Hey guys, just wanted to share my recent experience with you all. So, I’m heading to Birmingham this October to check out some real estate deals. I decided to get a head start by analyzing every single family home listed under $200K on Redfin, which totaled to about 350 listings. I ran each one through my BRRRR underwriting model before even thinking about scheduling property tours. Spoiler alert: none of them made the cut. Thirteen came close, though. Let me break it down for you.
First things first, I want to clarify that Birmingham’s median sale price hovers around $210-214K. By focusing on homes under $200K, I essentially looked at the lower end of the market. This analysis doesn’t mean that Birmingham as a whole isn’t BRRRR-friendly; it just shows that the bottom of the Birmingham MLS isn’t currently conducive to the BRRRR strategy.
Now, let’s talk numbers. I made some assumptions across all 350 listings, like a 20% down payment, a 7.5% conventional investment loan, and other financial details. After crunching the data, here’s what I found:
– In the $40-80K range, 59 listings showed an average monthly cash flow of $254, with a DSCR of 1.22. Almost all of them had positive cash flow.
– Moving up to the $80-120K range, 111 listings had an average cash flow of $80 per month, but the DSCR was a bit low at 0.95.
– As we climb higher in price, the cash flow starts to dwindle. The $120-160K and $160-200K ranges showed negative monthly cash flows and DSCRs below 1.
Out of all the listings, three deals came the closest to meeting the BRRRR criteria. However, each had its own set of challenges that made them not quite ideal for the strategy. For instance, a property in Monte Sano looked great on paper but had high rehab costs that didn’t align with the ARV. Another property in Ensley had a good cash flow potential, but the lack of comparable renovated properties in the area made it difficult to determine the ARV accurately.
From this exercise, I learned several key lessons. Cheap properties may cash flow well, but they might not be suitable for BRRRR due to high rehab costs relative to the property value. Additionally