Help Analyzing Cleveland Properties
Hello,
I'm currently analyzing deals for my first purchase in Cleveland (Gordon Square/Ohio City/Hingetown areas) and my cash flow keeps coming back negative.
I'm turning to the Bigger Pockets community and hoping someone is willing to help me out! Would anyone (preferably with experience in those areas) be willing to review my BRRR analyses to help me understand if I'm doing this correctly?
Any advice or suggestions would be greatly appreciated!
Hi @Lesley Ray I am on the westside of Cleveland near that area, please message me for analysis of your deal.
Those are some tough areas to buy in right now. Prices are so crazy high that most deals don’t make any sense. Good luck!!
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Originally posted by @Lesley Ray:
Hello,
I'm currently analyzing deals for my first purchase in Cleveland (Gordon Square/Ohio City/Hingetown areas) and my cash flow keeps coming back negative.
I'm turning to the Bigger Pockets community and hoping someone is willing to help me out! Would anyone (preferably with experience in those areas) be willing to review my BRRR analyses to help me understand if I'm doing this correctly?
Any advice or suggestions would be greatly appreciated!
Post the addresses & numbers....Let's see what you have.
@James Wise, below are the 2 most recent analyses I've done, both showing negative ROI. My plan is to purchase a property with a hard money loan, renovate and then refinance with a traditional bank. Since I'm planning to wrap the renovation costs into the initial loan, I've included all costs in the initial purchase price as a lump sum, therefore listing renovations as $0.
@Lesley Ray I don't know if this will help or not, but since you haven't gotten while lot of response here, I thought I would try to help you.
I'm from Ohio (about an hour south of Cleveland) and I am wondering where you got your ARV on the Clifton Blvd deal? I would check that ARV to make sure it is correct. It seems high to me for Cleveland and the value history of that property. It has never been valued that high, even when property values were at their highest. That probably doesn't seem unreasonable to you, being from SF, but being from Ohio, I have to question it.
http://www.cleveland.com/datacentral/index.ssf/201...
If the house goes up that much in value and you refinance, the taxes will raise as well, but you are using the same number in both examples. See link above, it may help to figure out future taxes.
You have to be careful how far out you go with comps in Cleveland, make sure your comps are coming from a small radius, I would go out a half mile - a mile max.
It looks to me like she may have inherited this property and it was originally bought for $61k. I would try to get that price down, there is lots of room to move down. If she won't go down in price, then have her pay some of your closing because it appears you are paying market price according to the auditor's site.
Also, your rent should go up with up with that much repair. Are they currently rented? That could be why you are ending in the negative as well.
Why hard money, just curious?
Hi @Leslie Ray,
I have 122 front doors in Lake County, Euclid and Akron. I would not invest in a single family in this area unless it gave me $300.00 cash flow. I can help you and I don't make money helping you. I invest and that's all. I have nothing to gain.
Take care,
Swanny
Originally posted by @Lesley Ray:
Hello,
I'm currently analyzing deals for my first purchase in Cleveland (Gordon Square/Ohio City/Hingetown areas) and my cash flow keeps coming back negative.
I'm turning to the Bigger Pockets community and hoping someone is willing to help me out! Would anyone (preferably with experience in those areas) be willing to review my BRRR analyses to help me understand if I'm doing this correctly?
Any advice or suggestions would be greatly appreciated!
For the Franklin property, you have an ARV of 300k and a Refi loan amount of 380k. Is that right? 128% LTV? The 300k ARV estimate seems optimistic as well. Your cash flow is negative because your refi amount is too high. I'm also fairly sure you'll have trouble finding a tenant that can afford $2,650/mo rent in the area.
@Account Closed Thanks so much for your feedback! I got my ARV estimate from my realtor but after further speculation I agree it seems a bit high. I'm definitely jaded coming from the Bay area.
I was planning to use hard money since I assumed a bank wouldn't lend on a property not in "living conditions" and I don't have enough cash for a cash purchase.
@Austin Tam Thank you for your feedback! I got the ARV estimate from my realtor, but after further speculation I agree it seems a bit high. I've decided to expand my search to other areas in NE Ohio, so hopefully that will help my numbers.
Originally posted by @Lesley Ray:
@Austin Tam Thank you for your feedback! I got the ARV estimate from my realtor, but after further speculation I agree it seems a bit high. I've decided to expand my search to other areas in NE Ohio, so hopefully that will help my numbers.
I'd recommend doing your own DD on ARV. Check sold comps in the immediate area.
You'll normally need close to 2% rent to ARV to comfortably cash flow in Cleveland with the BRRR method due to the property taxes (based on your 20% capex & maintenance reserves). Property management will likely be more than 10% as well if you consider placement, advertising, and lease renewal fees. For SFR, you'll probably be on the hook for sewer and garbage. For multi's, add water to that list.
