Buy and Hold option in NC: market condition
Member since 2019 · 23 posts · 6 votes
Hello,
Currently reside in NY, I'm new to REI, and right now in process of learning investment strategies and markets.
I'm thinking about buy and hold option in NC. I would appreciate any insight on the current market in NC. Is it a good time to purchase multifamily/ house for rental. I'm also looking at PA, NJ and PR.
Thank you all!
Hi @Victoria,
I am a real estate investor from North Carolina, living in New York. I've done two deals in the last 18 months in which I've accrued (in partnership) a total of 16 units. Both deals were multi-family deals.
The first deal was 14 units (3 adjacent buildings) in downtown Winston-Salem. We bought it in cash at a 7% cap and then refinanced out after we had build a very large reserve. With leverage the return on the cash is in the mid 8%'s. There is still room to raise rents, increasing the value of the property, and will impact the IRR over time.
The second deal was a duplex a mile west of UNCG. This has been my favorite deal. Purchased at $135k. Put a total of ~$34k more into it (renovations, LLC creation, splitting commission, all closing costs, all ancillary costs etc). It then appraised for $200k, allowing me to pull $140k (70% LTV) out in a cash out refinance. That leaves me with $31k left in the deal. With rents at $985/side, and assuming ~50% expense ratio, and an annual debt service of ~$9277, that gives me a little over an 8% return on the cash left in. Furthermore, appreciation has been steady in the area - not like Charlotte, Raleigh, or Durham, but steady.
Not sure why I wrote all that :) I'm just excited about investing in North Carolina and know it's possible while living elsewhere. For me the key has been partners and folks I trust on the ground.
Happy share more or connect.
Peter
Hey Viktoria. I am also from NY, Long Island to be exact. I have a little experience in NC with Holds. Fortunately, the properties I inherited were free and clear.
1. Most southerners hate us Yankees. They think we are all Donald Trump rich, and try and take us for a ride every time.
2. Location, Location, Location. Some places in NC are just dumps. Make sure you do your city-data searchers carefully. Unfortunately, the area in which I inherited my properties was once thriving, but after the Mill shut down and a "developer" robbed the area blind, things went to hell in a handbasket and it became a Section-8 welfare warzone.
3. Get to know the Neighbors. Basically, if you have the funds and time, take a small trip down for a few days. Drive around. Get boots on the ground.
4. Understandings. Understand that while homes and such are cheaper down there, so is the income for the working class people. So up here in NY, you know we pay $1500+ for a two bed 1 bath apartment. Down there it's like $600/mo for a full house. Crunch your numbers.
WHATEVER you do, please get a reputable property management company. They usually get 8-10% of your monthly rent every month, but they basically do almost everything for you. IN retrospect, I should have hired one for my properties.
I hope I was able to share some insight. Best of luck!
Hi Shaun,
Thank you for your detailed response. I did crunch the numbers, and looks like even in good NC areas rent is not that high. Well, as you said, compare to NY. I just wasn't sure if NC is a good place to start.
Do you have any experience with the Tristate area and PA?
@Viktoria Barrett
I’m looking in Apex, Cary, Holly Springs, Greensboro, Greenville. I’m not looking in Charlotte. It is a hot market but surrounding areas could work. I’m also looking in smaller areas here in NC but I know the area better. Obviously where ever you invest you need to know your streets. Bad parts of town no matter where you go. Most southerners do not hate northerners or think they make bank just because they are from up north that’s silly. Plenty of places here you can get more than $600 for rent.
@Viktoria Barrett
Most of our investments are in North Carolina and it can be a very good market.
I would echo what somebody else said to you in a reply that you need to know the market. I do not agree at all that beginning investors should be hands off and use a property manager. Much of my experience has told me that high levels of customer service, extended renewals from tenants, increase in rental rates, cost reduction in minimizing the service calls.... come from the intimate experience of doing some of these things right as the landlord.
