All Forum Posts by: Pierre Streat

@Pierre Streat I agree with what others are saying here. Those are very low returns, especially for MF. I don't think that a 5% vacancy is "conservative" by any means. I think this is way to optimistic for MF, especially for student housing. I'm not an expert on the Philly market but I would think you could do much better than that there.

But since you're already investing out of state by going to Philly, why not go somewhere where you can find much better returns like the Midwest? Personally, I like Indianapolis and Kansas City.

I could probably do better just outside of the City in Philly but it would be more of a low-income tenant base with a low/declining population, less income per capita and net worth than in the City, higher unemployment and more vacancy. The City just seems safer for my first investment and I think I would have to be more familiar with the Philly market to make bets on these remote neighborhoods.

I have considered further out but since this is my first investment property I would like to start somewhere in my "backyard" before I venture out to the Midwest, Atlanta, Dallas etc. I mean sure I can find a property manager for 10% but will he be great and care for the property as if it were his own? What if there are issues there where I need to be present? This means hundreds of dollars in traveling just to visit each time and the time off taken to do so just seems to be a bit much for me right now. I will consider these options though once I get my feet wet in RE and hopefully build relationships with people in these out of state markets via BiggerPockets etc. I don't feel comfortable just buying property with high cash flow out of state, giving it to a stranger to manage without being close enough to really know what is going on regularly.

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Originally posted by @Mike Wood:

@Pierre Streat Is the property is a location that you could attract tenants that are not students? That could help with your rents and vacancy.

Also, if your only paying $275k for the property, I would fight the assessors and get it valued correctly. It is very common around here for owners to get reassessed based on sales.

You also might want to take a closer look at the PM costs. if you have high turn over, you are loosing one months rent per year, plus the 6% fee. I have one property with a PM (its out of state) and I pay 20% of the rent for the first month, 10% every month after. If you have turn over every 12 months, you paying approx. 14% per month (when you average out that full first months rent).

Good point, I forgot to factor in the 1 month's rent to find tenant every year so that makes the CoC more like 4.95%. I could fill the units with Section 8 if I could not find a student in time for the school year but again the rent probably will not be as high as students.

Will definitely have to fight the assessors since the 300k assessment value is way too high. What has your experience been like fighting this with a municipality?

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Originally posted by @Jamal Pitts:

@Pierre Streat I'm assuming you are paying market price for the property since its a turn key property? No equity and low rate of returns. What is your motivation to move forward?

Market price is actually in the 290k+ range so there is some equity at first purchase. City assessed the building at 300k for 2016 tax purposes as well. I just got a bank to finance me at 20% down (69.575k total including closing costs) so the cash on cash actually looks like it is more around 8% and also getting market cap rate of about 8% as well. I could work with these numbers for my first investment property I am thinking but again I won't see these until Aug/Sep of next year when the school year starts.

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Originally posted by @Mark A.:

I would be hesitant to get into something with low returns.

Especially since from what you're writing that the ROI will be even lower.

Perhaps there is a way to increase rent by value adding in certain amenities? Anyway to buy at an even lower price?

Probably can't add value via amenities besides laundry that I can think of but the competition is too strong to even think of charging students for laundry in house. $450 per room including laundry access is pretty standard. I am in contract for 275k so seller probably wont take my offer if I pull out and try to get back in.

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Thank you for the info J Beard but I am also factoring this in via cap ex and repair costs totaling $3000 per year plus parents will be co signing and I will be collecting security deposits to hedge this risk. Do you still think these hedges to be insufficient? Thanks

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30 year Fixed at 5.1% and no I am not double counting. PITI before tax increase in 2016 is $1457.

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Hello BP Family,

I was hoping to get your opinion please on a potential deal I am thinking of pulling the trigger on. Any college town Philadelphia investors out there?

So this is a 3 unit prop near a University in Philly with a price of about $275k. It is pretty much turn key with new flooring, walls, finished basement with washer/dryer/dish washer in each unit. Still need to get more info on the quality of the roof though and will be getting a contractor to look at it over the weekend. Bathtubs probably need caulking and I am getting the seller to fix all the windows, doors, downspouts, siding, countertops and HVAC.

