Considering an out of state deal as a starter (OH). Help!!!

Multi-Family and Apartment Investing
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Considering an out of state deal as a starter (OH). Help!!!

Paul Contreras
San Diego, CA · Member since 2017 · 2 posts · 1 vote

I am from Southern California and this is absolutely the hottest market i've seen in a long time..  The problem is.. its sooo expensive!! I don't think spending 500k+ getting a duplex only to cash flow a couple of hundred dollars is the best idea starting out.  So i'm looking to invest in other areas where my dollar can go a lot further.  

My research has lead me to places to like Ohio and Indiana where I can find 4plexes for under 100k.  Coming from California, this just blows my mind!! You won't even be able to get a room for that price much less a 4plex.  So seeing as I am just starting out and slowly learning the markets by constantly looking at the numbers I was wondering if you fine people can help me evaluate this property.  My biggest concern is the (unknown) costs in the area..  I'm used to certain standard here in Cali but in Ohio I'm sure things are different.  Here are my numbers.

Property: 4Plex

Cost: $86,000 (Can put upto 50% down if needed.)

Location: Cleveland, Ohio

Estimated Insurance Cost: $2400 /year.  This is a rough estimate from what I've seen.  Would greatly appreciate if someone can validate.

Property Mgmt:  8-10% of gross rental income which is $200

Property Taxes:  1.5% of purchase price.

Utilities:  Roughly $60 a unit.  Some listing say tenant is responsible, others show owner is responsible..  

For those in the area does this seem like the standard checklist of expenses for a multi-family home.. There is obviously a lot more research that I need to do but speaking to actual people in the area helps a million!!

 Thanks

1Reply
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Andrew Johnson
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
9y

@Paul Contreras My personal perspective is that those of us in California (I'm not too far away from your in Encinitas) go from one extreme to the other.  We see our market has "having no cash-flow" so naturally our (online) research takes us to the markets with THE MOST CASH-FLOW!  You know, those spots in Ohio that are always mentioned as well as places like Memphis.  I think it just naturally happens that way.  You see $86K for a 4-plex and it *has* to be a good deal because $86K can't get even if you 1/2 of a studio condo here in San Diego.  

My advice for you would to read some of the stories here (and other places) on what it takes to successfully manage units in "D" areas.  Then search for posts about managing units where rents are $300/month - $500/month.  There are just fundamental differences in the economics when it comes to the amount of collected rents, expenses as a percentage of collected rent, turnover costs as a percentage of collected rent, etc.  And that's assuming you have the time to keep abreast of everything.  I might be overgeneralizing but whether have a PM or not there $20/unit properties are far from "passive" when it comes to your time.  And if they need work?  Well, good luck managing a renovation from afar.  

So I'm not saying you can't make money with properties like these but your post makes it sound like you're looking at the numbers first and the needs/requirements when it comes to operating these properties 2nd.  I'd flip your thought process and start with the kind of properties that you want to own first and see what the "cost of entry" is for those properties after the fact.  

To add maybe a slightly different perspective in favor of those "cash-flow" markets you can probably buy in a "B" or "B+" neighborhood in Cleveland or Columbus cheaper than you could buy in a "C-" neighborhood in San Diego.  From my perspective, you can really save yourself a lot of hassle if you target those nicer areas.  Use your "California dollar" to buy a little less hassle if you're going to go to a cash-flow market.  Don't just go for whatever numbers (from thousands of miles away) look best on a sheet of paper.

But what do I know...

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  • Account Closed
    San Francisco, CA · Member since 2017 · 56 posts · 23 votes
    9y

    @Paul Contreras

    A 4 unit @ $86k sounds like a rough area.  I've been looking a duplex's at roughly the same price.

    If you find one at that price in B-C area, pick that up!  From my research of properties that are on the market, they are closer to double that price ($125-175k) in a reasonable area with a stable tenant base.  I'm sure others will elaborate.

    1Reply
  • Ian Kurela
    Specialist · Charlotte, NC · Member since 2016 · 239 posts · 117 votes
    9y

    A 4-unit at $86k will likely be shielded off by police tape, especially in a larger city like Cleveland, Columbus, or Cincinnati. For a decent B-C area I think you would be looking at north of $150k easily for a 4-plex. If you can find a lower priced duplex that you can stomach the smaller cash flow, but have it in a better area (B+ and above), I would suggest that. Just a thought. If you are able to find these properties at those specified prices, please let me know.

    0Reply
  • Mihir Bhimaraju
    Investor · Indianapolis, IN · Member since 2016 · 232 posts · 133 votes
    9y

    I can vouch for what the investors stated above. Having lived in the Midwest for a while now, I've realized that unless the property is distressed and is a fixer upper, if a 4plex is priced as low as that, there's definitely a good amount of trouble with the law. I was in the same boat as you- I thought I can get a property manager to take care of a multiplex that was priced lower than your amount, but the PM mentioned how she wouldn't even feel safe to walk in the neighborhood after sunset. So I started looking in 150-200k range. 

    You'd get better quality tenants and PMs would be more willing to work with the tenants. 

