Where in OH are you investing and Why?

96 Replies

I invest in Toledo, Sandusky, Lorain, Akron, Canton.  I view all 5 cities as still coming out of the recession so acquisition prices are still reasonable and there is a lot of room to run in real estate price appreciation and rent increases. 

Originally posted by @Al D. :

I am surprised to be reading that $200/door is difficult to get in the Cleveland area. I don't know how you guys calculate your monthly returns per door (Like, do you just account for PITI, or also add expected depreciation, etc? Do you subtract expected capex? Is there a standard that each of you knows for a fact that all others are adhering to when discussing the dollar figure with the others here?) To me, in any case, the dollar figure is ambiguous because it will vary by the purchase price, downpayment, interest rate, local tax variances between towns/counties, etc.

In my own experience of buying in a Cleveland suburb with 8+ school ratings (not a D class neighborhood) back in 2016, I got more than $200 per door - after accounting for PITI, before any capex, and self-managing. But I don't calculate my potential profit that way to begin with. Instead, I aim for a 1%+ monthly return. So, for an easy example: a $100,000 purchase should gross me $1,000 or more in monthly rent. A couple of people above referred to "The 1% Rule" already.

I haven’t looked at buying anything in the Cleveland area since last summer - and actually ended up getting better deals elsewhere then. But I do believe that good deals can still be had today.

In fact, looking at an email I received from a turnkey provider (who does not appear to have any presence on this site) there back in March of this year, she was selling SFRs in Parma, Parma Heights, Cleveland (44102), South Euclid, and University Heights at the time. The prices for these ranged from $85,000 to just under $127,000 (and these are just asking prices.) Her pro-forma showed “estimated gross monthly cash flow conventional financing” ranging from $271/mo to $344/mo on these properties - after accounting for 3% for vacancy, 3% for maintenance, and 8% for management. While I am too tired to figure out what interest rate she was assuming and what downpayment (she did not list these metrics,) all these properties are right around the 1% rule.

Having dealt with “turnkey” providers in other markets (I have no experience with any of those in the Cleveland area,) I’ve learned to find my own agents, who do nothing but represent buyers and sellers. You tell them what kind of schools you want, price/rent ratio, etc. They work for you. Just don’t forget to buy something from them at some point - only way they make money, not on managing your rentals.

I found my own agent in the area, while doing my own research on Zillow. She has a narrow specialty in a narrow geographic area of the Cleveland suburbs. And I am ok with her “limitations.” I quickly learned to trust her.

Back in 2016, my first property there, a duplex, was yielding 1.2% right off the bat. To put it into dollars: when accounting for my PITI (and nothing else,) I was pocketing just over $300/mo per door of that duplex. But I also knew (when I bought) that the rent had not been increased in a long time. By now, I get $487.50/door - a 1.575% monthly return. Again, I self-manage. This was not a turnkey, but an estate sale, the sellers of which quietly let a few people know they were willing to let it go for quite less than the asking price on the MLS at that time, after not an offer in months. My agent happened to be in the know.

Not long after this purchase, I bought another, much newer, duplex in the same suburb, after it had been sitting on the market for close to a year. I was getting about $650/door, after accounting only for PITI. I am making $687.50/door two years later. Though, if either of the current tenants moves out, I may go back down to the original return (this property is at the upper level of the market, and new builds are still coming on.)

Both of these properties were bought with 25% down, 30yr conforming.

Figure out what you want (city, type of property, approximate purchase price, price/rent ratio, age, level of acceptable deferred maintenance, etc.) and tell the agent(s). There is a chance that you may get an agent who will throw everything under the sun at you as a “great deal.” Assuming that your research on the area is right, keep to your “musts,” which will also let the agent know that you are a serious investor whose time they should no longer be wasting until they really have a great deal.

Keep in mind that Ohio property taxes vary widely from town to town, and some are just nuts, so choosing the city(ies) in the area should be your first step.

 for me with C neighborhoods, I have been hitting 1.5 to 1.8 %. Instead of purchase price I use total price to get to rent ready state. 

Recent purchases in 2018: sfh 50k incl. 7k rehab rented for 950 in 44111

sfh 58k incl 3k rehab in 44135 rented for 950

usually price difference accounts for age of home and location (if its further west more xpensive). on capex most homes i buy are in same condition, roof few yrs old, newer boiler etc. I assume 55% total expenses but my actuals have been much lower.