I'm also not sure you'll be able to find many renters that can afford a $2,850/mo SFR in that area. With the standard 3x income requirement, you'd need someone with a 100k income. Those with incomes that high could easily purchase out there.
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Originally posted by @Lesley Ray:@James Wise, below are the 2 most recent analyses I've done, both showing negative ROI. My plan is to purchase a property with a hard money loan, renovate and then refinance with a traditional bank. Since I'm planning to wrap the renovation costs into the initial loan, I've included all costs in the initial purchase price as a lump sum, therefore listing renovations as $0.
Your links aren't working but I did google the Clifton property. That's a nice property. Ya see that part of Lakewood is what I would consider an A area. If you are looking at an area like that through the lens of a cash flow investors the numbers are probably never going to pan out for you. Ya see that area is going to be driven by owner occupant buyers. Huge demand over there. The company listing that property should have zero problems selling it for that price.
@Austin Tam just to clarify, both of these properties are duplex's. I'm not looking at any SFR.
@James Wise Thanks for your input! That is what I'm coming to realize.. I have now decided to expand my search to other B neighborhoods (Parma, Old Brooklyn).
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Originally posted by @Lesley Ray:@James Wise Thanks for your input! That is what I'm coming to realize.. I have now decided to expand my search to other B neighborhoods (Parma, Old Brooklyn).
Just so we are all on the same page Parma would be a B-Grade Neighborhood but Old Brooklyn is by no means a B-Grade Neighborhood. There will be an incredible difference in the tenant base of Old Brooklyn & that of that Lakewood property on the lake.
Originally posted by @Lesley Ray:
@Austin Tam just to clarify, both of these properties are duplex's. I'm not looking at any SFR.
Sorry, didn't see that. I missed that bit.
The analysis isn't quite as straightforward as looking at each individual deal and seeing if the cash flow is positive on individual properties unless you're planning on only purchasing a single property.
If you do end up finding a deal where you can refi more than you put in, you have choices. You could decide the appropriate refi amount to cash flow positive and only cash out that amount. Or you could take the max ltv and put it into another property and play the arbitrage game. In that case you'd run the analysis as a portfolio of properties as opposed to a single.
I would say Old Brooklyn ranges from C- to C+ some of the C+ areas or blocks or houses might be like B- maybe
Sounds exciting, and perhaps keep in mind at that price you could find something along the coast in California/OR with about a 1 hour flight from Oakland. Good luck with your search.
@Lesley Ray you are a little late to the party for those areas. The houses are so expensive now and the rents are not what they should be for the price of the home.
I am VERY simple with my method.
annual gross. divide it in half. leaves your Net operating income. Then take debt service out of the NOI.
I deal just outside of those areas and I am getting 700 rent which is 8400/yr = 4200 NOI and selling houses with those numbers in the 20s. turn key. so paying 25k you would have a 16 CAP
There are a TON of ways to analyze, but this way is Conservative. and when wrong, you end up with a higher ROI.
Hope that helps!
@Rob Gillespie Thanks so much for your suggestion. That helps a lot! I have decided to expand my search, as you said, I've realized the numbers just don't make sense for those areas.
Do you have a wholesaler you work with or do you typically use MLS to find properties?
@Lesley Ray I deal in off market properties. You can find some on the MLS, but it is usually a battle for the good ones. Would love to chat with ya. feel free to PM me.
@Lesley Ray I am in the same boat as you trying to get my first property in Cleveland. I know this is late but remember looking at both of those properties actually and getting numbers that weren't good.
Rob said it best that I and yourself were late to the party... I wish you luck as you continue your search!
@Rob Gillespie I know you were giving advice to Lesley but it helped me as well so thank you for the words of wisdom. I like the Old Brooklyn area and have started looking over in Euclid as well.
Lesley Ray What type of property/renter are you looking for? I am a Cleveland West Sider and know most of those spots pretty well. I agree with what most of the other posters have said regarding Ohio City/Detroit Shoreway. I spent a few months recently trying for both flips and fix&holds and anything worthwhile turned into a bidding war. You will definitely not find anything turnkey for a reasonable price there, because these are very trendy areas and people will overpay to live in them. I have had success with two duplexes in Lakewood (just west of these areas). There are still some pockets on the SE part of the city where you can find good deals. Similar type of renter market, decent cap rates, and appreciation has been very good. Only drawback is city POS and higher taxes. If you are looking for a pure cash flow play it’s hard to lose money on a rental in Old Brooklyn/Parma/Euclid.