Taking My First Step in Philadelphia - ADVICE WANTED!

10 Replies

Hi All, 

After researching and biggerpocketing for about 6 months I'm closer than ever to taking my first step.  I have a list of several houses I found on RedFin and have an agent lined up to show me this weekend.  Despite being very early in the process, I'm still very excited and nervous.

My business model is Buy/Hold 3-5 Unit Homes in the $75-150k range.  My ultimate goal is to have at least a portfolio of 10-15 MFH in 5 yrs and 25 in 10 yrs. 

My current top choice is a 5 Unit for $140k.  It's been on the market for over 6 months, so I plan to come in low at $95k.   I plan to do about $5-10k in renovations to attract some good tenants and maybe get a premium on the rent. 

Annual Rent Income         +$34k (~$600 each)
Annual Expenses             -$12k

   - Taxes, Ins., Mtce - $8k
   - Vacancy 10% - $4k
Annual Cash Flow             +$22k

Based on my numbers, it passes the 2% rule, but please let me know if I've missed a glaring costly item.  One of the units is for a commercial business, don't think that changes anything, but I could be wrong.  I believe Philly requires a business license for all landlords....is this true?

ALSO - are there a list of specific questions that I must ask or should ask the agent?

Any advice will be greatly appreciated! 

Thanks so much - I will post my progress. 

Cheers, 
Phil

Also, any one have experience with evictions and or obtaining the Philadelphia business transaction license requirement?

Originally posted by @Phil C.:

Hi All,

My business model is Buy/Hold 3-5 Unit Homes in the $75-150k range.  My ultimate goal is to have at least a portfolio of 10-15 MFH in 5 yrs and 25 in 10 yrs. 

FYI, 5 units will require commercial financing (if you're financing).

My current top choice is a 5 Unit for $140k.  It's been on the market for over 6 months, so I plan to come in low at $95k.   I plan to do about $5-10k in renovations to attract some good tenants and maybe get a premium on the rent. 

$140k is cheeaap for a 5 unit building that would gross +$34k/yr. If it's been on the market for 6 months at that price, there's a reason. $5-$10k in reno costs on a 5 unit building for $95k purchase? Not a chance, that'll barely get the thing up to code most likely and that's being optimistic, forget upgrades. If this thing were any kind of deal it wouldn't have been on the market at $140k for 6 days let alone 6 months. 

Annual Rent Income         +$34k (~$600 each)
Annual Expenses             -$12k

   - Taxes, Ins., Mtce - $8k
   - Vacancy 10% - $4k
Annual Cash Flow             +$22k

Based on my numbers, it passes the 2% rule, but please let me know if I've missed a glaring costly item.  One of the units is for a commercial business, don't think that changes anything, but I could be wrong.  I believe Philly requires a business license for all landlords....is this true?

Yes, unless you live in the building and it's not more than 4 total units, then you'd only need rental licences for each unit but no business license. You will need a business license since you won't be living in the building(s). You need to look at a bunch of property and neighborhoods to get a feel for the areas and prices before you leap into anything. I promise you you're making a big mistake if you purchase the 5-plex mentioned above. It either needs $100k+ in repairs or it's in a neighborhood I would't drive through during the day. Just my gut feeling.

Originally posted by @Phil C.:

Also, any one have experience with evictions and or obtaining the Philadelphia business transaction license requirement?

 Philadelphia is middle of the road (IMHO) with evictions. We're not as good as some areas (Mid-West comes to mind) with speed of eviction and pro-landlord leanings but we're nowhere near as bad as California as far as pro-tenant and dragging out evictions. I use a service that handles the entire process soup-to-nuts for $450. You don't even have to go to court, they file, evict and schedule the Sheriff for lockout if it gets that far. A simple eviction could be ~1.5 months, complicated/appeals/etc. could be 2.5-3 months but that's most likely your fault for not having the rental and/or business license, poorly written lease or poor documentation of payments. 

The licensing process is pretty simple, it's been a while since I got mine but all the info I found on the Phila.gov site was accurate. No surprises. 

@Phil C.  What areas are you looking in? I think you've got a solid plan with MFH's that need a bit of work, however, if you buy in the wrong area you'll be more likely to have tenants who will not care for your unit as much as you'd like (trash it), you'll spend an inordinate amount of time managing them (babysitting, chasing them for rent, evicting, repairs, noise complaints, pests). I wouldn't want to manage low or lowish income units from afar. Yes, you can get great returns with low income units but the trade-off is the time and aggravation that goes into them. If you're going to use a management company, will they even manage in the area you're looking to buy? Many companies won't take low end rentals on.

Great advice guys! Troy, I'm looking in the so so areas of Philly like Germantown Oxford Frankford and trying to avoid north Philly and west Philly.  They are with in my budget and provides the a good enough roi despite being aware of the additional potential headaches included in lower income areas.  

Can you give me the name of your eviction service provider?  I don't want to kick any tenants out but definitely a great thing to have in my back pocket just in case.  Thank you again!

my goal is to buy right units to match my salary so, I can focus on this full time.I'm ok driving down every week to manage the properties if I have too, its better than commuting to a job you hate working for people you despise. =)

Originally posted by @Troy Sheets:

@Phil C.  What areas are you looking in? I think you've got a solid plan with MFH's that need a bit of work, however, if you buy in the wrong area you'll be more likely to have tenants who will not care for your unit as much as you'd like (trash it), you'll spend an inordinate amount of time managing them (babysitting, chasing them for rent, evicting, repairs, noise complaints, pests). I wouldn't want to manage low or lowish income units from afar. Yes, you can get great returns with low income units but the trade-off is the time and aggravation that goes into them. If you're going to use a management company, will they even manage in the area you're looking to buy? Many companies won't take low end rentals on.

 Troy, thank you so much for your advises. which areas of mayfair/frankford and oak lane would you recommend for single-home rentals and for flips? i hear the upper part of oak lane is a hot spot now, is it true ? thank you in advance 

Has anyone heard of Evictions Unlimited?  I'm just lining up my ducks for when I pull the trigger, which will hopefully be within the next month or so.  But I want to start putting together a contacts document of all useful contacts including eviction specialists, handymen, contractors, plumbers, electricians, etc. 

I came across EvictionsUnlimited.com and Eviction Specialists.com.  EU has a much better more complete and professional (sorta) website, ES looks like it was done in 1997 on geocities and never updated since then.  I am leaning towards EU, or does anyone recommend a typical lawfirm?  Any insight?

Much appreciated!

Look up HAPCO. They are a Philadelphia specific landlord organization. They have an eviction attorney available to members for the prices posted above. They keep you up to date on legislative changes in the city. They have a forum where you will get local answers. 

Thank you, Steve!

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