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Downtown Raleigh at night
Downtown Raleigh at night, courtesy of Brian Griffin
Steve Deaton grew up in Southern Pines, NC, where he graduated from Pinecrest High School. He attended North Carolina State University and graduated with honors in 1979 from the School of Design. In 1981, he founded Deaton Investment Real Estate to focus strictly on the brokerage of multi-family property.

Deaton's tenure in the industry and involvement in more than 1,100 transactions gives him insight into local and national real estate trends. Many of the systems and marketing initiatives he created upon founding the company remain intact today, ensuring every customer, whether buyer or seller, receives comprehensive attention and above all else, a smooth, profitable transaction.

Deaton has created a dynamic, education-oriented work environment and enjoys educating others regarding real estate's financial—and personal—benefits. Deaton has held leadership roles and served on the boards of several Triangle business organizations. He lives in Raleigh with his wife of twenty years and two sons.

NuWire: What is it in your opinion about the Raleigh market that should be exciting for investors throughout the U.S.?

Deaton: I think that Raleigh would be classified from a real estate standpoint as sort of a tertiary market. You've got...primary markets like New York City and...Los Angeles, places like that, and more and more Raleigh is showing up on the radar screen as one of those up and coming cities.

So I think the pure growth of Raleigh in the future and how attractive it is to live here, work here, climate, quality of life, all of that...is driving the investment in Raleigh.

NuWire: Can you expand a little bit about the job growth and commerce that's happening right now in Raleigh?

Deaton: Raleigh's been blessed from the beginning with a pretty diverse economy....Of course it [is] the state capital, so you've got all the government jobs that are here. We've got three universities, literally within 20 minutes of one another...NC State, UNC, which is in Chapel Hill, and of course Duke University, which is in Durham.

A lot of people who have come through here to go to school fall in love with it [and] want to live here; they either stay or they come back eventually.

What has driven the economy [since] the 1950s and 60s is the Research Triangle Park where...IBM, high tech companies exist, pharmaceutical companies. That really has been one of the drivers of the economy. Now we're starting to see companies like Fidelity Investments come in where you're now seeing as a result of 9/11, financial companies start to place locations other than in the New York Cities and L.A.s and places like that.

So there really is a lot of new activity from a job growth standpoint, but also I would say the other key driver is in the entrepreneurial side. Raleigh has shown up on a bunch of lists as...one of the best places in the country to start a business, so you're seeing a whole lot of small company growth....In the '60s, '70s, '80s, it was big growth from big numbers of jobs out of huge corporations like IBM. Now it's primarily going to an internal growth as a result of just entrepreneurialism.

NuWire: How has the Raleigh real estate market changed over the last few years, and how do you see it changing over the next five years and beyond?

Deaton: [The] Raleigh real estate market's just growing up. When I started 25, 26 years ago, you didn't have even brokers specializing the way that they do today. Everybody is specialized at this point.

The other big thing is that we've shown up on...the national scene. Five years ago, we really didn't have that many investors from out of state coming in here....Most of our calls today are from out of state investors. So that's how it's changed. I think that will continue to be the case as we grow.

NuWire: Which areas and neighborhoods in the city are currently experiencing the greatest amount of growth, and why?

Deaton: I would say that most people would argue it's downtown. For years and years there's been an effort to bring downtown back in Raleigh, just like there has been in many...mid-sized cities. It's finally happened, and really for the first time ever, Raleigh is turning into a 24-hour city in the downtown area.

As you radiate [out] from that center, you begin to see the neighborhoods...that maybe weren't the best in the world five years ago are now changing and as a result of that you've got opportunities for real estate investment in those areas.

NuWire: Which areas of Raleigh or even the outlying cities would represent the best opportunity for investors interested in maximizing their cash flow?

Deaton: In most markets...the lower income area is where you're going to be able to maximize cash flow....In our particular market, that tends to be just from a demographic standpoint the...southeastern quadrant of the city, and you see a lot of people who are primarily driven by cash flow investing in that part of town.

NuWire: Which areas or neighborhoods would represent the best opportunity for people interested in long-term appreciation?

Deaton: I would say that here it's in an area that we call "inside the beltline" [of Interstate 440]....That's an area where it is pretty much built out. You've got a lot of established residential neighborhoods in there, some established commercial, and there are mixed in...small apartment properties.

They're very expensive but have shown over the last 10 years certainly, and I believe it will continue, that the appreciation factor is very high. In fact, I've looked at numbers that suggest it's doubled there what it has been in other parts of town. Of course, you're not generally getting cash flow; in many cases, you're feeding the property, so it needs to be double. It's just a different strategy.

