The Ultimate Checklist for Out-of-State Investors Considering Birmingham Real Estate

As an investor and expert in real estate in Birmingham, AL, I understand that investing in properties out of state can be a daunting task, especially for those who are not familiar with the area. Birmingham has a diverse and growing real estate market, with a mix of residential and commercial properties that attract investors from all over the country. Out of the 450 units that we currently manage, over 90% of them are from out of state investors. Birmingham offers a unique combination of cashflow opportunities coupled with a history of stability, yet still includes the potential for large future appreciation.

To help out-of-state investors make informed investment choices, I've compiled this ultimate checklist for investing in Birmingham real estate. I've been running Freedom Ventures PM for nearly 4years and I've seen a lot of poor choices. This checklist covers the critical factors to consider when investing in Birmingham's real estate market in hope to help you make the best decision possible when investing in AL properties.

Research the Local Market

Before investing in any market, it's essential to research the local real estate market's current conditions. This includes understanding the demand and supply dynamics, the current real estate trends, and the local economy's strength.

For Birmingham, it's worth noting that the city has a growing economy that supports the real estate market's growth. The city's low cost of living and affordable real estate prices have attracted many investors over the years. This blog is just one snippet of information. I also am biased since I own and operate a PM company in Birmingham, but objectively, Birmingham has a lot of potential. I've witnessed the growth firsthand over the years. The increase in property developments, the trendy fully renovated warehouses, the fancy restaurants, the Carraway Hospital redevelopment, the I-20 City Walk, the entertainment districts, Rail Road Park, etc. I can go on. It's a city that is on the right trajectory, and it's also led by people that have the vision to fulfill Birmingham's potential.

Identify the Right Neighborhoods

Birmingham has many neighborhoods with varying property values and rental income potential. Identifying the right neighborhoods to invest in requires understanding your investment goals and the demographics of the area. Are you wanting pure cashflow? Do you want a mix of appreciation and cashflow? Understanding this question will help you make a better choice on where to invest.

Just like any town, Birmingham has different parts of town. The higher income areas come with pros and cons e.g some pros are:

• Tend to be easier to rent

• More of a rent premium

• Tenants tend to take care of the properties more

Some cons for higher income areas are:

• The barrier to entry is higher since the price point is higher

• Tenants tend to live in the property for less time, on average.

• Costlier turnovers/repairs

Some pros for lower income areas:

• Lower barrier to entry due to lower price points

• Easy to rehab, tend to be cheaper on the turns

• Tenants tend to stay longer

Some cons for lower income areas:

• Tenants tend to be rougher on the property

• Costlier capex since they typically are older and have a lot of deferred maintenance

• Rent collection can be difficult

It really just depends on what you are looking for. In my mind, I prefer to get the best of both worlds. Class B/C offers the benefits of both extremes while also minimizing the cons.

Some of the top neighborhoods in Birmingham for real estate investments include Roebuck, Forest Park, Crestwood, North Birmingham, and Avondale. These neighborhoods offer a mix of affordable properties, high rental yields, and good prospects for capital appreciation.

Analyze the Property's Condition

When investing in Birmingham real estate, it's important to conduct a thorough property inspection to ensure that the property is in good condition. This includes checking for any structural issues, water damage, or pest problems. Even if you are out of state, I will always recommend investors walk a property themselves. It is an additional expense but ultimately the $500-$1,000 that you'd spend on travel and stay to Birmingham for 1-2 days would be worth it, especially when you are buying a property that is $100,000+.

The reason why I harp on this is simply because you want to know what you are buying. Yes, you're going to get an inspection and appraisal, and you'll also have your PM walk it, but ultimately, all of that does not replace physically walking through a property prior to closing. You'd be able to get a feel of the layout, feel of the direct neighbors, drive the neighborhood, etc. These are all things that you can not grasp while reading a report.

It's also worth considering the property's age, location, and size, as these factors can impact the property's value and rental income potential. Also, if done right, the $200-$400 for the inspection report can lead to a credit worth much more than the price of the report.

Estimate Rental Income and Expenses

Calculating the expected rental income and expenses is a crucial step in determining whether a property is a good investment. This includes estimating the property's rental income, property taxes, insurance, maintenance costs, and other expenses.

Working with a property management company can help to ensure that your property is well-maintained, and your rental income is optimized. Also, if the property needs work, be sure to get an itemized bid from a contractor prior to closing. That way you can make sure you have a concrete idea of what it's going to take to get this property up to speed.

Also, be conservative with your estimates. Always underwrite deals with the worst-case scenario. If a deal passes even in the stress tests, it will be icing on the cake when a property performs well.

Check Local Regulations

Before investing in Birmingham real estate, it's essential to check local regulations to ensure that you comply with the city's laws and regulations. This includes obtaining the necessary permits and licenses, understanding zoning laws, and ensuring that your property meets all building codes.

Are you wanting to rent Short Term? Are you wanting to change the zoning? These are crucial questions when deciding whether or not to purchase a property.

Consider Financing Options

Financing options are essential to consider when investing in Birmingham real estate. This includes understanding your financing options, such as conventional mortgages, hard money loans, and private lending.

Are you going to hold this short term? Are you wanting to flip it or hold it as a long-term rental in your portfolio? The answers to these questions will allow you to make the best decision on the front end on which financing option to go with.

Conclusion

Investing in Birmingham real estate can be a profitable and rewarding venture. With the right research, analysis, and understanding of the local market, out-of-state investors can make informed investment choices that meet their investment goals.

By following this ultimate checklist, you'll be better equipped to navigate Birmingham's real estate market and make successful investments that generate long-term returns. As always, if there is anything we at FVPM can help with, don't hesitate to reach out anytime.