Tiffany Elder, Raleigh investor
NuWire: Can you give me a little background on how you got started in real estate investing as well as your current involvement in it?
Elder: My personal investing started in 2003 here in North Carolina after completing my graduate studies. I found myself at a little bit of a crossroads and wasn’t necessarily thrilled with the prospect of reentering corporate America. I sort of felt like, okay, I’ve been there, done that....[I] considered the opportunities that were in front of me and said, “Well, let me give a go at entrepreneurship.” So, fortunately, those MBA studies put me in a mindset of starting a business and being able to run a business of my own. So I launched a real estate investment firm here in the Triangle in 2003.
NuWire: So you work with investors through that company now?
Elder: That company is primarily for my own personal investing. I’m also a...real estate investors’ broker here in the Triangle, as well. And I have a lot of brokerage business focusing on real estate investments, whether they be rehabs, rentals...equity investments, things like that for my investor clients. So I’ve sort of split the fence with my activities.
It’s kind of funny, when you come out of business school and you’re put back into...work mode, and you realize, “Okay. I’m starting a business.” And there’s always that hurdle that you have to get over starting a business. My first goal was to bring cash into the business. So my investing activity started out with a lot of wholesaling. I did a lot of short sales, quick flips, things like that, just to bring the cash in. And eventually it allowed me to broaden my activities into rehabbing and condo conversions and rentals and historic renovations and now new construction and a few larger development projects. So brokerage on one side, investing on the other, and everything in between.
NuWire: You’ve mentioned that you’ve done short sales and flips within a short period of time, and obviously your specialty in real estate right now is the flip. So, can you talk a little bit more about how you...came to that process and the types of properties that you...started buying, and then the types of properties that you’re now buying and...compare those stages in your life?
Elder: When I first started, I was a little more conservative, as I would assume most investors are when they’re first getting started.
I...started in the starter home...to first move up home market, which in this market, in Raleigh-Durham is anything $200,000 and below. Our median home price right now is I believe at about $223,000. A couple years ago, it was a little bit lower than that. So, pretty much anything $200,000 or below.
I worked a lot with individuals who were facing...foreclosure or situations on their home where they needed some assistance. So that’s where the short sales went in....You...go in and create a win-win situation. It’s very time-consuming, but...the good thing was, back then I had a lot of time...and not as much liquidity. So I was able to focus my efforts on that end.
The quick flips...my first deal, for example, was a property that I found...[where] the family was behind in payments. They were actually about to leave the country to move to Romania to do missionary work....They said, “Tiffany, we just don’t want to come back in two years and have a foreclosure on our record, so anything you can do to help would be great." And fortunately we were able to work out a short sale. I had another investor here in the area that was looking for a property below market that he could put a tenant into...hang onto it for a couple years and liquidate it down the line if he needed the cash out of it. So, flipped it to him...and everything’s worked out on both ends on that.
So that was the very first deal which...was a short sale and a wholesale to another investor. Which for investors who are getting started and might not have as much liquidity as they want, it’s really a good way to get started because you can start to build your cash pretty quickly, which will allow you to venture into...larger projects down the line.
My first rehabs as well were...a little bit more conservative. I wanted to stick to the cookie cutter, paint and carpet. Nothing too adventurous, just because...I wasn’t familiar with it then....Currently I’m working on a historic restoration project...which is right now I think the largest project that I’ve worked on individually on a property. But it’s a beautiful...100-year-old home here in Durham, right outside of downtown, and...[I'm] just having a really good time bringing it back to its former glory. But as opposed to that, those first rehabs that were pretty much paint, carpet, switch out an HVAC unit...fix the roof or replace the roof, change out light fixtures, etc., and update a kitchen....This [current] one includes all that, plus...changing around an obsolete floor plan...putting a lot into the foundation and making sure it’s structurally sound and quite...a lot of plaster work, which anyone out there who’s worked with plaster, you know my pain (laughs). But I love it anyway. But, you know, a much larger project.
I’d probably say over time I’ve just become a little bit more adventurous in the types of properties I’m willing to walk into. But really it boils down to as long as the numbers work, then it’s a go.
NuWire: When you’re looking for...properties that you want to fix and flip, when you evaluate them, what are you looking for in terms of their potential?
Elder: Really, it boils down to the numbers. After I consider acquisition costs, carrying costs, repair costs...profit margin...all of those other miscellaneous...a contingency factor, as well. If it’s still something that comes out in the black, then...it’s definitely a go. The benefit that I have right now is that although I’m an investor myself, my brokerage activities allow me not necessarily to miss out on those other deals. Just like right now, I’m working on this project. And it’ll probably be my focus for the next several months, but...other potential projects that come across my desk, I’m able to do that first filter, just to make sure it’s a viable project and then...send that out to my investor clients. Because one of them may be looking for a project at the time and might not necessarily have the time or ability to find it. So it’s sort of a win-win....I still get the chance to consult on a lot of projects that I might not take on myself....I’ve worked with quite a few investors here in the area who got started renovating homes and was able to work with them on their first couple of projects to get them going...just to make sure they knew the ins and outs. So it’s rewarding on both ends because I get to...be in the trenches myself and be active in it, and I get to work with and help others, as well, along their path.
