Philadelphia buy and hold

[Lan Huynh]

Hello BP,

I have been lurking BP for a long time, listening to the podcasts but yet to pull trigger. My husband became accidental landlord in Greensboro, NC couple years ago and we still have that property. I have a very hard time finding a rental property in Philly area that makes sense. The typical rent I see is 1% vs the 2% BP usually mentions about. 

I also find it extremely difficult to find a RE agent that knowledgeable about the area. I have a full time job so I can get conventional loan. Im looking for single/duplex and my budget is around $150k. 

If you have suggestion regarding the area, please chime in. 

Thank you

[Troy Sheets]

Originally posted by @Lan Huynh:

Hello BP,

I have been lurking BP for a long time, listening to the podcasts but yet to pull trigger. My husband became accidental landlord in Greensboro, NC couple years ago and we still have that property. I have a very hard time finding a rental property in Philly area that makes sense. The typical rent I see is 1% vs the 2% BP usually mentions about. 

I also find it extremely difficult to find a RE agent that knowledgeable about the area. I have a full time job so I can get conventional loan. Im looking for single/duplex and my budget is around $150k. 

If you have suggestion regarding the area, please chime in. 

Thank you

 Hi Lan, welcome to BP! In a $150k property it's very hard (nearly impossible) to hit $3k/month in rent, unless you're in a rough area renting to low income tenants. The 2% rule, at least in Philadelphia, only fits a narrow range of properties and areas and many times requires subsidized rents from government programs like Section 8. 

You have to run the numbers calculating all your expenses. The 1% and 2% "rules" are great rules of thumb once you know an area and have determined what a decent rent to purchase price ratio for it is. For instance, in nicer areas around me, say in Fairmount, you're not likely to even hit 1% purchasing at today's prices. However, 12 blocks North, it's much easier to pick up a house and be all-in for $50k and rent it for $1000/month. That's likely going to require Section 8 tenants and all the challenges they sometimes bring with them. 

When you're choosing an area to invest, you need to know it well and not rely on an agent. Most agents aren't investors and have no clue what a good deal for a particular area looks like. Choose an area, learn it well, then get agent recommendations for that area. I'd recommend an area you live in or near (or work near) so it's easy to keep an eye on the property. Once you have one or two you can start branching out to other areas but for now, learn one neighborhood and buy there. Make sure it's somewhere you're comfortable too. If you're afraid to get out of your car and walk around the neighborhood, you probably shouldn't buy there.