Is this duplex in Scranton Pa too good to be true?

Question

I found a duplex in Scranton PA its 1930's 6 beds/2bath per side in a decent neighborhood close to schools hospitals ect and it listed for $139,000 I can get him to around  $120,000.   According to my calculations for the property including mortgage, taxes, insurance, Maintance, vacancy, Capex, Prop Mgmt are around $1740 per month and one side is already rented for $1500.  If I can rent the other side for $1450 that cash flow $1,209 a month or $14,514 a year.  That seems to be ridiculously good.  It makes sense from a COC return, it would be a 10 Cap, the 2% rule check it just seems to good to be true.  Knowing that I can only get him down to abound 87% of market value but the cash flow is very high for the area.  Am I a fool for not jumping on this already or is there something that I may not know considering nobody else has jumped on this property already. Thanks for the input!

Adam Guiffrida · Answer

Christopher,  if I had to guess it is a duplex on Prescott Avenue? If so, I have the 6 unit next door. $1,500 is well above the norm for that type of unit. I have a few $1500 three and four bedroom units but they are completely remodeled. If I’m correct on my location than it’s a solid rent but just figure your financials more conservatively because when the lease is no longer active it might be hard to replace it with that much rent. The Hill Section is a strong rental market but if that lease was for students, than it would be between $2500-3000 per month. Student housing is very profitable but the foot print of student housing in Scranton is small. Currently I have 2 student houses left which I will most likely market in early 2019.

@Amy Engelhard

@Christopher Madden

Good luck!

Zachary Paschke · Answer

Single Family homes in Scranton go for about $800-$1,200. Maybe they were paying utilities. A lot of people expect utilities to be paid if you're collecting more than $800 on a multi-family.  I would doubt they're getting that much unless they're renting out rooms. There is a big business in Scranton renting rooms for $500/ each (sometimes even doubling up rooms for a little less). I personally don't like that kind of business, but a lot of people do it. I'd prefer to try to find a way for people to live a little better than that.

You really have to be careful about Scranton agents. Many of them think they understand rentals and they don't. If something like this doesn't sound right, and you want to move forward just get long term proof. I would want to see records, bank statements and to interview tenants to make sure it's all on the up and up.

If you're going to pay property management in Scranton (you have to by law) I would ask your property manager what they think about that rent. Whenever I see a property manager's rent price I feel it's low  I think they do that to place tenants quick. I would make sure your property manager is ok with the rent rates

In Scranton you can always look for hidden profit in other places (like downtown parking, garages). There are sooooo many good deals in Scranton. I'd look for a less expensive duplex that will bring in a $750 (the most popular market number) - $850/month. You'll make the most money in the hill section or near a school or hospital.

Good luck! Full disclosure, I just placed tenants in my first rental, so I don't have a huge history to pull from, but if there is anything I can help with, let me know.

Marc Winter · Answer

Chris,

We (Landmark Management) just took over the management of this property.

The rented side is paying $1,500, the other side is vacant and being shown, asking $1,400.  Decent interest from prospects, but no qualified applicants as yet.

@Adam Guiffrida is right--the rent is higher than norm for the area unless totally updated and rented to higher income tenants, OR to large family/multiple tenants.

Good luck.

Christopher Madden · Answer

@Adam Guiffrida Thanks for the insight. I just ran the numbers at $1200 a side and they look good and still work well.  The property went under contract and came out and I was told there was some work that needs to be done and I am wondering if $120,000 ish might be to high of a price to pay for a duplex.  Like @Marc Winter said he has been trying to rent it at $1400 and isn't having luck getting an acceptable candidate. At the end of the day I think my unfamiliarity with the Scranton Market is making me hesitate, and if you ran the numbers Adam why would you not move on it?  The numbers seem to work and the fact its still has yet to sell is weird because it seems to be in a decent part of scranton.  That street in Particular has a mix of both some very nice properties and some that need work.  Talking it out on the forums seem to help in the process and I appreciate you both taking the time.

Adam Guiffrida · Answer

@Christopher Madden, yes I agree about having a little lag between leases. $1500 is high but obviously not out of the question. I’d figure 1200-1500 for that big of a unit. But numbers still work out. Throw some coin operated laundry in each unit to make up the difference if you fall below $1500 per unit. At $1100 per set, you’d have ROI of 12 months.

As for student housing, I’m going to market one or two for sale early next year. Student housing near University of SCRANTON, bedroom rates range from $500 to $625 per month. Student housing is very profitable but it’s a different animal.

Amy Engelhard · Answer

1500/month is severely limiting your tenant pool in Scranton though I think it is possible depending on the condition and location.  @Adam Guiffrida has some higher end rentals in Scranton and could probably advise you better.

I would verify what utilities your are responsible for.  Your expenses you list could be a bit higher than your estimates (especially if you are paying heat, in winter, with old 1930's windows, yikes).

Good luck!

Kevin Sobilo · Answer

My concern would be durability of rent on units like this. If I'm expecting a top rate of rent and the market for that unit at that rent is thin, will I have more vacancy or will I have to reduce rent?!? Also, if economic conditions take a downturn will I have to cut rent.

B/C rentals are durable because everyone has to live somewhere, but other types of rentals might have a little more risk associated.

A deal like this would sound good to me as long as it wasn't my only horse in the race (I had a stable portfolio generating positive cash-flow) and I was prepared mentally and financially to deal with potential vacancy or modestly lower than expected rents. Even moderately lower rents would probably yield a good return.

Christopher Madden · Answer

@ Adam Guiffrida I do agree about parking in the back, I also think the front needs some tlc as well to boost curb appeal.  I like your point on adding insulation in the 3rd floor as well.  I factored in 10% of monthly rents for maintenance and Cap EX.  I realize that might be a little low but I would figure in a rehab budget for up front costs if I did purchase it.  I am glad to hear it is a good neighborhood I went up to the street a few times and just parked and had a coffee and it seems like a solid place for an investment.  I also like that your property is located next door because it is very clean and well maintained. I hope your Reno's are going well.

Adam Guiffrida · Answer

Chris,  no worries. Everybody is unfamiliar with their market before they jump in. It takes many years of involvement to really get a good grip on the market.   I still think the property is a decent deal. There are a few value add improvements that you might consider. If you believe a small strip of asphalt in the back of the property it will create three or four parking spaces. This is always a nice incentive for new tenants. Also, consider spray foaming the third floor attic Or roof line. This is where 80% of your seat is lost. If the tenants are paying utilities is very important to make them as efficient as possible. This will allow you to warrant a higher rent as well as retain your tenants longer.

As for me, I am slowing up my acquisitions at the moment. I am renovating quite a bit of projects and do not want to be overburdened.  I’m out of the vents are higher on the property, are you plan on keeping reserve for capital expenditures. It is an older duplex and will require constant maintenance And upgrades. Besides that, you are in a great neighborhood which is plentiful of tenants

Is this duplex in Scranton Pa too good to be true?

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