BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

How To Develop Your Residential Investment Strategy In The Southeast

Following
This article is more than 6 years old.

Because so much of the Atlantic South originally was suitable for farming - and the small-scale manufacturing and commerce that's attached, it now contains a large number of middle-sized markets that serve their surrounding country-side. The migration of textile and furniture manufacturing from the North, and the subsequent loss of many of those jobs to China, didn't change this basic structure.

The result - for investors in real estate - is that these markets largely are economically independent of each other. You can see this in the very different levels of economic growth within each state.  Some markets right now have good job growth, some have very poor growth, but your risk of investing is mainly limited to the risk of the local economy, not some state or region-wide slump.

Local Market Monitor, Inc.

Another consequence of history is that most of these markets have surrounding land that's easily available for new construction, and therefore they don't go through sharp real estate cycles. We expect a range of home price increases over the next few years, but the danger of an over-priced market is far away - except possibly in Charleston.

Income generally is below-average in this region, and so are home prices. That makes this an easy place to invest in single-family rentals. A lot of people would like to have a single-family home, but many can't afford to buy one.

In addition, the region is over-stocked with colleges, ideal places to have single-family rentals because the administrative staff and faculty of colleges are constantly turning over. Don't rent to undergraduate students, though: that's a specialty with unique risks.

A further consequence of the local-hub nature of most markets in this area is that healthcare is a large and growing sector because each market serves a wide area. Healthcare produces lots of renters who want to live close to their place of work, often in the center of the city.

One group of markets still has a large dependence on manufacturing: Lynchburg, Greensboro, Hickory, Greenville SC, and Spartanburg. In these markets, because of the risk of future job losses, you'll want to use a higher cap rate to calculate how much you'll pay for a property - higher by 1 percent at least.

Charlotte faces a similar type of risk because of the large number of jobs in finance, but this risk is in the future because right now the financial sector is doing well.

Another group of markets has a large retirement population: Roanoke, Asheville, Myrtle Beach. With the aging of the US population in your favor, owning rental property in these markets is a low-risk proposition - you rent either to retirees or to the many people with retail and service jobs that depend on them. Retirees are a great group to rent to because they'll renew faithfully year after year and will take good care of your property.

You can see from the data that Durham, Asheville and Charleston have a high home-price-to-rent ratio, above 20. And Wilmington might be on the way. In these markets it's too expensive to buy a home and rent it out as is, you'll have to split it into multiple units. Not every house is suitable for that and it costs money but you can get a high return. Apartment buildings are another option in these markets. And you also can just rent out an expensive house at a high rent - there are always some people who prefer to rent, just not very many of them.

Follow me on Twitter