How do I determine the best place to invest in real estate?
I am looking for to buy real estate in the Philadelphia area for investment? How do I determine the best neighborhood to invest in and should I go single family or multi family? The rates are so good, where is the best cash flow?
The market is still in the beginning stages of recovery, prices are once again on the rise, but many gems still exist. Look at each possibility individually to determine potential roi, each have their advantages and disadvantages. One may have what appears to be a great value in an affluent neighborhood, and carry a higher tax percentage or a higher susceptibility to seasonal damages which must be repaired at the owners expense. For the best return on investment, look at each factor, multi family units, duplexes, apartments etc carry a much greater potential for turn over than single family units, but may carry specific significant tax advantages to the owner over a single family home. Likewise single family units are more likely to see longevity of possession and greater percentage of on time and early payments, yet the bill to rent ready after departure can be much greater.
I have been a landlord several times and to be honest I have no interest in doing it again. That being said I would look for upscale housing to rent. That being the case go for properties in the better areas of Philly. You cash flow can be better with a multi family property but your chances of having a good tenant are better with a single family property.
Look for a property that can pay for itself and don't try to expand too rapidly. There have been a number of books written about how to become a millionaire with rental properties. Do some research on the authors and you will find that all but one either went bankrupt in the end or is or was serving a prison sentence. The one who did make and keep a few million did it in the 1960's and the world has changed. Don't put yourself in a position that a couple of empty rentals can devastate your finances.
You need to be tough and thorough to succeed as a landlord. (I am too easy going). You will get some terrible tenants and some bad tenants. Good ones come along once in a while. You will find you get calls at 3 am that the toilet is leaking and they want someone there right now to fix it. You may find that when a tenant moves out you need to spend as much as you collected to get the place ready to rent again.
The question you should ask is what area has the best CAP (Capitalization) rate.
Highest and best use will determine the answers to the remaining questions. The best qualified person for that is a certified real property appraiser.
Prior to start researching markets, you need to determine what is your maximum amount of down payment for investing. A smart investor should understand the underlying microeconomics shaping each metro area, including job growth, rental rates, median home prices, construction starts, investment home cap rates etc. When I was investing in real estate, I cooperated with the Real estate lawyer Markham to minimize the level of risk.
Joseph: It it were me, I would look at properties that could be rented to students (with their parents as guarantors) near colleges and universities in the Philadelphia area (https://en.wikipedia.org/wiki/List_of_colleges_and_universities_in_Philadelphia) that are within easy walking distance to campus or that have easy access to campus via public transit.
I did a bit of research and found a comprehensive listing of some of the main websites.
Looks like there’s a lot of competition in the space already.
I would speak to a multifamily expert lik Marcus & Millichap They do city reports and even micro-neighborhood reports.
Multi-family generally provides better returns but it may depends also on your personal circumstances. Single family is a good way to start and may be better than multi-family if you can find a piece of property with future value add and or density. Good luck!!!