your expense assumptions, but what about maintenance and repairs?

You’ll probably need to budget between 1% and 3% of the rental’s purchase price per year to fix leaky pipes, busted doors, broken windows, and similar items.

Then, you’ll need to budget for capex reserves. Think of these as savings for big-ticket items like new flooring, new appliances, or a roof or siding replacement.

Because maintenance and capex can be “lumpy,” you may think that you’re generating more cash flow than you really are. I’d recommend running your numbers with these extra expense assumptions to see what actually pencils out.

If you’re worried about budgeting for capex, you can either buy new construction (which, if built well, won’t require capex for at least 5 years) or work with a turnkey provider, who will budget capex items for you on their end.

In any case, my experience is that deals in Alabama and other Sunbelt states are still working out, but higher cost-of-living places like Fayetteville or Austin are probably out.

@Daniel Windingstad,

I believe @Taz Zettergren mentioned Alabama, and I wanted to chime in since I’m active in multiple markets across the state.

I’ll talk specifically about (property) taxes since this data can be easily compared. The statewide average property tax rate in Minnesota is about 1%. You can expect to pay about 0.4% of your home’s value per year in Alabama, or about half the rate in Minnesota.

Cash flow is also easier to achieve in Alabama, especially in more affordable markets like Birmingham or Montgomery. For example, we’re seeing $120,000 single-family homes rent for about $1,100 in B/B+ Birmingham suburbs, which falls just short of the 1% rule that’s often talked about on this forum.

As for your question about succeeding as an out-of-state investor, I wouldn’t say it’s too different from being a good in-state investor—at least from a dealflow and deal making perspective. From a “landlording” lens, however, I’d recommend recruiting a solid team of locals (e.g. attorneys, leasing agents, property managers, contractors, etc.) who can help you with closing, leasing, maintenance, repairs, and capex.

New construction and turnkey assets are also popular among long-distance investors, since you either won’t have to do much maintenance or capex at the outset (in the case of new construction) or can work with a single, full-service point of contact (in the case of a turnkey property).

@Pete Tarin,

It’s going to be pretty difficult to tell based off of Zillow alone. At the very least, you’ll need to loop in data from other sources. For example, use crime databases provided by city governments or sites like NeighborhoodScout to find crime statistics by neighborhood/zip code.

Google Street View is also helpful for getting a general feel for the area. Pay particular attention to the yards, driveways, and exteriors for clues. Is the front lawn expertly landscaped? That’s probably an A neighborhood. Could the yard use a trimming or the driveway use a pressure wash? That’s perhaps a B area.

Do you see 6 inch tall grass, moldy siding, and damaged roofs here and there? You could be looking at a C neighborhood. What if you see a bunch of homes boarded up, the sidewalk completely overgrown with weeds, and the street’s asphalt cracking falling apart? That’s likely a D neighborhood.

Databases that contain information about household demographics, renter/homeowner ratios, incomes, school ratings, and other statistics would also be useful. Perusing city-specific subreddits on Reddit could also be a good way to gather opinions from locals.

@Denis Gantner,

Welcome to BiggerPockets—this is exciting stuff! I’m active in Chattanooga, so it’s only a short hop away from where you are in Nashville. Happy to serve as a resource for any questions you may have about the area.

Also, like @Karen Wanamarta mentioned, it’d be awesome for forum members looking to help if you could share a few details about the strategies or asset classes you’re looking into. That way, we can give better answers to any specific questions you might have.

@Bernard Griffin,

Beyond Birmingham, which Aristotle Kumpis just mentioned, there are other markets in Alabama like Tuscaloosa, Montgomery, or Huntsville that are potentially worth checking out as well.

I think it’d be helpful to have more information about your goals and buying criteria first, but I’d say that Tuscaloosa is generally a pretty interesting market. Although it’s only about 60 miles southwest (about one hour’s drive) from Birmingham, it benefits demographically from being the home of the University of Alabama.

UA’s enrollment has doubled since the start of the century, and the college town’s population has increased by 50% over the same period. This means that it’s growing a lot faster than most of the state’s other markets, Birmingham included.

Anyway, I just wanted to put Tuscaloosa on your radar—hope it was helpful!

@Cameron Fowler,

A good number of folks on this thread, like Andrew Syrios and Travis Biziorek, have helpfully mentioned the Midwest as a good place to invest for cash flow.

I’d also like to put Sunbelt states like Alabama on your radar as well—many markets there (e.g. Birmingham, Tuscaloosa, Montgomery, etc.) feature similarly affordable properties that command good cash flow.

Alabama also has one of the lowest property tax rates in the country (about 0.4% of property value). Of course, these property tax rates are priced into gross rents, but my experience is that NOI margins on rentals here are higher than in surrounding states.

@James Walker,

I’m active in Chattanooga but don’t do new construction there yet—I’m involved in ground-up in Tuscaloosa and Athens, AL for the time being.

In any case, I'd be happy to serve as a resource for your new construction or Chattanooga-related questions!

@Jane Trust Ryan,

Welcome to Huntsville and the world of real estate!

I’m active in Huntsville and manage about 2,000 turnkey properties in Alabama for out of state investors. Let me know if you have any questions—I’d be happy to serve as a resource about the area!

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@Brian Hudson,

I run a turnkey single-family operation in Chattanooga so I’d be happy to chime in.

As I’m sure you know, the extent to which a property cash flows (or not) is going to be determined by how levered your capital structure is. Today’s high interest rates mean that deals in 2024 are unable to shoulder as much debt as an equivalent deal three or four years ago.

It's also a bit difficult to say whether quadruplexes or turnkey single-families sport higher yields, since operating costs—and thus NOI available to service debt—is so deal-dependent. Generally speaking, multi-family units—especially older properties—tend to come with higher operating costs, though this may be offset by proportionally higher rents.