Philadelphia Duplex, Mayfair Section- First Buy?

Question

Hi all,I am new to Bigger Pockets and have been doing all the research I can on my free time to learn about real estate investing. I am looking to purchase my first property, a duplex or "multifamily home". I have a friend who is a real estate agent and has been sending me lisitngs from the MLS when she sees one fit. I came across a property and am wondering if it would be a good purchase for a first home buy/ investment. Here is a little background:Very early in the year I was apartment hunting and taking a look at apartments to gain knowledge and learn what questions to ask for when the time came when I would find one that fit. I visited a duplex, pulled up out front and noticed a For Sale sign on the lawn. The landlord confirmed that the property was currently up for sale. At the time it was on the market for $179,000. I let the apartment go but took his card in case I might be interested in the property later down the line (sort of hoping it would be available still).Yesterday, my friend sent me two properties on the MLS and low and behold the duplex I originally and unexpectedly looked at is still available. Its pruchase price dropped to $174,900. Here are the financials, as listed on the MLS:Gross Ann Inc: $19,620 Total Ann Exp: $4,105 NOI: $15,515Gross Rent Mult: 8.91 Cap Rate: 8.87Ann Elec Exp: $300 Ann Wtr/Swr Exp: $900 Ann Ins Exp: $1,000This is a two-unit apartment in the Mayfair section of Philadelphia, PA, both 2 bdrm (although I would consider the second bdrm a den since it was very small). One is occupied at $735/mo. and one unoccupied at $775/mo. I would plan to live in the unoccupied unit. The building looks to be in good shape and up to date with each unit at 1,600 sq ft, 2 car garage, newly upgraded electric, 06 roof and 10 yr. heaters (assuming this information is true). I wanted to attach a screen shot of the information but am still learning how to use the tools on the forum so I am not too savy on attaching infor and docs. At a glimpse this looks to be a good first buy and I am currently waiting to find out some mortgage information. I am wondering if this might be a good property to really consider. I am sure more information may need to be provided and I am hoping to maybe update this as I receive it. Any suggestions on how to move forward or any additional analysis tips would be very helpful. I am looking to chat about this and see different views and maybe gain some insight on how to analyze given a certain amount of information and so on. Any input will help. Thanks!PS. The landlord also mentioned he would consider a "Rent to Buy" situation which I know very little about. It is obviously something to consider but I wouldn't put it as a top option.

Ryan Fagan · Answer

Welcome to BP @Victoria DeCristoforo.The first thing I would do is have the seller verify their numbers. I usually see the numbers for small multi-families to be optimistic at best on the MLS.The total potential gross should be $18,120 ($735 + $775 x 12/mo)50% rule (maybe a little high IMHO) would cost you $9,060 before financingThat leaves you with a rough $9,060 NOICap = 5.17I am very familiar with Mayfair, and depending on the location this could be quite overpriced. The Cap is way too low. As a rule of thumb I find that you should use the 1.3% rule when looking at investments in the Mayfair, Tacony, Holmesburg area. Basically, monthly rent/sales price = 1.3% If you need any advise or assistance analyzing investments in the northeast feel free to contact me, I am in agent that specializes in the northeast.

Nkiruka Okeke · Answer

Chapter 2 of the ultimate beginner's guide has a lot of information about the important calculations. Chapter 5 has quick analysis methods of how to know if it is a good deal.Things that is seems you have taken into consideration are:IncomeExpensesCash flow Return on Investment (Amount you invested divided by amount you made in a year.)Some of the rules:2%rule - The 2% rule states that your monthly rent should be approximately 2% of the purchase price.50% rule - The 50% rule simply states that 50% of your income will be spent on expenses -- not including the mortgage payment.@Victoria DeCristoforo I didn't do the calculations myself but I hope that helps. Rent to buy is a good option if you don't have the money for the down payment. If you are trying to determine which is better, you would want to consider the monthly amount you would be paying for a mortgage vs. the monthly amount you would be paying for the rent to own situation because that would eat into your short term profit. Also, calculate the total amount you would pay over the entire course of the loan but I think that would be a lower consideration because you can use the profit you make to pay off the loan/rent to own situation depending on the terms of the agreement.Does this help?

Victoria DeCristoforo · Answer

Thank you! @Rafael Floresta

Rafael Floresta · Answer

Check meetup:http://www.meetup.com/find/?allMeetups=false&keywo...If you have a criteria for what you want, I would love to help you find a good deal.

Victoria DeCristoforo · Answer

Hi @Rafael Floresta,Not 100% committed, but I have done a lot of searching there. I have been searching all over Northeast Philadelphia mostly but also check other areas as well. Thanks for the tip. Do you know how to hear about REIA groups?

Rafael Floresta · Answer

@Victoria DeCristoforo how committed are you to Mayfair? Looking for deals on the MLS is hard. I would start going to meetups and other REIA's groups.

Victoria DeCristoforo · Answer

Thanks @Ryan Fagan,That helps a lot. I also agree this seems to be quite overpriced for the nieghborhood. I will keep the 1.3% rule of thumb in mind and also noticed right away the gross income did not match what the rent was listed for. I will definitely have this all verified!

Victoria DeCristoforo · Answer

I did not plan on looking too seriously in to the Rent to Buy option but I am thinking a comparison will help determine that. So far it seems I would be leaning toward a mortgage, if all seems worth it. I guess I shall wait to hear back about a mortgage to do the calcs listed above and have some notes from previous podcasts on them. Thanks for the reminder and the tips where to find more in the book!