Dedicated to an Upward Trajectory

Raleigh’s real estate market is the product of careful and strategic planning—227 years of it, to be exact. The capital of North Carolina, Raleigh was designated such in 1788 in the wake of the Revolutionary War and incorporated shortly after.

At that time, the city was laid out in a careful grid pattern that remains intact, in large part, to this day. One of the first examples of a planned city in America, Raleigh’s current market clearly indicates the municipality remains popular with scientists, analysts and academics.

For real estate investors, the results are both positive and long-term. The overall trajectory in the Raleigh real estate market has remained positive and upward for the better part of three decades.

“The last 20 years, in particular, there has been a lot of growth in Raleigh,” said John Tedesco, senior vice president of business development at Appraisal Nation.

Tedesco cited several examples of what enables Raleigh to remain planted so firmly at the top, while other cities tend to “pop in and out” of such lists. Among those examples are carefully placed and planned infrastructure projects; a well-curated public school system boasting 175 schools and a board with both a $2 billion budget and the accolades to indicate the money is well spent; and a growing, strategically designed highway system.

“Raleigh is often overshadowed by the larger Charlotte market, but it is the second-largest city in the state, the capital of North Carolina, and home to roughly half a million people,” said Marco Santarelli, president of Norada Real Estate Investments, a national provider of cash-flowing, turnkey real estate. “What people do not realize is the Raleigh housing market is much larger than this, with the metropolitan area alone (the city and its suburbs) accounting for about 1.5 million people.” 

“We’re one of the smartest cities in the country when measured by percentage of the population with bachelor’s degrees,” Tedesco added. He noted the high concentration of academics and tech professionals is largely maintained by Raleigh’s position in the heart of the Research Triangle, an area that includes North Carolina State University, Duke University and UNC Chapel Hill.

The high concentration of these professionals is one of the main reasons for Raleigh’s market steadiness and growth. Because of the area’s relatively high median income and steady job sectors, Raleigh was one of the last major metro areas impacted by the housing and financial meltdown in the mid-2000s—and one of the first to come out on the other side.

Sitting in the Sweet Spot
Since hitting a nadir in 2012, Raleigh home values have trended steadily upward for the past seven years, and they appear poised to continue to rise. Even in 2012, Raleigh values were relatively strong, nearly $30,000 higher than the national median home value. From that point, values have risen nearly $100,000 in the area.

What makes this market so attractive? In addition to the many social, cultural and financial advantages associated with living and working in the Research Triangle, Raleigh is sitting in a geographic sweet spot. Part of the southeastern United States, the climate is pleasant with short, cool winters and hot, humid summers. Perhaps most important, however, is the city’s proximity to other major metropolitan areas on the East Coast.

“Raleigh is dead center,” Tedesco said, “just a little over an hour flight to New York City and a little over an hour flight to Florida.”

“For us, the market is really strong right now and has been for quite some time,” said Neal Barnett, co-owner with his brother Cory at Garner Investment Company. The Barnetts have been active investors in Raleigh for more than a decade, working through the housing crash using short sale strategies and, in more recent years, focusing mainly on rehabbing properties for sale to retail buyers or for use as Airbnbs.

“At present, our primary strategy is rehab-and-sell,” said Barnett, “but we are always looking to put a few more properties in our portfolio long-term.”

Garner Investment Company is active mainly in the sub-$250,000 tier of the Raleigh-area market, which many analysts describe as prohibitively low on available inventory. At the end of the first quarter of 2019, analysts warned sales volumes would likely continue to fall, even as prices rose across the board because there are fewer and fewer homes available below $300,000.

“Under $300,000, there [are] going to be multiple, competitive offers,” local agent Sharon Webb of Webb Realty told Raleigh’s News & Observer in March. “There [are] a lot of people looking [in that range] and not a lot of inventory.”

Barnett noted that nearly all his investment properties are coming to him through leads generated from his network rather than through more traditional (and less personal) methods of lead generation that are reliant on publicly available inventory.

