Rent collection should be a glorious time for you; it means your rent is being paid and your investment is proving profitable. However, not all tenants pay on time. This can be frustrating for landlords who have their own financial obligations to meet. We’re sharing some of the best things you can do to ensure you’re collecting rent effectively and efficiently at your rental property. (more…)
It’s October again! Time for my list of places in Alabama that are rumored to be haunted. Let’s get started!
The Drish House in Tuscaloosa, Alabama
One of the most popular questions we get from owners and investors who are thinking about using our services is: how much does it cost? As a rental property owner, you’re going to be concerned with the cost of professionally managing your home. Today, we’re discussing what kinds of property management fees you can expect in Birmingham, and how your property management company may collect them. (more…)
Getting Started as a Landlord – Part two
Zoning laws can have a significant impact on a landlord and their rental property. In a nutshell, zoning laws keep residential and commercial areas separate from each other, so residents aren’t living in the middle of a noisy industrial area.
Before purchasing a property, it’s important to investigate your local zoning laws to see whether or not they will affect your rental property. An area zoned for one type of land use may later be changed, so be aware of future developments that could affect your property. for example, property in a residential area might be changed from one zone class to another, due to factors such as sprawling, which could impact your property value and your ability to find tenants.
Once you have chosen to rent your property, you must take steps to prepare it for tenants. The condition of your rental will affect whether or not it’s ready for occupancy.
In order to remain competitive, you’ll need to make your rental unit appealing to tenants. this should include fixing any known problems, complying with your local zoning laws, and upgrading the property to make it more enticing, comfortable, or aesthetically pleasing.
From the foundation to the roof, check to make sure everything is working and that your property meets municipal and state housing codes. It’s better to tackle renovations before a tenant moves in, both for safety reasons and to avoid coordinating improvements around their schedule.
Below is a list of thing you should do to get your property rent-ready:
- Check all appliances to make sure they work, including the oven, dishwasher and washer/dryer, if applicable.
- Test smoke detectors and CO2 detectors.
- Repair any problems, such as holes, water leaks, pests, etc.
- Give the walls a facelift with a fresh coat of paint.
- Replace or clean flooring
- Upgrade fixtures and/or window treatments.
- Clean each room thoroughly, including hard to reach areas such as cabinets, vents, and other storage areas.
- If you have porches, decks, steps or stairs in the unit, ensure they are strong and safe to use.
- Ensure that all exterior doors, gates, and windows have working locks.
- Eliminate any bad odors
- Landscape front and back yards.
- You live far away from your rental property
- You’re not interested in managing a rental property
- You don’t have enough experience to successfully manage the property. In that case, a property manager can help ensure you are renting legally.
A property manager is an individual or firm who is hired to oversee and manage a rental property and its tenants. They are actively involved with the property and perform such tasks as:
- Screening tenants and negotiating lease terms
- Discussing leasing and property rules with a tenant
- Collecting rent or other fees
- Arranging for repairs, maintenance, and upkeep
- Paying bills, assisting with taxes, and managing a budget.
- Enforcing rental rules and policies.
- Setting rental rates and advertising the property.
- Issuing notices
- Handling move-in and move-out inspections.
- Record keeping.
According to the US Census Bureau, approximately 31.5% of US households are occupied by renters. What does this mean for potential investors? It means that as long as renters exist, rental property will be in demand.
While there is a risk with any type of investment, rental property is one of the most stable types of assets to have in your portfolio. Between regular cash flow from tenants, real estate appreciation, and tax benefits, obtaining rental property is well worth it for its long-term investment potential.
Owning rental property has its benefits, but it still requires a great deal of hard work to manage. There is a considerable amount to learn before taking the leap to become a landlord and the learning doesn’t stop there. Throughout your life as a real estate investor, you will continue to learn. There are always new developments in real estate law, real estate taxes, municipal codes with which to be familiar and a plethora of other little tidbits that can cost you time, money and even your property if you fail to stay informed.
There is a legal principle that everyone should be familiar with. Ignorantia juris non excusat. This translates to “ignorance is no excuse”. Basically, it means that just because you didn’t know something was against the law, doesn’t excuse you from being held legally liable.
