North Philadelphia Off-Market Property. Deal or No Deal?

17 Replies

Hello BP Family, I would like to get your opinion on this. I recently found a "Deal" in Strawberry Mansion Philadelphia (19121). This is a fully gutted property that will need a complete rehab. Here are the details:

1,074 sq 3b/1ba Rowhouse 2 stories + basement, zoned RSA-5

Asking = $28,000.00

Rehab -> $80,000.00 - $90,000.00

ARV -> $155,000.00 - $180,000.00

Average Rent (3/1) => $1,221 (Per Philadelphia Housing Authority)

Deal or No Deal? Please explain why.

Hi @Frank Nouma ! Whether this is a deal or not depends entirely on what you plan to do with it.

As a buy-and-hold, just by eyeballing it I believe it would be a tremendous amount of work for a sub-par return and cash flow. Also, that one lone bathroom screams "high turnover" to me. So, I don't see a deal there.

As a fix-and-flip, you'd be all in at nearly $120K on a property worth $180K at best. Once you throw in a month or three of holding costs, agent commissions, and "unexpected surprises," you'd be lucky to clear $20-40K. Meanwhile, a good wholesaler can earn that in two or three transactions with a fraction of the effort, risk, and headache. You could go this route, but I don't see the appeal.

Assuming you have done this before and have experience I would consider this a viable deal. Not an AMAZING deal, but something very workable. You need to determine what you want to do with the property though. If you have the intent to rent this out and manage it you need to comb through your numbers again. Your rehab numbers for rent and flip should be different. Your quality of a fix in a rental condition should be different than a flip condition. I would hope that in a rent scenario you could bring the rehab number down 15k. This (for me) would make a reasonable amount of return. Make sure that your rental income number is also viable. Assuming you are all in for 100k for a RENT situation, after you collect $12,000 a year in rent and pay normal expenses, factor in vacany, repairs, yadda yadda, you should be floating around a 8-9% annual net return (assuming you had paid cash). That's a number that can be challenging to get sometimes. If you are going rehab to flip I think clearing 20-40k is ok. As long as you have the experience to do it. You really need to turn that property quick, if you can't do that or aren't capable of doing it. Then it's not worth the time for 20-40k. Our last project was only viable because we moved FAST. We had so many trades in that they were stepping overtop of one another to get their work done. If I could reliably land the conditions of the last deal I'd be ok grinding out those numbers all year long...

Morning Frank

Just wanted to know how did you come across your numbers? Mainly ARV & rent prices? Be sure they are as accurate as possible. Although they are very tight unless you have a team ready to go and are also have some experience you're going to learn quite a bit on this deal and hit a few brick walls. Most of these homes were built in the early 19th century which means to bring up to code may be a problem due to the square footage of these row homes. Just make sure your numbers are accurate. Unless you can renegotiate the PP I'd be very careful, seems right and not saying it can't be done. However you will learn quite a bit very quickly.

Good luck 

@Frank Nouma , I'm with @Ian Walsh on this one. Definitely review your comps before making any decision on this deal. This would likely work better as a flip then a rental and you'll want to be certain about your ARV before pulling the trigger on this one. Good luck!

@Marco Padilla

Depends are you familiar with the 70% rule? If not simplified you'd need to be in to the property for purchase price & rehab up to 70% of your ARV. If you can get it for less than 70% than you're better off.

Hello, Frank. I will be blunt here: I do not like the deal at all for several reasons.

1. Not too much opportunity to make money.
2. Too many uncertainties such as time of rehab and cost.
3. How long will it take to lease?
4. Is your state landlord friendly?

Say you invest $100,000 all-in and you rent it for $1200/month. Once you factor expenses AND VACANCY, there is very little money left over. If this is a buy and hold plan, how much do you plan to "pay yourself"? Is it worth it?

In any case, let us know what you decided to do and how it went.

Good luck!

If you are new, I do not think it's realistic to turn a gut rehab in 3 months. It will realistically take you 6-9 months from close to close. 

I could get deeper into the numbers, but just off the back of my hand, I'd say this is a risky project better suited for someone with more experience and a local team. Sure $40k on $120k sounds good, but $40k can quickly become $0k or negative unless you have your numbers down.

I'm an investor in Philadelphia, and after having done 2 recent full guts in the area I will attest to that being a lot of effort and risk. It is very competitive in Philly right now, and the remaining properties tend to be extremely old and bring with them a high risk of foundational issues which can put you in the hole pretty quickly.

If you're going to take on the risk of a full rehab, make sure it's worth your time and risk. In this case, I would say it is definitely not good for a buy and hold

Others have touched on the flip side of this above (I agree not a great flip either), but here are the numbers from my Philly market analyzer using a hard money/private money lender and then refinancing out for 75% afterwards with 6 months of construction (which is probably not long enough for that job given how slow Philly License and Inspection department is taking with Covid).

Note I used the low end on the ARV and high end on the rehab, which is what I would always recommend when starting to analyze a deal (aim to be on the conservative side).

As you can see, you'd bring about 11k to the table initially and then at the refinance would likely have to bring another 3-5k to the table and would not be cash flowing at all (basically 0% cash on cash return). I would never do this deal for a buy and hold. 

For reference, I only even start to look at deals when I'm making $350+/month and have at least a 20%+

Hey @Franky Aikens by the numbers that you have presented I would say no deal. The reason for this is simply just the high amount of risk you would be entertaining. By the rough numbers and staying on the conservative side you're only leaving yourself 37k profit, thats not including any closing costs. On top of that you always have to factor in an amount for unseen costs, theres no project where something doesn't come up. Also, for the strawberry mansion area I would wear away from something with such a low purchase where the rehab is so high. A more ideal deal would be something like a 50-55k purchase and a 20-25k rehab. Far less risk involved.

Another factor to stay away from the deal is being such a high rehab cost, you're limiting yourself in your exit strategy. For the amount you're putting into this your limiting yourself to a flip, where in this pocket the best strategy is a rental.

I would pass on this for sure, if you have any more questions about properties certainly reach out.

Dan Powers - Real Estate Agent

@Frank Nouma it's a harsh area but still sound great being that all Philadelphia property are being tip . People here call it tipping the block when you rehab and get the equity to rehab the next fixer upper.