When you decide to invest in real estate, the first choice you should make is the place in which you want to buy a property. The location of your investment property will determine a number of factors including the price you should expect to pay, the availability of properties for sale, the type of market you will deal with (a buyer’s market vs. a seller’s market), the optimal rental strategy (a short-term rental vs. a long-term rental), the rent you can charge, and eventually the return on investment you can get. The latter should be the driving factor in your investment decision as you buy investment properties in order to make money, and the higher your return on investment, the more money you will make in real estate.
If you are thinking about starting a real estate investment business in 2019 or expanding your existing investment portfolio, you must be wondering what the best place to buy an investment property is. If you are looking for the most profitable locations to rent out this year, Birmingham, AL should be on the top of your list. Let’s look at what makes Birmingham an excellent place to buy a rental property in 2019.
Why Birmingham, AL Is a Top Location for Investing in Rental Properties in 2019
1: The Market Is Heating Up
Every investor wants to buy a property in a hot housing market, but this is not always an option, particularly because of affordability. The Birmingham, AL, real estate market is just heating up now, which means that if you act quickly, you can be the proud owner of a rental property in one of the hottest US markets a couple of years from now. According to data from the Alabama Center for Real Estate (ACRE), a total of 15,884 residential real estate properties were sold in Birmingham in 2018, an increase of 6.2% from the previous year . This trend is expected to continue in 2019 and beyond, which means that the already decreasing home inventory will continue to decline. In November 2018 the inventory went down by 4.6% from October 2018 and by 11.2% from November 2017 . The supply totaled 4.2 months. Meanwhile, the median sales price rose by 5.8% from a year earlier.
Any real estate expert will tell you that all these signs point into one direction: that the Birmingham, AL is becoming a strong seller’s market. This means that property prices will continue going up, while the number of properties for sale will keep decreasing. So, if you think that investing in a Birmingham rental property might be the right choice for you, now is the best time to buy one.
2: Property Prices Are Affordable
The main disadvantage of investing in a hot real estate market are the preventively high property prices, which can easily exceed a million dollars. That’s why investing in a market which is about to become hot is a smarter investment decision. Another reason why buying a Birmingham investment property is a good decision at the moment is the affordable property prices.
According to data from Mashvisor, a real estate data analytics company which helps investors find lucrative traditional and Airbnb rental properties, the median property price in Birmingham in January 2019 is $233,700. This is much below the price which investors can expect to pay in other top locations for investing in real estate. What does this mean?
If you are a beginner investors on a limited budget, buying a rental property in Birmingham is an affordable option for you. You will have to make a down payment of about $47,000 if you apply for a conventional mortgage. Of course, as a property investor, you can opt for other creative real estate investing options such as private money lenders, hard money lenders, crowdfunding, partnerships, etc.
If, on the other hand, you have saved up a significant amount of money so that budget is not an issue, you are better off buying multiple investment properties in Birmingham instead of one in San Francisco, New York, or Boston, let’s say. Expanding and diversifying your real estate investment portfolio decreases the risk and increases the potential for return.
3: The Birmingham Real Estate Market Offers High Return on Investment
The final factor which you should consider before deciding to invest in a rental property in Birmingham, AL is the high return which the local housing market offers. Regardless of your preferred rental strategy (a traditional vs. an Airbnb rental property), you can make money in real estate in Birmingham. Let’s have a look at the best neighborhoods for each type of rental properties.
The Best Birmingham Neighborhoods for Buying a Traditional Rental
If you prefer to invest in a long-term rental and be a traditional landlord, you can find Birmingham properties with a very high return on investment.
According to Mashvisor’s data, the average cap rate for traditional rentals in North Avondale is 9.3%, which is significantly higher than the city-level average of 3.0%. The main reason for this high return is the low median property price of $55,000. The average monthly rental income for long-term rentals in North Avondale is $1,060.
Another top neighborhood for investing in real estate in Birmingham is Rising-West Princeton. The average cap rate for traditional rentals there is 8.5%. While the median property price there is a bit higher than in North Avondale at $72,900, so is the rental income as well, at $2,110 per month.
- Bush Hills
Mashvisor’s data points out at Bush Hills as the third best location to invest in a long-term rental in Birmingham in 2019. The average cap rate is 8.2%, as a result of a median property price of $75,000 and a monthly rental income of $1,160.
The Top Neighborhoods for Investing in an Airbnb Rental in Birmingham
If you’d like to become one of the many successful Airbnb investors in the US housing market, Birmingham, AL offers this option as well. Actually, at the city level the cap rate for short-term rentals exceeds the one for long-term rentals: 5.2% and 3.0%, respectively. Also, there are neighborhoods which offer very high return for this type of rentals.
- Rising-West Princeton
Once again, the neighborhood of Rising-West Princeton is among the top choices for buying an investment property. Indeed, this place is a very good choice for buy and hold investors as it allows you to “flip” your rental strategy a few years down the road in case the situation in Birmingham changes .
In August 2018 the Birmingham City Council approved an agreement with Airbnb according to which the homesharing platform will collect the city’s 6.5% lodging tax on short-term rentals and remit it to the city . This is a positive sign that the City of Birmingham is interested in regulating the short-term rentals business without prohibiting it. However, future discussions on this regard can take any direction, and Airbnb rental investors might face limited options in Birmingham in a few years, as has been the case in many hot markets in the US. Thus, it is highly recommended to invest in neighborhoods which allow you to “flip” from short-term to long-term rentals (and vice versa) without losing profit.
According to Mashvisor, the cap rate in Rising-West Princeton for Airbnb-style rentals in January 2019 is 15.0%. This is a return which is rarely observed in any market at the moment, as a result of the ever-growing competition in the industry.
Another neighborhood with the highest return on short-term rentals in Birmingham is Bush Hills, with a cap rate of 14.6%. Once again, buying an investment property there is a good decision as you can “flip” between rental strategies.
Five Points South
The average cap rate in the Five Points South neighborhood is 8.8%, which is an excellent return. The median property price there is a bit above the city level at $241,300. The average monthly income from an Airbnb rental is $3,540, while the Airbnb occupancy rate is 56.9%.
For investors looking to buy a property to rent out on Airbnb, Central City is also a good choice. The average cap rate is 6.8%, while the Airbnb occupancy rate is 47.7%. While property prices are higher at a median level of $338,700, the rental income is also high at $4,020.
Short-term rentals offer an average cap rate of 6.2% in Fountain Heights, where the Airbnb occupancy rate is 45.8%. The median property price is below the level in Central City, at $296,200. The average monthly rental income from vacation rentals is $4,020.
Regardless of your preferred rental strategy, investing in a Birmingham real estate property at the beginning of 2019 is an excellent idea. You will make money in the short term through high cap rates for both traditional and short-term rental properties. You will also make profit in the long run through appreciation. As property prices are expected to continue rising and the inventory to keep going down, now is the best time to buy an investment property in Birmingham, AL.
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