All Forum Posts by: Josh Stack

Hey Everyone,

There has been some good discussion about Gastonia lately, particularly in this thread started by @Johnny Szeto. While there has been some excellent discussion and some anecdotal evidence shared by @Tyler Watts, @Ruben Guerrero and @Brian Orr amongst others.

To get some more facts on the table, I thought I'd take a deep dive and make an analysis of Gastonia using the method outlined by @Brandon Hall  in this seminal blog post on how to analyze a city for underlying economic and demographic fundamentals.

You'll want to download the reference documents and have them handy as we walk through this. I will primarily reference the 2016 report. I will reference the page numbers of the PDF document, not the page numbers printed on the report itself. They differ. Additionally, the methodology for the analysis will be chronological as laid out in the "Hall Method" defined in the blog post.

Gastonia CAFR 2015 (year ending June 30, 2015)

Gastonia CAFR 2016 (year ending June 30, 2016)

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Introduction

• Population Growth
  • Page 62 - "The current population growth has been fairly stagnant. The current year estimated population per the United States Bureau of the Census is 73,698. This estimate is up by 1,957 from the 2010 Census number of 71,741."
  • It is notable how the population increased 2007-2010 as the employment rate began to climb only to drop in 2011 and then start to slowly rebound in connection with a sustained reduction in unemployment.
• Economic Growth
  • Page 17 - Oddly, the report makes no attempt to discuss or forecast economic growth in Gastonia, rather they discuss economic growth in NC more generally.  This cannot be interpreted as a good sign.
  • Page 24 - it is only noted that "Gastonia has experienced some return of positive economic growth".
  • The Chamber of Commerce is having a speaker on 1 Nov 2017 to give an economic outlook for the area.  If anyone can attend and report back, that would be awesome.
  • Page 15 - The COMMERCE, INDUSTRY and ECONOMIC OUTLOOK section however lays out a number of things that are going in the city's favor economically though.  Some choice excerpts:
    • The City’s economy has benefited from its location within a major population center, its proximity to Charlotte, access to major interstate highways and Charlotte-Douglas International Airport. For many years, the primary industry in the City was textiles. However, the continuing national trend of companies relocating manufacturing facilities outside the United States has resulted in significant losses of jobs and investments in the textile industry. Over the past decade, the City’s economy has diversified its commercial and industrial base through a variety of industry, trade and tourism sectors, while the significance of the textile industry has declined. 

      --

      Gastonia has proven to be a hot economic market in 2016. Loray Mill opened Phase I of their project with over $22 million invested. Loray is boasting a 100% occupancy rate for its residential units and is most closely compared to Charlotte’s successful South End. Loray is now home to the Loray Athletic Club and Growler Pub. 

      --

      The most notable project is Gastonia’s new Franklin Urban Sports & Entertainment (FUSE) district. This visionary project is located in the former Trenton Mill neighborhood and will serve as a catalyst for redevelopment. The FUSE district will be anchored by a new multi-sport and entertainment venue that will be home to the Gastonia Grizzlies baseball team. Gastonia is in the property acquisition phase currently and will begin design in 2017. 
      

      --

      Gastonia Technology Park (GTP), the area’s premier business park, has transformed into a center for international businesses. The Gastonia Technology Park is full, with all available land purchased and planned for development. 
      

      -- 

      CaroMont Health, Inc., the parent corporation for a multi-state, integrated health care system consisting of CaroMont Regional Medical Center (the “Hospital”), physician office practices, imaging centers, outpatient centers, an ambulatory surgery center, a nursing home, occupational medicine, and hospice, maintains its principal offices in the City. The health system’s service area includes Gaston, Cleveland and Lincoln Counties in North Carolina and York County in South Carolina. 
      

      --

      The downtown area of the City is undergoing notable revitalization... A $10 million, 29,506 sq. ft., LEED-certified conference center with attached parking deck has become the centerpiece of downtown redevelopment.
      

      --

      A developing arts district is also spurring development with a $7.9 million “live-work” ArtSpace development presently in the planning stage, an artists’ center of studios and galleries located in a 30,000 sq. ft., City- owned building, a new artists supply store, and numerous private studios and galleries nearby.

      -- 

      The City and surrounding areas have been defined as a metropolitan-dominated region, with Charlotte serving as the central economic engine and employment center. Within this context, the City and Gaston County are fast becoming what economists refer to as a “regional retail center.” 
      

      --

      The grocery sector has been nothing short of explosive. Two new high-end grocery stores opened in 2016. Publix occupied an existing grocery store space bringing a $4 million remodel investment. Harris Teeter returned to the Gastonia market with a $7 million new shopping complex. Additionally, Lidl and WOW supermarkets have entered the Gastonia market. 
      

