Duplex in Cleveland Ohio

6 Replies

Hi,

I found a duplex outside of Cleveland Ohio that I was hoping to get some feedback on. I am a long-time lurker in investment properties, but have never pulled the trigger. I found a property recently that seems too good to be true (or just undervalued) and wanted to get some feedback from those more knowledgeable:

PURCHASE INFO:

Purchase price: $55,000

Financing: 20% down ($11k) with rest ($44k) financed at 4% over 30 years.

EXPENSES:

Mortgage: $2,573 annually

Insurance: $900 annually

Property taxes: $2,750 annually

Misc. Expenses: $4,200 (assuming 25% of Gross Income)

Vacancy: $1,800 (assuming 10% of Gross Income)

Total Annual Expenses: $12,103

INCOME AND RETURN:

Rent: $1,400 / month (2 units; 1st at $800 and 2nd at $600 / month)

Annual Gross Income: $16,800

NOI: $7,150 annually

Cash Flow: $4,577 annually

Cap Rate: 13%

COC Return: 41%

Notes: The property is in a very blue collar area; not terrible, but certainly not a good area either. Significantly, the owner is about 6k delinquent in local taxes. I suspect this is negotiable on how this will be paid / impact purchase price, but frankly even if I paid off the delinquency entirely (and calculate it as part of purchase price), CAP rate is still 11% and COC Return is still like 35%.

The current owner purchased the home out of foreclosure for half the current asking price, and the current asking price is under the county appraised value (not that that means much). Home seems well maintained from what I’ve seen (so far, of course). The bigger unit is rented and the smaller unit is occupied by the owner. I believe the owner is financially hard-pressed (hence the tax delinquency), so that could explain the desire to unload the property. But it has been on the market for 6 months, so something seems off. 

My initial guess is that the tax delinquency is scaring other investors off, but as stated above, the numbers work even the buyer pays it off. Is there something I’m missing? New furnaces and water tanks were installed in 2013, which incidentally coincides with when the owner began to get delinquent. But no other information is currently known about possible cap ex—frankly, the current returns seems to give plenty of wriggle room even if there are immediate cap exs that are necessary.

Thoughts appreciated. (And Happy New Year to all!)

That does seem weird that its been on the market that long.  Compared to the 1% rule its at 2.5%.  You're sure your lender will lend on that small of a purchase price?  Are there any landlord paid utilities?  or maybe you included utilities in your 4,200 misc.  How much for closing costs?  When you included the 6k taxes in the purchase price... are you sure the bank will let you roll that into the loan?  If not I would treat it like a closing cost which would knock your cash on cash down to 25%.  Still seems great though, we must be missing something.

@David K. Post the address. I will give you the complete run down on if it's a good deal or not. The exact location is what will make or break this property. Nothing else that you have in regards to purchase price or rental amounts is out of the norm.

Also if you havn't seen it yet you should check out The Ultimate Guide to Grading Cleveland Neighborhoods.

James Wise, Real Estate Agent in OH (#2015001161)
216-661-6633
Originally posted by @David K. :

Thanks @James Wise. The property is 3329 Daisy Ave.

 I would consider that to be a high D low C area. As far as pricing goes it's priced appropriately. In my opinion the rental rate ($650) for the down is spot on. As for the upstairs ($800) I think that's going to be hard to replicate. Can you get a tenant to pay $800 for that unit once? Yes, of course. Can you get a tenant to pay $800 every month? Unlikely as that's above market for the area. Only folks that would pay it would do so because they have nowhere else to go. Bank on $700-$750 for that unit going forward.

Personally I think investors would do better in higher classed duplexes. I'd rather pay $130k or so to own something that rents for roughly the same amount (probably a little higher) but it's in a suburb like Parma or Lakewood. Lots of riff raff with that neighborhood, but wouldn't be a terrible buy.

James Wise, Real Estate Agent in OH (#2015001161)
216-661-6633
it is high crime area I would stay away. I like Parma lakewood better. you should count things like property management water and sewage extra. Try look for  SFH(specially in cleveland market) you will get better deal and much better tennat quality. 

Hope it helps. 

Originally posted by @David K. :

Hi,

I found a duplex outside of Cleveland Ohio that I was hoping to get some feedback on. I am a long-time lurker in investment properties, but have never pulled the trigger. I found a property recently that seems too good to be true (or just undervalued) and wanted to get some feedback from those more knowledgeable:

PURCHASE INFO:

Purchase price: $55,000

Financing: 20% down ($11k) with rest ($44k) financed at 4% over 30 years.

EXPENSES:

Mortgage: $2,573 annually

Insurance: $900 annually

Property taxes: $2,750 annually

Misc. Expenses: $4,200 (assuming 25% of Gross Income)

Vacancy: $1,800 (assuming 10% of Gross Income)

Total Annual Expenses: $12,103

INCOME AND RETURN:

Rent: $1,400 / month (2 units; 1st at $800 and 2nd at $600 / month)

Annual Gross Income: $16,800

NOI: $7,150 annually

Cash Flow: $4,577 annually

Cap Rate: 13%

COC Return: 41%

Notes: The property is in a very blue collar area; not terrible, but certainly not a good area either. Significantly, the owner is about 6k delinquent in local taxes. I suspect this is negotiable on how this will be paid / impact purchase price, but frankly even if I paid off the delinquency entirely (and calculate it as part of purchase price), CAP rate is still 11% and COC Return is still like 35%.

The current owner purchased the home out of foreclosure for half the current asking price, and the current asking price is under the county appraised value (not that that means much). Home seems well maintained from what I’ve seen (so far, of course). The bigger unit is rented and the smaller unit is occupied by the owner. I believe the owner is financially hard-pressed (hence the tax delinquency), so that could explain the desire to unload the property. But it has been on the market for 6 months, so something seems off. 

My initial guess is that the tax delinquency is scaring other investors off, but as stated above, the numbers work even the buyer pays it off. Is there something I’m missing? New furnaces and water tanks were installed in 2013, which incidentally coincides with when the owner began to get delinquent. But no other information is currently known about possible cap ex—frankly, the current returns seems to give plenty of wriggle room even if there are immediate cap exs that are necessary.

Thoughts appreciated. (And Happy New Year to all!)

That looks like a nice place in the pictures. I would want information about the current tenant. Are they current in their rent, do they pay on time, and are they good neighbors? Also, when does their lease expire? You could offer $50K and see what the owner comes back with. Everyone needs a place to live within their price range, so if the area is not terrible like you say, you should be able to get good tenants who are living within their means. 

Join the Largest Real Estate Investing Community

Basic membership is free, forever.