    Don't get me wrong, there are numerous investors on here who are experts in the 30k-50k price range. But it's not for everyone. I can tell you that. 

    0Reply
  • David Faulkner
    Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
    9y

    Lo barato sale caro

    1Reply
  • Hamid Taba
    Designer · Walnut Creek, CA · Member since 2015 · 10 posts · 2 votes
    9y
    I am from California as well and I just made a visit to Cleveland last weekend. As other people told you, you should be expecting that amount of money for a duplex in B- C+ area and around 125k and above for A class areas like Lakewood and University height. Don't give me wrong! This is still a great number to cash flow if you do it right. I would recommend to spend some time here in BiggerPockets to study the Cleveland Market with all amazing resources that people generously offered. Get a very good understanding of the areas there and then make a visit to the city itself. There are some rough areas there but some of the nicest area in Cleveland are even better than the ones I see in Bay Area and I live in an A class here. It will be an eye opening to go there. I think Cleveland offers great opportunities for investors.
    0Reply
  • Todd Dexheimer
    Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
    9y

    If you can put 50% down - $43k, then find something that will cost around $200k. You may be able to get a 5-8 unit at that price. The more units the better for out of state

    1Reply
  • Vivek Khoche
    Investor · San Jose, CA · Member since 2017 · 343 posts · 102 votes
    9y

    @Paul Contreras-  Normal CA investor rookie mistakes. Listen to podcast by @Michael Swan

    @Michael Swanand read his posts. Use your judgement to figure out what you get for $86K.

    Good Luck Investing

    Vivek

    0Reply
  • Account Closed
    San Francisco, CA · Member since 2017 · 56 posts · 23 votes
    9y

    @Hamid Taba

    Walnut Creek = A++

    That's what us SF kids aspire to once we grow up . . . unless we sell the startup, then we move to Marin

    0Reply
  • Jeff Schechter
    Developer · Nashville, TN · Member since 2016 · 484 posts · 406 votes
    9y

    Hey Paul,

    We run a TK here in Indy, which has similar price-to-rent ratios as Cleveland. Doesn't sound like a bad deal, but the key to making it work will be management.  At that price for a 4-plex, it's most likely a C-, maybe even a D+.  So, you'll have to be using a PM company that is ruthless about marketing, placement, collections, and upkeep.  You'll also have to make sure that the property is "pretty" enough to attract renters that will be the kind you want. 

    What we find in Indy is that the 4-8 plexes in the C- zones look fantastic on paper, but they just don't stay rented.  We could have a nice duplex on the same street, that actually will do better in the real world than the multi-plex because (with great management) it will stay rented.  We'll fix them to be more of a C+ too, thereby attracting the better tenant to begin with.

    Hope that helps...the numbers are just a good starting point.  PM me if you want more insights.

    0Reply
  • Gwen Fyfe
    Rental Property Investor · Cleveland, OH · Member since 2016 · 227 posts · 287 votes
    9y

    Hi Paul -

    What neighborhood? Does the property need a lot of work?

    Because as others have said, at that price for that many units, it's not likely to be a great location. I bought a 4plex in Cleveland for $125k a few months ago, and I'm very happy with my deal, but it's a solid C neighborhood.

    You could get a very solid duplex for that price - I'm closing on a $75k duplex today that I'm excited about - maybe even a triplex. But unless there's some extenuating circumstances I'd be concerned about that deal.

    0Reply
  • Brett Snodgrass
    Investor · Indianapolis, IN · Member since 2014 · 2k+ posts · 601 votes
    9y

    Indy has been a great market for us.  PM me if you want any info on the Indianapolis area as you are looking over this way.  God Bless!

    0Reply
  • Tom Ott
    Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes
    9y
    Originally posted by @Paul Contreras:

    I am from Southern California and this is absolutely the hottest market i've seen in a long time..  The problem is.. its sooo expensive!! I don't think spending 500k+ getting a duplex only to cash flow a couple of hundred dollars is the best idea starting out.  So i'm looking to invest in other areas where my dollar can go a lot further.  

    My research has lead me to places to like Ohio and Indiana where I can find 4plexes for under 100k.  Coming from California, this just blows my mind!! You won't even be able to get a room for that price much less a 4plex.  So seeing as I am just starting out and slowly learning the markets by constantly looking at the numbers I was wondering if you fine people can help me evaluate this property.  My biggest concern is the (unknown) costs in the area..  I'm used to certain standard here in Cali but in Ohio I'm sure things are different.  Here are my numbers.

    Property: 4Plex

    Cost: $86,000 (Can put upto 50% down if needed.)

    Location: Cleveland, Ohio

    Estimated Insurance Cost: $2400 /year.  This is a rough estimate from what I've seen.  Would greatly appreciate if someone can validate.

    Property Mgmt:  8-10% of gross rental income which is $200

    Property Taxes:  1.5% of purchase price.

    Utilities:  Roughly $60 a unit.  Some listing say tenant is responsible, others show owner is responsible..  

    For those in the area does this seem like the standard checklist of expenses for a multi-family home.. There is obviously a lot more research that I need to do but speaking to actual people in the area helps a million!!

     Thanks

    Be careful when investing out of state. If the price seems too good to be true...there may be a reason! Do some research into the surrounding area and the zip code. Best of luck to you!

