Raleigh-Durham home+rent appreciation continued growth or stagnating?

Question

Hi all,

New to BP and been drinking from a firehose--podcasts, books, consistent conversation with local realtor helping to find a property (connected before finding BP). I have family in Raleigh, wife and I can't afford where we live in LA, CA so we're looking for an investment property elsewhere to get into some RE while we keep renting in CA, and Raleigh has that familial connection--who knows, maybe we'll move there but assuming we won't for this decision. I've read quite a bit about the Raleigh Durham area RE market blowing up because of all the corporations that continue plans to move/grow there; the eye catching announcement a while ago being Apple with their 10 year plan of adding a few hundred more employees each year. I also heard from a home consultant on a new project out there that they're planning to build about 5,000 new homes, though he didn't know how long that's going to take. Assuming that 5k new home is accurate and say it takes...10 year(?), my question is do you think an SF home located about 20 minutes from the RTP / RDU area appreciation will continue at a typical annualized 3% pace, and do you think rent will continue to increase OR do you think the influx of housing over time will keep home prices flat, and rent flat with it? Do you think the answer to either of these fronts changes if the home is a rehab vs brand new construction?

Thanks!

Chris Martin · Answer

Wake County has statistical information available on their Data Files, Statistics and Reports page. As of 1/1/2023, Raleigh, with 125,421 single family residential units, had 37% of the Wake County total of 342,580. There were 9,253 single family Wake County houses added in 2022, so would expect about that number for 2023 as well. Price wise, houses in the area mostly follow (roughly) national inflation rates. A notable exception is the rapid appreciation in the last few years, summarized in the chart below. The blue line is inflation, red line is the Raleigh house price index.

Cory J Thornton · Answer

@Andrew Frank -

You have already received a ton of great feedback. I'll try to take a bigger picture approach to an answer.

Due to the economic development trends and business friendly policies within NC we here in Raleigh are set up for better probability of success than most markets in the country.

As investors we don't pick guarantees, we assign probabilities, allocate on conviction and then manage downside risk where possible.

What is the long term trend of appreciation in Raleigh? ... I have no clue. Does Raleigh have a set of economic trends that illustrate Raleigh as a place to continue to outperform most other markets in the country? Absolutely.

You mentioned apple ... There is also VinFast, WolfSpeed, the Toyota Battery Plant, ... large pharmaceutical companies, manufacturers, energy producers, and a diverse cross section of other industries who are moving to or expanding within an hour of Raleigh. If you want to get an idea of all that is happening in our market I would highly recommend subscribing to the Triangle Business Journal.

NC has been voted the most business friendly state for the last two years. Part of that is the incentives our state offers to new business, part of that is a business friendly general assembly a regulatory environment, and part of that is our low corporate income tax rate. In the Raleigh Durham area we also have a strong university system that employers can draw from to support their employment needs.

I don't know what the ten year appreciation rate will be, but I'm betting it will be insulated against any negative macro trends and positioned to outperform other markets, over the long term.

Best of luck on your learning and investing journey!

Alyson Gordon · Answer

Of course we can't predict the future but based on everything happening it seems we will have at least as good appreciation as the rest of the country and possibly more than average. Since it wouldn't be a primary residence, what would your goal be for buying a property? Long term rental, short term rental? Corporate housing? I think that Raleigh could be a great market depending on your goals. I think the clearer you are on that the easier it will be to make a decision. Id imagine you want to at minimum break even if not have some healthy cash flow while you buy and hold. LTR is going to be harder to do that here right now since home prices continue to climb but it is possible. I think that a mid-term/corporate housing opportunity is the current sweet spot for investing in the Triangle.

Good luck! :)

Mitch Miller · Answer

@Andrew Frank I would just throw my two cents into this conversation.  First dont take everything people say as gospel, There is a good chance what your consultant told you is not 100% true.

I'd like to offer my perspective on this discussion. First, it's crucial not to accept everything you hear as absolute truth. There's a good chance that the information from your consultant might not be entirely accurate.