The inexpensive housing stock in the greater Akron area is for the most part very old. I am not able to get anywhere close to actually $200/door AT THIS POINT-- though I expect to soon on the first eight units we purchased. When we buy the cheaper/older properties that will nominally cash-flow 200+ per door, we assess what we need to do when we buy to bring the properties up to quick renting, more or less "trouble-free" condition. This includes renovating (to the level of the neighborhood) and making sometimes significant improvements to prevent issues. Most of the cheap properties will require improvements to a number of expensive areas, including windows, plumbing and electrical systems. In addition, painting, flooring, and appliances are often required. We are able do much of there work ourselves out of revenue and with home depot  0 percent promos. By adding value we have been able to improve and stabilize our tenant base, reduce our maintenance calls, and in the long term, reduce vacancy rates. Once you know the old main stacks are at the end of their useful life, when we turn over a downstairs unit we tear out the plaster ceilings so that the plumbing is accessible and assess the situation. It REALLY, REALLY sucks to tear out an old plaster bathroom ceiling with a tenant in place and it would suck (financially) even more to have a property management company play a plumbing company $90/hour plus their up charge to tear it out and make repairs and then pay someone else to install a new ceiling.

I look for properties EVERY SINGLE DAY in the greater Akron market. A newer property with no issues actually returning $200/door after all maintenance, capex, and management with no work needed is a unicorn. Frankly, if someone tried to sell me such a beast I would be wary. And if it is here, I'm probably gonna' find it before you.

Most of the claims of $200+/door will not figure in REALISTIC capital expenses for an older property.

With properties maintained to a (relatively high*) level, I think we need about 75 doors to produce enough revenue to cover all maintenance and capital expenses without us actually doing any work other than property management. The great news is that I think it can be done with a capital investment of 400-500k that will within five years, bring in (conservatively) $150/door net income. (*Relatively high compared to what we see from "professional" management companies and compared to most of what else is available in the sandboxes where we play). I have paid between 13k-60k per unit depending on the property.

I will be happy to give you my agent's name and number. She's great. PM me. I really do wish you the best in Ohio but it is my honest opinion that the return you would like is not really possible in this market regardless of what some "turnkey" providers might claim.

@Kevin Moules , this has been a very enlightening thread. I've also been looking in the Cleveland area and had a target in mind of $200+ per door cash flow AFTER all expenses (PITI, PM, vacancy, repairs, capex, water/sewer and lawn maintenance). This is a number that I thought was "normal" after reading through BP posts and listening to podcasts for months. But after reading this thread, it seems that I'm going to have to adjust my expectations to a much smaller number.

So question from somewhat of a newbie investor.  If appreciation in OH is not that great (compared to the east and west coasts) and you're only cash flowing $50 per door, what is the real incentive for investing in the area?

Originally posted by @Andres M. :

@Kevin Moules , this has been a very enlightening thread. I've also been looking in the Cleveland area and had a target in mind of $200+ per door cash flow AFTER all expenses (PITI, PM, vacancy, repairs, capex, water/sewer and lawn maintenance). This is a number that I thought was "normal" after reading through BP posts and listening to podcasts for months. But after reading this thread, it seems that I'm going to have to adjust my expectations to a much smaller number.

So question from somewhat of a newbie investor.  If appreciation in OH is not that great (compared to the east and west coasts) and you're only cash flowing $50 per door, what is the real incentive for investing in the area?

 the incentive is low purchase price that allows you to scale. lets say if you are in a position to buy a sfh for say 55k in cash and rent for 950. since you paid cash, its likely you bought below market. after seasoning of 6 months you can finance it , lets say it appraises at 65k, you can take out close to 50k out that you can now put on next home. 

my 55k purchase from last yr appraised at 66k when i refinanced few months back.

Originally posted by @Sunny D. :
Originally posted by @Andres M.:

@Kevin Moules , this has been a very enlightening thread. I've also been looking in the Cleveland area and had a target in mind of $200+ per door cash flow AFTER all expenses (PITI, PM, vacancy, repairs, capex, water/sewer and lawn maintenance). This is a number that I thought was "normal" after reading through BP posts and listening to podcasts for months. But after reading this thread, it seems that I'm going to have to adjust my expectations to a much smaller number.

So question from somewhat of a newbie investor.  If appreciation in OH is not that great (compared to the east and west coasts) and you're only cash flowing $50 per door, what is the real incentive for investing in the area?

 the incentive is low purchase price that allows you to scale. lets say if you are in a position to buy a sfh for say 55k in cash and rent for 950. since you paid cash, its likely you bought below market. after seasoning of 6 months you can finance it , lets say it appraises at 65k, you can take out close to 50k out that you can now put on next home. 

my 55k purchase from last yr appraised at 66k when i refinanced few months back.

