JF2089: House Hacking to Commercial Property With Tiffany Alexy

May 22, 2020 | Joe Fairless |

JF2089: House Hacking to Commercial Property With Tiffany Alexy

Tiffany bought her first property while in college by house hacking and has continued to house hack continuously and is currently in her fourth house hacking property. Tiffany shares a story of bad luck when she decided to venture away from house hacking and into flipping. She talks about a combined strategy of house hacking and BRRRR with her office property

 

Tiffany Alexy Real Estate Background:

  • Began investing in real estate at 21 y/o with a 4 bedroom condo that she lived in and rented the other 3 rooms
  • Today, owns 10 units of commercial and residential properties
  • Started her brokerage firm, Alexy Realty Group in 2017
  • Based in Raleigh, NC
  • Say hi to her at https://www.alexyrealtygroup.com/
  • Best Ever Book: Ninja Selling by Larry Kendell 

 

Click here for more info on groundbreaker.co

 

Best Ever Tweet:

“Be creative” – Tiffany Alexy


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Tiffany Alexy. How are you doing, Tiffany?

Tiffany Alexy: I’m doing great, thanks. How are you?

Joe Fairless: I’m glad to hear that, and I am doing great as well. A little bit about Tiffany – she began investing in real estate at 21 years old, with a four-bedroom condo that she lived in and rented the other three rooms. Today owns 10 units of commercial and residential property. Started her brokerage, Alexy Realty Group, in 2017. Based in Raleigh, North Carolina. With that being said, Tifanny, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Tiffany Alexy: Sure. As you mentioned, I started investing in 2011. I purchased my first property as a senior in college, and I ended up house-hacking it… And that’s kind of what got me jump-started into my real estate investing career. I lived there for a couple years, and then I moved out, rented that one out  completely, and just kind of repeated the process, and have been doing so ever since about 2011.

Joe Fairless: What do you mean by “repeated the process”?

Tiffany Alexy: So after I rented that full unit out, I bought another one just across the street. It was a 3-bedroom/2,5-bath, and I lived in one bedroom and I rented out the other two… So I just continued house-hacking. I actually still house-hack today.

Joe Fairless: So the first one was a four-bedroom condo; the one across the street was a 3-bedroom?

Tiffany Alexy: Correct.

Joe Fairless: And you bought the first one, and then you got a loan and bought the second one, correct?

Tiffany Alexy: Correct.

Joe Fairless: And then what did you do after that?

Tiffany Alexy: I just kept doing it again and again, so now I’m in a three-bedroom townhome where I have my own room, and then I rent the other two bedrooms out.

Joe Fairless: Wow. How many properties have you purchased to do it.

Tiffany Alexy: I’m on my fourth.

Joe Fairless: You’re on your fourth – okay, cool. So you got  your first two that we talked about, and then you did it again, which was a – what?

Tiffany Alexy: It was a townhouse.

Joe Fairless: The third one was a townhouse. How many rooms?

Tiffany Alexy: It was a three-bedroom, and I rented one out. The roommates that I had at the time had access to the third room, so we used it kind of as a home office.

Joe Fairless: Okay. And then you’re on your fourth…

Tiffany Alexy: So I had one remaining in that one. Exactly.

Joe Fairless: And how many bedrooms is your fourth one?

Tiffany Alexy: It’s a three-bedroom as well. Same situation – I live in one and I rent out the other two.

Joe Fairless: Okay. And over how many years have you done this?

Tiffany Alexy: I started in 2011.

Joe Fairless: Oh, alright. I can do that math… [laughs]

Tiffany Alexy: So it’s been almost ten years. [laughs] Yeah, and there were some situations in between where I didn’t house-hack, but for the majority of the time I have been house-hacking.

Joe Fairless: Okay… So talk to us about the loans  that you’re getting on each of these four properties.

Tiffany Alexy: They’re conventional, owner-occupied financing. The first one I had to put 25% down, because it was one of those condo situations where there were a lot of investors to own the units, so it didn’t qualify for Fannie/Freddie financing… The Wells Fargo, Bank of America, the larger banks wouldn’t finance them. So I went through BB&T on the first one, and I had to put more down because of the investor concentration, essentially.

Joe Fairless: What about the next one?

Tiffany Alexy: The next one was the same situation – it was another high investor concentration, so I put another 25% down on that.

Joe Fairless: Okay. And when you say “high investor concentration”, will you elaborate on what you mean?

