The average cap rate, if you’re lucky, in most of State College is between 5-7%. With shiny new student high rise buildings creating a competitive downtown market, some investors are getting savvy by investing in the surrounding area and yielding a more appealing return.
Here are the current, hottest areas to invest outside of State College. The following areas are also worth-while for flipping properties.
With a charming historic district and plans for a microbrewery coming to the old Gamble Mill, Bellefonte has a lot to offer…including a short commute to State College.
Cap rate average: 10-13%
Philipsburg is a diamond in the rough in the sense that you can buy real estate cheaply there (for now). There is also a committee dedicated to the revitalization of the town and industry in the future is promising to the area.
Cap Rate Average: 13-15%
Another town with a fast commute to State College, Pleasant Gap offers low taxes and is a trendy choice for renters and first time home buyers.
Cap Rate Average: 9-12%
Rolling farmland, the Amish and Revival Kitchen farm to table restaurant, Reedsville has been a popular alternative to the Lewistown area for renters.
Cap Rate Average: 10%
A cap rate can be strategically achieved with a realtor who is a skilled negotiator, deciding what expenses you’ll delegate to a tenant and pinning down your NOI (a.k.a. Real Estate Investment 101). Currently a seller’s market in State College with residential property averaging a 97.5% list to purchase price and commercial property 95% list to purchase price, there is an opportunity to achieve a 10% cap or higher in Central Pennsylvania’s metropolis if you get creative in negotiating an offer. For example, I have a client who purchased a residential rental property for $156,000 IN STATE COLLEGE and they do very well with a steady 10% cap (…and they didn’t need to update or renovate the home!).
When it comes to a ‘Property Brothers’ style overhaul to flip your investment for a profit, you’ll be wise to buy up surrounding areas to dear old State. I’ve seen a trend among some first time home buyers who may not be able to afford the 16803 price tag and taxes — a lot of them are moving with 20-30 minute commutes, some selecting properties even further to get a little more for their hard earned money. My advice to flippers, walk through with a realtor, stager and home inspector prior to completing any work. A realtor will tell you where your money is best spent within your targeted budget to achieve the highest possible return (such as adding a half bathroom to a home that only has one main bathroom). A stager/interior designer will recommend the latest paint colors, fixtures and flooring. Lastly, completing a home inspection prior to any renovations will provide a checklist of repair items. Once corrected, showing a potential buyer that you’ve identified the problems with your rehab and fixed them can put a buyer of your project at ease. They’ll know that they’re purchasing a quality home by eliminating their objections from the get go (which means more money in your pocket just for completing a $280 home inspection).
Central Pennsylvania is rife with investment potential. It’s all about negotiating the right price, staying on budget and planning your expenses. With these basic principles in mind, you can create a profitable portfolio in Happy Valley.