BRRRR in Cleveland, OH???

Question

I have the opportunity to buy a small single family property that is located in a nice town in the suburbs of Cleveland and I wanted to get some feedback from the community as to whether or not this property would be a good candidate for the BRRRR strategy.

Here are a few bullet points on the property:

• Acquire for $100,000 Cash
• 1960s Ranch Style, 3br 1.5ba, 1140 sqft w/ unfinished basement and 2 car garage
• 3+ acres
• It is currently rented for $1200/m
• I believe rent could be raised to $1300/m over the course of a year
• Recently appraised for $170,000 (I don't believe anyone would actually pay this much for it, comps are closer to 140k)
• Needs 30k in improvements in my opinion (appliances and updated bathroom)

My question is as follows...Is this property a good candidate for a BRRRR deal?  The home is perfectly habitable as it is and I do not feel that a major improvement to it will yield significantly higher rents (especially in this area).

I put this property in to the BRRRR Calculator but I'm getting a negative result for cashflow afterwards and I feel like I made a mistake along the way.

Irina Belkofer · Answer

@Marc DeLeonibus it seems like you bought turnkey - they usually don’t have much room for BRRRR - the profit was already taken by someone who did the rehab (added value).

Because you’re an OOS investor, you’ll have to use PM and an agent to place the Tenant. It will eat your profit even more.

If you refinance the house which you think worth $140K and appraised $170K, your mortgage might be under water if market sinks.

Looking at your numbers, I think there is something is wrong: you might overpaid or your rent is really low.

For example, my client just bought a flip (turnkey per se - new everything from roof to kitchen, finished basement etc). Price was $85K which is reasonable(might appraise for $90-95 in a year), Rent is $1275 (should be $1100-1150), but that’s in Euclid - best Rent to price ratio.

If you’d bought in more expensive suburbs (Mayfield Hts , Lyndhurst) then Rent is really low for 3/1.5.

If you bought in Cleveland Hts (hopefully in good area of it) then your purchase price too high. Appraiser’s get higher value because of sales at radius but it doesn’t mean you can sell for that price.

Anyway, it’s Cleveland suburbs and Rent should be more than 1% to price. I gave here worst case scenario (flip price) but it’s still 1.5%. Good deals cash flow more than that - at full price after rehab - all new from top to bottom. 1% should be absolute minimum and I’d factor even taxes, insurance before counting that.

If you PM me the specific location or address of the property, I can analyse it for you.

Right now you’ve got what you’ve got and let it be and make money, market will help. I wouldn’t get more mortgage than you’ve paid already - get your money out of it and find better deal.

Good luck

Max Briggs · Answer

@Marc DeLeonibus I think that @James Wise is right that in most markets $1200 per month rent should cash flow at $100,000 purchase price.  But owning 3 rentals in Cleveland Heights myself I can say that property taxes there can eat up cash flow in a hurry, especially if you are not diligent about challenging them when the county over estimates the valuations.  Depending on who is paying water and sewer at your rental and whether or not you are self-managing I think that it is very possible for you be be negative or barely positive at that price to rent ratio in some inner ring suburbs.  I know that James manages a ton of rentals in those areas, so I'm curious to hear what he has to say.

James Wise · Answer

If you've already got a tenant in there you wouldn't want to do $30,000 worth of repairs. You'd want leave it alone & do all of your repairs at the next natural turnover. Also note that there is no real reason that a property renting for $1,200/mo that only cost you $100,000 should have an issue cash flowing.

Lincoln Coverdale · Answer

@Marc DeLeonibus - We own a few properties in CH.  In my experience the CH rental market is very stable, which makes the math very simple.  We buy and renovate for less than $75,000 all in and rent between $1250-$1350.  You may have to get the taxes adjusted based on the purchase price but those numbers have worked well and should net you $250-$350 per property per month.  I haven't seen a $100,000 property that has positive cash flow with $1300/month in rent, the taxes are too high.

Ryan Evans · Answer

My main concern with that deal is the land size. 3+ acres means a lot more upkeep. And even if the tenants take care of it now, don't assume that will last. There are so many good properties you could buy on the MLS for 100k and rent for 1100-1200 so I'm not sure it's worth the hassle. Also, if it needs 30k to add 40k in value, it doesn't sound like it's got a lot of margin for error.

Marc DeLeonibus · Answer

@Irina Belkofer Really appreciate the response.  What you said makes total sense and I feel that something might be off as well.  I want to make sure I'm 100% confident in my numbers and the areas.  I will shoot you a PM shortly and we can discuss in detail.

Marc DeLeonibus · Answer

@James Wise Thanks for taking the time to respond.  What you have said makes total sense, no need to put the money in if it is generating the income right now.  It would be a different story if the property was in total disrepair and I was able to obtain it for a lower price.

Irina Belkofer · Answer

I’ve missed that it’s 3+ acres (thought it’s 0.3)

Then it make sense: it might be Lake, Geauga county etc - that’s much better quality of Tenants, rents are lower to the price but in long run it’s much better: these counties didn’t get hit that much during recession. Cuyahoga got all the clearance.

3+ acres of land will get you better resale value though plus taxes are twice lower per $100K of market value.

It might not cash flow as well as Cuyahoga in general but it’s possible to appreciate. Depends on location, off course

BRRRR in Cleveland, OH???

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