All Forum Posts by: Raquel L.

@Bill Gulley You are right, I am absolutely NOT in love with this market, nor do I want C class properties in my portfolio at this point in my life, HOWEVER... taking a loss doesn't vibe well, and I don't think I've fought hard enough YET.

@Eric W. HA! That's exactly what I did back in August-- except not in Philly-- Philly is about an hour away-- so Philly managers might not want to deal with this area, but then again, I haven't tried them, so that's a thought! My concern would be in the fact that they operate an hour away, and every time there's an issue, they'd have the barrier of distance, and so would their contractors that they work with regularly. My other concern is that they wouldn't have the connections with any local contractors, but again, these are just assumptions, and I will absolutely interview 5 PM's in Philly just as I did with those in the surrounding areas of Ptown.

I interviewed 5 PM's back in August, and asked for referrals here on BP, which is how I got my current manager. I am currently in PA for the holidays (family here) but leaving tomorrow. When I say that I interviewed 5 PM's, it means I first conducted 5 phone interviews. Then I met the top 3 in person. Then I chose 1. She was the best of the 5.

As for my current management, I demand updates several times each week--and the excuses are that there are no good contractors, the handymen are on drug binges, one of them got thrown in jail, etc. There are a ton of showings, but no one qualifies financially. Hmmm..

Well. Woe is me. Here's the tale of a young, banana-headed investor who leaped fast without the analysis paralysis that so many would-be investors suffer from...

Okay, SO... to start, someone recently asked about Pottstown, PA real estate, and since I own 5 units there, I replied... here's what I wrote (and this'll give you the background on the town of which I speak)...

"I own 5 units in Ptown-- I do NOT recommend buying here. I bought these in my dumb youth, and am just waiting for an excuse to sell... Reasons below:

1. There is a new inspector-- the old inspection process was fairly straightforward and made allowances for the fact that these are 100+ year old houses. Not anymore. I have two turnovers happening right now--the inspection repairs alone have been over $1000 so far-- not good. Inspections are $75 per inspection, plus rental license, plus repairs, etc. It gets expensive very quickly.

2. Pottstown is going down. Politics politics politics. Most of the big businesses have moved *literally* across the street to another, lower tax district. Taxes are HIGH-- the taxes for a 35k house in Ptown are around $3000/year-- insane! I've fought for lower taxes, proven that they're too high, and was still denied a decrease. Politics. Bad management. Think: Detroit.

3. Property management. It's tough to find a good one. I have two vacancies right now, both of which have been vacant for more than 2 months. Tough time to rent? Yes. BUT... they could've at least been rent-ready by now... and they're not. We have still not passed inspections. I'm an out of state landlord--so unless I want to fly in and micromanage (which I shouldn't have to, but am actually here now doing just that)--they move slowly. Management costs are HIGH-- 1st month's rent goes to the property manager as finder's fee. Monthly fees are between 8-10%-- 8% if you are a member of DIG, 10% for the rest of the world.

4. No job growth. No growth period. People are leaving. Businesses have left/are leaving.

5. Pennsylvania is NOT a landlord-friendly state. I've had the dreaded 8 month eviction.

6. 100+ year old houses have ridiculous amounts of repairs. Seriously. Ridiculous.

7. Tenants. Depends on what part of Pottstown, but for the most part, this is a town of C class properties. 3 of my units are C class, 2 are B class. I get A LOT of nonsensical calls from tenants.

8. Dumb policies such as: they require you to put a notice up on your vacant rental, saying that it's a vacant property. Seriously. Vandalism, anyone? One of my units was broken into. I refuse to put those notices up.

9. Headaches.

10. C class. Period. 'Nuff said."

Now... I've been deliberating for about 6 months or so about selling these units. 2 are currently vacant, the other 3 are rented. Only 2 of those 3 actually cash flow-- the other one's income is allocated to pay off a plumber's bill which was over $5000... yup.

I would get nowhere near what I've put into them, and in fact, I'd be "losing" around 95k of it. BUT... after looking over my income/expense reports for the past year, I actually had negative cash flow of $13,556.74. So, in effect, I'm paying $1129.73 per month to own these properties right now.

Now, we've all read the 4 Hour Work Week, right? These are the 20%ers that supply 80% of my headaches. The other 80% of my portfolio runs smoothly, at 95% occupancy with long-term tenants in place.

Using zero-base thinking, I would not EVER consider investing in the area that these properties exist in. Driving through town, at least 20% of the businesses have closed down and are vacant. There are tons of vacant houses. The good jobs that once existed have all moved out of town because of the high taxes and lack of friendliness towards businesses. This town is one of misfits, druggies, rehabs, enablers... etc... you get it.

