Hey folks, usually when I get these kind of numbers, it's too good to be true.
I'm a bit newer to the Cleveland area so I may be off on the expense and repair numbers. This listing has also been on the market for over a month which is also a flag but may also be why it's at such a low purchasing price for a 5BR, 2BA MFH..
Other hesitations with my estimates are my rental price, I may need to lean more conservatively but I did look around craigslist and it seemed like this was in line with other MFH in this area. Also a bit hesitant on the after repair value since that's a bit broad as well.
Could you kindly take a look at the report?
Would be happy to return the favor if there's a deal you're looking at as well.
Thanks everyone!
*This link comes directly from our calculators, based on information input by the member who posted.
Are you going to be living in one side? If not, you'll need 25% down and interest rates are probably closer to 5.75% or even 6% for investment properties.
I'd bump your vacancy up a bit. If you expect your unit to be empty 6% of the year, which is about 3 weeks, you'll need to consider that your PM will keep the first month's rent on a new lease. That's the one area I'm not super fond of on the BP calculators. So your expense will be 6% of rent that you don't collect + 1 month of rent that your PM keeps (8.3% of annual rent). Basically, if you have 1 turnover per year and it takes you less than a month to fill the vacancy, you lose 2 months of rent. So I'd just double your estimate to 10% or 12%.
Finally, you're missing your utilities and insurance. In Cleveland, owners pay water/sewer bills. From what I've been reading, for a duplex you're probably looking at $75-150/mo. I've read that you can put in a clause that says that any amount over $75 will get billed back, but you can only do that if you have separate water meters. Looking at it now, you say this is actually in Painesville, which is in Lake County (Cleveland is in Cuyahoga). I'm not sure if tenants generally pay water in Painesville.
I think insurance on a duplex is going to run you $800-1500/year, so factor in an additional $80/mo for good measure.
How does it look now?
@Albert L. first of all, thanks for actually giving some form of story about this calculation instead of just posting whatever the calculator generates and expecting people to decipher it.
-I would bump repairs to 10%
-It looks like its only got 1 electric meter so that means the bill is coming to you. Account for that expense.
-I'm sure water is the same way. Account for it.
-Factor in your insurance costs.
It may be a little bit less of a deal but it still might be good. Also be aware that the long term tenant most likely is paying below market rent.
Are you going to be living in one side? If not, you'll need 25% down and interest rates are probably closer to 5.75% or even 6% for investment properties.
I'd bump your vacancy up a bit. If you expect your unit to be empty 6% of the year, which is about 3 weeks, you'll need to consider that your PM will keep the first month's rent on a new lease. That's the one area I'm not super fond of on the BP calculators. So your expense will be 6% of rent that you don't collect + 1 month of rent that your PM keeps (8.3% of annual rent). Basically, if you have 1 turnover per year and it takes you less than a month to fill the vacancy, you lose 2 months of rent. So I'd just double your estimate to 10% or 12%.
Finally, you're missing your utilities and insurance. In Cleveland, owners pay water/sewer bills. From what I've been reading, for a duplex you're probably looking at $75-150/mo. I've read that you can put in a clause that says that any amount over $75 will get billed back, but you can only do that if you have separate water meters. Looking at it now, you say this is actually in Painesville, which is in Lake County (Cleveland is in Cuyahoga). I'm not sure if tenants generally pay water in Painesville.
I think insurance on a duplex is going to run you $800-1500/year, so factor in an additional $80/mo for good measure.
How does it look now?
Hi Albert, prior to moving forward with this deal, please contact the city of Painesville and ask them to check the zoning. Recently I purchased a multi-family property only to find out that it was non-conforming and vacant for over 1 year requiring it to be returned to a single family home. I would not want you to go through that.
Without seeing pictures of the living spaces, it's hard to say if your rents are in line, but for that area they look to be on target.
@Heath Ryans - no problem. It only makes sense to add a little context to get better feedback.
-Thanks for the tip on the long term tenant.. that's my other suspicion there as well. I can check with the agent on that.
@Chris C. - I believe they do.. thanks for that. I'll need to factor that new number in.
@Abi Wegman - nope I won't. I'm living in CA so I'll need to factor those %'s in. And good call on the PM keeping rent and not seeing that on the calculator. That could be a big miss for someone newer to REI like me! I'll adjust there as well. Hm that's good to know on utilities... the realtor did say that tenants paid for water/sewer so maybe it's something more unique in the Painesville/NE Euclid area.
