Dispelling the myth of positive cash flow in Chapel Hill, NC

[David McCormick]

Hello all,

I have a son attending the University of North Carolina at Chapel Hill and another in high school that also wants to go there, so naturally I'd like to set them up in a 2- to 4-plex off-campus. Nothing too unusual, but today I read on the web site of a local prominent property management company:

Dispelling the myth of positive cash flow

Chapel Hill real estate is renowned for its consistent, stable, and relatively generous appreciation. In the decades leading up to the housing slump in 2008, Chapel Hill enjoyed 3-7% appreciation per year. Chapel Hill exhibited its unique resilience during the 2008-2010 market as many of our properties maintained their value. Chapel Hill is not, however, a market where you should expect positive cash flow in year 1 of an investment.

Chapel Hill rarely avails itself of ‘cash flow positive’ investment property. Assuming an investor puts 25% down on a property, a typical breakeven horizon is 5-7 years. Properties that serve the UNC-Chapel Hill student community hold the most potential for cash flow neutral or cash flow positive scenarios. The typical investor in Chapel Hill expects the return on their investment to be realized at the sale of the property (via appreciation), not from a positive cash flow.

Comments?

[Edith TenBroek]

I guess my comment would be to do the math. If your son is planning to be an owner occupant he may not have to put down 25 percent. I would pay more attention to the numbers than a property management company.

When I started getting interested in REI last year a realtor friend of mine said you can't ever make money in renting houses, only apartment buildings. How many people here on BP have proven him wrong?

Good luck!

[Michael Jobe]

Chapel Hill real estate is expensive in comparison to the surrounding cities. In your case, it seems to be a better investment to purchase a duplex or quad rather than pay rent at two separate places (assuming you're currently picking up the rent tab). If it were me in your situation, I'd find a cheaper duplex needing some elbow grease & have my sons doing occasional projects to improve the place while they lived there. They get to learn a little outside of the classroom while fixing your property up for you. Once they graduate, you have a nice rental property for UNC students in Chapel Hill.

[Joey Budka]

You always make your profit when you buy. It makes sense that appreciation is a driving investment factor for that area, given the strong demographics resulting from UNC chapel hill. But buying at retail value simply based on the hope that values will continue to rise is like gambling. Might as well play the stock market. Search around for a 4 unit needing some work, thus anchoring your profit. Then put those sons to work fixing It up over the years. Once they move out upon graduation, you'll have enough equity to trade up. The appreciation is always the extra gravy on top. I'd factor in a 1% appreciation figure to be reasonably conservative.