Tiffany Elder, Raleigh investor
NuWire: What is it in particular about the Raleigh-Durham market that should be exciting for investors? What advantages might it have in comparison to other areas of the U.S.?
Elder: A large percentage of my client base is outside of North Carolina and they've realized the benefit of investing here.
Raleigh right now is on the beginning of that growth curve that a lot of [other] areas witnessed several years ago. Whereas other areas may be in a little bit more of a decline after steady growth, we're starting on that upward rise, and that's typically a good time to get into a market.
NuWire: Can you talk a bit about the job growth and commerce in the Raleigh-Durham area?
Elder: We have had solid job growth in recent years. Several years ago, Research Triangle Park (RTP) was one of the main employment centers in the Triangle. There are over 100 companies housed in Research Triangle Park, which is actually part of southeast Durham. The Triangle is made up of three main cities (Raleigh, Durham and Chapel Hill) with Raleigh being the largest of the cities. Research Triangle Park is central to the three areas. You’ll find a lot of IT-based companies, research-based companies, some government facilities, etc., like the EPA, etc.
In years past, when IT took a little bit of a downturn, many of those companies let go of quite a few of their employees. Right now, we're seeing a little bit of an upswing, especially with those companies and a lot of smaller and medium-sized companies that are migrating to the Triangle because quality of life for their employees is very good here, the cost of living is very reasonable and the state has given notable incentives for certain types of companies to enter the area here.
So we have seen some solid employment growth, and I believe at present we're at one of the lowest unemployment rates we've had in several years.
NuWire: How has the Raleigh market in particular changed over the last few years, and how do you see it changing over the next five years and beyond?
Elder: I've definitely seen the market pick up....Non-owner-occupied property and rental property has definitely grown. The rental market has strengthened....Of course, the rental market tends to run opposite the traditional housing market. As interest rates drop, it makes acquiring financing a little bit easier for the typical tenant, so that would-be tenant then moves over to purchasing their first home. As interest rates start to incline, however, it makes finding those specialized loan programs that might help that tenant become a homeowner more difficult, so those...would-be homeowners revert back to being tenants....So even though interest rates are still near their historic lows, they are on a bit of an...incline, so we have seen the rental market itself come back stronger than it has been in years past.
NuWire: Which areas of the city in your opinion are currently experiencing the greatest amount of growth, and why?
Elder: As far as residential development, there are quite a few spots in the cities, and I think the reason for that is because the Triangle is made up of several different locations. Apex has been growing tremendously. Apex [is] located a bit south of Durham and Cary and that city has grown...[in] both residential and commercial development. Many of the local residents who previously lived in the three primary cities (Raleigh, Durham, Chapel Hill) are now moving down there, as are a lot of individuals moving here from out of state.
We have a couple of pockets within the cities as well. Raleigh downtown is seeing a lot of condo development. Southeast Raleigh is seeing a lot of new construction. The downtown area of Durham as well is growing tremendously. There's a new area, sort of east Durham, northwest Raleigh called Brier Creek, which is a country club area that has a lot of commercial development going in and a ton of residential, and those values have been strong recently.
There are a couple pockets in north Raleigh that have seen a lot of growth, so it's not concentrated in one area. The good thing about the Triangle is that since we are spread out, there's something for every investor's appetite going on somewhere in the cities.
NuWire: [Which areas] represent the best opportunity for investors who are exclusively in maximizing their cash flow?
Elder: That depends on if individuals are interested in student rentals or in rentals to the general population excluding students....We have UNC, Duke, North Carolina Central, North Carolina State, Meredith College, Shaw University... and countless other educational institutions in and around the cities, so anyone who's open to...undergraduate student, graduate student and professional student rentals, etc., can find a wealth of opportunities in and around those universities. I believe this is one of the reasons why the Triangle has been pretty sound with regard to rentals and property values in those areas is because we always have a steady influx of students, assistant professors, etc., at those universities who are looking for housing.
If you're looking for rental housing that caters to a non-student population, the other good thing is that we have employment centers scattered around the Triangle. Raleigh is the state capital, so of course that's a pretty sound employment center where, if you're somewhere around the periphery of downtown, you can likely have solid cash flow.
Research Triangle Park, if you're in or around that area, you can probably have some solid cash flow opportunities for rental properties there. And in and around the hospitals as well. Duke University and UNC Chapel Hill both have world-renowned hospitals that are always bringing in residents, etc., so locations convenient to those locations are formidable as well.
NuWire: Which areas would be best for investors who are interested in capitalizing on long-term appreciation?
