Speaking of housing market craze - investment property qs

[bdubs419]

We moved to the Raleigh Durham area 3 years ago. We are seriously kicking ourselves for not buying an investment/rental property back then as things have exploded here. Now DH is on a kick of attempting to buy one now which seem horrible, but we also don’t expect this area to really “drop” anytime in the near future and definitely not long term. So many companies are moving here and I can maybe see things leveling off at some point but not going down.

Thoughts? Things to consider? I would just hate in another two years for us to say oh well we should have just bought then!

Please speak up if anyone is super familiar with this area. Ideally we would keep this property long term. Likely interested in a 3 bedroom townhouse or single family home with a small easy to maintain property.

[orval]

We had a townhome rental in the Charlotte area. We found that we didn't get a great return on investment--couldn't charge enough rent --- to make real money long term. Returns on the stock market were better. One thing I recommend is taking a close look at the HOA fees. There is also alot of maintenance. We had to replace the flooring, paint everytime between renters, new ac unit etc. We rented for 20 years and just sold in 2019. I would consider what your goal is as well from having one property.

[ohgillian]

But what about the zebra cobra snake??

Just kidding, I have no helpful contributions. I agree it’s a hot area though, esp with Apple going there.

[jwright]

I don’t know specifics but the “second tier” cities in the south are definitely booming and probably going to continue to increase property values. We own in Asheville and do short term renting (so not the same at all, lol) but it’s been successful.

[ellipses84]

Just another thought. My parents inherited some rental properties. After a few years they were tired of managing them and finally sold the last one last year. In order to avoid paying capital gains, they were able to use money to invest in real estate funds. I don’t know much else about it, but that could be an option for you, then use the money to buy in a year or so because I think the market is going to dip / correct.

[Cappy]

Jul 3, 2021 10:35:57 GMT -5 ellipses84 said:

Just another thought. My parents inherited some rental properties. After a few years they were tired of managing them and finally sold the last one last year. In order to avoid paying capital gains, they were able to use money to invest in real estate funds. I don’t know much else about it, but that could be an option for you, then use the money to buy in a year or so because I think the market is going to dip / correct.

Whoa, good to know! I knew about a 1031 exchange but not that you could UPREIT. Thanks for mentioning so I can investigate for my own parents. 

[momof2]

I have a similar experience that you don’t really make money short term in a one off rental property. You usually just make a little/lose a little and hope you can sell for more than you purchased when you decide to exit. My husband has done this a bunch of times and I find the rentals to be more of a pain than they are worth — although the ones he kept for like 20 years he would have made money on exit (except we would borrow against them to make other investments). I will say that if you are really handy that helps your profit margin.

We just recently bought a beach house in NC that we are renting and then using some ourselves. Basically, we should break even and maybe make a little. But I bought it to have a beach house, not to try to make a lot of money.

[picaflora]

We had a rental for a few years (2013 - 2016) on the eastern side of Wake Co. It was originally our home, but we held onto it when we moved out of the area thinking we'd be back. We knew we wanted to sell once we moved from being 40min away to being 3hrs away. We waited to sell until we were ready to buy in our current location.

We were lucky that we only had one set of renters, and they were friends of friends. Even then (and with charging market rate), we didn't really make anything/much in profit. Our gains came from selling the house itself. The house increased $40k in 6 years! We bought it at $140k, and sold for $180k. Right at two years, the family we sold to sold it again for $210k! I kick myself for not holding it longer - but it was time to get it go. Managing it from a distance without using a company was getting to be awful. Also keep in mind if you're using a management company, their fee may cut into your profits. Ultimately it was sold to an investment company and I have "feelings" about that (b/c those companies are going to ruin it for others to be able to buy a house), but its not something I could control once I sold it.

All that said - I don't know that I'd mess with rentals again. Maybe I was attached since I had lived there, but even the management side was a PITA. I don't think the market in that area is going to slow down anytime soon, and parts of it are poised for some rapid growth. I do think it'd be really hard to compete with investment companies with deep pockets.

Unrelated - I'm really bummed we moved from Raleigh when we did. I lived there for 10yrs (including college) and loved every minute of it. We always thought we'd make our way back after a bit as it would allow us to be near our extended families again. Now? I feel like we've been priced out by not staying active in the market. Housing stock is going to get so much worse before it gets better, and with Apple (and other tech companies) coming, infrastructure/schools are going to be a total mess.

[marie]

We have a rental, but we did not buy it for that reason. My husband had a townhouse when we met and we decided to rent it out instead of selling. We "lose" money on it technically, but will make out in the end. The rent covers the mortgage, but we are paying the monthly HOA fee and are out maybe $200 a month? The principal on the mortgage each month goes down 400-500, so we are gaining it back in equity. If something breaks or needs to be replaced, we "lose" more money fixing it. Definitely not a money maker on a monthly basis, but in the end hopefully it will all work out.

[sicilygirl]

Jul 3, 2021 12:38:43 GMT -5 Cappy said:

Jul 3, 2021 10:35:57 GMT -5 ellipses84 said:

Just another thought. My parents inherited some rental properties. After a few years they were tired of managing them and finally sold the last one last year. In order to avoid paying capital gains, they were able to use money to invest in real estate funds. I don’t know much else about it, but that could be an option for you, then use the money to buy in a year or so because I think the market is going to dip / correct.

Whoa, good to know! I knew about a 1031 exchange but not that you could UPREIT. Thanks for mentioning so I can investigate for my own parents. 

Sounds like maybe the funds were reinvested into a Qualified Opportunity Fund for the tax benefits (which is completely separate from 1031 exchanges). Definitely a good tax management tool!