Jason Hartman talks to local market specialist Eric about Huntsville, Montgomery & Birmingham market profiles. Eric shares facts and trending economic factors for the three markets and discusses if warranties are available. He also explains that these carefully selected markets provide adequate cash flow properties and sufficient yields in addition to possible appreciation due to the stable local economies.
Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
Jason Hartman 0:12
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on now. here’s your host, Jason Hartman with the complete solution. Real estate investors. Thank you so much for joining me and welcome listeners from around the world. This is your host Jason Hartman with episode number 737. Yes, just like the airplane, the 737 that’s a pretty cool little plane, you know, sometimes they convert those into private jets. Can you imagine a hole 737 to yourself, you know, when you take all the seats out and those overhead bins, that’s a that’s a really big plane for a private jet. Just something to think about maybe an aspirational goal for us as real estate investors after we make our fortunes with the most historically proven asset class in the entire world. Okay, so today, we are going to profile three different markets all at once. And so you’ll get a three market overview in this episode. And I do have to tell you, that we actually recorded this This episode with our guest today, our local market specialist several months ago, and why you asked, Did we not error this sooner? Was it because we were too busy because we had too many other guests we had to get on first, was it because Jason just cannot stop rambling on and on? You can’t shut the guy up long enough to air the episode? No, although that’s a possible reason. But it wasn’t the reason this time. The local market specialist didn’t have enough inventory. They had a couple of big buyers they were working with or buying up all their inventory. And they just didn’t have anything so we didn’t want to air this episode, and then have a bunch of you become interested and then subsequently become disappointed and upset with us that we could not deliver the properties to you. So hopefully that will work out better this time. And you’re going to hear about these three markets and I think you’ll really like what he has to say here in Just a few minutes. But first, I wanted to see, and this is a little quiz for you. Do you know what special day occurred last week? Do you know? No, not my birthday. Although I appreciate you thinking of me and thinking that was the special day that occurred last week. And thank you again for all the nice birthday wishes. I really appreciate it. No, it was the same week though. And I guess this will be every week right around my birthday. It was world Smile Day. Yes. World Smile Day, you know, happy face. Now, what’s interesting about this is, you know, those little yellow and black smiley faces that we see everywhere. Well, did you ever know the story behind it? You’re saying, Jason, you’re already on a tangent. And it’s so early in the episode. What does this have to do with real estate investing? Well, not much, but it won’t take much time to just tell you this and I think it might brightened your life a little bit. So that’s why I wanted to tell you the story and share with you a quick little poem. That was in my Spanish class in 10th grade in high school. That was Mr. Louder my Spanish teacher I remember him well. Okay, so world Smile Day is celebrated on the first Friday in the month of October every year. And the idea of world Smile Day was coined in initiated by Harvey ball, a commercial artist from worchester Massachusetts, Harvey ball is known to have created the smiley face way back before my time, thankfully, in 1963, the world’s first smile they was held in 1999 and has been held annually ever since. After Harvey died in 2001. The Harvey ball smile Foundation was created in honor to honor his name and memory. The slogan of The smile time foundation is improving the world. One smile at a time, the foundation continues as the official sponsor of world Smile Day each year. And the message of world Smile Day in 2010 is or as of 2010 was do an act of kindness, one smile at a time. And why am I telling you this? Well, you know, if you’ve been to my events, if you’ve met me, and many of you have I know, I’m not exactly a smiley person. You know, I think I could actually work on this. I think smiling a little more would be good for me. And I think it would be good for all of us. And you know, this is that old thing that Earl Nightingale, one of my very early mentors used to talk about, he said, We are the reflection of our environment, but our environment is also a reflection of us. It’s a two way thing. So when we smile that is is going to make us happier. And when we want to be happier, all we need to do is smile. You know, Tony Robbins talks a lot about this, he talks about how you can change your entire attitude by just changing your physiology and your thoughts. And that’s really what smiling does. You know, if you want to feel better, just look in the mirror in the morning, like a goofy person all by yourself, hopefully, because if your significant other is around, they might think you’re a little nutty, but just smile, smile in the mirror, smile in the shower, force yourself to do it, because it is a circular thing. Yes. And it’s like saying, that old saying, you know, well, this is not the saying I kind of modified it myself and I turned it into a question. But the Harvard psychologist of old William James said something like we are happy because We