14 Unit Ohio - Is this a good deal? Financing?

Question

Hi Guys,

I'm new to these forums and appreciate all the knowledge everyone has shared. I look forward to contributing.

I'm looking at a 14 unit apartment building in Ohio. 90% section 8, building looks really good and well maintained. Does not look like section 8 at all.

$500k listed price.

13/14 units rented. 1 unit vacant since last month.

115k Gross Rent

33k Expenses

82K net before management + debt service

1) What do you guys think of this deal? Almost seems too good to be true. What to look out for?

2) What kind of financials do banks look for from the borrowers for such a property? Do they care more about income of the investors or cash in bank? How much?

3) Does it make sense to find a local bank in Ohio? Anyone know of one? I'm out of state.

Thanks!

Michael Swan · Answer

hi @Jeff Brower,

East lake is nice.  I am focusing my efforts from east Euclid to Painesville presently. I have 100% occupancy in a 15 unit, 21 unit, and 12 Unit in Painesville and have been pushing the rents up each spring summer.  I hav an 11 unit in Euclid that is also 100% occupied on the corner of bev hills and Euclid Ave. and 8 single family that pay there rent like clockwork.  Not having as much luck with 10 unit, really nicely updated units by previous owner at 2435 Noble Rd in Cleveland Heights, a few blocks away from Monticello and 3255 Warrensville Center Rd. In a really nice area, by Thornton Ice Rink and next door to J. Pistone market and deli.  It is a really nice area.  Those 2 RE taxes, vacancies taking too long to fill etc... an issue.  I am very happy with northeast euclid and Painesville!!  Right now I have 2 vacancies at Noble Rd. and 1 vacancy, soon to be 2 vacancies at the Shaker Heights property.  They have been vacant for 3 months, going on 4 months pretty soon.  I have plenty of ads, free rent concessions, signage in the grass on the road etc...  Pushing my PM to hold open houses etc...  Noble Rd. and 3255 Warrensville Center Rd. have central heat and AC too.  Old buildings with boilers are the norm too.

Take care guys and my unfortune could maybe help you!!

Swanny

Jayson Lesyk · Answer

Mayfield from coventry to Lee Rd is a C neighborhood but close to coventry is popular with the hippy/artsy crowd. However you go a few blocks up the street north on superior and youre in the middle of one the the roughest scariest F neighborhoods in ALL of NEO, not just Cleveland. Be VERY careful buying close to EC. That's a part of town that I would be very cautious with....

John Casmon · Answer

Mayfield and Superior should be Cleveland Heights, but confirm which city the property is actually in. If it's in East Cleveland make sure you do your research on the city's financial issues and understand any implications for this property.

Michael Swan · Answer

@JJ S.

I don't like the area, age of buildings, RE tax rates, multitude of multi for sale there, section 8 there is a nightmare, finding good PM to deal with that demographics.  I have a 10 unit on Noble Rd a few streets away from Monticello in much newer and nicer complex and will be the first one I sell in the next 6 months to a year.  The water and sewer bills are also going through the roof in this area too.  My worst property by far.  I have had to take $20,000 out of my pocket since I purchased and NO cash flow for almost 2 years, this May.  Like I said, scary!!!

Swanny

JJ S. · Answer

Mayfield and Superior. Cleveland. What do you mean by scary?

James Wise · Answer

@JJ S.

The most important thing here is knowing the neighborhood this building is in.  At $35.7k/unit the building is priced appropriately for many C/B class areas. If the neighborhood is of lower quality it's priced a little high, if higher quality you found yourself a screaming deal. More than likely it's either C/B or lower. No reason to utilize that much CMHA in A class neighborhood.

As for financing the bank will look at the buildings debt service coverage ratio (DSCR) 1.2 is the magic number right now. This means that they want to see $1.20 of income for every $1.00 they loan.

John Casmon · Answer

Is this in Cleveland? If so, what neighborhood? The original post only says it is in Ohio. Have you actually seen the property and the area or only pics? There wasn't enough info supplied to help you determine if it's a good deal, but the numbers tell me one of two things up front. The expenses seem very low, especially for a property that is 90% section 8. However, if these numbers happen to be accurate, it equates to a 16% cap rate which suggests it's located in an undesirable, crime riddled area. The bank will look at your finances (income, balance sheet) and experience, and may also require a business plan. They care most about your ability to pay them each month and protecting their investment.How do you plan to manage the property? If you're using a property management company, ask them to refer a local bank.

Jeff Brower · Answer

Location makes a huge difference here. If you are looking at a commercial loan, they will look at the debt service coverage ratio (DSCR) of the property itself, as well as the financials of the borrower. Usually they want to see assets equal or greater to the subject property value, as well as at least 6 months of reserves for the property in liquid form. They will also want to see your previous experience. If you do not have this, then partnering up with someone who does is one of the only options. Let us know where in Ohio this is and we can help further. As eluded to above by @Michael Swan , Cleveland can be hit or miss, street by street. I live east of Cleveland, but in the far east suburbs, not east Cleveland.

14 Unit Ohio - Is this a good deal? Financing?

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