Most of the time, this term is used in a criminal setting. However, it applies across the board. One example: Just because you didn’t know it is illegal to refuse to rent to someone just because they are of a different race, gender or religious affiliation doesn’t mean you won’t be held liable for your actions in a court of law. Another example would be if you decide to remove the front porch of a property so you can use that space to create more parking or if you decide to paint it black with pink trim. You may think “it’s my property, I can do what I want with it” but you’d be wrong in a lot of areas. A lot of neighborhoods have restrictions that might prevent you from doing either of the above-mentioned things. A lot of municipalities have codes that prevent you from doing alterations that can be seen from the street without prior approval.
This is the first of 4 articles aimed at educating new landlords on a few things to be familiar with from getting your property ready to rent all the way to getting that “forever” renter.
Various Types of Rental Properties
- Mobile Home
- Basement Suite
- Room in a private residence or Boarding House.
When renting out any of the above spaces to tenants, you may allow them to use the backyard, garage or parking spaces as well. For property located in a shared building, such as a condominium or apartment, the hallways, walkways, entrance ways, laundry room, garbage disposal area and other common areas are shared by all occupants and aren’t owned or rented by one tenant. It is important to include the above in all leases in this type of property and to put wording in the lease that lets the tenant know where their rental boundaries are and where they are not in order to prevent any future drama.
- Tax perks: Rental property isn’t subject to self-employment taxes like other home businesses unless you’ve formed a corporation, in which case you would have to file corporate taxes.
- Rental properties also benefit from depreciation, which can be deducted from your taxable income from the rental property each year to account for wear and tear to the property. Depreciation reduces the amount of tax you pay on rental income but may increase your capital gains tax after selling the property.
- Along with depreciation, landlords can also claim many deductions for their business, including property insurance, mortgage interest, advertising, property taxes, maintenance fees and much more.
- Property appreciation. It’s generally safe to say that the value of real estate increases over time, meaning that it appreciates. When it comes time to sell, sellers pay taxes on the appreciation, also called capital gains. Although property value depends on supply and demand, real estate purchased in the right location can sell for a decent profit.
- Cash flow. Renting a property provides a regular cash flow for as long as there is a tenant paying rent. Each month you receive a rental payment and the money you make after paying your mortgage, any utilities, insurance, etc., is yours. This income you generate from a rental property is also more predictable than other investments, such as a traditional business because a rental payment provides consistent cash flow that is higher than a typical dividend.
- Liquidity. Depending on the market, your rental property might take a long time to sell if you decide to sell down the road.
- Lack of diversity. As an investment, real estate is a concentrated asset, which means if something happens to it, your money is tied up in that one investment, as opposed to several small investments.
- Unpredictable tenants. As mentioned above, if a tenant suddenly stops paying rent, damages the property, or moves out without notice, you may experience a temporary loss of income.
- Time and management. Managing tenants, communicating with contractors/vendors, handling maintenance all takes time and energy. While owning rental property may be considered a passive investment, it’s a hands-on job for a landlord.
- Expenses. Owning a property costs more than the purchase price. When you factor in property taxes, insurance and other fees, such as a Homeowner’s Association (HOA) fee or repair costs, your expenses could add up.
- Do I have the time to commit to managing a rental property?
- Am I comfortable in dealing with potentially difficult tenants?
- Can I make repairs myself or do I need to hire a professional?
- Am I organized?
- Do I understand my tax obligations?
- Am I familiar with my state’s (and local municipalities) landlord-tenants laws?
How much rental income should I make as an investor? This is possibly the most asked questions that new investors ask. The answer to that question is, there is no magic number. Every investor, every property, and every investment strategy is different. This article contains a few guidelines to help you determine how much profit to expect from private rental properties.
There are as many reasons to become an investor as there are properties. Some investors are looking to earn a little extra income by investing. Others are counting on it for their day-to-day living, to help fund college and retirement funds, and to live a comfortable lifestyle. Regardless of how much you need to make, earning money on investment properties takes some time and work in the beginning before it truly feels like passive income. It’s not a “get rich quick” scheme, by any means.
Focus On Cash Flow – Not Appreciation
When you’re trying to determine how much profit you’ll make on a particular property, focus on cash flow, not appreciation. Relying on appreciation is risky because you can never be sure that home prices are going to increase. In certain cases, your investment property might actually decrease in value. Focusing on cash flow is a smarter way to determine how much money you’ll be putting into a property, and in turn how much you’ll be getting out of it.
