Birmingham, AL Cap Rate: 4.95% — Rental Property Analysis
Birmingham is a mid-range market in the South with a mid-sized city of 197,575. At a 4.95% estimated cap rate, this is a moderate market where rents of $1,410/mo lag behind home prices. With a median home price of $255,000 and population is roughly stable, Birmingham offers opportunities for investors who source deals carefully.
Market data powered by Zillow Home Value Index (ZHVI) and Zillow Observed Rent Index (ZORI) · Updated Feb 2026
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Moderate — source deals carefully
Based on $255,000 median price and $1,410/mo median rent
Est. Cap Rate
4.95%
1% Rule
0.55%
Fails
GRM
15.1x
Price / Income
6.4x
Market Data
Median Home Price$255,000
Median Monthly Rent$1,410
Property Tax Rate0.42%
Population197,575
Population Growth0.3% / yr
Median Household Income$40,100
Vacancy Rate7%
Annual Appreciation2.1%
2026 Market Update: Birmingham
Birmingham's 0.6% rent-to-price ratio is well below the 1% rule. At median prices of $255,000, the $1,410/mo rent produces only $1,052/mo in NOI. Investors here need to target below-median properties or pursue value-add strategies to make the numbers work.
At current rates, a 20% down conventional loan ($51K at 7%) would result in approximately $-305/mo cash flow — negative at median prices. Larger down payments, seller financing, or buying 15–25% below median are strategies to turn the numbers positive.
The 15.1x gross rent multiplier and 7% vacancy rate position Birmingham as a balanced market. With annual appreciation at 2.1%, total returns (cash flow + equity growth) run approximately 7.1% before financing leverage.
Cap Rate Calculator — Birmingham
Pre-filled with Birmingham medians. Adjust to match a specific property.
Property Details
$
$
3–8% typical
%
Monthly Expenses
0.42% rate
$
$
8–10% of rent
$
8–12% of rent
$
Cap Rate
4.16%Low
Net Operating Income ÷ Purchase Price
NOI / Year
$10,600
net operating income
Gross Rent Multiplier
15.1x
High (>15)
1% Rule
0.55%
✗ Fails
Monthly Cash Flow
$883
before debt service
Annual Breakdown
Gross Rental Income$16,920
Less Vacancy−$1,184
Effective Income$15,736
Less Operating Expenses−$5,136
Net Operating Income$10,600
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Factor in financing to see your actual return on invested capital in Birmingham.
$
$63,750
%
%
years
$
taxes + ins + maint + mgmt
$
$
Cash-on-Cash Return
-7.21%Weak
Annual Cash Flow ÷ Total Cash Invested
Total Cash Invested
$71,400
$63,750 down + $7,650 closing
Monthly Mortgage
$1,247
on $191K loan
Monthly Cash Flow
$-429
after all expenses
Annual Cash Flow
$-5,146
before taxes
Cash Flow Breakdown
Monthly Rent$1,410
Less Expenses−$592
Less Mortgage−$1,247
Monthly Cash Flow$-429
Is Birmingham a Good Place to Invest in Rental Property?
Birmingham, AL has a population of 197,575 and has been growing at 0.3% annually — roughly in line with national trends, meaning demand is stable but not exceptional. The median home price of $255,000 paired with median rents of $1,410/mo produces an estimated cap rate of 4.95%.
Property taxes at 0.42% are well below the national average of ~1.1%, providing a meaningful cash flow advantage many investors overlook. The vacancy rate of 7% runs above average, which increases cash flow volatility and warrants conservative underwriting.
At a price-to-income ratio of 6.4x, homes cost about 6.4 times the local median income of $40,100. This elevated ratio means homeownership is stretched, supporting rental demand but limiting buyer pools. Home values have appreciated at roughly 2.1% annually. Steady appreciation means total returns will be primarily cash flow-driven — the more sustainable model for long-term wealth building.
Bottom line: Birmingham presents moderate opportunities. Cap rates near 4.95% mean deals need careful sourcing — look for value-add rehabs or emerging neighborhoods where rents are climbing.
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