Fayetteville multifamily market

9 Replies

My brother is considering house hacking in Fayetteville, so I was looking causally through realtor.com, and the market looks very odd to me. There are a ton of multifamily properties for sale, and most of them at very low prices. I know that prices vary by market, but a lot of these properties would be above 1% even at the list price. I'm wondering if anyone with experience in that market might be able to shed some light on what's going on there. Is there a reason that prices are low? Have they dropped recently, or been that way for a while? Are there any expenses related to holding properties there that an outsider wouldn't think of? 

Thanks!

@Samuel Bavido I lived in Fayetteville for a year (2015-2016) and that was around the time when I started investing heavily. I knew a guy at the REIA that was doing a lot of lease option deals because there just wasn't enough equity in the homes to buy at a significant discount. Regarding the multi-units (and SFRs), I think the issue is too much inventory. It is so cheap to build property in Fayetteville and everybody has a VA Loan so most of these people would prefer new construction over an existing property. Once the military personnel get transferred, they rent their houses out. This causes there to be quite a few rentals on the market and not enough tenants. The ample inventory is also causing the rents to remain low due to competition. The sellers are likely trying to sell high because they overpaid for the property and need to cover the mortgage and their walk away money. This might also explain why you're seeing properties at such a high listing price.

From my understanding of the market, the prices have been consistent and didn't dip too much even during the recession. That's what the gentleman from the REIA explained to me back in 2015. It's a market that I, personally, wouldn't invest in though. You may want to try the Raleigh-Durham area, which isn't too far away from Fayetteville and will likely have more opportunity with less risk.

I looked at some apartments (16 to 100 units) in Fayetteville. I recommend thoroughly educating yourself before committing. Having been a long time Raleigh area investor, I can say that these two markets are entirely different. Maybe some of the Raleigh people who chase yield down there can chime in.

I just realized you are talking about 1-4 family units. That's a different space than multi-family for me. I'd echo what @Cornelius Garland posted. Like him, I decided there were other opportunities elsewhere. If you gotta have military, try Jacksonville NC or even Goldsboro. We aren't there, but we did purchase an apartment in Greenville, NC.

Thanks so much for the input, folks. My brother's unit is based at Fort Braggs (he's currently deployed, but probably coming back in October.) So the whole idea here is to house hack, which precludes buying in other parts of North Carolina. Given that, what advice would you have for him? Or there particular types of properties, or particular areas, that you would recommend above others? 

Has anyone looked at deals in Wilmington, NC? I would like to get different peoples opinions on this market.

thank you! -Paul

Originally posted by @Chris Martin :

I recommend thoroughly educating yourself before committing. Having been a long time Raleigh area investor, I can say that these two markets are entirely different. Maybe some of the Raleigh people who chase yield down there can chime in.

I'll echo this. Thoroughly educate yourself before committing. In my opinion, Fayetteville is a very .. odd and interesting place from a REI standpoint. It's EXTREMELY different from Raleigh in most of the major parameters that one would use to measure or define a market in these contexts. Near polar opposites in my estimation. If we're talking MFRs, there are very few of them in and around the Raleigh market. There's usually only a small handful of them on the market at any given time, and list prices tend to be all over the map, as there's very few MFR comps in any given 6 - 12 month time period, so a lot of sellers and even agents seem to have an especially hard time valuing them correctly.

Raleigh doesn't have nearly as many nuances or wrinkles as Fayetteville. Raleigh's market, demographics, trends, and such are pretty straight forward. It's just very difficult for most to find actual deals worth picking up in its current hyper-sellers market, but it's stable and what you see is what you get, if that makes sense. Fayetteville, on the other hand, is an entirely different animal. @Cornelius Garland laid out some of the intricacies of it quite well, as far as what I've seen. I have colleagues that invest in Fayetteville, though most of them are flipping, and some of them appear to do OK there. But they're versed in the market. Personally, I don't know enough about it and my MLS doesn't cover it, so I know just enough about it to know I'd rather stay away. I'd have to do a lot of networking, studying, and get my hands on a lot of data before I'd feel comfortable enough to put any real money into anything over that way.