sing and we sing because we are happy. And I turned that into a question. I said, Are you happy? Because you sing? Or do you sing because you’re happy. And, you know, both are true, right? And the same is true with smiling. So if you want to become a happier, force yourself to smile, and you will become happier, because it’s a psychosomatic thing, where the the body manifests what the mind harbors, and the mind harbors, what the body manifests, so you can do it in either direction. That’s what I’m trying to get you to see is that it works in both directions, right? So this beautiful little poem, I remember on the the podium in my Spanish class in 10th grade, and I always used to read it, you know, when I would go into Spanish class, and thankfully it was in English because I couldn’t have read it in Spanish, I’m sure. But I was not that great of a student in terms of Spanish. And you know what? A lot of people say, you know, I’ve talked to you many times about how I’m big traveler. I’ve been to 80 countries now, Fiji was my ADF. And I’ll probably hit 81 soon. I’m not sure what the next country will be, but 81 won’t be too far away. And people always say, well, Jason, you know, do you go and learn the languages when you go? And I say No way. I don’t learn the languages. And I know to some that may sound like well, you ugly, imperialist American, you. You just think everyone should speak English to you, especially the French people would say that right? Yes, those French people would definitely say that. And in fact, if you’ve been to France, you may have experienced this. If you do not speak French. Even if they speak English. They will not speak English to you rather hottie of them. Yes. They’re kind of known for that. But anyway, no offense. No offense French listeners. I have to offend everybody equally on the show? So we never got our dig at you. So you know, there you go. Okay, anyway, we love you, you know, great, great fashion and food and culture and all that stuff. Okay, but where was I going with that thing? Oh yeah, no, I don’t bother learning languages because I would rather spend that time learning about the history and the economy. Those are the things that interests me much more than learning the languages. And you know, if you speak English, of course, this is the most widely spoken language in the world, with the possible exception of Mandarin Chinese. But a lot of those Mandarin speakers also speak English. Thankfully, it’s the language the international language of aviation, every pilot on the planet has to speak English. And it’s the language of the maritime world as well. So every every Captain at sea must speak English. How handy what an advantage we all have. If English was our native language or even our second language, I mean, that just makes life a lot easier, doesn’t it? Because when you travel abroad, you can spend your time learning about the history and the economy of a country rather than learning the language. Now, I know some of you may be interested in languages and good for you, you know, it’s just not my thing. That was my Spanish class story. Boy, that was a tangent. Okay, back on track here. I will redo this we will go to our guest and you’ll learn about these markets. So here it is this inspiring wonderful little poem and it’s it’s the author is unknown by the way it’s not it’s not the guy who invented world smile Bay. Okay, this was probably long before that. I think it actually was long before World Smile Day. Okay. A smile, costs nothing but gives much it enriches those who receive without making poor those who give It takes a moment, but the memory of it sometimes lasts forever. None is so rich or mighty, that he can get along without it. And none is so poor that he cannot be made rich by it. A smile creates happiness in the home, Foster’s goodwill in business, and as the counter sign of friendship, it brings rest to the weary chair to the discouraged sunshine to the sad and as nature’s best antidote for trouble. Yet it cannot be bought, begged, borrowed or stolen, for it is something that has no value to anyone until it is given away. Isn’t that interesting? Something that has no value until it is given away. Just my commentary there. Okay. Some people are too tired to give you a smile. Give them one of yours, as none needs a smile so much as he who has no more to give. Isn’t that a great little poem? Just remember a smile costs nothing but gives much and enriches those who receive without making poor, those who give fantastic little poem. Okay, go to Jason hartman.com check out the properties there. Check out the educational products at Herman education COMM And I have some big news for you, by the way. We are launching tomorrow. It’s now Sunday as I am recording. But tomorrow is Monday when this episode will be published. We are launching a brand new build from the ground up Jason Hartman comm website. I know many of you were thinking, it’s about time. You know, I was we were hanging out with that old website, because I just thought it made us look more established. No, actually, our old website that we’ve had for what a good five years now that’s in the website world, it’s kind of old. You know, that site is so reliable, it just doesn’t Break much. And in websites they break, they need maintenance just like a car. That’s why I wasn’t super motivated to update it. But just so you know, there will be a brand new website tomorrow, probably by the time you hear this, there will be bugs and little problems and little issues with it. I am sure we are expecting those things. So if you see any of them, please feel free to report them to us. If you see any of