Cleveland Suburb SFR analysis

11 Replies

Hello friends

So I am all set to close on my first rental. This one is a 1935 built 2 story 3/2.5 recently updated (roof, paint, windows, electrical etc). The area is Wickliffe. A safe suburb with good (6, 7) schools. A mix of blue and white collar family neighbourhood.

Price: 78200 (Zestimate is 110K. County valuation 86K last year. Appraisal yet to come).

Rehab: 2700

Expected Rent: 1000 (Rentometer and conservative that the PMs estimate)

PM: 10% + half months rent

Expected CapEx in next 10 years: HVAC. Partial plumbing update. Electrical in the basement. Water heater.

Any feedback on this deal is welcome. Although I am into closing good feedback is always encouraging :) and bad feedback will keep me be real.

Thanks

Sorry missed these

Taxes: 1930

Maintainace: 6% of expcted rent

Vacancy: 7%

30 yr at 4.125 with 25 down

Wickliffe is OK, and Lake County is probably one of the most dynamic and growing counties in the state.

That said, this deal is way too expensive for me. Given your numbers and a few other standard assumptions for the area, it works out to be an 8% cap. Throw in the substantial risk that your maintenance will run far higher than $720 a year for a 1935 house and the deal can be a real loser. On top of that, I don't expect any appreciation in this area. 

As a rule, I will automatically discard any deal where the price is more than 60 times the monthly rent.

I would take my $78k and try to find a duplex. For that price point you can be in a B-C suburb with a duplex or triplex. Heck, you can buy two SFRs if you buy in Euclid just two miles to the west with five figures to spare - but beware the risks of doing this.

These are the types of deals that are safer, but don't cashflow as well.  There are definitely deals out there that would cashflow better that you could get for 10-20k less in similar areas, but if everything is updated nicely on the home, you may compensate for that with lower maintenance costs long term.  

In the long run singles/doubles end up being pretty similar when you take into account increased vacancy rates, water costs, Snow and lawn care on the multi's.  Not to mention relsale values.  

The most important thing for you on this deal is to make sure you have gotten neutral comps and are confident that if in a year or two you want to sell it, your able to without taking a loss.  

Originally posted by @Christian Carson :

Wickliffe is OK, and Lake County is probably one of the most dynamic and growing counties in the state.

That said, this deal is way too expensive for me. Given your numbers and a few other standard assumptions for the area, it works out to be an 8% cap. Throw in the substantial risk that your maintenance will run far higher than $720 a year for a 1935 house and the deal can be a real loser. On top of that, I don't expect any appreciation in this area. 

As a rule, I will automatically discard any deal where the price is more than 60 times the monthly rent.

I would take my $78k and try to find a duplex. For that price point you can be in a B-C suburb with a duplex or triplex. Heck, you can buy two SFRs if you buy in Euclid just two miles to the west with five figures to spare - but beware the risks of doing this.

Thanks. Will factor that feedback in future. I looked at Euclid and as you rightly pointed out it does have SFRs in 30K to 50K but I decided to pass it for the risks you mentioned. Yes, the deal might be a loser if there are major CapEx that come across.

I have assumed a 2% YoY appreciation over 20 years. Is that reasonable? Or you expect the prices to stay flat or even go down further from where they are today. I am betting on the Cleveland MSA comback over next few years as the economy picks up.

Based on my calculations and assumptions, it looks like a 11%ish IRR

Originally posted by @Isaac Rowe :

These are the types of deals that are safer, but don't cashflow as well.  There are definitely deals out there that would cashflow better that you could get for 10-20k less in similar areas, but if everything is updated nicely on the home, you may compensate for that with lower maintenance costs long term.  

In the long run singles/doubles end up being pretty similar when you take into account increased vacancy rates, water costs, Snow and lawn care on the multi's.  Not to mention relsale values.  

The most important thing for you on this deal is to make sure you have gotten neutral comps and are confident that if in a year or two you want to sell it, your able to without taking a loss.  

Thanks. Yes agree. I think my comps are on the conservative to neutral.

@Sameer M.  

 Good!  That is key, I have seen to many people pay more for properties then they should/need to.  

What I meant by neutral is from a 3rd party who doesn't stand to make a bunch of money selling you their home.  As long as you have conservative comps from a source you trust!  

Originally posted by @Isaac Rowe :

@Sameer M. 

 Good!  That is key, I have seen to many people pay more for properties then they should/need to.  

What I meant by neutral is from a 3rd party who doesn't stand to make a bunch of money selling you their home.  As long as you have conservative comps from a source you trust!  

Thanks. Yes, the rental estimate is is 10% less than the proposed rent and I based it upon other comparibles, rentometer and feedback on this forum.

There you go, see attached numbers.

Originally posted by @Bogdan Cirlig :

There you go, see attached numbers.

Thank you very much. This is neat. I just registered to that. The number are inline with what I had calculated (infact mine are more conservative)

The appraisal just came back and it looks good. 84K by comparable sales, 94K by cost to approach value and 91.2K by gross rent value. The appraiser has been appraising in this area for 16+ years so hope the numbers are reasonable. It was actually one of the most thorough appraisal report I have seen.

Will update on the thread as I move forward.

Thank you all. An update on the actual numbers.

Rent: 1100

Vacancy loss: -128 (Tenant moved in less than a week! Expect 2 years of tenancy)

Taxes: 1860

Maintainance and CapEx reserves: -1100

The CoC comes out to be around 20.5%

On to my next one now :)

Hello! I have two properties in Lake County and think the price may be a little high for Wickliffe. I would not buy in Euclid personally, many renters don't consider it to be the safest neighborhood and I don't think that market has much potential. I have had trouble finding a good property manager in the area, may I ask who you are using?

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