Starting in the real estate game in the spring of 2010 I would consider myself a small time investor. The first deal I completed was actually the first house my wife and I bought for $150,000 in Albany, NY. This charming bungalow (as listed by the agent!) is a 1142 sq ft house with 2.5 beds/1 bath. In 2012 I bought my first duplex for $40,000 in upstate NY. Lastly, this past summer I bought my most recent property in Easton, PA. This house is also a duplex and was $102,000. Three houses and 5 units in total I have completed 3 deals. Fast forward to 2018 and looking to scale, I've found another investor who wishes to diversify from the stock market to real estate. Here are the hard facts of what we are trying to accomplish as a start up LLC:
Total start up capital: $100,000 ($50,000) each
Cap Rate looking for: 8-12%
Property Size: 3-10 unit multi family
Total Loan: $400,000 (20% down using portfolio lender for $500,000 total)
Questions I have for the local Allentown real estate investors:
1. What are the typical cap rates you see in the Lehigh Valley?
2. Are there any wholesalers out there looking to get rid of a similar property we are looking for?
3. Are we currently in a buyers market or sellers market?
4. Can you recommend a good property management company?
5. What maintenance rate, vacancy rate, and cap X rates are you using?
@Sean Bayliss , cap rates vary based upon the specific townships. For example, central Allentown is usually a 10% cap, whereas Bethlehem is an 8%. Overall you should have no trouble finding deals in the 8%-12% range. Right now the Lehigh Valley is a sellers market. Prices have been appreciating and inventory is low, with our listings averaging 27 days on market. If a property is priced correctly, we can usually sell it the first weekend with multiple offers.
As far as evaluating properties goes, 3% for high demand areas (Allentown / Bethlehem) is possible if you have a good marketing plan and can turn around units quick. I'll get 10+ inquiries there the first day I list a 2 bedroom apartment for $900 a month. For most other areas 5%-8% will cover you, and if you head to the country, 10% would be reasonable. Typically I will calculate a combined maintenance / CAPEX by taking the average of 20% of collected rent and 2% of the ARV of the home.
There is a listing in Easton right now 6 units for 375k on south side. I believe it is a 4 unit building and a duplex on the same property on one deed. I believe the address is 216 west Madison.
Right now we invest in single family in Easton and don’t quite have the capital to make a big jump into a place like that yet. Hopefully soon though!
Your values and assumptions seem realistic. Answers:
1. Quality 7+/- cap. Low quality 12+.
2. Maybe. Put it out there anywhere you can reach sellers and see what comes back. Don't limit yourself to wholesalers. Best deals are in the timing.
3. Overall it's a sellers market for investors. Margins are thin (or even positve cash flow) with any decent property.
4. Go to www.arsrealestate.com. (Disclosurer: I am the broker of the company but do not handle evaluating and contracting new mgt accounts).
5. Vacancy rate: high quality 5% Low 10%
M/R allowance: 10%
Expense escalation: 3%
Rent Escalation: 3-5%
Cap rate part of the purchase calculation. But I like cash on cash return better. Looking for 6-8% on high quality stable properties and 12-15% on low end-time intensive ones. If sold we like to see min. 20% return after all selling expenses except tax consequences.
FYI: If your still looking spring 2018, we are building an 8-unit in the LV. Most likely with 50%+ investor money with balance through a local lender. Investment package will be available in about 2-3 months.
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