Those who miss this opportunity to act will be kicking themselves a year from now, experts predict.
The headlines seem scary, but savvy investors who understand how to separate the hyperbole from the reality are snapping up opportunities from Convergent Acquisitions and Development in the still red hot Charlotte North Carolina MSA. Convergent, which many consider the premier developer and vendor of real estate specifically for the non owner occupied (or individual investor market), dominates the market in Charlotte. They build or bring to market only brand new, rent ready, Rental that Renter Prefer product for their customers. Though the company cautions that past performance is no guarantee of the future, and all real estate has cyclical risks, the rapid rent up and appreciation of their product has created a huge following.
Convergent, a research powerhouse, concentrates its developments in Charlotte for many reasons: the super strong diverse economy, the growing demographics in all the right sectors: affluent retires, knowledge workers, creative class, and middle and upper middle class relocations from other parts of the country fuel one of the most rapid population growth patterns in the nation. North Carolina has just passed New Jersey in population, and Charlotte is its hub.
“We feel it is a mistake for investors not to consider the ballast that large cities offer to real estate values. Charlotte is not only among the top one two or three in economic strength of the 269 largest cities in the country every year according to Policom studies, it is the only city with a MSA of over one million people predicted by every credible demographic study (including the Charlotte Chamber of Commerce and the US Census Bureau) to virtually triple in size in just the next twenty years. You don’t have to be a Wharton School of Business graduate to figure out what that kind of growth means to real estate values” says Nick Sabardin, president of Convergent and a graduate of the prestigious Sorbonne University in France and a San Jose MBA.
The secret about Charlotte is now out, but Sabardin and his advisors had targeted the area four years ago as their research had tagged the area as the strongest emerging market in the country. Even more importantly say the company’s customers, Convergent applies on the micro level (quadrant, neighborhood, and product) the same expertise it applied on the macro level in tagging the region.
“Only fools expect that they can hop on the MLS or deal with a real estate agent and stumble on the right opportunity in the right area. It’s still very possible to lose money by owning the wrong product in the wrong pocket of any area, even the super strong Charlotte area” says one long time investor from California, himself a realtor. “It’s incredible how many people buy crap thinking they are getting a deal based on comps and pro forma rents. Convergent knows how to develop or acquire just the right brand new stuff in just the right neighborhoods for maximum results” he enthuses. “My family and I have bought over ten properties from Convergent , and we couldn’t be happier. I expect they will be our vendor of choice for the next ten to twenty years.”
The combination of over building and the mortgage mess has extended the opportunity for acquisition in Charlotte. The market has been identified by Forbes, Business 2.0, Smart Money, the Wall Street Journal and many other publications as being undervalued by as much as 15%, with appreciation estimated going forward by 5% to 10% per year by many experts. Last year’s appreciation was over 9% according to the Office of Federal Housing Enterprise Oversight.
“The snap back to fair market hasn’t occurred yet, thankfully” says another Convergent customer who has just bought his third property. “But it won’t be long. Even after the snap back, I intend to ride this market to the top over the next five to ten years. I hope to buy one or two Convergent properties next year as well. I see five to ten years of further strong appreciation even after the snap back”
“Those who understand the distinction between cycles and trends should see this time as an opportunity for acquisition” says noted author and educator, Professor Gary Eldred, a Convergent advisor. “The overbuilding and constriction of mortgages will stop new construction in its tracks, and that’s good for real estate investors. The cycle gives opportunities but the trend is, as always, up.” Eldred is the author of the perennial best selling “Investing in Real Estate” and “Trump University Real Estate 101” as well as more than twenty other titles on the subject of real estate. He is the co-host of the nationally broadcast “Real Estate Wealth: Myths Facts and Strategies” radio program slated for launch in September. Eldred feels that mortgage rates will temporarily go up in the riskier investment property sector, but that market forces and the huge amount of capital looking to land somewhere would seem to indicate downward pressures as the mortgage markets stabilize. “You may have to be prepared for a little negative cash flow on acquisitions, but just make sure your mortgage has no prepayment penalty. Be prepared to refi once rates plummet” he advises.
Other experts see recovery on the horizon as well. Lawrence Yun, National Association of Realtor senior economist was quoted in USA Today as saying that the inventory glut of unsold homes should be reduced by serious long term buyers, fewer new home buyers, fewer speculative investors and fewer new homes under construction. “With the population growing, the demand for homes isn’t going away-it’s just being delayed,” Yun said in a statement.
Sabardin agrees. “The slack will be consumed in as little as six months here, in my opinion. Once that happens, I expect the snap-back to fair value to begin in earnest.”
Convergent’s Executive Vice President Ray Peeples, in charge of overseeing Convergent’s acquisitions and development echos the sentiment. “Mr. Sabardin requires our product to be offered at true market. We expect huge results here as the population swells to triple its size in just twenty years, and think this market is the place to be for years to come. But acting now as opposed to a few months from now when the opportunities may be clearer to other potential buyers and the market starts moving up just makes sense. If and when the market snaps back to fair value from its current 15% undervalued state, its simple third grade math that those who control real estate like that which we sell with, say, 10% down, can look forward to a 150% ROI in short order. Savvy investors want to be in place before the snap back. That’s a good way to start a long term buy-and-hold plan.”
