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The greater Huntsville area is still a quite profitable area to invest in real estate but we are seeing

an alarming and increasing number of out-of-area investors making serious, costly mistakes in

selecting properties to purchase.

They are relying on inexperienced, incompetent and in some cases outright dishonest realtors

and investment groups in making decisions to purchase property. Our hearts go out to

these investors who were promised rents that were several hundred dollars more than what

the market will actually bear. They were also promised double-digit appreciation in

areas and market segments where appreciation is flat to negative.

The investors were expecting an honest return on their investment and instead were trapped

in a money pit that they can’t sell and in some cases have lost in foreclosure.

By the time the investors come to us in panic, it is too late to undo the mistake. We can

only try to mitigate the impact.

While the realtors involved in these frauds are beyond shame and rationalize their

actions, I am ashamed for them. Most realtors are honest and competent but

the few bad ones can cause the financial ruin of those that trust them.

Just after the Civil War, northern speculators came to the south to exploit

southerners struggling in the economic ruin caused by the war. These

speculators were called carpetbaggers as they traveled with only what

would fit in a satchel (Carpet Bag) in case they needed to leave town quickly.

I see the realtors and investment groups who are misleading investors as modern

day carpetbaggers. They are only interested in their commission from a sale

and are willing to be quite creative in their estimates of rents and appreciation.

We have even seen realtors make false entries into the local MLS in an

attempt to inflate investors’ perception of area rents. I have seen

properties in the MLS where the agent indicated the property rented

for hundreds more that what the owner of the property told us they

were able to get in rents. I have seen properties that didn’t rent at

all be listed as leased at an inflated rental amount when they should

have been simply withdrawn.

The most common mistake investors make is purchasing too far from

the city to attract tenants and to have decent appreciation rates. A

common scenario is that they purchase directly from the listing agent

in a new construction subdivision that isn’t selling. The listing agent sees

the investor as an easy sale.

Another scenario is where the investment group or out of area realtor uses

aggressive marketing to bring investors into the area. They work together with

the listing agent of the new construction subdivision that isn’t selling and both

get a hefty commission from the sale.

Once the investor gets into the property and cannot get the rents promised,

he is not able to sell without taking a huge loss. In addition to having to sell

at or less than his purchase price, the investor will have to pay transaction

costs of about 7% - 9% of the sales price. On a $200,000 house, this could

be over $18,000.

These investment groups and out-of-area realtors attend real estate investment

seminars searching for investors to work with. They call, send letters and

emails promising what seems too go to be true. They sponsor bus tours of the

area and are charismatic, organized and polished. They are also an investor’s

worst nightmare.

We are saddened by the hurt caused by the few unscrupulous realtors and

investment groups but are still very excited about Huntsville and our local market.

In general, the safest investment properties are going to be within 30 miles

of a triangle formed by Redstone Arsenal, Research Park and Huntsville

International Airport. While this not the only concentrations of large employers,

it is the greatest.

Please refer to or bring up a map of Huntsville at the link below.

http://www.mapquest.com/maps/map.adp?searchtype=address&country=US&addtohistory=&searchtab=home&formtype=address&popflag=0&latitude=&longitude=&name=&phone=&level=&cat=&address=&city=HUNTSVILLE&state=al&zipcode=

There are some additions to the suggested triangle above. The first is the

northeast part of Madison County. There are great schools, an interstate

spur and the area is just starting to have explosive growth. Construction

has started on a large shopping center and new roads are being built into the area.

The next area is just on the southeastern edge of the city. This area

(Hampton Cove) is exploding. There is a huge amount of growth

and it has good schools. Good shopping is in place. Traffic has been

a concern there are road projects in progress.

Appreciation rates in our area vary widely based on neighborhood.

In general we can expect a minimum appreciation of 4% to 6%

annually. Some neighborhoods are seeing 10% to 12+% appreciation.

As a point of reference for our rental market, you can review our active inventory at;

Huntsville Rental Homes

To see a small portion of our rented inventory, please go to 

Rented Properties in Huntsville

If you have an idea of what price range you will be looking in, we can counsel

you on the local market and start sending you listings to review.

We have a few specific neighborhoods and properties that we like for

rentability and appreciation, some of which are not on our local MLS yet.

www.greatschools.net is a resource to get data and demographics on

almost any school in the nation. Schools are critical to the rentability of a

property and to its eventual resale.

I hope this information is helpful. Don't hesitate to contact us if

we can assist in any way.

Philip Winburn

256.797.4570