All Forum Posts by: Neal A.

Assuming you have done this before and have experience I would consider this a viable deal. Not an AMAZING deal, but something very workable. You need to determine what you want to do with the property though. If you have the intent to rent this out and manage it you need to comb through your numbers again. Your rehab numbers for rent and flip should be different. Your quality of a fix in a rental condition should be different than a flip condition. I would hope that in a rent scenario you could bring the rehab number down 15k. This (for me) would make a reasonable amount of return. Make sure that your rental income number is also viable. Assuming you are all in for 100k for a RENT situation, after you collect $12,000 a year in rent and pay normal expenses, factor in vacany, repairs, yadda yadda, you should be floating around a 8-9% annual net return (assuming you had paid cash). That's a number that can be challenging to get sometimes. If you are going rehab to flip I think clearing 20-40k is ok. As long as you have the experience to do it. You really need to turn that property quick, if you can't do that or aren't capable of doing it. Then it's not worth the time for 20-40k. Our last project was only viable because we moved FAST. We had so many trades in that they were stepping overtop of one another to get their work done. If I could reliably land the conditions of the last deal I'd be ok grinding out those numbers all year long...

Dear Victoria,

I do not share your optimism and do not believe that your assessment of the stock market is entirely relevant to the benefits of investing in Philadelphia real estate.

While you’ve gone out of your way to provide a number of compelling data points on the market, I think the balance sheets of most public traded companies tell a very different tale. If that isn’t compelling enough the number of Covid cases and it’s effect on our return to normal should be.

However, none of this seems to stop the unbridled optimism of an uneducated investor. I for one prefer to invest with logic over trends (albeit to my own detriment from time to time.)

Regarding the philly real estate market in the building class C/B market, investors have been buying properties and making deals for slightly above equity gains for the past number of years. If you weren’t heavy leveraging the assets of your business you were missing out. I know this because I’m one of them, and my conservative strategy and high requirement for returns made it difficult to close deals. 

Commercial and some residential properties will inevitably have high rates of evictions and landlords and investors at some point in time will have to divest. Few people have the stomach to have a business or property that costs them money. This in turn will could flood the market with properties, and perhaps depress the price points of rents as high quality tenants become harder do find.

I’ll attempt to be a bit less trolly than the previous post.

1) unless the language in the lease specifically states that you need to fix these things (which it likely does not) you are not obligated to do so. Do not expect any assistance from PHA in the matter. Turning over a beautiful house to a section 8 tenant comes with inherent risks and it would appear you are on the wrong side of it.

There are two choices and only you possess the right answer based on your financial situation and goals. Option 1 would be to let the tenant stay, stop providing support to them (outside of what the lease requires), and hope they trash the property less. The overarching goal is hoping that the rental income makes up for some of the damages. The tenant will likely fail their side of the next PHA inspection and the tenant will lose housing support. You will likely have to evict the tenant at this time for the inability to pay.

The second option is to begin to evict the tenant now due to failure to pay for deliberate damage to the property. 

Both situations are costly and lengthy, but I don’t believe that you have any recourse. In my experience PHA is not going to help you. You don’t have much for leverage in this situation.

2) PHA is often difficult to get ahold of. We’ve had success with emails and a barrage of calls. It’s all about getting the right person on the line. It’s a lot of effort and time. Your property manager should know this.... the fact that they don’t is a bit concerning. 

In my opinion the numbers are a little too tight. If the deal has some type of value add then maybe it’s worth it.

I’d prefer to use a higher vacancy rate or else the property could cost you money at the end of the month. Your property management rate should be at least 6%. 

Something of note - the rental license is going to cost you 55 dollars for each unit a year and then the trash collection is going to cost you 300 a year. 

You also missed your water bill probably 100-200 a month depending on a variety of factors.

It doesn’t seem like a lot but your margins are already tight...

Joe,

This is going to largely depend on a couple of factors.

1) what percent interest are you getting on a loan for the rest of the money?

2) are you intending to property manage yourself or pay someone to do it.

Both of these are going to heavily factor into whether or not you can break even after factoring in expenses, and estimated repairs and vacant rates.

If you held off and approached the situation with 85k that could put you in the realm of buying a SFH outright.

No - the luxury apt scenario that you are referencing is not possible. It may have been a few years back.

It’s very easy to figure this out on your own. Look at what’s selling in the city. (Center city) in this case what the properties are selling for and what the average rents are. 

Since you are borrowing money, in this scenario after all your expenses, you would be lucky to break even. That makes your investment a pure equity play. (At best) 

If you are looking to cash flow, it’s possible in less nice areas but it’s more of a headache. After management fee expenses it still may not be worth your while.

You need to walk away unless you are prepared to assume a much higher level of risk on this property.

If you are set on salvaging the deal I highly recommend that you get your own estimates from contractors to quote out the work. I would ask that the seller provide the dollars at settlement to pay for it. It’s at this point that the deal will likely fall apart.

It is in your interest to have your contractor analyze the full extent of the damage, some of which may not be apparent yet. As a result his quote will likely be for more aggressive work at a higher cost than the seller.

I NEVER trust sellers to do work on the property. Instead I push to have it come out of their side at the settlement table. You wouldn’t let your sellers find your tenants for you...  and you definitely don’t want them finding your contractors.. even if the seller promised some type of warranty for the work it’s just too much of a hassle to manage in the event that you have to enforce it or pursue legal action in the future.

You should also price in what your time is worth or how much it will cost someone from your office to oversee the project. Again, all things the seller isn’t going to want to pay for, but massively relevant to you.

Overall, this is an unfortunate set of circumstances that will likely result in the failure of this deal, unless you are open to accepting a much higher degree of risk.

I’ve had similar things happen before and to some degree it’s the cost of doing business. Tough break.

Hope the perspective helps

50 dollars a month. No dangerous dog breeds listed on common insurance policies.

50 dollars applies to cats, dogs, turtles... everything... 

This fee will contribute to the need to clean carpets or refinish floors when your tenant is out.

Originally posted by @Irfan Raza:

@Neal A. what rates are you seeing for your garages? I only have one in west philly and I rent it to one of our handymen for $250 a month.  Just wanted to see how reasonable that is, it is hard to find comps.

Yes that’s about right. Northeast you can typically get a bit more. Use craigslist for comps. 

Primary Factors:

1) size

2) electric

 

I love small garages and have never had issues renting them out separately or as value adds to a current SFH. I prefer separately. Philadelphia can vary heavily street by street and so can the rental prices on a garage shift as well.

The tenant is also provided less protections than in a standard residential lease. 

One important distinction to make is whether or not the garage has electricity or has any form of climate control and how those bills get handled.