All Forum Posts by: David Ribardo

@Andrew Reyes, it depends on what segment of the market you are looking for. Typically I see 8% being the target cap rate for on-market cash flowing SFH and small multi deals. Mid sized deals are in the 6.5-7% cap rate range. Appreciation has been wild here this past year, and we haven't had anything listed on the market for over 18 days. Most rental listings we get between 100-150 inquiries per day, and have filled every one within two weeks. A 6% vacancy rate should be adequate to plan off, assuming you sign one year leases with tenant turnover at the end of every lease.

@Basit Siddiqi is absolutely right, it's not an embellishment, his properties truly have doubled in value over three years.

@Basit Siddiqi thank you for the shout out! 

@Laura Gianiotis, I'd be happy to help you get connected with some local professionals. Let me know how I can help!

Erick, there is always a price shift as you transition to nicer and larger properties. The highest cap rates and cash on cash returns will almost always come from single family homes. This is because you can pass on all utilities and common area expenses to the tenants directly. As you go to larger deals you are able to acquire many more units, but typically it comes at the expense of a lower cap rate. It comes down to what you have more of. If you have more time, buy smaller properties with higher ROIs. If you have more capital to invest, buy larger deals which will get you an overall larger return, despite the lower cash on cash ROI.

For me, I personally started off in low end rentals in rural Louisiana. I found this to be challenging, where I was having deals that looked great on paper but frequently underperformed my projections. All it takes is a single bad tenant to set you back six months or more. I've learned that just because it is cheap, doesn't mean it is a good value. More importantly, real estate is a relationship based business. Choosing quality people to work with is the most important decision. It doesn't matter how good your property is - if you have one weak link in the chain, it can lead to failure. Your entire team (agent, inspector, lender, property manager, contractor, attorney, etc) has to be at a professional level to ensure success.

@Erick Paley Welcome to the forum. The south side of Bethlehem has plenty of investor activity. Quality of tenant and time spent vacant are more directly related to the skill of you or property manager than the location. There is a large number of perspective tenants, and a low amount of rental inventory in the area. This will give you plenty of options when filling your units, so make sure you are patient and place one that is fully qualified. This applies to the entire Lehigh Valley.

Chances of the area becoming "revitalized" is a pretty open ended question. There are strong economic drivers, and the market appreciated 24% last year (2 year trailing average sale price of 2-unit was $124,500, past year average sale price of 2-unit was $163,500). The casino, steel stacks, and other establishments in the area have brought out of town money which has seen some good shops and places to eat pop up. The big opportunity here is Lehigh University student housing. For example, one of my deals was for a 4/2 SFH that was $120k after renovation and refinance. This brings in a gross of $27,600 per year in rent, and has been stable throughout COVID. I don't see any major changes taking place in the short time, but the outside investor demand has been driving price increases resulting in very nice appreciation.

@Randy Gutierrez Thank you for the shout out!

@Victor Lee, if you hired a real estate agent and they aren't getting the job done, you need to have a conversation with them! A rental listing is one of the easiest types of listings to work in this market. Inventory is low, tenant demand is high, and all our vacant properties have been filled within a week. What was the conversation you had with them before signing paperwork with them? It is important to set clear expectations for what you will do, what services they will provide, and what their compensation will be. Are they filling the promises they made to you when they took your listing?

If you hired the agent to fill your rental, and they aren't getting the job done, time to fix it!

@Pedro Bartolomei hello! I've been working with wholesalers for three years now here in the Lehigh Valley and Allentown. On average I close one wholesale deal every six months. The following are my personal thoughts and experiences, take them for what they are.

1) Wholesaling is a GREAT strategy for the wholesaler to make money, but not so much for the end investor. Let's take the last wholesale deal I worked with. The owner was willing to sell for $50k. The wholesaler was assigning the contract for $60k, a $10k profit for them. Most real estate agents commissions would be along the line of $3,000 - $4,000 on this one. You would save $6,000 by going with an agent bringing you the same property as an off-market deal, where you paid them a commission.

2) Most wholesalers do not know what they are doing. Here in Pennsylvania wholesaling is not prohibited, but most wholesalers are actually engaging in practicing real estate without a license. As soon as they start saying "my client", promoting a property in a public forum, or showing the property to an interested investor, they are in violation of the law. You will find most wholesalers with a mentor or "guru" education have an extremely high confidence, but are actually misinformed to what they can and can not do.

3) Morals and ethics - Many of these wholesalers do not want the seller to know what they are doing. They know that the seller would be upset to find out a buyer was willing to pay thousands of dollars more, so they try to hide it from them. All the recent ones I've closed have had this scenario play out in some form. An agent legally has a duty to be honest and truthful throughout the transaction, and this creates a conflict.

There are some good wholesalers that make a reasonable profit on deals, treat the people they work with ethically, and are professional to work with. These are individuals that have years of experience and an established business model. If you find one of them, definitely build that relationship! Just, be wary of someone who is pushy, inexperienced, or trying to hide aspects of the deal from the seller. 

@Justin Brown Hey man! Good to see you, hope business is doing well!

@Doris Jin Huang In the Lehigh Valley most rental properties we sell were constructed between 1890 and 1920. These single family and duplex row homes are great investments. The key is to get a skilled investor-friendly inspector to make sure you have good plumbing, electric, structure, roof, and mechanical systems. Some of these houses have nightmares of knob-and-tube wiring packed with insulation, leaky cast iron sewer pipes, and cosmetic renovations slapped on to cover up structural issues. You want to find one with good bones that has been updated over the years and kept within modern code. This will give you a cost-effective property in the long run.

@Rachel T. There are good areas and bad areas for investing across all three cities. Each has their own individual nuances that you need to be aware of before purchasing in them. For example, Easton is quite stringent on their Certificate of Occupancy inspections, and Bethlehem is absolutely a terrible place to buy if you want to do short-term AirBNB style rentals. The good thing is that all three cities have major economic drivers that are bringing growth to the area. By positioning yourself along the "path of progress", you can position yourself for above average appreciation and rental demand.

In general - center city Allentown has the best cash flow due to low purchase prices, low taxes, and relatively high rents. Bethlehem has some really high demand for Lehigh University student housing, and we've been having a ton of activity on the south side in that area. It's got moderate purchase prices, taxes, and rents. Easton has the highest taxes and expenses, but also has correspondingly higher rents. Overall, investors are buying at similar cap rates across all three communities. It just comes down to what is the best deal you can find, and which one is the best fit for you.

@LaJon Dantzler why not use the Pennsylvania Association of Realtors standard forms? You don't have to be an agent to use them. They are the standard across the state and have been through quite the review process. You don't need to start from scratch here- it will save you a ton of time, money, and get you a better end product. 

If you are looking for someone to draft a non-standard contract, I recommend Bob Rust out of Allentown. I've had good experience working with him and his team.