Rental Property Investor · Cary, NC · Member since 2014 · 89 posts · 10 votes
Hi! I am a total newbie so please take it easy on me. =) But I'm wondering if it's worth it to consider buy and hold investing in the Triangle Area, NC (Raleigh-Durham).
I just learned about the 2% rule and it doesn't seem to apply for this area. For example, look at this 3 bedroom, 3 bath property in Morrisville NC (MLS 1963147):
Sale Price: $210,000
Size: 1,856 sqft
Built: 2000
HOA: $40
Zillow Estimated Mortgage: $1,070 per month
Zillow Rent Zestimate: $1,340
If I am to apply the 2% rule, then I should try to rent this house at around $4,000 !!!
But the Rent Zestimate is about right for this place, around $1,200 to $1,400 per month. I'm thinking I'll be getting a negative cash flow for this property, and for most properties in the area.
Are some ares just not ideal for buy and hold investing? Should I instead look at another city? I am considering the Triangle area because I live her.
1. Generally speaking, I think it's advisable to invest in the area where you live. But at the same time, there are a lot of people who are successfully investing in out-of-state properties.
2. Generally speaking, you are likely to get better ratios in lower-priced properties. But, if you go too low, you run into other problems (higher turn-over, higher maintenance, more crime, etc). I like the price-range for first-time blue-collar workers.
3. Finally, and probably the most important - it ain't as easy as just go find a property on the MLS and, bang it's going to be a great deal. There are good deals on the MLS, but you often have to really hunt for them, and you sometimes have to wait a while to find one.
Also, don't trust anything that you find on Zillow.
1. Generally speaking, I think it's advisable to invest in the area where you live. But at the same time, there are a lot of people who are successfully investing in out-of-state properties.
2. Generally speaking, you are likely to get better ratios in lower-priced properties. But, if you go too low, you run into other problems (higher turn-over, higher maintenance, more crime, etc). I like the price-range for first-time blue-collar workers.
3. Finally, and probably the most important - it ain't as easy as just go find a property on the MLS and, bang it's going to be a great deal. There are good deals on the MLS, but you often have to really hunt for them, and you sometimes have to wait a while to find one.
Also, don't trust anything that you find on Zillow.
Residential Real Estate Agent · Cookeville, TN · Member since 2013 · 1k+ posts · 948 votes
12y
Sometimes you have to look at (at least electronically) 100 houses, to make offers on 10, to buy 1. Don't give up so easily. If it were that easy, everyone would be doing it, and there would be no money left in it.
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
12y
Without knowing what you are trying to do, investment wise, your questions are hard to answer. Personally, I wouldn't pay $210K for a rental in this area(**). But that's me. I know someone who paid twice that $210K for a property at the Glenwood downtown. They are negative many many hundreds a month with the proprety rented. That's not for me either, but clearly is for him. For the most part, he told me so. So 'trophy investors' exist. Hedge funds (AH4R) are about 0.65% to 0.7%. (se also
2% rule of thumb (2% RT) wise, my SDRIA acquired a single family in a blue collar S. Raleigh neighborhood for $37,500, added about $6,400 in repairs and improvements, and rented for $850. That was in Kingwood Forest (Sold in 2014 for $60,500.) It can be done. It was done two weeks ago. 14SP672. Quite a bit different from the asset class you are look into, but for $33,500, that property will rent for 2% of the acquisition. I have to qualify that a little, because I didn't get inside to see the condition of this 1400 sq.ft. 3 BR manufactured home. Looking through the windows, I had no reservation bidding on it though.
I doubt you'll find whole neighborhoods that fit 2% RT around here anymore (if you do, let me know,) They were around in 2008-2011... Just a guestimate, I'd say 2% of the property "sold" in this area for under $100K (again, I look at total basis) will potentially come close to the 2% RT.
** see also: I would pay $186,048 total basis for gross potential rental income of $4,170.
Rental Property Investor · Cary, NC · Member since 2014 · 89 posts · 10 votes
12y
Thanks Chris. Thanks Brian!
