All Forum Posts by: Ethan Giller

@Antuan Sumiel, the problem you run into when just looking for a "mentor" is that the people who are somewhat established generally either: a) have very little free time since they are actively running their business, or b) have free time because they are semi-retired and no longer growing their business or as actively involved.  It's not that people don't want to help you - successful real estate folks tend to have an abundance mentality and want to see others succeed in the industry as much as possible.

But if you are offering relatively unskilled help then it's usually easier for the investor to just hire someone directly who can be paid a low wage but be accountable for their area of responsibility, rather than a "free volunteer" who is there for knowledge and therefore isn't accountable if the work doesn't get done.  Many investors would rather pay someone for an hour of work than take an hour of their time to explain the task to someone who likely won't be a part of their long-term team.

Many of the 'gurus' do overcharge for what they are offering, but the idea behind charging for their services is to compensate them for the time they aren't doing deals, and also to see who is serious about learning.

If you are interested in finding a "mentor", the best thing in my opinion is counter-intuitively to look for a PAID position you can take in a small real estate company.  Work for very cheap but make sure you are providing value and accountability just as an employee would.  You can work as an agent, a secretary, a bird dogger, back office, etc.

Either that, or provide value to the people you are looking to work with by taking action on your own such as finding deals or motivated sellers (even if you can't afford them yourself), getting pre-approved for financing to buy your own properties, getting your real estate agent license, networking with other wholesalers and helping to market their deals, fully educate yourself by reading all the BP books and others, raise capital that you can lend to others, etc. etc. etc.

@Angie Williams, I think that your best bet is to discuss with a local eviction attorney.  It will usually cost you at least $500 (could be more if it drags out a lot) but it will likely save you from some procedural mistakes so would probably actually save money in the long run.  Especially since it's likely the tenants know the court procedures better than you do.  I'm surprised that the court even accepted your eviction filing in the first place without a rental license or an attorney on record, so it's hard to give practical advice here without knowing the specifics.

In terms of whether you can gain legal access, it depends on what the lease states.  Most leases will allow you to enter after giving 24 hours notice and state that they aren't allowed to change the locks and therefore if they did, you can drill them out to get yourself access (so long as you provide them with a copy of the new key - you cannot lock them out without court approval).  Of course, depending on what neighborhood your rental is in, you could be putting your personal safety at risk trying to forcefully enter a home with adversarial tenants.  But again this is all general information and your situation may be different, so I would advise you to discuss with an attorney.

Regarding how the inspector knew that you were renting without a license, I think you have your answer now - if the tenants knew they were at risk of being evicted then it's almost a certainty they called to try to get the violations in place which makes their case much stronger in court.  I would not count on them leaving of their own free will on February 2nd.

@Angie Williams, Philly is a great market for rentals, but it is important to follow the regulations especially since Philadelphia judges have gotten much more strict in the last year or so.  As @Igor Avratiner mentioned, you can get the rental license online at eclipse.phila.gov for $50 per unit.  You'll first need a commercial activity license (same website).

However, what is also extremely important is that you get a Certificate of Rental Suitability:
https://secure.phila.gov/CRS-Onlinev2/

Without the commercial activity license and the rental license, you cannot file to evict a tenant.  But what's more, without the required suitability cert, we've seen judges in landlord-tenant court invalidate ALL RENT received during a tenant's lease term if the suitability cert was not provided.  That's right, even rent that was previously paid is due back to the tenant and is a judgment against the landlord - the theory is that without this it's not a legal rental and so the landlord is not legally due any rent.  Seems crazy but it's true.

We've also seen in court landlords lose requests for rent due to other regulations not being followed, like not providing the required lead certification (for children under 7).

Philadelphia landlord-tenant judges are very tenant friendly so as soon as you get a tenant who hires a lawyer, if you did not follow all of the regulations perfectly, you are at risk.

In terms of how the inspector knew you weren't following the regulations, I think that's the wrong question to ask - the right question is how can you make sure to "court-proof" your rental business.  I recommend learning all the regulations yourself or else hiring a property management company who can help walk you through the process.

There are a few hurdles to jump through but the city is making a great resurgence and there are still excellent deals out there so it's all worth it.  Good luck!

