Considering an out of state deal as a starter (OH). Help!!!

Multi-Family and Apartment Investing
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Considering an out of state deal as a starter (OH). Help!!!

Paul C.
Investor · San Diego, CA · Member since 2017 · 2 posts · 1 vote

I am from Southern California and this is absolutely the hottest market i've seen in a long time..  The problem is.. its sooo expensive!! I don't think spending 500k+ getting a duplex only to cash flow a couple of hundred dollars is the best idea starting out.  So i'm looking to invest in other areas where my dollar can go a lot further.  

My research has lead me to places to like Ohio and Indiana where I can find 4plexes for under 100k.  Coming from California, this just blows my mind!! You won't even be able to get a room for that price much less a 4plex.  So seeing as I am just starting out and slowly learning the markets by constantly looking at the numbers I was wondering if you fine people can help me evaluate this property.  My biggest concern is the (unknown) costs in the area..  I'm used to certain standard here in Cali but in Ohio I'm sure things are different.  Here are my numbers.

Property: 4Plex

Cost: $86,000 (Can put upto 50% down if needed.)

Location: Cleveland, Ohio

Estimated Insurance Cost: $2400 /year.  This is a rough estimate from what I've seen.  Would greatly appreciate if someone can validate.

Property Mgmt:  8-10% of gross rental income which is $200

Property Taxes:  1.5% of purchase price.

Utilities:  Roughly $60 a unit.  Some listing say tenant is responsible, others show owner is responsible..  

For those in the area does this seem like the standard checklist of expenses for a multi-family home.. There is obviously a lot more research that I need to do but speaking to actual people in the area helps a million!!

 Thanks

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Andrew Johnson
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
9y

@Paul C. My personal perspective is that those of us in California (I'm not too far away from your in Encinitas) go from one extreme to the other.  We see our market has "having no cash-flow" so naturally our (online) research takes us to the markets with THE MOST CASH-FLOW!  You know, those spots in Ohio that are always mentioned as well as places like Memphis.  I think it just naturally happens that way.  You see $86K for a 4-plex and it *has* to be a good deal because $86K can't get even if you 1/2 of a studio condo here in San Diego.  

My advice for you would to read some of the stories here (and other places) on what it takes to successfully manage units in "D" areas.  Then search for posts about managing units where rents are $300/month - $500/month.  There are just fundamental differences in the economics when it comes to the amount of collected rents, expenses as a percentage of collected rent, turnover costs as a percentage of collected rent, etc.  And that's assuming you have the time to keep abreast of everything.  I might be overgeneralizing but whether have a PM or not there $20/unit properties are far from "passive" when it comes to your time.  And if they need work?  Well, good luck managing a renovation from afar.  

So I'm not saying you can't make money with properties like these but your post makes it sound like you're looking at the numbers first and the needs/requirements when it comes to operating these properties 2nd.  I'd flip your thought process and start with the kind of properties that you want to own first and see what the "cost of entry" is for those properties after the fact.  

To add maybe a slightly different perspective in favor of those "cash-flow" markets you can probably buy in a "B" or "B+" neighborhood in Cleveland or Columbus cheaper than you could buy in a "C-" neighborhood in San Diego.  From my perspective, you can really save yourself a lot of hassle if you target those nicer areas.  Use your "California dollar" to buy a little less hassle if you're going to go to a cash-flow market.  Don't just go for whatever numbers (from thousands of miles away) look best on a sheet of paper.

But what do I know...

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  • Gwen Fyfe
    Rental Property Investor · Cleveland, OH · Member since 2016 · 227 posts · 287 votes
    9y

    @Account Closed Thanks! I definitely think it's a good area for the price. It's a really solid blue-collar town. There are no POS requirements right now - a couple people had a legal dispute with the city over them and Bedford responded by completely suspending all POS about a year ago. They might come back in the future but there's a big push to make them external only.

