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If you are a patient and cautious Birmingham real estate investor, times are good.
However, if you’re an anxious and eager Birmingham real estate investor, you could be headed for trouble.
Not since early 2006 has there been such interest in buying and selling real estate in Birmingham.
Whether you’re looking to buy and hold or you want to flip or retail, there is plenty of activity.
Sometimes it almost feels like a gold rush.
As you might imagine, at gkhouses we have interaction with hundreds of investors. We meet with investors in all of the cities we serve – Birmingham, Nashville, Chattanooga, and Little Rock.
These interactions, as well as our own experience, give us the opportunity to learn many lessons.
A Story
I started buying and selling Birmingham real estate back in late 2003. I owned a Homevestor franchise with some friends. We would purchase houses at deep discounts that we would turn and sell to local investors.
These investors would either rehab them and sell them on the retail market or would hold on to them for rental properties.
From 2003 until 2008, our franchise was the 800lb gorilla of Birmingham investment real estate. At times we would receive over 100 calls, make as many as 30 offers, and buy four or five houses per month.
We were selective and trusted the numbers on our offers. We understood what was not a good buy for us may be a reasonable buy for someone else.
But we started to notice something happening in late 2005. The market became a little crowded, and more investors were searching for the same kinds of houses we were buying.
When this happened, an interesting thing occurred – a kind of FOMO (Fear Of Missing Out) started creeping into our business.
We started trying to make deals seem better than they were and the result was that we bought houses we should have walked away from.
I remember buying a ten house package without walking inside any of the homes. This eagerness not to let those houses slip away led me to make a poor buying decision.
Even though I sold several of the houses quickly, I held on to the ones I couldn’t sell. And in case you’re wondering, that’s not a good strategy for a Birmingham real estate investor!
I still have one of those houses today.
The good news – I have had the same tenant the past eight years.
The bad news – It’s not a great house, and when my tenant moves, there will be a ton of work to do.
So what lesson can you learn from my story?
Patience
Today’s market is much more competitive than it was from 2003 to 2008. The recession gave us plenty of inventory, but the number of investors from around the world has increased as well.
Why has it gotten so much more competitive?
Here are a few things that have made it more competitive for the Birmingham real estate investor:
- The Internet – Marketing for houses to buy has never been easier with Google organic and paid search like Adwords and Facebook Ads. The internet has flooded the market with good and bad solutions for motivated sellers.
- “Gurus” – I’m not talking about The Beatles guru, Maharishi Mahesh Yogi. I’m talking about your slick real estate ‘guru.’ Using the internet, you can find a real estate guru on every web corner. Most of them are selling their real estate courses to investor ‘wannabes’ from anywhere between 1k to 50k. The method most taught is how to market and put a house under contract (with no money down) and sell that contract. This investing is a form of wholesaling.
- Institutional Investors – For the Birmingham real estate investor, it’s important to understand that some of your competition has more money than you do and are willing to pay potentially higher prices. Funds willing to buy houses at higher prices than the typical Birmingham investor have been flooding the market since around 2013.
These factors have driven some investors to make mistakes and buy houses they have no business buying.
Just a couple of months ago we onboarded a new client who made a massive error.
This owner had just bought two rental properties here in Birmingham “sight unseen.”
Unfortunately, this is not an uncommon practice for a Birmingham real estate investor who lives out of state. But even though it’s a common occurrence, it doesn’t make it a good practice.
This new client, when their purchase was complete, had no real idea about the state of the home or tenant pay history. This means that until this time they had neither seen the house or spoken to the current tenants.
This became such a problem (an avoidable problem) that this client is now suing the former property manager.
Patience is the key to avoid catastrophic circumstances.
While there are a lot of houses for the Birmingham real estate investor to choose from, a vast majority of them are not good deals.
Here are some tips to make sure your patient and making a right decision:
- Have a good understanding of your risk tolerance in regards to the class of neighborhood you are buying a house. Many of the homes I have seen for sale and touted as B or C class are C and D class neighborhoods. The seller is motivated to sell the house and so what’s the harm in bumping it up a street class? A lot of harm to you if you don’t prepare yourself for the risk involved in owning rental property in those areas.
- Visit the property and drive the street, block, area. Don’t rely on Google to do your street scene homework. You need to see what’s happening with surrounding houses and the neighborhood. I used to love to buy homes in areas where I could see and feel a pride of ownership.
- Call and verify information about the area from local property management companies. This includes the estimated rental amount as well as inside information about the particular area and neighborhood.
- Make an offer that makes sense for you and be willing to walk away. When you begin experiencing FOMO, take a deep breath and remember that there will be another deal…possibly a better deal…come your way shortly.
Conclusion
Even though the market is hot, there are still deals that you can take advantage of in Birmingham. Be disciplined, do your homework, and listen to people who don’t necessarily stand to gain whether you buy a house or not in Birmingham.
If you’re patient, an opportunity will come that will be a home run in the long term.
Best of luck and let us know if we can ever help you!
Matthew is the CEO of Evernest. He is a student of the book Good to Great and is passionate about building the best property management company on the planet (and maybe even the universe if Elon Musk will hurry up). You can usually find Matthew at the baseball field with his son, at a dance recital with his daughter, or at his favorite restaurant with his wife, when he’s not in the office. And if you can’t find him in any of those places, it probably means he’s traveling.