Real Estate Investing in the Philadelphia Area
The Rob Lawrence Team specializes in helping people invest in the Philadelphia Suburbs! We are based in West Chester, PA, and cover Chester, Delaware, Montgomery and New Castle County.
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One of the most important things to know when investing in the Philadelphia area, is how to analyze a real estate deal. This video goes through analyzing an investment property in the Philadelphia suburbs.
Investing in the Philadelphia suburbs: Is it a good idea?
Many people have gotten wealthy investing in the Philadelphia area. Prices are reasonable relative to rents, and deals can be found. It is a huge area with a ton of different demographics in different places. I'm going to break it all down for you. I help a lot of investors buy multi-family rentals, single-family rentals, and do flips in the area. I'm gonna go through it all, tell you about the different areas where people are investing and explain the numbers, explain what I think about investing in the Philadelphia suburbs.
So the suburbs of Philadelphia is a big area, and for the purpose of this discussion, I'm going to mostly talk about Delaware County, Chester County, and Montgomery County which are all sitting to basically the west of Philadelphia, not to be confused with West Philadelphia which is a different area.
Where should you invest in the Philadelphia suburbs?
I'm going to go through the different hot spots for investors and talk about what performance you should expect from the investments, what price points you should expect, the challenges, the real-life challenges, and the real-life opportunities that the area presents.
Eastern Delaware County is very dense right next to Philadelphia. There are a lot of opportunities in this area, and some lower-cost housing and I'll get into that.
West Chester, which is a nice area, has some challenges with investing but also some opportunities. Downingtown, Coatesville, and Parkesburg are all great areas for investing, and Parkesburg is about as far west as I go.
Pottstown, Chester Springs, Phoenixville, Royersford and Collegeville represent another investing hot spot. On the Philadelphia main line, there are different opportunities for high-end flips. I know many people who make big dollars flipping houses on the main line.
So let's talk about multi-families in the area. In the MLS, I can do a multi-family search by county so I'm just going to put Chester, Delaware and it's going to tell us an interesting story about where the multi-families are. There are a bunch in Coatesville, a bunch in Pottstown, this is Norristown, and then a ton in eastern Delaware County. Wilmington and Philadelphia offer much more multi-family property than the suburbs due to zoning and a denser environment.
You've got some in Phoenixville as well, you can kind of see that there's an area where they tend to be which is right down here. I would say the biggest opportunity is in eastern Delaware County, you'll see a ton of multi-families come through. Now when you're doing multi-family investing you've got to understand that you have to be zoned so you can't just take any residential house and make it a multi-family.
Some areas are friendly to multi-family investing and some are not. There are just not a lot of properties with multi-family. A lot of investors want to do a multi-family deal, but they have to understand it's going to depend on what area you're in because of zoning.
What are the price points?
Starting in the city of Chester, which is probably a really economical place to live let's say. So you can see that a unit is selling for $82,000 so they start around there and we can go up to multi-family properties for 1.5 million in West Chester. No surprise West Chester is an expensive area but has opportunities.
When you go to the MLS you'll see you know different information about a different a property. They may not have a lot of pictures. Multi-family investing is a whole thing to understand. You know you gotta look are the utilities split, you know either are there any zoning issues, sometimes people will use multi-families and they'll not actually be zoned.
Like they'll just take the house and make it multi-family and it's not actually zoned multi-family so you got to do a lot of due diligence. You got to make sure that people are paying their rent. You got to see the leases. It's kind of like doing you know if you're doing a triplex, it's kind of like doing three deals, almost making sure that all three properties line up. You know the multi-families tend to be more beat up by tenants.
What returns should you expect?
They're not usually like the Class A although sometimes you find some. I did this one property in Royersford which was just really cool. So when you're looking at these investments in multifamily sometimes they can be hard to value but you're going to usually use about a 1% rule in our area, maybe in some of the rougher neighborhoods you can get to 2% but that's really tough. But a 1% rental tends to work in an area based on the taxes price point and what rents you will pull, so that's a quick rule of thumb. So 1% rule means if you're not familiar with that, that means if you're going to spend $250,000 on the house or multi-family property the rent should be around $2500 per month.
If you're hitting those metrics then you've likely got a good deal and it's okay to dig in deeper. So you're going to evaluate a lot of deals probably really fast and you know some places the taxes are high, some places are not but let me just show you one of the deals that I just did an analysis on, on a multi-family. Okay, so you can see this deal right here that i'm working on with a client and it's actually I think a pretty good deal. So the sales price is around $240,000 the rents are around $2500 a month and so that passes the 1% rule right off the bat. So we passed the sniff test and then we dig in deeper, we've got utilities that are split which is great, and the property condition we're going to check it out on Wednesday.
So anyway you know you kind of get the idea of what you got to put into it and how bad it is. It's currently rented and we have the rent rolls. We know that we see we're looking over the documents, so any way, you can kind of see here we got a 7.9 cap rate which is a great cap rate. You know you're going to make good cash on cash return. So you can see like $18,000, $19,000 a year on an investment of $63,000 and that certainly does beat the stock market doesn't it and uh you know prices in our area have been appreciating around the 8-18% rate over the past couple years. So the prices have gone up here but it's slowing down a little bit. Anyway you can see here I just have you know the income, the mortgage payment, a vacancy rate, the property taxes about $400 a month, insurance maintenance, other costs which is really like water and sewer and then our cash flow at $600 and then the net operating income.
