North Carolina - Multifamily 6.5+ Cap

[Allen Motakef]

Hi All,

I’m from Southern Californian and have been researching rent affordability & economic growth stats nationwide and Raleigh / Research Triangle area seems the best market since rents are still relatively affordable and local economy is growing faster than national average. Even though my primary objective is cash-flow, I also like to be in a desirable area (like Raleigh) with long term growth potential.

I’ve talked to several brokers to get a feel for the market and have been told that the cap rates are under 5.5% which is too low for out of state investing. Do you think it’s possible to get 6.5+ in this area for a B/C type multifamily property (20-50 unit)? Charlotte is also a possibility but seems to be less affordable. Any tips from local experts? Any recommending brokers? 

[Chris Martin]

Originally posted by @Curtis Mears:

Originally posted by @Henri Meli:

@Curtis Mears . Have you also been purchasing 4+ units? I have always wondered why the Triangle area has so few apartment buildings compared to for example Florida or even South Carolina. 

No, I have only purchase SFH. Multi units are not very prevalent in the Raleigh area, at least in areas I want to own property. You mention the lack of apartment complexes in Raleigh, but this is changing. If you drive around Raleigh, you only see large apartment complexes being built. I would say 85% (this is only my observation) if not more of new builds around Raleigh are larger apartment complexes.

Fact #1:
Residential New Construction in Raleigh for 2016, based on Dollar Value listed on Building Permits was $422,096,751 on 1,433 properties, or $294,544 per property. For 2017, the Dollar Value listed on Building Permits was $397,651,747 on 1,354 properties, or $293,687 per property.

Fact #2:
As of January 1, 2016, Wake county had 108,638 Multi-Family Residential units and Raleigh had 72,780 of them. Multi-Family Residential as of January 1, 2017 for Wake county is 110,896 units, and Raleigh has 74,807 of them.

Fact #3:
Of the 307,352 Single Family Residential properties in Wake county as of January 1, 2018, 119,518 were in Raleigh. For 1/1/17, Raleigh had 118,224 SFR of the 300,816 total in Wake county, and for 1/1/16 Raleigh had 117,035 SFR of the 294,594 total in Wake county. For 1/1/17 there were, in Raleigh, 74,807 MFR and 118,224 SFR. So MFR is 38.6% (74,807/193,031) of housing (by unit count) in Raleigh. There are plenty of apartment buildings and the . 

Conclusion
By unit count, the delta for MFR 2016 vs. 2017 increased 2,258 units and for SFR in the same time period increased 1,189 units. So, 65% of new unit count construction was MFR in 2016. 65%, not 85%, is the correct answer. There were 1,294 new SFR in 2017 but MFR data hasn't been released yet. Based on Dollar Value, I expect MFR to be about 65% of new unit count construction for 2017.

Sidebar:  Many apartment sales never make it to (gasp!) MLS or LoopNet. Our 98 unit sale in Raleigh last year wasn't on either site yet the brokers had no problem finding national and international interest. If people in BP Nation are going after anything over 16 units, IMO, you should be talking to a good apartment broker. This is true for Cap Rates and current and upcoming inventory. I suggest that serious buyers get vetted and be prepared. 
http://www.wakegov.com/tax/statistics/SingleFamily...
http://www.wakegov.com/tax/statistics/SingleFamily...
http://www.wakegov.com/tax/statistics/SingleFamily...
http://www.wakegov.com/tax/statistics/MultiFamily%...
http://www.wakegov.com/tax/statistics/MultiFamily%...