REO in Cleveland, Ohio - Need help (and fast!)

11 Replies

Hi everyone,

I am new to investing outside where I live, and am considering purchasing an SFR which is bank owned in a good area in Cleveland. Anticipated purchase price is around $40k, and I'm told the current rent would be about $950 a month. ARV is about $75 - 80K. The house appears to need only a few thousand dollars in cosmetic repairs to get it into good shape.

I'm working with a Realtor, and although this will be our first deal together, he appears to be very knowledgeable and a solid person. I just wanted to get the community's opinion.

The numbers are good IF.....there are no major issues with the main systems in the house.

The biggest issue for me is that the utilities are turned off, and I am told that they cannot be turned on until after I close. I have never purchased a house where you can't check all systems and everything within a contingency period, so this is scary for me.

My questions are:

Is it typical to not have contingencies in your offer, and not be able to check the condition of these systems before purchasing an REO in Cleveland?

Is there anything I can do to mitigate the risks in this type of transaction?

Have you purchased properties under these conditions?

Do you consider this to be a reasonable investment considering the terms, or is it just the act of a madman?

I would be grateful for any help you would give.

Robert

With regard to the utilities, you're likely referring to water. You have to be careful in CLE because our winters are brutal and if the home wasn't winterized properly (or too late), the repair costs can rack up...especially in older homes. If you can't get the water turned on, I would recommend getting a plumber in there to do an Air Pressure test. I can recommend a reputable one, if needed. I'm in the same boat right now...

I'm confused as to how the purchase price is $40K but ARV is $75-80K with "only a few thousand in repairs." Could you sell at that price to an owner-occupant, or would it be to an investor? Did you run the comps yourself, or did the broker provide them to you? With those numbers, i'd flip it.

What neighborhood, may I ask?

I've bought several REOs without being able to inspect utilities. Banks generally won't lift a finger to help you buy anything and will be happy to reject your counteroffer if it doesn't conform to their terms.

I've never had issues with the electrical system--generally, you can tell whether it must be replaced by looking at the electrical boxes--but I've had plenty of issues with plumbing, which led me to allocate $1000 for plumbing repairs straight out of the gate, in case there are burst pipes or cracked valves or the like.

There's very little you can do to the utilities systems short of a complete replacement that will cost you more than $5000 or so. Not-so-common problems include a rusted out water supply line (requires digging up the yard), burst pipes ($1000 tops) or various leaks in stacks and drains (allocate $300 for buttoning these up.)

Judging from your rent and ARV estimate, either this is in the suburbs or you're getting an absolute screaming deal in one of the hot neighborhoods. Otherwise I would get a second opinion on those numbers.

@Zoran Miling

Thank you for your advice. It is very helpful.

As far as the purchase price vs ARV, I always prefer to buy property for less than market value, instead of the other way around. :)

The comps are solid, and are for an owner occupant sale. It may be tempting to flip, but for now, I'm in it for cash flow.

Best, Robert

@Christian Carson

That is a great overview of potential issues, and terrific advice. I am grateful. It is also a little comforting to know that you have bought REOs that way.. I guess you are correct that if you buy it right, you can take some risk on those items.

The property is in a suburb east of Cleveland.

Thanks again. Hope to connect.

Robert


@Robert Slatkin You're thinking about this the right way. A good inspector will help alleviate any concerns you may have with regard to the subject property.

@Robert Slatkin ,

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Raymond

@Raymond B.

Thank you very much Raymond!

In my first post, I let people know how bad I am with almost anything technology related. This is exactly the kind of practical advice I need to function better on the BP site.

Thanks again for taking the time to help.

@Zoran M. and @Christian Carson

Hey, Raymond just taught me how to let you know I responded to your posts. So, if you were not aware of it previously, thank you for all your help.

Originally posted by @Zoran M. :
With regard to the utilities, you're likely referring to water. You have to be careful in CLE because our winters are brutal and if the home wasn't winterized properly (or too late), the repair costs can rack up...especially in older homes. If you can't get the water turned on, I would recommend getting a plumber in there to do an Air Pressure test. I can recommend a reputable one, if needed. I'm in the same boat right now...

I'm confused as to how the purchase price is $40K but ARV is $75-80K with "only a few thousand in repairs." Could you sell at that price to an owner-occupant, or would it be to an investor? Did you run the comps yourself, or did the broker provide them to you? With those numbers, i'd flip it.

What neighborhood, may I ask?

Great points raised by Zoran.

Those figures do look great but if there really was that much fat in the deal I don't believe it would be going to an out of state investor.

Local investors would snap that up all day, everyday.

Sorry, I am just being the devils advocate here :(

Thanks and have a great day.

@Engelo Rumora

Hi Engelo. You have more experience at this, and your instincts were right. Although I believed that my numbers were correct, it turns out that the house needs more work than previously thought. Also, the ARV may have been somewhat inflated, but maybe not by too much. In any case, I walked from the deal.

Thank you for your insights on this.

Originally posted by @Robert Slatkin :
@Engelo Rumora

Hi Engelo. You have more experience at this, and your instincts were right. Although I believed that my numbers were correct, it turns out that the house needs more work than previously thought. Also, the ARV may have been somewhat inflated, but maybe not by too much. In any case, I walked from the deal.

Thank you for your insights on this.

Thanks Robert

There is always another one around the corner.

It a great time to be a real estate investor in the US.

All the best moving forward and feel free to post other deals on here and tag me anytime. I am happy to share my opinion.

Have a great day.

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