Tiffany Alexy: Sure. It just means the majority of the condo units owned in the neighborhood are investor-owned. So it’s not owner-occupied.

Joe Fairless: Okay. Even though you’re getting an owner-occupied loan.

Tiffany Alexy: Correct. I believe the rule is if it’s over 50% investors in the actual subdivision, then they require some additional steps.

Joe Fairless: Okay… I hadn’t heard of that.

Tiffany Alexy: Yeah, it’s called non-warrantable.

Joe Fairless: Non-warrantable, okay. Cool. So there would be an advantage to not have non-warrantable in the loan, because them you’d be able to have less money into the property, right?

Tiffany Alexy: Yes, and that’s exactly what happened with the second two of the townhomes. So the rules don’t apply with the townhomes. So my third – I was able to put 10% down, instead of the 25%. And then the one that I have now, I’ve put 3% down.

Joe Fairless: Wow. You’re getting better. [laughs]

Tiffany Alexy: Yeah, exactly.

Joe Fairless: How low can you go.

Tiffany Alexy: Exactly.

Joe Fairless: What is the reason why you were able to do 3% on this fourth one?

Tiffany Alexy: I don’t know, it was just a loan program. Conventional was going down as low as 3%.

Joe Fairless: Okay. Same lender on the 3% and the 10%, the last two?

Tiffany Alexy: No, different lenders.

Joe Fairless: Who did you get on the third one, and who did you use on the fourth?

Tiffany Alexy: The third one was First Citizen, and the fourth was Benchmark.

Joe Fairless: How do you find your lenders?

Tiffany Alexy: Honestly, they find me. It’s just word of mouth, networking, pretty much just organically.

Joe Fairless: Okay. So thinking back with benchmark, for example, what is the first time you came in contact with the point person that you ended up going with at Benchmark?

Tiffany Alexy: With Benchmark I actually found out about them through a client. I was helping a client purchase an investment property, and his lender was put in contact with me, because I was his agent… And I really liked the lender, because he was very communicative, always responsive, super on top of it. And my client got a great rate, so I was like “Okay, I’ll keep you in mind for the next one.” And it just kind of worked out that way.

Joe Fairless: Okay. You’ve been doing it for approximately nine years… What are some things that have gone wrong?

Tiffany Alexy: Oh, a lot has gone wrong… So I will tell you about a situation where I got in a little bit over my head as far as a flip. I purchased a 2,600 sqft. duplex in Ayden, North Carolina, which is about 15 minutes South of Greenville, where East Carolina University is. And you see HDTV and you think it can be easy… It’s not the case. I bought it from a wholesaler who had the contract on the property and was selling the contract. For that reason, I got it super-cheap; it was like 28k for this duplex. It needed a lot of work. I actually had FaceTimed my contractor through it, and she gave me an estimate of about $100,000 in work.

At that point I was like “Okay, that’s still not too bad, because I’m in for 128k, and it could rent for about $700/side.” So the numbers on that weren’t too bad. The only thing is the flip took a year. There were a lot of delays, just because it’s 2,5-hours away from me, so I didn’t have a lot of time to drive to the property and check on my contractor and make sure that he was running according to schedule.

Everything was just delayed. Windows took seven months to come in, and then one came in and it was broken, so we had to send it back and get a replacement… It was just a disaster. So after about a year I got a call from the town of Ayden fire department that it had actually caught on fire.

Joe Fairless: Ohhh… After a year, prior to you renting it out, after you’d completed the flip almost?

Tiffany Alexy: Exactly. So the flip was a little more than halfway done, and it just completely torched one side. It didn’t burn down, but the entire interior of the better side was gone. It was just up in flames. So that was kind of a learning experience, and at that point I was like “I don’t wanna put another 100k into this project. It’s never-ending.” We couldn’t even have utility to the property, because it has to pass inspection in order to turn on the utilities.

So it wasn’t an electrical fire. What I found out later was that somebody had broken in and had a party, they lit candles, and just left. They’d broken through that broken window.

Joe Fairless: Dang! They got in through the window that took seven months to arrive, that was broken, that you were waiting on a replacement?

Tiffany Alexy: Correct.

Joe Fairless: And then they burned the house down as a result of it.

Tiffany Alexy: Yeah, so that one was boarded up, and they just took it off.

Joe Fairless: Okay… Insurance?

