Help analyze 8-unit in Cleveland

16 Replies

Off market 8 unit brick apartment building in Cleveland built in 1920, Manhattan Beach area

Purchase price - $145000

Rehab costs - $30000 (cosmetic consisting of windows/paint/flooring/trim/carpentry)

(6) 1-1 units under market, currently at $475/mo, raising to $550/mo after rehab 

(2) 2-1 units at $600/mo, raising to $625/mo after rehab

Electrical, roof, foundation, water heaters, furnaces solid

Rent Roll $54600

Property management 8% $4370

Vacancy est 10% $5460

Maintenance est 14% $7644

Taxes $4200

Insurance $1900

Water $4000

Trash/lawn/snow $1200

NOI $25826, or 14.4% ROI at low end $269 NOI per door per month

These are high ball estimates, the building is older, 1920, but it is solid, just needs a new dress for these solid bones. I don't anticipate 14% maintenance or 10% vacancy, but thinking worst case scenario always helps me evaluate the deal and helps mitigate any unforseen circumstances. Plus if allotting for new roof/heater/water heater every so many years, allotting 5-6% of that cost every year just helps with any big hit items in the future.

Thoughts? Any strategies to reduce water costs? Can I individually meter out water in Cleveland and recapture that $4000?

Thanks, Nate

Originally posted by @Account Closed :

$55,000 per year rent on $145,000 purchase price? 

What can go wrong. 

I understand the skepticism. Only 4 units are currently leased, current rent roll is only $25200, and I'm going to remove those tenants in time to to rehab as well. The unoccupied units need a lot of cosmetic work, the 4 leased units aren't too bad, just need paint but the cosmetic conditions are bad in the unoccupied units. Five different paint colors, shoddy cosmetic repairs here and there, 3 different flooring types and old as hell. Previous owner had limited interest to repair anything and just pocket cash. Supposedly wants a bigger cash complex and is selling multiple complexes. I wish I had the capital to buy more.

The numbers look solid if you can achieve them.

- you are not mentioning any debt servicing? and your down payment.

-- You MUST check on the location and the history of the building if you don't know it.

(;-) are you sure you are not missing a Zero on the Purchase price - $145,000)

$30k for cosmetic renovation on 8 units sounds low. i just did basic to reasonable standard (check my BP blog) and it costs 5k per door. no new kitchen or bathes but re surfacing and granite tops., Viynal planks hardwheres thorough, signage and light fittings, fencing etc. This is for the reason of renting the 2b/1.5bath units at premium of $645pm for that market. 

If you know that you can get the projected rents while spending only 30k across 8 units then its great value play. i do not know the market so cant estimate that. 

Personally i rather have more 2bedooms then ones. but in midtown kind of location, on small block like that it could be viable. -- make sure there demand is there for 1 bedrooms - talk to local PM's

The stated per door annul expense are approx $2860 per door per year. - Check with PM and lenders what they see?

Water saving will be good value add. you can do RUBS or include in the rent. check if RUBS are common in your market. in some market they are and in some not. in the markets that they are not, often the water / utilities are added to the rent. and in some markets Tenants juts expect the landlord to pay for the water.

Originally posted by @Hadar Orkibi :

The numbers look solid if you can achieve them.

- you are not mentioning any debt servicing? and your down payment.

-- You MUST check on the location and the history of the building if you don't know it.

(;-) are you sure you are not missing a Zero on the Purchase price - $145,000)

$30k for cosmetic renovation on 8 units sounds low. i just did basic to reasonable standard (check my BP blog) and it costs 5k per door. no new kitchen or bathes but re surfacing and granite tops., Viynal planks hardwheres thorough, signage and light fittings, fencing etc. This is for the reason of renting the 2b/1.5bath units at premium of $645pm for that market. 

If you know that you can get the projected rents while spending only 30k across 8 units then its great value play. i do not know the market so cant estimate that. 

Personally i rather have more 2bedooms then ones. but in midtown kind of location, on small block like that it could be viable. -- make sure there demand is there for 1 bedrooms - talk to local PM's

The stated per door annul expense are approx $2860 per door per year. - Check with PM and lenders what they see?

Water saving will be good value add. you can do RUBS or include in the rent. check if RUBS are common in your market. in some market they are and in some not. in the markets that they are not, often the water / utilities are added to the rent. and in some markets Tenants juts expect the landlord to pay for the water.

