Defining a Deal in Raleigh, NC

13 Replies

Hey BP, 

I know that we talk about the 70% rule a lot when defining a "deal". However, every market is a bit different. 

I'm curious to see what experienced investors in the Raleigh / Research Triangle think about this. 

Inventory is low here in Raleigh and demand is high. From my understanding, we have seen appreciation in the last year in the double digits (350K+market). 

With that said, is this a time when buying at 80-85% ARV an opportunity?

I'd love to hear what you guys are thinking to compare notes with. 

*** I would also like to hear what Buy and Hold investors are thinking ***

Thanks everyone, 

@Justin Hackney  The 70% rule is tough in this area and I have found that most investors are definitely moving towards 80% or higher if it still makes sense. At the the end of the day if there is still money to be made, why not.

Are you wholesaling?

@Jeremy Ferguson

That was the feel I'm getting too. I have a buddy who sits on the city planning committee who is saying areas like Apex, Cary, and parts of Raleigh are already pre-priced 5-10 years out. 

And yes I am wholesaling/ flipping here in Raleigh. Are you rehabbing or holding right now? 

@Justin Hackney

@Jeremy Ferguson

For me, it's about return, the last time I had a 70% - repairs, it took 9 months to complete. 

If I had the ability to do a quicker return as Jeremy knows I will pull the trigger and be happy with the $ amount that makes sense for me at the moment.  If you are wholesaling in this market prepare for marginal returns if you want volume. If you are looking to get 20-25k per deal then I'm guessing if you are sending out 1,000 prices of mail a month you would see 2 a year depending on your skill level of negotiation. 

@Uriah D.

@Jeremy Ferguson

I see what you're saying. It's all about your business model.

Can any of you see the inventory levels rising any time soon? ( by soon I mean 1-3 years)

It seems that this past winter has kept the developed lots to a minimum coupled with influx of population.

What are some major changes/ developments happening now people should keep an eye on?

depends on a lot of things for the inventory. China collapses tomorrow? Inventory will probably go up! But buyers will be down.  With the amount of developing going on I imagine in the next 3-5 years there will be more inventory, but it will be mainly new construction causing the rise in available inventory, unless some economic unrest happens between now and then. 

Regarding "*** I would also like to hear what Buy and Hold investors are thinking ***"

This is the 'hold' cycle of the buy and hold.

Raleigh is definitely getting more expensive but it's still a good place to house hack and you can still find some reasonable duplex's and triplex's. There's not as many distressed properties as you'd see in some other markets so finding deals is definitely hard, but if you're flipping,  really drive for dollars and find those houses people aren't keeping up with

Originally posted by @Chris Martin :

Regarding "*** I would also like to hear what Buy and Hold investors are thinking ***"

This is the 'hold' cycle of the buy and hold.

Agreed. Few of the BP marketplace listings in our market are worth purchasing currently in my opinion. Auctions are getting tight, MLS - ha. Networking is the best bet in my opinion along with some form of marketing. Do your best, get properties under contract, list them on BP and Craigslist, etc and see what happens, if you do it right someone will buy, if you suck you'll find out quickly.

Because we haven't done any direct mail and have a hard time meeting great wholesalers, we've had a number of times we were scrambling because our investors had money available and we just couldn't find a deal quick enough. We've basically never followed the 70% rule.. But we did use it initially as a general reference to ground us from doing anything insane. J Scott's advice regarding making $10/ft profit was helpful because it accounts for the size of the house and the size of the remodel. I can't fathom paying investors and still meeting the 70% - repairs. We wouldn't have done a single deal yet if we were waiting for that. We've had a lot of luck with the MLS but that's getting harder and harder too. We use common sense with a little room to spare when we analyze our leads. It's worth mentioning that we are usually doing pretty large remodels, not lipstick jobs.

My guess is that people who are funding deals with their own money are more open to a deal like that because they don't have to be as tight on their numbers. Let's say for your example that the house needs $20k.... My simple quick analysis would be $260-$8k (approximate closing costs- we list flat fee MLS) $252k-$22k (rehab+holding costs)=$230

If we purchased at $188k (80% of $260k-repairs) and borrowed acquisition and rehab... and then paid 7% interest... we'd owe $222,500.

So $230-$222 = $8k.  I wouldn't even consider a house like that... Now if I wasn't paying interest and using all my own funds, that'd put the profit back around $22k.  I'd probably consider it if the house was around 1500ft and I was confident in my due diligence and rehab repairs.

For us, as we try to fund our deals entirely with private money,  our margins have to be pretty big to cover the risk of our lenders and ensure that we didn't go through the hassle to end up with a lame pay day...

I'm not sure if this was helpful or not.  I would suggest that you're really in tune with what ways your buyers are funding their deals so you know what kinds of deals appeal to what kinds of buyers.  Hope I didn't just state the obvious. :)

@Justin Hackney

What are some major changes/ developments happening now people should keep an eye on?

I'm excited to see the state sold the Dorothea Dix property.  ALL of my investment property and my personal residence is just south of downtown, so of course, I'm hoping the sale turns into a boon for the general area.   :)