ANATOMY OF AN ALLENTOWN DEAL

[Cal H.]

ANATOMY OF AN ALLENTOWN DEAL

Hi All,

BiggerPockets.com has been a game changer in my life. It has provided me with a wealth of information, inspiration and guidance. I can without a doubt say that BP was responsible for my latest deal, so in the BP spirit I want to contribute and share with everyone.

BACKGROUND:

I currently own a property in Boston and a 2 family brownstone in Brooklyn, NY where I also live. I have a day job and I’m not an investor with a lot of extra cash lying around and considering what is going on in Boston as well as Brooklyn, I just can’t afford to buy in these markets anymore without selling something off. (Current strategy it so hold for another 10 yrs, or do a 1031 in 5, 10 years. So for the past year I have been scouring BP for areas where I could get a 2-3 family under 200K with a good return. I drove to Trenton, Albany, Poughkeepsie, Port Richmond, Burlington (NJ) over several months just to get some boots on the ground info and vibe.

My investing strategy was simple. I wanted good rental income with A/ B+ tenants. Any else was gravy. There were pluses and minuses with all these areas (high taxes, high crime, distance, declining or stagnant downtowns).

I chose Historic Allentown, PA.

It’s 1.5 hr door to door from Brooklyn on a weekend morning. I love the Victorian/Federal style architecture and character of the housing stock in the the Historic Distict, and after working out some preliminary numbers I thought it would generate decent rental income.

Historic District Allentown

THE PROPERTY

Historic 1868 2 family house, (2 BR & 1 BR) corner lot, newly renovated kitchens and bathrooms and totally modernized inside, 3 car parking, outdoor decks on N 7th St. It's also 4 blocks from the newly revitalized downtown area on Hamilton St. Low operating costs since tenants pay for everything, heat, electric. I only pay for Sewer & Water.

THE NUMBERS

Purchase price: 180, 000 ( there are many 2 F well below that range with great potential)

30 yr

25% down

4.65% interest rate

Rents in Historic Allentown would get me at least $900 for the 2 BR and hopefully at least $800 for 1 BR. Turns out the property already came with aB+ tenant paying $900 for the 2 BR (that’s on the low side, I will be able to get more next year, closer to $1000+), and I just signed a lease for the 1 BR for $895.

So, the 2 BR rental takes care of my mortgage and some of my operational expenses, leaving me essentially with the $895 from the 1 BR to put in my pocket!

OUTCOME:

I have decided not to use a property management company since the house is in great shape and the interiors were recently renovated. I have built a relationship with a local handyman to take care of minor stuff if needed. Or I will drive the 1.5 hrs on a weekend.

As mentioned, I bought this property from strictly an income generating side. I mean I did realize there was a big revitalization effort going on downtown, but it wasn’t until after I closed that I did some serious research into what is really happening there. The same week American Airlines 15 page spread on Allentown came out.

This area is very late to the Live-Work-Play dynamic that has happened in most urban areas across the country so I’m excited about the potential for appreciation on this property in the next 5-10 years. I think it will be particularly attractive to NY’ers priced out of Brooklyn and other areas based on its proximity and small town vibe.

FINAL THOUGHT

I have read many posts where people called various downtown areas war zones, etc…discouraging and disparaging comments in my opinion. Words such as war zones, “urban” are often code for where brown and black people live, not where danger necessarily lives… Most of my success in real estate has come from not listening or paying attention to thinly veiled racism or socio-economic discrimination. If you can see danger for what it truly is then you have so much more to see.

So my advice would be to get excited about a couple of properties, get yourself a great investment broker and go put your boots on the ground to truly get a sense of a neighborhood’s vibe. Otherwise you are just perpetuating prejudice and you are missing out on some fantastic investment opportunities. 

I would love to share any other insights or thoughts on Allentown if you want to contact me directly. Thanks!

[Josh Caldwell]

Your deal sounds nice, but you missed the boat on the term war zone.  The correct usage of the term is a place where people have  close to the same chance of graduating high school as they do of getting shot. Part of Chicago come to mind.  My town of Pittsburgh doesnt have a true war zone, but they do exist and it has nothing to do with racism.