@Craig Thom welcome to BP!

With regards to #5, whether $15K is too high an assignment fee, the answer is not necessarily.  The general thought in this business is that you shouldn't "penalize" a wholesaler just because they were able to find a good motivated seller.  If you run the numbers and $65K is a good price for you to purchase it, you should be happy with the deal whether the wholesaler was able to convince the seller to sell it for $1 or for $64,999... it doesn't change anything on your end.

Personally, I like it when I can buy a property and the wholesaler makes a good fee, it means that they will stay in the business and keep bringing me deals.  If you negotiate too hard then you run the risk of losing the property to another investor or else the wholesaler choosing to work with easier buyers.

You should also realize that for every one $15K assignment deal that a wholesaler does, there are maybe 100 leads he got calls on that didn't pan out, 20 properties he looked at where the sellers were asking too much, 5 property deals that he got under contract that had title issues, a few properties he made a $1-2K commission on, etc.  Not every call that comes in ends up being a $15K payday with a couple hours of effort.

If you want to pay less for properties in the future, your best bet is to keep working with that wholesaler or else to do direct marketing yourself.

Philly is a great market for investing, good luck!

@Jim Smith, people definitely do this all the time in Philly.  The question you have to ask yourself, is whether it's a good idea to invest in something that you already KNOW is illegal, and may turn into a problem.  For myself and many investors, the answer is no, there are enough above-board deals to be had, but your risk tolerance might be different as might your ability to deal with headaches.

It's very hard to give you a certain answer.  The way I would personally look at it is that over the long-term, you are probably 70% likely to have it work out well with no issues (other than the property management stress of having to deal with 5 unrelated parties in one property).  You are 20% likely to have it turn into an issue at some point, such as receiving an L&I violation and having to make tenants leave over the short-term until they re-inspect, or having trouble getting a mortgage, or one or two tenants not paying rent.  You are 5% likely to have it turn into a major issue, such as losing a year of back rent due to problematic tenants and an unsympathetic judge, or L&I flagging the building such that you get in trouble any time you have more than 3 unrelated tenants.  The remaining 5% is the likelihood that it turns into a catastrophic problem, such as a fire that is not covered by your insurance since the building was being occupied illegally.

@Kevin Coleman, welcome to BP. In Philly if you are looking to change the use from single family to multi-family (2 units), you need to first look at what the zoning district is (check out property.phila.gov). If it's RM1, you can likely just file for a use change and have the duplex granted by right. If it's RSA3 or RSA5 or some other designation, then you will need to file for a variance since those do not allow for multi-family use. The variance process involves filing for the use change, getting a denial, meeting with the local registered community organization (RCO) to try to get their support, and then going in front of the zoning board of appeals (ZBA) to make your case for what you want to do. There is no guarantee you will be successful. If you are buying in the name of an LLC then you are required to have an attorney for this process (one is of course recommended, anyway). The cost for the variance process is $1-3K depending on how much work you do yourself and how much support or opposition you get, and it takes about 3 months.

Whether it is cost-effective to change the property into a duplex is a separate question to consider.  To do it legally, you will likely need to pull permits including a minor/major alteration permit, and you may need separate permits for electrical, heating, and plumbing, plus you may need draftsman plans or architectural plans.  In most cases, unless the property needs a full renovation anyway, or it's in a very hot (expensive) area, it's not going to make financial sense to go through all this added expense just to get an increased rent roll.  Much better, in my experience, to find a property that is already zoned correctly and laid out correctly for your intended use - the exception being if you can get a property very cheaply that needs a gut rehab, but this is generally not a good strategy for the novice investor.

Philadelphia does have a lot of good deals for existing multi-family properties, in all price ranges, so it is a great city to look for investment real estate.

