Raleigh, NC or Austin, TX for Buy and Hold

17 Replies

Hi Guys,

I'm new to BP just wanted to ask what people think about the Raleigh, NC area vs. the Austin, TX area in terms of Real Estate Investing, with a Buy and Hold... Which area do you think is better today and why?

Thanks,

Ryan

I think the answer will be, it depends. What are your specific goals in both the short term and long term for your buy and hold properties? Cash flow? Appreciation? Something else?

I think if you can articulate those, your answer might become clearer. You might also find that neither of those markets are your ideal for your goals.

Lynn

Hi Lynn,

Thank you so much for the reply and advice.

I had a feeling I wasn't giving enough information, so glad you asked!

My goal is to have purchased 15 properties and have >$25,000/month cash flow in the next 5 years.

Appreciation is important, and cash flow is my priority.

Is Austin in a bubble right now or is the massive growth only going to continue? Is Raleigh a market with serious potential over the next 10-15 years with the growth they are experiencing?

Right now I live in Boston and I am planning a move to either Austin or Raleigh to begin a career in Real Estate so felt that it made the most sense to evaluate those two locations for an investment property, or maybe out of state makes more sense?

Thanks again!

Ryan

Hey Ryan welcome to the site! I can't give you much input in regards to Austin but I have a little knowledge about the Raleigh area.

I relocated here back in September and immediately immersed myself in the real estate market. From what I've seen & experienced, Raleigh is a super hot market right now with properties being snatched up almost as fast as they are listed. For example, my girlfriend and I are looking to buy a SFH for our primary residence. We found a place in NE Raleigh in a blue collar area & offered the sellers nearly $15k over their asking price. We were outbid. Another house we put in an offer on two days after it was listed. Within 48 hours it had 9 or 10 offers on the table and sold for $5k above list price.

While at a REIA meeting, one of the speakers who is basically a market analyst for the area noted that with the massive influx of people moving to this area there is a shortage of SFHs to the tune of around 4,000 properties. The majority of developers are building townhouses and condos rather than SFHs. He speculated that the urban sprawl of Raleigh will cause a lot of new residents to seek out rentals and home purchases in surrounding areas such as Durham, Chapel Hill, Hillsborough, etc. If you do decide to make Raleigh your next destination just be prepared to enter into a highly competitive market. Best of luck to you regardless where the road takes you!

I used to own a SFH in a good area of NE Raleigh. Mostly blue collar, some white collar. I found that the pruchase price/rent ratio wasn't very good. For example, $150k purchase will get you about $1100/month in rent. Those numbers weren't worth it for me, so I sold.

@Lynn Currie @Michael Jobe @Johnny Aloha

Thank you all for the info!

Michael - Does that shortage include all of RTP or is that Raleigh alone? How about MF units vs. SFH, I'd most likely live in one of the 2 units to take advantage of first time home buyer tax breaks, and how is it being an agent in the area? Thank you so much for the info, best of luck to you as well, and I owe you a coffee if I make it down there :)

Johnny - Great point on the price/rent ratios, I'll have to examine this further before making a purchasing decision. Are you actively investing in Hawaii, and if so how is that going for you?

Thank you!

Ryan

Hi Ryan

Greetings from ATX!

Similar situation here like Raleigh as @Michael Jobe described above. High population influx + very low inventory (less than 2 months) = High Prices (current SFR ave. sale price above $300K)

Doing your homework around the ATX area, you'll be able to find a few "Buy&Hold" deals around the $120,000 price and $1,200 rent per month (the "1% Rule"). However be prepare to act at light speed and compete with multiple offers.

Good luck in your endeavor.

@Ryan Fitzgerald  

I'm going to have to echo @Johnny Aloha  and @Michael Jobe  here.  I am desperately trying to find another flip in Raleigh and nothing makes sense financially.  With that said, I feel the same way about the buy and hold properties.  Johnny's numbers are pretty spot on from what you can expect with a price to rent ratio.  Now there are some houses downtown and in Southeast Raleigh that you can get better numbers with but you probably don't want to step foot in those areas.  I've made several offers over the past few weeks only to be outbid big time.  Last week I offered on a house in South Raleigh/Garner and there were 30 or 40 other offers on the property.  It is scalding hot here right now and personally I think people are paying way too much in an effort to try and gain access to the market.  Don't be that guy.  Hope this helps and good luck to you!

Buy and hold is tougher in Hawaii. I cannot speak for long term buy and holds as I run a vacation rental. But the cost to get into a decent property to try and cash flow is tougher. Also, with most properties in Hawaii having been built around the 60s and 70s, the general maintenance costs are extremely expensive. Depending on the zip code your property is in costs can sky rocket lol. There are some guys who will cut deals but very few. If you have the $ and are in it for a speculation game it's worth it though. In 1985 median price for a Oahu home was $158,600, 2013 it was $650,000. 

