Tennessee and the Carolinas

[Bree Long]

Hey all, I am a broker in CA and life circumstances brought me to Tennessee and North Carolina this year. I am looking for house hacks and multifamily and I'm having a really hard time wrapping my head around the fact that nearly all of the properties I am looking at were sold in or around 2021 for 100% less than what they are being listed for today (i.e. it was sold for $150k in 2021 and now it's listed at $300k in just 24 months time). I know it's been a wild few years, but in my experience, this type of astronomical appreciation in 24-36 months just does not stick, and so many of these properties are counting on inflated short-term rental lease income to make them cash flow. I fear the short term lease market may be shifting as well.  I know we are low on inventory, but I fear a reset coming next year.... what is the general sentiment for others looking in these hot areas that have been a draw for California investors like myself? It's easy to get starry eyed when comparing to CA prices, but the data just seems way out of whack to me.... would love some feedback from anyone doing deals in TN or the Carolinas... thanks!

[Pat Lulewicz]

A lot of OOS investors, who recognize investment property as a passive play and retirement vehicle (important distinction), not a vehicle to replace their current job or income level, are not banking off appreciation. Yes - it is incorporated in their underwriting but that's moreso on a market level than a property level. They choose Raleigh, Charlotte, etc (in NC) because it isn't going anywhere. We aren't going through an oil boom and they'll be left with a vacant house in a decade. People will need to rent and their investment property will stay rented. If you are holding for 10-30+ years, why is a "reset coming next year" something that would push you away from real estate investing in either state? You won't need to monetize that home for over a decade, or more.

As far as rentals, CoC, etc, etc....remember that equity paydown and tax benefits are paramount to investing and can usually have as much of an impact on your financial position as the cash flow. They just aren't sexy and talked about. In addition, that appreciation you've referenced has also significantly elevated rental rates and we have not reversed from that mark yet. Continued growth and appreciation of home values will continue to keep rental rates healthy. My perspective: if you cash flow now (current rent and current int rate), you will cash flow in the future (lower rates - hopefully - and higher rent rates).

The standard argument is 5% in a money market. Sure...less after interest tax on your 1040...You also can't shelter it from taxes with depreciation. That number probably won't last for the next decade so you'll be back to square 1 in a few years when that RoR goes back down to 1%-2%. + Equity paydown. Its the trade off of short-term trickle of returns vs long-term cumulative, dependable benefits.