All Forum Posts by: Will Kaufmann

It would help to know a few additional bits of information. Do you intend to get a job in RTP and how do you feel about commuting? Do you want to rent rooms out on long-term leases or short-term rentals? What is your budget for purchase? How do you feel about renovations? Do you intend to purchase and then move, or are you going to move first and then purchase? 

The RDU/RTP market is incredibly dynamic due to low inventory for both sales and rentals, increasing costs and inflation, and increasing migration, so it might be good to hone in on some of these details to further narrow the answer on where you may want to be searching.

I believe that the returns in the Raleigh market are not that attractive and I would not advise people to be investing from out of state. Rents have not increased and may have some room to grow, but if someone is committing to renting out of their local market, they can find far better returns in areas that are not having the price expansion seen in Raleigh. Winston Salem and Greensboro are better alternatives.

There are plenty of options around here but none of them, unfortunately, exactly fit your criteria. Outside of A-class you are not likely to see $2,000+ rent for a 3-bedroom and if you do, the price is going to be way higher than the range you mentioned. Anecdotally I can tell you I bought a 3/2 in downtown Raleigh for $320,000 off market (no agents, so almost as 10% discount to market) that is renting for $2,200/month and that is even a little rich for the area (East Raleigh). There are some interesting pockets in the "dells" Wendell, Knightdale, Shotwell, etc. where you can likely find something in the 200k range that will rent for $1,400-$1,500 which is going to get you to about a 0.75% rule versus something closer to 2/3% in the immediate municipalities in the metropolitan statistical area (MSA).

I also want to add some caution as far as overall pricing is concerned. The national market has seen excessive rebounds beyond comprehension (roughly 10% y/y), and they are even higher on a percentage basis in our region (roughly 15% y/y). Those are not the most accurate or best statistics but generally representative. At the same time we have sales exceeding starts so as already mentioned in here the inventory is very thin. My biggest concern is the February rise in interest rates. According to Morgan Stanley's equities team (Thoughts on the Market, a great podcast), the initial jump in rates is not of major concern; however, 8 out of 8 of the last rate bottoms have resulted in market corrections approximately 12 months out (spring 2022 at this rate). At the same time we have elevated equity relative to the last housing crisis and lower ownership rates, meaning there should be plenty of buying potential. While these points all seem somewhat scattered and unrelated they actually illustrate the uncertainty and what may be categorized as panic buying.

Personally, I think there is a strong chance of a correction or at least abrupt stabilization in the 2022 spring market, but prices should continue to increase at least until that time and possibly beyond. The good news is that rents in the Raleigh area are still unquestionably lagging and have ample room for growth to catch up to prices. If you are buying and holding you can withstand negative price shocks because the rent will still come in at the same rate and your equity position is somewhat irrelevant (depending on your financing strategy, likely). 

We are personally shopping for similar deals, but not overpaying and beginning to hoard a bit more cash in the event of any sort of a correction.

I wish I had more insight on this but I am not as involved in that area of the market so I do not track it. The only anecdotal information I can offer is that it seems there is a $20m+ deal every week announced in the TBJ and the going rate is somewhere around $150k/unit so there is probably some decent availability for 100+ unit buildings. Mind you, the acquiring groups are usually out of larger markets (New York, Boston, International, etc.) where their local returns are not acceptable. 

The Raleigh market is relatively thin as far as available multi-family properties that are not larger apartment buildings. I recall seeing something like 1-2% of our net inventory is mutli versus single and that's incredibly low. We hardly see anything under 10 units hit the market and when it does, it sells very quickly.

Definitely check out Wilmington, that may be the best fit if you are a water-body. Additionally it is generally more reasonably priced than the other metropolitan areas you have already mentioned.

To expand on the new construction purchase as well, I have spoken with some builders and they are very stringent about selling for or above list price as they have the current leverage in the seller's market to keep prices up. As for the HOA covenants, I have not seen anything restrictive in the handful of deals we reviewed last year; however, none were new construction. I get the general vibe that those types of restrictive covenants are pretty uncommon in our area.

A point I keep mentioning because I think everyone should keep this in mind, our prices have jumped considerably in the Triangle and surrounding areas yet rents have not really moved. From various macro perspectives rents need to catch up to prices and thus the ratios are prime for expansion rather than contraction in the next few years, as long as prices stabilize. I, and I believe @Chris Martin, have addressed the data in some other posts as well.
 

@Danté Belmonte I am in the Raleigh market and would be happy to connect and help. Shoot me a message with some additional details on your trip if you are interested. Travel safe!

 Volatility should remain relatively low for various reasons - most of which are more opinion driven than data driven but I stand by the theories:

1. We do not have systemic risks like larger metro areas do at the moment, be it governance issues, company exodus, etc.

2. We continue to see population and economic influx with ample room for growth.

3. Inventory remains low.

4. Income inequality, regardless of your political stance, will likely continue to grow and the rental demand should thereby increase as the lower income brackets become more removed from the ability to purchase a home.

I'm not sure 2021 is going to be the year we see an inflation in rates, but in the long-term view I don't see how the rents do not catch up to the price increases. While I cannot point to a specific data source, I believe the previous 3-5 year sale price increases have barely been kept up with via rent increases. 

Eventually landlords should get a bit more aggressive with pushing rents up to justify capital allocation, and I am trying to do so myself. Anecdotally, we managed to rent a 3/2 in downtown for $2,200 that realistically I thought the fair rental value was around $2,000 or so, but we held strong on the ask. I also am aware of a 2/1 that's renting for $1,850 that arguably is only worth $1,700.  We are also under contract for a rental that I am willing to pay up for a 10% year-over-year premium because the rent should increase. Raleigh markets, like many others, are hyper regional in my opinion, so a 1 mile difference can take returns from the 1% rule to 0.5% very quickly. 

I'm not sure if that all helps or further complicates things, but there is simply no easy answer to your question!