We speak with a lot of investors who are interested in turnkey real estate in Birmingham.
Birmingham is one of the nation's top spots for cash flow investors. For anyone seeking turnkey real estate in Birmingham, there are plenty of deals to choose from. In Birmingham you can buy a solid rental house for $50,000 and rent it out for $700 to $800 per month. Our economy is strong thanks to the thriving medical and financial industries. And our rental market has remained strong for several decades. The solid Section 8 program here in Birmingham also interests a lot of out of state investors. However, it is a lot different than Section 8 in other parts of the country. We love investors. Our company began as a result of accumulating our own rental portfolio. Other investors we knew also let us manage their property in the early days. Initially, for us, it wasn't our goal to hold rental property.
Our Early Investing Days
But we found out it was necessary as we were buying houses from 2003 to 2008 under the Homevestor franchise. We would take up to 120 calls every month from people wanting to sell their houses. After a little exploration, we usually ended up making 20 to 30 offers and buying 4 or 5 houses per month. Most of those we sold to local investors. Eventually, we held some for rentals. The first rental I bought happened to be a 10 house package. There were some ok houses and then some really bad ones. I remember going to collect rent for the very first time. The couple was behind and as I pulled up to the front and got out of my car...two very large pit bulls lifted their heads from the porch as if to say,
Can we help you?
Whatever they were saying, I listened and quickly drove away!! I ended up selling that house. And the one next door. By the end of 2008, I had around 30 rentals in three different entities. I don't buy/sell properties here in Birmingham anymore. But I enjoy talking to people who are investors or want to be investors in Birmingham. Recently (summer of 2016) we had two investors from the west coast come to town. This post is what we can all learn from their visit and a couple of additional takeaways.
West Coast Investors
They bought 12 houses here in town and while it's been a great long-distance relationship, we always enjoy meeting people face to face, shaking hands, and visiting rental houses together. You can get a much better understanding of someone's goals when you drive from house to house and have time to talk. We had time to visit all of their houses. There were two rented and the rest in some state of turn (getting ready to rent). There wasn't anything particularly bad about the houses or area but they were in parts of the city that are known for a few things:
Older homes
A lot of the homes they bought were built in what we call ‘West End'. A lot of West End homes were built between 1900 and 1940.
High Police presence
The Police in these areas are not sitting around at the coffee shop...they're BUSY.
Low to moderate rents
In these areas, it's tough to get over $700 per month. Most of the houses are between $500 - $650 for a 3/1. And that is private pay or Section 8. These investors are good guys and they're smart. They own rental property on the west coast and one of them has been in the business for over 20 years. So they know their stuff. However, Birmingham rental property is different. I believe there were a couple of steps they could have taken that would have drastically improved their experience.
1. Come to Birmingham for a week and drive the streets
This can't be overstated. If you're considering buying turnkey real estate in Birmingham, it's imperative. And if you don't have the time to take off or the money to spend a week here, then you probably don't need to be buying turnkey real estate in Birmingham. To give our client's credit, they did this...they spent some solid time here in Birmingham. But if you think you can shortchange this step, you're wrong. When I drive through a particular area of looking for turnkey real estate in Birmingham, I'm going to be looking for a few things:
Abandoned and vandalized houses
You can see a picture of a house someone sends you and it looks great...but how do you know it doesn't have a burn-out next to it? How do you know it's not sandwiched between two apartment buildings? These things will impact your ability to rent that house to a solid resident. Most good residents don't want to live on a street with a bunch of vacant houses...they won't feel safe because there will be things going on in those houses that aren't ‘safe'.
Pride of ownership
Here I'm simply looking for several houses that people are taking care of in the most basic ways. I like to see cut grass during the summer, no leaves during the winter. And I especially like if there are plant shrubs, plants and flowers. You know the houses that people care about and if you're driving a street and see 75% of the houses with strong pride of ownership - that's likely going to be a good area to own a rental.
Unnecessary Loitering
How many people can you find walking on the sidewalks or sitting on their porch. The more people I count, the less likely I am to buy in that area. I prefer neighborhoods where people are at work or busy with their lives...not sitting on the porch...all. day. long. Seeing retirees in these areas are great...but not working age groups of people. I once owned an apartment complex where the residents drank beer and played cards all day. Not the best complex in the world. The temptation for turnkey providers to buy in these areas are mostly financial. If they can buy it cheap enough, they can sell turnkey real estate in Birmingham to someone for much more money. Especially someone who isn't familiar with the area.
2. Visit several property managers in the area and ask a lot of questions
Our friends failed to visit with several different property managers during their time here. There are enough honest managers in this city that would have given solid advice about where they were buying and who they were buying from. Again, there's nothing wrong with where they bought as long as they have realistic expectations. Understand WHO you are buying houses from when you are here in Birmingham. Not every company that sells turnkey real estate in Birmingham is honest This company has operated under several different entity names over the past 10 years. The reason they do this is because of the lies and fraud that they enjoy giving to new investors. They change their identity and story every three years so that out of state people can't look too much into their past deals. Once they've sold enough houses and made enough money, they shut it down and start all over again. How they get away with it year after year is beyond me. We only know this because we've taken over about 30 houses from previous clients of theirs over the past six months. The solution to this problem is simple. Visit different property managers in the area and ask questions like:
Have you ever heard of XYZ Company?
What has been your experience with XYZ?
How long have they been in town?
Would you recommend buying these houses they're selling?
What's the real story on this rental area?
They told me the house can rent for $XXX per month...what's your experience with similar houses in that area?
What are some common issues with these types of houses?
Ask these questions to enough property managers and you'll see some consistency in the answers. You need to be wise when buying turnkey real estate in Birmingham. And as a result you'll probably end up doing one of a few things - buying the house(s), asking more questions from the seller, or running the other way. Do your homework. Don't be lazy. Know who you're buying houses from and believe in their credentials and history. If you do these two things before you buy in a strange market, you'll have more success than your counterparts. Most people I see are buying houses sight unseen based on a piece of paper with unrealistic CAP rates. - Spencer Sutton
