Running the Numbers - Advice for the Lehigh Valley

[Chad G.]

I am just beginning to analyze properties for my first investment property, but I am unsure of these four things:

• Vacancy - I am using 8%, but I am curious what others see in Bethlehem (18018/18015) since some research indicated a lower rates and others much higher.
• Leasing Up Costs - I am using 1 month's rent (while my wife and I will attempt to handle this we are still calculating it into our analysis since we live in NYC and will likely need some help here). Is this the norm for the Lehigh Valley?
• Utilities - It looks like the city requires the landlord to cover the cost of trash removal. What value are local investors using per unit and what utilities does it include (e.g. sewer, water, etc.)?
• Insurance - Do I need to contact an insurance agent for each property I am analyzing or is there an average I can use here? What do local investors estimate for this in their own analysis?

I am also including the following expenses:

• Property Management - 10% (We expect to do this ourselves, but are including it nonetheless)
• Maintenance - 10%
• CapEx - 10%
• Taxes - based on the listing, but would validate with the county if the deal warrants further due diligence. 

Am I missing anything?

Thanks,

Chad

[Jaysen Medhurst]

Hi, @Chad G., what about lawn care or shared electricity?

I usually estimate 7.5% each for maintenance and CapEx, then adjust based on age of property, current condition, and tenant class.

As far as insurance, but call up a few agents and tell them what you're looking for. They should be able to give you a ball park. Is flood insurance required in this area?

Some people include advertising (getting new tenants) and legal costs (e.g. yearly LLC costs) in their analysis, but that usually isn't very much.

BTW: would like to know how you settled on Lehigh valley. I live in NYC and my in-laws are outside Harrisburg, I've driven through there a hundred times.

[Chad G.]

Thanks for the feedback. Wouldn't lawn care be included in the 10% maintenance already? Electric could be in the utilities, but why not pass that on the tenants? I realize the units would need separate meters if multifamily. What is the cost to install if a property wouldn't have this already (I'm now likely to invest if it already has this anyway)?

I grew up in the Lehigh Valley so end up going to see family regularly anyway, plus I did a market analysis and it's strong (I have a post about this, but can provide specific resources if you PM me). Much closer than Harrisburg too!

Jaysen Medhurst

[Dave Lin]

Hi Chad,

I use 10% for my vacancies. The 1 month leasing cost is fine.  Bethlehem city doesn't require the landlord to cover the trash cost, they make you responsible for it.  A little difference there.  So basically you need to make sure there is trash removal by setting up the removal service, but you can factor that into your rent or you can make the tenant pay it separately.  Sewer and Water I use $60-90 a month depending on the size of the family and laundry service. Insurance is also right up my alley (see my main job).  I would factor in $500 to $750 a year for a 180k house depending on the insurance company.  Bear in mind this is a rough estimate based on my and my clients experience for the Bethlehem city area.  You should get a quote to make sure.  

[Sean Tracey]

Hi @Dave Lin oddly enough I was just thinking about insurance in Lehigh Valley and here's an insurance professional lol. Thanks for sharing that valuable info. Do you have an idea of how much additional insurance might be once you start getting into the flood zones closer to the Delaware and Lehigh Rivers?

[Christina Shackleton]

Good luck. I've worked in Allentown for the last couple of years and have seen the changes to the downtown area. I've been considering looking into the Lehigh Valley area for investing too once I start. I see huge potential with all the changes. I wish i could've started sooner there. :-)  If there is anything I can do to help you let me know. I'm also in the process of getting my real estate license.

[Matthew W.]

Chad Gross I think the number is $27-30 for trash removal. It may have changed recently, but I found references to $27 a few years ago

[Dave Lin]

Hi @Sean Tracey 

Depending on the flood zone it would atleast $2,000-$3,000. If the house qualify for as a preferred risk, it would be about $500. There are private options available too, you don't actually need to be on the FEMA program. The private options tend to be much less premium.

[Dave Lin]

When I say 180k house, I mean dwelling coverage @ replacement cost.  The replacement cost is how much it would cost to rebuild. So the market value has no bearing on it.

[Sean Tracey]

@Dave Lin 2-3k/year just for the flood insurance? Jeez... I hope the private options are much more affordable because that seems crazy. That would destroy cash flow. 

[Dave Lin]

Yeah, I try to not buy in flood zones.

[Sean Tracey]

Thanks again @Dave Lin. Is there a quick way online to verify if I would need flood insurance for a property I was interested in? I located a map of the "flood plains" in Easton, and it seems most of the area is OK. Am I correct to assume that only properties located in the 100 and 500 year flood plains would require flood insurance?

[Chad G.]

@Dave Lin

Thanks for all your help! Are your clients investors or homeowners? I hear insurance costs are about 20-25% higher for investment properties.

@Christina Shackleton

Thanks, good luck to you as well. I agree there are definitely good things coming for the Lehigh Valley.

I found this for anyone looking for flood maps:

http://pafloodmaps.pa.gov/

[Dave Lin]

Hi @Sean Tracey

Here is a good resource.  https://www.floodsmart.gov/floodsmart/

If the risk profile comes back medium to high you will need flood insurance.  If it is low to moderate, most of the time you don't. 

[Dave Lin]

Hi @Chad G.,

Like most things in life, it pays to shop around at times.  Some insurance companies likes rentals more than others.  So for the companies that does, their rental property insurance can be the same pricing as regular homeowner insurance.  A good insurance score and the age of the house or last renovation are important factors.

[Sean Tracey]

Thanks for taking the time to provide this info @ Dave Lin.