Cap Rates & COC for buy-and-hold in Raleigh-Durham-Chapel Hill?

10 Replies

Would be curious if anyone might be able to share what kind of Cap Rates and COC returns you typically see in buy-and-hold SFH and 2-4 unit MFs, in the Raleigh-Durham-Chapel Hill area.

I've been looking primarily in Chapel Hill and some in Durham. If trying to get into A-or B-level neighborhoods, it seems a very high cost for lower returns. Maybe it's just lack of inventory, but best case seems to be a 6% cap rate. And with housing costs so high, some are negative cash flow, but COC return no better than 4-5%. (Obviously that's highly variable based on financing, but I'm looking at 20-25% down.) The 1% rule for rental rates just doesn't seem possible, maybe 0.9% at high end, more likely 0.75%.

There are definitely some better numbers in lower income areas of Durham, but there's obviously higher tenant risk in those areas and I'm generally hoping to find units in high performing school districts for long term reliable tenants.

Are these numbers in line with what you have seen historically? Are the numbers any better in Raleigh, Cary or elsewhere? I'm not often east of the airport so don't know those areas at all.

I'd prefer to stay local (though would still be using property mgmt company), but have also looked at some turnkey properties. Obviously you pay a premium, but even with that, and after adjusting for some of the rosy numbers these companies suggest, there still seem to be many with cap rates of 9-10% and COC return of 15-20%. I don't have any info about neighborhoods, so these may be in undesirable neighborhoods and may be poor comparisons.

Would love to hear from anyone who may have thoughts on any of the above. Thanks! :)


There are just some areas that are not profitable.  I regularly hear NYC and the surrounding areas are tough.  I have not heard that specifically about RDU.  I would encourage you to take a look at other markets including Jacksonville, Fl.  I see projects regularly cash flowing and  turning in 1% a month and 2% if you are willing to take on more neighborhood risk.

I live in the Triangle and I have owned property in the area for the last 10 years. The numbers you are getting are very close to the same numbers I'm getting. My properties are in Morrisville, Cary and Holly Springs. And for the most part, I use a property management company. I also do 20-25% down payment. I have done some 15 year financing and sometimes 30 year. On the 15 year, I have been able to do excellent cash-out refinancing, since property values have skyrocket in the area.  

Yes, your numbers are similar to mine. When you add the refinance or resale, I think those numbers then look great. If you are in for the long term, I think those should matter. 

I have never looked to invest in Durham or Chapel Hill. I see many challenges in those markets, which can hurt overall profit.

I'm looking to graduate to multi-family. But the Triangle market has been so inflated and saturated, I'm looking very closely at Greensboro/Greenville areas. But, there are opportunities. One just needs to be willing to pay high premium to get in.

Thanks Henri, much appreciate the insight, good luck to you!

I am in the Durham market trying to get in. The market is definitely high right with myself finding no properties that fit my criteria. There were a few that came by that required extensive repairs and some where I got into a bidding war for a property the day it came on the MLS and lost (twice). The other properties that cash flow are all in neighborhoods that will likely require much more turnover and perhaps an undesirable tenant pool. Therefore I am in your same boat. Trust your numbers, but we may end up having to bite the bullet to get into the game unless we are willing to wait.

Cap rates are not as good as they used to be, that's for sure.  Raleigh was bid up first, then the surrounding towns.  You can find cheaper opportunities in Johnston County or Alamance County, but those are smaller areas with lower rents and can take a little longer to fill with good tenants.  The "higher" cap rates in Durham are on warzone streets right now, and anything in C and higher areas is priced much higher than even a year ago to the point where it's seldom worth it.


Please allow me to throw in my 2 cents.  You have to view it from a seller's perspective.  If you own a building in an A or B neighborhood and it's producing 8% - 12% CoCR almost trouble free, what would make you want to sell it?  Almost nothing.  There's no motivation to sell.

The market dictates the cap rates.  As you already have seen, higher cap rates come in crappier neighborhoods,, and that is true across the whole country.  There is no unicorn.  Kind of put things in perspective that everything in life has a price.  If you want higher yield, you'd have to take higher risk and earn that yield.  It doesn't come free.  

Let's look at an example. You're a value investor. You buy an under performing building for $1MM. You put $500k into rehab, and it's worth $2MM. You now have the option of doing a cash-out refinance at 75% LTV and takes out all of your initial investment. If the building is producing 10% CoCR after the cash-out refinance, would you sell it or would you keep it?

Since you got all of your money back, the CoCR is actually infinity.  Say if you get 10% ROE, that's $50k/year.  If you can rinse and repeat for 5 times, you're home free.  However, if someone comes along and offer you $2.5MM, would you sell it?  At $2.5MM price, your ROE is only 5%.  Well, not so fast.

Let throw in a curve ball and say your market appreciates at an average 5% annually like my market and history has shown that in the last 45 years.  That's $125k/year in appreciation for a $2.5MM asset that you only get 5% ROE, would you still sell it?  Just want to put things in perspective on why some of us west coasters are jumping all over a 6% cap rate. 

Sometimes, we're too short-sighted and only look at the yield now.  Just remember that a good player goes where the puck is while a great player goes where the puck will be.  

Good luck.

@Dawn Brenengen , thanks for that. Finally made it through the podcast (never thought there would be a downside to my new 10 minute commute!!), lots of helpful info there. May chat you up about Raleigh a bit if you don't mind...

@Matthew Hux , thanks for the thoughts and good luck in your searches. At this point I want to try to minimize headaches from tenants, so not ready to compromise much there. I'm starting to think on ways to find property before it hits MLS, it's not easy.

@Jordan T. , thanks. I agree on Durham, seems like the "trendy" places downtown and near 9th street get snapped up in seconds and at prices that would never work as rentals. And war zone is not my cup of tea...

@Minh Le , wow... you kind of blew up my brain there. Lots to chew on. Thanks for the insight, really appreciate all the thoughts. 

@Mark Stevenson Anytime...

I think @Minh Le nailed it.  Our area does not have the same cash flow numbers as Ohio and upstate NY.  However, we do have a much higher chance for appreciation.  It's still (likely) a good investment, just for different reasons.

I know this thread is a little old but it was EXACTLY what i've been looking for. I thought my math was wrong when i kept getting 6-7% cap rates. Good to know that it's the norm. But the potential is definitely there so i believe i'll continue to pursue this area to invest in. 

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