First Rental, Duplex in Lakewood, OH

[Vic Delgado]

Hi everyone!

I'm looking to purchase my first rental property via live in house hacking and renting out the other unit of a two family in Lakewood, OH. Down unit is 2/1, and the upper is 3/1. I haven't seen the property yet, but I wanted to speak somewhat knowledgeably before looking at it with a realtor. 

I'm running numbers to get a good feel for things like cash on cash return based on 3.5% down with recent taxes and best guess expenses which show approximately 54% of income. 

I'm using a 10% management fee to pay myself, $400 a year in repairs and maintenance, and $100 a month for replacement reserves. Based on pictures it looks well cared for and in above average condition, and is located on the western part of the city. (1264 Webb for those familiar)

So here are some questions: Does anyone use cap rates for smaller properties like duplexes in this area, or mainly metrics like cash on cash return? (Mine are showing 6.8% cap and 12% coc) 

Also, I've heard from several sources that the market is quite hot in Lakewood, and was curious to hear input from other members investing in this area. Does that only apply only to SF, or multifamily also?

Any input would be greatly appreciated!

Vic Delgado

[Henry LiChi]

CAP rate and COC is less of concern if you're going to owner occupy it, in my opinion. Your main factor should be, does the other unit pay for your mortgage and possibly more? What is your estimate for how much rent will go for? Assuming you're taking the 2 bd and renting the 3 bd out.

50% of the gross rent for expenses is about right, based on my numbers for the several properties I have around Cleveland (you're self managing it so 10% of that will go right in your pocket).  Of course, that number doesn't include the mortgage.  As far as, 400$ a year on repairs and maintenance, that seems low to me, but I am very conservative with my savings and like to know that any repairs or capex doesn't come out of my net income.  I usually allow 10% of the gross rent for repairs and maintenance and another 10% for capex (or replacement reserves, in your words).  But in landlord insurance, as well.  It will help you sleep at night knowing that you have a million dollar liability coverage in case your tenant gets injured and is suing.

I am still learning a lot about Cleveland as I acquire more and more property, but Lakewood is a nice area (for the most part) and there is some appreciation.  But as far as my criteria for Ohio investment, this property wouldn't even hit my radar, but I don't live in my investment properties and people are willing to pay more for places they really want to live.

[Rahul Bhatt]

Lakewood is hot I tried to acquire many times there but didn't make numbers work 

I generally use 5% vacancy

10% capex 

10%repair also look at the utilities and taxes taxes are pretty high in Lakewood

[Vic Delgado]

Based on my numbers, I'll still have to pay about $300 month after everything is said and done with the assumption that the upstairs is rented. Rent on the 2 bed side (where I'll live) should be $850 mth, upstairs for the 3 bed is around $1200 mth.

Thanks for the replies...!

[Jason D.]

The only thing I would reconsider is your maintenance costs. $400 per year is WAY too low. Something as simple as a plumbing leak or a dishwasher replacement will eat that up in no time. I would at least double that to be safe. If the house is more than 50 years old, even triple. Just my opinion.

[James Wise]

Originally posted by @Vic Delgado:

Hi everyone!

I'm looking to purchase my first rental property via live in house hacking and renting out the other unit of a two family in Lakewood, OH. Down unit is 2/1, and the upper is 3/1. I haven't seen the property yet, but I wanted to speak somewhat knowledgeably before looking at it with a realtor. 

I'm running numbers to get a good feel for things like cash on cash return based on 3.5% down with recent taxes and best guess expenses which show approximately 54% of income. 

I'm using a 10% management fee to pay myself, $400 a year in repairs and maintenance, and $100 a month for replacement reserves. Based on pictures it looks well cared for and in above average condition, and is located on the western part of the city. (1264 Webb for those familiar)

So here are some questions: Does anyone use cap rates for smaller properties like duplexes in this area, or mainly metrics like cash on cash return? (Mine are showing 6.8% cap and 12% coc) 

Also, I've heard from several sources that the market is quite hot in Lakewood, and was curious to hear input from other members investing in this area. Does that only apply only to SF, or multifamily also?

Any input would be greatly appreciated!

Vic Delgado

That's west end of Lakewood my man. CAP rates are irrelevant. That property is 100% comp driven. FYI it's already contingent on the MLS. Hopefully that was you that bought it because that was a really good deal. Personally I think it was a little under priced.

[Vic Delgado]

Unfortunately it wasn't me as I'm just getting started James. Thanks for the input though!

If you have any other places in mind in that area (western Lakewood, Rocky River, Westpark), let me know...