PA Deals creates home-investment opportunitiesJason Scott
To the person looking to sell a home quickly, Zack Wiest is a lifeline.
To the local real estate investor, his Harrisburg-based company 920-CASH LLC — more commonly known as the "we buy houses" outfit — helps create the turnkey environment that can diversify a stock-heavy portfolio.
The privately held firm is the buying arm of PA Deals LLC, a Paxtang-based real estate investment company Wiest founded in 2006. It is not affiliated with any national sales networks, though the concept of buying as-is homes for cash is comparable.
"We face a little competition from an acquisition standpoint from larger and national brands, but our deep-rooted connection with the area we buy in allows us to overcome newcomers," said Wiest, PA Deals' CEO, who began investing in Central Pennsylvania as a 23-year-old in 1999.
He "rode the wave" of flipping houses until the tide turned on the housing market in the latter part of the 2000s.
PA Deals has focused primarily on renovating single-family and multifamily holdings in Cumberland and Dauphin counties, with a major focus on mechanical upgrades, then selling those properties to buy-and-hold investors.
"These are tangible assets," said Wiest, who aims for double-digit annual returns for his clients through this nontraditional investment technique. "Traditional ways (such as the stock market) give investors very little control."
How it works
The majority of the company's clients are people with full-time jobs who have some investment capital and want to own one, two or maybe a handful of single-family homes, Wiest said.
The company's niche is older suburban homes that, with the proper investment in renovations — new heating and cooling systems, roofs, windows, carpets — will remain attractive and maintain long-term tenants for the investor.
PA Deals spends, on average, $20,000 to $30,000 before marketing a property as an investment opportunity in its portfolio, Wiest said. Its holdings fall into three categories: Class A, B and C.
Class A properties are for the ultra-conservative real estate investor. They are located in very stable neighborhoods with low vacancy rates and high-ranking school districts.
A Class C property is in a less-than-average school district where vacancy rates are much higher, but higher returns also are possible with less needed in upfront investment.
PA Deals will sit down with clients and assess their investment strategy and short- and long-term goals. The average investor with a good credit score — 680 or higher — would need a down payment of 20 percent, or about $12,000 to $24,000 in most deals, Wiest said.
There are no fees to be in the program. Wiest and his staff will create a plan that dictates everything from the number and types of properties someone wants to buy to timelines and projected cash flow.
They project 1 percent average annual appreciation rates and 2.5 percent growth in annual expenses, plus 1 percent rental income growth.
Step two is building the portfolio. PA Deals will handle the entire process of the transaction. The company makes a percentage on selling its revamped properties to the clients.
The majority of real estate investors don't want the added burden of being the hands-on landlord, Wiest said.
To further serve clients, PA Deals also has a property management division called Fusion Asset Management that handles property maintenance and tenant leasing for just client rentals.
There is a tenant placement fee equal to first month's rent or $750, whichever is less. A property management fee — 8 percent of collected rent — also is charged.
"We do everything except pay a client's bills," Wiest said.
Fusion manages about 300 properties.
Of course, clients who would rather manage investment properties on their own can do so.
PA Deals expects to close on about 70 deals this year, Wiest said.
The company is constantly looking for nicer and newer properties to deal to clients, said Ryan Colquhoun, the firm's acquisitions director.
"It takes getting out and constantly looking," he said.
In many cases, the company is competing with first-time buyers.
"We work on an inventory basis, not so much on demand," Colquhoun said.
The key to success for PA Deals and their clients over the long run is creating accurate budgets from the start of the process. There is a lot of due diligence of properties that goes on between desk reviews and site visits, officials said.
Wiest said his goal is to stay around 70 deals per year for the next two years and then hopefully grow the business to about 100 deals annually.
With tighter lending requirements today, PA Deals is confident that the leasing market will remain strong and prices will be stable moving forward.
"If clients are not successful, we're not successful," he said. "We are creating long-term real estate investment opportunity for others. We have taken what has worked for us and systematized it."
And deals can be structured for investors of all ages, Wiest said. Someone could own a property outright within a period of 10 to 12 years if they are using annual returns to pay down the debt quicker.
For those who want to grow beyond a single property, returns realized could be applied to new deals.
"Returns are probably the best they've ever been, because interest rates are the lowest they've ever been," Wiest said, adding that prices also have been depressed.
Fixed 30-year mortgages have been hovering below 3.5 percent, according to a recent report from Freddie Mac.
PA Deals by the numbers
2006: PA Deals LLC is founded. The real estate investment company is located in Paxtang, Dauphin County.
$20,000 to $30,000: The average amount PA Deals spends on renovations to a home in its portfolio. The company then sells those single-family and multifamily holdings to investors.
$12,000 to $24,000: The average range of investment needed.
300: The projected number of properties that the company’s property management division maintains for its investors.
70: The number of investment deals the company expects to close in 2012. PA Deals buys about 100 homes annually in Cumberland and Dauphin counties. The buying arm of the business is known as 920-CASH LLC. “We buy houses in any condition and any situation” is the marketing pitch.
100: PA Deals owns about 100 rental units valued at more than $8 million.
10 percent: PA Deals aims to provide investment clients with double-digit annual returns.
900-plus: The number of real estate transactions the company and its founders have completed. CEO Zack Wiest began investing in real estate in 1999.
$65 million-plus: The value of transactions completed by PA Deals and its founders.