I live in California and I have been looking for a place to invest that has cheaper homes than the $500,000 homes where I live. I have searched all over using Zillow and one of the states I am considering investing in is Pennsylvania where I have relatives. I noticed that there are large, inexpensive homes in Tobyhanna and that the Zestimate valuations of these homes on Zillow is rapidly decreasing, often many thousands of dollars over the course of a month. I was wondering why this is? The houses look attractive and the area is pretty. I am guessing there are few jobs here but I also read it was a commutable distance to NYC (where I am from). Is this an investment opportunity or is there something like I am missing like a really high crime rate or bad drinking water? Any insight into the Tobyhanna market would be appreciated. Thanks!

@Lynaire McGovern sub $100k properties are difficult to find in any town that people actually want to live in (yeah, you see plenty of them still in the middle of the dessert or mountains, but not in cities with booming communities). I do see them here in Bakersfield, but as others have mentioned. Especially if you are a cash buyer. I'm in negotiations for a client buying a duplex for $105k here in Bakersfield that should cash flow two to three hundred bucks every month, so I know it's possible. They are getting harder and harder to find though, you really have to jump on them as soon as they pop up because cash investors are constantly on the prowl for these types of properties, at least here in Bakersfield.

Do those sub 100k and sub 50k homes really offer much higher cash flow potential over the long term? What is the rate of rental increases on those homes vs the 400k homes in your area? How does the tenant base stack up? Why don't those renters in PA just buy those properties if the mortgage + expenses are so much lower than rent? And back to your original question, which was a very good one and one I think you ought to seriously give more thought to, why are those homes so cheap? If you can't afford 400k homes, that's fine, I'm quite sure that there are some within driving distance that you can afford, but that doesn't necessarily mean they are any better or worse investments just because of the price ... you often get what you pay for, things are cheap or expensive for a reason, and that which is cheap in the short run may turn out to be very expensive in the long run ... some food for thought ...

