Analyzing a deal in D class neighborhood

2 Replies

I've been living in Utah for the last 15 years but I grew up in Ohio. Already doing the house hacking thing and want to make my next investment.  I've been looking back at Ohio and found what I think is a good deal half an hour from where I grew up. 

Listed Price 90k

Gross Rents 5.2k

Units: 10

With an initial investment of 25% I would put down 22.5k. Following the 50% rule for expenses the NOI would be 31.2k. After the mortgage payments it would be around 25k for a cash on cash return of 110%

So what's the catch?

It's in a D class neighborhood. Average unemployment is 15%. Average income is 36k. The real estate agent who's job it is to sell it said she wouldn't buy in that neighborhood for investment purposes. The place has been for sale for a year. No pictures of the inside.

I've requested the rent rolls and last two years of expenses and I'll post them when I get them. My question is 'how much more should I anticipate the expenses for a Class D investment?'

75% of Gross Rents for expenses would still put me at a 47% coc return.

Ask for bank statements so you can track the “Actual” incoming rents. You could have 5200 in rents due but only collecting 1800 which would change your numbers drastically. If they wont provide the numbers, I would encourage you to walk.

Also, I’d would test the water with a really low offer, and make sure you get your due diligence done. Is the building red tagged?

Who's paying $520/m, in a ten unit building, in a D Neighborhood?

ie. There's plenty of rentals out there for a lot less than $520/m, right?

ie. Who's fudging the figures?

[I'm not living in Ohio, otherwise I'd volunteer to take a drive-by - at night. Or, would your Realtor suggest: that's not a safe idea anyway?]

Other than "safety", the biggest problem might be the dreaded: deferred maintenance!

And yes: code violations. You need a trusted local team at your beck and call. Got one?

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