All Forum Posts by: David K.

Phil, there are two layers on it currently so complete tear-off. In terms of length for shingles, not sure--this is the first time I've encountered a roof replacement. What is typical / common? (I'm not sure on the bottom layer of the roof.) Thank you for your input!

I am under contract for a duplex in a C neighborhood and just received the results of the home inspection. Most of the deferred maintenance / cap-ex items I can reasonably estimate. However, I was hoping to get some feedback from others in the area on a few items.

Roofing: The roof is roughly 1,900 SF. I believe I’ve heard James Wise throw out about 6k for new roofs for a duplex as a general ballpark number. Applying the estimates from the BP book on estimating rehab costs gives a pretty big range (~2.8k-$7.6k), so not really sure where that comes out from the local northeast Ohio perspective. I suppose 6k may be a reasonable ballpark, but any guidance is appreciated.

Electrical panel: the report also said that “an arcing sound is heard from the panel” and recommended that a licensed electrician inspect. Not really certain what this could mean. The panels are old (120/240 fuse box), so from a worst-case perspective might the panel need to be replaced? Is $2,000 a reasonable estimate for this?

Any feedback or thoughts is greatly appreciated. Thank you!

@Vic Delgado that's an interesting situation, and I think there are a few different ways you could tackle it. When you say "state records," do you mean the Ohio Secretary of State website? Even if the entity is defunct it is possible that some of the filings themselves contain the names of owners/leaders of the entity. For example, some entities have the owner listed as the Agent. Sometimes third-party service agents are used, but even then the third-party service may be able to either give you the information you seek or at least relay your request to the owner. Or, the owner may be listed as an incorporator or named somewhere tucked in some of the filings.

When you search the Cuyahoga records (I'm assuming it's in Cuyahoga?) who does it list for purposes of sending tax information? Are the taxes current on the property? Also, and this can be a bit of a pain to search, but if you search the recorder's office perhaps there is a mortgage or something where there is an individual co-obligor besides the entity. 

Another option if it is a former non-profit is too see if you can search online for the owner. There are a lot of non-profit trackers out there that could provide info. Or maybe even a Google search limited in time to when the church was active could reveal an article or something to indicate the owner of the Church, and hence the property.

Just a couple of initial knee-jerk thoughts. 

Excellent podcast. Thanks!

@Vinay H., followed by the third thought of "even if the landlord let it escalate improperly, does this sound like a tenant I want to inherit?"

Is it bad that my first thought was, "ooo, motivated seller for a decent looking duplex as he gets his legal defense funds ready"?

@Joanna Golden, that sounds typical for the Cleveland area right now.

@Camden Smith, I think BP is an excellent guide with a great community, but I wouldn't take too much stock from advice on this issue as gospel unless you get it from a qualified attorney. And attorneys on here, even if qualified, likely will not want to say anything that arguably qualifies as legal advice in case that may inadvertently create some type of A/C relationship. And most attorney insurance policies exclude offering advice on Securities unless the attorney elects special coverage. This can be a minefield of an area both for an attorney and the investor because of the potential repercussions. 

When you ask what are the rules "regarding this," do you mean the rules regarding accredited investors, whether a syndicate constitutes a security (in which case the accredited investor rules will likely apply absent registration), or both? With respect to what constitutes an Accredited Investor, the SEC has several guides on this, and I would highly recommend Googl'ing for those.

I suspect the primary issue will come down to whether your plan, however it ends up being structured, qualifies as a "security." It's a pretty broad definition that comes up several times both in various federal laws (15 USC 77b probably being a good place to start), not to mention various state counterparts as well. A common issue is whether the investor's expectation of profits is ultimately based on the managerial efforts of someone else besides the investor--whether you simply call it a syndication or something else is almost secondary. (I can even think of some scenarios where structuring a deal with tenants in common as @Carl Fischer suggests could create a potential scenario for offering of a security.)

So, that's my long winded way of avoiding directly answering the question, except to say that I think a lot more detail is necessary to render a more accurate opinion, and strongly recommending seeking legal counsel if you have any concerns that you may be offering an unregistered security and/or accreditation issues. 

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

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!)