them and experience them on our website at Jason Hartman, calm, please also be patient. We always want to do this stuff on Monday, so that our web development team will be around the entire week to deal with little problems and bugs. So check out the new website. But if there are a few bugs, please be patient. We’ll get them fixed and feel free to report them to us as well. So Jason hartman.com, for properties and other resources, and then of course, heart education.com for some great educational products. Let’s bring our guest on board today and talk about these three different markets and get a market overview. Hey, today I want to talk to you a little bit about market selection. And we’ve covered this topic ad nauseum over the years. And there are many reasons to select certain markets many reasons to unselect other markets. Of course, we’ve talked about the linear cyclical and hybrid markets as a macro concept, but I want to drill down into market selection. And also in this same talk with our guests today offer some market profiles on three Alabama markets, and those would be Birmingham, which of course we’ve done business in Birmingham for quite a while now, but also Montgomery and Huntsville as well. So let’s go ahead and dive And Jared is here to tell us about that. What are your thoughts on market selection?
Local Market Specialist 15:05
Jason? That’s a really good question. When it really gets down to it, you’ve got to be able to find the markets that you’re not going to face heavy competition right now, in many of the primary markets across the country, you’re competing with colony financial, you’re competing with with, you know, a lot of these major hedge funds, they have $30 billion. And if they want to buy the properties, they have to expend the money, and they’re gonna beat you out of the property every time. And so it’s very important to get into a market, maybe a secondary market, or a tertiary market that still has a strong economy, there needs to be jobs, there needs to be a decent population base, they need to make sure that you’re not losing population, but that is at least steady. There’s a lot of things that go into that both macroeconomic and micro economic decisions,
Jason Hartman 15:46
no question about it. And we’ve seen you know, we’ve watched the institutional investors come in and out of these markets and literally change the the economies of real estate in those markets and and just massively influenced prices. So that is definitely definitely an issue, as you’ve looked at different markets around the country, and you’ve helped people select markets over the years, tell us, you know, maybe specifically, let’s talk about these three different Alabama cities. What maybe we’ll say instead of a tale of two cities, it’ll be a tale of three cities. So what makes those markets desirable for investors?
Local Market Specialist 16:23
Well, I think when you talk about a tale of three cities, I think the first quote that comes to mind is when they say it was the best of times it was the worst of times. And I think that by being able to choose these markets, we’ve really been able to get the best of times. The first thing you have to do is overcome the stigma of Alabama. Everybody thinks a Forrest Gump or Sweet Home Alabama, and they forget that Alabama is now the second largest auto manufacturing state in the country. When the Rust Belt states like Michigan started losing jobs in the auto industry, Alabama, which is a right to work state, started picking those jobs up. And so you’ve got you’ve got different demographics for each of the three cities and we spend spend a little bit of time on each of them. But the first thing is overcoming the stigma and realize one comment I want to make on that. First of all,
Jason Hartman 17:07
I don’t think Alabama has a stigma. Okay. So, you know, I don’t think a lot of our listeners do either. We’ve done lots of business there. And it’s been pretty good. You know, nothing’s without its problems, but no need to apologize for Alabama. And the other thing is, isn’t it interesting, as a general economic concept, when the government gets the hell out of the way, and these unions Get the hell out of the way the economy grows, you know, the, the idea that you should be forced to join a union to get a job is literally insane. That’s, that’s completely opposed to any ideal of America, in my opinion. So,
Local Market Specialist 17:47
you know, you’re exactly right. And that’s really driven the economy off if you look at Mobile mobile just got the Airbus plant that brought like 20,000 jobs to the to the mobile area. Huntsville, Huntsville. Just got to brand new Remington Arms plant Polaris just opened up an ATV plant. And so the populations growing there’s all kinds of brand new four story and six storey office buildings that have popped up in the last 10 years. In Madison, you’ve got Redstone Arsenal which manufactured most of the Rockets in the country. It’s a huge military installation. I don’t know if most people realize this, but when you look at Huntsville, Alabama, it has a median income of like 70 72,000 a year I think it’s that’s much higher than the national average. Yeah, by far. I mean, it’s like four or 5000 less than San Francisco, and yet and yet the median home cost is way below the average median home cost in 2015. in Huntsville, Alabama is 170,000 compared to a national average of 222. So you’ve got affordable housing, you’ve got high incomes the affordability ratios are outstanding. And did you know you of course you know that’s but but out Huntsville, Alabama actually is the highest per capita in the country of scientists. And PhDs.
