Month: June 2018

5 Reasons You Shouldn’t Buy Birmingham Rental Houses


Spencer Sutton - Thursday, June 28, 2018

I’ve thought of at least 5 reasons are you shouldn’t buy Birmingham rental houses?

And in this video, I walk through each of them one by one.

[TRANSCRIPT] Hey, Spencer Sutton here with gkhouses. And today, I wanna give you five reasons you should not buy Birmingham rental property.

Now, you may think that’s kinda strange coming from me. Especially since we manage a lot of rental property here in Birmingham. And I think rental property is great and if it’s for you then great. But I want to give you…if you’re thinking about buying rental houses, I want to give you five reasons you shouldn’t buy Birmingham rental property.

Now, when I say that I’m mainly speaking to investors that we see a lot that we’re coming into Birmingham, most of them live out of state. They’re coming into Birmingham and they’re buying low to moderate income houses because of the promises of high returns.

I’m not necessarily talking about a homeowner who needs to rent their house because they’re, you know, they’re moving away, they’re moving out-of-state or they can’t sell it for some reason. That’s not the person I’m speaking to. I’m talking to you as an investor.

So, here are the five reasons:

1) You’re undercapitalized

So, this is a big one, right? If you don’t have the money to deal with repairs and maintenance, and the term when a tenant moves out vacancy. If you don’t have the money to deal with this, then this is not the place for you to buy rental houses.

As a matter of fact, you shouldn’t be buying rental houses. You need to make sure you have plenty of cash.

I have personally seen a lot of investors go by the wayside because they were undercapitalized. They thought

“Hey, day one I’m gonna start making cash flow, and I’m gonna take this money for the first 12 months, I’m gonna set all the cash flow aside in this bank account. And that way I’m just gonna, you know, have this money.”

Unfortunately, a lot of people will teach you that you take that money and, “Hey, you know, you need to have a car like I have.”

And so you take that cash flow, and you go buy things, huge mistake. I mean, owning rental property costs money. There is a cost of doing business with rental property. And if you’re buying in these low to moderate income areas you can be guaranteed that you’re gonna have some repair and maintenance issues come up.

Because these houses are older and tenants are a little bit harder on houses. Alabama weather, the summer is very hot. It’s harder on houses. Winters can get…sometimes can get pretty sketchy around here. So, if you’re undercapitalized, you should not buy rental property here in Birmingham.

2) You don’t do your homework

I’ve bought a lot of rental houses here in Birmingham. I’ve bought and sold rental houses, but I always went to the property. I always looked at the property. I always walk the property. And I knew what I was getting into before I bought it and even then, even then, I still made some really bad decision.

Like, even as little as eight months ago, I sold a house for like, $ 3,000 that I’d bought a long time ago. It was a piece of junk. I intended to sell it, I had to hold on to it for rental property and bad decision.

So, if it’s hard for me. So much harder for somebody who’s living out-of-state, who’s just may be looking at pictures, who has never been to Birmingham, who has never driven the streets.

There is another post that I had on here where I talk about doing homework and how important it is. You can look at Google images of houses and if you look at the top left-hand corner it will tell you the date of the picture.

A lot can change in a matter of months or a matter years, on a street in some of these low to moderate income houses.

So, if you don’t like to do your homework you do not need to buy Birmingham rental property. I can promise you that.

We had a couple investors from Reno, Nevada come into town some time ago and they did it the right way. I mean, they went to these different houses, they had somebody who was trying to sell them a bundle of houses, a portfolio I think of like 10 houses and they had the money to spend.

They had like $800,000 that they were gonna invest in Birmingham. So, they were doing their homework. They called us and said, “Hey, can we come by and get your opinion on these houses.” We said, “Sure.” So, they came by, sat down at the conference table and we just looked at the list of properties.

We knew the areas very well. Our advice to them was to take their money and keep it, do something else with it. And that’s exactly what they did. They didn’t, you know…if you’re buying houses from somebody they wanna tell you one thing, but if you get an objective opinion, you can probably do a lot…make a lot better decision in those cases.

So, these two gentlemen went back to Reno, Nevada with $ 800,000 and they were better for it based on the portfolio that we looked at. So, do your homework, if you’re gonna buy houses.

3) You’re too nice

So, owning rental property and dealing with tenants means that you have to be tough sometimes.

If you cannot stomach tough conversations and can’t be very candid, very transparent with people, even telling them things that they don’t want to hear, then you don’t need to be in this business. You don’t need to buy rental property.

This is a big one because there are…unfortunately, there are many professional renters out there. And they know exactly what they need to do to take advantage of different situations. If they can get in your house and begin slow pay and no pay.

