Potential FIRST Multifamily Purchase (Need Advice)!!
Hey guys,
This is my first time posting on BiggerPockets, and my first time I am actually heavily considering a deal.
This is the BiggerPockets Rental Calculations: https://www.biggerpockets.com/...
I feel like I used rather conservative numbers there, and the property still cash flows extremely well.
Am I missing anything? I know Akron has a high crime rate but still... I feel like this is a steal.
What are your guys' thoughts? I would really appreciate any advice you guys could provide!!
Hey Cole! I lived in Akron for 10 months and I think the estimated rents you are projecting for the duplex are a little high. $1,275 is a little steep for most residents of Akron, especially in the southwest area versus somewhere more favorable like the town of Ellet due to less crime. I think the rest of your variables are conservative. With this being said I think money can be made in Akron as it is a cheaper market. The issue is with cheaper markets comes more dangerous tenants. I think 900-1150 is a more favorable rent amount. A ton of cash flowing properties in Akron exist but majority are in class D or lower class C neighborhoods. I would just be careful of what specific area of Akron you are investing in. Personally if I were to invest I would go closer to the university and rent out rooms for students. Good luck with your future investing!
Quote from @Charles Roy:
Hey Cole! I lived in Akron for 10 months and I think the estimated rents you are projecting for the duplex are a little high. $1,275 is a little steep for most residents of Akron, especially in the southwest area versus somewhere more favorable like the town of Ellet due to less crime. I think the rest of your variables are conservative. With this being said I think money can be made in Akron as it is a cheaper market. The issue is with cheaper markets comes more dangerous tenants. I think 900-1150 is a more favorable rent amount. A ton of cash flowing properties in Akron exist but majority are in class D or lower class C neighborhoods. I would just be careful of what specific area of Akron you are investing in. Personally if I were to invest I would go closer to the university and rent out rooms for students. Good luck with your future investing!
Hey Charles!
It is actually a triplex, so I am projecting rents at $909 for the two 2 bed 1 baths, and the one 1 bed 1 bath I am project at $731 (these are according to Rentometer). I will definitely look into Ellet, and also properties nearer to U Akron.
If you have any time in the coming weeks, I would love to hop on a call and pick your brain about the Akron market further.
Thanks for your help!!
I totally don't understand the current tax bill on your property:
Your sellers paid $94,900 in 2021, and you are paying $125,000 in 2023. I don't know how often your county reassesses their taxes, but it looks like to me your taxes are still based on the previous seller's price of $40,000 - this is totally a guess - but they seem way too low for $125,000.
Just for fun, I put your numbers into the county's tax estimator in the correct district for your property and used your sales price as the 'market value. I don't know if that is the right way to use the tool... but this is what it returns:
Whenever this resets, your taxes could go from $900 to $2,800. I know in Florida this happens the year after the sale. But I've heard in some areas it is every 2-3 years. So if they did reset to what is shown you could be looking at more like $230/month in taxes, versus $75. So I would maybe check up on that... even if it is just an anonymous call to the tax collector's office.
In addition, it looks like you have insurance listed at $3 / month? Pretty sure that needs to be updated.
All the best!
Randy
Quote from @Randall Alan:
I totally don't understand the current tax bill on your property:
Your sellers paid $94,900 in 2021, and you are paying $125,000 in 2023. I don't know how often your county reassesses their taxes, but it looks like to me your taxes are still based on the previous seller's price of $40,000 - this is totally a guess - but they seem way too low for $125,000.
Just for fun, I put your numbers into the county's tax estimator in the correct district for your property and used your sales price as the 'market value. I don't know if that is the right way to use the tool... but this is what it returns:
Whenever this resets, your taxes could go from $900 to $2,800. I know in Florida this happens the year after the sale. But I've heard in some areas it is every 2-3 years. So if they did reset to what is shown you could be looking at more like $230/month in taxes, versus $75. So I would maybe check up on that... even if it is just an anonymous call to the tax collector's office.
In addition, it looks like you have insurance listed at $3 / month? Pretty sure that needs to be updated.
All the best!
Randy
Thank you so much for this Randall! I know I have to fix the insurance, but I appreciate your help with estimating taxes!!
Hey Cole, Akron local. Realtor and investor here. I would be cautious of buying any converted multi family like this. Turnover is going to be high. Turnover is your worst enemy on properties like this. There’s a reason a lot of these converted single families sell for a lot less and there are a lot more for sale than built to be multi families. The numbers on these can look enticing but don’t always work out like that. Maybe section 8 or something of the like could make it work to lower turnover. I have seen plenty of investors, local and out of state, fall in love with numbers on paper here when there are a lot of other factors to consider. Also, area on this is a little so so.