@Sunny D.  Thanks for the reply.  But what if you're financing from the start, not buying cash?

Originally posted by @Andres M. :
Originally posted by @Sunny D.:
Originally posted by @Andres M.:

@Kevin Moules , this has been a very enlightening thread. I've also been looking in the Cleveland area and had a target in mind of $200+ per door cash flow AFTER all expenses (PITI, PM, vacancy, repairs, capex, water/sewer and lawn maintenance). This is a number that I thought was "normal" after reading through BP posts and listening to podcasts for months. But after reading this thread, it seems that I'm going to have to adjust my expectations to a much smaller number.

So question from somewhat of a newbie investor.  If appreciation in OH is not that great (compared to the east and west coasts) and you're only cash flowing $50 per door, what is the real incentive for investing in the area?

 the incentive is low purchase price that allows you to scale. lets say if you are in a position to buy a sfh for say 55k in cash and rent for 950. since you paid cash, its likely you bought below market. after seasoning of 6 months you can finance it , lets say it appraises at 65k, you can take out close to 50k out that you can now put on next home. 

my 55k purchase from last yr appraised at 66k when i refinanced few months back.

@Sunny D.  Thanks for the reply.  But what if you're financing from the start, not buying cash?

 i personally would finance a duplex or triplex rather than a sfh in that situation.  loan costs as a percent of purchase price for sfh dont make sense. with cash you can use a fast close condition to push seller to accept a below market offer. when you finance you are better off to go for a larger property. 

i financed both my duplexes in bklyn and parma at purchase time. for all of my 5 sfhs, i have used cash and then refinance later

Doesnt matter if it's $200 or $500 some investors will still say numbers are great you think we can negotiate them down. 

Very rare to find $200/door in a ln area where you will retain renters for more than 2yrs. Eg Parma or Lakewood nothing worth buying there right now

South Euclid and Euclid different story you could find a sfr that brings in that but then investors will say "oh property taxes are too high" even thou it hits their magic number. 

This thread has been quite informative if I must say so myself! Thank you all for the input! It makes me wonder if out of state is worth it?

@Jill F. thanks for your wealth of knowledge. Looks like you are bringing me back to reality :(. You say 200 per door is a unicorn. Is this based on a cash buy with no mortgage or is this for a property with 25% down and conventional financing. If one could purchase a property for cash at 60K would they in your opinion be able to cash flow more than 200/month looking at the other expenses like Capex, PM, Taxes. Also does Akron require a POS inspection?

@Andres M. thanks for joining this thread! It has been super enlightening to me as well. I keep hearing podcast guests say they will not touch anything under 200/door, so thats what I set for myself as well. At 50/door it will take years upon years to make 5k passive to reach FI. I guess we should probably look at a different market where this is more achievable? Thank your for your questions as well! These are all things I need to learn if I am going to make the OOS jump for my first deal!

@Sunny D. Your just over the hill from me! Looks like you have some good experience in this OOS business. Maybe I need to take you out to lunch and we can chat! Anywho would you purchase here in CA to get the same CF as OH and also gain appreciation? Or do you continue to stick with OH because you can buy a home for the same amount you would use for a down payment here in CA? My thought is to invest in 2-4 unit properties and do conventional financing. It looks like you would suggest to do exactly that. If you could purchase a duplex for cash would you? Why or why not? Your CF would be great, it would rise in value and you could refi the same as a SFH, correct? Thanks for your input!

What I hear so far is that even though the CF may be lower than I expected it is still better to invest in OH compared to CA because cost to enter is lower. Even though you may not appreciate your home will CF same as a CA home but it will be paid off much sooner. Your monthly payment is also cheaper due to lower purchase price. So I guess if I can find a deal here in CA that cash flows 100/door with 25% down on purchase price of 150K or less then I should probably pursue that as a viable option. hmm.... wheels are spinning again.. 

Originally posted by @Kevin Moules :

This thread has been quite informative if I must say so myself! Thank you all for the input! It makes me wonder if out of state is worth it?

@Jill F. thanks for your wealth of knowledge. Looks like you are bringing me back to reality :(. You say 200 per door is a unicorn. Is this based on a cash buy with no mortgage or is this for a property with 25% down and conventional financing. If one could purchase a property for cash at 60K would they in your opinion be able to cash flow more than 200/month looking at the other expenses like Capex, PM, Taxes. Also does Akron require a POS inspection?

