Top 5 Best Real Estate Investment Markets in Alabama

Kristine Cameron

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Kristine Cameron

October 3rd, 2022
Updated October 3rd, 2022

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Alabama's affordable housing market and low cost of living make it a great place for beginner investors. There are opportunities for all kinds of investment properties, ranging from vacation homes to house flipping to traditional long-term rentals.

Discover the five best real estate investment opportunities in the Yellowhammer State with this guide!

Overview of Alabama real estate trends

Most Alabama homes are less expensive than the nation's average and have lower property taxes. The state's average home is valued at about $211,090, which is less than half of the national median sales price. The 68.6% homeownership rate is slightly higher than the nation's average of 63.8%, but there's still plenty of demand for rentals.

Alabama's population has also steadily increased in the last decade, due in part to affordable housing options. Between 2010 and 2020, the overall population increased by 5.3%. Thanks to growing demand, Alabama properties have higher year-over-year appreciation rates than average.

Consistent growth, low interest rates, and affordable cost of living have made Alabama an appealing state for investors. If you're looking to invest in Alabama real estate, we've narrowed down the top five cities for maximizing your profits.

💰 Looking to invest in real estate?

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Top 5 Alabama real estate markets in 2022

🏆 Best overall
🌴 Best for vacation rentals
💸 Best for house hacking
🏡 Best for flipping
📅 Best for landlords

Ultimately, the best investment market for you depends on your personal goals. If you want to flip a home, you probably won't be looking for the same criteria as a vacation property investor.

Some investors focus on appreciation to avoid paying capital gains every year, whereas others like the steady stream of income that comes from long-term rentals. We've identified some of the best investment markets for multiple strategies below, but you can also use our rental property calculator to evaluate individual properties.

To find the best real estate investment market in Alabama, we compiled data across the state. We evaluated property appreciation rates, affordability based on average income, and profitability based on the costs of renting versus buying a home. Learn more about our methodology.

» LEARN: Real Estate Investing — A Complete Guide To Getting Started

Best overall: Huntsville

🏡 Median home value
$308,218
📈 Property appreciation rate
22.58%
💰 Median household income
$66,450
🔑 Median gross rent
$869
🏦 Median mortgage cost
$1,272

U.S. News named Huntsville as the #1 best place to live in its nationwide 2022-2023 report, but it's also a top pick for investors. Although the average Huntsville home costs around $308,218, this city is still more affordable than the national average.

The homeownership rate here is around 56.7%, indicating there's a ripe market for both short- and long-term rental opportunities. Average homes in Huntsville also have the highest year-over-year appreciation rate in the state at 22.58%.

However, if you want to invest in Huntsville, you shouldn't wait too long. The city is growing so rapidly that it became the most populated city in Alabama in 2020, surpassing Birmingham. The increased competition for housing will likely drive up home prices in the near future, which may end up pricing some investors out.

Best for vacation rentals: Birmingham

🏡 Median home value
$247,796
📈 Property appreciation rate
15.15%
💰 Median household income
$59,185
🔑 Median gross rent
$929
🏦 Median mortgage cost
$1,327

Birmingham's tourism industry has made a strong recovery since 2020, making it our top pick for vacation rental properties.

The greater Birmingham area attracted approximately 3.6 million overnight visitors in 2021, according to a report from the Greater Birmingham Convention & Visitors Bureau (CVB). In fact, the entirety of Jefferson County attracts visitors year-round. As a whole, the county brought in about $2.2 billion in revenue from tourists in 2021.

Birmingham is home to several tourist attractions, such as the Birmingham Civil Rights Institute, the Birmingham Museum of Art, and the Barber Vintage Motorsports Museum. The city is also colloquially known as the “Dinner Table of the South” thanks to its impressive variety of chef-owned restaurants.

Birmingham was also listed among the 22 Best Places to Visit in 2022 by Conde Nast Traveler. Whether you buy in Birmingham or close to it, it's clear this area is prime for short-term and vacation rentals.

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Best for house hacking: Tuscaloosa

🏡 Median home value
$221,472
📈 Property appreciation rate
14.78%
💰 Median household income
$50,871
🔑 Median gross rent
$833
🏦 Median mortgage cost
$1,245

The term "house hacking" usually refers to home buyers who rent out rooms or units to tenants to pay the home's monthly mortgage. If you're interested in house hacking, it's important to look for a place like Tuscaloosa that has a high number of renters and healthy rent-to-income ratios.

Tuscaloosa's population grew by 10.09% between 2010 and 2020, but homes still remain relatively affordable. The median home price in Tuscaloosa is $221,472, which is just slightly higher than the statewide average of $211,090.

One of the highlights of the city is the University of Alabama campus, where around 38,000 students attend every year. House hackers who purchase a property near campus likely won't have any trouble finding long-term renters!

» LEARN: House Hacking — How To Live For Free With Real Estate Investing

Best for house flippers: Dothan

🏡 Median home value
$166,584
📈 Property appreciation rate
17.46%
💰 Median household income
$47,608
🔑 Median gross rent
$744
🏦 Median mortgage cost
$1,089

Dothan is our top pick for house flippers since it has relatively inexpensive homes that have high year-over-year property appreciation rates.