 Thank you. Excellent considerations. The projected rehab cost is for 6 of the 8 units, with 4 of the vacant units needing the bulk of the work/money. I'm keeping 2 of the 4 current tenants. In those two units that I removed tenants from, I will do some light rehab, and those other two occupied units will be cleaned up at a later date. Just some painting and I'm done there. The 4 units that were renting for 475 are in need of some aesthetic love. I'm fairly confident I can get at least $525 monthly rent by simply cleaning them up and making them uniform. I'm not doing any cabinets or countertops at this juncture, I will be painting cabinets in some units and replacing hardware, making paint uniform in color, and flooring uniform in material throughout the units so they simply flow and show better, minimal fixture and covers/plates work. RUBS is something I will have to look into. I'd have to do some more market research on what the expected water pay out for tenants in that area is. I can't find a definitive answer. These are the great questions and interactions I need more of. 

Debt servicing will be at the rate of $879/mo via private lending ($145000 at 6.1% for 30 years). The down payment is the $30k plus a few thousand in closing and servicing fees, which is simply going back to my contractors via the lender.

Thank you. 

Looks good! As long as you know that costs are accurate this seems like a good deal. In an older building sometimes you need to redo plumbing and electrical which would add a lot to the rehab, so make sure you confirm that this is just cosmetic. What area is this in and what class rating (A, B, C, D)?

@Nathan Kyle Taufer sounds like you are on to it. 

Juts to add that in my Market the water "bill back" to the tenants is about $30per month.

- but its added to the rent.

All my properties have separate utilities, buy i have underwritten deals where the owner pay for water based on that. 

I done separation of meters before, and would consider doing it in a market where RUBS are not common. that is provided the cost is reasonable. 

Its a capital expense that would not add value by immediately, but would be good long term investment, even when you want to sell.

What class of areas is this? If it’s mostly Empty that’s probably why it’s so cheap. Don’t underestimate capex though that’s an old building

Originally posted by @Nathan Kyle Taufer :

Off market 8 unit brick apartment building in Cleveland built in 1920, Manhattan Beach area

Purchase price - $145000

Rehab costs - $30000 (cosmetic consisting of windows/paint/flooring/trim/carpentry)

(6) 1-1 units under market, currently at $475/mo, raising to $550/mo after rehab 

(2) 2-1 units at $600/mo, raising to $625/mo after rehab

Electrical, roof, foundation, water heaters, furnaces solid

Rent Roll $54600

Property management 8% $4370

Vacancy est 10% $5460

Maintenance est 14% $7644

Taxes $4200

Insurance $1900

Water $4000

Trash/lawn/snow $1200

NOI $25826, or 14.4% ROI at low end $269 NOI per door per month

These are high ball estimates, the building is older, 1920, but it is solid, just needs a new dress for these solid bones. I don't anticipate 14% maintenance or 10% vacancy, but thinking worst case scenario always helps me evaluate the deal and helps mitigate any unforseen circumstances. Plus if allotting for new roof/heater/water heater every so many years, allotting 5-6% of that cost every year just helps with any big hit items in the future.

Thoughts? Any strategies to reduce water costs? Can I individually meter out water in Cleveland and recapture that $4000?

Thanks, Nate

What do you know about operating rental properties in the ghetto? That's much more important of a question than any of the numbers you've plugged in up top.


What do you know about operating rental properties in the ghetto? That's much more important of a question than any of the numbers you've plugged in up top.

That's why i mentioned make sure you understand the area and the tenants.

if you are not local then don't let the numbers on your estimated proforma take over. if the area is war zone your vacancy and tenet placement could be a deal killer. 

Originally posted by @James Wise :
Originally posted by @Nathan Kyle Taufer:

Off market 8 unit brick apartment building in Cleveland built in 1920, Manhattan Beach area

Purchase price - $145000

Rehab costs - $30000 (cosmetic consisting of windows/paint/flooring/trim/carpentry)

(6) 1-1 units under market, currently at $475/mo, raising to $550/mo after rehab 

(2) 2-1 units at $600/mo, raising to $625/mo after rehab

Electrical, roof, foundation, water heaters, furnaces solid

Rent Roll $54600

Property management 8% $4370

Vacancy est 10% $5460

Maintenance est 14% $7644

Taxes $4200

Insurance $1900

Water $4000

Trash/lawn/snow $1200

NOI $25826, or 14.4% ROI at low end $269 NOI per door per month

These are high ball estimates, the building is older, 1920, but it is solid, just needs a new dress for these solid bones. I don't anticipate 14% maintenance or 10% vacancy, but thinking worst case scenario always helps me evaluate the deal and helps mitigate any unforseen circumstances. Plus if allotting for new roof/heater/water heater every so many years, allotting 5-6% of that cost every year just helps with any big hit items in the future.