Jason Hartman 19:01
Yeah, it’s a real wonky engineering place. So that’s, that’s good. We need those people. We need more of those people with real education, you know, they didn’t go to school to get these worthless degrees. No question. Okay. Well, let’s drill down on each of these three markets, if you will. Do you want to take them individually? I think you have to. And you mentioned some some dynamic things about that. I don’t know if he mentioned anything about Birmingham in that segment, but just take us through who the target tenant is, who the employers are, why you selected these markets to provide property soon.
Local Market Specialist 19:36
All right, I’ll finish up Huntsville. And then we’ll move to Birmingham is just as you suggested, so from a population standpoint, Huntsville has about 180,000 population, it’s got a positive population growth. The future job growth is 31%. Unemployment is is quite low is below the national average by about a point. vacancy rates are pretty solid. So when I’m looking at Huntsville, you know From the from the, there’s a good, good bit of property inventory available to there’s inventory supply is down 21% this year over last year. So we know that we’re about to start seeing appreciation because supply is down by 21%. And yet demand is up by 17% sales have increased by 17%. So we know that we’re coming towards the bottom of an absorption cycle, and we’re seeing the appreciation trends are starting to be positive again, instead of losing value. Over the last year Huntsville is gone up 4% over the last quarter 2.7%. And so that’s really, really good. Our foreclosure price properties, according to realty Trac are 57% below the non distressed sales. So there’s there’s particularly equity, so when we pick them up and we get them totally renovated. It allows us to pass on some of that savings to your clients, Jason. So that’s, that’s one thing that we like. Just some really, really good positives there. The affordability ratio is one point oh five. And if you took the median income and divided it into the median foreclosure cost that gives you a kind of a barometer to compare it against other markets. So Huntsville is at 1.05 Los Angeles for perspective is at 5.7.
Jason Hartman 21:15
So I think you I think you just said the median foreclosure cost. Did you say that? It would Did you mean to say that or Did I just hear that wrong?
Local Market Specialist 21:22
No, no, you I said that. So if I took if I divide the median foreclosure price that we’re buying foreclosures at, right and you divide the median home costs, the median income into that, it just gives me a barometer to say, I’m, I’m not a six times 600% more likely to cash flow in Huntsville that I would be in Los Angeles,
Jason Hartman 21:39
right? Well, Los Angeles is terrible.
Local Market Specialist 21:41
Yeah, exactly.
Jason Hartman 21:42
And then that’s my hometown. I grew up in Los Angeles, so but wouldn’t touch it with a 10 foot pole for investment.
Local Market Specialist 21:48
Okay, yeah, go on. So that just kind of gives you something to compare by. So a lot of the houses were getting in Huntsville, they’re gonna be people who are in the service industry that are servicing the high tech jobs. So usually when you’re talking about cash flowing rentals, we’re talking about 1960s and 1970s brick ranches with hardwood floors. Our average rehab on our last hundred homes was $17,000 in total rehab. And so we’re redoing the systems if the condensing unit is is 15 years old, we just replace it even if it’s working. If the roof looks like it has five years left on it, we’re not going to wait the five years put a new roof on it. And part of the reason for that is, like I said earlier, we get a 30% discount on Home Depot because we have a nationally managed account, I can get a roof that somebody else might be able to do for 5000 I can get it done for 3500. And so it’s a lot cheaper for us to go ahead and renovate it now to the highest possible standards. And the reason that’s important is a lot of people will do lipstick on a pig and they make the place look great cosmetically, but if you don’t address the systems, the furnaces the condensing units, the roofs, they won’t ended up happening four or five years down the road, your cash flow that you were counting on for retirement or to build your wealth is going back back into the property and deferred maintenance. And so we realized that it’s a whole lot better to head that off. Because I’d much rather do 10,000 in higher rehab and and only end up putting an extra 20 $500 down payment than I would to have my roof go out in three years and my furnace go out and five.