Now, I don't want to lead you astray-- these properties WILL rent at some point, and the management DOES have stringent requirements for the potential tenants-- so I will probably end up with some pretty okay tenants, at which point, the cash flow will quickly turn around, because these two properties DO meet the 2% rule.

The questions:

1. Is my money better off going into a more stable investment, without the headaches of C class properties?

2. Is the loss (95kish) worth it because of the potential gain of repositioning my money in a growth market? Then the question is will I actually be able to find 4 properties in the market I like, at a COC that I like (the answer is *probably* NO... not right now).

3. What's the lesser of the evils-- wait it out, and see how the properties fare with new tenants (I feel like I've done that twice already, lol) or suck it up, take my losses and get the H-E double happy-sticks out of this mismanaged and headache-ridden town, having paid a hefty 95k price tag for this hard-knock life lesson?

Ahhhhhhhh! Help!

@Robert Haworth Here are a few questions for you:

1. Have you interviewed at least 3 property managers in the area? Are you satisfied that you will have good representation?

2. Have you looked at 10 rentals in the immediate area near the house? Does your rental have better features? Is it more desirable? Have you had an agent run rental comps? At what price point do similar homes rent for without being on market for more than 30 days?

3. Have you had a home inspection? These homes can appear quite lovely because of their old-world charm, but when you start rooting around in the bones, you discover $5000 plumbing issues beneath those gorgeous wood floors, etc.

4. Are you factoring in a 15% vacancy factor? Strike that... might not be high enough... how about 2-6 months per year vacancy?

5. Have you done a cash-flow analysis on the property? What factors are you using? Do you intend to bill back the tenants for water/sewer/trash, or pay for it yourself? Do you know the average cost of those bills?

6. What type of heat does the property have? Most tenants run away from an oil heat property so let's hope it's electric or gas.

Robert, these are just a few things on the list of what's necessary to know or be prepared for in investing in this area. Using what I know today about this town, I would NOT own the properties I own here, and am, in fact, considering selling them at <gasp!> a LOSS in order to repurpose my money into investments that will SHOW ME THE MONEY, not the headaches. Just sayin'... cuidado.

Disclaimer: My only experience with PA is within the Borough of Pottstown, so this is specifically in regards to Pottstown.

1. Lower taxes or offer incentives to entice businesses and investors to move back in. There are a ton of vacant businesses and houses in the city. More businesses means more jobs, which means more people--tenants and owners.

2. Lower property taxes.

3. Remove silly laws like putting a sign on your property stating that it is vacant and registering your property (and paying a fee) as a rental EVERY year regardless of whether or not it's the same tenant for the last 10 years.

4. Create an eviction process that is less than 30 days.

5. Once the eviction process has been completed, at the time of lock-out, allow landlords to get rid of all tenant items without repercussion. Right now, it's sort of up in the air as to how long a landlord must hold the tenant's possessions, and we must serve notice to the tenant and store items until the tenant replies or a "reasonable" (open to interpretation) amount of time has passed, which leaves landlords stuck with either a vacant property storing past tenant's possessions or a bill for a storage unit.

6. Allow water, sewer, trash, and gas bills to be directly in the tenant's name, and attached to the tenant rather than the landlord. Currently, all of those become a lien on the property if they are not paid, and therefore WST must be in the landlord's name. The gas may be in the tenant's name, but still becomes a lien on the property of the landlord if it remains unpaid by the tenant.

7. Create a tenant registry of evictions for landlords to have free access to-- this should be a list created based on actual evictions filed in court.

8. Save money and the environment by going paperless with the taxes. Currently, I receive 2 separate tax mailings per year per property--several months apart. They require 3 separate checks per property per year because one of those mailings includes 2 separate taxes, so 3 actual tax bills per year per property, and each has 2 copies-- so you can imagine how this all adds up to a ton of paper waste when I just scan it in to my Neat or JotNot Pro and throw all of this paper into my shredder. Grrr. Paperless billing would be awesome-- there are two times in the year when I dare not travel because I know taxes should be coming soon--what an annoyance. I brought this idea to the borough and they basically said, "Shut your pie hole--we are doing the best that we want to, so suck it."

These suggestions are not built out of any knowledge of politics-- I have no idea how any of these would be implemented or paid for, but I know that the current systems aren't working for the city. When I look at healthy cities/states, for example, I see that their laws are very landlord friendly-- I can boot my tenants AND their belongings in 3 weeks if they don't pay their rent. That's how it should be... at least in my Utopian Heaven. I also see paperless billing, and the ability to do almost anything online-- in 75% of the states I invest in.