Tiffany Alexy: So everything that could have gone wrong, went wrong. Yes, I had insurance, thank goodness. So I was able to get that money, and I was done. So I basically broke even, which is a lot better than what could have happened.

Joe Fairless: What was the insurance process like?

Tiffany Alexy: It had to be a vacant policy, because there was nobody living at the property. It was one that I had to renew every couple of months, because it was a vacant policy, and it was more expensive because of the risk associated… Which, obviously, for good reason.

Joe Fairless: Yup. Thank goodness you had that policy.

Tiffany Alexy: Yes, I’m very glad I did that.

Joe Fairless: What was the check amount that they cut you for the fire.

Tiffany Alexy: It was 67k.

Joe Fairless: Okay… So they cut you a check for 67k, and you bought it for 28k… What did you end up doing with the property?

Tiffany Alexy: I actually essentially just gave it to an investor I know, that was in the area. He was my property manager at the time as well, and I just wanted to wash my hands of it. So I sold it to him for $10.

Joe Fairless: Okay. [laughs] So you had put in 28k, and you got a check for 67k… So you had about 42k in profit. However, that doesn’t factor in paying the contractor, and holding costs and all that… So you’re saying essentially the 42k was wiped away? It was about that, it wasn’t anything more…?

Tiffany Alexy: Correct. It was between 40k and 45k.

Joe Fairless: People always ask “Well, why would someone give a house away? What are the circumstances?” Here’s a circumstance. You gave it for ten bucks.

Tiffany Alexy: Oh, absolutely. Yeah, it was just one of those where I didn’t wanna continue dumping money into it. I was busy with my brokerage at the time and I just didn’t have the time… And he was local, 10-15 minutes away from where he was, so it made sense for him, because he could get the property for very little, and essentially his money in would be all the repair costs, and then he could rent it.

Joe Fairless: Okay. And how long ago was that?

Tiffany Alexy: That was last summer. I sold the property to him in July.

Joe Fairless: Well, you “sold” (in air quotes), right? Ten dollars… [laughs]

Tiffany Alexy: Yeah, exactly.

Joe Fairless: And have you kept up with him and the status of the property?

Tiffany Alexy: No, I actually haven’t.

Joe Fairless: Aaagh…

Tiffany Alexy: I need to follow up with him and see what’s going on, see how he’s doing.

Joe Fairless: You haven’t talked to him since you got the $10 bill from him?

Tiffany Alexy: No. He sent me a referral or two, but I haven’t asked him what he’s done with the property.

Joe Fairless: That is a challenge, and thankfully you had insurance. I think that’s a big takeaway, having insurance on the vacant property. If presented a similar opportunity in the future, what choices would you make that are different from the choices you made on this deal?

Tiffany Alexy: First of all, I wouldn’t have bought it…

Joe Fairless: Why? Why wouldn’t you have bought it?

Tiffany Alexy: Well, I bought it sight unseen. That was my first mistake. Not necessarily that buying sight unseen is a mistake, but it was in a market that I didn’t know, and I just thought, “Okay, well, it’s 28k. Even if it goes South, it’s so cheap…” So I put it under contract sight unseen, which typically is not that big of a deal, especially in North Carolina, because you have the due diligence period, so you can still back out… But once I was under contract, I felt kind of obligated to purchase it. And not out of anything that anybody else was doing, it was just kind of my own feelings. So that was the first mistake.

The second mistake – I didn’t get a home inspection. It was primarily because I knew that it would need a lot of work. It was essentially gonna have to go down to the studs and be completely redone… So at that point I was like “Well, I don’t need a home inspection. I know that it’s gonna need a ton of money and a ton of work, so I might as well just save that money.” But what I didn’t know was the joists had been rotted out because of termites, so essentially it was about to go 20k over budget to replace the joists. And that’s what was partially why it took so long as well.

Joe Fairless: Windows and termites.

Tiffany Alexy: Exactly.

Joe Fairless: Thank you for sharing that.

Tiffany Alexy: Of course.

Joe Fairless: Those are takeaways that are applicable to a lot of people, and I’m grateful that you mentioned that. What else has gone wrong?

Tiffany Alexy: With that deal or with other deals?

Joe Fairless: With another deal.

Tiffany Alexy: That one was essentially my one and only flip experience. Everything else that I have has been buy and hold. So on the flipside, I’ll give you an example of one that has worked out really well. I currently have an office – it’s in Cary – and I kind of did a double strategy on this. We talked a little bit about house-hacking… If you’ve heard of the BRRRR method, which is the Buy, Rehab, Rent, Refinance, Repeat – I kind of combined the two on this office that I have, and it’s worked out really well.