Dothan was the 12th fastest-growing city in Alabama between 2010 and 2020, with its population increasing by 8.51%. About 59.6% of Dothan residents are homeowners, and record-low interest rates have been attracting more people who want to buy instead of rent.

Due to the growing demand, homes are selling faster than average — a positive sign for flippers. Dothan Area Chamber of Commerce President Matt Parker stated he expects the real estate market to continue heating up "as long as the area continues to invest in infrastructure to support the growth."

Parker also notes that he wants to see continued improvements in the city's educational system, economic outlook, and other key factors that impact the area's real estate market. This is great news for house flippers, as this will make Dothan a desirable market for the foreseeable future.

Best for landlords: Auburn

🏡 Median home value
$279,169
📈 Property appreciation rate
17.57%
💰 Median household income
$52,930
🔑 Median gross rent
$856
🏦 Median mortgage cost
$1,289

Cities with a high percentage of renters, average home prices, and healthy rent-to-income ratios are great for landlords or long-term rental property owners. The city of Auburn checks all of these boxes, which shows promising signs for investors.

Between 2010 and 2020, Auburn's population grew by 43%. There are slightly more renters than homeowners here, which is partially due to the large student population at Auburn University. About 24,000 undergrad students attend the college every year, so there's always high demand for student housing near campus.

Auburn properties increase in value by about 17.57% year-over-year, and Redfin describes Auburn as "somewhat competitive." With the average home selling just 14 days after listing, investors need to be quick to get their offers in, but this steady market will pay off.

How to find undervalued Alabama properties

The best deals in Alabama are usually homes that only need cosmetic repairs or homes with motivated sellers. Types of homes that make good flips often include foreclosures, pre-forecloses, short sales, and abandoned or neglected properties. Here's how to find them.

1. Use real estate investment software

One of the biggest challenges of flipping homes or finding rental properties in Alabama is finding great deals. Here's where the DealMachine app can be highly valuable.

DealMachine's real estate software helps Alabama investors find distressed homes (such as pre-foreclosures, foreclosures, or short sales) and get in touch with owners quickly by using batch skip tracing and direct mail campaigns.

DealMachine's driving for dollars app is fast and easy to use. When you're driving around town and spot a home that could be a great deal (maybe it's been abandoned or neglected), you can send the owner direct mail through the app.

Download the DealMachine app to find undervalued Alabama properties as you drive. DealMachine offers a 7-day free trial and $15 in free credits that can be used towards marketing (like sending out direct mail to homeowners).

Other popular real estate software or websites for flippers to consider include:

  • Flipster: Primarily targeting house flippers, this app helps users find motivated seller leads, while also providing valuable comparable property information to help you estimate a home's fair market value before making an offer.
  • Flipperforce: The Flipperforce app helps BRRRR method investors analyze home values to calculate the maximum purchase price to offer on a property before making a purchase.
  • Stessa: Stessa's software allows you to easily track the performance and financial status of all your properties in one easy-to-use app. It provides regular reports on how profitable your properties are and can be linked to your financial accounts for automatic updates.

2. Look for FSBO homes

Investing in a FSBO (for sale by owner) property may get you a better deal since you'll be negotiating directly with the seller instead of a listing agent. Many FSBO sellers are more concerned about selling quickly than earning the highest possible profit, which can help you keep more money in your pocket.

Zillow's foreclosure center is one great resource for finding foreclosed and bank-owned properties in your area. However, unlike off-market properties you'd find on DealMachine and other software, most of Zillow's properties are publicly listed — meaning you'll likely face stiff competition from other investors.

3. Partner with an investor-friendly agent

Using an experienced realtor is the best way to ensure a favorable, easy home purchase.

Great agents understand Alabama's different investment markets, are familiar with real estate laws, and can provide access to lesser-known neighborhoods to help you discover your dream investment property.

Clever's real estate agents can guide you through Alabama's real estate market and make your house hunting journey a breeze. Eligible buyers can even get back 0.5% of their home's purchase price after closing, which could help you save thousands.

👋 Start your real estate investing journey now!

Buy your investment property with a top local realtor who specializes in helping real estate investors find great deals. Clever can connect you with investing pros at trusted brands like Keller Williams and RE/MAX.

Enter your zip code to get personalized agent matches sent straight to your inbox. Compare your options until you find the perfect fit, or walk away with no obligation. Try Clever's free service today!

Methodology

We used data from the U.S. Census Bureau to determine which cities offer the greatest investment opportunities. For each city, we considered the median mortgage cost, average rent prices, median household income, and annual property appreciation statistics.

We also considered how successful different types of investments — such as house flipping, vacation rentals, and traditional single-family homes — may be in each market to help investors reach their goals.

Frequently asked questions

Our top five picks for investors include Huntsville, Birmingham, Tuscaloosa, Dothan, and Auburn. All of these cities have good future prospects and are relatively accessible to new investors.

We recommend using specialized real estate investment software — such as DealMachine — or partnering with a knowledgeable local real estate agent.

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