Southern West Virginia - the Final Frontier?

Cue the cheesy space-age music! 

As of writing this blog post, there are over 1,000,000 forum posts across all of Bigger Pockets. Of those, 873 include "West Virginia" or "WV." Not a huge number, comparatively. But this is evidence of a bigger truth--that there isn't a whole lot of investment activity in the state of West Virginia. 

A quick search on BiggerPockets reveals several investors who are killing it right now in the north part of the state - I know one investor who has found several rentals for under $10,000 that are cash flowing like crazy. Shout out to Derrick E. for doing great work in Parkersburg!

If he's having success in the north part of the state, what's holding me back from getting started in Southern West Virginia? Here are three big reasons why I (and you) should consider investing in Summersville, Fayetteville, or Beckley, WV:

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1) Untapped market. This is a biggie. We all hear about places like Memphis, Indianapolis, Cleveland, Mliwaukee, and even Atlanta being great investing markets. They are great because the cities are expanding, and prices are finally recovering from the housing market collapse in 2008. The state of West Virginia, probably because of the job market, has not seen the rapid growth that a lot of the other states in the Midwest have seen. As a result, the prices remain relatively depressed. As an investor, this gives a great opportunity to get 2012 or 2013 prices on properties that cash flow. In most areas, it is easy to get 3 of the 4 major wealth generators (cash flow, tax advantages, and loan paydown), with some others offering all four (including appreciation). Think of it - a market with cash flow where no one is doing yellow letters, there's no bandit signs, and there are relatively few options for homeowners to get out of a problem property. The two areas that are seeing the most appreciation are #2 and #3 below.

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2) Tourism areas. I live in Summersville, WV, and the prices are climbing upward here for two reasons, the first being the tourism sector. We are nestled directly beside Summersville Lake, the largest lake in West Virginia and home to many cabins, chalets, campsites, and other tourism-based housing. There are no boutique hotels here yet, but I see that as a point of opportunity, not a limiting factor. Once something like that moves in, other service and tourism-based business will find increased opportunity. Also, river rafting is a huge industry in our area, and the number of rafters in our area has been incredible this year. I don't know exact numbers, but they appear to have been busier this year than in the last 5-10 years, so this is a great sign. Lastly, the New River Gorge Bridge is one of the longest single-arch bridges in the world, spanning almost 1,700 feet of canyon, and the New River flows almost 900 feet below. Tourists flock to the area to see the bridge, canyon, and breathtaking views from places like Hawk's Nest State Park.

With West Virginia not being the most "connected" or "high-tech" state in the nation, many of the attractions and lodging options are hard to find, or are relatively unknown to non-locals. The opportunity we see is in value-add situations where we can buy a property that is performing moderately well, advertise the property, increase rents to market, and enjoy the increased occupancy and rent income.

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3) Job market booming. In our area, we have several job sectors that are on fire. My local hospital was just leased by WVU Health, which will take it from a small-town critical access hospital (CAH) to a teaching hospital with major medical programs moving into town. We expect for the hospital to easily outgrow its current location and require a new facility in the area; more (and better-trained) employees will be needed to operate this facility; and other ancillary businesses will have opportunity to grow as a result of the hospital's growth. Additionally, with the China Energy deal slated to invest almost $90 billion into West Virginia's energy sector, and with a major natural gas pipeline being surveyed and constructed just miles from our town, we expect energy jobs to grow exponentially with both in-state and out-of-state workers benefiting from the job growth. Since our rental market supply is already lower than rental demand, we expect there to be an extreme shortage of housing available for pipeline workers over the next 3 years. This will drive prices up, and will increase demand for renovations and (potentially) new construction. We are currently seeing parking lots of abandoned buildings converted to RV parks for pipeliners in campers to stay in. While this is not a viable long-term option for the area, it is evidence to the housing market situation we find ourselves in currently.

About an hour south of us (Beckley), we are seeing similar growth related to hospital expansion and pipeline projects, but this town is also seeing major growth related to WVU Tech's campus moving from Montgomery to Beckley. The college provost has stated that over the next 5 years, he anticipates the college to grow from 2,000 students to 7,000 students as the students are phased from the Montgomery campus to the Beckley campus. The net student housing shortage this would cause is in the 2,000 - 3,000 unit range. For a town of 18,000 people (with only 9,000 housing units), this will be a huge period of growth for the town. The university just built a new dorm building over the summer, but it is only able to hold 250 students--even if they build one per summer, they will still be between 500 and 2,500 units short in 5 years. I see this as opportunity to convert older buildings within range of campus into multi-housing for students or small families (think dorms with kitchenettes) or true dorm buildings with 4-5 bedrooms and a shared kitchen. The opportunity is starting to be noticed by investors, as there are several homes near the college that have large dumpsters out front, and these homes are being completely trashed out as we speak. There is a ton of room for more people to enter the market and do this kind of work, especially in the short term to get these homes converted to multi-housing, but also in the long term since people that go to school here are more likely to stay here, start small businesses, work for existing/expanding businesses, and consume goods produced by local companies. All around, I see this as opportunity.

We just got our first rental property under contract in Beckley, around 3 miles from the college campus. It's a 2 bed 1 bath, 1000 square feet home in good condition, and we got it under contract for $26,000. We found this on the MLS. We think that with some plaster work, a good paint job inside and out, and pulling up shag carpet and refinishing hardwood floors, we will need to put around $5,000 - $10,000 in to get it rent ready, depending on if it needs a new roof (plan for the worst). At that point, we will be in for $40,000 including closing costs, and we expect it to rent between $600 and $650 a month. Its value at that time will be around $53,000, and we don't expect a lot of appreciation unless the college expands to the point that home values in the 3-mile radius of the college all appreciate. Now, it's not a home run, but it is a good first deal, and an example of the kinds of singles and doubles you can hit out here with not too much effort. Next up, we are looking at a $29,900 single-family with a detached 2 car garage and above-garage apartment that needs completely redone. After estimating putting in an additional $30,000 for repairs on the garage apartment, we expect to get $650 for the house, $450 for the apartment, and $100 for the garage, or $1200 in total rent per month. This one hits the 2% rule, and we may be able to push the garage rent and garage apartment higher depending on the level of finish we go to.

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As you can see, we've got some great things coming down here in West Virginia. Now, it's up to you - will you get involved, or will you watch, wait, and possibly miss it?