If it is not broke...
Hi -
I have four rental duplexes - one in Northeast Philadelphia and three in Delaware county. My tenants in Philadelphia have always been late on the rent and keep the property in a nasty condition. These are the main reasons why I am leery of purchasing another rental property in Philly. However, I would like to invest in another property since the real estate market is improving.
My tenants in Delaware county pay their rent on time and keep the property in decent condition. I have no issues finding quality tenants in Delaware county. The main problem I have with this area is the property taxes. They are increasing over 4% each year. My property taxes are 45% of my total monthly mortgage. I am looking to purchase another property, but I am concerned with having majority of my rental in one township. I think it's best to diversify my book of rentals. I mean, what if Delaware county decides to significantly increase their property taxes? This would drastically affect my finances.
Am I thinking too deep or should I just purchase the property and stop worrying about things outside of my control? I would appreciate any input!
Thanks,
@Stephanie D. Congratulations on your success thus far.
I would say that you should definitely be worried about the tax issue if it's going to affect your cash flow. To combat the issue in that particular market you may have to find something you can pay a lower purchase price for or charge a higher rent. Are you self managing or have a pm? Another expense to consider that will affect your cash flow.
To the one in Philly, I would say get those tenants out of there, legally of course. Don't renew their lease and/or make sure you start eviction procedures as soon as they are late. Make sure you charge for late fees too. I invest in a similar market here in Baltimore and what I have found is that you have to stay on the tenants. It's a business. When I neglect to file for an eviction as soon as the tenants are late, it takes longer for me to get paid. A little motivation goes a long way.
I wish you the best! Peace!
@Eric H. Thanks much and the very same to you as well.
I am so tired of my tenants. I am filing the eviction process today. I am ready to have them out. My property is a mess!
I manage my properties. Thankful I have a job that gives me the freedom to do it on the side. I am going to continue my search for a lower priced property in Delaware county. I'd rather deal with a higher mortgage with tenants that pay on time.
Where in NE Philly is your property located, what area? Maybe you just had a bad luck with the tenants? NE Philly is a very big area that has a ton of different neighborhoods within. Most of my portfolio is in NE Philly and I have similar tenants as you described but I also have great tenant that keep units neat and clean and always pay on time. Never had an issue with renting here and numbers make sense.
@Yuriy Skripnichenko It is in the Mayfair section of the city. I think I just had bad luck with tenants. Don't get me wrong - I love Philly. I grew up there and it will always be my home. I just want these tenants out, so I can fix up my place and re-rent it. I would definitely purchase another place there, but not now. I am working to get another place, but will focus on Delaware county for now.
@Stephanie D. Personally, I don't worry about things outside of my scope of control. It's tough to look at the future and guess if a township, city, etc. is going to raise taxes, lower taxes, etc. I don't think there's anything materially wrong on finding a low property tax area but (for me) it would still boil down to the quality of the property and the deal. On a practical level, I'd start to wonder what happens to the politicians that are increasing the property taxes more than 4% a year. If you start bumping them 20% per year you're going to have a lot of unhappy voters. That said, I don't know a thing about Delaware County :-)
Originally posted by @Stephanie D.:
Hi -
I have four rental duplexes - one in Northeast Philadelphia and three in Delaware county. My tenants in Philadelphia have always been late on the rent and keep the property in a nasty condition. These are the main reasons why I am leery of purchasing another rental property in Philly. However, I would like to invest in another property since the real estate market is improving.
My tenants in Delaware county pay their rent on time and keep the property in decent condition. I have no issues finding quality tenants in Delaware county. The main problem I have with this area is the property taxes. They are increasing over 4% each year. My property taxes are 45% of my total monthly mortgage. I am looking to purchase another property, but I am concerned with having majority of my rental in one township. I think it's best to diversify my book of rentals. I mean, what if Delaware county decides to significantly increase their property taxes? This would drastically affect my finances.
Am I thinking too deep or should I just purchase the property and stop worrying about things outside of my control? I would appreciate any input!
Thanks,
Delaware county actually does have a countywide tax reassessment planned for 2020. Its been said that it will create "winners and losers", so if your taxes are high right now, there's a good chance that they will decrease.
"A reassessment will distribute the tax burden more fairly, but it will create winners and losers. Local governments may not use reassessments to raise more money through taxes. An analysis of the most recently available state tax data showed that roughly 37 percent of Delaware County properties are overassessed. The county council also approved a contract for a company to take aerial photographs to use in the reassessment. The photographs will be compared to building permits and other existing information about the properties. In some cases, assessors will go door-to-door. Delaware County property owners are slated to receive notice of their new assessments in 2020, and they will be able to file appeals before they are taxed on the new assessment in 2021."