NuWire: Which areas would you recommend for people that are interested in doing rehabs and flips?

Deaton: I think rehabs and flips are generally best done in areas where you've got the market going with you. You've got an improving neighborhood on top of everything else.

Therefore, I would say those areas on the fringes of downtown. It's the area that you wouldn't have considered investing in five years ago that today doesn't look so bad because of all the money that's being poured in.

NuWire: Which of those [investment strategies] have been the most successful within the market in Raleigh?

Deaton: I don't look at it in terms of strategies being successful. I look at it in terms of the investor being successful. I find that all the strategies have been successful, but they've been successful with investors who've specialized in a given strategy. I don't find that the investors who try to do all things are necessarily successful. I find the guy who's really good at doing flips and knows how to do that is successful. The investor who really focuses on cash flow and knows where and how to get that and...they don't try to do everything else, they're successful. Same thing on the appreciation side. It really tends to be more about, in my mind, finding the strategy that you're comfortable with...and don't try to do everything. So they all work, but they don't all necessarily work for one person.

NuWire: If you invest in real estate personally, can you tell me a little bit about it?

Deaton: I like to buy small properties, small multi-family properties that are mixed into existing residential neighborhoods, for the most part. I'm one of those guys who likes to buy for appreciation....I've got a business here, I have cash flow today....I'm 50 years old; I'm looking for things that will pay me later, not necessarily today.

So I try to find properties in...downtown inside the beltline area where I can pay for them as a result of tenants living there....Hopefully somebody will want it [more] than I do at some point in the future for redevelopment or for some other alternative use. That might be that they knock it down and build a single family house or it might be that they accumulate several properties together and build high rise condos or something.

But that really is a strategy that works for me, and it works for me because I have current income, versus another person who might be doing this full-time and need current income and would be a cash flow buyer.

NuWire: Are there any other trends, whether economic, demographic, housing within the Raleigh area that you think investors should be aware of?

Deaton: Our market's not that hard to figure out. It's just been on a growth trend, a very gradual growth trend, since the 1950s, and it's continued unabated with the one exception of 2001. We've had job growth every single year except 2001.

We've just got such a stable economy here. We are not flashy. We don't tend to be a boom/bust kind of a market....We're very much a steady growth market. So I think that's the thing...people need to understand about Raleigh is that that's been the trend for a very long, long time and it's a good...steady market to be in over the long haul.

NuWire: What areas do you see as areas of future opportunity for investors within the Raleigh market?

Deaton: As you look at the growth, you can take some of the history that's taken place and apply that to where we're headed....Where the real appreciation has occurred in the past...was inside the original loop of 440 that is now pretty much built out. We have a second loop—it's not complete yet, but the 540 loop—and as you look into the future I believe that the area inside that loop over the next 10 years will become as popular and will appreciate much the same way as the properties inside the original loop did, especially to the north....The higher income areas are...to the north and the northwest and I think you're going to continue to see that as...land is developed that those areas become more and more valuable and popular as time goes on.

NuWire: Are you experienced in student housing? And, if so, can you talk a little bit about what opportunities might be there within that market?

Deaton: We really are not heavily involved in the student housing market. We have sold a number of properties that are certainly student type properties, but we haven't been involved from a development standpoint.

Our student housing market actually got very overbuilt, I would say about four or five years ago, and we're still recovering from that to some degree. We've got big numbers projected for student populations, especially for NC State University because we've got an entire campus that's being built that is as large as the original campus, but I think developers got a little bit ahead of themselves, and that was one of the more overbuilt areas of our apartment market and remains that way to some extent, though it's improving the way the rest of the market is improving.

NuWire: Is there anything else that we haven't talked about that you think investors should be aware of?

Deaton: Understanding where we are in the market cycle. We really have been through a cycle from about 2001 to about 2006 of...vacancies had been fairly high, we had not had increasing rents, in fact rents had pretty much been flat for awhile. And we've come out of that, gone through a bottom and now are in a very healthy apartment market as an owner and we're seeing rents increase, we're seeing vacancies decrease.

The interest rates obviously are impacting that even further. The subprime problems that have occurred, reducing the number of people able to buy houses, forcing them into the apartment market, all of that's working especially in our market with the improvement generally in the market to really drive rents and decrease vacancies in the apartment market....We're in a cycle that probably if history holds true...has just begun and will last anywhere from five to 10 years.