Jason Hartman 23:17
Yeah, so we’ve always dreamed of the idea where you could standardize rehabs nationwide and all of our different markets. Someone else in the business tried to do it and it just didn’t work. I can’t help so tell us about what you do in a rehab. Are you replacing the furnace? I mean, we have we have some local market specialists who who just they just replace things they don’t get you know, if it’s a year old, they just pull it out and put a new one in you know, it’s just like simpler to do that than to even think about it. What is your rehab include? And you know, what is your philosophy on rehab? I mean, we got a taste of it with what you just said but but tell us more.
Local Market Specialist 23:54
We would rather over rehab because our feeling is that you’re going to get the highest quality tenants if the property It looks so much better than any of the other competing rentals, we can often get 5075 or even $100 more than the market rents of our competitors. And when the if the rental market ever contracts because people are getting approved for loans, again, our houses are the first one that somebody will rent. And then so there’s lower vacancy, they fill more quickly. And so we would rather over rehab the property that means that you’re going to have new carpet, new lighting, you know, new doorknobs, new hinges, the things that you would expect cosmetically, but it also means that we’re going to go through and pressure test the lines, if we have galvanized pipe, we’re going to go in and replace it with PVC and replumb. The house if the roof lifts the gas three to five years left, it’s not leaking. We just say let’s put a new roof on it anyway. And so it’s generally you know, $20,000 on a rehab can can typically cover pretty much anything that’s needed. And then what’s nice is we give a full rehab scope and say this is exactly what was done to the house. And if we didn’t replace something, we’re going to say you know what this particular system looked for tested fine. Here’s the inspection report. And we could put a home warranty on it on the house and say, you know, if you want to replace, we can replace it. But we think that everything’s good. But here’s the one or two items that we didn’t do. So you know exactly what you’re dealing with. So that maybe if seven or 10 years down the road, you might have a problem, you know, whether that was replaced or not,
Jason Hartman 25:19
you know, okay, what kind of warranty Do you offer?
Local Market Specialist 25:22
So all of our if we touched it, and if it was on the rehab scope, right now, we have a six month warranty on anything parts and labor that was done. And, you know, we have nine rehab crews that work for us full time. And we also own the property management company. We have a national franchise, and we own the property management company. And we like that because it gives us a vested interest in making sure that your investors are successful because we know that they’ll continue to buy properties if they’re hitting the returns that they expected to hit. And so it’s our job as a property management company to keep maintenance low, to make sure that the property is performing well. tenants are well screened. Because ultimately if property management doesn’t perform, then the assets not performing, getting the return that your investor expects. And so that’s
Jason Hartman 26:09
that’s one of the things I love about my business. It is very addictive. You know, Starbucks benefits from that. Yeah. Every morning, people need coffee. And once they see this work with the the investment properties, they just become addicted, and they just keep buying. So that’s one of the things from a selfish point of view. I absolutely love about it. It’s great. Yeah, so that’s critically important. And the whole thing really just after the acquisition, of course, lives and dies on property management. So that’s an area I definitely wanted to talk about. You already touched on it there. But without getting too far afield. I just want to make sure we cover these three different markets themselves. And we can circle back to rehab and property management because that those are excellent things to discuss. And I we went off on a bit of a tangent there, but Going back to the markets themselves. Where did we leave off there?