Robert, I own 5 units in Ptown-- I do NOT recommend buying here. I bought these in my dumb youth, and am just waiting for an excuse to sell... Reasons below:

1. There is a new inspector-- the old inspection process was fairly straightforward and made allowances for the fact that these are 100+ year old houses. Not anymore. I have two turnovers happening right now--the inspection repairs alone have been over $1000 so far-- not good. Inspections are $75 per inspection, plus rental license, plus repairs, etc. It gets expensive very quickly.

2. Pottstown is going down. Politics politics politics. Most of the big businesses have moved *literally* across the street to another, lower tax district. Taxes are HIGH-- the taxes for a 35k house in Ptown are around $3000/year-- insane! I've fought for lower taxes, proven that they're too high, and was still denied a decrease. Politics. Bad management. Think: Detroit.

3. Property management. It's tough to find a good one. I have two vacancies right now, both of which have been vacant for more than 2 months. Tough time to rent? Yes. BUT... they could've at least been rent-ready by now... and they're not. We have still not passed inspections. I'm an out of state landlord--so unless I want to fly in and micromanage (which I shouldn't have to, but am actually here now doing just that)--they move slowly. Management costs are HIGH-- 1st month's rent goes to the property manager as finder's fee. Monthly fees are between 8-10%-- 8% if you are a member of DIG, 10% for the rest of the world.

4. No job growth. No growth period. People are leaving. Businesses have left/are leaving.

5. Pennsylvania is NOT a landlord-friendly state. I've had the dreaded 8 month eviction.

6. 100+ year old houses have ridiculous amounts of repairs. Seriously. Ridiculous.

7. Tenants. Depends on what part of Pottstown, but for the most part, this is a town of C class properties. 3 of my units are C class, 2 are B class. I get A LOT of nonsensical calls from tenants.

8. Dumb policies such as: they require you to put a notice up on your vacant rental, saying that it's a vacant property. Seriously. Vandalism, anyone? One of my units was broken into. I refuse to put those notices up.

9. Headaches.

10. C class. Period. 'Nuff said.

If you DO decide to buy, regardless of the above, message me. I grew up in Ptown and I can give you the lowdown on the 'hoods. ;)

Robert: Thank you. :) Reading it now...

@ Bryce, I have not yet sold a property (and unless my markets begin to look sickly, I probably won't even sell. :P) but if I WAS selling, I would allow the buyer to do their due diligence to the fullest, because I believe it's a fair way to do business. I can't imagine that I buyer would convince a tenant that they have to move out without the tenant contacting me as the seller to confirm. Either way-- it's the due diligence process, and it's a buyer's right.

@ YIv: I like it! The sticker thing is a cute touch, and useful for them. :) I'm going to be using an online portal, so I'm on the paperless route, but I like that. It's a nice touch. As for the restating of the policies, that's just something I found online, and I think it's a good format. I don't want to send something out that's so simple it looks like it could have come from anywhere. Most likely, I won't be there on the day of close as I'm out of state. They've already met me and know me (thanks to the inspection).

@ Bryan, Yes, I noticed that on his linked in as well, and it was a concern for me... I usually like full-timers because they're more invested in the outcome, as it IS their living. We shall see. I'm going to plan another trip to Austin at some point this month or next in order to interview several realtors I've come in contact with here on Bigger Pockets... but FIRST... closing on 3 properties and pulling my hair out with those. :) I'll keep you updated on the realtors, and share notes on them as well. I tend to ask a lot of questions.

@ Richard, I will check her out as well, thank you for letting me know!! :)

@ Bryce, I'm late on the reply, but I don't know of any state in which it's illegal to talk to a tenant when inspecting the property. They're curious about why you're there, who you are-- and they're scared that you're the big, bad new landlord. There's a thing people believe in... The Devil You Know... it's better than the unknown. :) I wanted to get a feel for the home, the tenant's desire to stay, and also the tenant's take on her current landlord-- which wasn't positive. I also got a detailed list from her of ALL issues with the property that she knows of, which included a lot of deferred maintenance.

@ Peter, thank you so much! I will definitely be messaging you as I go along. :) Self-managing is all new to me, although I've heard many experienced out of state landlords recommend this with the easy systems of online portals, sites like homeadvisor.com, etc. I can DO this!!

@ Russ, you saw my letter up top-- thoughts? I'm also going to email her the letter so she receives it quickly, along with a small guide on simply home maintenance that I found online which outlines what to do in case of emergencies, etc..

Note to self: READ TX PROPERTY CODE. ;P

Hey Andrew,

Welcome to BP!! If you haven't already been listening... definitely check out the podcast. I love it, and there's a lot of good information on there about wholesaling. :) Also, I believe Ben Leybovich is in your area, and he's a great one to follow and learn from-- he was featured on one of the podcasts, and it was one of the BEST podcasts, IMHO. Enjoy!! Happy Investing. :)

R.