No property manager has the vested interest in nurturing your customer relationships with your tenant and watching over your investment with a long-term perspective like you do. Don’t misunderstand, there are some great property managers in North Carolina and elsewhere. I already know who I would use if I was unable to manage on my own.
Going back to your question of North Carolina, it’s very market specific....over the last two years the Raleigh area the Charlotte area have been two of the hottest markets in the country... several other markets are strong as well.... know your market, do your research...you’ll do well.
Good luck.
@Viktoria Barrett
Im from NYC and invest in the 2 biggest markets in NC.. I follow the 1% rule and they are getting more challenging to find.. It’s very competitive and it’s not getting any easier since I started. Inventory of small multis is much smaller compare to other markets.
@Viktoria Barrett What areas in NC are you looking at? It's a very diverse state. There are plenty of well-off towns/cities that are thriving. There are also rural, poor areas like @Shaun J. described. I wouldn't recommend investing in one of those areas, but Raleigh, Durham, Charlotte, Asheville, Wilmington, etc are all great places to live. The rent to price ratios are not high, more like .7% but the taxes are low, and appreciation is steady.
@Viktoria Barrett On the topic of multifamily properties in NC, they are not as pervasive as in the mid-Atlantic and Northeast regions. Because of the limited inventory, it seems they rarely hit the MLS and when they do, they are overpriced. A lot of investors are buying multis in outlying communities like Fayetteville and Rocky Mount, but they very much understand those markets and their intricacies. I would advise traveling to/through areas you want to invest in, the small cost of that trip will likely save you big on these investments.
Thank everyone for your replies! Very helpful.
@Viktoria Barrett What areas in NC are you looking at? It's a very diverse state. There are plenty of well-off towns/cities that are thriving. There are also rural, poor areas like @Shaun J. described. I wouldn't recommend investing in one of those areas, but Raleigh, Durham, Charlotte, Asheville, Wilmington, etc are all great places to live. The rent to price ratios are not high, more like .7% but the taxes are low, and appreciation is steady.
I’m looking suburbs of Charlotte, Raleigh, Salem, Greenboro.
I haven’t found many multi family, and as someone mentioned in the thread they seem overpriced.
But I have just started my search. Would be comparing with other states as well.
Thank you !
Why some of us moved out of or are not putting a lot of capital to work in the 'big 4' (Triangle, Charlotte, Asheville, Wilmington) areas at this point in the cycle...
Quick rough numbers. Assume 0.5% gross rent to capitalized asset cost, which is close to reality in the big 4 markets. $300K purchase, leveraged with 25% down, results in $225K loan and $75K upfront capital. At 0.5% gross rent/capital acquisition cost, gross rent would be $1500. Using the 50% rule, where one can expect over time that expenses (taxes, insurance, maintenance, repairs, etc. from Schedule E plus capital equipment reserves) will be about 50% of gross rents. The monthly unencumbered net would be $750. At 4.5% interest, 30 yr. amortization, for a non-owner occupied out of state owner, P+I payment is $1140.
Summary: Investing $75K results in a roughly $400/month loss...
At 0.75% gross rent/capital cost, gross rent of $2250 (using assumptions above) would yield (pretax) about monthly break even. At 1% gross rent/capital cost, your at about 4% return on your $75K.
@chrismartin It sounds like you're saying that investing doesn't make sense in this area if you're paying retail prices. That would be true in any good quality market these days, but investors are still doing deals. Are you talking about multifamily (brick and mortar) only or all real estate investing in the area?
And if you're pulling out of this area, where are you looking now and why?
@Viktoria Barrett
Looking for small multi family in NC in general is difficult. Mostly because SMF itself is a bit of a unicorn throughout NC. You're almost not going to find any good deal with SMF in this state on the MLS. Investors who are prevalent in that space I've spoken with drive for dollars and find off market - something that would obviously be difficult if residing in NY!
Right now the SFH route is particularly promising because a) there's more properties available and b) there are lots of surrounding markets near Charlotte especially that have yet to pop off. However, finding a "deal" on the MLS within Charlotte is pretty difficult at this time. Look into Gaston county, Rowan- Salisbury area, and surrounding Greensboro.