Find The Right Property for your personal portfolio
Research to find out the best areas in which to invest in rental property. Study the neighborhood market, don’t skip the home inspection and keep an eye out for homes that are under market value. These are the first steps in earning a profit from your investment. Once you have narrowed your search to a few specific areas, choose the one that works best for you. Some investors like to invest in their immediate area as it makes it easier to keep an eye on it or because they already feel comfortable with the area. After all, they chose to live there. Others want their investment properties to be as far away from their personal homes as possible. Others simply want the best return on their investment and honestly don’t care if their investment properties are close to their own neighborhood or not.
Investing in the Birmingham Area
While we can’t speak for the rest of the country, we know a thing or two about investing in the Birmingham area. In Birmingham currently, a B+ and A- property equals to about a 6.5% to 7% cap rate to hit and maybe a 12% cash on cash return. You’ll still hit somewhere in the 16% to 18% cash on cash return, maybe like 8.5% cap rate in the C+ and B- type product. (These property scores are explained near the end of this article). Imagine the passive income you could earn if you owned multiple rental properties! Another great thing about real estate investing, and turnkey especially is that you don’t have to live locally to take advantage of the hot market. Even if you don’t live in the Birmingham area, you can still take advantage of the deals. Birmingham is a hot spot for homes that are below market value that generate a significant ROI (Return on Investment)
Real estate investing is all about location. A common misconception about investing is that you need to invest in an area close to where you live. This isn’t always the case. In fact, properties in the B- and C+ categories are in what pros consider the “sweet spot”. The sweet spot is a vibrant market that offers properties that are affordable to the majority of buyers in the area. These are the areas where you are most likely to get the most effective returns. So how do you know if the property you’re investing in falls into the sweet spot?
B Class Properties typically:
- Are older than A class properties
- Tend to have lower rental rates than A class properties
- Are seen as “value-add” properties by investors
- Can be acquired at higher Cap rates than A class properties
- Are close to schools and amenities
- Has a good overall feel, but just needs some updates
C Class Properties typically
- Are located further away from schools and amenities
- Are older than 20 years
- Need quite a bit of TLC to compete with other property classes
Although B and C class properties may seem like they need a little work, they’re considered the sweet spot for a reason. These homes are appealing to middle-income renters and can easily be upgraded to a higher property class usually with just a few upgrades.
Property Management And Profit
Many investors are busy professionals who don’t have the time in their schedules to do everything required for a successful investment. Researching rental properties for sale, the acquisition of tenants, the rehab, the property repairs and maintenance, and the collection of rent checks and the overall understanding of how to manage rental property all require time and effort that most investors just don’t have. This is why many investors start interviewing rental property management companies to help them handle the day-to-day tasks related to their investment property. While some investors see the management company as an additional expense, we see it a little differently. A competent and professional management company can anticipate issues before they arise and solve them quickly. They can handle tenant issues effectively. A successful property management company is well worth the fee you pay them if they are keeping an eye on the property, making sure tenants are happy, collecting rent, and performing routine maintenance to ensure the property is performing at it’s best.
The main goal of investing is to earn money. If you’re not earning a profit, what’s the point? Many investors have made millions investing in real estate, and you can too. But it doesn’t happen overnight, and you have to be willing to work for it. By following these guidelines, you can be on your way to successful investing that generates significant returns and changes not only your life but your legacy as well.
The discovery of a high grade coking coal in 1879 began the industry upon which Birmingham, Alabama was born. This mineral wealth was touted far and wide by entrepreneurs such as Enoch Ensley and attracted industrial investment to Birmingham. Below he is pictured with an 11-ton lump of coal en route to the New Orleans World Exposition of 1884.
By 1886, Pratt mines were the largest and most extensive mines in the state. Pratt Mines was founded in 1878 by Henry DeBardeleben, Truman Aldrich & James Sloss. Pratt Coal & Coke Company was named in honor of Daniel Pratt who was DeBardeleben’s mentor, father in law and benefactor. In 1881 it was sold to Enoch Ensley for $600,000. Enoch sold it in 1886 to the Tennessee Coal, Iron and Railroad Company. By the end of the 1950’s, the former Pratt Mines had faded into history with no surface works remaining.
