What Do You Consider a Good Deal?

7 Replies

I am looking to take my first leap into real estate investing.... My mother and step-father own three investment properties in the Philadelphia area that they rent and have had for years and so I learned a lot from them about how to screen for tenants, deal with tenant issues, repairs etc. I also went to school for my real estate license but that was only so that I could learn even more about the industry and gain connections... I've read and researched so much info I've lost count. I feel like I am now in the space where I am finally ready to take this leap. I am doing this on my own I am not reaching out to my parents for anything (a pride thing).... But what I want to know is what kind of property do investors consider idea?? I will be purchasing a multi-family unit (duplex or tri-plex) for under $200k in the Delaware County PA area which is made up of very nice suburbs. The property will be mortgaged also and after speaking with my banker I was able to determine that a $200k property will cost me around $600 per mth. Rent around the area I am looking at is $700-$1400. I am looking to get a property around $150k because I want to do some cosmetic work and charge on the higher end of the rent scale... After all things taken into consideration (taxes, expenses, vacancies) what do you guys consider a good deal? If you had your dream investment property what would it be? I have been a federal employee with the IRS for 5 years and major in Business Admin so I am well equipped with info on tax benefits and actually running a business just looking to hear from people with the actual experience. Would also appreciate advice on a good deal to flip (something I want to do later) and handling rental properties in other states since I am also looking at Florida real estate. Thx in advance!

Welcome @Martina Fripps

Look like you have a plan that you want to execute and I applaud you for that. I may be wrong here but a 200k loan with a pmnt of $600 doesn't seem correct. Did that pmnt include taxes+ Ins as well as possibly PMI ?

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@Martina Fripps I'm not as familiar with Philly, but the first step in considering a good deal is identifying your goals. Are you looking for cash flow to supplement income? Are you looking at ROI to get a better return than the stock market? Or are you looking to invest in something that will appreciate over the long haul? Ideally, you'd get all three, but as a newer investor in a competitive market, I don't come across those deals often. I focus on cash flow as my primary goal is to supplement income and hope to eventually get out of the rat race. I do look at cash on cash return and appreciation potential, but cash flow is the main thing I focus on so I place a greater emphasis on this when looking at deals.

Originally posted by @John Casmon:

@Martina Fripps I'm not as familiar with Philly, but the first step in considering a good deal is identifying your goals. Are you looking for cash flow to supplement income? Are you looking at ROI to get a better return than the stock market? Or are you looking to invest in something that will appreciate over the long haul? Ideally, you'd get all three, but as a newer investor in a competitive market, I don't come across those deals often. I focus on cash flow as my primary goal is to supplement income and hope to eventually get out of the rat race. I do look at cash on cash return and appreciation potential, but cash flow is the main thing I focus on so I place a greater emphasis on this when looking at deals.

 What he said. Are you looking for no headaches? That'd be higher-end rentals. You're not going to cash flow nearly as well but it'll be less trouble and less turnover. Are you looking to babysit Sec 8 tenants? There's certainly more cash flow to be had in that arena, but you're going to pay with more of your time dealing with the tenants drama, repairs and evictions. DelCo property taxes are higher than many other areas, so watch that. Also, resale, due to less desirable school districts and higher taxes, isn't always as robust as other areas. Lastly, while we're on the school district kick, keep in mind that if you're in a less desirable school district you can get more turnover, less desirable tenants, etc. 

None of these are hard and fast rules, just a few things to consider as you're looking at property. It sounds like you're looking to invest in areas you're comfortable and know well, which is a great idea, just go in eyes wide open. All this isn't to say you can't get a great deal and make money in DelCo, far from it, just saying each area has it's own pitfalls and peculiarities and these are the couple I've noticed for that area. 

Lastly, $600/month sounds way too cheap, even at $150k. That can't include taxes, insurance, etc. Also, vacancy and maintenance are real things that will eat you alive if you're not accounting for them, which you must. 

Hello from another delco guy!  I don't think you mentioned what school districts you would be looking in, but that is something to think about a little. I had poor luck finding any multi units for sale in good school districts that would even BREAK EVEN. Our taxes are certainly a downfall. I searched for about 10 months targeting multi unit/delco/good school district/under 200k. I found one 3 plex that could have worked for 90k, but renovations weighed in well over 100k pushing it out of my comfort zone. 

On the other hand I've found handfuls of single family homes that would make a good deal. Let us know more specifically what you're looking for.

Best of luck and utilize bigger pockets to the fullest extent!

-Drew

There are many Bigger Pockets discussions on evaluating a property so you should be able to find some great examples for evaluation. Just be sure to leave yourself room for error in your #'s for maintenance, vacancy, attorney fees for evictions, taxes, ins, etc. I would be concerned being in the top of the rental bracket for the area. Glad to see your taking the initiative to step into real estate on your own but you might also get some good advice from your parents on this one as well. Good luck.