Could I invest in the midwest (CLE/OH) without BRRRRing (turnkey)

9 Replies

How risky is it?

I learned that I could get a $20K HELOC from my primary residence. I have $15K in old 401Ks that I could rollover into a SDIRA and I have $15K in cash saved up. That's roughly $50K, but I prefer to use the cash for any personal emergencies. So that would leave me with $35K.

I hear it’s $31.5K per door to invest in Cleveland. Could I buy a $94k triplex in an A or B neighborhood with $23k down (25% down payment)? That would leave me with $12K in cash (not counting my $15K in personal emergency funds). How much cash should I have saved up for emergencies?

I figure if I can get $250 cash flow after expenses per door, that would leave me with $500 per month income and $6K/year in income. Of course, I would use the first couple of years to pay my HELOC back (if it's a mixture… not sure if it would be better to go the SDIRA route or go the HELOC route).

I’m calculating that if I put at least half or most of my rental income towards reinvesting, I could get 3 doors every year. I usually save $5k/year between cash/retirement and an additional $6-$7k/year between my house appreciating and the mortgage being paid down (leaving equity). So if I put all of the rental income towards the mortgage(s) of the multifamilys, would I have 27 doors in less than 10 years (am I missing something)? Between duplexes, triplexes, and fourplexes, I would think that I’d max out at 27 units if I have 9 buildings (bringing me to FannieMae’s 10 mortgage limit where I am including my personal residence).

Could I go turnkey in Cleveland or Ohio or the midwest or any other area where the numbers are this favorable? I hear that Cleveland’s housing stock is 1900-1950s era, but is it extremely difficult to find turnkey in Cleveland?

I was laid off from my job a month ago, but I’ve done over a dozen interviews. How long do I have to work to make this happen? A few months? A year? And is it ok that I’m a job hopper? I usually work at a job for a year or two before I find a higher paying job (I hate waiting for raises). How will this affect my ability to get a mortgage? Could I possibly get a hard money loan or other type of lending? I currently have a 705 credit score. I would imagine that some lender would look past this if my income usually grows with each job hop and I’m putting 25% down on each property.

@Mike Schorah I am looking for similar properties in different midwest and southern markets. I haven't seen anything that is in that range for under 100k in a decent neighborhood. However, some of the markets have newer units like from the 1980s that I noticed either in C or D neighborhoods or very rural areas. From my experience finding the right property and management company are both important. I think you can do ok in C and D with cash, maybe not so much equity. I think the market is too hot in A market, I think it is almost better to invest in markets that didn't appreciate as much. 

Hello there. Had some experience with real estate SDIRA. There are tons of restrictions on how you can use IRA money. From what I know about IRS rules on SDIRA - is that you cannot combine your cash outside of SDIRA with SDIRA funds to finance a purchase. You can however bring in other UNRELATED persons' funds or even non-recourse loan from the bank. Some of these sources will expose you to extra taxes. Just saying. Before counting on IRA funds, just check with SDIRA custodian. I used New Direction IRA, they have lots of explanations on their website.

Good luck!

@Mike Schorah I think you have a great starting strategy however I agree with @Matthew Patterson you will not be able to get into A or B areas with that price range. Cleveland can be a little tricky with "turnkey" in C/D neighborhoods. In order to cashflow you may have to do some rehab in order to charge market rents on cheaper properties.

I invest in Columbus and C neighborhoods are the lowest grade we have here. Prices are a little higher but you get better appreciation and can still cash flow. 

As for your lending questions, being a job hopper shouldn't hurt too much but as you take on more properties your debt-to-income ratio could become an issue unless your income continues to grow at a similar rate. Hard money could be an option down the road as well as a commercial loan. Commercial loans can look at the income a property produces to help secure the loan. 

Another thing to keep in mind as you take on more properties is your ability to self-manage. You will likely need to hire a PM at some point which is another cost to bake into your return.

Best of luck!!

We invest in OH, Cleveland and Toledo specifically. I have not seen a single A or B class triplex in Cleveland for $94k in the year and a half that we've been involved in this market. You could find a single family home in a B class neighborhood for $94k or possibly an A class but the home will need work, but it won't generate $500/mo in cash flow. The rents just aren't that high. So you will want to continue your research and adjust your numbers. Either go off market through a wholesaler or FSBO, look for a SFR or a duplex if those are the metrics you're trying to achieve, or downgrade your neighborhood expectations.

Originally posted by @Mike Schorah :

How risky is it?

I learned that I could get a $20K HELOC from my primary residence. I have $15K in old 401Ks that I could rollover into a SDIRA and I have $15K in cash saved up. That's roughly $50K, but I prefer to use the cash for any personal emergencies. So that would leave me with $35K.

I hear it’s $31.5K per door to invest in Cleveland. Could I buy a $94k triplex in an A or B neighborhood with $23k down (25% down payment)? That would leave me with $12K in cash (not counting my $15K in personal emergency funds). How much cash should I have saved up for emergencies?

I figure if I can get $250 cash flow after expenses per door, that would leave me with $500 per month income and $6K/year in income. Of course, I would use the first couple of years to pay my HELOC back (if it's a mixture… not sure if it would be better to go the SDIRA route or go the HELOC route).

I’m calculating that if I put at least half or most of my rental income towards reinvesting, I could get 3 doors every year. I usually save $5k/year between cash/retirement and an additional $6-$7k/year between my house appreciating and the mortgage being paid down (leaving equity). So if I put all of the rental income towards the mortgage(s) of the multifamilys, would I have 27 doors in less than 10 years (am I missing something)? Between duplexes, triplexes, and fourplexes, I would think that I’d max out at 27 units if I have 9 buildings (bringing me to FannieMae’s 10 mortgage limit where I am including my personal residence).

Could I go turnkey in Cleveland or Ohio or the midwest or any other area where the numbers are this favorable? I hear that Cleveland’s housing stock is 1900-1950s era, but is it extremely difficult to find turnkey in Cleveland?

I was laid off from my job a month ago, but I’ve done over a dozen interviews. How long do I have to work to make this happen? A few months? A year? And is it ok that I’m a job hopper? I usually work at a job for a year or two before I find a higher paying job (I hate waiting for raises). How will this affect my ability to get a mortgage? Could I possibly get a hard money loan or other type of lending? I currently have a 705 credit score. I would imagine that some lender would look past this if my income usually grows with each job hop and I’m putting 25% down on each property.

 C-D class 2-4 properties will run you around $50,000 per door. A grade multi's will be well over $100,000 per door.