All Forum Posts by: Account Closed

Hey everyone! I wanted to address some questions that I get a lot from out-of-state investors, as someone who was involved in commercial and residential real estate in Southern Californian (San Diego to be exact) and relocated to Charlotte, NC.

I want to purchase smaller multi-family (4-15) and SFR (2-4) deals in Charlotte. Where do I look?

• You will have a hard time finding a deal that underwrites generously and meets many primary fundamental investment criteria for a few main reasons. I list below why this market is still geared towards large-scale mixed-use projects and SFR's and gives you some pointers on what is going on in the local market.

Geography!

• Geography is something that no one can change! The CLT market is mostly flat woodland broken up by Lake Normand and the Catawba river that can easily be turned into housing or commercial properties while still being within a reasonable CLT Metro radius. In San Diego, you have the border to the south, Camp Pendleton to north, the ocean to the west, and mountains to the east. Not a lot of room to support more SFR's or smaller-scale housing in general, and regulations restrict newer large-scale construction that would be needed to counter the housing demand.

Population density!

• There is no considerable market demand for smaller multi-family units here because the city is still in the early stages of what you see happen to other metros as they increase in size. Commute time is reasonable, and the rental market does not support the high rents and cost of construction that you would see in a market with a limited housing supply. Why would a tenant pay $1,200 a month for 950 sqft in a duplex when they could pay about the same for a 1200-1500 sqft house and make the 15–25-minute commute? They can also pay about the same to be in a large-scale multi-family with amenities that the smaller multi-family properties can’t compete with. As the population grows and rental rates rise this will change long term but for now it is what it is.

Cost of living!

• Well, as you can expect, compared to Southern CA it's is a much more affordable market that many first-time home buyers, investors, businesses, or families are choosing to make their home. San Diego's median home price is almost 700k, has higher property and sales tax, which drives the overall costs of basic needs up. A lot more people are stuck renting and not building equity and dream of buying a home outside the metro a few years from now and calling it a win. New construction homes in the CLT market over here go for a median of 295k! With low-interest rates along with FHA and other loan products making it easy for first-time homebuyers, why would you rent?

• As far as multi-family goes, you see large scale projects around 40 units and up with mixed-use zoning. The city has been cautious and learning some lessons from other metros in their expansions and are currently working on completing a large scale trolly system to help alleviate the current transportation network.

So what should I look for here!

Well, I would say SFR'S (BRRR'S, Short Term Rentals, Flips, etc) or larger multi-family deals! You will find strong appreciation and cash flow opportunities here with similar gains you would see in West Coast markets. The only difference is the bottom dollar! Percentages are the same, but the return is different because you get more from the 700k investment than the 250k. But I could have more units with the same long-term appreciation and better cashflow that will end up longer-term, providing more of a return than one unit.

One of the main reasons I relocated was this! I loved the CA lifestyle, but I would never be able to acquire the number of units and properties I had in mind as a local investor and leverage my knowledge to the utmost. The barrier to entry is more significant in CA than in the CLT market, making it a prime location for out of state and first-time investors to get into the REI game.

I also wanted to be what I encountered in the San Diego Marketplace every single day! I bought this 20- 40 years ago when nobody wanted to live in this X area, and the city wasn’t as big. It is worth 8x times what I purchased; I own it free and clear and pocket my monthly cash flow and go to the beach.

Also, it goes without saying the taxes, regulations, and property owner rights are entirely different and very business-friendly compared to what you see in CA.

Please feel free to DM me if you have any questions!

Have you ever considered the CLT market?

 It has a major airport, lots of sports/activities, drivable to a beach or mountain on a Friday afternoon, strong rental and real estate market. The city itself is very nice, with lots of options for outdoor activities, restaurants, shopping, etc. There's a diverse economy with banking, manufacturing, healthcare, tech, real estate, along with other industries, which means the local economy is more robust than what you would find in other parts of the country.

CLT has had constant population growth for quite a while, which means continual demand growth for housing. Within the city limits has some pretty expensive (and increasingly so) areas, some pockets of the town and the suburbs (Concord, Huntersville, Belmont, etc) are far more affordable and offer better long term rental ROI. Within the city, you will find strong appreciation and solid ROIs for flips/new-builds and short-term rentals. Overall, we are experiencing appreciation from 10% to 16% year over year (depending on location).

I can help if you have any CLT-specific questions, feel free to DM me. I can help with any questions you might have about the market as I have investment experience with everything from large multifamily portfolios (250 units) to SFR'S with first time investors in NC and San Diego.