      --

  • The report also mentions "economic development" throughout the report and this is clearly it is a focus of the city leadership.  Whether they can execute on this focus area is up for us to judge with our wallets and investment dollars.
• Unemployment
  • Page 16 - Unemployment in the City was 5.5%, higher than the County rate of 5.3%, and higher than the State rate of 4.9% and the national average of 4.9% at fiscal year-end June 2016. Unemployment in the City was 5.5% as of August 2016. The prior year rates for the City were 6.7% and 6.4% for the months ending June 2015 and August 2015, respectively. These rates are not seasonally adjusted.
  • Page 63 - “By December of 2017, the North Carolina unemployment rate is expected to be around 4.2 percent.” 
• Diversity of Industry
  • Page 255 - Principle Employers.  The top ten list of employers in the city is a good mix of healthcare, govertment (Schools, County and City) as well as retail (Walmart), and industry (Freightlier, FKA Six Filtration, American and Efird, Pharr Yarns) and food packaging (Dole).  The city is still fairly dependent on industry, even if it has diversified since the days of being a mill town.
  • Another data set on Gastonia's employment by industry from datausa.io
• Higher Education
  • The CAFR does not mention higher education but the city does have two colleges nearby
    • Gaston College - 5,582 enrollment
    • Belmont Abbey College - 1,495 enrollment

Financial Analysis (This is not a strength of mine so if you have any insights, please comment)

• Schedule of Revenue, Expenditures and Changes - Page 149
  • The city took in 29 million in Ad Valorem Taxes which year over year was down slightly and as we will see later is heavily dependent on property taxes
  • 8 million USD spent on General Government; up 800k YoY
  • 28 million spent on Public Safety; up 1.5 million YoY
  • 5.5 million spent on Public Works; flat YoY
  • 5.5 million spent on Culture &Recreation; up 100k YoY
  • Page 155 - almost 400k is spent on "Economic Development" more than 50% of that being allocated to other funds but otherwise it is hard to see where Gastonia is actually spending money to foster economic development and growth.  I suppose this would show up elsewhere in specific initiatives or investments being made in infrastructure or tax benefits offered to companies.

Statistical Analysis

• Property Taxes - Page 244
  • 26.6 million in Property Tax revenue in 2016 which is about 62% of overall tax revenue.
  • Property taxes are down since a peak in 2014.  I am not sure why.  
    • If you reference the property tax revenue for 2014 in both the 2015 and 2016 report there are different figures.  
    • Research indicates that the property values were reassessed in 2015 and property values were deemed to have declined by 2%.  Property taxes were to be re-evaluated that year but I have not found if they were changed or remained the same.  This could account for the reduction in property tax revenue since 2014.
  • The franchise tax which accounted for up to 3.7 million USD in revenue since 2007 and was all but eliminated by 2016 has been made up for with a new Utility Sales Tax which is higher in revenue (4.8 million in 2016)
  • Sales tax has also been growing since 2014 maybe giving some underlying positive indications on the economy?  I can't find that tax rates have changed much except for a new sales tax on some services in 2016. 
  • It is worth noting that tax revenues overall are healthy (42.5 million total) and near the peak for the 10 year reported 2007-2016.
• Top Property Taxpayers - Page 247
  • This list has changed significantly in the last decade with 4 of the top ten dropping off the list from 2017-2016.
  • The highest taxpayer is Daimler Trucks North America but they only account for 1.31% of total assessed value in the city.
  • The top ten list has a good mix of industry, utilities, real estate investment firms and retail.  
  • It is worth noting however though that the top three account for 3% of tax revenues and all are manufacturing based taxpayers.
• Demographic and Economic stats
  • Unemployment - already covered above, trending down since 2009 but still above state averages.  Newest data available, as pointed out by @chris martin shows Gastonia unemployment to be 4.6%
  • Page 254 - Per Capita Income - Significantly down since 2007/2008 when it took a big hit and unemployment nearly tripled.  It has been growing since 2014, with the newest data available being 2015.
  • Median Age - 37 which is below the state average but I have not found historical data.  Not referenced in the CAFR
  • Population Growth - Flat or slightly growing as noted above.
  • Page 255 - Top 10 Employers - As noted above, a good mix of govt, retail and industry though manufacturing is highly represented and thus the city is dependent on these jobs.

Here are some random articles that support the case above one way or another (others have already posted some of these links, thing of this as a wrap up:

http://www.gastongazette.com/opinion/20160327/gast...

http://www.gastongazette.com/20141220/study-one-pa...

http://gastonchamber.chambermaster.com/events/deta...

https://www.charlotteagenda.com/85324/states-faste...

http://www.charlottestories.com/gastonia-just-rank...

