Scranton and Wilkes-Barre

[Jesse Hodges]

The Scranton/Wilkes-Barre area housing prices seems to be really low for multi-families that still have solid rents. Example: 90K asking price for 6/2 (with minimal rehab needed) while average rents are $700-850 for 3/1 in the area. To me this looks like a slam dunk for cash flow. Am I missing something? Id love to hear from anyone else that has invested in multi families around this area and what their experience has been. Thanks!

[Chris K.]

@Eric Johnson

Fun trivia: Scranton actually has a large paper company that Dunder Mifflin is based on. They technically sell other supplies as well. Last time I spoke with the owner, they were doing about $50 million a year in revenue for that side of the business. They even have a little room dedicated to the Office.

@David Smith

$1400 is too low for $90k. But building that generates $1400 don't really go for $90k. That's on the high end for a duplex in the area. 

@Jesse Hodges

I have repeated the following for a long time on BP so perhaps people are sick of it. But the Pennsylvania real estate market is loosely sorted into the following groups: 

       - Philly/Pittsburgh

       - Allentown/Lehigh Valley Area 

       - Harrisburg, Scranton/Wilkes-Barre, Lancaster, York/Hanover, and Reading

       - Everything else

As a general rule, the higher categories have more chance to appreciate; the lower categories have more chance to cash flow. These are just generalities --- each market has its own unique characteristics and good/bad areas. But it could help you narrow down where to look in PA depending on what you want to do. 

I say the above to point out that there is a "secret" market in Pennsylvania. I don't have the precise data in front of me, but my guess is that the above areas have been the largest populated areas for over 100 years. While people living in a certain area may feel that their market is the best. But for all intents and purposes, they are comparable to other areas found within its category.   

In the past 50 years or so, the only real category change has been the Allentown area. They went from a city comparable to the other areas in the third category. Then they had population growth. That meant the cap rate got lower and a lot of people made good money. But that probably doesn't really matter to you now since it looks like the market stabilized. 

If you want to invest in Pennsylvania, my advice would be to pick an area and focus on that area. Markets obviously matter. But a lot of long-distance investors fail because they can't build a good team.And one reason they can't build a good team is that they are too scattered. It's really hard to build a solid team with one or two units. You need a cluster. 

If I had to bet on one of those markets for future growth, I would bet in the Lancaster area. There's a lot of interesting stuff going down there. But for now, it's too similar to the Scranton/Wilkes-Barre market. I can't justify going down there to invest in smaller units. 

That's especially true when I balance the potential growth with my strengths as an investor. My construction crew and material vendor network are in the Scranton/Wilkes-Barre area. The fact that I'm a lawyer is more valuable here than down in Lancaster when you factor in travel time and network of other lawyers. Those factors make it unlikely for me to go to another location in Pennsylvania to invest. 

In short, look at your own strengths/weaknesses and pick a place that is right for you. I'm not saying markets do not matter. I'm just saying it's not the only factor you should consider. 

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.