Quote from @Jeremy Taggart:
@Justin Brin I think Pittsburgh is a great area to invest in which is why I own all of my properties here haha
For this particular deal:
You can likely get a lower interest rate with a local bank here. Probably closer to 7.75-8% right now. That will help lower monthly payment.
I put 8.5% just to be safe since interest rate is going up almost every week.
Closing costs are going to be more like 5-6% of purchase price if you are financing. Have your transfer tax, title fees, up front escrow of insurance/taxes, lender fees, tax prorations.
Doesn't the seller pay the transfer tax?
For insurance and tax I include it in the monthly expenses since they are really for after the purchase is complete.
I put 1.5% for closing costs that only includes title fees, lender fees and escrow fees for the purchase. (Insurance, interest payment, property tax I include it in the monthly costs). Transfer tax in Los Angeles I know the seller pays. How is it in Pittsburgh?
From my experience in LA the closing costs is usually less than 1.5%. Maybe in Pittsburgh is different?
Brentwood is one of the highest tax areas in Pittsburgh and they will usually immediately re assess if they see a property sold for more than the current assessed value. This property is assessed low now, so taxes would likely double at some point in the next few years. Worse case scenario probably end up being $400/month. If you aren't aware of this, there goes all your cash flow you were expecting.
How much is the property tax rate there 1.67% or higher?
Market rents for 2BR in Brentwood are about $900-$1000, so your gross rent should be higher than what you are calculating here. 8% vacancy is fine. I like to use flat fees for maintenance and capex since those will vary depending on rent amounts. An early 1900s duplex in a C class area outside the city could be renting at $800/unit. Or you could go into an A class area in the city renting at $1400/unit. If both are early 1900's duplexes, maintenance and capex are likely going to be similar. Using percentages will give you way different amounts for these solely because of the market rents so it's faulty. I would say on a duplex like this generally looking at $80-$120/unit for both maintenance and capex respectively. Where you end up in that range will depend on age of the major items like roof, hvac, plumbing/electrical, etc. Also if there is any deferred maintenance.
You are right. Basing maintenance and CapEx on rent is not accurate.
You should also budget 10% for property management as well regardless if you are self managing or not. At some point you will want to outsource it if you are planning on scaling a portfolio.
I would also use $100/month for insurance. Insurance costs have increased quite a bit the last couple years. Don't want to get caught by surprise by that same as with the property taxes.
I agree.
As for the property itself, I am not a huge fan of how it's built into the hill like that and all the steps on both sides of the property. Will be a pain for lawn upkeep and harder to attract/retain tenants with all those steps. Not to mention additonal liability for you as the owner of the property.
Good point. I will avoid houses hanging in the air.
Hope that's helpful. Pittsburgh can be a great market, but you have to know your numbers and the ins/outs of each area. Can be very street by street and every neighborhood/borough/township is different.
How you get to learn if a street is good or not? By driving by?