NuWire: When you’re looking at different types of properties, what kinds of things bring up a red flag for you?
Elder: Speaking of rehabs specifically, the one challenge that’s sometimes a little bit hard to get by is just a functionally obsolete home...that occasional home that you’ll find that...has you walking through a bedroom to get to a kitchen...or it has six or seven bedrooms and one bathroom....Homes and their purpose years ago...were very different than our intent for use for them now. So sometimes that functionally obsolete home might cost a little bit more to bring it to a standard where someone today would want to purchase, and it just makes the numbers a little more difficult. But that’s really the only thing that would stand out as a red flag.
On the rental side, I would say just properties that don’t fit the norm for the area as far as what would draw a tenant to it....Here, we’re a metro area, but we’re a cluster of smaller cities. So there are a lot of business centers; there are a lot of educational centers; there’s transportation; and there’s shopping almost everywhere, which...makes it really easy for investors because there [are] so many different niches here and nooks where you can pick up an investment property if you’re a buy-and-hold investor.
But if you’re a little bit further outside of the city limits in the county...with that property that’s off of the bus line and away from shopping...mentally, you have to make a mental note of: Okay, there might be tenants now. However, when it gets to a point where I have a vacancy, am I really going to be able to rent this again? Those are the only properties that I would say really throw up a red flag on the rental side because it doesn’t really fit the norm of what’s here in the Triangle.
NuWire: What type of house...have you found [makes] the best flip in any given city, and why?
Elder: Location should probably be the most important driver in a rehabber’s decision to purchase a home. I personally want to be where people want to live and where they want to buy....I don’t want to have that beautiful home that’s in a location that’s less desirable, or...that’s in a location that’s a little more difficult to get to, because your pool of potential buyers is going to be a lot smaller than if you fit something closer to the norm for the area.
NuWire: In the different properties you’ve participated in terms of doing fix-and-flips, what type of price range do you normally target...and what sort of profit?
Elder: The profit’s going to vary depending on the type of project....The project that I’m working on now, given the time involved, of course, there’s a much larger profit motive in there. If I can get in and out then...I’m fine with a little bit less on that end....I’ve seen a lot of...let’s call them “gurus,” for lack of a better word...teach formulas where, you know, buy it at—I think one of them was 70 cents on the dollar, minus your repair costs, minus your carrying costs, or, you know, minus a couple thousand below that. Which is fine, but the investor that strictly follows that rule is going to miss out on a lot of opportunities to make money, wherever they’re located.
I follow the market here really closely, and I like to be, whatever that mean price range is, the average price range, I want to be within one standard deviation of that price range, just because that’s where most buyers are buying, and that’s...the sweet spot for the market. In this market, Raleigh-Durham, it’s anywhere from about $125,000...up until about $280,000, which is a broad range...but it leaves a lot of opportunity there because everything within those two price ranges right now is moving...pretty well.
I have noticed, at least in this market, and I would venture to guess in a lot of other markets that the higher price ranges have so little competition from investors as far as going after those properties and reselling those properties, that those higher price ranges can sometimes turn out to be really good investments...because of lack of competition. You’re the only fish in the pond....If you are a little bit more adventurous, definitely don’t be afraid of those, but I personally like to just be within one standard deviation of that mean.
NuWire: For any typical [remodel] project...what are the most important pieces that an investor can look at undertaking?
Elder: Kitchens and baths and curb appeal are the three most important things....Curb appeal because...a potential buyer makes their decision within ten seconds of walking in your home...even though they haven’t seen the entire home....So definitely, your curb appeal is important because if they don’t like what they see on the outside...by the time they open the door and walk in, unless it just wows them completely, they’ve already sort of set the bar in their mind. And they’re just going to make baby steps up or down from that in their mind.
Kitchens and baths...need to be updated and up to par....As long as everything else is clean and neat, and they can envision themselves living in that space, then...the investor should be fine.
NuWire: What are some of the biggest mistakes you see investors make when they try to flip houses?
Elder: I would say the biggest mistake that I see investors making is getting too attached to the home and trying to make it their home. And I guess the best way to explain that is: remodeling a home to their tastes versus what’s driving the market....And the way to get past that is for investors to get out there.
