My Out-of-State Search: 5b - Charlotte

Charlotte is a bit of a boring market. It rarely makes national media for anything. It is not really known for much and doesn’t have much of a reputation at all. The real estate market doesn’t make “hot” lists or the buy-now lists, or anything like that. So, when I started my search, Charlotte was not really on my radar.

But that’s why you do a search.

*My background (when I wrote this):
*I’ve been following Charlotte for about 3 months.
*I’ve probably looked at 800 MLS listings.
*I’ve probably done 80 pro formas
*I’ve probably spent another 30 hours trying to learn about the city.

Here’s my take:

Size. The size of Charlotte seems very good… it is big enough to have most of the upside and stability of most big cities, but small enough that the entire city can be managed by a single RE agent/team. It bleeds over into another state slightly, but that’s probably 5% of the city.

Climate. The summers are a bit muggy, but are manageable for most of the year. Relatively close to both the beach (~3 hours) or mountains (~3 hours). All told, pretty good.

Economy: Pretty dang good! Charlotte is a big player in the financial industry, which is good for many reasons such as stability, growth, influx of money to the city and high income potential. And while I don’t expect Charlotte to compete with NY as the financial capital of anything, the low cost of living and small-city feel will likely offer a viable alternative to some financial organizations. Note that between my first and current draft of this post, big mortgage companies have done some layoffs in Charlotte.

Pro Formas. Taxes and vacancy are both on the higher side, but it’s not hard to find properties in my criteria that pencil out at 10%+.
Property Management. Reasonable and adequately professional. It looks like the average rate is about what I expect (8% + ½ mo lease fee, + $100-200 renewal). I’ve spoken with 1-2 providers and both seemed adequately competent. There are also some recommendations listed on BP that I haven’t checked out yet.

House Reviews. Charlotte feels largely suburban, and has pretty nice houses on pretty nice lots. At the <125K price point, it’s not hard to find a big/new house (>1800 square feet, or > 3 beds, >2000), but as expected, the bulk of these are centralized around a dozen areas. This is a benefit, because it means that doing additional due diligence on these areas would be very beneficial in determining the feasibility of multiple houses listed within that market.

Hedge Funds. Institutional investors play a sizable role in Charlotte, though less so than the Atlantas or Floridas of the world. This also looks to be primarily done in pre-market properties. Individual investors are active in Charlotte, though I’ve actually found that Charlotte has far fewer investors on the MLS than I expected.

New Construction. There is some new construction coming in at this price point, which boggles my mind... This is somewhat concerning as it means that a nice 10-year old house may not be significantly below replacement cost. With that said, I’ll admit that I’ve never worked in, near, or on new construction – so this is a new thing for me.

Rental Market Review. The vacancy rate looks a bit high in Charlotte, at around 7%-8%. Charlotte has historically had vacancy rates around these levels, so I’m slightly concerned about a supply/demand issue due to the recent investor activities.

Housing Market History. My read is that the Charlotte saw large growth since 1990, and built a lot in the 1990 – 2007 range to accommodate this growth. This means that there are a lot of homes that meet my criteria.

Housing Market Review. In a word: healthy. Charlotte has shown good price increases, has a modest amount of distressed inventory, and is seeing good activity. Additionally, median income data suggests that the market can sustain this growth for some time. If I wanted to describe the market in two words, they would be: healthy and diverse. Finding a market that is healthy but still has newer, move-in ready properties on land for 60K, listed on the MLS is rare, and I can’t understate the importance of this!

Overview

I do not use the word lightly, but Charlotte feels like a good option. It’s a healthy real estate market, has plenty of room for growth, plenty of money to be made today, and only a modest amount of risk associate with potential rental over-supply. There is adequate supply of properties around my criteria and can be had at a modest entry-price-point.

With that said, this market doesn’t feel like a homerun. The houses in my price point are functional, but not lavish. And while I expect the market to increase, I don’t expect for it to double in the next 3 years. There is also some minor risk regarding vacancy rates.

In short. I choose Charlotte!