@Andres M. thanks for joining this thread! It has been super enlightening to me as well. I keep hearing podcast guests say they will not touch anything under 200/door, so thats what I set for myself as well. At 50/door it will take years upon years to make 5k passive to reach FI. I guess we should probably look at a different market where this is more achievable? Thank your for your questions as well! These are all things I need to learn if I am going to make the OOS jump for my first deal!

@Sunny D. Your just over the hill from me! Looks like you have some good experience in this OOS business. Maybe I need to take you out to lunch and we can chat! Anywho would you purchase here in CA to get the same CF as OH and also gain appreciation? Or do you continue to stick with OH because you can buy a home for the same amount you would use for a down payment here in CA? My thought is to invest in 2-4 unit properties and do conventional financing. It looks like you would suggest to do exactly that. If you could purchase a duplex for cash would you? Why or why not? Your CF would be great, it would rise in value and you could refi the same as a SFH, correct? Thanks for your input!

What I hear so far is that even though the CF may be lower than I expected it is still better to invest in OH compared to CA because cost to enter is lower. Even though you may not appreciate your home will CF same as a CA home but it will be paid off much sooner. Your monthly payment is also cheaper due to lower purchase price. So I guess if I can find a deal here in CA that cash flows 100/door with 25% down on purchase price of 150K or less then I should probably pursue that as a viable option. hmm.... wheels are spinning again.. 

 I claim to be no expert.

Look at my analysis on CA vs OH returns. In terms of IRR, I don't see much of a difference over a long term 7 year period.

https://docs.google.com/spreadsheets/d/1oWdK_vY86O...

Ultimately it is about your goals. Do you want cash flow now every month vs. equity. The other thing is you need a lot more capital to get to 10  mortgages in CA. You can scale faster in OH due to lower purchase point. 

Hey all,

I'm an out of state Ohio investor from California. I have a duplex in California as my primary residence, and branched out 2 years ago, working with Holton-Wise.

I mostly target B areas and have 2 properties at the moment in Ohio.

1. Parma, Ohio - B area, bought for 100k, 3/1, 2/1 duplex, both rents for 1550$/mo. Mortgage impound account is ~800-850$ including property taxes and all that.

2. Cleveland heights, Ohio- B area, 4/1, 4/2 Duplex bought for 120k, both rents for 1950$. Mortgage impound account is ~950$

Rental turnover has been less than a month for each property in the 2 years and I'm confident if there is a economic downturn/recession they will still be rented.

From my research other areas I like and considered/will continue to consider are Lakewood, Ohio and upcoming Euclid, Oh

Happy hunting, let me know if you have any questions

@Kevin Moules

I really don't want to come across as "Debbie Downer" I just don't think $200 per door per month in an old (70-100+ year) property is doable long term especially in cheap C neighborhood multi-families with REalisTic accounting for capital expenses. Especially in the condition most are in. You can pretty easily find $200 per month with routine maintenance and expenses in an older property, but one roof replacement on a big old rambling up/down duplex built 100 years ago will *crush* cashflow for many months or even years in some cases or an upstairs porch rebuild or any combination of medium priced capital expenses in a short period of time. Have you ever priced an exterior paint job on one of those things?

I look at properties all the time and I see the condition of many properties around here that are "professionally" managed where the repairs are unbelievably shoddy, the cheapest indoor/outdoor carpet is used for flooring, they often have galvanized plumbing, and still have sections of knob and tube electrical.  Many are being run into the ground. Pictures lie. I wonder how many out of state landlords have actually seen their properties and are aware of the condition? I wonder if they'll be able to recoup their investment should they sell?

I recently had a wholesaler contact me about a property on a D- street (there was a shooting on that block the very next week). It was owned by a foreign investor who purchased with owner financing-- he was being eaten alive with repair costs. I told the wholesaler that if I was willing to take it (and I wasn't) my best offer would be 1/3 of asking-- and he told me that wasn't the lowest number that he heard.

Almost every time I go to any type of investor's meeting there is some turnkey guy there claiming as much as 300/month cash flow (sometimes even on the east side of Cleveland (Ha!)). One wanted money to be on his buyers list. I laughed-- I think he got offended.

We have bought most of our properties with conventional commercial financing with 25% down. The properties we currently have under contract will be purchased with commercial bank financing and seller carry back financing for 10-15% of the down payment. (I'm only willing to do that because we are here and relatively skilled and are willing to do work ourselves). 

