What Are You Investing In?

Question

I'm curious to hear what investors in the Philly market are investing in and how your strategies have changed to accommodate the ever changing world of real estate.

Let's talk specifics!-Multis or single-family homes

-Full-guts, cosmetics or buy n holds

-Suburbs vs city

-Cash vs hard money

Sincerely,

Your neighborhood investor-friendly Real Estate Agent

Stuart Udis · Answer

@George Voutsinos I would have to disagree with your approach :) The cash flow leaves as soon as the tenant moves out. The cash flow is also eaten up by cap ex events (which are absorbed far easier in the higher barrier/more expensive locations where cash flow may not appear as strong). You can theoretically cash flow better if the stars align with a section 8 rental in North Philadelphia compared to a better situated property. But what is reflected in a pro-forma rarely comes true in the lower barrier neighborhoods. I will take the better situated real estate where there are barriers over cash flow all day. If you are playing the long game, which you should with rental real estate you will come out ahead.

Stuart Udis · Answer

I appreciate the context but still can't say I agree with your process, particularly unwillingness to buy on the MLS. Plenty of value add opportunities on the MLS where you can create tremendous value with good cash flow. Cash flow is necessary to make the financing work, but the more meaningful realization events occur when the properties appreciate or value is created through development. Here's a case study that would be dismissed based on your criterion:

-Asset: Mix Use 11 Unit Building

-Contract Price: $1.73M

-Existing Rent Roll $15,800

*Currently 1 vacant commercial space market rent $5,500 & 9 apartments all leased below market value (60 day termination provisions for each residential lease).

-$650,000 Renovation Budget

-Stabilized Rent Roll $25,400

-"As Complete and Stabilized Value": $3.45M

That's a recent MLS deal in a B+ Philadelphia location with a credit tenant that's been there for 20 years in the occupied commercial space. Deals like this would be dismissed with your underwriting because they don't cash flow.

Alan Asriants · Answer

Hey George, are you sourcing your own true off market deals? What kind of areas are you buying in?

George Voutsinos · Answer

After it's stabilized looking like $28-30K annual cash flow, probably $72 per unit with a 4.3% cash on cash return.....assumptions using market standard opex since you didn't provide that but did you underwrite this one?  Great thing about commercial is the forced appreciation.

George Voutsinos · Answer

@Stuart Udis no worries but you're assuming too much information I didn't make available.

1. Cash flow doesn't leave with a tenant. You're making it sound like it packs its bags and never comes back. Vacancy should be calculated into your underwriting.  And units should STILL cash flow with the vacancy factored in. Any class property will have vacancy.

2. You're assuming I'm buying C or D class that may require loads of CAPEX.  I focus on B class areas.

3. I don't buy properties off the MLS.  No listings cash flow unless you're buying in C & D class areas where you're more susceptible to problems & evictions.  I avoid warzones, definitely no D areas for me. I market direct to owners.

4. I don't trust proformas.  They're created by the brokers that are trying to sell the property.  I'm sure you know this, many times things are left out intentionally or unintentionally.  Really need the actuals and put the numbers through stress tests.  Have you ever seen a proforma painted in a negative light?

5. I agree with your last sentence, I'm in it for the long haul where the appreciation will eventually come.  Equity fluctuates with the market, it goes up & down.

Jacopo Iasiello · Answer

Hi Sophia, Investing in multifamily properties can offer economies of scale, diversification, and potentially higher cash flow. Duplexes, triplexes, and larger apartment buildings are popular choices, especially in areas with strong rental demand.

George Voutsinos · Answer

I'm a buy & hold investor and I underwrite for cash flow only.  If the deal doesn't cash flow I don't want any parts of it.  Appreciation is great, but I'm not going to buy something and be out of pocket for years & years.  Equity comes & goes, cash always flows.

What Are You Investing In?

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