Coal was either shipped via rail to market or changed in massive masonry overs to form coke, the fuel for making iron. by 1898 Tennessee Coal and Iron Co. was the nation’s second largest producer of coke. U.S. Steel acquired TCI in 1907 and developed Pratt City as a regional shipping point.
Three railroads had extended trackage into Pratt Mines by 1887. The privately developed community that grew like topsy adjacent to the mines and company quarters became Coketon, Pratt Mines and finally Pratt City, the state’s earliest and largest mining boomtown.
Just to the east, Pennsylvania iron-master Samuel Thomas built two iron producing furnaces and constructed residences for furnace labor. The furnace town, noted on O’Brien’s map as Enniskydeen, an attempt to spell Thomas’ hometown in Wales, became Thomas, Alabama, headquarters of Republic Iron and Steel’s Birmingham operations.
Experienced ironmaster David Thomas, together with his sons Samuel and Edwin along with industrialist Robert Sayre, purchased the 2,000 acre Williamson Hawkins plantation in 1886. This superb industrial site had an abundant supply of limestone, water from Village Creek and seams of coal and iron which were all the necessary ingredients for the production of iron. Couple that with the fact that Pratt coal supply could not have been closer and you had a recipe for success.
By 1890, the Pioneer Mining and Manufacturing Company, as it was called, had built two “family designed”, state of the art furnaces and constructed a two street town for furnace personnel. Other laborers were hired form surrounding farms.
Republic Steel acquired the Thomas site in 1899 and expanded plants and the towns of Thomas and Ensley. Republic rented housing to job holders whose tasks required them to live close to the furnaces.
Laid out in the 1880’s along wide tree lined streets, the residences along 1st and 2nd streets and the commissary were closely modeled after worker communities in Pennsylvania. The main difference was that these residences showcased southern industrial types including board and batten and frame shotguns, pyramidal cottages and bungalows.
Housing in Thomas solidified a clear cut class structure. At the head was the superintendent’s house set on a large plot among stately trees and magnificent gardens. houses along 1st were surrounded by picket fences with large yards, coal and out houses in back. Foremen and young bosses lived here, along “silk stocking row”.
Along 2nd street or “cotton stocking row”, lived mechanics and other skilled labor.
Housing for semi-skilled and day laborers was along 3rd and 4th. Those streets were called “bare legged row”. Here many Italians put down their American roots. Joe Bruno, Alabama’s leading grocery store magnate, was born here.
Black workers lived from 4th to 8th streets.
By 1912 more than 500 workers and their families lived at Thomas. Houses were fenced, streets and sidewalks graveled and tree lined. in the 1920’s, company gardeners maintained crepe myrtle and calla lily plantings in the medians and parks on most streets.
Early Thomas residents describe their community as closely knit. All the men worked at the plants “from can to can’t”, children rode the streetcar to schools in Pratt City. Community life revolved around the churches, the commissary and the front porch. A sense of community identity was further reinforced by geographic isolation. Thomas remains today totally hemmed in by plants and railroads.
The community of Thomas was annexed into the city of Birmingham during Birmingham’s great annexation push of 1910 along with other like communities such as Elyton, Ensley, Pratt City, West End, Wylam and Smithfield, among others.
During the 1910 annexation push, the City of Birmingham immediately grew by over 48 square miles and increased its population by nearly 73,000 people. Before Birmingham annexed these communities, the population was 60,000….afterwards Birmingham boasted a populace of 132,685.
Introduction to Residential Real Estate Investments
for the New Investor or the Wannabe Investor
In order to become a residential real estate investor, there are a few terms and scenarios of which they should at least have a working knowledge. Let’s explore some of those before we delve deeper into the how’s of becoming a successful investor. We’ll discuss more about the “how’s” in later posts.
Why are so many people turning to residential real estate investing these days?
There are a growing number of people these days who, for a variety of reasons, no longer want to work for someone else. I believe the number one reason is the fact that true job security is really a thing of the past. There was a time, not too awfully long ago when a person could graduate from high school or college, go to work for a company and stay with that company until they retired. Nowadays, not so much. Companies are merging, selling and going out of business at an often alarming rate. They are closing their local branches and opening new branches in faraway lands or outsourcing. Retailers like Kmart, Sears, and Toy-R-Us are shutting (or have shut down) their stores all over the country.