You might luck out and find a cute little well-maintained ranch in the 'B' areas in Goodyear Heights, or up in Falls or Brunswick or up towards Parma that has been owner-occupied or well kept by a landlord (at the very tip-top of my price range-- 60k) every now and again. That's cheap for a lot of CA folk, lol. We couldn't scale at that per unit cost and It's way harder to self manage that type of portfolio which is what we do. 

Take the @Sunny D. investment in Cleveland Heights (We have a son that lives there so I'm familiar with the area).   I DO NOT KNOW HER REAL NUMBERS (so Sunny D please tell me if I'm way off base) , but I bet her taxes in Cleveland Heights will be somewhere in the neighborhood of $350/month. For the two units water/sewer/trash if she pays it, will be around $150 ($75/unit) and property management will be around $150/month (if she doesn't have turnover) and insurance is $70 ($35/door) that leaves her 255/month for all maintenance/vacancies/and saving for capital expenses.

Let's assume she has a stunningly low maintenance and vacancy rate of 5% per year combined for several years running so subtract another $100/month. (And that kind of luck won't last forever). Even with this pretty awesome investment, a new roof will wipe out her cash flow and capex savings for an entire year.

If she has a 30year loan on 96k at 4.5% her payment will be just under 500. That will leave her 375/month in cashflow so about 185/door. (With my 25% down and my crappy commercial rate I'd only clear around 310 do 155/door for my 24k investment). Now I'm willing to bet she is a smart cookie and she knows how much life is left in her roof and she is saving for capital expenses and she'll be prepared for it. That guy that bought with about 20k down and owner financing based on a huge per door cash flow... now he's getting killed. I'm just saying... don't be that guy. 

We live here and we are doing something different. I don't mind managing "affordable housing." I have a handy man and my husband can fix ANYTHING, I know tradespeople and I have time to get quotes when we don't want to fix something. We just bought 13 units with 20k down.  Unless you are sitting on a boatload of cash, you probably won't be able to scale as quickly as someone living here and playing in the "C/C-" neighborhood sandbox (but hey, some of you CA folks ARE sitting on a boatload!). I see @James Wise tell OOS inverstors all the time (THIS IS A GOOD PROPERTY FOR An EXPerIENCEd locAL). Sounds like Sunny D took his good advice and bought in nicer areas-- but even there actually counting on $200/month is assuming you have a looong time to save for those capital expenses and they conveniently wait until you are prepared.

Originally posted by @Jill F. :

@Kevin Moules

I really don't want to come across as "Debbie Downer" I just don't think $200 per door per month in an old (70-100+ year) property is doable long term especially in cheap C neighborhood multi-families with REalisTic accounting for capital expenses. Especially in the condition most are in. You can pretty easily find $200 per month with routine maintenance and expenses in an older property, but one roof replacement on a big old rambling up/down duplex built 100 years ago will *crush* cashflow for many months or even years in some cases or an upstairs porch rebuild or any combination of medium priced capital expenses in a short period of time. Have you ever priced an exterior paint job on one of those things?

I look at properties all the time and I see the condition of many properties around here that are "professionally" managed where the repairs are unbelievably shoddy, the cheapest indoor/outdoor carpet is used for flooring, they often have galvanized plumbing, and still have sections of knob and tube electrical.  Many are being run into the ground. Pictures lie. I wonder how many out of state landlords have actually seen their properties and are aware of the condition? I wonder if they'll be able to recoup their investment should they sell?

I recently had a wholesaler contact me about a property on a D- street (there was a shooting on that block the very next week). It was owned by a foreign investor who purchased with owner financing-- he was being eaten alive with repair costs. I told the wholesaler that if I was willing to take it (and I wasn't) my best offer would be 1/3 of asking-- and he told me that wasn't the lowest number that he heard.

Almost every time I go to any type of investor's meeting there is some turnkey guy there claiming as much as 300/month cash flow (sometimes even on the east side of Cleveland (Ha!)). One wanted money to be on his buyers list. I laughed-- I think he got offended.

We have bought most of our properties with conventional commercial financing with 25% down. The properties we currently have under contract will be purchased with commercial bank financing and seller carry back financing for 10-15% of the down payment. (I'm only willing to do that because we are here and relatively skilled and are willing to do work ourselves). 