I have a connection at the Five Pillars team over in Fayetteville! They have been featured on BP podcasts before and work a lot with investors in the area across multiple types of investments (SFR's - multifamily). I just sent you a DM

The CLT area does not have the population density to make the building of smaller multifamily worth it for builders or investors. I am originally from San Diego and was a Multifamily broker along with being an ops manager for a management company that specialized in large SFR & Multifamily investment portfolios. We had restrictions with the amount of space and density in the metro that made smaller multifamily properties extremely profitable to build in the 80's and there is a ton of properties being bought a sold on the market. With good commute times and no geologically restrictive features along with great business opportunities throughout the county, this won't happen for a while in the CLT market. We are on track but right now deal flow the smaller multifamily props is sub-par and finding a deal is very hard. Most investors in the market go for brrrr's, flips, turnkey, or value add. In the upper price point, short-term rentals can be found that have a strong appreciation and cash flow.

You do have more options for owner-occupied if you are okay with getting creative such as splitting the property, adding an adu, or fixing up the unfinished basement along with a side entrance and renting out the bottom portion. 

Hey! I know a turn key provider here in NC. I just sent you a message. 

It depends on where you are in life and what your investment strategy is. I have had clients who owned 250 units free and clear and never sold a property. These were all owned for at least 25 years and after being paid off the cashflow was significant and all the properties were located in Southern CA so the appreciation was out of this world. They did leverage in the beginning but for larger multifamily, they will give loans based on the down payment amount building performance, not your personal income. 

If you look at what happened in previous cycles sometimes having too much financing can hurt your properties if you don't have any equity and if you over-leveraged. I also know people who had to start from square one after the values plummeted and the renters stopped paying. 

I personally would not be looking at owning a property free and clear unless it has a high enough return with long term appreciation prospects that I could 1031 exchange into another market for more cash flow. This would be a buy and hold for two cycles where the property would have enough room in the NOI to cover all reoccurring expenses along with a larger reserve for repairs with the occasional quarterly payout to myself if possible.

You do lose some tax benefits but you also have complete ownership of the property (which mean no one can make you do anything!) and can easily leverage the equity you built up for a larger 1031 exchange down the line. Also, you can use seller financing to the hilt when you are older and don't want to deal with a property but still have passive income from the interest. Worst case they don't pay! You go to court get the property back and resell without the financing or keep it. 

If you go the free and clear route. I would bill back all the expenses to the tenants RUBS is the best thing ever. 

I would be happy to help! I just sent you a message. 

Hi!

I have experienced this previously with a multifamily property. My question is how much do you want to work in order to pull off this deal?

If this is among the worst properties on the street that’s great as you can bring it up to the average of the area and it would be a great rental. Another major question is what did they do to get a renter in their and how is the neighbor? If someone is paying 50% market rent something is up (bad credit, previous evictions, etc) low market rent and high security deposits are red flags for me. Also, what is going on the with the neighbor? If they are close to the property as the lot size is small that could hurt the rental as you can’t do much about loud/aggressive neighbors who chase out any renters.

• As far as the offer I would have all the rehab cost in place and during negotiations with the seller give them a vague idea of your price and why (don’t get into exact expenses). Everyone should understand with the property being in the condition stated and as this seems to be an investment property they can relate. I would start 30k under asking give or take on the cost of reno.

• Try to find out if the property is free and clear or if the owner does have loans on it. If it is free and clear with a stubborn owner then I don’t see you having a lot of leverage if they refuse to upgrade the property further or change anything to make it completive the with local market. I would opt to rehab the property unless you have the space/zoning requirements to add an additional unit. Most of the time it would be better to just rehab for renters as it is an up-and-coming area and push the rental rate as high a possible. Kitchen reno/appliances, bathroom, new interior/ exterior paint, remove any fallen/dead trees next to the house and light landscaping to bring up curb appeal and your set.

• I would not follow a deal for that long and would spend time going after other properties unless its something that would be a long and short-term home run. Plenty transactions happen everyday in large metro areas and other deals can be found.

Happy to further discuss this market as I live and actively help investors in the NC markets.

Brandon Despras

Real Estate Advisor

I would have them under one LLC as there are additional monetary costs to having multiple LLC'S that don't offer a ton of benefit for just a single property. One for each state if you are planning to acquire multiple properties. After you acquire more than 5 I would look at having another

LLC'S don't offer a ton of protection if you on self-managing the property or interacting directly with the tenants.

You should talk to an attorney and accountant as each state is different and they can give you a better idea of what fits your needs and goals of your investments and portfolio. 

Welcome! North Carolina is a great place for real estate! Not sure how the meetup or investor groups are in that area but where I am in Charlotte NC there is a ton of individuals that are looking to work together and starting out. 

What books have you read?

BP is the place to go to start being educated, but do you have a property manager for your rental? 

If you do they are a good source to find out costs and what your local market supports rental-wise and the challenges you will face.