With the new numbers plugged in we're looking at $292 cash flow, 10% cash on cash. Quite dramatically different!
If the purchasing price was at 65,00 (little lower but it's plausible given how long it's been on the market) and if i changed vacancy from 12 to 10%, we're looking at $334 cash flow with 11.71% cash on cash which makes things a little more interesting..
@Lindsay Arko - wow thanks for the tip here. I will definitely follow up on that!
Hi Albert, I grew up in painesville and have rented a few apartments in painesville. Most of the water and sewer is provided by the city of painesville and I’ve had to get it all switched over to my name whenever I was renting an apartment every time except for one unit.
I’ve heard of people installing separate water meter as to include that in the tenants responsibility. The city of Painesville itself is a pretty small city maybe around 25k in population. There is a lot of low income population however there’s a decent size collage Lake Erie Collage so depending how close you are to the school you may be able to rent to students if your into that. I’d definetly suggest finding a PM that does a really though background check, painesville can be kind of dicey in certain areas and there are a ton of the “professional tenants”.
Overall Painesville is my hometown and I love it but I’d suggest extra caution if you don’t know the area. There is another investor I’ve spoke to on BP from California that invest in painesville and lake county. I think his name is Mike Swan.
Hi Albert,
I can offer some local insight as well. I just checked out the property on the mls. The disclosure documents are blank, as can be expected. If someone never lived in the property they are allowed to leave the disclosure document empty, which is a strange caveat in my mind if they were renting it out. That rule was really intended to be for folks who inherit a place. Common, but not helpful.
The property isn't in a very good area in my opinion. I am on the hunt for another duplex in lake county and saw this a while ago and decided against going to view it, not saying it wouldn't pan out, but I just want to buy where I would be willing to live. I understand not everyone shares the same filter. The broker remarks section which is not visible to the public says 'please use caution when accessing the garage'. I am not sure what is wrong but it at least looks like in needs 3 new doors. Picture #3 shows what appears to be a pretty decent lateral crack in the cinder under the porch (pic included). Other than that, inside the units look okay. Siding and shingles don't look the greatest, it is a 1910 building so that is a con.
Streetview on google shows that it is on a corner so the backyard isn't really a backyard. I copied a snapshot showing a couple of old cars in front of the garage. These are long gone as this is old, but kind of illustrates what is allowed in the area.
I painted a grim picture, but please don't let this deter you too much. I am just super critical and like to point everything out to out of state folks who may not view things the same way I do. If you end up getting serious and want more pictures, that is something that I may be able to help you out with. I'm sure you already have a local resource but wanted to offer just in case. I live about 25 minutes from there.
Hey folks, usually when I get these kind of numbers, it's too good to be true.
I'm a bit newer to the Cleveland area so I may be off on the expense and repair numbers. This listing has also been on the market for over a month which is also a flag but may also be why it's at such a low purchasing price for a 5BR, 2BA MFH..
Other hesitations with my estimates are my rental price, I may need to lean more conservatively but I did look around craigslist and it seemed like this was in line with other MFH in this area. Also a bit hesitant on the after repair value since that's a bit broad as well.
Could you kindly take a look at the report?
Would be happy to return the favor if there's a deal you're looking at as well.
Thanks everyone!
*This link comes directly from our calculators, based on information input by the member who posted.
I didn't look into any of your calculations but your rent estimate is reasonable. I see no reason why you wouldn't get $650 per unit in that property. From there if you look at your purchase price it's a no brainer. You can't do better than that anywhere in the country unless you're in the hardcore ghetto, which that property is not. Solid deal my man, go for it.
@Kyle Plants - ah that's good to know. correct, the realtor confirmed that tenants pay their own utilities. And yep, Mike has been super helpful and we had a chance to connect last week.
Really appreciate the insights here!
@Jeff Brower - You're amazing. This is so gracious of you to share your insights and reasons why you passed on this one. And thank you SO much for offering to drive out to check it out. It's been on the market for quite a while which is one of the bigger hesitations on moving forward.. and 100% with you there. I did a bit more digging in checking the area and I ran it through the, "would my wife and I feel comfortable walking around this area?" and the answer was no.. might be worth checking elsewhere :)
@Albert L. no worries! If you want advice on any others you see out here in Lake County just let me know.