@David Faulkner David thank you for an incredibly thought provoking reply. Let me address what you've said numerically to keep our thoughts congruent. 1. Home court advantage: I really hope new investors are reading this and taking pieces of what I'm saying and pieces of what you're saying and blending them together. I'm as much of a proponent of understanding the market where you invest as much as I am understanding the macro picture. As an example, one gentleman post that the santa monica sub market never really experienced a down turn in 2009. Having done this research, you could take it a step further and analyze the data for the 1990's when the LA market experienced substantial depreciation through out the decade. This home court knowledge could be priceless. If santa monica didn't decline then either, it would be the very first place I'd buy if the market goes down again to a level which is supported by fundamentals (population and income levels). As a matter of fact, I'm going to allocate time to the research because I think it may be an actionable thesis. My main goal in posting on BP is to promote thorough risk management and making sure it plays a bigger role than ROI exclusively. We all see posts on BP about people who made fantastic returns or a home run flip. This is great, but the question of "what did they risk to achieve the gains?" is never asked. It's analogous to a hedge fund that's produced average 10 year returns of 30% but is using 200% leverage. Is the return worth the risk of a 33% decline wiping out all your money? Maybe...maybe not. It all depends on the investor, but the increased risk can't be ignored. It has to be considered upfront along with the potential returns. Said another way, which is the better hedge fund, one that has an average gain of 15% with a max draw down of 2% or a fund that has an average gain of 20% with a max draw down of 30%? Again, my point is it's an individual decision, but the investors making the decision have to look at the risk vs. return. What most investors do is just look at the fund generating the 20% return and assume its better. So circling back to your point of home court advantage. This allows investors to better understand risks and opportunities. Here we completely agree. 2. The long term: I think the discrepancy in our views maybe the definition of long term? I'm looking at 10 year and even 20 year time frames. 1980 to 2000 was a 20 year span when there was little to no appreciation adjusted for inflation? Granted, if you take a snap shot of todays prices, appreciation has been fantastic assuming you didn't buy 2004-2007. But I don't know if you can take isolated points in time, 1980-1990, 1980-2006, 2000-2016, 1980-2016 and conclude LA always has great long term appreciation. For the simple reason it ignores, 1980-2000, 1990-2000, 2005-2016. That said, I only have a chart to 1980, I don't have the 50 year you have. 3. Forced appreciation and/or cash flow. I want to make sure everyone realizes what my main points are and this highlights one of them. When I talk about a market being over priced from a stand point of risk to reward I'm assuming retail prices. If an investor in LA (or anywhere) can find a deal that brings their total cost basis to a level that's consistent with broad prices in 2012, assuming it cash flows (or they can increase cash flows), go for it. Since they're buying at a level that's supported by the fundamentals (which I believe the data confirms) their downside is limited and, in this case, it is very probably prices will recover to that high water mark because they aren't predicated on interest rates being at all time historic lows (which is their current levels globally). This is night and day different from an investor buying at todays prices and making the numbers work through nothing but cognitive dissonance because they "think" prices are going higher or interest rates are going lower. As humans we tend to make emotional decisions and then rationalize them...no humans are more susceptible to this than investors. 4. I would defer to you on the population. I know official stats don't always paint the real picture. I'm sure net worth has increased dramatically due to asset prices being close to all time highs. And this likely does have a trickle down effect. The problem is what if asset prices aren't at all time highs any more and what has made asset prices go so high? I'd argue it's the world floating on a sea of liquidity...is that sustainable? maybe, maybe not. It's a matter of probabilities. 5. You're parents story. I'm happy to hear your parents did well. Although to stay consistent, if were dealing with inflation adjusted numbers, the 150k price and doubling was in nominal terms? I'm not sure that would've been an inflation adjusted gain in the 1970's? I could be wrong. And to your point about prime coastal real estate. It's always smart to buy the best even if it is a premium. It'll go down less in bad times and go up faster in good times. One last point I'd like to discuss is your final reference to demand. I agree with you but I want to define "demand" for any newer investors reading this. It's a term not well understood. What most define as "demand" is actually "want." Want is wanting something, demand is combining want with the ability to afford what's wanted. Without sufficient income "demand" can't be expressed in the economy and is therefore simply a "want." As an example: When I hear people talk about "pent up demand", they're really referring to "pent up want." Unless theres's a whole generation of young people that have the money to buy their first home but refrain because they choose to live with their parents? Without income (or purchasing power) there is no demand. And remember the majority of purchasing power in today's economy is based on half of global interest rates being negative. You're very correct...nothing is guaranteed. But there are probabilities. Thanks for the dialoge David.

... and I owe you a thanks, Lynaire ... you were lucky post #1,000 for me ... my only regret is that my # of votes doesn't exceed my number of posts, unless you want to vote for my last 4 posts ;) If I can help you succeed investing locally here in CA, though, that would be even better :) ...

Antelope Valley (Lancaster, Palmdale) as well as places in Riverside County like Moreno Valley have inexpensive RE ... perhaps not under $100k but certainly under $200k ... I am much more familiar with Antelope Valley than Riverside county. Do you own your own home in CA? If not, you could buy a primary residence with the intent to at a later date turn it into a pure reno ... if so, you could turn it into a rental and invest in your next primary residence without selling ... this way, you could secure a property with as little as 3.5% down on much higher quality assets that have a much better chance at appreciation and you could add some value to via sweat equity and control hands on since they are near to you ... much better strategy IMO ... never underestimate the power of your home court advantage investing locally, or conversely the disadvantage you face going out of state. Many of the folks you mention on the podcasts I would consider inexperienced newbies (not all, but many) that are inexperienced (haven't lived through a full RE cycle as an investor) and in some cases not many units and in others are more interested in selling product than giving new investment advice, plus they live and/or invest in markets with no long term track history for appreciation, so their advice is sound for them in their markets ... we on the other hand live in a market with 50+ year track record of strong appreciation well above the national average and well above inflation and you can confirm as historical sales prices are public record... that is how properties got to be expensive in the first place and there are strong underlying fundamentals of high demand and perpetually limited housing supply that I see no sign of changing. I'm not saying to ignore cash flow, I am saying consider the long term, not just the short term, and appreciation as well as cash flow ... appreciation creates both equity and cash flow, since price and rent increases go hand in hand, so even if a CA property cash flows less than say the midwest on day 1, if the last 50 years of steady appreciation in CA and no appreciation in the midwest (after inflation) holds (quite likely IMO), then its cash flow will quickly catch up and then exceed the midwest, and that will be icing on the cake compared to the equity increase. This won't apply for every CA submarket, and surely less so for the inexpensive inland markets your looking for, but if that is what you can afford and willing to spend they can work too ...