So, if you’re worried about having these conversations and eventually evicting somebody, then definitely don’t buy Birmingham rental property in some of these areas. Areas you might otherwise consider because you’re going to have to have hard conversations.

You’re going to have to get tough with some people and it’s not gonna be fun. So, that’s reason number three.

4) You’re a short-term thinker

I have mentioned this before, but buying rental property is a long-term game.

You know, I talked to a lot of younger investors who, you know, are just now buying and everything sounds great and everything sounds like, you know, it sounds like they have it all together, but this is just year one or two.

This isn’t year 10 of owning rental property. And so, it’s a long-term game. You need to have that mindset. It’s not something that you’re gonna come in and you’re gonna buy from another investor. So, if you think you’re gonna come in and buy a house from another investor, hold it for a year or two and then sell it for more money. I would say that’s probably not gonna happen.

And I’m speaking from our experience. We see plenty of real estate investors who are asking us to sell their property. Unfortunately, they’ve bought too high and there’s no market for overpriced rental properties when they’re either vacant or they have a tenant that’s not paying. There’s just no market for that.

Another point about long-term thinking is that you really need to consider the things that you’re gonna have to deal with over 15, 20 years of owning rental property.

You’re gonna have vacancy that you’re gonna have to handle. You’re going to have…in some of these areas, you might have of vandalism. So, something that we see here or we’ve seen here a lot is HVAC theft, condensing units being stolen. Copper throughout the house gone.

So, you gotta think about those things, vacancies, vandalism. You gotta think about eviction like we mentioned before. Potential eviction. Not getting paid. I mean, there’s several different things if you’re a long-term investor you have to think about. So, and then you gotta think about rental rates, right?

So, if you have a house that’s rented for $750 and the tenant moves out in a year, and then you can’t find somebody to rent it for that amount again. Then you’re gonna have to lower that rental amount. And if you lower that rental amount, think about what is that gonna do to your return model or your financial return model, and how you need to adjust that.

So, if you don’t have a long-term mindset, you don’t need to be buying Birmingham Rental Property.

5) You’re not committed to owning at least 10 or more

I mean, I think that I see plenty of people who come in here and they buy one or two houses and then after a year or two, it just becomes a pain in their neck. You know, it’s exciting at first, it’s cool to think about owning rental property. But if you don’t have a plan for buying 10 or more, 10, 20, 30 houses over time, rental property is probably not for you.

I know that from personal experience, you know, that wasn’t my plan going into it. So, I was buying and selling houses. I was wholesaling houses, that was my goal. I ended up with rental property because some of these houses I couldn’t sell just based on they weren’t great houses and so I stuck them in rental portfolio.

And then in 2007, 2008 when the bottom fell out, the market crash, ended up holding a lot of rental property. So, that’s not a plan. You need to plan better than I did to have rental property.

So, those are the five things. Five reasons you shouldn’t buy rental property in Birmingham.

Number one, you’re undercapitalized. Two, you don’t do your homework. Three, you’re too nice. Four, you have short-term thinking. And number five, you can’t commit to buying 10 or more. So, I hope that these tips help you in some way.

And if you ever have any questions, don’t hesitate to reach out to us at 205.940.6363 ext 3.

Birmingham Real Estate Investing Advice


Spencer Sutton - Wednesday, June 27, 2018

Have you ever wanted some free advice on Birmingham real estate investing?

Then you have come to the right place. This short video is the same advice I gave a friend on Birmingham real estate investing.

[TRANSCRIPT] Hey. What’s up, everybody? Matthew Whitaker.

I just wanted to give you some quick advice from gkhouses.

I had a friend call me yesterday, and he’s looking to get into real estate investing. And I was reminded of something that I thought was really important that I thought I’d share with you.

Become a specialist

My best advice for somebody who’s getting into real estate investing is to specialize in one area.

I think too often…and I did this when I first got started…we get really focused on something broad like all of Birmingham and looking for the best deal in Birmingham.

And particularly, in this competitive environment, it’s important for you to find one area that you understand really, really well.

That way, you know what a deal looks like, and when a deal comes across your table, comes across your computer, you can go out and buy that deal really fast.

That’s what I’ve found that some of the best investors do. They just understand areas really, really well, and when the opportunity comes along, they are ready to jump at it.

Especially when you’re getting started, learning just one area is a lot easier than learning all of Birmingham or all of Nashville or all of Little Rock.

So that’s my best advice. If you’re getting into investing in real estate, focus on one area. Learn it really, really well. Once you’re an expert in that area, then you can move on to another area.

This is Matthew Whitaker with gkhouses and if you ever need some advice, check out all of our videos or give us a call. We love to help investors make great decisions about Birmingham real estate investing!

What Does ‘Shoe Dog’ Have To Do With Real Estate Investing?


