Dayton Area (Deal Analysis, 4-plex)

16 Replies


I am reaching out to the bp community for some help analyzing a deal.  This property is located in Dayton. 

 4 1bd/1ba rooms in a C class neighborhood

I want to get everyone's opinion on how good a deal this is. I would be responsible for water, trash and yard maintenance. Broker and I think the utilities for that would run ~$2000/yr for all units. The bldg is turnkey and had major rehabs done in the past few years. New furnaces, windows etc etc etc.

Address:  15 Ridge Avenue, Dayton OH

IMO, biggest risk is neighborhood.  low quality schools, but since it's a 1 bed / 1ba I don't imagine my tenants will have children.  Tenant screening will be paramount.

Here are the numbers I crunched

Purchase$165,000.00 (2% back toward closing)
RentCurrently $1950.00 but market rates would have the building to $2100-$2200 somewhat easily
Vacancy (6%)$126.00
Repairs/capex (14%)$250.00
Prop Mg (10%)$197.00
Save for Tenant-Finding, typically 1st mo's rent ($800/ yearly) + Utilites ($2000/ yearly)$2800.00
Income w Mortgage$404.24
IRR (ROI)19.34%
Cap Rate6.98%

@Spencer St. Luke , I have limited knowledge of Dayton, but based on google street view, your risks are fairly real.

Property to right is poorly kept and to left is a tow yard/car shop.  Therefore I think you will either need to be loose with your tenant base, accepting higher risk tenants, or expect more vacancy.  You will also be limited in rental rate growth because of neighboring car shop.  

In Capex, I think you are under budget. Roof looks older, but still has some life left, no chimney caps, probably needs some tuck pointing. If chimney is used to vent furnace or water heaters, you need to have the flue inspected, and can be very pricey to reline (cracks can allow CO into building). Trees over roof at minimum mean probably 2x per year gutter cleaning, but also pose issues in storms. If you own them I would budget to remove, if you don't I would budget to have a tree service trim back every couple years.

But biggest risk to me is tenants and turnovers.  $550/mo implies a tenant base with very little in savings.  I would expect frequent turn overs, and higher turnover costs.  Additionally, your $800/yr leasing commission, implies just over one turnover per year.  But 6% vacancy implies more turn over.  I would expect you can get about 18 months out of each tenant in a property like this.  So are probably looking at 2ish turns per year, therefore the leasing commissions will be $1100-1500/yr.

@Evan Polaski

Thank you for the great response.  I adjusted my math, based off your suggestions, to include a higher turnover rate and higher capex. To be fair, in original numbers above I took a slightly more conservative number of 2100/mo rent for the bldg. My new numbers assume 2200/mo rent for the building which equates to 550 per tenant.  PM quotes market rates at 525-550 per unit, however I have scoured the area and don't see anything less than 575. It seems there's not a lot of inventory as far as similar rentals available.  

my new numbers:
Tenant-Finding + utilities ($500 more/yr tenant finding.  $1300/year. went between your suggestion of 1100-1500) still $2000.00 for utilities. = $3300

Added $400/year to maintenance/capex budget = $3400

With rent at $2200 I still get a 

CoC 10.81%

ROI 19.52%

My broker said in this market we're looking for singles and doubles, home runs are far and few between.

I agree that you are not getting any homeruns in this market.  At the end of the day, every investment has risk.  Buying in a great area, you get lower tenant risk, but it is never zero.  In rougher areas, you take higher tenant risk.  You could luck out with great tenants that stay a long time, and don't destroy the place.  But in my experience, it is a more common that the lower the rent, the more damage to the unit and the shorter the stay. 

As I said, it is a risk, not a guarantee.  Theoretically, any tenant, regardless of income or property can completely destroy a unit, just as much as any tenant can leave the place in perfect, rent ready condition. At the end of the day, you are playing odds.

I own over 85 doors in Dayton…

Your rent should be 600-625/door on this.

I will say banks are appraising these properties for about 38K a door so you have no equity in this deal and only 10% coc is not a deal I would do. Good luck! 

@Tony Gorokhovsky thanks man, I am now going conventional on two smaller sfh worth about 100k each. so I'll have 20k-30k of my own money in each deal. This is why my CoC is 9-12% on most of the deals I can find. ROI overall about 17%-22%. Still much better than the s&p so I feel justified. I agree, though after these two sfh's I'll probably have to go BRRRR to get better returns