Charlotte’s Position as a Tech Hub Boosting Its Value for Single-Family Rentals
Located in the south-central part of North Carolina near the South Carolina border, Charlotte is quickly becoming one of the most sought-after metro regions in the country. It is the largest city in the state, with the U.S. Census Bureau estimating it had 859,035 residents in 2017, making it the 17th most populous city in the country. The metropolitan area had a population of about 2.47 million in 2016, ranking it the 22nd highest in the U.S.
Charlotte is a city that’s on the continual rise. It is the fastest-growing metro area in the country, adding 888,000 new residents between 2004 and 2014, and it’s the third fastest-growing major city in the United States. Charlotte is the second-largest city in the southeastern U.S., behind only Jacksonville, Florida.
Charlotte has become known as a tech town. In fact, just this year, the Computing Technology Industry Association ranked Charlotte #1 on its 2018 “Tech Town Index,” ahead of nearby Raleigh, North Carolina, which gets more publicity for its tech prowess because of its location in the Research Triangle. This growth in the tech sector combined with strong overall job growth and a relatively low cost of living is what has made Charlotte the top millennial hub in the country.
This growth in population and employment has driven up demand in the housing market and, as a result, housing prices. This, combined with the fact that there are so many Millennials living in the metro region, is making Charlotte an extremely attractive rental market for real estate investors.
Charlotte Has a Golden History
Charlotte’s roots as a popular place to live date back to the 18th century. In 1799, a 12-year-old boy found a 17-pound rock that a jeweler later determined was nearly solid gold. The discovery led to the first gold rush in America’s history. Many veins of gold were discovered throughout the 19th century in the area, leading to the creation of the Charlotte Mint in 1837. When miners struck gold in the Sierra Nevada region in California a few years later, much of the gold attention in the country shifted out west.
But Charlotte’s draw as a place for fortune never did dissipate, even though the focus on gold did. The Charlotte metro region experienced its first population boom after the Civil War, as the city began as a cotton processing center and railroad hub. The city continued its population growth in the decades that followed, with the next big boom coming in the 1970s.
In that decade, Charlotte found its way back on the financial map, becoming a hub for the banking industry. Financier Hugh McColl transformed the North Carolina National Bank into a national player in the 70s and 80s, eventually acquiring NationsBank and merging with BankAmerica to eventually become Bank of America. First Union, which was also headquartered in the city, experienced a similar growth pattern, changing its name to Wachovia in 2001 before being acquired by Wells Fargo in 2008. These two banks alone, and other financial institutions, led Charlotte to being the second largest banking headquarters in the U.S., behind only New York City, until 2017.
Today, Charlotte is not just a banking town; it can also claim a diverse job market. Charlotte is home to seven Fortune 500 companies and 10 Fortune 1000 companies, with Bank of America, Lowe’s, Duke Energy, Nucor, Family Dollar Stores, Sonic Automotive and Domtar being some of the most prominent. In 2017, Charlotte employers added 36,900 jobs, lifting payrolls 3.2%. Another 30,000 jobs are expected to be created in 2018, which would be a 2.5% gain.
In the coming years, even more job growth is expected, as the city is projected to be home to 14 Fortune 500 companies by 2025. Job growth is expected across the board for Charlotte between 2015 and 2025, most notably in the sectors of health care and social services (43% projected increase), finance and insurance (28%) and professional and technical services (25%).
Some other highlights of the Charlotte job market include:
- Jobs are expected to grow 25% overall from 2015 to 2025
- Charlotte is home to more than 100 distribution centers and more than 300 trucking companies
- Ernst & Young is creating an innovation center in Charlotte, planning to invest $8.2 million and create 375 new jobs in the next five years. It’s projected the project will have a $600 million economic impact on the region in the next 12 years.
- Corvid Technologies, an engineering firm, is relocating and expanding its headquarters to nearby Moorseville. It will add 367 workers and more than triple local payrolls.
- The Charlotte Douglas International Airport is undergoing a 10-year expansion that will cost $2.5 billion.
Charlotte’s Population Is Booming, Too
With the continued boom in job opportunities, people continue to come to Charlotte in droves. The city’s population grew by 15.1% in 2016, which was more than double the rate of the rest of the state. But it’s not only the employment trends that are causing the uptick in population.
Charlotte is home to some of the top public school systems in the country, which is a major selling point to families and young people who are planning to start a family soon. Charlotte is also ranked the sixth for lowest cost of living out of all the United States tech hubs, and it’s also one of the few cities located in the southeast U.S. that has an extensive public transit system.
This combination of a strong employment market plus various quality-of-life features are attracting Millennials by the bunches. From 2011 to 2016, the 20- to 34-year-old age group grew by nearly 10% in the Charlotte metro area. At the same time, though, older people are finding Charlotte to be attractive, too, because of the low cost of living. In that same five-year time period, the 55-plus age group expanded by more than 20%.
These two age cohorts have a strong interest in the rental market. That’s because rising home prices and interest rates make it more difficult for people relocating to the city to purchase a new home, and it keeps current renters out of the purchasing market for a longer period of time.
Single-family rental homes are sure to face competition from new Class A apartments for tenants, but this multifamily development is largely concentrated in the Uptown/South End and Rock Hill/Fort Mill areas. Single-family permitting activity has climbed steadily over the past four years to 15,500 homes in 2017, up 7% from the previous year. Multifamily builders, meanwhile, pulled 15,200 permits in the fourth quarter, more than twice as many as the year before.
This influx of new apartments and strong home buying activity is expected to increase single-family vacancy to 6.8%, up 40 basis points from the year before. Average rent is also supposed to increase, up 2.8% to an average of $1,344 per month.
Charlotte’s single-family rental market remains strong, even though the point of entry is getting higher. The median sales price of an investment property was $140,000 during 2017, which was a steep 12% increase from the previous year. In 2016, the median sales price increased 4%. In fact, the Charlotte investment market is so strong that it’s attracting plenty of out-of-state capital for its affordable prices compared to other cities and the high demand for these rental properties.
Average cap rates ranked in the high-5% range last year, which was down about 100 basis points from 2016. These lower returns were due mainly to higher prices, but yields plus appreciation have averaged in the double digits over the past several years. The mid- to lower-tier properties are more attractive for investors who are seeking shorter-term gains.
Where to Invest in Charlotte
With all the factors above, it’s clear that now is a great time to invest in the Charlotte housing market. There are plenty of opportunities to invest in the Charlotte metro region, both inside the city and outside in one of its many affluent suburbs. The suburbs in the metro region could provide good opportunity because you won’t be competing with multifamily developments for the rental pool.
Here are a few prime investment opportunities in single-family homes in the Charlotte suburbs.
Wingate is a suburb located about 30 miles southeast of Charlotte. This four-bedroom, two-bathroom home has 1,873 square feet and is a two-unit home. With a purchase price of $139,900 and an investment of $50,672, the home could return a projected rent of $1,250 per month. That would result in a 10.72% gross yield and $7,943 in net operating income.
Kannapolis is a suburb located about 25 miles northeast of downtown Charlotte. This home has 4,002 square feet of living space with four bedrooms and four bathrooms across two units. The home has a purchase price of $219,900, and with an investment of $78,822, it could result in a projected rent of $1,790, a 9.77% gross yield and $10,906 in net operating income.
This home is located within the city limits of Charlotte, only approximately 10 miles from the city center. The house is a single-family home with three bedrooms, two bathrooms and 1,133 square feet of living space. The purchase price is $150,000, and an investment of $53,500 could result in a projected rent of $1,200. That would end up with $83,25 in net operating income and a 9.60% gross yield.