Need advice estimating repairs/structuring deal for Dayton, Ohio multifamily

Wholesaling
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Need advice estimating repairs/structuring deal for Dayton, Ohio multifamily

Cheryl P.
Brooklyn, NY · Member since 2013 · 42 posts · 9 votes

Hi BP, I've sent out my yellow letters and the leads are coming in (yay)! That said - I wanted to get your feedback on the deal which I plan to make an offer on this afternoon/evening. My intent is to wholesale it. Questions and details below:

Questions

1. Am I leaving enough meat on the bone with my $20K assignment fee or should I adjust this, if so by how much?

2. Is my repair estimate too low/too high based on the seller telling me that no repairs are needed and existence of the on-site property/manager despite the house being very old (built in 1909)?

3. I live in NY and the property is in OH. Any tips for virtually investing my way through this deal?

Details

Location: Dayton Ohio

4 Units

Rent amounts - $300 (for 3 units) $350 (for one unit) = gross monthly rent is $950 (accounting for property manager living rent free in one unit) tenants pay all utilities except water

Asking price: $10,000 (This is also the mortgage balance)

ARV: $50,000

Repairs: Owner says non are needed but I'm estimating $2,000 (I have no idea if this is accurate but I'm assuming since there is an onsite property manager, it should be in good shape, house built in 1909)

Seller motivation: 85 y/o tired landlord who wants to sell ASAP

Assignment fee: $20,000

MAO = .65(ARV)-Repairs-Wholesale Profit

=.65($50K)-$2K-$20K

= $10,500

This leaves me with a MAO which is slightly greater than my offer price.

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  • Jason Minnich
    Investor · Milpitas, CA · Member since 2013 · 95 posts · 12 votes
    12y

    I would almost guarantee that "no repairs needed" isn't accurate. You might have the info but it would be good to know some more details on the property to help determine actual repairs.

    Things like what kind of flooring, what are the wall coverings, what is the quality of them. How old the above are. How old and state of repair on heating, cooling, appliances, utilities, and the roof. What are the lease terms of there are any. What does the property manager do?

    Next, and this could just be me, but that seems like an awful generous deal for the property manager, almost all the companies I have looked into or worked with are only 10% monthly fees, an on site super isn't a bad idea but to do it in a 4 plex is hard to swallow. Now if he covered all repairs himself it would be different, but that arrangement is just unpleasant for me. I would almost rather collect rent and pay him some amount just so you can appropriately manage taxes and increase the valuation of the property.

    Lots more to consider I think but this is all I could think of on my phone.

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    12y

    I'd also guarantee that "no repairs needed" is inaccurate. I can also guarantee that a house you can buy for $10K that needs no repairs is not worth $50K.

    And $20K wholesale fee is WAAAAAY too much on a $50K deal. $2-4K is more like it.

    If these number are truly accurate you have one of those truly outstanding deals on your hands. I'd guess your numbers are way off. I'd guess significant repairs are needed. I'd guess the seller has a pretty good grasp on the real situation and is feeding you, a out-of-towner, a line of bull.

    One free unit for the PM is outrageous. That guy has a sweet, sweet deal.

    $300-350 per unit are very low rents. That may be the market for the area, but its hard to extract any profit when they're that low.

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  • Cheryl P.
    OP
    Brooklyn, NY · Member since 2013 · 42 posts · 9 votes
    12y

    @Jason Minnich thanks for the reply! I will dig deeper and ask those questions, when I talk to the seller again. The seller mentioned that even though the PM doesn't pay rent that "he could", which I guess means that he'd be willing to stay on and pay rent (not sure). I like your suggestion of charging him rent and paying him a fee for managing.

    @Jon Holdman thanks for your reply! How do you determine an appropriate and fair wholesale fee? I had a feeling some of the numbers were too good to be true but the comps that I was able to find, place the value of the house at $50K based on a dozen nearby/similar properties. I've been using trulia, homes.com, homesnap.com and others to try and get an idea of the value and most of the sites put the value around $50K. Do you have any suggestions on getting comps w/o MLS access?

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  • Darrin CareyPro Member
    Lender · Dayton, OH · Member since 2008 · 1k+ posts · 705 votes
    12y

    @Jon Holdman Echoing Jon's comments, they are spot on.

    @Cheryl P. Rents at that level are low, even for Dayton. an avg inner city 1 bed apt is 450-500. It also makes a large difference on whether it was designed as a 4 unit, or is a converted house. Also, who pays utilities?

    And, are there really paying tenants?

    Location in Dayton is everything. 1 block can make a large difference here.

    What you need is to find boots on the ground in Ohio, or you need to visit. Someone has to look at the property for you before the close. The person could be a contractor, agent, home inspector or even an independent contractor that you hire to document the condition of the building and neighborhood.

    As a buyer,

    • When a seller says no repairs are needed, I assume it's BS until I see and verify.
    • When a wholesaler says no repairs are needed, they better be right, otherwise they've lost their credibility.
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  • Cheryl P.
    OP
    Brooklyn, NY · Member since 2013 · 42 posts · 9 votes
    12y

    @Darrin Carey good points all around thanks! For some reason a lot of the Dayton leads I'm getting are for rents in the $300 range (mostly 1bd/1ba) per unit.

    The tenants pay all utilities except water. I didn't explicitly ask if they are all actually paying (I probably shouldn't have assumed that) but that's an excellent point and I will do that.

    I'll work on putting a team together as you suggested.

    Thanks again gentlemen for your help! This is really helping to put things in better perspective and to consider the different elements of the deal.

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