CW 426: Birmingham Alabama Income Property Investment Profile with Local Market Specialist Jennifer

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Welcome to the Creating wealth show.

This is your host, Jason Hartman at episode number 426. Thank you for joining me for episode 426 and I hope you enjoyed that last episode with Bill Bonner, Agora Financial and a lot of great stuff coming up. But what I wanted to do today is not talk so so much about the macro picture and the big economic picture and whether it be monetary policy or Bitcoin or the economy, I wanted to talk specifically about one of our markets because we have another property tour coming up. Yes, that is in beautiful Birmingham, Alabama. I was there, as you know, just a couple of months ago and really loved the hotel I stayed at. It was a gorgeous new Westin property. So, so this will be the weekend before Thanksgiving in November. And you can check it out@jasonhartman.com in the events section and you can register for that. Get some early bird pricing for the Birmingham property tour. Of course, it'll be the same format. On Saturday, November 22, we will have the Creating wealth in Today's Economy seminar. And then on Sunday, November 23, we will do the property tour and we're going to look at some awesome properties there. These are what I call the bulletproof properties. So if you're one of the investors that wants low maintenance properties and you don't want to be called about the dishwasher breaking or the garbage disposal breaking or the garage door, some of this stuff that annoys us as investors, even though we definitely have the most historically proven asset class in America, we know that. But these little bumps in the road do become annoyances for us investors. I understand that. I'm one of them too. So if you want these bulletproof properties, that's what you have in Birmingham. This is a different style of property and property management. So we're going to give you a little taste with a market profile from our guest today and join us for the tour and you will learn a lot more. So let's get right to our guest and check out the details here@JasonHartman.com in the events section. And also thank you to all of you who have been purchasing our closeout extreme sale price products of the Creating wealth seminar and the Meet the Masters event. And those are also@jasonhartman.com I appreciate you buying those physical products and clearing out my storage unit. Thank you so much. Keep ordering them. If you haven't taken advantage of this, check the product section. The first two products there are extremely discounted and they're physical products so they look gorgeous on your bookshelf. Okay, let's get to our guest and let's talk about Birmingham.

Hey, I want to welcome Jennifer to the show. She is our Birmingham local market specialist team. She's part of that team and she manages properties and construction. And so we're going to talk a little bit about the the bulletproof house, which I like to tease our Birmingham team about that because their houses are almost bulletproof. There's not much to break in these houses, which I think you'll like as an investor. We're just going to dive right into it because we've got a property tour planned for Birmingham and I was there just a couple of months ago and liked what I saw. We've been doing business there for a while. So Jennifer, Jennifer, welcome. How are you?

Thank you, Jason? I'm well, yeah.

Good, good.

It's good to have you on the show.

So let's first talk about property acquisition and fix up and what you guys do and your team to rehab the properties. I want to kind of, you know, take our listeners through kind of the typical scenario. I know they're probably one of the interesting things about this business is there is no typical, you know, but everybody tries to usually have a business model, a certain angle on the market and a certain specialty.

So tell us a little bit about that, Jason.

Bas what we do is we go in and we find homes that we can that are good for our rental market. So we go in and we find these homes that we know are going to have longevity with us and we rehab them to that degree. Basically, as you stated, we do the bulletproof type rehab. We take everything out that we feel that would cause some form of mechanical issue or something that the tenant may have a little bit of an issue with. So we go in and we take and a lot of people laugh at us about this, but we take dishwashers out, we take ceiling fans out, anything that has mechanical pieces to it. We get a lot of questions about does the tenant not care that they have a dishwasher? And in fact, Jason, it's funny that that question comes up so often because we manage about 75 properties right now and I may have had one tenant in that period of time ask about a dishwasher. So what some people may feel is important, others I guess just don' but what we do is we go in and we find these properties. We spend approximately somewhere in the ballpark of 15 to 25,000 in rehab. So just given that number there, you can tell that we go in and we basically gut it and start over. We are doing our major items such as your roofs, your H vac systems, we change out all hot water heaters. We try to refinish hardwood floors if possible and put in vinyl or tile when deemed necessary. But we try to keep the carpet out of properties if we possibly can, just because that's something that the owner at some point will possibly have to change out. But you know, we just look at the major mechanical pieces and the major items that would cause that homeowner at some point to have to, you know, replace. We want basically a maintenance free property when we get down to it, right?

In the interest of full disclosure, there is no such thing as a maintenance free property.

Correct.