You might luck out and find a cute little well-maintained ranch in the 'B' areas in Goodyear Heights, or up in Falls or Brunswick or up towards Parma that has been owner-occupied or well kept by a landlord (at the very tip-top of my price range-- 60k) every now and again. That's cheap for a lot of CA folk, lol. We couldn't scale at that per unit cost and It's way harder to self manage that type of portfolio which is what we do. 

Take the @Sunny D. investment in Cleveland Heights (We have a son that lives there so I'm familiar with the area).   I DO NOT KNOW HER REAL NUMBERS (so Sunny D please tell me if I'm way off base) , but I bet her taxes in Cleveland Heights will be somewhere in the neighborhood of $350/month. For the two units water/sewer/trash if she pays it, will be around $150 ($75/unit) and property management will be around $150/month (if she doesn't have turnover) and insurance is $70 ($35/door) that leaves her 255/month for all maintenance/vacancies/and saving for capital expenses.

Let's assume she has a stunningly low maintenance and vacancy rate of 5% per year combined for several years running so subtract another $100/month. (And that kind of luck won't last forever). Even with this pretty awesome investment, a new roof will wipe out her cash flow and capex savings for an entire year.

If she has a 30year loan on 96k at 4.5% her payment will be just under 500. That will leave her 375/month in cashflow so about 185/door. (With my 25% down and my crappy commercial rate I'd only clear around 310 do 155/door for my 24k investment). Now I'm willing to bet she is a smart cookie and she knows how much life is left in her roof and she is saving for capital expenses and she'll be prepared for it. That guy that bought with about 20k down and owner financing based on a huge per door cash flow... now he's getting killed. I'm just saying... don't be that guy. 

We live here and we are doing something different. I don't mind managing "affordable housing." I have a handy man and my husband can fix ANYTHING, I know tradespeople and I have time to get quotes when we don't want to fix something. We just bought 13 units with 20k down.  Unless you are sitting on a boatload of cash, you probably won't be able to scale as quickly as someone living here and playing in the "C/C-" neighborhood sandbox (but hey, some of you CA folks ARE sitting on a boatload!). I see @James Wise tell OOS inverstors all the time (THIS IS A GOOD PROPERTY FOR An EXPerIENCEd locAL). Sounds like Sunny D took his good advice and bought in nicer areas-- but even there actually counting on $200/month is assuming you have a looong time to save for those capital expenses and they conveniently wait until you are prepared.

 Hi. i dont have a duplex in clev hghts. i have one in old bklyn and one in parma

expense details in post

https://www.biggerpockets.com/forums/12/topics/538...

property taxes are 3.5k for that property, roughly 300$/mo, you're correct! 

Very happy with returns for my Cleveland heights property regardless

Originally posted by @Jill F. :

@Kevin Moules

I really don't want to come across as "Debbie Downer"...  but one roof replacement on a big old rambling up/down duplex built 100 years ago will *crush* cashflow for many months or even years...

  

I am really enjoying your posts in this thread  @Jill F .

So my 39 unit has 3 buildings. I factored in the two biggest CapX items (new roofs, new boilers) at purchase to arrive at my offer price...  

During escrow (or whatever you happen to call the time that it takes the loan to close) I went to the big roofing supply company here in Cincinnati, spoke to the salesmen, and got the names of two roofers who always pay their bills on time and who purchase a good volume of supplies at that store. I called the two roofers, met with them, and obtained bids from them. I was careful to park my vehicle in such a manner that my California License Plates were not in view.  Both bids were right at $42k.  (they measured the footprint of the buildings, determined roof square feet and then multiplied x the "going rate" to arrive at a price. This bid only included the tear off of the existing EPDM and to replace with new  EPDM. The bid included ZERO wood sheathing replacement, which assumed that the underlayment was all solid. ***Neither roofer brought up the possibility of discovering rotten sheathing underneath the old roof.*** 

So we closed the deal on the apartment complex and got a referral from a family friend of @Jered Sturm and @Andy Sturm for an excellent roofer. The new bid was for tear off and replacement with a quality, thick, EPDM, an insulation layer, and included four (4) sheets of sheathing (4'x8') per building. Cost: $22k. $7k each for the two smaller buildings and $8k for the largest building. When they started tearing off the old roof, we quickly discovered that some roofs needed ten (10) or more sheets of sheathing. The roofer and I came to a quick handshake agreement in which he would replace all of the bad sheathing at no additional charge if I would purchase and deliver the wood to the jobsite. He had an 8 man crew and could install each sheet in just a few minutes. My cost for each sheet was only about $15, so on the buildings with even 10 or more failed sections, I was able to completely make "as new" for almost nothing. 

