North Carolina Rehab Projects: Insights from a Local Lender - RCN Capital

November 21, 2023

Mitchell Zagrodnik from RCN Capital shares insights about rehab fix & flip projects in North Carolina - trends, challenges, and more.

Video Transcript

Speaker: Mitchell Zagrodnik, Partnerships Coordinator, RCN Capital

What are some of the trends you're seeing with rehab projects in North Carolina?

Mitchell Zagrodnik: So while RCN capital's home base is located in Connecticut, we actually have an office down in Charlotte, North Carolina as well. We have about 30 employees working out of that location and to get some local insights into the area and the type of flip activity that we are seeing down there, I reached out to a few of our team members and from what they have told me a lot of what we're seeing with these rehab projects in that North Carolina area is adding square footage to existing properties. So we have a lot of families that wanna, you know, move into that Charlotte area and as well as the surrounding cities. Charlotte itself, Gastonia, Durham Raleigh, Kerry, those are the cities where they're seeing a lot of this action and with families looking to move into those locations, they want to make sure that the property is big enough to feel comfortable and accommodate them. So we're seeing a lot of these heavier rehab deals where they're trying to add square footage into these single family homes. That's a majority of the work that we're seeing down there. And those are the areas that we're seeing those in.

What are some of the challenges your real estate investor clients have been facing lately in North Carolina?

Mitchell Zagrodnik: So a lot of the challenges that our investor clients are facing down in Charlotte, North Carolina are very similar to the challenges people are having throughout the US when it comes to flip deals, right? Profit margins being too low. This has to do with, you know, material costs going up as well as, you know, after repair values coming in a little bit lower than expected, that's been very common. So even if the initial plan is to flip, you know, sometimes we'll see investors decide to change over and hold the property long term. And then, you know, making sure that there's a buyer when these properties get relied median home value in Charlotte right now is, you know, around $350,000. So, you know, investors just have to be cautious about the amount of rehab that they're putting into these properties for resale. Because if the value is a little too inflated, you know, that kind of checks off a base of buyers there that aren't willing to pay so high. So you're seeing experienced investors be a little bit more strategic, a little more lighter cosmetic rehab on these deals and, you know, looking to make a nice quick profit on a short term time frame as well.

What is the more common investment strategy for your clients? Fix & Flip, or Rehab-to-Rent?

Mitchell Zagrodnik: Just the feedback from our team down in Charlotte is that the common investment strategy down in North Carolina areas that they work in is mainly going to be fix and flip. So these investors are looking to sell these properties after repair. Sometimes in the case where, you know, after repair value doesn't really hit where they need it to and the profit margins might look a little lower, they might transition and decide to hold that property long term. So that scenario does come up every now and again. But at the end of the day, I think the original plan is mainly to sell this property. Ground up construction has been growing in that area as well. So our team is seeing more and more opportunities for that and getting a lot more inquiries regarding those types of loans.

What types of projects do you like to lend on in North Carolina?

Mitchell Zagrodnik: So at RCN capital, when it comes to rehab projects, we'll do it all. We'll do cosmetic light, moderate, heavy rehab. But when it comes to North Carolina and the action that we're seeing down there, a lot of what we've been doing is adding that additional square footage to current properties which constitutes more as heavy rehab. So when we're looking at heavy rehab projects, we'd like to make sure that the investor has some experience doing those type of projects handling work at that scale that makes us feel a little bit more confident in the loan and it allows the investor to get better terms on their deals as well.

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