Even longstanding factories that have survived economic crashes and slow periods have seen massive layoffs and even closures. At the end of 2017, the 112-year-old Cone Denim White Oak Plant in Greensboro, NC shut its doors laying off approximately 208 people in the process. This historical plant manufactured blue jeans and was the last major manufacturer of selvage denim in the US. I’m sure after over a century in operation, most workers never imagined themselves out of a job.
I would be remiss if I didn’t mention the “Ma Bell” monopoly disintegration wherein more than 40,000 people lost their jobs and livelihood in 1982 when the Federal Government forced the company to split their holdings when charges were filed against them under the Sherman Antitrust Act.
As an employee at a traditional workplace, you are always trying to work your way up the corporate ladder into a better position, only oftentimes to find out that your ladder is leaning up against the wrong wall. A raise can lead to more income, but also requires more hours, which is the one commodity we want to have more of in the future.
Most of us are allocated two weeks vacation time a year from our employers. During this time we don’t earn anything extra. Wouldn’t it be nice if you continued to earn income even while away on vacation, attending your child’s sporting event or even while sleeping? This is the beauty of real estate investing and is the main goal and dreams of those who step into this line of work.
The moral to all of this, from a residential real estate investor viewpoint is twofold (1) While the world might find a way to do without a Denim factory, or a Kmart or even a 411 operator…it will never find a way to do without people needing a place to live, and, (2) With a specific goal in mind, lots of patience, hard work and sacrifice, you can be the “master of your own universe”. You can truly earn money without ever leaving your home. Will it happen overnight? No, but it will never happen if you don’t jump off the corporate ladder and follow your dream.
My favorite motivational speaker of all time, Zig Ziglar, once said “You will always get what you want by helping others get what they want.” What does that mean to a real estate investor? The one thing that every person wants is a nice place to live. When I say “nice” that doesn’t necessarily translate to “mansion”. For most of us, it translates to wanting a clean, functional place to call home in a neighborhood that we aren’t ashamed of and at a price we can afford. You give that to people and they will give you money. You’ve helped them get what they want and now they are helping you.
If your goal is to become a successful residential real estate investor, then you must have specific goals. You can’t deal in generalities. To risk redundancy, I’ll once again quote Zig “If you go to work tomorrow because that’s what you did yesterday, you’re not going to be as good tomorrow as you were yesterday because now you’re two days older and no closer to that goal that you did not have. You can’t make it as a wandering generality.”
So what is required to become an investor? What are the qualifications? The answer is short and simple. It takes a lot of patience, hard work and research. How much does it cost? That varies with every community and with every investment scenario. It also varies with the type of investor that you want to become.
Let’s look at three types of Investors:
Frugal Investor: The frugal investor buys low usually choosing to purchase class C or D properties and spends cash on the purchase. The frugal investor spends only what is necessary to make the unit habitable, does most of the work him/herself and holds the properties for the monthly income it produces in rent or sells quickly in order to move onto their next project.
House Hacker: This is a process in which you get other people to pay your mortgage for you. Arguably, the most popular version of the House Hacker is that of an investor who purchases a duplex, triplex or quadplex. They live in one unit while collecting rent on the other unit(s). The rent from the other unit(s) pay any expenses the investor incurs from the property. If the House Hacker was also a Frugal Investor, the money he/she receives from rental income is actual profit once the usual expenses like maintenance, taxes and insurance have been paid.
Another version of the House Hacker is the investor who purchases a house with a guest house or garage apartment in the back. They live in the guest house or garage apartment while renting the larger house out. An even smaller, more common version, is the college student, fixed income person or newly divorced person who rents out spare bedrooms in their home so their renters pay the mortgage for them.
The last version I’ll mention here is what I affectionately call the “Squatter House Hacker”. That’s the investor who buys a Class C or D property for cash and then lives in it while fixing it up. This is not for the casual investor because the sacrifices are sundry and oftentimes extremely inconvenient. Things we take for granted on a daily basis, like flushing toilets, showers, hot water, central heat and air, might not even exist in the beginning. This version requires more patience and sacrifice than most investors are willing to expend. However, if you have the stomach for it, this is a way to grow your portfolio without growing debt and with the least amount of financial exposure. Chances are great that if you find yourself unable to complete your project or need to pull out for other reasons, you should be able to sell it for at least what you have in it at that point.
