How to Narrow the Options?

Question

I'm looking to purchase a 2-4 unit property in NE Ohio (Akron/Cuyahoga Falls). I'm looking via Zillow/Realtor, but I'm finding multiple properties that look "good". They all meet ~1.5%, good cash on cash, ~$150+/door cash flow. How do you further narrow it down and make the right choice? I currently live in the area but I'm moving in 8 weeks, so I'd like to pull the trigger before then.

(My assumptions when analyzing properties are:

Debt Service: 25% down, 5% loan for 30 years

Vacancy: 8%

Property taxes: county assessor's site

Property Insurance: 0.3% of purchase price per year

Property Management: 10% of rent

CapEx: 5% of rent

Regular Maintenance: 1% of purchase price per year)

Thank you!

Ryan Arth · Answer

Kayla V. There is never a bad time to buy good investments. I started in 2006, right before the downturn, and have continued ever since.

Yes, there is more competition now, but that is what it is. You are a long term investor, who will probably buy in a variety of places in the market cycle over time.

The competition will thin out when the market/news spooks the new people and the shine is off of real estate. Shooting fish in a barrel on the mls has passed. Doors close and others open.

Ryan Arth · Answer

Kayla V. I thought you might have bought that house on Chitty, I saw it went contingent. In general you are looking at roughly 2% for property taxes. Most multi's around here will pay water and sewer but most SFRs will not. They will either pay and rebill the tenant or have the tenant receive the bill and have the landlord get copied if it goes delinquent.

Yes, the whole northeast ohio area is dealing with large sewer increases. The years of dumping overflow into the river and lake are over and treatment is expensive. Those increases coupled with rising interest rates are definitely going to put downward pressure on values and ROIs.

Kayla V. · Answer

@Evan Stephens I haven't purchased a property yet- still looking. The two things I discovered that I wasn't estimating enough for were Capex and utilities. And sometimes property taxes.

Since Akron properties are pretty affordable, using a percentage of either rent or purchase price for a Capex estimate isn't super accurate since it costs about the same to maintain a 1000 sq ft house that rents for $800 as it does a 1000 sq ft that rents for $2000 in another part of the country. If you're planning a major up front rehab, you can keep that estimate a bit lower, but I've seen a minimum of $180/month recommended for an older home. Keep in mind that repairs are separate- Capex is only large expenses where repairs are the day to day things that break. You need a separate budget for that.

Utilities are another issue- it seems pretty common for the landlord to pay utilities in Akron, especially water/sewer. The city of Akron got cited by the EPA for their current sewer setup and are replacing all the pipes over the next several years, which has significantly increased water bills. If you're looking at a place with tenants in place, make sure to check who pays all the utilities.

Last, always check the assessors site for property taxes. I looked at a house where the taxes were $1550/year and then looked at another one a couple blocks away of similar size and value and the taxes were $3450/year. I've read you can contest the taxes with the city, but if you lose the higher taxes can kill cash flow pretty quick.

Good luck with your search! I'm likely going to start with a single family BRRRR to get some experience and start the process of finding a contractor I trust, but I hope to eventually move in to multi-family.

Ryan Arth · Answer

Kayla V.. He is a BP member and owns a reputable property inspection business. He is located about 20 mins from where the Chitty house was.

Kayla V. · Answer

I have identified a couple neighborhoods that are becoming a bit more trendy (Highland Square, near the river and businesses in Cuyahoga Falls, Goodyear Heights) and have solid blue collar residents. But even within those neighborhoods, it's not too tough to find properties with good numbers. Several properties I've looked at even have existing long term tenants and the current rents are given.

Based on the number of people on BP investing in Akron and the number of times I've read that the good properties are 1 in 100, I feel like I'm missing something.

Evan Stephens · Answer

Kayla V.

I am just curious how your property search went. I live in the Akron area and am a first time investor looking to buy some multi family properties, I've been using the same numbers to calculate potential cash flow on a few properties and also feel like there is something I'm missing. There's that old saying "if it sounds too good to be true, it probably is."

Kayla V. · Answer

@Ryan Arth Thanks for the recommendation and tips! I know I need to eventually figure out how to get off-market deals, but for now I'm just looking on the MLS/HUD/Craigslist.

I'm not comfortable completely removing the inspection, but I will try lowering the time frame.

I feel like I picked the worst time to decide to start buying, but I also don't want to sit it out for years hoping for a crash.

Kayla V. · Answer

@Ryan Arth I put in an all cash offer of $50K on Chitty but got out-bid. I'm still waiting to see what the final sales price was. My realtor tried to get some info and he said the winning offer was also all-cash, closer to list ($59,900) and didn't want a lead paint inspection.

My realtor keeps pushing me towards lengthy closing periods (4-5 weeks from contract acceptance) to make sure we can get a good inspection, but isn't the benefit of cash a quick closing? I just don't have a great relationship with an inspector to be confident I can get it done in a shorter time frame (say 2 weeks).

Rohan J. · Answer

• Neighborhoods will definitely help you narrow it down - look for good school districts, parks (families love parks), and generally less crime rate
• Look for Economic Engines of stability - what kind of corporations are headquartered nearby? Will your area always have renters at the price? basically job stability
• What kind of future commercial development is coming in - new malls/shops/etc
• Also proximity to food/restaurants/shopping/etc
• Not near any flood zones/major rivers/ loud train tracks/minimal liquor stores

JD Martin · Answer

You don't have to assume on insurance - your agent should be able to give you a quote from the parcel sheet. I buy insurance all the time on properties and put it on hold until a day or two before closing. Other than that I don't necessarily see anything wrong with your assumptions, but just remember that they are assumptions that may be more or less depending on the property.

I buy for area. I want the best property I can buy for the cheapest price in the best neighborhood. This means you have to really know your neighborhoods. That's a big area that you're looking at, so I would invest some time/energy in getting to know the neighborhoods the properties are located in. One of the best ways? Drive through the neighborhood at 12 noon and 9 pm. Do you immediately lock your doors and roll up your windows either time? Do you see large numbers of able-bodied people that should otherwise be working hanging around?

How to Narrow the Options?

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