Is Huntsville the Worst Alabama City to Invest in?
Is Huntsville the worst city in Alabama to invest in? You might be surprised by the answer. A recent study utilizing data from Zillow has raised some concerns about the investment potential of properties in Huntsville. While the study focuses primarily on cash flow, it overlooks a crucial aspect of investment properties—appreciation. In fact, when you consider the strong appreciation rates and the multiplier effect of leveraging your money in Huntsville, this city emerges as a top contender for high returns. So, before dismissing Huntsville as an unfavorable investment destination, let's delve deeper into the factors that truly matter for investors.
Considerations in Zillow Study
Cap rates are an effective and useful tool for investors to figure out what their rate of return is on a particular property. The majority of purchasers are living in their homes and they get a rate of return based on appreciation. This particular study was more geared towards investors, but when you look at an investment, you have multiple factors like appreciation and cash flow. So this particular study was focusing only on the cash flow side of things, which is really not the most effective way to look at investment properties.
Cash flow is definitely down here in the Huntsville area, the reason for that is we've had rapid appreciation and apartment rents have simply not kept up. They've really kind of stayed down a little bit more than they would typically because of all the apartments being built in our area. This study does highlight that rents have yet to catch up with appreciation and cap rates are a little bit lower in the Huntsville area but to say that Huntsville has one of the worst investment areas in the state is actually not taking in the majority of what's really most important on the investment side, which is appreciation.
Essential Factors for Investors to Consider
I'm an investor, typically when you look at an investment you look at a few things.
First, are you in a city where there are enough people moving to the area creating enough population growth, where that home or apartment complex is going to be able to rent out? You need something that's going to be stable and safe. Checkmark, we have that here in the Huntsville area.
I do look at cash flow as well because cash is king and it allows you to ride out all the dips and valleys of the real estate market. Whether the real estate market is going up or going down, cash flow allows you to survive. Cash flow is definitely an important component, but the majority of that component of an investment analysis is appreciation. That's where Huntsville is so strong and it's also strong when it comes to when you leverage your money.
For example, if Huntsville is appreciating at a 5% rate and you put 20% down, that is more like a 5x multiplier. That's really a 25% rate of return on your money plus the cash flow that you would be receiving as well. Even if our cash flows are slightly lower here in the Huntsville area, appreciation is much stronger. If you were to factor that into the equation, what you will find is Huntsville is going to be at the top of the list in terms of rate of returns and investments.
That's why as an investor, I am still buying and I'm investing in our local Huntsville, Alabama, real estate market. Whether you're a homeowner or an investor and you want to capitalize on the great rate of returns that we have here in Huntsville, Alabama, shoot us an email email@example.com or contact us here.
Posted by Matt Curtis on