Is this a good deal relative to Cleveland? What should we look into?

Question

Need a reality check on this Cleveland deal. Want to make sure I'm not missing something obvious.

3/2 house in Cleveland 44111, listed at $194k but I can get it for $160k.

Here's what the analysis shows:

• Buy: $160k (±)
• All-in after rehab: $190k
• ARV: $209k
• Rent: $2,060/month
• Refi at 55% LTV
• Monthly cash flow: $493

Main concerns:

• Is $2,060 rent actually possible in Cleveland 44111?
• Never handled a basement - what should i look into?
• Can I actually refi at 55% LTV?

Cleveland investors - what do 3/2s actually rent for in that area? And has anyone pulled off a successful BRRRR there recently?

--> Full deal numbers here

R. Elle Berry · Answer

Hello Eyal,

I recommend focusing on fix-and-flip opportunities or mid-term rental properties at this time. With current interest rates, buy-and-hold strategies can be challenging unless it’s an exceptional deal that offers unquestionable value or if you’re working with cash purchases that don’t require financing.

Mid-term rentals are a strong option, as they can be listed on various rental platforms to generate higher cash flow.

Feel free to reach out to me directly if you’d like to explore more creative strategies for growing your investment portfolio. Thank you.

Brian Danielson · Answer

Are you taking a loan out for this? I don't allow the purchase and rehab to exceed 75% of the ARV. If the rehab is going to be $30K, I wouldn't spend more than $126K for the house. This ensures the refinance pays off the hard money loan and returns most, if not all of your down payment and closing costs so you can recycle that into the next deal.

Eyal Goren · Answer

You weren't crazy :)

Really? The updated rate for rent is around $1400, which completely changed the statsCurious - what are the numbers that you find good for a deal?

Jaycee Greene · Answer

@Eyal Goren I'd be very surprised if they can get that asking price, especially if it needs upwards of $30k in rehab.

Eyal Goren · Answer

Even darker at 7%, 194k is the asking

Jaycee Greene · Answer

@Eyal Goren Everyone's definition of a "good deal" is different. I tend to like to focus on a deal's 5-year IRR. For SF rentals, I'd look for 15%-18%, with 2-4 MF at 18%-20%. These are annualized returns that can be compared to stock market returns so that you make sure you're getting paid a premium on investing in real estate over just dumping money into an index fund.

For your deal, you'd need to negotiate the sale price down to around $142k to get that kind of return.

Why is you Sensitivity Analysis based on a purchase price of $194,900? And I see a 6.50% interest rate. Have you been quoted that based on your credit score and experience? That seems a little low. I'd expect something more in the high 6's/low 7's depending on credit score.

Eyal Goren · Answer

Hi,

Just looking at this sensitivity table, I guess 55% is probably where I can have a little bit of cash flow to handle ongoing issues while being not too far from the optimal CoC.

Yes, I'm aiming for section 8 - I hope I didn't make a mistake there with the rent. Will double check.

Jaycee Greene · Answer

@Eyal Goren OK, glad I wasn't going crazy. FYI, I think there's still a deal here if you're either willing to put down 50% or negotiate a lower purchase price with the seller.

Eyal Goren · Answer

I see you're right. It's nowhere close to this number.

Jaycee Greene · Answer

@Eyal Goren Got it! But again, how did you come up with rent of $2,060 for a 3-bedroom unit in that zip code?

Is this a good deal relative to Cleveland? What should we look into?

11 Replies