I’m looking to invest in Pennsylvania but starting out with fha 203k, I know there tenant laws are different from New York , can anyone offer insight about some of the markets out in that state that they currently invest in or are looking to invest in ?
I invest in western PA (live here). General rule is you should "easily" be able to make the 1% rule with acquisition and renovation costs. One of my associates I work with frequently won't do a rental unless it cash flows $350/mo after PITI and Property Management. I think he has 8 or 9 places in the last year alone that fit that bill. I target $100/mo after PITI, 10% PM, 8.5% vacancy, 5% CapEx, and 5% OpEx. I pay myself out of the PM portion since I am doing my own management. With my "soft holdbacks" that number has been harder to hit (I just need to buy cheaper!). Also, I prefer to stay in the suburbs. Multifamily is hot. I am not involved in it currently so can't give much insight. For areas, it depends on what you are looking for. Speculation you can look into Wilkinsburg or Hazelwood or Homestead. For a little safer you an look along the 65 corridor. Places like Lawrenceville and the South Side have pretty much blow up already, so luck to you getting in those areas today at a good price point (especially if doing MLS). You can also look along the Brownsville Road corridor for opportunities. You can find a $10-20k places there that may need $20-30k in work and will rent for $800-900/mo. It isn't a trendy area, but it isn't going anywhere. Unless you are into Section 8, I would stay out of Homewood or Penn Hills. Penn Hills is a mess with their school district/taxes and Homewood is where you can get $500 houses (but come with that standard of tenant). Homewood has more potential being near East Liberty and Bloomfield, but it misses that mark of feeling safe there - I just haven't thus far.
@David Lee Hall, III great insight brother I greatly appreciate it. Few questions here, so 1being what is opex? And what is your ROI percentage or is that the 5% for cap ex?
Also, since I’m basically looking to do. A live and flip with my fha 203k will that potentially increase what average rents are in said area?
Operating Expenses, think non-depreciation repairs. The stuff needed to keep the property at value but isn’t going to prolong the life of the property. So patching drywall, fixing leaks, etc. Usually you will see these every year or at tenant turnover.
These are your big ticket repairs/upgrades that extend the life of a property. A roof, kitchen redo, etc. These can be depreciated. These are infrequent expenses but should be saved for to avoid cursing when they come up.
I target north of 8% cash on cash as that is north of the historic stock market returns. Do I meet that? That correlates very well to my estimation of repair costs, which is something I am still working to perfect! (Always looks so great on paper until I open the wall of a 100 year old house.)
Can’t really comment much on the live in flip. I know @Mindy Jensen loves them but I don’t have experience there to say how it would impact rents.
@David Lee Hall, III hahaha I could imagine opening up a wall to find mold and termites and what not it’s like well there goes another 10k that wasn’t factored into the Reno.. but hey I appreciate all the insight bud
So for cash on cash return is there a formula you follow for rental properties ?
@Daryle Smith Pre-tax cash flow / cash invested
So a property that has a positive $500/mo cash flow and had $60k of purchase and reno would be 500/60000 = 8.3% cash on cash return. The Bigger Pocket's calculators will calculate this for you.