Any obvious misses in this report?

Question

View report

Found a renovated triplex in Strawberry Mansion. The numbers in terms of cash flow are quite good considering this would be a turn key property. Too good to be true? Any large expenses that were overlooked?

For the monthly rent in the report, I'm assuming this rent breakdown:

2BA/2BR - $1,200

2BA/1BA - $1,000

*This link comes directly from our calculators,                  based on information input by the member who posted.

Sheryl Sitman · Answer

@Harry Brodsky A few things -it is still early in SM so check that your expected rent is justified by actual settled comps. Does anyone rent 2 bed within .25 mile radius for $1200?  You are not really near Brewerytown there. Your tenants may not be as solid as you seem to think they will be since it is still a very rough neighborhood. It is early there so you need to understand what that means. Get the property inspected. Go there and walk around the area. As part of due diligence maybe visit L&I and make sure it is zoned and permited as a triplex.

Lu Kang · Answer

@Harry Brodsky

To share some comps, I own a triplex that received a face lift in 2012 and bought from prior landlord in 2017 in Overbrook.

(1) (2/1) and (2) (1/1).

(Taxes) When I purchased in 2017 my taxes were 1900 first year, currently they have increased to 3000 a year. If you don't have an abatement, I can all but guarantee that your taxes of 100 per month is too low. City has an inconsistent methodology on assessing taxes, for me I think they saw the purchase price (215,000) and just decided to increase.  I'm also the only multifamily on the street, so I didn't have enough comps to challenge.

Misc Fees (Water) I pay roughly 150 a month, or around 50 a unit. (Philly water also includes sewer) With more bedrooms plan to pay more then the 25 a month, closer to 175.

(Common Area) I pay roughly 30 dollars a month for electric in the common areas, shared basement, fire system.

(Trash) You have a multi so this is an automatic 300 dollar a year fee.

(Fire System) My triplex came with a unit and you also have to perform yearly inspections. Between 100 to more if you need repairs a year

(Licensee) Rental License 55 a unit per year

(Property Management) 8% of Gross rent seems in line. With three units, unless you plan to place tenants remotely most quality PM's will charge at least one month rent to help find. Granted with a nicer unit, maybe you will average two to three years per tenant but being remote also plan to pay this fee.

As @Joe P. mentioned above your mortgage rate seems aggressive.  As a non owner occupied, I had to pay 70% LTV at 4.5%) Got on 03/1/2018 (I paid cash for unit and then did cash out refinance) Now you may get the 4% but I think the LTV has to be lower to either 75% or 70% for multis based on the lender I use.

Brewerytown and Francisville are hot areas, but you are quite a few blocks north. A few years back I used to hear that it was good at Girard and creeping up to Cecil, so maybe the new norm is up to Diamond.

Steve Babiak · Answer

I agree that the water is low; you will more likely see a monthly use closer to four times the number you have there. Could even be higher depending on number of people actually living there.

As to property taxes, input the address into atlas.phila.gov and look up the actual taxes from the OPA number there. No reason to guess.

Joe P. · Answer

Check your taxes and water, both seem incredibly low.

Manny Cirino · Answer

I'm not sure if you are getting any seller concessions, but the closing cost of $5,000 on a $320k property seem extremely loan. Repair cost also seem low unless the property is turn key.

Harry Brodsky · Answer

@Joe P. Awesome, thank you. I will do a deeper dive based on your recommendations. I appreciate your thorough response.

Joe P. · Answer

Allright, taking a closer look and pointing out some more issues:

• Have you confirmed the closing costs with a realtor? I'm willing to bet 5k is too low. Your half of the transfer taxes will be about $4800.
• Your repair costs of $1000 is going to get you killed. You say its turn-key, so that tells me one of two things - you're paying for the property to be "rent ready" which means low margin, and/or the aforementioned and stuff isn't quite rent ready, which you'll pay for on top.
• Have you confirmed rate/points with an actual mortgage person? I have perfect credit and when I bought my duplex last year, my rate was 5.625%
• Your vacancy will cover only 2 units for a month. That might be low...up to you to decide.
• I don't know if you updated the report, but I'd venture to say you're probably paying $50 per unit for water every month.

I really like the 50% rule which is your P&I + 50% of rent as expenses, its a decent barometer of how things will actually go. It says your cash flow will be closer to $377 a month, which I don't necessarily disagree with.

I would seriously...very seriously...consider confirming the numbers above. And all are easily found. Check in with the current owner on their water costs per month, have them send you bills. You can then check the rates with several mortgage people. You can speak to a realtor who can pull up a general closing statement for you at $320k.

A lot of people get paralysis by analysis, and that's a shame...but what's more of a shame is not doing enough due diligence. So I recommend confirming some of these items which don't pass the smell test.

Harry Brodsky · Answer

@Steve Babiak It's around W Diamond between N 31 st. and N 32nd st.

Steve Babiak · Answer

That’s one of those block by block areas IMO (and I’m not familiar with all blocks near there), so to get an idea of that being “war zone” you’d have to give the street and cross streets, or the address leaving the last two digits as ‘X’.

Harry Brodsky · Answer

@Joe P. @Steve Babiak, Thank you for informing me about the water costs. I will update accordingly in my numbers. I double checked across multiple sources and confirmed that the 2020 tax amount was just under $1,200. While these sources could be wrong, I haven't been able to find any contradictory information.

I feel like my rent numbers as well as my expenses (with updated water expense) are relatively conservative. Any other red flags I might be missing? Also, what are your thoughts on the area? I know it's not Center City or Fishtown, but I do like the proximity to Brewerytown and the park. Would you consider mid-south west Strawberry Mansion to be a 'war zone'?

Any obvious misses in this report?

Most Popular Reply