All Forum Posts by: Nathan Milholin

I think the rule of thumb for PM is around 8% of gross rent. You also need to include the $55 rental license in expenses. I also like to aim for 1.5% of property value in the repairs/reserves fund.

Your understanding of cap rate is not quite right.  You should be basing cap rate on the total amount invested (i.e., acquisition cost + rehab).  So [net income] / $125,000 = cap rate.  But, cap rate doesn't matter at all to me in non-commercial properties. It's not nearly as useful a metric as cash flow, cash on cash return, and debt service coverage ratio.

Cash on cash refers to just that--cash; not debt. Don't include a mortgage in that figure. [net income] / [cash invested] = cash on cash.

Also, I get the sense that you don't have a good grasp on taxes.  You should probably talk to an accountant.  Don't forget PA taxes and Philadelphia Net Income Tax.

@Aziz Mansaray

There's not quite enough information here to give an informed opinion on how you should proceed. What size house? Duplex, triplex, quad? What part of the city? What are you paying? Without context, 20% cash on cash return means nothing to me. If you're putting $10,000 into the property and cash flowing $2,000 a year, but you're self-managing... that's not a deal I would take. On the other hand, if you're putting in $50k, cash flowing $10k, and have set asides for management and a healthy reserve, that sounds awesome.

Unpermitted work is a pretty big red flag for me--especially unpermitted electrical.  I'd be terrified of the fire hazard.  

Potential issues I see: Your homeowner's insurance might not cover damage caused by unpermitted work. You may not be able to get a rental license without the necessary permits. The cost of obtaining the permits could be prohibitive.  The terms of your mortgage might not allow you to buy the house with unpermitted work.  

Hi @Johnny McDonald, welcome to BP.

I share your interest in the uniqueness of Philly neighborhoods. 

I notice that no neighborhoods in West Philly are in your parenthetical.  Is that an oversight, or do you have an opposition to the area?  Frankly, that's where I'd like to be right now.  Manayunk/Brewerytown/Point Breeze/Fairmount/Spring Garden are all fairly pricey already, and I have a hard time making the rental numbers work in those locations on most deals that I model out.  Strawberry Mansion is more affordable, but has problems of its own.

What price range are you looking for? Are you pre-approved for a loan?  Feel free to PM if you'd rather not get into those details in the forum. 

@Scott Fisher

Scott, thanks for your reply.

I'm familiar with the landlord packet, I just must have skipped over page 66 before.  They numbers/zip codes they give circa page 72 are the SA FMRs that I referred to in my post, and I hadn't noticed any better information on how they determine subsidy until now.  An oversight on my part, for sure. To be fair though, 94 pages is a bit excessive ;)

Thanks!

Hi everyone,

I'm particularly interested in affordable housing, both from a landlord and policy perspective, and would like to start acquiring units in the Philadelphia area.  The Philadelphia Housing Authority's website is fairly easy to navigate and I have seen enough listings for occupied properties and their current Section 8 rent to have a good idea of what to expect. However, information in the surrounding counties is harder to come by.

A few questions for those of you who have experience with the Housing Choice Voucher in Delaware County, PA and Camden County, NJ:

Are the payment standards for these counties published anywhere?  I have scoured their websites but have been unable to find them.

On a related note, what are the typical rents you are seeing for Section 8 in these areas? (zip code and number of bedrooms, if you can). I would like to compare to the Small Area Fair Market Rent chart on the HUD website to see how reliable the chart is. I know rent in Philadelphia can differ significantly even from the PHA's own payment standards, let alone the SA FMR.

A further related note--if anyone is looking for an exit strategy from a Section 8 portfolio in the area, I'd love to have a chat.

@Marlia Stone

Hi Marlia, 

I think turning any profit on a house hack would be great, considering it also covers most of your housing costs.  

To the expenses question:

vacancy - I usually assume one month, or 8.33% cost for vacancy

repairs & maintenance - The rule of thumb that seems to be most popular is to estimate that you will spend 1% of the property value each year on maintenance. I think the most recent number I read was from 1 to 3% as an average for total upkeep costs (which would include CapEx). I use 1% for repairs/ordinary maintenance in my estimates.

CapEx/reserves - I also use 1% here. Assuming that maintenance cost less than 1% for the year, I would also add the remaining set-aside for maintenance to reserves at the end of the year. The idea here is that you will have money set aside when it's time for a major expense like roof replacement, AC/furnace replacement, etc.

taxes - make sure you apply for the homestead exemption in Philly. It knocks $45,000 off of your assessed value, which equates to about $650 is tax savings each year.  That's a lot of money to me.

UTILITIES - are utilities separately metered at the property? If not, what does the lease say about who pays for what?  Water and electricity can really add up.

Rental license - I think this is $55/year in Philly right now. Make sure you account for that and any other licenses/inspections that you may need to pay for.

@Leonard Brown

"The information from the previous owner has the most problematic unit as vacant." -- This is either a material misrepresentation on the seller's part or a mutual mistake. Either way it may be grounds to rescind the sale (but don't take my word for it, talk to a lawyer). Even if you don't want to rescind the purchase, it may give you leverage to have the seller pay for the costs of eviction.  

This also begs the question--are you sure the problematic one is a holdover tenant and not a squatter/trespasser?  If they have no evidence of a lease, then getting them ejected as a squatter should be easier then getting them evicted as a tenant on a month-to-month lease.

I would start the eviction or ejection process ASAP.  Also, assuming you did not know that the unit was occupied, I would refuse to acknowledge them as a tenant (refer to them as a trespasser/squatter) unless/until there is evidence that they ever had a lease to begin with.  

Welcome to BP! I live in Philly. Sending you a message now to connect.

@Mayer M.

I understand your frustration, and I think you're being hyperbolic, but just in case you aren't: 

To be clear, PHA is almost entirely federally funded.  While there may be some policy issues worth debating surrounding incentivizing affordable housing development, and L&I is a total nightmare, these are two completely separate things.

@Eric Greenberg 

What exactly was the fine for (location of the fence, height, condition, etc.)?  My reading of the website is that a 6-foot fence is fine as long as you have a Zoning Permit.