Spencer Sutton - Tuesday, June 26, 2018

What does Shoe Dog have to do with real estate investing?

What’s up, everybody?

Matthew Whitaker here with gkhouses shooting another video about property management, about investing. I’m in the middle of reading this book for the second time now, “Shoe Dog.” It tells the story of Phil Knight, who created Nike.

One of the things when I read this book I’m just reminded of, and one of the things I’m reminded of when I kind of reflect on success is how non-linear success is. It seems like our plans are very linear when we decide “Hey, we’re gonna invest in houses. I’m gonna buy one house a month or one house every six months. I’m gonna buy one house every year,” and it’s a very linear plan.

But the truth is what happens is life happens. The world happens. The market crashes. The market is too hot. And what happens is our linear plans become very non-linear.

So if you’re out there right now, and you’re thinking about investing, you definitely made goals that are linear, but you also need to be prepared for the non-linear actuality of growing a business.

One guy described it to me of, like, growing on a plateau. So you’ll get to a point, and then you’ll have to work really hard to get up to the next level, and then you’ll be on that next level for a while.

So again, “Shoe Dog.” I definitely recommend reading it. It does tell you all the struggles that Phil Knight went through. We look at him today and think, “Wow. He’s got it all. Tons of money, an awesome company, lives in a great place.”

But to get there, he took a very non-linear path, and that’s the path we need to be prepared for as we’re trying to invest in rental houses.

What Every Birmingham Real Estate Investor Needs To Thrive


Spencer Sutton - Thursday, June 14, 2018

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.

Every Birmingham real estate investor needs patienceNot 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:

  1. 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.
  2. 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.
  3. 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.
  4. 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!

3 Tips To Rent Your Nashville House Fast


Spencer Sutton - Wednesday, June 13, 2018

Want to rent your Nashville house fast?

Rent Your Nashville Home FastUnfortunately, there is no silver bullet when it’s time to rent your Nashville house.

And to highlight the issue, the most common questions we receive at gkhouses is, “How long will it take you to find a tenant for my home.”

This is a valid question. And it’s a question that you need to consider even before renting your home.

But while it’s a valid question, it is also a tricky one. We don’t believe that there is a clear-cut answer to the issue. How quickly you rent your Nashville home depends on several factors.

In this article, we are going to discuss three tips to rent your Nashville home fast.

1. Price

You may feel this is a bit too obvious, but I can promise you that it isn’t. When we bring this point up to owners, a lot of time they dismiss it because they have a set price in their head for rent.

No matter what your neighbor receives in rent or what your friend told you should charge if it’s not market rent, you won’t rent your home fast.How To Rent Your Nashville House Fast

Prospective tenants are smart. And they don’t necessarily want to pay more than they need to for rent. Especially if they’re signing a one-year lease.

That is why your rental home price needs to be what the market is willing to bear. In Nashville, it’s especially important because if you start off too high, your best prospective tenants could find something similar for less down the road.

Even in a hot housing market like Nashville, finding a great tenant fast is no guarantee if your home is not priced right.

2. Product

Your home is the product. In our article about how to keep a tenant for 20 years, we specifically speak about the house is an essential factor.

Not just in the way you present and market the home, but also in the layout. A house with a funky floorplan, a steep driveway, and a next to a busy road usually won’t rent in the first ten days.

The perfect tenant for this home is not the everyday tenant. It is going to take one that is special.

We also like to stress to owners how important it is for the house to be in great shape. Many homeowners (especially if they’re investors) want to save money. We understand the importance of stretching your dollar.

However, providing a tenant with a great house to live in might increase your chances of keeping them for a long time.

I have personally had tenants in my houses for over nine years. One of the reasons they have stayed so long is that I provided them with a great home from day one.

A simple tip is to look at the paint job in your bedrooms. If you have children and one of the rooms is pink, you may consider painting it a neutral color. Your goal is to appeal to the broad market of potential tenants who can afford your home.

3. Time of Year

It’s true, our Nashville property management business picks up tremendously in the late spring. Everyone knows that the summer is the best time to sell a house. The same is true if you want to rent your home.

Your chances of finding a great tenant increase starting in May. It’s not surprising since most people prefer to move in the summer.

Sometimes they prefer to move because of school schedules. Or they may prefer to move during summer because of the beautiful weather. No matter the reason, if you have the opportunity to rent your Nashville house during summer, it’s your best bet!

Conclusion

If you want to rent your Nashville house fast, think about the three things in this article – Price, Product, and Time of Year. These are the three factors that will most determine if your house is on the market for a few days or for several weeks.

If you would like to speak with our Nashville team leader, call us at (615) 925-3880 ext 3. You can also fill out the form on this page.