Somewhat off topic, but I wonder if this is a sign of things to come: Commuting suburb with poor job market, farther away, and over developed track housing developing gang and crime issues. With urbanization and infill developments, are these the new ghettos?

@David Faulkner I would have to drive to Bakersfield, Fresno, Redding or Susanville to find a small house in fair condition for under $100K which is 4 or 5 hour drive from my home. Sacramento used to be cheap but no longer. Stockton is getting more expensive as well and has high crime. Are there any homes within one or two hours drive of Orange County for under 100K? If so, I would be interested in them. I saw Trona, CA has inexpensive homes but it looks like a desert wasteland. I am trying to start my real estate investment career with a limited budget. If you have listened to any BP podcasts they frequently say that cash flow trumps (pardon the pun) appreciation because appreciation can come and go.

Why is Tobyhanna real estate declining in value so fast?

Christopher Tilghman

Wholesaler · Philadelphia, PA · Member since 2016 · 1 post · 2 votes

10y

If you are looking to invest in Philly may I suggest Philadelphia

2 Reply

Andrew Feil

Investor · Kingston, PA · Member since 2013 · 24 posts · 8 votes

10y

Lynaire McGovern the market in Tobyhanna is definitely a weird one. Some friends of mine just bought a home there as their residence for under 100k. And the house was built less than 10 years ago. I'm pretty sure the reason the area has gone down in value, is because they built so many home during the 2005-2008 time frame and then so many people got foreclosed on. It's also a somewhat rural area with only one main shopping area. But from what I have heard the rents go upward of 1000-1200. So if you get the properties at a good price I think it is a good rental market. Just don't expect much appreciation in the near future.

1 Reply

John Moore

House Flipper · East Stroudsburg, PA · Member since 2013 · 1k+ posts · 205 votes

10y

@Lynn McGovern The Tobyhanna area is an excellent area for buy and hold. Zillow is not the best source for comps., but you are quite right about prices; they have been stagnent in the used house market for some time. The housing mix is older seasonal homes and newer homes, lots of foreclosures. The area has several large developments with high HOA fees and some have renter fees. There are several excellent Realtors that are active in Rental/Property Management that can assist you. I would not purchase anything until you visit the area and scope out a development you feel comfortable with. Many investors rent to NY commuters as there are 3 commuter bus services; I have not experienced prices going down but unfortunately they have not appreciated much over the years. The area is expanding, new hospitals, new indoor water parks, reasonable good shoping (100 Outlet Stores); most developments have recreational facilities that families find attractive. You can also acquire properties that are not in developments as part of the market does not like the "restrictive atmosphere" of some developments. Don't let Zillow's yo yo prices influence you. Visist the area or have your relatives do some research for you. Good luck.

1 Reply

Lynaire McGovern

OP

Investor · Pinole, CA · Member since 2016 · 13 posts · 1 vote

10y

I think I should have phrased the question as "Why are the homes in Tobyhanna priced so low?" I realize that Zestimate evaluations are not always accurate. However, there are newer, nice looking homes at a rather reasonable prices in Tobyhanna that do not appear to be appreciating in value. Thanks for the insights provided already and any additional insights are appreciated. I never heard of renter fees and the ads only occasionally mention HOA fees.

Why is Tobyhanna real estate declining in value so fast?

Most Popular Reply

47 Replies