Could I invest in the midwest (CLE/OH) without BRRRRing (turnkey)

Question

How risky is it?

I learned that I could get a $20K HELOC from my primary residence. I have $15K in old 401Ks that I could rollover into a SDIRA and I have $15K in cash saved up. That’s roughly $50K, but I prefer to use the cash for any personal emergencies. So that would leave me with $35K.

I hear it’s $31.5K per door to invest in Cleveland. Could I buy a $94k triplex in an A or B neighborhood with $23k down (25% down payment)? That would leave me with $12K in cash (not counting my $15K in personal emergency funds). How much cash should I have saved up for emergencies?

I figure if I can get $250 cash flow after expenses per door, that would leave me with $500 per month income and $6K/year in income. Of course, I would use the first couple of years to pay my HELOC back (if it’s a mixture… not sure if it would be better to go the SDIRA route or go the HELOC route).

I’m calculating that if I put at least half or most of my rental income towards reinvesting, I could get 3 doors every year. I usually save $5k/year between cash/retirement and an additional $6-$7k/year between my house appreciating and the mortgage being paid down (leaving equity). So if I put all of the rental income towards the mortgage(s) of the multifamilys, would I have 27 doors in less than 10 years (am I missing something)? Between duplexes, triplexes, and fourplexes, I would think that I’d max out at 27 units if I have 9 buildings (bringing me to FannieMae’s 10 mortgage limit where I am including my personal residence).

Could I go turnkey in Cleveland or Ohio or the midwest or any other area where the numbers are this favorable? I hear that Cleveland’s housing stock is 1900-1950s era, but is it extremely difficult to find turnkey in Cleveland?

I was laid off from my job a month ago, but I’ve done over a dozen interviews. How long do I have to work to make this happen? A few months? A year? And is it ok that I’m a job hopper? I usually work at a job for a year or two before I find a higher paying job (I hate waiting for raises). How will this affect my ability to get a mortgage? Could I possibly get a hard money loan or other type of lending? I currently have a 705 credit score. I would imagine that some lender would look past this if my income usually grows with each job hop and I’m putting 25% down on each property.

Drew Cheezum · Answer

@Mike Schorah I think you have a great starting strategy however I agree with @Matthew Patterson you will not be able to get into A or B areas with that price range. Cleveland can be a little tricky with "turnkey" in C/D neighborhoods. In order to cashflow you may have to do some rehab in order to charge market rents on cheaper properties.

I invest in Columbus and C neighborhoods are the lowest grade we have here. Prices are a little higher but you get better appreciation and can still cash flow.

As for your lending questions, being a job hopper shouldn't hurt too much but as you take on more properties your debt-to-income ratio could become an issue unless your income continues to grow at a similar rate. Hard money could be an option down the road as well as a commercial loan. Commercial loans can look at the income a property produces to help secure the loan.

Another thing to keep in mind as you take on more properties is your ability to self-manage. You will likely need to hire a PM at some point which is another cost to bake into your return.

Best of luck!!

James Wise · Answer

C-D class 2-4 properties will run you around $50,000 per door. A grade multi's will be well over $100,000 per door.

Luba Vasilieva · Answer

Hello there. Had some experience with real estate SDIRA. There are tons of restrictions on how you can use IRA money. From what I know about IRS rules on SDIRA - is that you cannot combine your cash outside of SDIRA with SDIRA funds to finance a purchase. You can however bring in other UNRELATED persons’ funds or even non-recourse loan from the bank. Some of these sources will expose you to extra taxes. Just saying. Before counting on IRA funds, just check with SDIRA custodian. I used New Direction IRA, they have lots of explanations on their website.

Good luck!

Raisul Howlader · Answer

@Mike Schorah I am looking for similar properties in different midwest and southern markets. I haven't seen anything that is in that range for under 100k in a decent neighborhood. However, some of the markets have newer units like from the 1980s that I noticed either in C or D neighborhoods or very rural areas. From my experience finding the right property and management company are both important. I think you can do ok in C and D with cash, maybe not so much equity. I think the market is too hot in A market, I think it is almost better to invest in markets that didn't appreciate as much.

Matthew Patterson · Answer

I’m looking at Cleveland as well, but an A or B area duplex is minimum $225k@ and at 25% down, it’s gonna be up there. You’ll have to look at C/D areas to get it.

Allen McGlashing · Answer

@Mike Schorah

As a person that is currently heavy into trying to find a property that fits the Brrrr standard in Ohio I am having a lot of trouble finding one, but I do come across a lot and I mean a lot of turnkey properties.

Brian Garlington · Answer

I think your ARV is a little off my man.

Caleb Barney · Answer

I’ll second what Matthew said. You’re not getting any ARV class properties for anywhere close to $100K in this market.

Cameron Braig · Answer

@Ben Riechmann

Thanks for the post and sharing.

Could I invest in the midwest (CLE/OH) without BRRRRing (turnkey)

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