@Ryan Fitzgerald I can't speak too much on areas east of the heart of Raleigh as we simply weren't interested in properties there. My girlfriend works in RTP so we want a house ~20 miles or less from her office. I did attempt to purchase a duplex in the western part of Raleigh semi-close to NC State and it sold before I could even get an offer submitted to the seller. He didn't even list it on the MLS or any of the big name real estate websites (Zillow, etc.), just put up a Craigslist ad. It was posted and sold all within a few days despite being overpriced in my opinion. The house that I mentioned had 9 or 10 offers on it and sold for $5k over asking was actually in Durham albeit the northeast part where you can get over to Raleigh in no time at all.

Good call on getting a MF and living in a unit while renting the others. I know that strategy has worked out well for many BP members. A lot of people who are unfamiliar with Durham and are pro-Raleigh will tell you to steer clear of Durham for various reasons. But I will tell you that there are some very nice areas of Durham with an easy commute to Raleigh and more affordable prices. You also have UNC, Duke, and NC Central all within about 20 minutes of each other which means you'll have plenty of potential tenants to rent your units. 

And I'm not a big coffee drinker but I'll take a cold beer! 

Yes, I buy and hold in Hawaii. Good deals are very hard to find, but I got lucky and found one. Cash on cash is about 8%, but we've had very strong appreciation. Appreciation has added about 50%/year, and mortgage paydown has added another 8-9%/year the past couple years.

I've found that maintenance is expensive because people charge high rates, but of course if you network you can make the right friends and find better rates. I've also found that the 50% rule, as discussed so often on BP, doesn't apply here for several reasons: low (or no) vacancy and simple mechanical systems. When I post an add on CL, I have 40 emails in 12 hours! Most are very well qualified. Most properties don't have A/C or heat, so much less maintenance and capital improvement costs.

Bottom line: you can find deals anywhere (including Raleigh or Austin), you just have to know the market and be persistent!

Hi @Ryan Fitzgerald  ,

I agree with what @Roberto Andrade  said about the market. 

While it's not impossible to cash flow in Austin, it's difficult with SFH purchases. The market is hot and inflated for sales because it's a seller's market. Combine that with high property taxes, and it gets difficult to cash flow. That said, Austin is a pretty amazing place to live and we have markets within driving distance that are good choices for buy & holds.

To answer your "are we in a bubble" question, I think the answer is yes, but it likely isn't the same kind of bubble you see elsewhere. We've got a couple of things happening: low inventory, a steady stream of employed people moving in, enough press about these things that everyone thinks they're sitting on a gold mine with their property, and enough retail buyers to support the gold mine theory.

Austin generally has been largely insulated from the plunges in the housing market over the last 20+ years. We go through the phases of crazy growth then something happens to the national market, and we level off. In 2009, this leveling stopped new construction for a bit and houses started sitting on the market for what most people would consider a normal amount of time. Then the lending market started straightening itself out, the mortgage rates went down, and Austin got smokin' hot again.

Currently, I'm seeing a slight slow-down in sales in the neighborhoods I work in. I attribute this solely to the pricing. I think 2 things are happening:

  • People are wanting a lot more money for things and know that they can likely get it. 
  • People are putting houses on the market with the attitude of, "Hey! If it sells for this price, I'll take the money and walk away! And if not, I'll keep it and stay right here."

So back to what Roberto said, while you can probably find a 1% deal here and there, buying rental properties in Austin for $1500+ cash flow per unit ($25,000 per month cash flow that you want / 15 properties) sounds nearly impossible to me.

@Lynn Currie  

Thanks for sharing your input on the market in Austin.  I see that we both are invested in the 78704 zip.  Any advice on what to do when my tenant's lease is up later this summer? Shall I play the "Hey! If it sells for this price, I'll take the money and walk away! And if not, I'll keep it"?

@Peggy Liu  

Great question!

I actually have a buy & hold in 78704. So far I've kept it, but I would be willing to get rid of it if the price was right. It's a condo that I bought about 6 years ago that's appreciated, but it cash flows nicely, so for now I'm hanging onto it.

I'd say, if you're making good money on it and you want to hang on to it for either income or appreciation, hold on to it. If the property isn't working for you, take the money and either re-deploy it somewhere that makes more sense, or treat yourself to a fantastic vacation!

Of course if you decide to sell, I'd be more than happy to take a look at it! ;)

@Lynn Currie  

Sounds like we might be in the same boat! I have a condo in 78704 as well. It would cashflow if I can get a refinance on it. But, that is what I'm debating.. if there is going to be a bubble. The prices have climbed up nicely in the past two years, at least for my unit. Only problem is that I hate the HOA that I deal with.. Ug

Thanks everyone!

@Lynn Currie

It looks as though you have a duplex with 6 beds selling for 700k, out of curiosity what do you expect the monthly rent would be for a property like that?

Thanks again!
Ryan

@Ryan Fitzgerald  

This is a spec home that I built to sell. I build as a duplex, put a condo regime over it, and sell each side separately. The price for each side is $700k.

To date, none of my buyers have purchased one of these properties to rent out, they buy them to live in.

I have had interest from folks that wanted to purchase the entire thing, but they weren't looking for cash flowing opportunities. They were looking for a place that an aging parent or a kid in college can live next door but still have their own place.

You'll be much more hard up to find good price-to-rent ratios in Austin than you will Raleigh. Those are what matter first and foremost. If they didn't, I'd say Austin all day long but it may not work there.

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