More info: http://www.philly.com/philly/news/pennsylvania/del...
If taxes are going up that much then usually so are property values and so are rents. Can you tell if that's the case?
As for the bad tenants, as long as they pay I would keep them as long as I could. Turnover costs are my biggest worry and expense, not to mention the lost rent. But if they are making you file every month, then yeah, maybe be done with them. Do you charge a late fee and do they pay it?
@John Knisely thank you very much for sharing. This is helpful. I had no idea they were going to reassess how the taxes are calculated. Thanks and have a great day!
@Shawn Clark the rents and property value are not increasing in proportion to the tax bill. Property value has been down, which is why investors like myself are taking advantage to purchase new properties.
In regards to my tenants in Philly, I am ending the partnership with them. I can't handle the nasty attitude, dirty place and never paying on time. Yes, I do charge a late fee.
Thanks much for your time.
Hey Stephanie! Well my input would be that in never hurts to diversify. That way, regardless of what happens, all your eggs aren't in one basket. If you can spread out your assets, then if something crazy happens in one of the markets, it isn't your whole portfolio that's hosed.
What kind of properties do you buy? Do you fix them up or what are your buying criteria? How far out of Delaware would you consider buying? (Philly is still pretty rockin' for property options though too, so you may not have to drift far)
Hey Stephanie, I am also in Delaware County and another thing I have tried is to appeal the assessment. It is a simple form and about $50. It can be found on the county website. Fill out the form and submit it. Then you will get a hearing date. You do not have to attend this hearing. I did this for 4 of my properties and got new lower assessments on 2 of them without attending the hearing. That may have gone up if I was in attendance. I am going to appeal my other 5 this year and attend the hearings and see if I have even more success. Hope this is helpful!
Originally posted by @Rich O'Neill:
Hey Stephanie, I am also in Delaware County and another thing I have tried is to appeal the assessment. It is a simple form and about $50. It can be found on the county website. Fill out the form and submit it. Then you will get a hearing date. You do not have to attend this hearing. I did this for 4 of my properties and got new lower assessments on 2 of them without attending the hearing. That may have gone up if I was in attendance. I am going to appeal my other 5 this year and attend the hearings and see if I have even more success. Hope this is helpful!
Thank you so much for sharing this information. I am going to complete the appeal. I can't thank you enough for sharing this information. Thanks and all the best with everything.
Hi @Rich O'Neill - it looks like I missed the date. I will diary for follow up.
The last date to file Appeal From Real Estate Assessment Of 2018 is August 1, 2017.
The Appeal From Real Estate Assessment Of 2018 will be available after March 15, 2017.
@Stephanie D. yes that is the annoying part you do have to find the window to file. I filed toward the end of July this year and got a hearing in September. Not sure if they do it in a "rolling" fashion or take all of their filings and hold hearings in September but either way it is definitely worth the $50 to try. If you get it you will make up the difference in one tax payment.
As for moving forward in Delco, I have found that while taxes are high, potential rents are also pretty high, so it balances out. 2% rule is a good guide around here. If you buy right then there is plenty of money to be made! Good luck with your investing!
@Stephanie D. Awesome on what you've achieved thus far (not many people can say they have 8 units), so congratulations! :)
Always late on rent? Wait, what? These are repeat offenders? Please don't hesitate to get them out, and yes, you may lose out on rent while you get the units to market rent (be firm, but fair).
As for the taxes, I see that you missed the appeal window, you are still better off than waiting for 2020 to come around.
You might be thinking too deep here. So, I'd suggest you buy another property maybe this time acquire something relatively stabilized and slightly bigger (4-unit), so that way you are able to control costs somewhat.
There has been a talk of a market correction coming sometime in the future for a long time now, and here we are it's 2018 and we're still waiting.
Buy close to stabilized assets with a value-add component and always buy for cash flow and hopefully when that market crash comes you would be cushioned out with your cash flowing properties and weather the storm.
Hope this helps. Goodluck. Thanks! - Ola
Thanks @Ola Dantis I appreciate your time and your input. Yes, I am working on another deal now. All my properties are cash flow - so that's a plus. I will am looking into a triplex that needs a little cosmetic work. I am excited for this project because I get to utilize my interior design skills. Thanks and all the best for 2018!
Hey Stephanie, congrats on your success so far!
I actually live near Mayfair and it doesn’t seem to be a bad area. It seems like you can get descent tenants, but The again I’m unsure of rental market.
I was also looking in Delaware county,(Darby, Collindale, Sharon hill, etc). Prices are down but taxes are high so I see how that can be a dissuasion.