Buy and hold purchase possible flip????

Question

Recently purchased duplex in Swissvale, superb of Pittsburgh PA. Bought site unseen purchase price 22500  sold 10 yrs ago for 48000 but highly neglected 2 unit 1st floor unit 3 bed 1 bath. 2nd floor unit 2 bed 1 bath. 80% done with remodeling. As I'm painting exterior of house today I had 3 people come ask me if the property was for sale. This house is in a C- neighboorhood also no utilities are separated was not in budget to separate after property is complete I should have about 16000 into it total rehab taxes closing cost of 3500 all in at 42000 I bought this property specifically to hold. And was going to sec 8  the property neighborhood probably 25% sec 8 this is my 2nd purchase 1st property better neighborhood and is rented to a good tenant. Been doing some research on sec 8 don't know exact numbers but was told all utilities included up to 1200$ a month for 3 bedroom and 1000$ for the 2 bedroom . I have gone over the numbers and pretty much verified from past utility bills. Taxes and insurance property should run me between 1200 and 1300 a month. Potential cash flow of 900 to 1000$ a month. Selling this property I believe I can get between 75000 to 80000. Had 3 people come by today was caught off guard. One a realtor who asked if I wanted to market the property with her. I'm in a major deliema. Property is potentially a cash cow as a hold investment. Or potentially profit 30 to 35000 for 4 weeks worth of work. Also forgot corner lot garage enough off street parking for 4 cars. So the question is what would you do.

Jerry Kisasonak · Answer

Tough call, but I would likely take the 30-35K. Renting to Section 8 tenants in Swissvale can rather quickly turn your 80K renovated property into a 50K unrenovated property. Then you'd be wishing you had taken the equity while it was there. But, as you can likely sense, I'm not a big fan of Swissvale.

Gino Barbaro · Answer

@Andy Ballester

This is a killer deal.  Depends on your ultimate goal.  You could sell and get a chunk of cash for your next deal

Or you could hold, cash flow, don't kill the golden goose that is laying the egg and possibly refi

Tough decision but a good problem to have

Good luck

Gino

Lawrence Ferguson · Answer

@J Scott Hamilton  dropping the knowledge!

J Scott Hamilton · Answer

Swissvale... This is one of those odd duck boroughs in the Braddock/Rankin/Swissvale Enterprise Zone. It is not under Act 47 (municipal conservatorship) unlike it's neighbors in the Enterprise Zone. So it has to balance the municipal budget with property tax and not rely on the payroll tax that other nearby boroughs are receiving. So relative to its neighbors it may look a bit expensive, but compared to the rest of Pittsburgh MSA it may not be all that burdensome. It also explains why from an urban planning standpoint the borough may be encouraging owner occupiers of SFRs and discouraging renters. For residents that want to maintain solid property values, this is a good thing. And on that note, I have seen properties consistently value in the 70K range, while nearby Rankin and North Braddock are lucky to come in at 45K. Rents are a bit higher but still pretty good value for what you get.

Also I think this is a borough whereby you may start a property out as Section 8, but you may want to transition it into a market rate rental.  Your target demographic can be blue collar working class and lower middle class service sector workers.  The commercial areas offer pretty basic services, nothing fancy, but nothing to be ashamed of either. My feeling is the commercial business there does okay for itself, but the district is not making any millionaiares.

Transportation: It is actually rather well served by Port Authority Transit.  The end of the Busway is anchored by the Swissvale Busway, which is a park and ride access to the P1 and P3 into downtown. The Route 59 Mon Valley and the 61A North Braddock/Downtown lines also go through the borough.

Personally I think you have a great property there as a buy and hold cash cow.  If you can live with a struggling but up and coming borough, it may even be worth doubling down and acquiring more properties here when the price is right for strong cash flow. Any more properties though should be within three blocks of the 61A line to increase your marketability, or as close to Regent Square as possible to increase appreciation potential.

Andy Ballester · Answer

I really don't know where your coming from, OK ACHA will find something for you to fix, no big deal I fix it. I am very aware water is lean able.  Tenants are not paying any utilities as it states in my post. 60$ when someone moves in or out I'm very aware of sec 8 tenants don't move it's 60$ your acting like it's 500$. I'm not sure why you would think these are all bad things I know other landlords who section 8 and they love it. Tenants break things weather there on sec 8 or not it's called maintaining your property. And I'm not sure where you get your bad view of borough politics all have been very friendly and helpful. They have seen me improve there neighborhood and actually seem grateful. What seems like a big deal for you seems pretty minor in my eyes looking at all the numbers.

Andy Ballester · Answer

This was all cash purchase I do own it free and clear I have a personal family member loan of 20000 simple interest paying 23000 back over 3 1/2 yrs. Both rental properties I own I have no mortgage. Never intended to flip Intention of being a buy and hold investor but everything is for sale at right price.

Ned Carey · Answer

It depends on your goals and what kind of return you can get with the proceeds.

I presume your goal is to hold rentals for cash flow. The decision to keep or sell would depend in part to whether you could find a similar replacement property. If you can find a similar deal then your proceeds would pay for 1 1/2 to almost 2 similar deals.  In that case selling would ultimately get you more cash flow.

If this is a deal you are  not likely to repeat easily then you may want to keep it and have the equity that you may be able to leverage with a credit line.

Pat of the decision also depends on whether you own this free and clear or if there is already financing against this property.

Jeremy Pace · Answer

@Andy Ballester

Ok, just to clarify.

It doesn't seem like you've ever rented with housing choice vouchers before.

It doesn't seem like you've ever owned rental real estate in Swissvale before.

What I can tell you about both of those conditions is that is is difficult.  ACHA inspections are guaranteed to find something for you to fix ... it's their job, they have to find something.  Even if you get a tenant that pays all utilities, water is still lien-able so you have to watch them non-stop.

ACHA will inspect the property every 12-18 months.  And they will find things for you to fix, because your tenants will break things.

Swissvale has their own occupancy code, which hates you and wants you to suffer because the borough of Swissvale thinks of itself as a place where people should owner occupy, not rent.  And an occupancy permit is $60 every time a new tenant moves in, not once ever.

If you have a dollar in your hand and someone offers you two ... it's hard to say no to a free dollar.  Even in Swissvale, there are probably 20 more places for sale in that same range with the same numbers or better.

Andy Ballester · Answer

Taxes are only 1200 for the yr, insurance 70 average gas bill 400 water 225 electric 200. Gas company told me average for Dec through February 600$ June through August only 150 a month. Occupancy permit is only 60$ per unit.

Jeremy Pace · Answer

@Andy Ballester

You're better off selling it and taking the cash now.  Occupancy inspections and real estate taxes in Swissvale are an enormous burden.  Swissvale has some of the highest real estate taxes in the Pittsburgh metro area.  If you can get out ... you can just 1031 into another just like it ... there are so many.

Buy and hold purchase possible flip????

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