Yours are pretty close, Jennifer. I mean, what's interesting to me when I was there a few months ago in touring these properties, it's kind of counterintuitive in some ways because a lot of people would think, well, whether it be our local market specialist team or the investor themselves, they would think, well, I want a property with a garage because that's going to give me a more desirable property with potentially a larger prospective tenant base. I want a property with a dishwasher. I want a property with, here's one for you, a garbage disposal. And what you guys do is you look for properties without garages on purpose. If it has a garage, a lot of times you turn it into a storage room. When I look at my nationwide portfolio of properties and I look at properties in all of these different markets and the different styles of properties and acquisition teams that I've purchased them from, the things that break and the things that annoy me are garage door openers, garage doors, because, you know, they're spring loaded and they've got tracks and things get off the track and so forth and they get crooked. So garage doors are kind of complicated things. Of course, there's the old one that everybody says is kind of a cliche. You know, the garbage disposal breaks dishwashers. You know, I've replaced a few dishwashers in my career, certainly as an investor. And you don't have any of this stuff. So I'm thinking.

Correct, Jason, we do not. We like you stated, if there is a garage door, we take it out and it becomes an additional room or storage facility or whatever with the house. We just really, we try to eliminate those types of items. You will not in our homes typically find a garage door. Like you said, a garbage disposal. You will not find a dishwasher at all. So again, we just try to keep it as low maintenance as possible.

It's hard to call and complain about something needing repair if it doesn't exist.

Correct. That helps us on the property management side as well.

Okay, so talk a little bit more about the acquisition and the property style that you look for because your properties are very affordable for your market. What would you say your average monthly rent is?

Our average monthly rent is about 850. We do not do anything below a 750 range. So our true range is about 750 to $1,000 is our base for Birmingham. For our Birmingham market. That gets to a three bedroom, typically a one to one and a half bath. It is not common in Birmingham to have two bathrooms. And our portfolio actually probably consists of less than 10% with two bathrooms. It's just not common. It does not pull any more rate from a rental standpoint than a one bath. So very common from a rental standpoint.

Like just right. There is another interesting point. You know it's one less bathroom to break, correct? Right. It's one less toilet that's going to run or leak or whatever. So it's just less. There's an old saying, less is more and that's used commonly in art and architecture. I like to use it in government. When it comes to government, less is more, if you ask me. So now why don't you go below 750? You don't like the low, low end stuff, I guess.

Correct. What we do is we have targeted certain areas within our city that we have chosen to invest in for different reasons. But we feel that once we reach below that threshold of the 750 mark, we're in areas outside of what we choose to invest in. Those areas would be what we call our semi war zone type areas. So we have just determined that our 750 is our breaking point and we choose to invest in only those areas.

Okay. So nothing below 750. And what would you say the highest is? 850?

No, currently in our portfolio, our highest is 1,100.

Okay, $1,100. But your range you mentioned before is 750 to 850.

Yes, our average rents are 850, but our range is. We only have one at that 1100 mark. But our range is 750 to 1000 typically.

Okay, and what's the typical age of the property? I mean, these are not newer homes by any means.

They are not. They're typically built in the 60s. Early 70s would be our average.

Talk about some of the different neighborhoods, if you would, in different areas of the city though, the ones you like and the ones you avoid.

Okay, sure. We have three major areas that we invest in in the Birmingham market. It would be the centerpoint area would be our major one on one side of the town and then our other side of town would be midfield. We. So we work both sides of the Birmingham market. It's just that we choose which direction that we're going. So we don't do anything on the western side of town. We're mostly on the eastern side of town, if that helps at all. And you know, as far as what we're targeting in those, they both pull equally. As far as the rental rates, it's just in the style of home is actually the same. It's just determining which rental group we can get from which side. So it's working both ends of the city.

How do you find the inventory flow? Are there enough properties to buy and rehab?

Absolutely. We are very fortunate here in Birmingham. We're a very stable market. We have a number of ways that we get our properties. We get them through typical mls, we get them through auctions. We get them through just doing mail in campaigns for owners that might be in situations to us they want to sell at this point. So we target multiple ways to get property.

When people hear these bulletproof properties that really don't intentionally offer much in the way of amenities and intentionally keep the price affordable. How much of your portfolio would be section 8 or government assisted housing?

Sure. About 25% of our housing currently is section 8 or government subsidized.

I find that that's something people either love or they hate. There doesn't seem to be a lot of middle ground. What are your thoughts on that?

