Is this a deal you would invest in?

Question

Hi BP,

I’m looking for my first real estate deal and found one out of state in Middletown Ohio. It’s a duplex that’s zoned as a single family. Here’s the stats:

Purchase: 120k

Rent $1590

Utilities paid to tenants

Fully rennovated (new roof, electric, hvac)

Insurance: $1100

Property tax: $2400

After all repairs, vacancy, capex, I would have a cash flow ~$500/month with a CoC of around 24%

I’m able to get a lender to lend on this property for 25% down and my insurance agent is fine insuring it as a duplex.

Only thing is if the appraisal comes low, then I’d have to pay the difference, but the comps for a SFH are in the similar range. I plan to buy and hold, so I’m not too concern with the difficulty in selling it.

I tried reaching out to the city to get it rezoned but was denied.

Is this a deal you would do? If not, why?

David Song · Answer

Have you ever been there? If so, and you like the city, buy it. Otherwise, spend a few hundred bucks to fly there and see the town. I lived in Columbus for 5 years, and hate it.

Middletown is in the middle of nowhere. Population declining. Be careful.

Polo Vazquez · Answer

24% CoC! Def buy!Only reason I might not buy a deal like this is if it's on an area with very bad criminal record.

Corey Hawkinson · Answer

@Jimmy Hung The city could stop you from operating it as a duplex. They could deny your rental license. How likely is that is a separate question. My belief is that they would typically let you operate it as long as you’re paying taxes and your tenants are not causing an issue. But I wouldn’t guarantee that.

Small suggestion, have your PM give the neighbors a letter with the PM’s contact information. That way, if your tenants do cause an issue ideally the neighbors call the PM instead of the city.

Jimmy Hung · Answer

@Corey Hawkinson

Thanks Corey. That’s my main concern. I mean worse case scenario, I would just rent it out as a SFH but that would hinder my cash flow. I am partnering up with my PM to see different options to lease and I think the best would be to lease out to a family where they have someone like a grandparent living right next door.

That’s a great idea about leaving a letter to the neighbors.

Let’s say worse case scenario I can only rent it out as a SFH and my is reduced by $400, is the risk worth the reward?

Corey Hawkinson · Answer

@Jimmy Hung sounds like a good deal. I understand that the city won’t rezone it, but I think you should verify that you can continue to operate it as a duplex. As long as they allow you to continue operations you should be fine.

Tina Tsysh · Answer

I agree with @Corey Hawkinson and definitely recommend doing your due diligence regarding the property's zoning. If the city decides that you can't operate the property as a duplex anymore, no matter how good your returns are, they can be gone instantly. The last thing you want to do is to be stuck in a property that is a total disaster and where you have no cash flow coming in. I am curious as to why it can't be rezoned.

Zeke Liston · Answer

Hi Jimmy, the cashflow seems good. The zoning situation is a little concerning, I would try to find out if that's going to be an issue in the future.

John Morgan · Answer

@Jimmy Hung

It’s a buy for me. Grab it before anyone else does!

Jimmy Hung · Answer

@Tina Tsysh

thank you for the advice. I asked this to Corey but could a city really stop you from operating rental as a duplex? I know I can’t separate mail boxes and the utilities will already have some sort of split.

I think if it in terms of my own home and if I wanted to rent out a room, I could do so regardless of whether the city knows of it or not. I just know that my city doesn’t allow short term rentals.

In terms of the denial, it doesn’t state why. Just that it was brought to the board and was not approved. The seller thinks that since the property was converted to a duplex without first getting approved, the city is just stubborn to change it.

Jimmy Hung · Answer

@Corey Hawkinson

Thanks Corey. The denial says that I have to operate it as a single family rental. Could they really stop me if I rent it out as a duplex?

It’s not separate meters, but my pm will be able to pass the utilities over to the tenant.

The units are broken up as: 4/1 & 1/1. The plan is to rent it out to a family and advertise the other side as a MIL (mother in law) suite so it’ll make renting out the entire thing easier.

Is this a deal you would invest in?

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