Not trying to be Debbie downer but as you are new want to give you a realistic look on this property. I wouldn’t touch it personally. There are always better deals.
Hey Brendan!
I really appreciate this. If you have any time in the coming weeks, I would love to hop on a call and learn more about the Akron real estate market.
Let me know!
@Cole Doyon The first deal is always the hardest. You will never be 100% comfortable in any deal. Check the numbers, recheck them and recheck them. You could put the deal under contract once you know the concrete numbers and then ask someone with real estate investment experience to check the agreement and ensure it's as solid as you want. Best of luck, Cole. I hope it all works out for you!
Hey @Cole Doyon,
I'm local to the area and agree that the numbers you used for rents are not unreasonable.
Some assumptions I would test you on would be vacancy and maintenance.
Every investor is different but just some call outs I would mention:
1. Vacancy: Akron is a secondary market and can be great for cashflow its getting the management right which is the difficult part. Keeping the property occupied is likely going to be the biggest hurdle you will face. In most cases you get what you pay for C- to D class properties/areas attract C- to D class tenants. If you have a strong PM company and a plan to keep it managed that will help mitigate your downside but like Mike Tyson once said, everyone has a plan until they have to file two evictions in one month. Or something like that :)
2. Maintenance: How I look at conversions is this: The property was built specifically for one type of housing and then later changed into another. I know, captain obvious. Its all a case by case basis. Issues with a converted property will depend on several factors, including the quality of the conversion work, the age and condition of the property before the conversion, and the maintenance and management of the property after the conversion. Converting an older property may mean that it has outdated or inadequate insulation, heating, or ventilation systems that could lead to maintenance issues and higher utility bills. It may also mean that the work was properly permitted, up to standard and have newer electrical and plumbing systems, modern insulation, and updated heating and ventilation systems, which could be advantageous in terms of energy efficiency and maintenance. Just a consideration.
I have two pieces of advice my mentor gave me:
1) Balance the return with peace of mind.
2) When purchasing an asset you must understand you won't own it forever. The question then becomes, how do I unload this? Who would wat to buy this in the future?
Also, coming from a guy who underwrites over $1B in assets each year I've found its wise to approach the analysis process with the mindset of "Guilty until proven innocent". What I mean by this is you underwrite the deal with empirical skepticism and actively seek out every angle possible to kill the deal. In doing so you protect yourself from the downside as best you can.
I can't help with agents in Akron but if you're looking for recommendations on contractors, lenders, property management or insurance feel free to reach out and I'd be glad to pass along some contact info for the folks that support the residential side of my business.
Hi Cole,
In addition to what some of the other people have mentioned already, I would look into the following:
1) The MLS shows that the property went under contract previously before going back on market. Ask (or have your agent ask) if they have a copy of the inspection report from the previous buyer. Maybe they do, which can save you some time/money if there are any major red flags. If they don't see if you can find out what happened with the other deal.
2) Have you personally walked through the property or had anyone take a video for you? As others have mentioned, the layout for a conversion could be a little odd, which then can affect who wants to live there (as tenants) and your possible exit route (when selling it, will it turn other buyers off).
3) Regarding property taxes, Summit County reassesses every 3 years (called a triennial update) and Ohio state law mandates that a sexennial reappraisal be performed every six years. Since taxes are paid one year in arrears, the value changes from the triennial update will be reflected on tax bills mailed in January 2024.
Here is a link from Ohio's Department of Taxation on which counties are up for triennial updates this year (Summit County is one of them)...
Hope this helps!
Quote from @Cole Doyon:
Hey guys,
This is my first time posting on BiggerPockets, and my first time I am actually heavily considering a deal.
This is the BiggerPockets Rental Calculations: https://www.biggerpockets.com/...
I feel like I used rather conservative numbers there, and the property still cash flows extremely well.
Am I missing anything? I know Akron has a high crime rate but still... I feel like this is a steal.
What are your guys' thoughts? I would really appreciate any advice you guys could provide!!
Total sq ft for this house is 1,534. Not sure how they are getting a total of 4 bedrooms and 3 bathrooms in that. The rents will probably be on the lower side based on the size of the units. Unless they are reporting the sq ft incorrectly
