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  • nervous about investing in my city

    I have been thinking about investing in rental properties in my city as part of a retirement plan for me. I live in and love my city of Philadelphia. It's been growing, has great historic character, and is a fun and exciting place to be, I know the city and its neighborhoods very well, and like the idea of investing in my home town.

    I was getting ready to purchase my first rental property (was considering a duplex or triplex that I would live in) when the pandemic hit. I held off for a bit (prices stayed very high or even went a bit higher early on) but now I'm starting to get worried about investing here.

    First, I am unsure how the pandemic and the rise of working-from-home is going to change the landscape of Philadelphia (and cities in general) in the long term. I am worried there is going to be a large demographic shift to the suburbs and more rural areas and that areas of the city where property values are currently rising will stagnate. On top of that, I am concerned, politics aside, about the longer term ramifications of the civil unrest that has been occurring here and what will happen to property values if crime rates continue to rise (crime has been up a lot this year).

    Has anyone more experienced in real estate pondered these subjects? Am i thinking too narrowly in the short term? I guess my big fear is I could spend 3-400k (my budget) and end up with a house that's nearly worthless in 10-20 years.

    Thanks!
    J

  • #2
    You do not have to invest in real estate. Do so only if you are 100% in it. Dont let FOMO ruin you. Nothing wrong with investing the same amount in index funds instead. Some here have made money in real estate, others have not. Many roads to dublin, etc etc. You dont hear about the real estate failures but trust me they're out there. While many of your fears are somewhat unfounded, you do not sound like you are ready to jump into real estate right now. Have you run the numbers? Have you decided that you really want to be a landlord, or is this just because someone told you "you'll make more money with real estate" in the doctor's lounge?
    Side note not directed at OP- while I know some people have made a lot in real estate, the last 2 years really reminds me of the "no money down buy rental properties and become millionaire" infomercials in the 80s/90s. You'd think there would be a lot more millionaires today if it really was that simple/easy.

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    • #3
      Cities have been growing for ten thousand years. It's human nature to congregate in large groups and a direct result of the mentalizing capacities our large frontal cortices give us. There have been many pandemics in the past much worse than this one. In the end I think all this talk about cities dying is overblown. If anything when we finally get this controlled I think there will be huge pent up demand for urban life. We will flock to bars, clubs, concerts, shows, arenas, parks, and three star restaurants. It won't take long before people remember why they loved cities so much in the first place. Cities will be fine.

      As for Philly specifically, I have no idea.

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      • #4
        Not to knock any city, urban decay is a real risk.
        Gentrification is a real positive. A single property is not diversification.
        https://moneynation.com/can-buy-1-detroit-home/
        Some smart money thought Detroit real estate would recover. Not helpful, but your concerns appear valid.

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        • #5
          Thanks everyone!

          billy - thanks for the input! I have never been to the doctors lounge, but I am a bit worried that investing in real estate seems a bit to easy. I'm pretty level headed and risk-averse with my money, so I'm not swayed by get-rich-quick schemes. Really just looking for a bit of cash flow as part of a gradual retirement plan. I'm quite handy and like doing housework/maintenance so landlording doesn't scare me. That said, if I had more than 2-3 properties I'd hire a property manager. It's mostly the stability of the market that makes me nervous. I'd rather invest in lower-risk lower-reward properies and I'm not sure if Philly is the place to do it.

          FIREShrink - I like your optimism. I am city folk and it completely resonates with me. I like how the shrink is talking about the frontal cortex

          Tim - I think diversivation was the wrong word...really I'm looking for cash flow. I'm definitely a bit of the "FIRE" mindset and like the idea of building some rental income over the next 20 years so I can gradually step back from my job.

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          • #6
            Investing in Philly real estate can be great for cash flow. My friend does it with great success. However, realize what you are doing and realize what is going on out there, as I think you are doing. As others have stated, plenty of real estate failures exist too. And before any investment consider the broader market risks.

            Philly is a neat city. It’s gotten much better since I was younger. But it still has massive problems. People will only stay around so long in the setting of rising property taxes, an additional city wage tax of 4%, a ballooning budget going straight to public pensions/unions, and politicians who are very willing to let looters run wild and hold no one accountable. Those are all political decisions, and they have very real ramifications. Given that, and the very attractive suburbs around Philly, I would never invest in Philly real estate.

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            • #7
              Most of the science fiction I read has people living in mega cities in the future. However most of these stories are written in the 40s and 50s as cities were expanding rapidly.

              I personally do not understand it and would love a chance to do my work from a more remote place and thankfully I can as a physician. However I really do seem to be the minority in this as most people do want to live in cities as we can see.

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              • #8
                Philly as a city will be fine. But that doesn’t mean you should invest in real estate there, and I don’t think anyone here can advise you yay or nay on that.

                The issues with being a landlord, if you want to do everything yourself, don’t really have to do with whether you like handyman/maintenance work. It’s very easy to hire out that work anyway. It has to do with whether you like dealing with people. Including difficult people. Because tenants can be difficult. If you select good stable (financially and emotionally) stable tenants then landlording will be easy. Sometimes people seem to check all the boxes and then the crazy comes out after the lease is signed, and then it’s more difficult.

                I hope the Mutter Museum survives the pandemic.

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                • #9
                  Just a question: I assume evictions have been on hold in most rental properties. Good tenants have probably been paying. Someone should start a pool or a poll. What is the collection rate of unpaid rent? More importantly, who will pay anything.
                  Not one discussion about landlords being harmed. The write offs will be substantial. Unfunded mandate.

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                  • #10
                    Real estate can be a great way to grow wealth. But you have to know what you are doing. If you purchase cash flowing properties in an area of appreciating real estate values, and if you get good tenants, returns can easily be 20% per year and that return will be tax free.

                    However, if you purchase in an area in decline, if you have bad tenants, if you fail to have adequate reserves for all contingencies, real estate can wipe you out. You need to know what you are doing.

                    As in all things investing, real estate is higher risk, more work, and higher reward. I happen to love real estate as an investment, the tax advantages cannot be beat. I am currently in the process of increasing my real estate allocation from around 10% to 30% of my asset allocation. I am projecting 20% tax free returns, and I expect the real estate to throw off other tax benefits that will greatly reduce taxes on other income. Just the same, I have decades of experience driving successful real estate investments. If you want to take this path, learn how to analyze deals, educate yourself, and then start in a small way before diving in fully. It is best to have eyes wide open to all of the risks before diving in.

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                    • #11
                      Crime is the enemy of property values. What happened to prop. values after 1967 Detroit riots? After 1992 LA riots? How's Ferguson, MO doing since 2014?
                      It takes decades for neighborhoods to recover from riots and crime.

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                      • #12
                        If you don't feel comfortable with your city or your capacity to invest and operate a property, find trusted syndicators to work with. People like us focus on attractive markets and cash flowing deals - and make your investment passive.

                        Best,
                        Ryan
                        RE investor/advisor
                        Real Estate Investment Advisor
                        FixedIncomeMd.com

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