Brian, it's such a coincidence that you invest in Cookeville, TN. I lived in Cookeville before I moved to the Triangle. When I realized that it would be hard for me to follow the 2% rule in the Triangle Area, I thought about Cookeville.
How is the Cookeville market for buy and hold investors? Will I be able to follow the 2% rule in Cookeville? I'm thinking, even if I don't live in Cookeville, at least I am familiar with the area and still have contacts.
I am a new investor living in Cary as well, so I can appreciate your question. It will take some hunting to find the good deals in this area. One newbie tip... If you want others on the thread to know you responded to them, you need to type "@" followed by their name. When you type the first few letters of their name, it will pop up below and you can select it. That way you can keep the conversation going. Good luck with your investing!
Investor · Smithfield, NC · Member since 2014 · 69 posts · 8 votes
12y
in Clayton Smithfield Selma area or Johnston county there are deals. A lot of folks live in Johnston county and drive to raliegh to work and the rental income is pretty dang close to wake county
Appraiser · Pine Level, NC · Member since 2013 · 39 posts · 4 votes
12y
Like @Bryan L. said don't give up just because one home does not meet the 2%. Although I would think Cary would be difficult to find that home that made the 2% rule you may have to go into Raleigh or Garner. I would also agree with @Jerry M., a lot of people are driving from Johnston County and they pay great rent on homes that do not cost $200,000 and up.
Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
12y
I don't trust Zillow and I don't like the 2% rule, but assuming Zillow is right (which you shouldn't), your rent/cost is only about 0.6%. If it's that low, it won't cash flow. And for me, that's the key with buy and hold. If you can make it cash flow, yes you should consider it. If you can't, then you should walk (or flip).
1- 2% can be had if you find a good deal in SE Raleigh. However, the reason you get 2% is because they are way more hassle than the $210k one you are looking at. Personally, I would rather have nicer properties and deal with a different tenant population than what you end up with when you get 2%. That extra ROI can get eaten up by vacancies, evictions, etc.
My favorite area is near NC State. You can buy a SFH for $165-175k and get $1300-1400/month in rent if you rent it during the right time. This in no way meets BP standards, but there are no vacancies and rent is always paid on time.
I think the lower rents are made up for by the potential appreciation. I know you're not supposed to factor that into a buy and hold investment, but you and I both know that Cary and Morrisville have a lot of potential to appreciate nicely.
Why is it that there are few vacancies with properties around NC State and rent is always paid on time? Is it because of the population you are attracting? Are you attracting more the NC State teachers and professors? Wouldn't you be attracting students?
The rent/cost ratio with the property I was quoting, and most properties in the area is 0.6%
I'm thinking that to cash flow, I need to put more money down. This will definitely delay my buying other properties. Should I do this or look at other areas?
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
12y
That property @Jon Arthur provided the link to went through the courthouse a while (6 months?) ago. Case 13SP4060. No bidders at $46,198 per my notes. In hind sight we probably should have bid... but sometimes it's a tough analysis for my company on pre '78 (built 1963), obvious deferred maintenance issues, vandalism, and we had no interior access. At $46K, that could be a nice property. From the pictures, the owners (JP Morgan per property card) put a few $$ into it so they could make it GSE financeable. Advertised with a second bath, realize there were no permits pulled...
I was just showing that with a minute of searching outside of Cary you can find homes that are selling much lower than $210,000 I did not put a lot of time into searching for the property that he should buy. I was looking at the Garner area for an appraisal I had done and noticed how low property was selling for. Per MLS similar homes are renting for 900-1000, with a little bit of work on a home in the area I don't see why he could not get that.
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
12y
@Jon Arthur I agree. That was a good "minute of searching". In general, $210K properties are not ideal LH investments (my opinion)... unless they are multi-family and the numbers work. Nothing wrong with Garner. I drive by that subdivision often.
I don't trust Zillow and I don't like the 2% rule, but assuming Zillow is right (which you shouldn't), your rent/cost is only about 0.6%. If it's that low, it won't cash flow. And for me, that's the key with buy and hold. If you can make it cash flow, yes you should consider it. If you can't, then you should walk (or flip).