Local Market Specialist 27:04
Let’s go to Birmingham so so Birmingham has about 1.2 million people. The University of Alabama Birmingham is the largest employer to major medical hub major medical school. They are the number one producer of steel pipe in the country. Regions bank, which is a fortune 500 company is headquartered there. There’s large insurance interests. It’s got for Fortune 500 companies headquartered there, an International Airport, but great city we do really well. We really like being in the suburbs. Sometimes when you get into the urban core, the crime is a little bit higher. But if you get out into the suburbs, there’s some really, really nice neighborhoods, we can get very high returns on 1960s and 70s. homes that rent out very well. It’s a quarter of the state’s population lives in the Birmingham Metro. So there’s, there’s high demand there in Birmingham. There’s a big Mercedes plant there’s there’s a lot of industry there and it’s a it’s a very viable so Yeah,
Jason Hartman 28:00
okay, good, good. And what’s your target property? How much does it cost for our end buyer, our client, the investor? What are they, on average paying for a property in Birmingham? And what are they typically renting that property for.
Local Market Specialist 28:14
So the target property in Birmingham will depend a little bit on the strategy if we’re looking at like a C plus property, and we don’t like to buy properties below C plus, a C plus neighborhood would be one where you’ll easily be able to rent you could potentially lease purchase quite well or sell to another investor as an exit strategy. But they aren’t going to be in the very best schools, they’re going to be working class neighborhoods. And these homes will be three bedroom, two bath. Usually brick ranches are split levels, built in the 1960s to 70s in a good suburb of Birmingham. And they’ll rent for about 900 to 950 a month. And the acquisition price for your client is going to generally be in the 70 to 75,000 range. Then if we move into a B class neighborhood B to B plus, by the way, that’s really good. What you just said those numbers are good to those have garages. You know, a lot of times in the south garages aren’t as important because we don’t get inclement weather, but a lot of times I’ll have a carport if they’re older properties, and many of them have a one car garage. And occasionally we’ll knock out and get a two car garage as well at that price. Yeah,
Jason Hartman 29:14
in some ways, you know, it’s, it’s kind of odd. I, I just purchased a couple more properties in Memphis, myself, I was talking with my local market specialist there and kind of weighing that garage thing. I mean, I’ve waited on every property purchase I’ve made over the years. But, you know, he said something that was really that it really did make sense. It’s got a double carport, this property, one of the one of the properties I bought, and I said, Well, you know, wouldn’t it be better if in this price range, I got a garage, and then I started thinking myself, you know, it’s two more things to maintain a garage door and a garage door opener, right, two more things to break. And he said, what happens when we have garage properties as people just fill them up with stuff and they park in the driveway anyway, so in a way they almost prefer carports because if they don’t fill it up with anything, and their car is covered, it’s kind of like goes counter do it. Have you sort of had to think about that one for just a moment. But
Local Market Specialist 30:12
yeah, it’s one of the other shocker to Jason is you’d be surprised, at least in the Huntsville market, we get a ton of enclosed garages. They’ll put the air conditioning into it and and,
Jason Hartman 30:24
you know, they’ll rent it or they’ll make it heated and cooled. So you know, they’ll just convert it into a bedroom probably illegally, but you know,
Local Market Specialist 30:30
yes, people do. You see a lot of that when you’re competing. So that’s kind of what you’re looking at in the in the Birmingham and then we also have a quality properties where you might pick up 10 or 15,000 equity. And those are going to be in really good areas that will appreciate in the very better in the best schools. And those properties are going to be more in the hundred to 150,000 range. And they’ll cashflow a little bit less but you have more equity and and more appreciation. So it’s a B and C and we do a little bit of all three of those. Mm hmm.
Jason Hartman 30:58
Okay. Okay, good. Do you want to move To the next market.
Local Market Specialist 31:00
Yeah, that’s fine. Let’s go to Montgomery. So, Montgomery, Alabama is the capital of the state. So you have a lot of legislative jobs. There’s a lot of attorneys there. A lot of state state government employee jobs. It’s got a really beautiful renovated downtown on a Riverwalk like San Antonio, and with a cool riverboat out there and they do a lot of concerts and things. That’s a really cool setting. And they’ve got a heart a high on a plant that produces 300,000 cars a year. They’ve got two Air Force bases, Maxwell and Gunter Air Force Base, so you get a lot of military personnel and military support jobs. And so that kind of drives the economy there a lot. We love Montgomery, it’s very stable. I can get a house and a gumroad for you know, maybe it’s maybe about the same prices but I would pay in Huntsville The difference is it may be four or 500 square feet bigger. It’s a little bit bigger lot and a little bit nicer street sometimes first About the same price and and we can buy houses there that are brick with almost always have fenced yards, usually a carport. And your clients are going to be in them for $75,000 and they’ll rent for $900 a month. So
Jason Hartman 32:14
in what class are those properties Do you call those c plants or those B’s
Local Market Specialist 32:18
those would be those would be C POS. And we’re almost always doing three two will sometimes pick up a few, three one and a half’s. But for the most part, three, two and four, two, they just rent better, the demand is a lot higher. And and we feel like the tenants stay a lot longer. If you’re in a three, two with a bonus or a four, two, then the tenants may stay for four or five years instead of one year and it cuts down on your term cost quite a bit. Yeah, yeah. Okay, good. Good.
