Toledo, OH Property Analysis

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Here is a different deal that popped up this morning. So using some advice from my last analysis and comments I got back I increased my expenses for vacancy and lowered my assumptions about income growth to 1% as well as increasing my mortgage rate to 4.5%.

Pros

Nice part of town

Good school district

Turn key ready, start renting from day one no rehab or expensive borrowing of hard money.

Cons

No real discount from market value. It is pretty much worth what it is listed for.

A little dated inside, but since it will just be a rental and not a flip I am not too concerned with this.

No way to "recycle" my cash like I would do with a BRRRR deal. It will cost me about 14K from my reserves.

It seems that almost every property I put in the BP calculators for either BRRRR or rentals come back as OK, not terrible, not a "killer deal" just average.

This deal does cash flow, but not by the $200 which is my general target. The upside is I don't need the cash flow to live on so I can plow it back in along with cash from other rentals to pay it down. At 65K, I should be able to pay it off in 15 years with no problems maybe sooner at which time I would have much better cash flow for retirement, which is what I am really after. So my thought is do I take a "marginal" deal to get moving in the right direction or keep looking.

Now before someone comments and says I am trying to force a deal to get started this isn't entirely correct. Yes, I do want to add another house to my portfolio, but more importantly I know that real estate is a "get rich slowly" strategy. It takes time to really start making money. I have retirement set about 15 years from now so I need to get time on my side and the longer I wait the less of it I have to pick up assets and get them paid down before retirement.

So with all of that in mind, thoughts?

You may unfortunately end up being in for more than $14k from the start.  You currently have 15% as a downpayment on a 30 year mortgage, but for an investment property many lenders will likely require 25%, or 20% on a 15 year.  This would actually increase the cash flow you're looking for but harm some of the other metrics we look at to determine the viability of a deal.

Cap ex and repairs may still be a combined 5%-15% too low and you also have to take into account lawn and snow expenses you'll have to address throughout the year, unless you put this back on the tenant, which can be dangerous from a liability standpoint but it certainly isn't uncommon.

The biggest thing that kills this deal however is that there is no management expense factored in as you did in your last.  Even if you plan to self manage, should something come up where you no longer want to or you head to a warmer climate when you do retire, the deal will instantly flip from potentially cash flowing to being underwater.

Unless you can get the price down to under $45k, it's likely not worth it.

Looks fine. I own one very similar to this at 1845 Newport St. Rent is $875, tenant pays water. These are simple because they don't have basements, which makes maintenance much easier. The 50% rule is accurate here if you are self-managing. If you will hire PM, you will need to add that on top. 

Two things to look for:

1. Does it need flood insurance? There are lots of little drainage streams flowing through WLS. They often result in a flood insurance requirement.

2. What is the current tax value? WLS is pretty aggressive about raising tax values after a purchase. You should adjust your property taxes accordingly. I just had to pay an extra $6,000 this month in property tax because of this very issue. Last year it was $14,000. These #'s are for apartment complexes...don't worry, a house won't be that bad! :)

@Brandon Roof yes, I did leave the management off. The reason for that is I do manage my own properties and believe it or not I actually like doing it. Now as you point out this might not always be the case, particularly at retirement, but when I reach that point I should have it paid way down or even off and could even possibly refinance to pull the payments way down and the cash flow up.

@Ryan Pyle Thank you for your thoughts on this. I know you are a local guy so you understand the market here really well, which I am still learning.

My thoughts are that this is an OK deal, but not an awesome one that is worth chasing right at the moment. If it disappears tomorrow there are others just like it so feeling like I have to move now or lose it isn't really there. I think I will sit on it a little while and see if it disappears at this price or comes down.

@Michael Temple How did your property renewal/re-rent in Sylvania go? I'm closing on another one in there in a couple of weeks. Asking price 125, my price is 115. I need to put about 15K in. Appraisal came in as is at 140K. ARV will be around 165K. I'll rent it for $1650 probably with little issue. I think you are so close to buying that next tier product, why not save up another 10K-15K and buy a property in an A school district?

@Stone Jin The one I think I talked to you about before, I couldn't get it done. We were too far apart on the price. It was a bank-owned property and the ARV wasn't going to high enough to justify the repairs that were needed. My Realtor looked it up and found it went for only 10K below ARV, but I was estimating it needed 20-30K in rehab. I don't know how someone made those numbers work, but they must have.

I did find another one that was also bank-owned in the same neighborhood where my other one is located. I know the values cold in this neighborhood and I know the type of buyers that are looking in there so I thought I could lock this one down. I was estimating about 25K in rehab and would have appraised for 160K when finished. To pull off a traditional BRRRR deal I needed to get it for about 95K and they were asking about 125K when we started.

I am submitting an offer today on another one that I am really excited about, but I am sure it won't last so I have to move fast. Not in my normal areas I look, but if I can get it and my assumptions hold up about what is wrong with it this could be a great deal.

@Fidelis O. I'm an out of state investor so in theory it would be in my best interest to use property management.  However because I have many systems in place for my rentals that I self manage locally I am attempting to self manage a few of them in Toledo.  I have a couple properties with a professional manager and he does okay.  Communication is a little lacking but responsive when I have to chase him down.  If you are planning on doing low rent rentals then I would use a property manager because the $70 a month is well worth it to not have to deal with the day to day stuff.  My rentals average $1600 a month rents so it's a much larger chunk by dollar not percent.  The reality is that if you buy a property and fix everything at the beginning and screen your tenants properly, you won't be receiving many calls and hopefully won't have to chase many tenants for rents.  

In terms of maintenance, out source only what you have to.  For example, roofing, hvac and electrical use a professional.  Paint and small plumbing repairs, try to do them yourself first to understand the process.  Once you understand then outsource them as well.  You need to be the back up to the pro for those items sometimes.  

@Fidelis O. I would completely agree with @Stone Jin answer. He and I own a similar property that collects higher rents in an "A" neighborhood. I manage these myself. I don't currently own any low dollar, though I do have a lower dollar property, which I also manage myself. That being said I would NOT try and manage low dollar properties in say "C" class neighborhoods myself. I would hire a property manager to take those calls and deal with the day to day issues.

@Stone Jin

@Michael Temple

I have no interest in C/D neighbourhoods. Not worth it for me. My Rental is also on the higher end. Estimated rent is anywhere from1800-2000/month (its a duplex). Home is in good shape. I do not anticipate any major issues. However I’m also trying to build a team so I have someone to call right away instead of being reactive. If you have any contacts, inbox me. Thanks

@Michael Temple

I forgot to mention. I have zero interest in doing any repairs myself including painting except it’s really minor. I know my skills and this is not one of them. Lol. I would rather spend my time doing something else