BRRRR Investor: This is an acronym for “Buy, Renovate, Rent, Refinance, Repeat”. We’ll go into more depth on this type of investor as this type of investing has gained a considerable amount of popularity in the past decade or so.
B – Buy.
This is the foundation upon which all things residential real estate investing hinge. There’s an old and true saying that goes something like “a product or service is only worth whatever someone is willing to pay for it.” Value is very often subjective. If you are purchasing the property as a flip (buy, renovate, sell), then you will know exactly how well you did when you sell the property and at that time can make any necessary adjustments to your business if necessary. However, if you are a “buy and hold” investor (meaning you intend this property to be a rental), then it’s much more difficult, short term, to know if you made the best deal possible on your initial purchase.
The key goal in the BRRRR strategy is to pull all of the money that you have invested in the property out by refinancing it so in effect, you bought a property for nothing yet you are continuing to gain equity as long as you hold onto the property.
When you get ready to refinance remember that most lenders will loan up to 75 percent of the value of the property in a refinancing scenario. If you’re looking to draw out as much money as possible from the value of your property so you can invest in another, this is a good goal. However, if you aren’t looking for faster volume growth, then a 70 percent loan to value ratio might be a better plan. Why? Because while there is only a 5 percent difference between the two numbers, the refinancing costs will be markedly higher at 75 percent. The other major reason is how aiming for 75 percent affected the contingencies. Most people tend to go over budget not under so when aiming for 75 percent, most usually wind up at 80. Aiming at 70 should get you there or at worse case scenario 75.
Cash is always the easiest way to go when getting that first property. However, not everyone has that much cash laying around so, in that case, financing is something with which you should be extremely familiar prior to buying your first property. There are many different types of financing available. Of course, there’s the financial institution with which you have already established a relationship in your personal financial dealings. In addition to that route, there’s seller financing, private loans, hard money loans, etc.
R – Rehab
Unless you are purchasing a turnkey property, this part will require a large amount of thought and research…and work. The main questions you should ask yourself at this stage are (1) What does this property NEED in order to be functional and liveable? and (2) What improvements do I need to make in order to add more value than cost? Notice that in both questions I said “need”? While it’s always a great idea to make the property more attractive than it was when you found it, this is the area that puts investors over their budget quickly. If you’re doing a luxury property, then go ahead and install soapstone or quartz counter tops with exotic hardwoods and top of the line appliances, because in that market, those are expected improvements in order to get top dollar for your property either in sales or rental income.
However, if it’s not a luxury property, skipping the current trends and sticking to the classic finishes will not only provide an attractive property but will also provide a profit down the road. That being said, it’s always a good choice to get rid of peel and stick vinyl tile in exchange for ceramic tile and refinishing existing hardwoods is almost always cheaper than installing new hardwoods especially if you’re willing (and able) to do a majority of the work rather than hiring a contractor to do it for you.
Be ready to skip the areas that aren’t going to give you immediate value. Areas such as bedrooms, dining rooms, garages, laundry rooms and basements really don’t add enough value to justify spending the bulk of your rehab dollars on them. Make sure they’re clean, painted, have good flooring and (in the case of the basement) water proofed and move on.
The most important part of the rehab is making sure that the entire property is functional, safe and healthy. Word spreads like wildfire in the real estate world…..and among renters…so no investor wants to be branded a slumlord. Making a rental (or any property) pretty is a wonderful goal, but the main goal should be to make it a fully functioning, safe and healthy property so don’t skimp on waterproofing the basement, fixing roofs, updating old and potentially dangerous electrical and rusty plumbing. Doing all of this in the short term might take a huge chunk out of the money you allocated for installing that dream kitchen but it will save you untold amounts of money in the long term from having to rip that dream kitchen out because of an electrical fire or because those old pipes leaked water in the walls and you had to pay a professional company to do mold remediation on a vacant property because the tenants had to move out due to the mold.
Oh yeah! Don’t forget about the exterior! I don’t care how pretty you’ve made the interior and how functional, safe and healthy you’ve made the property, if you can’t get the potential buyer or renter to want to stop and come inside….it’s not going to matter. You should also realize that appraisers are people too. You want their first impression of your property to be a good one too!