Essentially, I bought it similar in a way to my owner-occupied properties. It’s just an owner-occupied office, because I was using it for my business. I’ve found it a couple of years ago, it was listed for 175k, and it needed a lot of work. These buildings were built in the late ’70s, so it was just really old, and hadn’t been touched since then. It still had a wood-burning stove in the main lobby area, that was connected to the chimney.

Joe Fairless: Well, that’s got some character.

Tiffany Alexy: Yeah. For sure, it does have character. Orange [unintelligible [00:16:59].03] carpets…

Joe Fairless: [laughs] Even more character.

Tiffany Alexy: Textured wallpaper… Exactly. So it was kind of an ugly duckling, but there’s not a whole lot of inventory as far as office goes here, so I snapped it up and paid the asking price. I’ve put in about just over 40k in work.

What I did was added the chair molding, the [unintelligible [00:17:23].26] put in luxury vinyl  plank floors, repainted everything… It has a lot of that intricate dental molding, it’s got that thick crown molding, and that was a pain to pay somebody to paint. So it took a lot of paint for that… But I essentially just redid everything, including the bathroom, and I rent out a couple of the other offices. So it’s got technically four office spaces. I use one. One of the other offices I rent for $500/month.

The upstairs is kind of an oversized office. I rent that for $650. And then the last office, that is not my own, is the largest one, so I turned it into a conference room. I use that for my clients, but I also rent it out on a website called LiquidSpace, which is similar to Airbnb, but it’s for office space… And it’s just like an hourly rate.

So between all that, I got it rented, and then I refinanced. So I was able to pull out most of my initial equity, because it got reappraised for 250k.

Joe Fairless: Awesome.

Tiffany Alexy: So it worked out really well for me… And of course, there’s a higher monthly payment, but because it’s tenant-occupied, I’m essentially breaking even on the payments.

Joe Fairless: Bravo! What tenants do you have in there?

Tiffany Alexy: It’s a digital marketing company and a software company.

Joe Fairless: Okay. What’s the square footage of the overall space?

Tiffany Alexy: It’s just under 1,400 sqft.

Joe Fairless: Alright… And how did you find the digital marketing and software company?

Tiffany Alexy: The digital marketing company – funny enough, I used to do property management, and they were one of my property management clients. And the software company – I believe it was just Craigslist, because I had posted a couple different ads online about the office space.

Joe Fairless: Okay. And the 40k in updates that you did – what was your role in those updates? Was it the money person, or were you the one overseeing it, or were you doing it?

Tiffany Alexy: All of the above. So I was the money person–

Joe Fairless: Oh, you did it?

Tiffany Alexy: Yeah. I hired a contractor, so I didn’t do the work myself… But I helped with the design process, picked out everything, I put up the money… So yeah, I was pretty involved.

Joe Fairless: Okay. What’s something that you learned from that experience, overseeing the contractor?

Tiffany Alexy: It’s definitely to have a contingency. I went in knowing that we were gonna go over budget, just because it always happens… But it turns out that there was a bay window in the back, in the conference room, and it was actually sagging, because it didn’t have a foundation… And this was something that my home inspector actually didn’t catch.

I kind of had two options. I could add a foundation to it, or I could just tear the bay window out and make it a regular window… So what I ended up doing was just tearing it out, because it was cheaper that way, and just putting a normal window in. But of course, my contractor had to reframe and tear out the actual bay that was sticking out… So that was another 5k that I was not anticipating…

So it’s definitely to have a contingency fund always over budget, because there’s always gonna be things that you will not know ahead of time.

Joe Fairless: How much should we over-budget when we put together a plan?

Tiffany Alexy: I usually just add 10% to the overall total.

Joe Fairless: Okay. So in this case, those 40k – what did you initially budget? Was it 40k, or was it 35k?

Tiffany Alexy: I initially budgeted 50k.

Joe Fairless: But you said you put in 40k, so–

Tiffany Alexy: Yeah, we still came in under.

Joe Fairless: You were under? Wow…

Tiffany Alexy: Yeah. So initially what I was thinking was 50k.

Joe Fairless: Okay…

Tiffany Alexy: So it worked out. But I always think more.

Joe Fairless: What caused it to be under?