Jason Hartman 32:44
And do you recommend doing two year leases on the on the properties? I mean, you’re in the property management business too. So I kind of like that idea. And we we’ve been toying with you know, seeing our clients do it and not do it and I think it cuts down on the turns.
Local Market Specialist 32:59
We We try to tie him up as long as we can if I can get a tenant to sign a five year lease, we’re happy to do a five year lease the only thing to remember a lot
Jason Hartman 33:05
want to structure rent increases into anything that
Local Market Specialist 33:07
long. Yeah, we do we do it we do a an annual increase increment in the lease. But what’s
Jason Hartman 33:13
your typical increase that you recommend?
Local Market Specialist 33:16
You know, typically what we’ll do is we’ll go We’ll go for like a 10% increase. And if they don’t bat an IF app, and then we’ll go for 10% 10%
Jason Hartman 33:22
per year,
Local Market Specialist 33:25
are you kidding me, we’ve been able to get that sometimes what we’ll do is we’ll do it, we’ll do some improvements to the property at the end of the year and say, okay, when we increase it partially also depends on what we’re getting. So if we’re bringing it a little bit below market rent, because it’s December, then it’s a lot easier to get 10% if we’re getting it at the top of the top of the market, we might do a 5% increase. And so it kind of depends on when we’re doing it. But if we can get them to go a little higher, we’ll we’ll go a little higher and because we’ve renovated them to such a high standard, people don’t mind paying a little bit more. And we also I
Jason Hartman 33:56
gotta I gotta tell you though, I have not seen 10% increase in any form of consistent. That’s, that’s really high. That’s very aggressive. I’d see if Yeah, if you can get more power to you, but that blows my mind. I just gotta I just gotta point that out.
Local Market Specialist 34:12
I don’t know that we’re getting it all the time. But sometimes we’ll shoot for it. You know, and we might trigger that for this the second year, the third year, I don’t know that we’re getting it every year. But if they haven’t had an increase for the first year, then it’s a little bit easier to get it increased. Right. Okay. All right, go ahead with what you’re saying. Anyway. So, again, a lot of it has to do with how high that you’re getting them like when we first opened up some of the markets, some of the, the leasing agents, we’d have it so you can get 775 for this house, and that’s what the market does. And then we would go and lease the house for $900 a month because it was just so nice. We always get professional photos that have a wide angle lens and have a light attached to the camera so it makes the rooms brighter and bigger. That makes a big difference in the number of leads you get. Oh it makes a huge difference and I always recommend to every investor usually Have a file on your computer and keep pictures of all your properties. Because you know, you want to use those in the future and that’s part of your your library house for proving things with taxes it helps with when the tenants move out if they damage a property, you’ve got proof to get collect on damages. The other thing we like, but also helps marketing the property the next
Jason Hartman 35:18
time really does and and if you change property managers if you decide to self manage, I mean, I know this is directly opposed to your interest, but you know, I’m out for my listeners. So that’s just something you got to remember that you want those pictures, okay? So always keep those
Local Market Specialist 35:32
we’re in the management business so we can protect our clients, if they want to manage the property themselves. We don’t have any problem with that. And and one of the things that we think’s important too is making sure that the tenant has renter’s insurance. We’ve had two properties out of the hundreds we’ve done in the last two years, we’ve had two properties, one burned all the way to the ground and it was a 1985 house in great shape. And the other one, the lady was frying okra and decided to go take a nap while she was frying okra And she burned up the whole kitchen. And because we had renter’s insurance, our our owners, you know, insurance policy rates did not go up. Because the tenant, the tenant had a renters policy.