Well, Jason, we definitely have. We have our struggles with the system itself. It has some slowdowns. That's typically what our problems are with the system is that once you do get an approved tenant. Sometimes it takes up to two months to actually get the property inspected and the tenant placed. That's our biggest challenge with the system. As far as payment, Once you get them through the process, of course you have an automatic check in a sense, because they do pay monthly every, you know, every specific time of the month. However, we do. We are. We. Last year, we started to kind of shy away from the Section 8 program and actually released some of our tenants off of the program and chose to go with some straight pay. But they have revamped the system here in Birmingham and they have a new director. So it is actually starting to regain popularity with us. I guess, in a sense, we've built some relationships that we didn't have before within the system. So things are moving a little bit more slowly for us. So we probably will start to increase our portfolio numbers with Section 8 as long as the process continues to work a little smoother.

Yeah. Okay. You said things were. Maybe you misspoke. You said things were moving a little more slowly. Did you mean the market or did you mean. I'm sorry, I assume you didn't mean the same. I'm sorry.

I meant as far as the initial. There's a slowing period still that exists with the section 8. As far as once they get approved and once they're able to move in, the inspection side of the business is still very slow. So tenant placement, once you get past tenant placement, then it seems to be going more quickly now.

So, interestingly, like anything in life, it certainly helps to have connections and relationships to get things done and get things moving faster. So that's why, like, when you have a good team and a good property manager, I mean, you have relationships with the Section 8 people, you know those people, you're probably not allowed to send them flowers or money or wine them and dine them, because government employees theoretically can't accept any of that stuff. But, you know, just knowing them and being friendly with them and. And having them know you over time, I find that with anything in life to be very helpful. You want to speak to that?

Absolutely. I mean, and we do that in all facets of our business. But, yes, from a property management side, we team up. And we also try to build as many relationships within agencies that do placement as we possibly can. That way we can hopefully move the process along a little bit quicker. And also when we call, they know that you know who we are and they give us. Typically they will call us back a little quicker than that other person. They're not so Familiar with.

Okay, good. So you can get things done, you can make things move faster, and that's good News. So about 25% of the portfolio that you deal with is Section 8. And it sounds like right now you're looking to actually increase that a little bit.

We are. Like I said, they do have a new director in place that seems to be going much smoother. And our placements and just our general working with the Section 8 department is going smoother right now. So we are looking to possibly increase that. And probably over the past couple of months, about 35 to 45% of our placements have been with Section 8.

Okay. Okay, good. So I want to ask you in a moment about your tenant profile, the target tenant you have, the section 8 and the non section 8 type of tenant. But before we do that, I want to ask you about the profile of the investor, owner, landlord, who's right for you and who's wrong for you. And then as a subcategory of that, who's the right investor, landlord, owner profile for Section 8 properties and who's not?

That's a good question, Jason. You know, there are there, I guess our properties fit specifically to certain people at certain times. But, you know, as far as who is the best for a section 8 tenant versus a non section 8 tenant, I can't say that I've really seen a lot of differences between owners in that perspective. Of course, everyone wants to know that their check is coming and that they'll get paid monthly. I, you know, of course, as a property manager, we do our very best to make that happen, regardless of whether they are a Section 8 tenant or a straight pay, what we call a straight pay tenant. So I don't know that there's a real differentiation between ownership there because we work as property managers to do all that we can to ensure that that payment's coming either way.

It's funny because I've mentioned it on the show before and I joke about it. I say that my mother, she had a lot of Section 8 tenants and I'm not sure what her makeup of her investment portfolio is nowadays there. But over the years, I remember growing up hearing about her Section 8 tenants and how she loved it because every year the government would send her a postcard saying, would you like a rent increase? And she would check a box. Of course. Yes, thank you.

Yes, of course.

And she loved how they always paid on time. And that was. Was great. But then she would complain about the inspection, the bureaucracy, that kind of stuff. And I like to say that she complained all the way to the bank. So I think there is a type of landlord that is good for this program and will just love it. And there's another type of landlord that is just not a fit and will hate it.

Well, I guess since you bring it, I mean, bring up that type of scenario, I guess now looking back, I can say that when it comes to the inspection pieces of it, but there are some things that basically drive us crazy about the system and what they require for inspection purposes. Actually we deck around our office that you know about the inspections because they are at times just absolutely ridiculous. So you are correct in stating that maybe it would not be for a particular owner. If they can't stand the little nitpicky things that are required for someone to live within a property because they do nitpick and you have to do them so that you get paid, otherwise you don't get paid. And it's not for the one looking for an increase. I can tell you that from this standpoint because I've yet to see an increase come across my desk, even when we've requested it. So I mean, they're very stable as far as payment, but yeah, so you.

