I would really like to get some opinions on a mulit-family house I’m asking my mother to quitclaim to me. She inherited this 3-unit home that a relative, deceased last year, had as an investment property. She (and I) live in the Washington DC area. The property is in East Cleveland Ohio.
The house was paid off, however our relative secured a loan last year, with this house as security. Since his death there has been so much going on to settle the estate, that the bank placed the house in pre-foreclosure for non-payment. Last month I paid $2,100 to place a hold on the foreclosure. By the end of September, if I pay another $2,100, the foreclosure will be removed.
The property is cash-flowing with 3 tenants and a property manager who seems to be really good. The home is in good shape in a neighborhood with nice homes. However, there are also a few abandoned homes in that area with waist-high grass and some looking quite worn and beaten.
So, I believe it is worth it for me to take this property for the cash flow. I am not sure if there will be a significant increase in value because East Cleveland is in a state of flux. I have been actively looking for flips in my own area. But, I am wondering if I should try to offer this bank cash (less than owed) to release the property lien. Or, should I hold on to my $20K to make other investments, and continue monthly payments to this bank. Remember – this isn’t a mortgage and it is not in my name.
Below are the stats. I welcome your opinions. Thanks in advance!
- Value of property is hard to asses, but my best guess is $40,000
- Bank loan (not in my name) balance is about $25,000
- Monthly bank payments are $554
- Gross monthly rental income is $1,480
- Net monthly cash flow after paying bank and water/sewer/insurance/misc is $500
I think you'll have trouble getting the first to settle in less than full if you pursued that route. I wouldn't put all my cash into it and pay it off either. Seems like a decent cap rate and the pieces are in place to push to make it work as a rental. Best of luck.
James Wise of the Holton-Wise group is who you might want to think about contacting regarding the property.
Thanks Brett. Yes cap rate is good. The thought of having a property "free and clear" just seemed appealing.
Thanks Darrell, but my post was to get advice - mostly about paying off the bank. I have no interest in selling right now.
Ok, you've got a low-end rental with little equity, skinny cash flow and little upside.
And, it's in another city, hundreds of miles away.
If you were to hear about this property as a buyer, would this be considered an opportunity or just another doggy property in Cleveland?
Sounds like a big time and money vacuum.
If it were me, I'd find some way to swap or barter this property for something that is easier to manage from a distance.
I appreciate the feedback, Rick. I'm not really sure I see it the way you do. For one thing, over $500 monthly is NOT skinny cash flow for me. But you are correct - I would not have gone out of my way to purchase this property. And I am still not "purchasing" it.
I can just continue collecting rent and paying the bills, including the bank. But here's the thing - the bank payment is NOT in my name. A year from now if I stop paying, my credit isn't messed up. I would have gotten "free" cash flow that covers the initial $4,200 I put in. When the bank finally takes the home, I walk away free and clear. Am I missing something here?
@Rhonda Davis I would dump it. East Cleveland is home to the poorest of the poor. There is essentially no chance of you successfully operating a property like that in such a poor neighborhood. I have a portfolio of 500+ rentals in the Cleveland market. I have a staff of 50+ that includes a team of agents, administrators and contractors. Things cost me less than your average person and with all of that infrastructure I do not believe that I could earn a profit off of a rental home in that neighborhood.
Okay. I get it. I need to listen to the advice given and stop trying to make you all see it - for what I hoped it would be. Unfortunately, to stop foreclosure I've already forked over $4,000+.
So, I will do the best I can to get that back thru cash flow (ask PM about Section 8 tenants). It will take several months. Then, I will dump it as quickly as I can. I guess I'll then let the bank take it. *sigh*
Thanks @James Wise and everyone else.