“There are a ton of investors in this market right now and a lot more jumping in,” he said. “We find most of our deals off market. They come through relationships within our network as well as referrals.”

It is easy to see why Barnett opts to rely on his network for deals these days. Competition for distressed properties in traditional venues is becoming increasingly fierce. For example, while properties certainly are still going for deep discounts at auction, sometimes as much as 21% less than their as-is value at time of purchase and much farther below after-repair retail value, the volume of inventory at the auctions is relatively low in the Raleigh area.

According to data from Auction.com, although those properties sold at foreclosure auctions for about $160,000 in April (compared to a median monthly sales price of $260,000 on the retail market side), only 26 were brought to auction at all. This steep competition and scarcity of inventory makes it imperative that investors leverage every advantage to gain early access to potential deals, said Daren Blomquist, vice president of market economics for Auction.com.

“More of our buyers are leveraging technology to gain a competitive edge at the foreclosure auction. The Foreclosure Interact feature on our mobile app… reached a new record for single-day views in April,” Blomquist said.

Raleigh i-Buyers
Another factor in the Raleigh market that will affect every heated market in the country over the next few years is the emergence of i-buyers like OfferPad, OpenDoor and Zillow. These companies make “automated” offers on homes that are often far higher than individual investors can afford to accommodate and, in many cases, can close even faster than the traditional cash-buyer investor. They tend to emerge in heated markets, but they will probably have a pervasive presence in nearly every market by 2030.

“We are seeing a lot of competition [from i-buyers and individual investors] in the marketplace right now,” said Keith Murray, owner of Home Offer Team, an investment company based in Cary, North Carolina. “It is hurting margins across the board for everyone, not just in the Raleigh area but in other parts of the country.”

Barnett agreed: “[i-Buyers] definitely affect the market because they are going to pay a lot more money than [individual investors] pay. However, they are not affecting our business too much because they have very specific criteria and tend to buy newer homes in better shape [than we do]. Where an i-buyer may come in, paint, replace carpet and put the home back on the market, we target properties that tend to need more work and allow us to create huge value and a good spread.”

Other investors are expanding their geographic target areas in response to increasing competition in the Raleigh market, investing not just inside the city limits but also in Cary, Clayton, Apex and Dunn. They are not just investing in previously owned properties either. Developer Bruce McNeilage, CEO and co-founder of Kinloch Partners LLC, recently ramped up his company’s activities in the Raleigh area, near Clayton.

“We are buying brand new houses at discounts from regional builders, then renting them out,” he said.

Because these homes are currently worth a premium thanks to the new construction and relative affordability of the monthly rent, McNeilage said they tend to rent quickly.

Tedesco also said residents’ willingness to rent is spurring a revitalized interest in downtown living in the area, as developers build high-rises to accommodate demand for relatively affordable, urban living in Raleigh proper.

Tedesco noted that both investors and retail buyers are snapping up “historically small, single-family homes [of] about 1,500 square feet.” Once the purchase is complete, the new owner may spend $300,000 or even $400,000 to renovate the property.

A Bright Future
With all this heat in the market, it is inevitable that both investors and analysts will begin to question just how long Raleigh’s upward trajectory can last. The good news for Raleigh real estate? This could go on for quite a while.

In fact, the city of Garner recently announced the pending arrival of a new Amazon operations center projected to bring 3,000 jobs to the area. Additionally, the Research Triangle’s life sciences sector has grown 33% since 2008 and shows no signs of slowing. Inc.com predicted at the end of last year that Raleigh would be the country’s “next startup hub.” Following that projection, Raleigh tech company Pendo announced it would spend $34.5 million over the next five years to expand its local headquarters in the area. 

“It really is a gem of a city,” said Tedesco. “It’s the best place in America to raise a family, start a business and have a beautiful quality of life in a moderate climate and in an educated community with a diverse workforce. You will be hard-pressed to find anywhere in America that will support this the way Raleigh will, and that is why it will stay such a hot spot.”