Investing in Raleigh Real Estate - Buy and Hold Earns You Big Bucks
November 9th, 2007 Categories: Investing in Real Estate
The Raleigh real estate market is just about perfect for a solid buy and hold strategy. And if you pick the right neighborhood, you can make a very large return on your investment.
In the first 2 parts of this series we basically explored every aspect of fix and flip. I don’t know about you, but to me, fix and flip looks risky and requires lots of working capital. Fix and flip demands that you somehow outsmart the market and find properties that are way under value.
The market will resist you on this. The market will do its best to make every transfer of real estate happen at full value. As long as we have strong demand and relative low supply, you will be forever frustrated trying to find the elusive “good deal.” So what is a real estate investor in the Raleigh area to do?
Quit swimming against the current. That’s what savvy investors do. They look at the market dynamics and use them to their advantage. What’s the key dynamic in the Raleigh market? Steady appreciation in value, over time, that runs just ahead of the rate of inflation. It’s this predictability that makes buy and hold the winning strategy in the Raleigh real estate market.
Here’s a quick example of what would have happened with a modest investment in a townhome community near Research triangle Park (RTP) over the past 4 years. This scenario is based on a highly popular product (a maintenance free townhome), in a great location for rents from young professionals (RTP), and a steady upward rate of appreciation (the Raleigh market).
This is an example using a townhome that was actually sold as brand new in 2003 and resold 4 years later in 2007. The 33% appreciation is right on the average for the neighborhood. This neighborhood is full of townhomes that costs approximately the same when they were new in 2003 and have sold for approximately the same price as our example in 2007.
I checked rents for a 3BR apartment in this area and the average is $1,100 per month. The principle and interest payments are based on a 20% down payment of $24,000 and an interest rate of 6.5% for a 30 year term on a loan amount of $96,000.
Sorry about all the numbers, but if you’ve been following along you may be beginning to realize that this example gives us a 167% return on investment, cash on cash! When this townhome was sold in 2007 the owner got the original investment of $24,000 back plus a cool $40,000 for their trouble.
Does this sound like a good investment strategy? I certainly think so. You would be hard pressed to make this kind of return in any other investment.
Sure you would have had a few maintenance issues to deal with over the years, but how bad could that be on a new home? Just get a good inspection to make sure you are getting it in good repair from the builder. And you would probably have a few months vacancy with a negative cash flow.
Okay, to allow for some vacancy, let’s reduce the profits by $6,600 ($1,100 x 6 months) or so, just to be on the conservative side. But let’s don’t forget that this scenario actual had cash flow of $262 ($1,100 – $838) per month. Any way you figure it, this strategy works… and it can make you lots of money.
Want to talk about getting into the real estate investing business here in the Raleigh area. Give me a call or email me and I’ll be glad to schedule an appointment to meet with you and help you better understand how to acquire wealth through real estate investing.
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Investing in Raleigh Real Estate – Let’s Make Money on Foreclosures
Investing in Raleigh Real Estate – Fix and Flip is a Challenge
Bob, what a sound explanation of this kind of real estate investment… so much better than the “No Money Down, even your grandma can do it ” schtick. Keep writing, it helps to see expert real estate analysis in Raleigh,but it would hold true here in Charlotte too. Terry McDonald
Bob - Sounds like you have a great real state market for investment opportunity. We have some great opprotunity here in Indianapolis as well. Now is the time to buy, whether for investment or personal residence. -Paula
Looks like you did some good research on the Raleigh real estate market. Thanks for the info. Buy and hold seems to be the strategy for this market. A lot of investors are also working the lease option side of things. They usually get the home back anyway, so you still get to buy and hold.
Bob- We’re back to the days of real estate being a long term investment- even a short- long term. I think the days of flipping property for a 20% profit in less than a year are over for a while.
Over the past few years, it’s become hard to make those numbers work here in the DC area. But in the Raliegh area- sounds like it’s the perfect time for an investment property.
With all the high-tech and colleges around there- I would think the rental market is solid like it is here in DC.
Terry - You’re right. I think this strategy will work in Charlotte as well as in the Raleigh real estate market. In fact, I believe it will work anywhere there is a steady appreciation rate, decent jobs growth, and a good rental market. The cool thing is you don’t have to buy in bad neighborhoods to “get a good deal.” The nicer neighborhoods work as well, even better for this strategy.
Paula - Our market here in Raleigh is as good for investing as it has ever been. Especially with some other markets around the country not doing so well. Glad to hear that Indianapolis is the same.
Karl - Interesting comment about lease option. I have had two clients relocating to Raleigh in the past month who were having trouble selling their homes in markets with lots of inventory. I suggested they consider leasing their home for a year or two and wait for their markets to improve. In one case my client will pick up about $5K each year for their troubles and in the other case they will net a cool $10K. This is in addition to any profits if the lease option is exercised. Plus, they can move forward with their plans to buy a home in Raleigh.
Mary - I think you are right on target. Real estate has always really been a long term investment.
I have helped a few clients relocate from the DC area this year who had homes to sell there which they had owned for 8-10 years. I’m sure they wished they could have sold at prices from 24 months ago, but they were realists and priced their DC homes competitively. In every case they made a healthy profit and were able to move forward with their plans to relocate to Raleigh.
I’ll be sending anyone I have who wants to list their home in the DC area to see you. Having someone with your level of knowledge on their side is the only way to successfully deal with a challenging market.
Great tips for investing in Raleigh Real Estate! Sounds like you have a wealth of understanding of the Raleigh market! - Janis
Janis - Thank you for the compliment. The Raleigh real estate market is perfect for this type of investing, so it pays for a Realtor to know the market and where the opportunities are.
Bob,
So how many condo’s do you own in the Reasearch Triangle Park area of Raliegh, NC.? Sounds to me like you really have a good grasp of the market and the capability to really help some ready-to-buy investors in that market.
Wish I had more money to park somewhere. Great job with the article!
-Chad
Chad - Sadly, I don’t own any condos or townhomes in the Morrisville area. Most of my investment money is going back into my real estate business right now.