Sabina Palermo is a newer agent to the PhillyLiving team who got her start in residential and commercial real estate a few years back. While she was learning the ropes as a new real estate agent, she wisely decided to also learn the aspects of multi-family commercial deals from an experienced friend. Today she facilitates about 60% commercial deals vs. 40% residential deals for her clients. Below she shares insights for potential multi-unit investment clients.
“When you buy a home,” says Sabina, “you buy it on emotions. You don’t do that with investment properties. It’s really about the numbers and whether those numbers make sense for you as an investment deal.”
Sabina is particularly interested in the commercial aspects of multi-unit buildings with five units or more. She’s noticed that investors are still buying multi-family units in Philadelphia and have been taking advantage of the tax abatements not offered in most other areas. She’s also learned that Philly has remained relatively stable in terms of rent stats compared to other top cities during the Pandemic. It’s also ranked in the top 25 cities for the number of mult-family units being added to the market.
“It’s the Class B buildings that are flying off the market,” Sabina says. “Class B (value-add) buildings are not brand new and don’t qualify for tax abatements but tend to need some upgrades, be a little more remote, and do not demand high rent rates.”
Many of Sabina’s clients have decided to update a Class B investment building, increase the rent, and then refinance, with the hope that the property will soon be valued at a higher price point. This is a smart strategy to adopt when getting into investment real estate. If you’re interested in multi-units and commercial property investments, there are a few things you should know up front, according to Sabina:
- For a commercial investment property, you’ll need at least 25% down — and not the typical 5% as for a conventional residential loan.
- Multi-unit properties also require a different type of financing which is typically more expensive than strictly residential properties but can qualify for a lower down payment compared to commercial properties.
- Finding a lender who will approve a loan can be tricky because not all lenders are interested in commercial real estate deals. Lenders might qualify you for a loan with one building and not another because of the financials related to the business deal. It’s a good idea to work with an agent that has good relationships with lenders who are willing to do commercial deals.
- Investors should fully understand the financial analysis of the deal — including the rent roll, as it’s crucial to the profitability of the business.
- Educate yourself on the new tax abatement program and which buildings and locations qualify for tax abatements.
There are so many reasons why multi-family units are a wise investment. Want to chat with Sabina about real estate investment in Philadelphia? Contact her at Sabina@phillyliving.com or 215-821-5527.