All Forum Posts by: David Ribardo

Hey Paul! There are a few good investing groups that can help you get a feel for the area. I'll be at Justin's next meetup, and would be happy to recommend a few more based on what your schedule allows.

Allentown is a really competitive area for investing, but still has one of the most favorable purchase price to rent ratios. The PPL center and waterfront projects are doing some awesome things downtown. In January 2015 Allentown houses sold for an average of $73,844, 2016 it went up to $84k, 2017 to $101k, and last month the average sale was up to $114,525!!! 

Hey Justin! Glad to see another meetup in the area, I hope to attend and meet some more awesome people there!

I work in the Allentown / Lehigh Valley area. Overall it is a very favorable market for investors. As of November, Allentown was averaging a $55,673 sales price and $1,268 average monthly rent for a 3 Bedroom, 1.5 bath SFH. Yes, the average property in that city meets the 2% rule here! On the flip side, the city does have some rougher neighborhoods that should be avoided, and there is lots of competition from other investors here.

I've done deals in Trenton before and would be happy to put you in touch with my local guy to talk about the Trenton / Philly market. (He is also a frequent BP contributor!) 

@Sean Bayliss, cap rates vary based upon the specific townships. For example, central Allentown is usually a 10% cap, whereas Bethlehem is an 8%. Overall you should have no trouble finding deals in the 8%-12% range. Right now the Lehigh Valley is a sellers market. Prices have been appreciating and inventory is low, with our listings averaging 27 days on market. If a property is priced correctly, we can usually sell it the first weekend with multiple offers.

As far as evaluating properties goes, 3% for high demand areas (Allentown / Bethlehem) is possible if you have a good marketing plan and can turn around units quick. I'll get 10+ inquiries there the first day I list a 2 bedroom apartment for $900 a month. For most other areas 5%-8% will cover you, and if you head to the country, 10% would be reasonable. Typically I will calculate a combined maintenance / CAPEX by taking the average of 20% of collected rent and 2% of the ARV of the home.

@Eric DeVito Most of the key points have been hit, but make sure that you understand the town and county level laws before you decide to self manage. For example, in Allentown there is a local ordnance stating you must remove all snow from your sidewalk within 10 hours of the snowfall. It can be very easy to miss one of these and have to deal with violations, fines, and trips to the courthouse!

@Cory Carrigan, it looks like you have a good little duplex. Phillipsburg 1 bedroom apartments averaged $822 and $1.13 per square foot last month, so your rent amounts seem to be in line with the market.

Your repairs and CAPEX budget seem to be a bit low. Typically I will take the average of 20% of income and 2% of ARV for my planning, but I am a little more on the conservative side. I would find a way to pass on the gas heat, water, and sewer to your tenants. You can do this by keeping bills in your name and charging a flat fee, installing sub-meters and putting them in the tenants name, or by using a ratio billing system (search for "RUBS"). That should get you an extra $100+ per month. Using an income approach, thats an extra $1,200 in NOI per year and $12,000 you just created in property value. (Utilizing a 10% cap rate for phillipsburg)

Back to the refinance question: If your goal is maximizing return, I recommend you do a cash out refinance on the property! You are building up tons of equity, which is money that is making you no additional return. It's the same as leaving money sitting in a checking account. I would wait until you are about ready to pull the trigger on your next deal to refinance as well. That will allow you to pull out potentially thousands of dollars more than if you refinance now and don't buy for six months.

Cory,

It depends on many different factors. In simple form, I recommend you take a look at your internal rate of return. Yes, you may have no cash flow, but you are gaining at least $500 per month in equity. That's pretty good! Paying several thousand in refinance fees just to convert from a 10 year to a 30 year note will lower your overall rate of return.

Once you get enough equity built, you can do a cash out refinance. That will allow you to put that money towards your next deal while simultaneously converting to a 30 year note.

Cory, welcome! The Lehigh Valley has a great investing community. As far as upgrading to pro, I haven't done it myself, but many of the investors I work with have. I'd be happy to put you in touch if you have any specific questions.

Rigo, I recommend you look at more than just the legal aspects. If you use good tenant screening procedures you should be able to minimize the impacts of evictions. 

If you are looking at a buy and hold strategy, I recommend you look at the average rents, tax rates, vacancy rates, cost of insurance, and other things that will impact your bottom line. For example, I posted the same fictional apartment for rent on craigslist to gauge rental interest. Over 48 hours I received 14 inquiries for Bethlehem, nine for Allentown, three for Easton, but only two for Slatington- so you can't apply the same vacancy rates for all four townships. It doesn't mean there aren't successful investors in all of these townships, it just means you have to take a different approach and use different planning considerations when evaluating your deals. I also recommend going to some of the local meetups - you will learn a ton just from seeing other people's successes and failures.

@Stephen Kunen, thanks for the recommendation!