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All in all, it's hard to paint a super compelling picture of Gastonia as a market with strong economic fundamentals to be a awesome buy and hold rental market.  That said, my feeling is based on things that are happening (as leading indicators) and the promise of what's possible - along with a path of progress march west from Charlotte, I'm still bullish on Gastonia.  

Maybe the case outlined above though will make you think otherwise and leave more affordable houses for me to snap up.

- Kind regards,

Josh.

** Deleted post**

Accidentally hit post, still working on a draft and will post later!

Morning @Lionel Li,

That's a completely fair way to look at it.  I do agree that O&A costs are not linear, spreading costs over one house vs five vs ten is going to give very different overhead/month/house figures.  I am simply pointing out that it's something I don't see considered in anyone's analysis but is a real cost that has to be taken into account and managed at some point.

If O&A costs aren't considered, then we are fooling ourselves that our investments are performing better than they are in reality.

Hey @Lionel Li and @Jimmy Murray,

Thanks for sharing your data points, it's really helpful to see what others are doing and compare notes.

From my previous life, I calculated time charters for ships and the calculations we were making are basically the exact same (in principle, not specifics) that we are making for our rental properties.  

One thing we always included in our shipping calculations is Overhead and Administration. I don't see anyone including overhead - either their own time or other 'running the business' costs they have and allocating them to their rentals, nor do I see others allocating administration - for example costs of attorneys, CPAs, bookkeepers and upkeep of LLC holding companies to their rentals.

Am I missing something or are we just ignoring these expenses and not figuring them into our calculations.  They are of course direct costs from our buy and hold businesses, just spread out over multiple properties instead of the one we are calculating at any given time.

Afternoon, 

I'm doing some background research on how to calculate my expenses when running financial models for deals. I have typically been using 5% Vacancy, 10% R&M, 10% Capex and 10% Property Management as my starting point but in many cases this feels a bit like it's being too conservative on the R&M and Capex side. For insurance and property taxes I'm using actuals and all these costs added up are getting me pretty close to the 50% line for operations expenses. Depending on the condition of the house, I sometimes lower the R&M or Capex lines to 5% but this starts to feel a bit risky - am I just juicing my numbers and kidding myself?

How is everyone accounting for additional Property Management costs that may fall outside their 10% fee - for example tenant turns and other fees they may charge.  I don't see these build into the calculations.

Where are costs for tenant turns being factored in to your figures when they are doing above and beyond the deposit that you can keep?  Is that figuring into R&M?

Great info, thanks Ruben. 

Hey @Cassandre Dunbar,

I have a not tried the following services myself since I haven't had a need but I do expect to try them when the right situation comes up.

Check out Home Advisor (https://www.homeadvisor.com) and Thumbtack (https://www.thumbtack.com).  What's great about these services is not only do you get quotes back but then the contractors you are getting quotes from have ratings and reviews from other users.

That and whomever you go with make sure to check references and references of references on top of yelp/google/etc reviews.

Good luck!

Hi Johnny,

I have not engaged any of these folks myself but in my research these are the folks I identified as property managers in Gastonia.  I can't vouch for any of them as I have not used them myself.

Gastonia - SRP Realty & Management http://www.srpmanagement.net

Gastonia - Stonewright home services http://stonewrightonline.com 

Belmont - Cottage Keepers http://www.cottagekeepersonline.com

Mt Holly - LE Properties http://leproperties.com

Charlotte - Elite Team Realty https://elitecarolinas.net 

Suggest you read up on Yelp and Google reviews on each before contacting them.  Let me know if you have good results with any.

Evening all,

There is a good Gastonia discussion rolling in @johnny szeto's thread about the Gastonia market generally.  Now that we have a good discussion going, I'm wondering if perhaps some could share their experiences on attracting quality tenants who take care of properties in Gastonia.

My own experience with my rental in Cramerton has been excellent over the years but I'm wondering about some of the lower end rentals in Gastonia - here I'm thinking of homes valued in the 60-80 range that have had some rehab and are renting for $6-900.

Overall, how are Gastonia (or greater gaston area renters including Mt. Holly, Kings Mountain, Shelby, Bessemer City, Lowell, Dallas, etc) generally treating your rentals?  Also when you are being forced to turn over tenants, are you generally having a good experience or are folks trashing your places?

Also, any info on how many evictions you've done would be interesting. I've tried to google for this info but haven't found any public records on how many evictions are happening in the county.  I'm sure they are out there, but I just haven't found them.

Looking forward to hearing from your experiences!

Morning Brian,  

What's different about the investments you have made in Belmont/Mt. Holly than what you are seeing in Gastonia?  What about the deals you have found in Gastonia haven't been right for you to pull the trigger?