@Louis D Trejo, welcome to BP. Your question seems straight forward but it's actually very hard to give an answer for "consistent numbers" without being misleading or else being too vague to be useful. So much depends on the specifics... what permits you pull (major renovation or minor renovation, ez permits or full architectural plans), what type of contractors you use (hands-on GC or hands-off GC, ones that are slow but cheap or fast but expensive), what you mean by gut rehab (just new kitchens & bathrooms? down to the studs? down to the joists? front facade?), are you doing multiple units (and if so is it a by-right use or do you need a variance, do you need a sprinkler system, etc.), exact size of the house (since some costs don't vary linearly with sq ft size such as cost of roof, heater), what level of finishes (i.e. is flooring just painting the old hardwood? carpet? laminate? vinyl? tile? hard wood?), what systems you're putting in, whether you need to do any street work for the plumbing, etc. All of these factors can cause your "gut rehab" price to range from $15/sq ft for basic work to over $100/sq ft.

It's like going onto a car forum and asking, "my car won't start and the check engine light is on, how much is it going to cost me to fix it?"  There is too much variability to give a useful answer.

Your best bet is to get a copy of J Scott's book on estimating rehab costs, and also to get bids from reliable contractors before purchasing a property.

http://get.biggerpockets.com/flippingbook/

Good job being creative, but in my opinion, that deal is too skinny to make it worth your while. Especially since the title to the property isn't in your name and if she defaults on the agreement you don't have any equity to go after or likely any personal assets. The $200/month you are counting on will be eaten up by maintenance and management expenses even in the best case. Use your $5K to leverage into something you can BRRRR.

@Kurt Batocabe,

Just wanted to give my experience of investing in Philadelphia real estate, since Philly does have a lot of options for the buy-and-hold investor, and real estate taxes are much lower than in New Jersey. In Philly, you pay 0.14% in annual real estate tax for the assessed value of the property, which you can look up at property.phila.gov. In 2014, the city did a complete re-valuation of all of its property so the assessed values are now more closely aligned with the true market value. Typically you can expect to spend approximately 1 month of gross rent on real estate taxes, as compared to NJ where it is often 2-3x as much.

I also wanted to clarify some of the things that @Jim Kennedy  said regarding the tax structure of Pennsylvania and Philadelphia. I certainly respect his advice and personal experience, but just wanted to weigh in with my own opinions based on my experiences. You should verify all of this information with your own CPA before making any decisions, however.

"If you have rental properties and Philadelphia, first you pay Pennsylvania income tax on the income."

While you do have to file a state tax return for any states where you own rental properties, you are not taxed twice on the income. You either pay the state tax in PA or in NJ. Until very recently, PA & NJ had a reciprocal arrangement anyway so there was no impact from the different states income tax rates.

"Then you pay Philadelphia business income receipts tax on the net income. Then you pay Pennsylvania income tax on the gross receipts from the rental. Then you pay Philadelphia net profits tax on the net income..."

Philadelphia's BIRT & NPT are easily filed online, and are both relatively de minimus taxes, especially given the high CAP rates available in Philadelphia compared to NJ, and the comparitively low real estate taxes. I'm not sure which tax the 'PA income tax on gross receipts' refers to, since Pennsylvania state tax is already discussed above and is based on net income, and Philadelphia wage tax applies only to W-2 income.

"Plus I hear many horror stories from my Philadelphia investor clients about issues with Philadelphia Department of licensing and inspections."

L&I is somewhat backed up currently for filings of new construction or major alteration permits, you may have to wait a couple extra weeks than usual for those or pay to have them expedited. But in terms of filing for EZ permits, commercial activity license, or rental license, the city has actually made a lot of improvements over the last year and streamlined their processes, and I haven't experienced any delays or horor stories.

"Plus, I noticed that you lived in New Jersey so add five dollars to your expenses every time be going to the city when you cross the bridge."

If a $5 charge is determining your investment strategy, you might want to re-think your purchase price.

"If you pay a management company, and you go into Philadelphia, you can expect to pay 10 or 11%..."

Management fees are an important part of your investment strategy, but your costs are going to be about the same in NJ or in PA.

Just one man's opinion, and everyone has their own strategy, so see what makes sense for your goals!

No, you only pay transfer tax when the property changes ownership.  You are also supposed to pay it in some other less common situations (such as certain changes in ownership structure of a holding entity, or on contract assignment fees), but not all title companies follow those rules.

Typically when you refinance you do need to pay for a lender's title insurance policy though.  And filing fees for the mortgage.