I've been listening to Bigger Pockets for about a year now and excited to join the community. I live in the Bronx, NY but my goal is to own an investment property in Philadelphia by the end of this year. I've been looking into going with the route of section 8 (or housing choice voucher). Looking to make connections with property owners in NY and Philly for meet ups as well! Excited to learn more about home ownership with you all.
With your first investment, you want to try and minimize risk as much as possible. I agree with many of @Alan Asriants' points, especially when considering OOS Sec. 8 investing.
A lower price point or smaller investment doesn't always mean low risk.
House-hacking locally could be a better transition depending on your goals and situation. Many investors in NY like the idea of house hacking because:
- They can invest with a low down payment (similar to what a 20% down payment would be OOS) - They gain hands-on acquisition, project management, and property management experience. This experience can help you scale your portfolio over the next few years - Local properties appreciate faster, which allows investors to reinvest their equity into more local multifamily units OR other markets where the cost per unit is lower (i.e., Philly, Upstate NY, etc.)
The Bronx is arguably the best borough to consider the househack strategy. Manhattan, Brooklyn, and Queens all have an average sale price of over $1M for 2-4 unit properties.
Bronx 2-4 family properties sell for an average of $876,000 (~$45K down payment) and values are up 6.1% from '23 to '24.
If you're willing to move to Philly, I'm sure you can find similar success with even less $ out-of-pocket.
Hello @Raquel Reed! I invest in the Baltimore area but I have family members that invest in the Upper darby, Chester area close to Philly (I believe there's a lot of affordable properties in those areas). I also help real estate investors fund up to $150,000 in credit lines at 0% interest with no collateral in 90 days or less for property acquisition.
Can you please let us know why you want to invest in Section 8? What grabs your attention to this kind of RE.
A lot of newer investors want to get started in Real Estate and then turn the riskiest type of investment.
I will save you some time by point out things that other Gurus or Section 8 investors wont tell you.
1. Section 8 income is NOT guaranteed - only a portion is. And whatever is covered by section 8 is decided by them. In our management company we have cases where section 8 covered 200/m. So 200 out of 1500 is guaranteed - the rest is not.
2. On paper numbers and in reality numbers are completely different. this is because with riskier investments you have higher chances for evictions, maintenance issues, management calls, non payments of rent, damage to property etc. When you get a call from mulitple tenants that the toilet is clogged and you have to unclog it, try getting your money back. You wont. Some tenants had water bill, gas bill, non payment, etc of up to $5000 in balances. It was not uncommon for this to be a pattern. Most investors I know in this class of RE don't last long. When you go to rent your apartment and you cant find a solid tenant will see the challenges right away.
3. Appreciation. You buy RE for the sake of building wealth. You already decrease that ability by buying property in undesirable locations. If you want cash flow, start or buy a business. RE is supposed to be a long term investment and an asset you hold on for a long time and take care of
4. Value of renovations. Your 1000sqft 80k renovation will cost you roughly the same on a 120k property in a class D neighbor and a 500k property in class A neighborhood. Which would you rather invest that kind of capital into?
Please don't believe the hype of these gurus and for the love of god do not pay for their courses. Pick up a solid RE book and apply it to todays market. Get yourself a solid househack and hold onto it. You'll do far better in the long run
I've been listening to Bigger Pockets for about a year now and excited to join the community. I live in the Bronx, NY but my goal is to own an investment property in Philadelphia by the end of this year. I've been looking into going with the route of section 8 (or housing choice voucher). Looking to make connections with property owners in NY and Philly for meet ups as well! Excited to learn more about home ownership with you all.
With your first investment, you want to try and minimize risk as much as possible. I agree with many of @Alan Asriants' points, especially when considering OOS Sec. 8 investing.
A lower price point or smaller investment doesn't always mean low risk.
House-hacking locally could be a better transition depending on your goals and situation. Many investors in NY like the idea of house hacking because:
- They can invest with a low down payment (similar to what a 20% down payment would be OOS) - They gain hands-on acquisition, project management, and property management experience. This experience can help you scale your portfolio over the next few years - Local properties appreciate faster, which allows investors to reinvest their equity into more local multifamily units OR other markets where the cost per unit is lower (i.e., Philly, Upstate NY, etc.)
The Bronx is arguably the best borough to consider the househack strategy. Manhattan, Brooklyn, and Queens all have an average sale price of over $1M for 2-4 unit properties.
Bronx 2-4 family properties sell for an average of $876,000 (~$45K down payment) and values are up 6.1% from '23 to '24.
If you're willing to move to Philly, I'm sure you can find similar success with even less $ out-of-pocket.
Recommend you understand the property Classes, so you buy wisely!
Property Class will typically dictate the Class of tenant you get, which greatly IMPACTS rental income stability and property maintenance/damage by tenants.
If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.
If you buy/renovate a property in Class D area to Class A standards, what quality of tenant will you get?
Similarly, if you put several Class D tenants in a Class A 4-plex, what do you think will happen to the property?
So, when investing in areas they don’t really know, investors should research the different property Class submarkets.
Here’s our OPINION for the Metro Detroit market (use as a template for your target area!) that we’ve learned in our 24 years, managing almost 700 doors across the Metro Detroit area, including almost 100 S8 leases:
Class A Properties: Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation. Vacancy Est: Historically 10%, 5% the more recent norm. Tenant Pool: Majority will have FICO scores of 680+ (roughly 5% probability of default), zero evictions in last 7 years.
Class B Properties: Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation. Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support. Tenant Pool: Majority will have FICO scores of 620-680 (around 10% probability of default), some blemishes, but should have no evictions in last 5 years
Class CProperties: Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts. Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages. Tenant Pool: majority will have FICO scores of 560-620 (approaching 22% probability of default), many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.
Class DProperties: Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages. Tenant Pool: majority will have FICO scores under 560 (almost 30% probability of default), little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.
Hello @Raquel Reed! I invest in the Baltimore area but I have family members that invest in the Upper darby, Chester area close to Philly (I believe there's a lot of affordable properties in those areas). I also help real estate investors fund up to $150,000 in credit lines at 0% interest with no collateral in 90 days or less for property acquisition.
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