Below I’ve included a few before and after shots of properties that have undergone minor exterior rehabs. It’s mostly paint, getting the landscape under control and maybe a shutter or other small exterior adornment added (or in the case of the awning – taken away). The differences are extraordinary.
New paint, new landscaping and they got rid of that awning! Beautiful!
R – Rent
A lot of lenders, if not most, are somewhat reluctant to refinance a vacant property. So before seeking a refinance, you need to get a tenant into your property. It’s always better to have a good tenant who pays $100 a month (just an example) on time and takes care of your property than a bad tenant who pays $200 a month (again, just an example) every now and then and who trashes your property. Do your due diligence! You have just spent lots of time, hard work and money on your investment – don’t hand over the keys to just anyone.
Once you’ve gotten a signed lease, you can begin shopping for the refinance. An appraiser will need to come to the property. Never do a drive by appraisal as they tend to be lower than one in which the appraiser actually comes inside. Always alert your tenants before the appraiser is due to arrive and make sure any pets are kenneled and the property is neat and clean when the appraiser arrives.
R – Refinance
When searching for lenders to refinance a single property rental, there are a couple of things you need to ask. You will need to know if they are willing to cash out or if they will only pay off the debt and you will need to know what their seasoning period is. A “seasoning period” is how long you will have to own the property before the bank will lend on the appraised value of the property rather than just on the amount of money you have invested in the property. In order for the BRRRR strategy to work, you will need to borrow on the appraised value. There are lenders that will refinance on the appraised value as soon as the property has been rehabbed. These are the best lenders to find.
Finding the right lender for your situation can be somewhat daunting in the beginning. There are investor clubs in most major cities who meet over lunch once a month or so. Those are great networking opportunities for new investors. There are also a couple of great websites that can lead you in the right direction. For approximately $200, you can sign up with ListSource and/or DataQuick and using their search function plug in the area and price range. It will pull up a list of properties that are not owner occupied and the lender associated with those properties. Once you’ve found several banks that have lent money in similar situations as you, the calls can begin. The beauty of this method is the fact that you already know these banks have made loans similar to what you need.
R – Repeat
Once you’ve refinanced your first property, it’s time to take your cash and move on to the next property!
Here at Decas, we specialize in the BRRRR strategy and can guide you through the process.
We already have an extensive history in Buying, Rehabbing, Refinancing, Renting and
Repeating! We can show you how to get the most out of your rehab budget and what makes
properties more attractive to both potential buyers and potential renters in the Birmingham,
Alabama metro area.
The BRRRR method is a fantastic way to grow your residential real estate investment portfolio
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East Lake Atheneum/St. Thomas on the Hill located at 4th Avenue South and 82nd Street in East Lake, Alabama
The 79,000 square foot East Lake Atheneum, later named St. Thomas on the Hill, sat on 11 acres covering a full city block in the heart of South East Lake at 4th Avenue South and 82nd Street. It rose abruptly from a modest residential area on a steep hill at the foot of Red Mountain. This building was rich with history as one of East Birmingham’s oldest buildings. It was initially built to house a private seminary of learning for young ladies and later to house an existing orphanage that eventually became the East Lake Atheneum Orphan’s Home. A substantial expansion in 1957, which included a chapel, presents an unusual two, three and four-story look as the old and new buildings were connected. The building, in which classrooms had been converted to offices and conference rooms and included dormitories, served as a civil defense shelter during World War II. A separate seven-story retirement community called Villa Maria I was erected around the same year on the back section of the property. It remains an active retirement community as well as the newer addition of a 5 story retirement community called the Villa Maria II which sits next to the original Villa Maria I. Both of these retirement communities are still owned by the Catholic Diocese.
The orphanage, later called St. Thomas Home on the Hill, ceased operating in 1971 and the Diocese moved their administrative and family services office there from the Five Points South area of Birmingham in 1973.
The East Lake Atheneum school was founded by Dr. Solomon Palmer, a leading educator of the South, and a one-time state superintendent of education. The land was donated by the East Lake Land Company. The word Atheneum is often used in the names of libraries or institutions for literary or scientific study.
Number 62 trolley advertising the East Lake Atheneum school opening
The school was locally promoted by the East Lake Land Company, a number of public-spirited men of Birmingham and the community of East Lake as a whole. It was chartered by the legislature on December 5, 1890. The East Lake suburb would be annexed into Birmingham 20 years later during the great annexation push of 1910.