There are certain markets in North Carolina that I'd be especially careful in, where just looking at a property (SFR, MFR, or otherwise) in its own vacuum or on paper just isn't enough (IE - seeing some comps within 1/2 mile or 1 mile around it and going 'Yep, this looks great. Where do I sign', without knowing more about the market, neighborhoods, nuances, etc). Fayetteville, Rocky Mount, and perhaps to a slightly lesser degree - Durham, all come to mind off the top of my head.

I have seen people go in 'half-cocked' in these cities and lose.

Like many areas of business, where there's risk - there's opportunity. But the key is doing your homework and really making sure you study and identify where the pitfalls are, where others have gone wrong .. basically separating the wheat from the chaff is the $64k question or equation. Naturally, it's not easy or everyone would do it, as they say.

Good luck!

I get e-mail blasts from commercial brokers in Fayetteville. Most of the listings I've seen look insanely high risk and in bad areas. All the properties I've seen are %10+ cap-rate.

Wilmington multi-family is bizarre. I see properties that are in my opinion +10% ROI at 7.5% below. The problem with multi-family in Wilmington is either it's 50-100+ doors complexes or small duplexes. There's nothing "in between" for the vast majority of investors. You've got HUGE competition for smaller complexes but you've got developers building 100+ complexes everywhere.

My question for you @Teddy Smith   is 'how many 'tweener' properties (5 units to 50 units) actually changed hands in Wilmington?' I get that there appears to be a void. I see it too. But what I experienced in a few NC cities, although I must admit I stopped (about 2017Q1) looking in Wilmington since it is one of the 'big 4', is that the apartment brokers may not even bring the properties to light if the buyers are in hand. This is, after all, a semi-insane seller's market. 

To me, getting the area's TAM (Total Available Market) is key. Are there 20 opportunities for 5-50 units? 50? 100? Then via public record, you can piece together what the market (or submarket if you do what I do and bust areas into smaller pieces) really looks like. In Wilmington, I am sure people (apartment brokers) have done this. Not so much in second and third tier cities, IMO.

I am in the 'tweener' space at the moment. It seems to me to be viable for micro/small players (under $1M, over $250K) but to date the numbers for me only work outside the 'big 4' (Charlotte, Raleigh, Wilmington, Ashville) areas. But still, the opportunities worth pursuing are very small, both in numbers and percentage wise... when you put PCR-style constraints on the TAM to  get your targets. Dilapidated structures and 'war zone' properties don't make my cut...

From the census, Wilmington NC had a population of 106,476 in 2010, and 117,525 is the estimate for 2016. In 2010, there were 53,400 housing units, 23,969 renter occupied units.

From the HTL site, you can get zip code specific numbers regarding housing units. The example link shows 28403 and you can just edit the 5 digits in the URL to investigate other areas by zip code.

The exact numbers aren't that important since they change over time, but from the Wilmington area, it looks like the apartment market size is roughly 17,500 or so units (table below). That's the TAM. As a broker, you may then be able to figure out the number of apartments, number of units, and correlate to zip codes. It's maybe one search with your MLS... I don't know since I don't use it.

Zip Count
28401 2021
28403 5497
28405 3826
28409 391
28411 2219
28412 3678


Wilmington 17632

Same logic applies to other cities, towns, zips. Many places in NC have 0 identified multifamily units, so it's pretty clear there is no use exploring there... unless the goal is to build in an underserved market;)

@Chris Martin

I use software called Realist Corelogic (Only available to brokers)

2000+ Duplexes (Stops counting after 2000)

183 Triplexes

23 Quadplexes

183 Multi-family apartment buildings!

Realist pulls this information directly from public records and is about as trustworthy as you can get. 

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