Advice on University Heights, Cleveland single family property

[Alana Nevares]

Hi,

My husband and I have a long hours occupation while on mid thirties and have no investments yet. 

About one year ago I discovered bigger pockets and ever since have been listening to their podcasts. About one month ago we decided to take action. We did not want a fixer upper due to fear, lack of time and experience. 

We found a single family home (nothing fancy), in University Heights, Cleveland, sold POS violation free and will need minor repairs. we do know we may need a new roof and furnace in the next few years. Purchasing price is 87,500 with 1,700 back for closing. 

Potential rent: 1150-1200

400 Mortgage

300 taxes

120 management company

50 insurance

15 renters occupancy fee.

We wanted a safe neighborhood with low turnover, however, taxes are overwhelming and if we are lucky we will cashflow 200 monthly. Was this a bad deal?

Any advise as to where to invest next?....Was thinking about duplex (but most of them are built in 1920s in the area)….Would a fixer upper be better even long distance?

Thanks for your thoughts, somewhat discouraged at this point.

[Brian M.]

@Alana Nevares 

Hi Alana - I almost purchased a property in UH but had second thoughts and nixed the deal due to the taxes.  It's too bad that the tax rates are so high in certain areas of Cleveland.  They are prohibitive in many ways and I feel that it negatively impacts revitalizing many areas.

Your investment is not good from a cash flow perspective, but the positive is that your tenants are paying your mortgage and you should reap positive appreciation over the long haul.  Cleveland and its surrounds can be a good place to invest but I would look for areas that have a lower tax rate than University Heights - unless the deal is too good to pass up.

[Matt Thompson]

I ran the numbers with a conservative 5% each for vacancy, repairs, and cap-ex using zilculator.com at $1,150/month with the fees that you provided. The COC return is only about 6% and the cap rate is just below 7%.

You can easily invest in a REIT and get 7% or more passively with less risk or get the same or better return in the stock market over a long period of time.

I think investing in real estate is riskier, so I normally look for at least 10% return, preferably 15%. How much of a return are you looking for?

Other areas to consider are Euclid, Bedford, Brooklyn, and far western areas of Cleveland proper such as 44135 and 44111. Some people also like Maple Heights and Garfield Heights, but the taxes in those areas usually make it difficult to get a decent return.

[Alana Nevares]

Hi Brian, thanks for your thoughts.

Matt, thanks for running the numbers. What has been your strategy to mate 10 to 15% return? fixer upper? multifamily? are you hands on type of invest? Apologies for the many questions. Just trying to get more direction. Any thoughts on Holton Wise type of properties?

[Matt Thompson]

So far I've bought turnkey (1 SFR and 1 Half-Duplex) in the areas that I mentioned and achieve 15% or higher COC, but returns like that are getting hard to find unless you are willing to buy a fixer upper. I prefer single family rentals over multi family because I prefer higher quality tenants with less turnover. I don't self manage my properties.

[Alana Nevares]

Thanks Matt, this is helpful. Best, Alana

[Federico Gutierrez]

@Matt Thompson also bought 2yrs ago. So BACK THEN the returns could be achieved he was talking about. Now you need a good realtor that can help you achieve this. BUT I do agree I would stay away from Cleveland Heights due to high taxes

ONE thing Matt forgets is YES you can invest in a REIT and that 7% will then be taxed against your income. But investing and holding a property in your name, expenses will be offsetting your taxable income. That figure is not calculated in Matt's statement.

[James Wise]

Originally posted by @Alana Nevares:

Hi,

My husband and I have a long hours occupation while on mid thirties and have no investments yet. 

About one year ago I discovered bigger pockets and ever since have been listening to their podcasts. About one month ago we decided to take action. We did not want a fixer upper due to fear, lack of time and experience. 

We found a single family home (nothing fancy), in University Heights, Cleveland, sold POS violation free and will need minor repairs. we do know we may need a new roof and furnace in the next few years. Purchasing price is 87,500 with 1,700 back for closing. 

Potential rent: 1150-1200

400 Mortgage

300 taxes

120 management company

50 insurance

15 renters occupancy fee.

We wanted a safe neighborhood with low turnover, however, taxes are overwhelming and if we are lucky we will cashflow 200 monthly. Was this a bad deal?

Any advise as to where to invest next?....Was thinking about duplex (but most of them are built in 1920s in the area)….Would a fixer upper be better even long distance?

Thanks for your thoughts, somewhat discouraged at this point.

 The taxes are very high in both of those areas. That is the major downside. The upside especially with University Heights is that the properties are highly desirable. This increases the monthly rental rate but even more important than that it reduce turnovers, vacancy & increases the quality of your tenants & resale value down the road.

[Alana Nevares]

Thanks so much!