    Tenant market is solid but not rich. There are lots of service jobs around - my tenants work in restaurants, grocery stores, the casino. Bedford is also easy commuting distance to a lot of richer suburbs with professional jobs (I work as an accountant over in Solon!) Not a lot of crime. Just good folks living their lives.

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  • Daniel Bryant
    Queens, NY · Member since 2017 · 65 posts · 16 votes
    9y
    Originally posted by @Gwen Fyfe:

    @Account Closed Thanks! I definitely think it's a good area for the price. It's a really solid blue-collar town. There are no POS requirements right now - a couple people had a legal dispute with the city over them and Bedford responded by completely suspending all POS about a year ago. They might come back in the future but there's a big push to make them external only.

    Tenant market is solid but not rich. There are lots of service jobs around - my tenants work in restaurants, grocery stores, the casino. Bedford is also easy commuting distance to a lot of richer suburbs with professional jobs (I work as an accountant over in Solon!) Not a lot of crime. Just good folks living their lives.

     Congrats on the score and continued success!

    The only thing that worries me from buying there is the age of the houses. I'm buying mainly for renting purposes and most houses there seem to be from over a 100 years ago which probably means a lot of maintenance work yearly. I was also looking at Tipp City which is a beautiful little town in OH and same thing over there w the age of the houses

    1Reply
  • Gwen Fyfe
    Rental Property Investor · Cleveland, OH · Member since 2016 · 227 posts · 287 votes
    9y

    @Daniel Bryant Yeah, I can understand the hesitation on that front. But... in a market with good tenants where you can buy a duplex for $75k and beat 2%, there's got to be some drawback, and I'm comfortable with it being the age of the structure. If you can find a market with all of these things and it was built ten years ago, let me know.

    Also, so much of it depends on how the home has been maintained. As my inspector said to me - if it's been solid for a century, it's not going to fall down tomorrow. The main house in my quad, which I live in, was built almost a hundred years ago. But there was a carpenter living in it for fifty of those years! It's in amazing shape.

    Just have to look at it on a case by case basis.

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  • Kevin FoxPro Member
    Real Estate Agent · San Diego, CA · Member since 2014 · 1k+ posts · 635 votes
    9y
    Originally posted by @DL Martin:
    Originally posted by @Andrew Johnson:

    @Paul C.   

    To add maybe a slightly different perspective in favor of those "cash-flow" markets you can probably buy in a "B" or "B+" neighborhood in Cleveland or Columbus cheaper than you could buy in a "C-" neighborhood in San Diego.  From my perspective, you can really save yourself a lot of hassle if you target those nicer areas.  Use your "California dollar" to buy a little less hassle if you're going to go to a cash-flow market.  Don't just go for whatever numbers (from thousands of miles away) look best on a sheet of paper.

    But what do I know...

    If you can afford C- in San Diego, you are completely out of your mind to even think about buying B or B+ in Ohio. 

    Buy the C- in San Diego and manage the thing yourself. 

    DL

     Couldn't have said it better myself!

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  • Ned J.Pro Member
    Investor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
    9y

    I think one of the biggest challenges for us smaller CA investors is even finding what would be considered a reasonable deal....let alone a good deal. The personal buyer market is hot and so is the REI market...... if it hits the MLS its like blood in the water for a lake full of starving sharks...its dozens of bids and outrageous prices. Off market properties are getting gobbled up by investors with big networks of real estate agents, loan officers etc, so us "little fish" get very little attention when agents find deals before they hit the MLS... the numbers rarely make sense even if you find one...... so unless you are basing a good deal solely on appreciation and tax benefits etc, its hard swallow buying in this market

    So the appeal of out of state is that at least you have a chance to find some properties than even have a remote chance of being a reasonable deal....you can run numbers on 50....look at 20....put offers on 5...... in CA, with us "little guys" that's never going to happen. The out of state deals can obviously be a huge PITA and come with some challenges, but at least you are getting in the game. Numbers still need to make sense, but at least you get a chance to play.....

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