Here is my point:

Had I been an absentee owner, I am 100% sure that my property management company would have simply gotten a couple of bids, notified me that the bids were in the $42k range, added a property management surcharge of "X%" and then hired one of the roofers.  Who knows how much the sheathing replacements would have added to the final bill. Worse, maybe the roofer would have just called it "good" and re-roofed right over the failed areas. I'm sure that I wouldn't have found out for several years because the toughness of the EPDM material would have masked the underlying problems for a long time.

I took a hundred digital photos of the tear off, the problems found, and all of the new sheathing being installed. When and if I ever sell the place, the new owner will have documented evidence that he should have no roof issues for 20+ years. I think that's pretty cool. 

DL

PS. I would be remiss to fail to mention that I met The Sturm Brothers at "The Best Real Estate Investing Advice Ever"  Meet Up held the last Tuesday of every month in Cincinnati, which is hosted by @Joe Fairless and @grant rothenburger. 

All of my Multi-family is in Cincinnati. 64 units across three properties. Not as many Cincinnati fans in this thread. I've heard the "per door" metric used. Its not my go-to way to describe things. Its fine, I can adapt. We are on the back end of a stablition period since taking ownership in January, but using the "per door" method, I'm expecting an average of $140 per door on 2/3 of it starting next month and a few more months for the remaining 1/3 to also get to $140 per door. I would be happy with an overall average of $140 a door, that would land me exactly where I anticipated, using other metrics. Just taking a bit longer than I planned for to get there.

And I genuinely like the city. I don't live there, but I like it. Wearing my Cincy tee right now. And WKRP was my fav show growing up, so it was all meant to be.

@DL Martin Hi there! Thank you. It sounds like we are headed down a very similar path. With 39 units you really did jump in with both feet! Congrats on the find and accomplishing such big improvements. It's really is very rewarding to take something like that and make it nice again. Can you share where they are located (or in PM)?

I use to work in downtown Cincy at the P&G headquarters back in the early 90's-- it's a beautiful city. I Wish I had one of those delicious skyline cheese coneys with hot sauce right now.

@DL Martin and @Jill F. you guys are helping put some perspective on the issues with OOS investing. I appreciate the input.

@DL Martin, since you have now worn both hats what would your words of wisdom be for a rookie like me in CA trying to get started? Would you still take the risk of OOS investing even though you do not have the benefits of managing in person? If I am after cash flow I think it would be hard to make CA work unless someone can sow me an area in the state where this is possible. 

@Michael Klinger , man you are doing great! 64 units is awsome! I hope to be there someday. How do you like Cincy? I have thought about investing there as well. Any POS issues like NE ohio? High taxes? Thanks for the info. 

All, how about the POS inspections in suburbs of Cleveland? The city requires they be complete before tenants move in, correct? 

@Kevin Moules. Nice thread you started here. Yes? 

I had to look up P.O.S.  so no, not part of my world at this point. I do consider property taxes on the high side in Cincy, but at the same time part of the of the relative business model that relates to the area a property is in. A cost that is ultimately reflected in appropriate rents. 

When I was deciding what markets to invest in I did reject a few cities, pretty much over the tax rates. In retrospect, I did put a lot of weight on tax rates, not so much because it was an iffy business model, more because it bugged me too much. Which might be a good example of trying not to be emotional about this stuff. 

However, in some cities it is very cloudy on what will happen to your near future taxes, when inevitable re-assessments happen. Since the tax assessment process varies so widely around the country or county or region (and in some places even from town to town that border each other). So I stayed away from a couple of markets that were like 3 percent of some tagged assessed value and then heading towards some vague unknown massive re-assessment due to a hefty new purchase price. Ohio has a procedure that can be planned for to some degree, but where it's heading in terms of $$ can be vague. There are purchasing strategies to control a little or some of this in some cases.

In California, I still own a house. As you probably know Kevin, due to prop 13 in the 70's, property tax is shortly after a sale re-assessed pretty much at the sales price and then typically is adjusted over the years at a slower pace than the market. Then for a new buyer a re-assessment based on sales price again. Which is pretty easy to comprehend and so possible to forecast. This is true for residential and commercial property, which I owned there for a long time as well. In my cases the tax rate in CA was maybe 2/3 of Cincinnati. So in CA, if you only strategy or consideration was property taxes, you would buy and hold forever. Because the market value would rise and you'd still have a lower property tax bill than any new owner of the same.