Thoughts? Any strategies to reduce water costs? Can I individually meter out water in Cleveland and recapture that $4000?

Thanks, Nate

What do you know about operating rental properties in the ghetto? That's much more important of a question than any of the numbers you've plugged in up top.

I guess I'm curious why you'd consider it the ghetto. I have fellow investors from cleveland that are now local to me that travel there frequently that claim the area is decent and upcoming, trulia claims it is a low crime rate, while some claim it is a war zone. I know you're heavily invested in Cleveland, and I'm all ears. I've read your ultimate guide to investing there. Should I run? If you've got strategies I'm all ears. I'm just in this to make money. 

Joining the conversation again.. I don't think you should run.. but you should definitely ask yourself if you are willing and capable of handling these type of tenants?
There are certain ways to operate this type of property - but I believe if you follow the basic rules landlord - tenants and enforce them , then you should be able to make money, even allot of it. Be prepared to win some and lose some - improve by learning constantly

Your numbers are almost identical to an active listing on LoopNet in that area, so I assume it's the same building you're talking about. 

Have you ever been to Cleveland? I know you said you know people from the city, but if you haven't done a deal with them then you might be getting yourself into trouble. I'm in Cleveland right now and drove past that property recently. It's pretty rough. I'd get on a plane and see it for yourself if you're serious. 

Originally posted by @Nathan Kyle Taufer :
Originally posted by @James Wise:
Originally posted by @Nathan Kyle Taufer:

Off market 8 unit brick apartment building in Cleveland built in 1920, Manhattan Beach area

Purchase price - $145000

Rehab costs - $30000 (cosmetic consisting of windows/paint/flooring/trim/carpentry)

(6) 1-1 units under market, currently at $475/mo, raising to $550/mo after rehab 

(2) 2-1 units at $600/mo, raising to $625/mo after rehab

Electrical, roof, foundation, water heaters, furnaces solid

Rent Roll $54600

Property management 8% $4370

Vacancy est 10% $5460

Maintenance est 14% $7644

Taxes $4200

Insurance $1900

Water $4000

Trash/lawn/snow $1200

NOI $25826, or 14.4% ROI at low end $269 NOI per door per month

These are high ball estimates, the building is older, 1920, but it is solid, just needs a new dress for these solid bones. I don't anticipate 14% maintenance or 10% vacancy, but thinking worst case scenario always helps me evaluate the deal and helps mitigate any unforseen circumstances. Plus if allotting for new roof/heater/water heater every so many years, allotting 5-6% of that cost every year just helps with any big hit items in the future.

Thoughts? Any strategies to reduce water costs? Can I individually meter out water in Cleveland and recapture that $4000?

Thanks, Nate

What do you know about operating rental properties in the ghetto? That's much more important of a question than any of the numbers you've plugged in up top.

I guess I'm curious why you'd consider it the ghetto. I have fellow investors from cleveland that are now local to me that travel there frequently that claim the area is decent and upcoming, trulia claims it is a low crime rate, while some claim it is a war zone. I know you're heavily invested in Cleveland, and I'm all ears. I've read your ultimate guide to investing there. Should I run? If you've got strategies I'm all ears. I'm just in this to make money. 

lol, I consider it ghetto for the same reasons I consider the color blue, blue. It just is.

Now that doesn't mean you can't make money in the ghetto. The ghetto has made me a very wealthy guy. So saying investing in the ghetto is bad or good is not something I would do. It's more about the person who is investing in the ghetto.

If you are an experienced investor who's not afraid of dealing with savages, know the risks involved, know how to handle the hassles & set inevitable set backs that come with investing in these areas you can make some coin.

If you are looking for a consistently passive return on your money, or are new to the Cleveland market or new to investing in real estate in general I don't think that this would be something you'd want to start with. You'd likely be best served buying something more passive in a B-Class area.

Dude, this one is a trap, i did the due diligence on this because those numbers were so good, property has been on the market for 2 months, gave up on trying to make it work, you are looking at close to 100k rehab costs and even then the building still looks old and unattractive, pm me if you want more info on what i found out.