TRIANGLE MARKET FAQ
Understanding the market in which you plan to invest is VERY important. My clientele largely consists of out-of-state investors, and in reviewing their learning-curve (with regard to the local market), I have compiled a list of the most common questions posed about the area. I hope you find this information useful in better understanding the Raleigh-Durham market.
Feel free to contact me if, after your review, you find this to be a suitable location for your next investment. Also, feel free to reach me if there is a question you'd like to see posted here!
Q: What is "The Triangle"?
A: The Research Triangle region consists of 13 counties. Recently, much of the focus in this region has centered on Wake County (includes Raleigh...the state capital) Durham County (includes the city of Durham) and Orange County (includes Chapel Hill).
Q: Why do I keep hearing about this region?
A: Because of the desirability of the area, many 3rd party sources have started to focus their attention on determining the reasons for its growth and vitality. The list of accolades is too long to note here, but for a quick snapshot, visit my Raleigh-Durham Blog (Look for the posting from June 17, 2007). Be sure to subscribe to this blog to stay up to date on changes in this vibrant market.
Q: Where can I find out more about the Triangle?
A: For more information about the Triangle Region, visit www.researchtriangle.org and download a copy of this year's "State of the Research Triangle Region" report. This report provides economic data and an analysis of the region's competitive position. In addition, the National Association of Realtors complete a very detailed annual report for 70 major metropolitan areas in the US. Their Triangle-area report and price analysis can be downloaded here.
Q: Is the Triangle better for appreciation or cashflow?
A: Both. At the time of this writing, the Triangle is toward the start of the growth curve with regard to appreciation. The region is often referred to as "the next emerging real estate market in the US". Property values have increased on a steady clip of 3-8% over the past 5 years. Housing remains very affordable with an average property value near the $200,000 mark. Keep in mind that this average covers a very broad area. Starter homes in the $100,000 range and luxury homes up to the $1,000,000 mark can be found within a 30 minute drive of eachother. As for cashflow...The rental market is solid as well and, as of the time of this posting, vacancy rates are at their lowest point in 5 years. The cities are in a very peculiar balance given that market rents, interest rates, and property values are at a point where many properties can cashflow after all expenses with only 10% down. Subscribe to Raleigh-Durham Property Alerts for the inside track on investment properties for sale in the Triangle (many, even before they hit the open market!)
Q:What type of investment property will give me the best return?
A: That's hard to say, because at present the Raleigh-Durham market is turning favorable returns in both long-term and short term investments. The best route for you to follow in your investing activities will depend largely on the results of your taking inventory of what I call your "real estate investing personal assets". By this, I mean taking inventory of where you stand in the following areas: LIQUID ASSETS (cash or available retirement funds that can be leveraged through a self-directed IRA), CREDIT, TIME, RISK TOLERANCE. Taking an honest look at where you are now will largely determine whether to start with buy-and-hold versus quick-turn properties and the property values within each niche. There's no telling what will happen in a market, so buying based on today's REAL NUMBERS is very important. Quick-turn investments will be more time intensive and may require more liquidity upfront. Long-term investments often have rental income to offset expenses and are better for individuals looking for longevity in their investments. Fortunately the real nuumbers in the Triangle are often very favorable for both types of investors.
Q: What appreciation rate should I expect? (trick question)
A: The Triangle as a whole has been appreciating anywhere from 3-9% per year in recent years. If the future mirrors the past, almost any area in the tri-city area will fare well, but I do not advise a purchase in hopes of appreciation only if it does not pay for itself on a month-to-month basis. In addition, because real estate markets are in constant movement, I can not (and do not) quote future appreciation. No broker has a crystal ball that can advise you with certainty what your future appreciation will be on a given property (and I strongly caution you to cut your eye at any broker who professes to know such information!) Overall, look at the past performance of the area and look for characteristics that typically point to continued growth and invest accordingly to realize solid returns in appreciation.
Q: What are the local cap rates?
A: Cap rates will vary across property type. At present 6-7% is not hard to find for many investment properties.
Q: What are the local vacancy rates?
A: Published data shows apartments are in the 8% range, although I've gathered lower figures from my property managers who focus on single-family home rentals and smaller multi-family properties.
Q: What kind of Gross Rent Multiplier (GRM) can be found in the Triangle?
A: GRMs are at 130-150 on average, but again, this is a broad average. Some of the smaller multis and apartment homes (3-4 units) have been as low as 80 in recent months but location will largely dictate this number. Some of the higher appreciating areas, can hit the 200+ GRM mark. You can get into newer construction at the mid-range mentioned above which makes rentals in this range a solid possibility.
Q: What is the cost for property management?
A: Property management fees typically range between 8-10%, although property managers are free to set their rates as they wish. Keep in mind that property managers may become more flexible in their management fees as you build a portfolio of properties with their firm.
Q: What type of investment property financing options are your local lenders offering at present?
A: Financing options, rates and terms change constantly. Investment-focused lenders understand the importance of leverage and have found creative ways to minimize the up-front out-of-pocket costs to invest, without degrading the value of the investment. Solidifying your financing is an important step that requires careful attention even before your property search begins. I always work with my clients to locate adequate financing before allotting time to the property search. Knowing your mortgage rates and terms will determine your cashflow. Contact your favorite lender for financing options and request a preapproval and Good Faith Estimate (GFE) for non-owner-occupied investment property. Keep in mind that with some lenders, mortgage rates for single-family rentals may differ from rates for 2-4 unit rental properties, and the down-payment requirements may differ as well. Your best bet is to ask the lender for separate financing scenarios for single-family and small multi-family properties. If you'd like to work with lenders who are experts in the Triangle market, feel free to touch base with any of the lenders listed at http://www.tiffanyelder.com/ServiceProfessionals . Tell them Tiffany sent you..they'll take good care of you!
Q: Can you give an example of a simple investment opportunity in your area?
A: Absolutely...as a matter of fact, I'll offer 3...
--One of my out-of-state clients recently purchased a 4-unit rental property for $150,000. Gross rents totalled $1900 per month. At full occupancy, and after taxes, insurance, property management and vacancy/repair allowances, this investment nets in excess of $450/month cashflow.
--Another client recently purchased a 3 year old townhome for $128,000 which was occupied at closing for $950/month. After all expenses, this ended in a breakeven scenario for the investor in a location projected to appreciate on the upper end of the Triangle's range over the next few years.
--Another client recently purchased a single-family home for $190,000 and after approximately $20,000 in upgrades received an offer for resale at $249,000. Less than 3 months from closing to closing.
I hope you have found this information helpful in becoming more familiar with the Triangle (Raleigh-Durham) market. Feel fee to reach me at firstname.lastname@example.org if you have additional questions, or if you'd like to move forward with acquiring your first investment property in this vibrant area. I look forward to speaking with you soon!