Gotta love Zillow. $419 / $69,900 = 0.6%. Rent is a lot higher than $419 in that area. I'd expect a 3/2 SFR rental at just under 1000 sq.ft. would be $900 to $1000.
Real Estate Broker · Raleigh, NC · Member since 2014 · 2k+ posts · 1k+ votes
12y
@Christopher R. I do attract a lot of students, but I LOVE them. In SFH they are usually seniors, grad students, young professionals who recently graduated from NC state, etc. They are splitting costs, so it's affordable, and often parents are still helping. They are not the cleanest people, but a good cleaning in between tenants doesn't bother me at all, and they are no less clean than small children.
Friday, I moved three girls out a three bedroom who recently graduated. They lived there two years. They left the place very clean. Handyman touched up paint where they hung a TV and replaced a leaky disposal. House cleaners came through, and the girls paid for professional carpet cleaning themselves. Just moved a young couple into that home today. Two day vacancy in between, one for cleaning, one for repairs. Easy-peasy, and this is typical.
I showed the home one day for a half hour, open house style, and received three applications.
Owner paid $165k for the home. We rent it for $1300/month. In the two years the girls lived there, the only expenses we've had so far are:
gutter cleaning for $40
register the home with City of Raleigh $60
Disposal + handyman items yesterday - $450
Cleaners - $100
HVAC filters, smoke detector batteries, CO2 detectors - $60
Actually, the Zillow rent estimate on that property is $876, so it's not THAT ridiculous. I would agree though, your estimate is probably closer.
That said, this is a foreclosure listed at 69900. There is no rational reason to expect that the cost of this property will be 69900 when all is said and done. I've done a couple of foreclosures recently and suffice it to say that they don't tend to be in move-in ready condition... You may very easily end up at 80-100k all-in which will get you back to roughly 1%. Which is pretty typical for most parts of town (outside of war zones).
Homeowner · Raleigh, NC · Member since 2011 · 5 posts · 3 votes
12y
Christopher,
Whether an area is ideal for buy and hold investing is, in part, dependent on your objectives, tolerance for risk, and property criteria. Are you comfortable with low/no cash flow in exchange for potential appreciation. Alternatively, are you more comfortable investing in declining areas with substantial cash flow and low prospects for appreciation. (This is not a binary question, only two points along a spectrum.)
Achieving the 1% rule—or even the 2% rule— in the Triangle is possible, but you need to consider such factors as the age of the property, number of bedrooms, school districts, bus lines, thoroughfares…the usual suspects, alongside your objectives and tolerance for risk. Generally speaking, a lower ranking in these criteria will correspond to a higher rent/purchase ratio. Consider Morrisville and the surrounding areas (Cary, Holly Springs, Apex and Holly Springs) as examples.
There are many in the BP community realizing substantial returns on their investments. While reading about their successes is inspiring, try to remember that investing is not a competition. Develop criteria based on your personal circumstances and finances.
Lastly, based on what you’ve provided, I suggest that you focus your search on the Durham, Garner and 27616, 27610 and 27604 zip codes in Raleigh.
I wish you success in reaching your investment goals. Welcome to BP!
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
12y
Not sure where the 0.6% came from... at full price, $876 / $69900 is 1.25%.
Regarding "That said, this is a foreclosure listed at 69900." Well, this isn't a foreclosure, it's an REO. As an REO, it is very easy to tell the property condition. An investor can just set an appointment to see it. (The foreclosure was in January (case 13SP4060) when there were no bidders at $46,198.) I'm not trying to argue with you, but if an investor buys this for (say) $65K, puts <$5K into it (based on 10 MLS pictures, new HVAC, and assuming no aluminum wiring) and finances NOO with 20% down (or buys with cash and cash-out refis in 6 months), they may be a happy camper.
Regardless... it's clearly not at 2% when buyiung retail on MLS. But in my book, I'd prefer this property over the $210K property the OP discussed. As John stated very well, "Whether an area is ideal for buy and hold investing is, in part, dependent on your objectives, tolerance for risk, and property criteria."