In Massachusetts where I also own property, it's done town-by-town. In this particular town of Massachusetts they re-assess upon sale, but the town's value tends to lag below market value. They actual tax rate is less than 1/2 here than Cincy (but that is because this town does well with summer tourism and the property owners catch a break that way). Other parts of Massachusetts are just as high or higher than Cincinnati.

In Cincy the system is convoluted as it is in many districts: The county deems a market value, and then takes 35 percent to mark the assessed value. Then apply a mill rate, reduced to an effective mill rate, which is multiplied to assessed value. Relative to my recent 3 purchase prices, this is roughly (roughly) 2 percent. A little more on one property, a little less on the other two. But this is a long term conversation, because current taxes are actually previous owner's taxes, not mine.

One other thing that has been a "surprising" cost is water and sewer. Like a lot of cities in that region water and sewer is expensive. here at my house in Mass, the last water bill came and 6 months of water and the whole bill was under $60. Which is absurdly cheap. It was also absurdly cheap all my years living full time in CA. I always knew that. Cincy water and sewer is REALLY expensive. Or at least that is my perception. And this may come as a surprise, but most of my tenants (all have water/sewer included) aren't particularly conservation minded. We recently did an eviction and it was reported to me that the tub was running when we took over the unit. Not 100 percent maliciously, but because the faucet wouldn't shut off and they never reported it as a maintenance need. Whether you care about water waste or not, I don't know how you live with that. One of my properties (that one) still has a water/sewer bill that rivals the mortgage and is the #2 single expense on that property. Again, aside from the idea of water being wasted as a source of irritation for me, the raw cost of it from a business point of view is no matter, as long as you can roll it into appropriate rent. I've heard rule of thumb of $20 per occupant, so 2 occupants in a unit $40. Mine is higher that, so either more occupants than an average of 2, or the rule of thumb is off. More like $55 to $65 per unit on average. One property in particular. And low flow toilets are only so helpful if people leave their kitchen sinks running . I recently spent some time around all my Cincy properties and the very first thing I ran into was one of the laundry sinks running. How long? 5 minutes or for all of last month?

There might be a future solve. Sub metering (if viable), but also have to consider what is expected/standard in an area when other apartments include water, and you don't. Such things are delicate.


Don't invest in OHIO.

It is AWFUL.

And by awful I mean that every time I find a property I want, there's some guy from California bidding against me. Fortunately a lot of sellers have said they get frustrated with california investors, so I've gotten the chance to play clean up a few times... CA investors who don't understand the midwest > annoy the heck out of sellers > Sellers tell them to go away, and I swoop in as it leaves pending status...

I guess that is becoming my strategy... haha.

No really though, I invest in Southern Ohio. Its growing quickly, and is being reclassed as a larger metro area by the fed gov't, so jobs and whatnot are on the upswing. Population growth is 2x what it is in the rest of the state, and I find so many CF positive deals the only hurdle is if I can close them fast enough before someone from CA comes in with an all-cash offer.

I have talked to a number of lenders that are getting wary of the heavy out-of-state buying going on, and they are expecting higher LTVs from out of state buyers.

It may be worth a trip to Ohio. spend a weekend going from Cincinnati to Cleveland to Toledo and get a sense of the place. 

Originally posted by @Brooks F. :

Don't invest in OHIO.

It is AWFUL.

And by awful I mean that every time I find a property I want, there's some guy from California bidding against me. Fortunately a lot of sellers have said they get frustrated with california investors, so I've gotten the chance to play clean up a few times... CA investors who don't understand the midwest > annoy the heck out of sellers > Sellers tell them to go away, and I swoop in as it leaves pending status...

I guess that is becoming my strategy... haha.

No really though, I invest in Southern Ohio. Its growing quickly, and is being reclassed as a larger metro area by the fed gov't, so jobs and whatnot are on the upswing. Population growth is 2x what it is in the rest of the state, and I find so many CF positive deals the only hurdle is if I can close them fast enough before someone from CA comes in with an all-cash offer.

I have talked to a number of lenders that are getting wary of the heavy out-of-state buying going on, and they are expecting higher LTVs from out of state buyers.

It may be worth a trip to Ohio. spend a weekend going from Cincinnati to Cleveland to Toledo and get a sense of the place. 

 seriously you have no clue on economics. the CA money does help prop up prices overall. There is a huge inventory and without out of state buyers looking for yields, you are looking at longer DOM and lower sales price.

Second, CA investors are willing to spend money on rehab. that is creating plenty of jobs. If I was in Ohio, i would want more out of state money to flow in and help pick up economy.