Good luck!
@chrismartin It sounds like you're saying that investing doesn't make sense in this area if you're paying retail prices. That would be true in any good quality market these days, but investors are still doing deals. Are you talking about multifamily (brick and mortar) only or all real estate investing in the area?
And if you're pulling out of this area, where are you looking now and why?
Regarding "It sounds like you're saying that investing doesn't make sense in this area if you're paying retail prices." Those are your words, not mine. People invest for different reasons. I have seen sales where the cash buyer could care less about the return ON invested capital. They were parking money in US assets and were (for the most part) only concerned about return OF capital.
A few years ago I heard a buyer claim that today's return is not relevant because they are playing a long game, and property values and rents always go up, so losing money today is not a concern and to be expected. I didn't share that opinion, but we still sold them the property.
I have no clue what the OP, who lives four states away and wants to invest somewhere, means by "Is it a good time to purchase multifamily/ house for rental." All brokers will say that NOW is the best time to buy. That's not my reality, but I'm not a broker.
Regarding "... but investors are still doing deals" I would contend the smarter money is not acquiring. The largest landlord in Wake county by far is American Homes for Rent and their last purchase (16453-2129) was July 12, 2016.
In 30+ years of real estate investing, I've learned to swim with the current, meaning don't fight the market. It may take me a month, full time, to find a "deal" in the current market that was available in quantity on MLS in the last downturn, and the 2002-2003 downturn, and the one (early 1990s) before that. That month, for me, is time spent that represents an opportunity not worth pursuing.
Regarding "...where are you looking now and why?" In the last couple years, mostly outside residential real estate where investment tax credits still exist and 100% depreciation can, tax wise, return about the full capital account within the first year of capital deployment.
Former NJ guy living in NC now. As someone who is used to the astronomical NJ prices, what I see here is great. In Wilmington multi-families are hard to find/in a bad area. I have a SFH now (3 bed/2 bath) for under 190k. I'm confident it'll appreciate. Everywhere you look Northerners are coming down.
Watch out for the cynical attitudes !
I invest in Charlotte metro but in outlying cities - Gastonia, Monroe, Concord, even Statesville. City of Charlotte has become very expensive to invest in, but outlying cities are great for me. I have SFH & MF that exceed the 1% rule.
There are about 109 people moving into the metro area each day !!
Thank you for your reply Curtis. I have checked the statistics, it looks promising.
My only concern now with NC is the price of rent. Based on my calculations, the mortgage payment will be higher than the rent. Maybe I didn’t find yet something that would really work.
But, I’ll keep looking !
Joe, thanks for your input. I’ll check the area you have mentioned. Multi family would be ideal.
Hi @Victoria,
I am a real estate investor from North Carolina, living in New York. I've done two deals in the last 18 months in which I've accrued (in partnership) a total of 16 units. Both deals were multi-family deals.
The first deal was 14 units (3 adjacent buildings) in downtown Winston-Salem. We bought it in cash at a 7% cap and then refinanced out after we had build a very large reserve. With leverage the return on the cash is in the mid 8%'s. There is still room to raise rents, increasing the value of the property, and will impact the IRR over time.
The second deal was a duplex a mile west of UNCG. This has been my favorite deal. Purchased at $135k. Put a total of ~$34k more into it (renovations, LLC creation, splitting commission, all closing costs, all ancillary costs etc). It then appraised for $200k, allowing me to pull $140k (70% LTV) out in a cash out refinance. That leaves me with $31k left in the deal. With rents at $985/side, and assuming ~50% expense ratio, and an annual debt service of ~$9277, that gives me a little over an 8% return on the cash left in. Furthermore, appreciation has been steady in the area - not like Charlotte, Raleigh, or Durham, but steady.
Not sure why I wrote all that :) I'm just excited about investing in North Carolina and know it's possible while living elsewhere. For me the key has been partners and folks I trust on the ground.
Happy share more or connect.
Peter