Philadelphia Kensington Area Flip Project

9 Replies

Investment Info:

Small multi-family (2-4 units) fix & flip investment in Philadelphia.

Purchase price: $70,000
Cash invested: $85,000

In the middle of the rehab. Plans for use-change of entire property was approved. Converting a two-story row-home into a duplex. This leads to double the rental income, or a house-hack for the buyer.

What made you interested in investing in this type of deal?

Firm believer in David Greene's philosophy on creating deals and opportunity. Property is in a RM-1 Multi-family zone, so why not convert it into a duplex? Just made sense to me.

How did you find this deal and how did you negotiate it?

Found this on the MLS. It was on the market for a little over 3 months, so I offered $13k less than listing price. The property, also, had a couple violations (non structural). Both of those factors helped with my offer being accepted.

How did you finance this deal?

Line of Credit, and a couple loans.

How did you add value to the deal?

Hired an architect to draw-up prints and turn it into a duplex. We added a kitchen and bathroom. Also, re-did the concrete in the backyard, and put-up a privacy fence. Then, changed the electric from 100 amp to 200 Amp. Then, Installed separate meters. Added separate supply lines so there will be stackable washer and dryers in both units. Lastly, central ac for both units.

What was the outcome?

Done in two weeks, so i will let you know. Glad we're in a seller's market.

Lessons learned? Challenges?

Just because the city of Philadelphia has a property listed in their records as multi-family, that doesn't mean the city recognizes the property as such. Make sure the Use Occupancy Permit is approved, and the prints on record match that permit. You can call Philly L&i to verify that.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Arco Settlements was the closing company, they were very good.

@Courtney Benson Can you discuss the difference in rent income vs keeping it a single family. This is something I’m curious about because it is not ideal with every situation. With a multi it is better to have a management company where with a single it is easier to self manage. With a single tenants can be asked to pay all the utilities. With a multi you have to pay for common space energy usage, and usually hear and water.

@Od Ntuk definitely pros and cons to both. From what I have learned, your water Bill in Philly is tied to your property taxes. So it’s hard to avoid all utilities, even if you leave a property as a single family. If it’s a rental, you would have to add that to rent. 

On my fundamental level of understanding, one roof for two units means two sources of income covering the loans, and all other expenses. What really caught my attention is a duplex appeals to two markets in terms of selling - 1) investors get two sources of income under one roof. 2) This property also appeals to house-hackers. That trend is VERY strong to those who want be owner-occupants. 

Rentometer Pro shows $1,064 - $1,100 per unit this size. I'd rather two units at $1,100 each vs one unit at $1,175 - $1,300, even with a Property Manager.

I, also, took the section 8 Landlord class in Philly. They pay market-rent plus additional money for additional amenities like ceiling fans, central ac, and more. From the landlord perspective I would like to double my source of income.

@Courtney Benson How large was this property. Most of the single families I have looked at are less than 1000 square feet which is on the smaller size even for a single family home. I’d imagine a successful conversion would probably done on a larger property. I’m just curious what the demand would be for a small apartment vs a moderate size townhome.

@Od Ntuk I think you're right. This property is 1,140 sq ft. Definitely a chance I'm taking on this one. What has been a recent reassurance for me is my demo-guy just told me he just got contracted for 3 different properties, with the same build as this one, and they're doing the exact same thing I'm doing. He did my property before Covid hit. So to see these newer projects, all in the same neighborhood as the property i'm doing, following the same course peaks my interest.

@Courtney Benson How are you setting up the units? Is the first floor unit a duplex with the basement? You are giving me ideas. I am setting up a self-directed IRA so I can invest $100k in my old retirement accounts from previous employers.

@Od Ntuk That sounds awesome. With this property the 2nd floor is one unit, and the 1st floor is another unit. The basement Is setup as additional storage space for the 1st floor unit. This would allow either pricing the 1st floor unit a little higher or providing an addendum on the lease that gives the option to rent the basement as additional storage. The reason I did it that way is because Philly L&I (License & Inspections) is consistently updating construction requirements. When you include the basement as part of the unit, I'm told they tend to wantto see multiple spots for egress. That leads to additional excavation costs for another exit to the backyard.

Congrats on the work thus far! Can I ask what part of Kensington you are in? Recently passed on an RM-1 property close to Lehigh that I was planning to do the same thing.  

Also what was your experience with zoning? Did you do it all yourself since it was by right or did you invest in a RE lawyer? 

-Eric 

@Eric Greenberg sorry, I’m just seeing this. Last couple of weeks have been crazy! I’m in an area that’s not appreciating, yet. I’m a few blocks away from St Christopher’s Hospital for Children. That area still has a LONG way to go. Zoning was tough because even though it was a multi-Fam, BY RIGHT, L&I required new prints be drawn-up and submitted for review. I found a good architect, had him walk-through the property, draw-up the plans and submit them. Approval took a while: first - the Plans Examiner sent them back, requiring that we specify fire rating of materials because they want to ensure a fire in one unit will still allow the occupant of the second unit enough time to escape the property. Second - Covid hit, and L&I quickly launched their online permitting site. It has been a trial and error process, but much is improving. One of the new rules we weren’t aware of is now you need a licensed architect, if they are submitting your plans. The plans were stamped by a PA Licensed Engineer, but because the architect wasn’t licensed my plans were approved but held in limbo for SIX WEEKS. Finally, I got in touch with a Director in L&I. They have been EXTREMELY helpful, and explained that my approved plans were held because the architect isn’t licensed. FUN FACT: if you are the owner of the property and have a Commercial Activity License with L&I, you can submit plans and receive approved plans. The Director sent me the electronic invoice. I paid, and received my Building Permit within minutes. NO RE Attorney needed. Just register on the L&I ECLIPSE website. Everything is done through that site, now. Permits, Applying for Licensing, Inspections, Submission of Plans, and adding contractors to your project.

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