SFR rental in C class. Good deal?

Question

Hi BP,

I'm working on another deal and was wondering what you all thought as experienced investors.

It's an SFR in a C class neighborhood.  It has 4 beds and 1.5 baths about 1670 sq. Ft.

Asking price is $35,000, but hoping to get it for $30,000 for a cash buy.  It needs approximately  $10,000 to get it rent ready.

Rent is roughly $900 to $950.

Insurance is $72/month

Taxes are $150/ month

Water/sewer is paid by me and is estimated at $70/month.

I estimate repairs, cap ex, maintenance and vacancy to be 36% total.

No mortgage.

That puts me at around $250 to $300 a month cashflow.  I'm not expecting much for appreciation.

Would you do it?  What do you think?  Do you need more info?

Thanks,

Jesse

Steven Gesis · Answer

Jesse, based on my experience in Cleveland, if you are buying at $50,000 all in for SFR,  you will get the rent that you quote for a limited amount of time if you can even get it, no magic, just like anywhere else, expect a high tenant turn-over, short term tenants, expect high turn-over cost. I have not seen a $10,000 repair on $30,000 purchase end up being a success, unless  you are seeking high risk and high reward, I think you need to take high reward out of the equation, because you will find yourself exhausting money to replace tenants and complete on going maintenance.

Insurance seems a little high.... perhaps because of the area or the condition of the house?

C - neighborhood for $50,000 I am interested in seeing this home myself : )

If it sounds to good to be true.........

Again, this is just based on experience and having a very extensive background and knowledge of the entire Cleveland marketplace.

Matt Motil · Answer

we do these deals everyday. If people didn't see the returns or weren't happy with the tenant performance they wouldn't keep investing in Cleveland, wouldn't keep investing with us and would look for other options. We manage over 400 units for very happy investors.

Jesse Richardson · Answer

It's in Cleveland with HWPG. I've had a really good experience with them on my last property, so I want to pick up a few more.

In Hawaii, this house would be worth $400,000 or more in a D class area. Oahu, in general, rates right up there with Manhattan and San Francisco as far as real estate goes. It's crazy expensive.

Bob Collett · Answer

Jessie, my calculations based upon your info put this at about 7.5% ROI. I would want to know what neighborhood, and how you came up with the 36% expense estimate, but to answer your question; no, I would not personally do this deal.

Good luck

Jesse Richardson · Answer

that was a question I had too and assumed that the tenant would pay that, but I believe it's bc the city won't allow those to be transferred to the tenant.

Jim Adrian · Answer

Rent seems low for a 4br and s.f. but could be right for the area.  I am seeing $950 for 2/1 1000 sf dated house in Smalltown USA.  I might try reaching for higher rent and see if I get any takers.

Kelly B. · Answer

why are you paying for water and sewer on a single family home?

Randy E. · Answer

Go for it, @Jesse Richardson.  From one small guy to another, it looks like a good deal from my perspective.  I assume this is not in Hawaii?  If true, the only caveat I offer is be sure you can trust the PM you're signing up with.

Jesse Richardson · Answer

Mike,

It is in a C market and yes, I would rather buy a B- rental.  But I'm really in the beginning  of my investing career.  This would only be my 11th unit.

Based on the ARV of $55 to $60k, would you still say it will be hard to sell?

My plan is to get enough cash flow going with these C properties, and then switch to B class soon to get more appreciation.

I'd be in it for $43k, but would likely rent it for at least 5 years and then upgrade it or keep renting it.  I should be able to  sell it at a gain.

Mike Makkar · Answer

@Jesse Richardsoncash flow will be great! But you could get just as good returns with a B-Class property (75k'ish property renting at 1300/mo) with leverage (15% cap rate but 30% CoC return with a 75% ltv at 8% vacancies). Moreover, 75k'ish properties are more scalable with commercial lending once you start acquiring more.

Don't look at these deal from today! Look at what you could become 2, 3, 5 years from now. 5 years from now, you'll have a hard time unloading these 30k properties.

SFR rental in C class. Good deal?

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