Know, that's an interesting point. The government doesn't believe there's any inflation.

Haha, I know.

So they, they're definitely hiding that by manipulating the numbers. And that's, you know, that's part of it.

I was just stating that, you know, so I mean, it is a very stable pay, but it's not for someone that over the course of years is wanting to look into or have the ability to raise rents with that current tenant. Because I can almost say with 99% certainty that an increase will not come about, you'll continue to get your rents, but they may pick on you a little bit more for inspections. But other than that, that's.

And of course, you know, you can't discriminate against a Section 8 tenant, but you can buy properties that are a fit and properties that are not a fit, that's what you'll get. So. Okay. Okay, good. So we don't have to belabor the point on this too much, but tell us about the tenant base in your market. What type of tenant is it? You know, what's that sort of tenant profile? What do they do for a living? How far are they from work? How far is their commute? You know, what's the turnover like and the vacancy like?

And I did just want to touch on one other thing about something you just mentioned. We do when we rehab our houses, we do everything in compliance with Section 8. So we don't do a property to say it is or is not going to go section 8. We do it so that it's compliant. Whether. So that depending on what tenant we need to place, the property is already ready for that particular tenant. So just to touch on that, so.

You'Ve got the profile that you can go either way. Okay, good.

Correct.

Go ahead.

Okay. As far as going back to the tenant base, most of our tenants actually live within the area in which they grew up. They typically don't move far from that area. So most of them have family that is within the area in which they're looking to move within. Most of them work. We have a large manufacturing base here in Birmingham, so a lot of, you know, manufacturing plants, warehouse type work, stuff of that nature. We also have, you know, hospitals are large here, so health care is large in our area as well. So that's our two major bases of clientele. Most of them, although, work in more manufacturing and stuff of that nature. As far as the number in household and stuff, we have, typically you're looking at two to three children. Most. We have very few that are single that live in any of our properties. They're all family based for the most part.

What's the vacancy rate like?

Right now we are running about 10 to 11%.

Okay, so how does that compare to, you know, last year or the year before? Is it getting better or worse?

It's actually getting better, although we are quite a stable market. So I'd say that we're probably only a percent or two off from last year. We run about that same percentage year.

Round, so that's a tad high. I would be curious, how are you counting your vacancies? Are you not doing that until the rehab is finished and the property is truly ready? Because if you have a lot of new stuff coming on the market, vacancy rates just, it's slightly high. It's not terrible, but by any means, but it's a, it's just a tad high. We target and perform an 8% vacancy rate or one month per year. And that's the next question I wanted to lead to, is your turnover, you know, how long the average tenant stays.

Okay, sure. That number is based off what you were asking about our entire portfolio. That number is based off of current properties that are under rehab. So I did include that number in there. If you're looking at it from a single property vacancy rate, we're probably about a six and a half to seven percent Somewhere in there. I was talking about our portfolio.

Yeah, okay. Okay. So that's definitely better. What is the turnover like? I mean, some areas that we do business in are definitely transient. I say that in a good way. We like transient in the sense that people won't buy. And you know, Houston is a good example of that because, you know, a lot of people come to Houston, they work in the medical field or definitely in the energy and oil field, and then they'll go away two years later. You know, they know they're not going to stay there more than a couple of years. That makes a pretty good tenant base because they're not going to buy something for a short term stay like that. And we like that. So, you know, it's kind of dependent on how you look at it. But what is that like? I mean, do you usually get people renewing a second year or these tenants that stay a year and then they're gone to the next property?

No, we have long term tenants. Typically we do one year leases. We do have incentives for doing two year leases. We kind of shied away from that just because we want to make sure that at the end of that first year it's a good fit for us and for the owner and everything else as far as the tenant goes. So we want to have that discrepancy to be able to evaluate that situation. But I would say probably 75 to 80% of our tenants renew. So we have a very high renewal rate. I think the last stat that came out was 43% of the city of Birmingham's population is rental based. We have a very good rental pool to pull from.

Okay, well, we've got to wrap it up. Anything you want to say in closing? Any questions I didn't ask or areas we didn't cover that people should know?

No, Jason, I think we covered everything. I appreciate you having me and I look forward to you coming to Birmingham.

Sounds good. Thanks for joining us.

Thank you.

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