All Forum Posts by: Ethan Giller

You can get qualified private-pay tenants in just about any area of Philadelphia, if it's being marketed at the right price (message me privately if you want to discuss details, I also have a new construction unit near Temple on the rental market myself right now).

Alternatively, you can look into what rental pricing you can get from Section 8 (HCV/PHA). Often for units with a large number of bedrooms, the price through this agency will be higher than market-rate, private-pay rental rates.

Be careful if you are considering Airbnb, new legislation in Philadelphia has made it difficult to do so legally in most zoning districts unless you're willing to go through the variance process.

https://permitphilly.com/2022/...

https://whyy.org/articles/phil...

https://www.phila.gov/media/20...

Your best bet is probably to get a few different bids, or if you have a trusted contractor to ask him to break out the different components into different line items so you can see what items make up the total -- even asking for a labor-only price could make sense too.

That scope of work can be so different that a range of $1K - $22K may indeed be accurate. If you're buying cheap used appliances, and tapping into an existing water supply (say from a bathroom directly next to the proposed location), and just putting in a stock or second-hand sink base cabinet and a formica counter top, and having a handyman do the work unpermitted, then it's plausible you could end up somewhere close to $1K. If there's extensive plumbing work needed, and you're pulling permits and using different trades for plumbing and electrical and carpentry, and installing high-end cabinets and a custom counter top and top quality appliances, then spending $22K is conceivable as well. If someone quotes you an average price and they doesn't know the details of your scope of work and expectations and your situation, then it's not likely to be a productive conversation with your contractor.

@James Orr might be a good person to speak with, he's very familiar with investing in the Fort Collins market and has written a book on house hacking.

@Jeffrey Sommer those are good questions but hard to answer comprehensively in a forum reply because there are so many variables. I recommend you pick up J Scott's book in the Bookstore section: The Book on Estimating Rehab Costs.

(Note that I have no financial incentive for this recommendation, I've just bought it myself and found it very well written and reasoned.)

Many people do use this method, it's the primary reason that hard money loans exist (typically 1-3 points and 9-14% interest). Your $40K plus the hard money loan would be enough for you to renovate a single family rental in many Philly neighborhoods, and then rent it and refi out. 

Investing out of state has its own challenges but that's a separate discussion. 

@Yannes Chiang @Mayer M. @Max T.

Unfortunately, in Philadelphia at least, you will not avoid the transfer tax by just transferring the LLC instead of the property. So there's not much upside to transferring the LLC in most cases except if it's done for some specific purpose related to assumption of financing, or if you're willing to do a buyout over 6 years in order to avoid the transfer tax.

See for example:

https://www.jdsupra.com/legalnews/the-party-s-over-changes-to-the-21677/

http://www.kleinbard.com/2017-real-estate-transfer-tax-changes-in-philadelphia-2/

Per your initial post: $161K purchase + $12K closing costs + $7K repairs = $180K

Without digging into the details, the back-of-the-napkin calculation sounds like you would be all-in for $180K for a property that rents for $1,400/month. The BP metric that's tossed around is that you should be looking for at least 1%/month to make it into a good deal, unless it's in a great area and you're just betting on appreciation. You're at 0.78%/month which indicates, again just from a ballpark perspective, that you may not ultimately be satisfied with the purchase unless it's in a prime area. 

Personally, while this metric is very useful, I look mostly at two factors: debt service coverage ratio (DSCR) and appraised value (which drives LTV). If your deal has at least a 1.25 DSCR and your all-in cost divided by the ARV appraisal is 75% or less, that means that if you refinance your mortgage, you will be able to pull all your cash out, which is the goal for many investors. I'd recommend running those numbers on your deal and seeing where they come out. I believe that BP has some calculators that can assist you with this.

Philadelphia has a lot of investment properties that come on the market consistently, so if this one doesn't meet your numbers, there may be others that do. 

These are great resources to start with, if you don't have them already, well worth the money: 

https://www.biggerpockets.com/flipping-estimating

For the scope of work you described, you're most likely looking at anywhere from $35- $100/sq ft depending on a large number of factors. The low end price being if you do work yourself or manage the work yourself using cheap labor and buy material on sale, and the high end being if you hire out the entire job to an experienced and licensed GC charging retail rates. And somewhere in the middle if you can find a contractor who is used to working with investors. 

Reliable and affordable contractors in Philadelphia are very hard to find right now, so be prepared to pay more than you expect and have it take longer than you expect.