Buying a rental Property in Point Breeze

6 Replies

Hello,

So I am planning on buying a rental property in the point breeze area. I plan on buying a property that has been recently renovated so is pretty much ready to rent right out of the gate.

I wanted to see if people who currently have rental properties in the area are fairing? Is there anything that you did not expect? Was there any areas of the neighborhood that you would avoid or inversely focus on? Most of my search has been on the border of PB and Grays Ferry.

Also, I was curious as to what type of renters you are seeing in point breeze. Are they mostly couple or families, or roommates? Are most of your renters older or younger that work in center city? Are there aminities in the rental that are must have to maximize rental income(ie central AC, finished basement, outdoor space...etc)?

Appreciate any insight.

@Maneesh Joshi if you are looking to pay up on your purchase price for that product in favor of appreciation in a booming area than that neighborhood would be a great fit for you. Point Breeze and Grays Ferry is mainly a flipping territory due to the high outsale and lower days on market but the spread of each of those deals are tighter than a year or two ago as the purchase price for shells have reached 100-110k in Grays Ferry and 125k-140k (sometimes even 150) for true point breeze. Most of the renters down there tend to be recent college graduates or young professionals that want to be in close proximity to down town. This is why New Bold (between Broad and Point Breeze) is arguably one of the hottest pockets in South Philly due to how close it is to the Broad Street Line.  

In B to A class neighborhoods, central AC is a must for renters. Grays Ferry maybe not, but definitely Point Breeze. 

To answer the bit about where to focus on rentals- it all depends on your goal, is it cashflow (go for S8)? Force appreciation and refi (see Germantown, Olney, The Mansion, SW Philly under Baltimore, Cobbs Creek)? Area Security (see Point Breeze, Brewerytown, West Philly due east of 52nd)?

I do not have a rental in PB, in fact in 2010 I blew an opportunity to get a 2/1 duplex at 22nd and Federal. I kick myself every single day. Could have lived in the one bedroom and rented out the 2 bedroom and more than covered my mortgage at that point.

Anyway, some pockets of PB with new construction are hitting the well-off families, but a lot of the area is still gentrifying. Unless you are in a major pocket close to Washington you're still dealing with the hipsters who want to live in an up-and-coming neighborhood.

I'd be careful with your numbers too -- if you are buying something "rent-ready" its probably 250k to 300k, my guess, and the rent for a 3 bedroom is probably 1700-2000 depending on level of finishes and location.

I'm hard pressed seeing anyone making a ton of money in that market and renters typically don't care about finished basements unless it adds an extra bedroom (would require an egress). An outdoor space is nice, sure, but they'll use it and probably not take care of it.

Just word to the wise, without knowing anything about the numbers you are looking at. If the place is already done you're probably paying someone for the work they did, plus a premium, and renting it out will be tight on margins.

@Jimmy O'Connor   Thanks so much for you insight.  What you indicated is what I was thinking as well.  Yea I am betting on appreciation in this area vs. making a huge cash flow at this point. 

@Joe P.   Also thank you for your insight.  Just to give you background on what I am looking at...I was close to buying a place a few weeks ago but fell through due to a major issue in the final walk through. The place would of been bought at 220k and was about 4 years into a renovations so the place was good but not amazing.  With all mortgage, taxes, insurance would be about 1050 a month and in my research I was seeing about 1500 in rent that I could get.  For me if I can get about 300 in cash flow to save for expenses and maintenance that would be fine and hopefully see the property appreciate.  I also anticipated that taxed will be going up considerably once purchased as well.

I think 250-270k is definitely the price point right now for a newly rehabbed property that has been properly permitted as well.



@Maneesh Joshi thanks for sharing the numbers, but did you run that through any actual calculations?

Lets say the purchase price is 220,000. If you are getting a mortgage you would be looking at 25% down, and lets call it a 5.5% rate (I got 5.625% with a near-perfect credit score a year ago, and rates have fallen somewhat but investors still pay a premium rate).

Your cash in is 57,750 (25% down and 5% closing costs)

Your mortgage (176,000) monthly payment is $999

Your taxes, I'm assuming, are around $3,000 a year at that price ($250 per month)

Your insurance per month is $70, estimated...

Your income is $1500 a month.


Now do the math:

1500 - 999 - 250 - 70 = $181 a month cash flow

And that's before you did...anything...zero accounting for CAPEX, maintenance, water/sewer, vacancy, management, etc.

Your cash on cash return of 57,750 is 3.76%. And that assumes nothing ever goes wrong, no money in to fix the place, don't have to pay water/sewer, don't have to pay a manager, don't have to do.......anything. Which we all know is unrealistic.

You get your investment money back in 26 years.

So ask yourself -- as per my original point -- is this a good investment? Probably not. I know you came here with a different question, but I would hate to see an investor lose their shirt on a deal.

Hi @Joe P.

I appreciate you taking the time to look this over.  I can totally get where you are coming from.  So I think to be better to  give you the actual numbers I had:

purchase price is 220,000. The mortgage I got was 4.49% at 20%, I would of had to have paid 1% point at closing to get that rate. 

My cash in was 53,750 (20% down and including closing costs, transfer tax, point, etc)

My mortgage (176,000) monthly payment is $890

taxes, at this point were 1k but I was going to assume 2k to be conservative/proactive.  So with tax, insurance I was at 1130

I took the conservative approach for monthly rent(1500) as it is the end of the year so its a bit harder to find quality tenants. I think I could of gotten 1600 during peak season. 

So my thinking was that 1500-1130-100(management fee)= 270 would be enough to cover any Capex, Maintenence and vacancy and keep me at break even for the first few years and then bank on long term appreciation in the area and also the increase in rental income.

My inital goal was to keep it for 5-10 years and at that point see if it makes sense to sell.  Now that I have dropped out of the deal I think I could have gotten a better price for sure.
 

There's better ROI and investment margins buying a renovated home in west passyunk - 19145 (or buying a home that needs some cosmetic rehab, do the rehab work, and get appreciation on the property to boot (think BRRRR method).

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