V.G Jason · Answer

Rent appreciation has definitely stagnated. Home appreciation has been still quite solid.

Most of the rents went up barely, if not just trended flat. I have had or will have about 9 renewals; 4 of which have been done with very light increases, 2 remained flat, and 1 was a 2 year lease that we increased year 2 kept year 1 the same. The other 2 aren't until later this year.

Raleigh or the entire RTP area, is really behind on the the actual RTP(rent to price). Makes it not investor friendly, but there's too many other great things about the city to ignore.

I think theappreciation will be higher than 2014-2019, but obviously nowhere near 2020-2022. Think home appreciation in the 3-7% is about right, rent appreciation half of that. BTRs are strong in the area, but I think if I remember correctly post 2026 there is a cliff like fall so I think expecting flat to barely 3% rent appreciation until 2027 is about right.

Lynn McGeein · Answer

Just wanted to add that Raleigh rents have increased so rapidly over the last 3-5 years that I don't see that continuing unless wages rise significantly.  We're assuming we'll remain at or near existing rents for the next few years, and planning on it if our current tenants stay.  Our last vacancy actually took weeks longer to rent out than expected, but it was late summer/fall and it was advertised significantly higher than previous long-term tenant had been paying.

Andrew Frank · Answer

@Chris Martin thank you for the reference and approximate association to national rates. I'll poke through the data and find Durham county's as well. While that's all of Wake county, my concern would be if the 5k new homes this gentlemen stated are concentrated where I'm looking. Maybe it's a bit more LA mentality, but I don't see someone from Garner to east and up to Wake Forest stomaching a 45 minute one way daily commute to where the higher income in-office jobs are located, which I'm leaning into for greater likelihood to afford rent now and increases later. I can review the annual housing growth from 21-22 and 22-23 in a select few cities to see what I'll find.

@Lynn McGeein Thank you for the insight. If you don't mind providing some data for me to reference I'd appreciate it, but understand if you want to keep some or all personal--namely I'd be interested in approximate location, bd/ba count of your property and the rent % increase (or if you're comfortable sharing actual prices) implemented between your last tenant and current one. The location and price point you had a longer vacancy for would be a good cap for me to consider as we continue hearing inflation is continuing to creep up and that's squeezing everyone, which is, to your point, likely going to keep rent relatively flat for a few years.

Alyson Gordon · Answer

Hey Andrew - this podcast does a much better job than I could! if you find it interesting let me know and I'd be happy to share more about my experience with this model.

Kimberley Smith · Answer

Wow so many great thoughts on this post its like drinking from the firehose again haha. @Alyson Gordon Great point on digging deeper on what you're looking for. All in all you can't get stuck in analysis paralysis. Visit your family, drive around, get a feel for the area and you'll know.

Tanner Miller · Answer

Andrew,

Man so much good knowledge has been dropped on this topic already so there isn't much to add other than its all on your personal experience level as well as your willingness to take risk. Has the boom in Raleigh already happened and you're behind the curve? Possibly leaning more towards probably. I have seen an immense number of investors coming in to buy properties which has IMO oversaturated many parts of Raleigh's rental market. With the rapid variance of interest rates in the past three years, you're going to have a difficult time buying a property in a semi-traditional manner which can compete with those who are sitting at 3% rates and still cash flow.

Do I believe the market is going to correct, yes eventually but it will be several years and It will be a slow change. I think that market is going to be a stable increase as well, but not at the rates I think a lot of people expect.

I grew up in South LA, Long Beach to be exact, and know exactly what you're talking about. My brother just bought a house for 1.3M that made my job hit the floor. Raleigh is a great area to invest IMO and if you have connections here and think you may want to come to visit, I would consider more of MTR. If you are needing some more boots on the ground conversations about it HMU! Best of luck brother!

Raleigh-Durham home+rent appreciation continued growth or stagnating?

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