Net operating income they'll look at how much are you paying down the mortgage and how much is the property appreciating in value as well so you know you're not all just cash flow. There's three ways you can really make money in multi-family investing, and I think also there's probably an opportunity to make an improvement on this property, improve the rents and when you improve the rents, you push the price of using a forced appreciation.
Analyzing a multi-family property is actually pretty straightforward and you shouldn't make it overly complicated. I'm an engineer by background so I do like numbers and running the numbers is a favorite thing of an engineer to do. That's what we do on Saturday nights for fun instead of you know drink beer and all that, but you know just kidding I like beer.
So anyway there are other ways to invest in the area besides multi-family. One of the things you can think about is flipping a house in the area or doing a single-family rental, both of those are options. I mean you can cash flow pretty well I did one deal in West Chester that cash flowed, I think they're cash flowing around $900 a month on like a $215 purchase. You have to watch out with a lot of HOA's in the area because some of them are maxed out on their amount of rentals allowed or maybe they don't allow rentals. So you have to make sure that when you're buying something you state your intent and you're talking that through with the HOA and make sure that you're getting the business that you think you're buying right so that's important. The single-family rentals can work in a lot of different areas. I mean eastern Delaware County especially, is easy to cash flow. I'm going to show you some more areas on the map here.
Okay so now I'm going to go through a few of those towns I was talking about and describe what they're like. One thing I didn't even mention actually is Wilmington, which I think has great investment opportunities. I'm also licensed in Delaware and do help people in Wilmington but um I haven't really talked about that but maybe that's time for another video. Where I live which is West Chester, so you've got about a square mile which is the borough and in the borough there are student housing rentals. Those are limited, so you have to have a student housing permit and they're difficult to get. So if you do get one it's kind of more valuable, something to think about. There's limited multi-family housing, I think there are two multis for sale right now for 500 for a duplex and I think 1.5 for something else.
In West Chester, your cap rates are not great, if you can get a 6% cap rate you're doing okay and even get something cash flowing that's good. But you know, this whole area presents a really interesting opportunity, it's a nice area with great schools, so a single-family rental here can actually do very well with a nice family in it. Downingtown borough also has some good rentals and then Coatesville is a place that attracts a lot of investors and a lot of people looking to flip houses and people looking to just rent houses and the multi-family. So I do a lot in Coatesville. I've done a couple multi-family deals over here, one guy bought one he lives in one unit and lives there for free so that's really nice and um yeah so those are good areas. I actually like Phoenixville a lot too because it's a young area, a lot of people are college age going to bars. They got like the most breweries per square mile or whatever it is. Anyway that's a good place for uh good cash flow I think on rentals and it's up and coming a little bit and then let's talk about the Main Line over here, Willow Grove. This is actually a good place to flip on high-value flips.
I know a friend who's been making two hundred thousand dollars a flip, hundred thousand dollars a flip and Ardmore is actually an interesting place for Airbnb's. There's so much different stuff to know about this area but I'm kind of giving you a quick crash course. Now when you go into eastern Delaware County it's very dense um the rents start to drop you know, there's you've got Darby, which is a little bit on the I don't know how you want to say that, but the rents are a little bit lower there. Chester is an area a lot of investors will stay away from. I'm actually doing a deal right now in Marcus Hook I have under contract for an investor, but right over here Chester is probably one of the rougher and cheapest areas, though some investors I know have good experiences there. So you know maybe that's a good place to start for someone who doesn't have a ton of doubt. I'm just kind of taking you through this map and over here I know a lot of people that flip houses as well and they typically will send letters to homeowners, find a house that's distressed and then you know make that person a cash offer.
I hope that's been helpful a little bit in understanding some of these different areas and what it's like investing around the Philadelphia area. Is it a good idea or a bad idea?
The answer is yes it can be a good idea or a bad idea, depending if you know what you're doing and have the right help.
I help people do this so I help investors you know buy flip, sell flips um invest in rentals buy and hold we call that in the West Chester area.
Real Estate Investor Meetup in the Philadelphia Suburbs
We have a meetup that we do on the second Wednesday every month at Timothy's in West Chester so I'd love to invite you to that I'll put the link to that in the description down below. It's free there's no sales pitch it's just investors getting together to network and you are who you surround yourself with. So if you want to get started in investing, one of the most important things is surrounding yourself with investors.
Here is the link to the Vanguard Real Estate Investoer Meetup Page: https://www.meetup.com/west-chester-real-estate-networking-meetup/
I say it's like peer pressure right, if you hang out with a bunch of people to do drugs, you're going to do drugs. If you hang out with a bunch of people that invest in real estate, you're going to invest in real estate and that's just our nature. So we know we have to like kind of take advantage of our nature. It's uh it's pretty awesome I love going to those. My broker I think he's flipped like 150 houses he goes to the meetups. We have Dave Van Horn who wrote the bigger pockets notes book, the book on investing in notes, he comes to our meetups. And you know you're obviously more than welcome to reach out to me if you want to write and run an investment by me, if you want me to help you buy an investment in the area, I'm more than happy to do so. I love helping people build wealth through real estate, it's one of my passions for myself and for my clients. I also did a live-in flip on my own house, you can check out that video.
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