Raleigh is the second largest city in North Carolina, is the state capital and is home to one of the leading research universities in the country. Until recently, though, the city hasn’t received the notoriety it deserves.
Raleigh is part of what’s known as the Research Triangle, along with Durham and Chapel Hill. It’s home to North Carolina State University, one of the three universities that make up the research triangle, but it, too, is less well-known than its counterparts – Duke University in Durham and the University of North Carolina in Chapel Hill.
Slowly but surely, that outside stigma has changed over the years, so much so that it is among the most sought-after cities in the country for people to live, work and raise a family. Money Magazine recently named Raleigh #2 on its list of best large cities to live in America. It ranked behind only Austin, Texas, on the list that includes cities with a population of at least 300,000 people.
What resulted in this high ranking was the combination of Raleigh’s attractions, iconic neighborhoods, a relatively low cost of living and promising job growth. To wit, Raleigh has some impressive statistics, including:
- An average family income of $82,021
- A median home price of $263,000
- Projected job growth of 9.6% between 2017 and 2022
These stats show just how attractive Raleigh is for residents, and, therefore, how attractive it can be for real estate investors as well.
Raleigh Has a Storied History
Raleigh is what’s known as a planned city. Following the United States gaining independence, the city was chosen as the site of the state capital in 1788 and was incorporated in 1792. Right from the beginning, the planners and developers of the city knew that Raleigh was going to be an important part of North Carolina, and it has progressed as such. Unlike a lot of other southern cities, Raleigh was not host to a major battle during the Civil War and was spared much resulting devastation.
Raleigh is the birthplace of Andrew Johnson, the 17th president of the United States who served from 1865 to 1869. Johnson assumed the office of presidency following the assassination of Abraham Lincoln. Today, the city pays homage to its rich history with dozens of museums, including the North Carolina Museum of History that features 14,000 years of the state’s past, and the North Carolina Museum of Natural Sciences. Museums such as these have earned Raleigh the moniker of the Smithsonian of the South.
In 1887, the founding of an educational institution was what eventually led to Raleigh finding its place of prominence on the world stage. That year, The North Carolina College of Agriculture and Mechanical Arts was founded. Today, that college is known as North Carolina State University.
It is around NC State that Raleigh’s economy began to grow drastically. In 1959, the city opened the Research Triangle Park, the largest research park in the United States. In the years following, population growth exploded in the region as major research firms from around the world began re-locating in the area to be around the hustle and bustle of the three major research universities.
Raleigh Has a Strong Job Market
Being home to NC State and in the region of two other major research universities has resulted in Raleigh being home to a relatively young, diverse and educated population. This has attracted major employers in various research fields for decades, which, in turn, continues to result in more and more people moving to the city. Since 2010, Raleigh’s population has grown 13%.
All those extra people might be a cause for concern for the region’s job market, but that’s not the case for the Research Triangle, as continued investment in the region has provided substantial job growth, which is expected to continue in the next few years. Over the past five years, Raleigh has seen an average economic growth of more than 4%, with an annual employment gain in that time of almost 3%.
Employment in the Raleigh metro area increased by 1.5% in 2017 and is expected to increase 2.7% in 2018 with the projected addition of 25,000 jobs. In addition, Moody’s Analytics has projected jobs in the area to grow 9.6% by 2022, and Forbes ranked Raleigh among its top 10 cities for job growth, based in part on its 17.25% job growth rate over the last five years.
Among the upcoming big investments in the job market are:
- Credit Suisse is hiring 1,200 workers for a new location within the Research Triangle. When its development is completed in mid-2019, the company will have the capacity to house 4,000 workers in the region.
- Laboratory Corporation of America is expected to hire 422 more workers in the region and add $28 million to its payroll annually.
- Clinical-stage gene therapy firm AveSix is planning to hire 200 workers in the Research Triangle and invest $55 million in a new facility.
- Ipreo, a financial services firm, plans on hiring an additional 250 employees in the city of Raleigh, a staggering increase from the 70 employees it had only five years ago.
From an economic standpoint, the great thing about Raleigh is its diversity. Not only does the region provide ample room for job growth in research sectors, it also provides stability from down markets in the public sector, with employees constantly in need for the state government and the public university.
Some of the top sectors that have fueled this continued job growth recently are:
- Professional and business services (3.1% annual growth)
- Information (3%)
- Government (2.1%)
- Financial activities (1.9%)
- Leisure and hospitality (1.7%)
How Raleigh’s Housing Market Is Affected
Raleigh’s job growth combined with its relatively low cost of living compared to other big cities makes it a very attractive place for people to live. This population growth has increased the demand for housing. However, this increased demand in housing has come on the rental side and not the owner-occupied side.
Students and employees of the local universities are fueling the demand for single-family rentals in the Raleigh housing market. Fewer people are making the transition from renting to purchasing, as interest rates and home values continue to rise. Year over year, home sales have dropped almost 20%, as these renters have decided to remain on the purchasing sidelines at least for now.
In addition, the development of apartments is decreasing as well, making Raleigh a prime market for investors looking to extract value out of the single-family rental market. Vacancy is expected to rise to 5.5% by the end of 2018, up 30 basis points from 2017. That is still low compared to historical levels, but landlords are expected to increase average rents by 3% this year in response to this demand, with the average per-month rent reaching $1,570.
Median investment prices have increased consistently over the last few years, matching the continued increase in single-family home prices. At the end of 2017, the median investment price was $155,400, up 4% from the year before. More investors in the Raleigh market have shifted their thinking from flipping single-family homes to a long-term strategy of purchasing and renting. This has proven to be fruitful in recent years.
For most of 2017, first-year returns were in the mid-5% threshold. This statistic was closer to 6% in C neighborhoods and closer to 4% in A neighborhoods. In all, the spread between the average cap rates and the 10-year Treasury was 280 basis points at the end of 2017, and wider spreads between the two have typically indicated stronger buying periods.
Where to Invest in Raleigh
With all the factors above, it’s clear that now is a great time to invest in the Raleigh housing market. There are plenty of options to invest inside the city limits and in the suburbs as well. The biggest opportunities for returns are in single-family homes rented out to students and university workers mainly. However, as interest rates and home sale prices continue to rise, the demand for single-family home rentals could stretch over to other demographics as well.
Here are a few prime investment opportunities in single-family homes in the Raleigh suburbs.
Clayton is considered a satellite town of Raleigh, and is located about 17 miles from downtown. This three-bedroom, three-bathroom home has 1,810 square feet and was built in 2006. The $199,900 purchase price and $61,722 projected investment price could result in a gross yield of 8.10% and $9,630 in net operating income with a projected rent of $1,350 per month.
Located within the Research Triangle and home to the University of North Carolina, Chapel Hill is only 28 miles from downtown Raleigh. This home offers three bedrooms and three bathrooms with 1,740 square feet. A purchase price of $309,800 and an investment of $89,244 could result in a projected rent of $1,925. That would result in a 7.46% gross yield and $14,344 in net operating income.