Down Payment & Closing: $84k

Current rents: $2500 per month but should be about $2900 per month come Aug 2016 when school year starts up again

Prop. Management fee: 1st month's rent for finding new tenant (which will probably be every year since student housing has high turnover) plus 6% management fee

PITI: $1457 per month

Insurance: $1400 per year

Taxes: currently $2600 per year but apparently will rise to $4305 in 2016 due to higher assessment (current owner home improvements it looks like)

Vacancy: conservative 5% ($1500 per year) since this is student housing and probably will be filled easily

Water/Sewer/Garbage/common electric: $2750 per year

Cap Ex: 5% of rents ($1500 per year)

Repairs: 5% of rents ($1500 per year)

Annual Net Income @ $2900/month rents: $3550

Cash on Cash Return: 6.31% in 2015 but will drop to 4.26% in 2016 when property taxes go up (comparable CoC is about 7.95% in 2015)

Cap Rate: 7.37% (comparable cap rate in area is about 8%)

Would anyone buy this deal? Cash on Cash seems low to me but unsure if I am overestimating my costs here. How would you tackle the property tax increase issue? Can property taxes be written off? Am I estimating too much for Cap Ex? This deal looked pretty good before I factored in the Cap Ex and found out just yesterday that taxes would almost double. All thoughts and advice is greatly appreciated. Thanks.

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Originally posted by @Paulette Midgette:

@Pierre Streat I have not participated in Section 8 since the mid 90's here in Philadelphia. However, I ensure that I stay on top of what is going on in the Philadelphia market. @Mary B. is correct in that in that Philadelphia Housing Authority (PHA) does not have a good reputation with Section 8. It is one that is based more on how they operated 15 years or so ago instead of what they are doing today. PHA has changed their process over the years and operate, in my opinion with much more efficiency. Interested landlords must now take a course and provide documentation of their compliance with city laws and regulationsin order to sign up for the Section 8 program. Not only will Section 8 complete inspections prior to renting any unit, you will be subject to the inspections of Philadelphia's licensing and Inspections departments. Sections 8 tenants are now required to contribute to the rent system. I believe that making tenants accountable for paying a portion of their rents makes them likely to be a little more responsible with the property.

Of course the good with Section 8 is that your rent is guaranteed. The bad is the tenants may not be responsible for the upkeep of the property in the way they should. But tell me how many tenants have you had that didn't take of your property that were not Section 8? All tenants have the potential of being bad tenants no matter what there economic status is. This is where your intuition and homework comes into play. At the end of the day you choose who you put into your apartment.

One thing I will share with you from my experience of renting Section 8 was that it was difficult to rent multifamily units. The majority of potential tenants I came across were young mothers looking for 2 bedrooms. Single family homes seems to rent faster and was more desired than MFH.

I believe you need to approach Property Managers just like you approach your tenant screenings. If a property manager puts less effort and attention into a Section 8 tenant building than any other...run for the hills, they will suck no matter what building they are managing.

Philadelphia will require you to have a Business Privilege license to do business in the City. I believe the price is currently around $300.00. However, it is a one time fee. You will also need a rental licenses ($30.00 per unit) and there is a trash collection fee of $300 per year. If you own a multifamily unit. If you own a Single Family unit the trash collection fee is included in your property taxes. Yes, your property taxes for your MFH includes the city service of collecting trash...please don't ask. Lastly, one thing I learned recently is that if you MFH has a common area lighting system (i.e., hallway light and exterior light) it must be on its own electrical box and therefore, the landlord is responsible for the common area electrical bill.

Paulette! Thank you so much for all this very important and relevant information! I quite a bit of homework to do here. Cheers.

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Originally posted by @Mary B.:

Personally, I've never heard anyone claim that its easy to find a good nevermind great PM in any housing market. Philly is no different. Guess that you aren't looking to move in a unit and rent out the other(s). Philly has a history of being more of a section 8 tenant friendly city over PM / property owner. However, it turns in the property owners favor in certain surrounding counties. It seems PHA officials in the burbs do their job and hold the tenants accountable whereas its not so in Philly.

Kudos,

Mary

Thank you for the post Mary. To answer your question, no I am not looking to house hack but rather looking for good property managers who know the Section 8 market and it's nuances in Philadelphia well. You mentioned surrounding areas near Philadelphia that are more pro-owner/PM. What counties are you referring to? Are there multi family opportunities in these areas?

Thanks

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All Forum Posts by: Pierre Streat

Pierre Streat has started 12 posts and replied 53 times.

Post: 3 Unit property near major University in Philadelphia

Post: 3 Unit property near major University in Philadelphia

Post: 3 Unit property near major University in Philadelphia

Post: 3 Unit property near major University in Philadelphia

Post: 3 Unit property near major University in Philadelphia

Post: 3 Unit property near major University in Philadelphia

Post: 3 Unit property near major University in Philadelphia

Post: 3 Unit property near major University in Philadelphia

Post: Philadelphia Section 8 multi family

Post: Philadelphia Section 8 multi family