Jason Hartman 36:13
Yeah, their policy covered it. Yeah. Yeah. I mean, I definitely, you know, I would absolutely recommend that. Yeah, of course. Okay, good. Are you ready to switch over to the next one? Or do you think we adequately covered Huntsville already?
Local Market Specialist 36:25
Yeah, we covered Huntsville, we covered Birmingham and then I’m a gamma ray. You know, same thing. So gamma ray is a little bit slower growth, but it’s a solid market and you can buy really nice properties that are just they just really are nice looking properties. And, you know, so that’s just three great markets and, you know, it’s only Huntsville was an hour and a half north of Birmingham. And Montgomery is an hour and a half south of Birmingham. So if you’re flying in to check on your properties once a year, it’s not too big a deal because you can fly into Birmingham, go an hour and a half south and then you know, you’re out hour and a half north. A lot of our clients will fly into Nashville. Check out the country music scene, go catch some concerts and then come an hour and a half south from Nashville to Huntsville. And then they’ll go Huntsville to Birmingham and then Birmingham to gamma ray. There’s some nice Civil War, Civil War things as well as a lot of civil rights in monuments and museums that are fun to catch. Yeah, absolutely. Okay, good. I’m gonna ask you the question that many listeners are thinking right now, just as we wrap up, if you could only pick one of those markets, which is your favorite, and that may well be impossible to answer.
Jason Hartman 37:35
People ask me that stuff all the time.
Local Market Specialist 37:37
I think I think it depends on what your long term hold objective is and when your exit strategy is. So Huntsville is going to be the market that if you’re going on a shorter term, three to five year hold, it may appreciate a little bit more because it’s getting more population growth and it’s a little a little more sex appeal. I think because of NASA being there, the Marshall Flight Center in Huntsville or Space and Rocket Center. It’s now In the mountains, there’s caves and big rivers and stuff. So Huntsville I think if you’re trying to sell to other investors out of state who just buying for income, it’s a no brainer because it’s it’s really a very high tech city with high income jobs. So crime is one third, the national average. I love Huntsville. Birmingham, on the other hand, is the economic engine of Alabama. So you know, it’s the bigger population people have more in migration to to Birmingham, so it’s really stable and strong for other reasons.
Jason Hartman 38:28
Yeah, fantastic. Good stuff. Well, hey, thank you for sharing these three market profiles with us. We covered three of them pretty quick. I think you were very concise. listeners. If you are interested in any of these three markets, or any of our other markets around the country, just go to Jason hartman.com. And one of our investment counselors can help you and give you some area agnostic, nationwide advice on where to invest depending on your risk tolerance, your time horizon and your investment goals. And we’d be happy to help you with that. Any thoughts in closing on any of these markets, or just anything, I forgot to ask you anything we didn’t mention that you want the listeners to hear?
Local Market Specialist 39:06
Well, I think that one thing is important is understanding where the markets going these secondary and tertiary markets and Alabama, they aren’t recovering quite as fast as the primary markets did. And that’s one of the biggest advantages is that, you know, a lot of markets across the country right now are kind of peaked out. And they’re actually higher price than they were before the crash. In these three markets. They’re still well below they were where they were before the market crash, they’re, they’re rapidly recovering. And so you still get to participate in the write up in these markets, while the cash flow is some of the very best in the country. So that’s really important to understand those metrics.
Jason Hartman 39:41
Yeah, and even if there is no write up, just from cash flow alone, look at your yield. I mean, they’re phenomenal. You know, it’s like even if the appreciation never occurs, you’re in pretty darn good shape as an investor with these yields. So overall, you’re probably looking at well above the 20 530 percent, all in yield, go to Jason hartman.com. Click on properties. To see more about that and understand how income property is a multi dimensional asset class. And those returns are calculated. I’ve got a great video on that on the front of the Jason hartman.com website on the front page that you can watch in 27 minutes, you can completely understand everything there is to be a good evaluator of real estate deals. That’ll that’ll be a great overview for you. Thank you so much for joining us. I agree. You’ve got some excellent choices here and happy investing everybody appreciate the time.
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