If you’re working with a real estate broker in that neighborhood, you need to get out there with that broker and see what your competition is on the market...and see what’s selling in that market because that bright red wall that you might think is really sexy and really pops and looks great with the black and white frames...the family might walk in and see that and automatically think, “Ah, that’s a wall we’ve got to paint.” And that just drove down the price on that property.
Investors should not remodel a home to fit their own personalities
So...definitely not putting too much of your personality into a home and not remodeling it as if you were going to live there. Now, I say that with a caveat in, you do want to remodel it to make sure it’s as structurally and mechanically sound as you would want it if you were going to live there. But as far as your personality on the cosmetics...try to pull back on that a little bit. That’s one of the mistakes I see folks make. They either overdo it or they under-do it....They put a little too much in or they sort of scrape by and slap on a coat of paint and put in some cheap flooring and don’t go in and do the little things, like changing doorknobs and wall plates and all those other things that after everything else is painted and looks great...those few items are going to look even worse next to the finished product. And, once again, it’s going to set that perception in the end buyer’s mind.
The other mistake is trying to make the numbers work....I’m very numbers-driven. Numbers aren’t going to lie to you. Either it’s going to work or it’s not. And once again, after you consider your acquisition costs, your closing costs...your carrying costs, your incidentals, which means your prorated taxes and insurance during the time that you’re holding....You have to have electricity on while you’re doing the rehab. Just a lot of those little things people forget and you really have to factor it in, because if you don’t consider it, it’s either going to come out of your check or come out of your pocket at the end of the project. So, considering all of those items...and considering your profit margin, whatever that profit margin is, considering that as a factor in the project and putting that dollar amount into the project. And then after all is said and done, if you’re still in the black, then it’s a go.
I think a lot of investors, they fall in love with a house, and they’re like, “Well, I can pay maybe $6,000, $7,000 more...for the house. I’ll just cut corners somewhere else and make it work.” And you really, really shouldn’t do that. Because if it doesn’t work on paper...with all of the oops and uh-ohs that happen in real life, you don’t want to be stuck in that situation.
NuWire: What are some of the major lessons that you’ve learned as far as doing rehabs? And what advice would you offer somebody who’s just getting into the market and getting started in doing either rehabs and flips, or just investing in general?
Elder: My advice would be: Get started....That’s a decision that you have to make that you want to create this as an avenue to better your quality of life and make a better life for your family in the long-run. But a lot of investors sort of mind-talk themselves, I guess, for lack of a better way to call it, talk themselves out of investing. Or they convince themselves, “Well, let me just read one more book on lease options,” or, “Let me just...watch one more TV show on rehabbing.”
And please don’t...watch those TV show and think they’re true to form, because there’s a lot more that goes into actual rehabbing projects....A lot is edited out of those, so that’s definitely not as true to life....But they...have their place, as does anything else.
But I would say for investors, get started, because you learn while doing. You can read every book and talk to every person who’s doing it, but the difference is, they’re doing it.
So just get in there. Make sure you have a good team in place....Go out there and find a good attorney. And if you want an investment-focused broker on your team, get out there and find one, either in your local real estate investors association...online, or elsewhere, and get some references and just get started, because if you have a good team in place, you’re not out there alone.
The first deal, I can guarantee you, is going to be the scariest and the most difficult. I remember that first deal that I told you about...with the family moving overseas, and I was terrified because, one, it was my first deal and I had my name on the dotted line on the contract, and it was official, and I was like, “Oh my gosh. What am I going to do?” But...at the same token, I was nervous because I felt obligated to make sure this worked out for that family.
So my advice to any investors starting out...is: Just get started, and make sure you have good people around you to look out for you and to help move things along as smoothly as possible. Everything else will fall into place.
NuWire: How has having your contractor’s license helped you with remodeling? And is it something that you would recommend serious rehabbers go out and get?
Elder: It depends on their long-term goals and on the norms in their area with regard to contractor pricing. I knew...when I got started that I wanted to get into new construction and larger development projects. So the contractor’s license helped to position me for that down the line....At the time, I had the time and the ability to pursue the education and pursue everything for the license. So it was...something that I put in place to help me down the line.
Now, for an individual who’s just rehabbing, and that’s what their goal is...rehabbing and getting into landlording, it might be a little bit of overkill to have a contractor’s license just for that because if you find good tradesmen, and you find a good contractor to oversee your projects, you don’t need necessarily a contractor’s license. Now, I say that understanding the norms of the markets in which I’ve lived and seen investments, which are Chicago and Raleigh-Durham. In other markets, you know, I don’t know if contractors are...putting such a heavy margin on top of the work to be done where it makes it not cost-effective to have that contractor versus being that contractor yourself. So it really depends on the market that you’re in.