Many of the school’s trustees served were also trustees of Howard College. Howard College would later become Sanford University and would abandon their East Lake campus in favor of their newly built campus in Homewood, AL in 1957.
The first board of trustees for the East Lake Atheneum included Robert Jemison, Solomon Palmer, A. D. Smith, Dr. J. H. Phillips, W. H. Wood, S. L. Robertson, R. G. Hewitt, M. V. Henry, C. C. Jones, J. H. Finch, James Van Hoose, Henry H. Brown and James Wilson.
The charter declared its objects to be the “establishment, organization and maintenance of an institution of learning of high grade for the education of young women, in the arts, sciences, and practical industries.”
The first session opened October 7, 1890, with an enrollment of 180 students. The main building, a large brick, and stone Romanesque-style classroom and dormitory building was completed in 1892 and 212 girls entered the school the next Fall. The stone was taken from a local quarry less than a mile away at Ruffner Mountain. The building was heated throughout by steam and had a chapel, recitation, dining and enough bedrooms to accommodate 150 to 200 pupils.
Ten to twelve experienced teachers taught preparatory, classical, scientific, normal, musical, art, elocution, stenography and industrial courses were offered. The school had to close briefly due to the 1893 financial panic.
Dr. Palmer continued as its head until his death May 15, 1896. He was succeeded by Rev. J. B. Cumming, who served for two years, followed by Dr. W. S. Weissinger.
In 1900 the school closed permanently, and the property passed into the hands of the Sisters of Charity of the Roman Catholic Church. The Sisters changed the use and name of the facility, turning it into an orphanage which continued to operate until 1971.
The orphanage was called the St. Thomas Home on the Hill. When the orphanage closed in 1971, the building was used for the offices of the Catholic Diocese of Birmingham (officially called the Catholic Life Center and later Catholic Family Services) until they moved to their new headquarters. For a number of years, the facility sat empty until 2001 when the property was purchased by the Birmingham City Schools for $1.6M. The historic buildings, which had fallen into disrepair were razed and a new school was built which opened as Ossie Ware Mitchell Middle School in 2006.
All that remains of the East Lake Antheneum/St. Thomas on the Hill are old photo’s and the memories of the people who have passed through its halls.
Some real estate investors are more comfortable investing in their geographical area while others don’t mind investing on the other side of the country. No matter where you decide to invest, your due diligence process should be the same.
How do you decide if you should invest in your own backyard or expand your search to other areas/states? Forbes magazine says it’s all about knowing the factors that contribute to any area’s local real estate economy. “Location, location, location proves a timeless axiom. This is why your market, team, and property manager are altogether more important that your investment property itself.”
According to Forbes, “an economically viable market supports price gains, rent growth, occupancy and population expansion; a depressed market does not.” What does this mean for an investor? It means that before you decide on the property, decide on the area. It means that researching an area before you research available properties is key to your success. Before you jump into a long distance investment, you need to fully understand the market in that area. A property can be turn key ready, fully and tastefully updated with a gorgeous yard and curb appeal BUT (there’s always a “but”) if the market in that area won’t support the price or the rent that you need in order to make this property work for you, then you need to walk away.
Researching the area before looking at available properties can limit the emotional connections that investors sometimes make when looking at available properties. I think every investor, especially in the beginning, has found a property that just “spoke” to them. You know the property. It’s the one that is low in price but big on looks. Easy money, right? Maybe not. The old adage “If it looks too good to be true, then it probably is too good to be true” is spot on 99% of the time.
So what are some of the contributing factors that lead to a depressed area? The top few reasons are:
- High crime rates (both violent and property) in that area
- High unemployment or high numbers of underemployed in that area
- High vacancy rates both in commercial and residential properties in that area
It should be noted that different areas within the same city or county can exhibit different market conditions. Just because one area is depressed doesn’t mean the entire city or county is in the same condition. The real estate market can not only vary within areas of a city or county but even as specific as within city blocks. A great investment property can oftentimes be found within blocks of a bad investment area. If your heart is set upon investing in a certain city or county, move your search around a bit. Chances are, you’ll be able to find an area that meets all the right criteria.
It’s all about due diligence.