Elder: I would say one of the higher demand areas right now is Brier Creek. Chapel Hill over the last five years has appreciated a little more steeply than some of the other areas in the Triangle...however, the other areas don't follow too far behind. If the future mirrors the past, then Chapel Hill, Cary, Apex and a few other locations will probably do very well. Now in the past five years, every area in the Triangle has fallen somewhere between that 2 and 9 percent appreciation rate....But those specific areas and maybe half a dozen other pockets within the Triangle are the ones that stick out as performing a little bit better than the norm.
NuWire: Which areas would represent the best opportunity for investors interested in doing rehabs and flips?
Elder: Really, that can be anywhere, because you make your money on a rehab when you buy. And if you buy it right...looking at the numbers and making sure that the numbers are working in your favor...taking into account your expenses, your carrying costs, your expected holding time, etc., then really anywhere across the Triangle can be good for something that you're going to purchase and rehab and resell.
NuWire: Which investment strategies have been most successful in this market?
Elder: In a lot of markets, investors have to decide based on what the market is doing whether or not going in to flip or going in to buy-and-hold are better options, and the nice thing is in this market both of them are very viable options.
NuWire: Have you seen investors make any common mistakes in the Raleigh market?
Elder: Yes, probably the same mistakes investors make everywhere, which is...not taking a close look at the numbers and letting their emotions take over...as opposed to...letting the numbers dictate whether an investment is going to be successful or not.
Underestimating on rehabs is another mistake I see investors make. I notice a lot of folks watching the television shows...which are great because it gets the enthusiasm up for real estate investing, but they don't show the reality of really paying close attention to the numbers. And sometimes I question the validity of their numbers...when they...show this is what you bought it for, this is how much you spent on the rehab, this is how much you sold it for, and sort of putting that out as the profit, one has to question where they are accounting for other costs (holding costs, closing costs, pro-rated fees and...builders' risks insurance). These items really have to be accounted for in that formula too.
So I think not analyzing the numbers and maybe tying emotions into it and wanting the cute house versus wanting the money maker, those are probably the common mistakes....Those are likely no different than any other area.
NuWire: Are you able to tell me a little bit about your investments, the types of homes that you buy or the types of properties you buy and just kind of how you work there?
Elder: They run the gamut. Over the past few years I've done everything from wholesaling properties to condo conversions to historic renovations to...traditional bread-and-butter renovations....You name it, I've either done it or worked on it or advised a client through it.
I hold a general contractor's license here in North Carolina, so I lean to the rehabbing side right now just because this is a fun market to be able to do that and...it definitely works here. I grew up in a family of commercial real estate investors...buy-and-hold investors, so of course that's in me as well. But the Triangle is good for both.
NuWire: Why do you think that renovations...[are] good in that market?
Elder: We're in such an affordable market. I think last year in 2006 the average home sale price...was in the low $200,000s for the median home...which is really reasonable when you look nationwide.
And it makes it nice on the resale side as well because a larger percentage of our population can afford the median home than in most other cities.
NuWire: Are there any other trends, whether economic, demographic, housing, development-wise within the Raleigh Durham area that you think investors should be aware of?
Elder: One thing that I have noticed, I've noticed it maybe in the last 18 months, which doesn't mean that that's necessarily when it started, but that's when I really started to notice it as a trend. There's a larger portion of the demographic that formerly retired to some of the southeastern areas like Florida and some of the other beach areas that now because of inclement weather, etc., we're noticing are coming here to the Carolinas to retire....That's a definitely a growing demographic and you see more housing that's going in specifically targeting that age group with the amenities that fit them.
We’re noticing as well the younger, I don't know whether to call them the yuppie...demographic but...the folks that want to...have all the conveniences nearby. We're starting to notice more mixed-use development going in and development that allows for a quick walk or bike ride to get to all the amenities that an individual might want versus what was previously the norm in North Carolina, which was you had to pretty much drive to get to everything that you might need.
So sort of that yuppie demographic and the retirees who are looking for somewhere...affordable with good weather...where they feel safe, etc., we're seeing a lot more of that here.
NuWire: What areas do you see may be future opportunity coming up for investors within the Raleigh-Durham market?
Elder: There have been some publications that I've read that call Raleigh-Durham "the next emerging market in the U.S."...and anytime you're toward the start of the growth curve in a market that's..."emerging" is a good time to start building a portfolio, so I definitely see that as an opportunity for individuals who are coming into this market to move into long-term buy-and-holds.
Hopefully that growth clip will continue for a while...I don't see it as something that's going to end soon but...eventually all growth has to slow down or taper off. But buying to hold and hanging on to it and realizing that growth in the market I think is definitely an opportunity for investors here. And for investors who want to...replace their income with some rehabs, etc., there's definitely an opportunity for that here as well because our median home value is so reasonable that so much of the population can afford to buy a home.