But if you can find contractors that you trust that are reasonably priced, then just having a contractor’s license for the renovation is probably going to be a tradeoff between you’re putting in a lot more work versus just getting a little bit more out of the deal at the end. And it’s a preference decision, but if you have aspirations to use the license for other things down the line, then...it’s definitely a good thing to put in place early on.
NuWire: How much time on average do you typically spend on each rehab project that you do?
Elder: That depends. It depends on if I’m working on it individually and with a partner. It depends on which of my contractors I have on it, as well. Most rehabbers have several contractors, tradesmen...handymen, etc. that they work with. And depending on the level of the person I have working on the project, that’s going to dictate how much oversight I have to put into the project.
If it’s something where I have a handyman taking care of things here and there, and I have to get by there and be on site every day just to check up on things...there’s going to be much more of time commitment and involvement than...a project where I have a general contractor overseeing it. And the tradeoff is I’m paying him for his time so that I have a little bit of my time...for other things.
So that’s really going to depend on the project itself and who I have overseeing the project....Sometimes, for smaller projects where the margins might be a little bit tighter, but it’s still in the black, and it’s still worth doing, handyman pricing is going to be more attractive than general contractors’ pricing....But...that’s a decision that I have to make in my mind that I have to commit that additional time. So that really varies. I can’t put just one number on it.
NuWire: How do you go about selecting subcontractors, and do you typically work with the same people?...Where do you find them, and how do you...filter the good from the bad?
Elder: A lot of my contractors that I’ve worked with over the years...were referred by other investors. One thing you’ll notice in the investment community in a lot of locations, because I’ve heard the same...with my associates out in Vegas and Seattle and Chicago and everywhere else. When individuals find good contractors, they sort of hold them close. And they’re slow to give their names out because they want them to be available for their next project....They don’t necessarily want to have to wait and...get in the queue of...waiting for them to be able to start.
I think the best source for finding contractors for projects is word-of-mouth, definitely checking with individuals in your local real estate investors association, and seeing what contractors are well-known and respected in that organization.
And some of my fellow driven women out there might not agree with this, the comment I’m about to make, but I’ve found that being a woman actually...helps with finding contractors because men inherently don’t assume women understand the contracting, just overall and what’s involved in fixing things. So sort of playing into their mindset can help to get a good gauge on the level of integrity that they have because, you know, you call a contractor to a home, ask him for pricing and he gouges you on the price...that sort of lets you know. And especially if you know what the work is really worth and...what their profit margin is on that job, it sort of lets you know that, over time, that might not be someone that you want to have a long-term contracting relationship with, unless you...get past that hump and have a conversation with them and bring them back into reality and move forward in that way. But sometimes women, I think, have a little bit of a leg up on that because...it’s easier for us to find people who we can know are going to be dependable...contractors with a high level of integrity and good character, because if they don’t try to take advantage of you when they don’t think you know what’s going on...down the line you don’t have worry about things going wrong.
I remember one project...I really needed contractors and everyone was booked....I drove a couple of the new construction worksites. And...there are all of these crews working on different phases of new construction....And if you find the right one and just ask them, “Do you guys do side work when you’re not busy?” Sometimes they do. Sometimes they don’t....They may be very loyal to their builder. Sometimes if their builder isn’t too busy at the time, they’ll be very open to doing side work. And...if they’re good enough to put up new construction, they’re probably good enough to...do some drywall and painting and electrical work, if they have licensed electrical tradesmen on site, as well, for your own project.
NuWire: How many properties would you say you’ve invested in or worked with?
Elder: It’s hard to separate it out because sometimes I have an equity interest in projects with my clients, sometimes I’m just a consultant and sometimes it’s just my project.
I started here in ’03—there have been several dozen that I’ve worked with in one way, shape or form over the years, which is nice because you get to see different personalities and work with different types of people....It’s definitely been several dozen over the last few years as far as rehabs and quite a few more than that as far as myself and working with clients on rental properties.
NuWire: Is there anything else...which you think might be important for investors who are looking to flip a property to know?
Elder: I would say don’t be afraid to get started investing....I was surprised to learn that a lot of investors who might not necessarily have liquidity, but who may have sizeable retirement accounts aren’t aware that you can invest with your retirement funds. You can transfer them over to a self-directed IRA or another vehicle that allows you to invest.
Don’t let lack of something keep you from investing because right now in the market that we’re in...we’re...positioned, especially here in the Triangle, for quite a bit of growth down the line. And I know quite a few other markets in the U.S. are doing pretty well, as well....Right now I think Utah’s doing well, Texas, New Mexico...is doing well also.
I would say just find a market that you’re comfortable in that’s at a price point that you’re comfortable with, and whether you’re getting started in investing for rehabbing or for long-term holds, just because you might be lacking on one end, you can find some really creative ways to pull the finances together. And all you need is that first one, and you can build from there.
