comprehensive Infographic of Analyzed Data for the South East Market of Charleston, Charlotte, Raleigh, Memphis, and Lousiville by Madison
This market report is a review of the single-family rental asset classes in Charleston, Charlotte, Raleigh, Memphis, and Lousiville.
Charleston, South Carolina
Charleston has an above average price-to-rent ratio of 13.73 meaning the market slightly favors buyers over renters. The demand in the market is strong with a net absorption of 7,884 units, 1.37% of total housing units. However, the demand is significantly outpaced by supply with a relatively high number of new constructions. There is a large net increase in the available supply of rental units in the area indicating a weakening in the rental market which will eventually lead to lower relative rental rates and decreased yields for investors. Investors in the Charleston market should not expect great returns from payments but should expect very strong capital appreciation due to the markets high homeownership rate of 71.1% in 2018. Homeownership implies a demand for housing by higher income earning individuals which will drive property values up.
Charlotte, North Carolina
The Price-to-Rent ratio in Charlotte is 13.57 indicating its initial yields are slightly lower than the national average, but it could be worth it for some investors to accept a slightly lower yield in exchange for the safety and security that the market offers. The supply and demand drivers are really in a sweet spot with demand a little bit stronger than supply, meaning yields will likely gradually increase moving forward. However, the rental market is not so hot that it would cause developers to flood the market with additional supply. The market demand was able to absorb 23,309 units and there were 26,712 new units constructed. Charlotte has a split of homeowners and renters that
Raleigh, North Carolina
The Raleigh rental market is somewhat speculative for investors with lower than average current yields, but a market that is rapidly tightening to favor landlords. The current Price-to-Rent ratio isn’t attractive to rental investors at 14.65, but the demand in the market is strong with 17,269 net units absorbed and the supply doesn’t seem like it can keep up with the total number of rental units only increasing by 6,570 units. The relatively small increase in rental units is surprising when compared to the 20,760 newly constructed units, which indicates that the demand for housing from homeowners is strong and will result in increased property values in the future. The Raleigh market appears to be a market that will offer investors a balance between yield growth and capital appreciation, but is likely only suited to long-term buy and hold investors.
Memphis has a stagnant rental market even for its size but rewards investors with significantly higher than average yields due to its Price-to-Rent Ratio of 11.11. The supply and demand drivers are about 1/3 as large as other markets in the number of units when compared to total units. The supply is weak with a net increase of 15,090 units making up only about 7.67% of the total housing units. The demand is also weak with a net absorption of only 3,081 units. The supply and demand in the rental market largely cancel each other out with the tendency for newly constructed units to rent out at a much higher than average rate than previously constructed units. Memphis is well suited to the value-oriented investor with its low property prices that also allow room for capital appreciation.
The market is relatively small in Louisville, but has a relatively high absorption rate of 2.32% and increase in rental units of 12.4%. The ratio of new units / total units is very low at 0.84%, meaning that many of these rental units added to the market are due to owner occupants renting their homes. This could be problematic because it might indicate that homeowners are leaving the area and renting their homes instead of selling. This is bad because it adds supply to the rental market and reduces supply in the sales market which will reduce investors yields. The price-to-rent ratio in Louisville is already lower than the national average at 11.93, which means yields are already high. Louisville has the potential for attractive investment opportunities, but it must be watched closely.