Tiffany Alexy: There were a couple little tradeoffs… Let’s see. Upstairs, I initially was gonna put the LVP flooring, but I decided to go with carpet instead. One, for soundproof, and then also there were stairs that were a little bit narrow, so I didn’t wanna put the hard, slippery flooring, just in case. So I ended up putting carpet upstairs. That saved some money.

I got some quotes for the exterior, and I used a different contractor for the exterior, which saved me some money as well, because he actually was doing the office next door, so he was able to give me a better rate.

Joe Fairless: Okay. And how did you come in contact with that contractor?

Tiffany Alexy: The person who owned the office next to mine actually just sent me an email and said “Hey, I’m actually getting work done on my office. This is the guy that I’m using. He’s willing to help you out”, because he knew that I was doing work to my office as well.

Joe Fairless: Okay, cool. Good timing, and nice people, connecting the dots. Well, taking a step back, based on your experience, what’s your best real estate investing advice ever?

Tiffany Alexy: My best real estate investing advice ever would be to be creative. Situations where the office happens, everybody that hears about what I did with it – they’re kind of astounded that I did it, but it really wasn’t anything groundbreaking or magical; it was just a matter of me moving in and being creative and renting out the extra spaces that I didn’t need. So it’s creativity and efficiency, really.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Tiffany Alexy: Sure.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:22:43].03] to [00:23:26].29]

Joe Fairless: What’s the best ever resource that you use in your business, that you couldn’t live without?

Tiffany Alexy: Oh, gosh… So I would say the book Ninja Selling, by Larry Kendall.

Joe Fairless: Great book.

Tiffany Alexy: I read this book many times. I’m actually re-reading it again. It’s a great resource for those who are in sales, or sort some sort of sales-driven career, but who aren’t necessarily wanting to brand themselves as that salesperson, if that makes sense.

Joe Fairless: I highly recommend that book. One of the big takeaways I got from that book  is – using the example of a real estate agent – a real estate agent could do a very good job with a client, and then five years later, when that client goes to sell the house, they might not be the first person their client calls, because they’re just not top of mind. So it’s important that we have to be top of mind in a relevant way on an ongoing basis with our customers, in order to continue to earn their business.

Tiffany Alexy: Absolutely.

Joe Fairless: What’s the best ever deal you’ve done?

Tiffany Alexy: The best ever deal would be one of my rental properties on [unintelligible [00:24:38].18] It was one that I purchased — it was an estate sale. It wasn’t a great deal, but I knew that if I rented the rooms out individually, I could make more money.

I purchased it for 145k a couple of years ago, and I rented it out for $1,800 at the time. Since then, I’ve done renovations to it, and I actually bumped the rent up, so now it rents for $2,300.

Joe Fairless: Wow. And what would it rent if you just rented the house, not the rooms?

Tiffany Alexy: Probably closed to $1,600.

Joe Fairless: Huge difference. How much more work is it from  a management side?

Tiffany Alexy: It’s really not that much more work, and the way that I market it is I calculate how much per bedroom it would be, and then I give a slight discount. These tenants at $2,300 – the last tenants were at $2,100, but with the last tenants I had marketed it at $2,300, but they all came together; so it was four tenants, and I said “Hey, if you all sign a lease right now, then I’ll give it to you for $100 off. So between that, and then they signed a two-year lease, I ended up giving it to them for $2,100. But that’s still a huge difference from the $1,600 it would rent for otherwise.

Joe Fairless: Best ever way you like to give back to the community?

Tiffany Alexy: My first actually hosts monthly get-togethers, and we always do it at local restaurants, or coffee shops, and I like to just support other local businesses with my marketing dollars, because we’re all in it together.

Joe Fairless: Amen to that. How can the Best Ever listeners learn more about what you’re doing?

Tiffany Alexy: The best way would be Instagram. My Instagram handle is just @Tiffany.Alexy.

Joe Fairless: Thank you so much for being on the show. What a fun show, where I learned a lot, and there’s a lot of helpful information for people who are doing the house-hacking, and the type of financing to get, people who are doing commercial properties, and a case study for the office that you have, lessons on a fix and flip… I mean, you really covered a lot of asset classes today. [laughs]

Tiffany Alexy: Yes, I did.

Joe Fairless: This show has got a little something for everyone, so thank you for that. Again, I enjoyed our conversation, and I hope you have a best ever day, and we’ll talk to  you again soon.

Tiffany Alexy: Thank you for having me.

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