I have a house under contract in the Mt. Auburn area of Cincinnati, near OTR. Some areas of Mt. Auburn are seeing some major rehabs with the houses going on the market for 2-300k, but this house is in an area that is still a C to D type neighborhood. It is a 4-plex with 4 one bedroom units, fully rented with long-term tenants right now, grossing 1700/month on rents that haven't been raised in years. Operating expenses come out to around 55% which is average in cincinnati (so i've been. A property manager I had look at it said we could raise the rents a little in its current condition but not much, so that it would gross 1800/month. I have it under contract for 82k, and I would want to put about 35k into the property (which i think would also allow us to raise rents further).
If I continue this deal as a buy & hold then it won't leave me with anything to do any other deals, so I'm thinking maybe I should wholesale it at 92k for a quick return. What do you think i should do?
If the rents are raised to $1,800, the cash on cash return would only be a little over 10%, at a $92,000 price, considering 55% expenses and closing costs. This is without doing any rehab. That does not look like a screaming good deal to me, especially in a C or D neighborhood. Perhaps you could renegotiate your price. Tough, but sometimes doable. Depends on seller motivation. Best of luck with it.
Investors are going to require higher than 10% cash on cash in that part of town, unfortunately.
walk away. Not in that area, given what you have mentioned. Don't be fooled by generalizations about ARV's in an area. You are not going to get to the $2-300K range quick enough. There are so many great opportunities out there, even at lower entry prices. If you doing a cash deal, look at single families in such areas as Golf Manor, College Hill, NCH, etc. These areas have much more stability and can generate the sort of returns that you should come to expect. Also, it is difficult to understand your business plan. Are you interested in buy and holds, fix and flips, wholesaling or a combination? Sounds like you have a full time job, so as you start out in the great REI adventure, try to stay focused. I know it is hard but over time, through repetition, you will become an expert at a quick NO or determining how to move forward. Good of you to reach out here.
I was originally trying to focus on fix and flips but as I learned more about financing realized that I could probably go straight to buy and holds which was my eventual goal. The wholesale idea for this deal just came about because it seems like a good deal that just doesn't fit into my current capabilities. I appreciate all the advice. I'm trying to renegotiate it down right now.
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