    0Reply
  • Ian Kurela
    Specialist · Charlotte, NC · Member since 2016 · 239 posts · 117 votes
    9y

    @Gwen Fyfe Where exactly is your 4plex located? That's an incredible price for the cash flow. Just curious if you could give a bit more detail

    0Reply
  • Gwen Fyfe
    Rental Property Investor · Cleveland, OH · Member since 2016 · 227 posts · 287 votes
    9y

    @Ian Kurela It's on Broadway Avenue, very close to the Bedford Auto Mile.

    0Reply
  • Timothy Murphy III
    Real Estate Broker · Cleveland, OH · Member since 2012 · 771 posts · 252 votes
    9y

    @Paul Contreras

    Post or PM me the address if you'd like a local's take on the deal.

    0Reply
  • Account Closed
    San Francisco, CA · Member since 2017 · 56 posts · 23 votes
    9y

    @Gwen Fyfe

    Where is the duplex located?  Do you manage these properties yourself?

    0Reply
  • John Lenhart
    Rental Property Investor · Cincinnati, OH · Member since 2017 · 258 posts · 207 votes
    9y

    I would really never invest in a 2-4 building out of my local market, just my 2 cents. Too difficult to manage and finding a PM company to specialize in this type of asset and give you the attention you want is hard in a 2-4 unit building. Go big and scale. You could find a 40 unit building or larger for $2 million in the area with 25% down and It will be easier to get better management in place.

    0Reply
  • Gwen Fyfe
    Rental Property Investor · Cleveland, OH · Member since 2016 · 227 posts · 287 votes
    9y

    @Account Closed The duplex is right around the corner from the quad, on Ellenwood avenue in Bedford. I'm actually also looking at another duplex just on the other side of Broadway tomorrow.

    I self-manage and house hack the quad, so having everything within 5 minutes walk is perfect for me. Bedford is a nice little town, I was walking around to check out the vacant duplex on my own last night and was perfectly safe. People waving hi from their porches. It's that kind of city. 

    1Reply
  • John KosterPro Member
    Investor · Valley Village, CA · Member since 2012 · 147 posts · 142 votes
    9y

    86K for a Fourplex is definitely a D area.  @James Wise has a great post with a graded map of Cleveland.  Check out "The Ultimate Guide to Grading Cleveland Neighborhoods".

    1Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    9y
    Originally posted by @John Koster:

    86K for a Fourplex is definitely a D area.  @James Wise has a great post with a graded map of Cleveland.  Check out "The Ultimate Guide to Grading Cleveland Neighborhoods".

    Thanks for the mention John CHECK IT out.

    0Reply
  • Jeff Brower
    Real Estate Agent · Willoughby, OH · Member since 2014 · 560 posts · 690 votes
    9y

    @Gwen Fyfe did you buy the four unit that was a single in the front and 3 yellow sided apartments in the back? If so, I looked at that place earlier this year. The home up front was really nice, it was just a little too far from my work in order the take the plunge. Plus I thought I might have issues financing it fha due to the 'commercial' zoning.

    1Reply
  • Gwen Fyfe
    Rental Property Investor · Cleveland, OH · Member since 2016 · 227 posts · 287 votes
    9y

    @Jeff Brower I did! Someone else had an offer accepted on it, but their financing fell through and I snapped it up hours after it went back on the MLS. We were concerned about the commercial zoning too, but it turned out fine: the bank's appraisal confirmed that if the property burned to the ground I would have 1 year to rebuild before it lost it's grandfathering. Wells Fargo was happy with that.

    I love the house. My cat loves it even more, it's so full of cool little shelves. I'm having a good time tearing up the 1960s carpet.

    1Reply
  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y

    @Paul Contreras My personal perspective is that those of us in California (I'm not too far away from your in Encinitas) go from one extreme to the other.  We see our market has "having no cash-flow" so naturally our (online) research takes us to the markets with THE MOST CASH-FLOW!  You know, those spots in Ohio that are always mentioned as well as places like Memphis.  I think it just naturally happens that way.  You see $86K for a 4-plex and it *has* to be a good deal because $86K can't get even if you 1/2 of a studio condo here in San Diego.  

    My advice for you would to read some of the stories here (and other places) on what it takes to successfully manage units in "D" areas.  Then search for posts about managing units where rents are $300/month - $500/month.  There are just fundamental differences in the economics when it comes to the amount of collected rents, expenses as a percentage of collected rent, turnover costs as a percentage of collected rent, etc.  And that's assuming you have the time to keep abreast of everything.  I might be overgeneralizing but whether have a PM or not there $20/unit properties are far from "passive" when it comes to your time.  And if they need work?  Well, good luck managing a renovation from afar.  

    So I'm not saying you can't make money with properties like these but your post makes it sound like you're looking at the numbers first and the needs/requirements when it comes to operating these properties 2nd.  I'd flip your thought process and start with the kind of properties that you want to own first and see what the "cost of entry" is for those properties after the fact.  

    To add maybe a slightly different perspective in favor of those "cash-flow" markets you can probably buy in a "B" or "B+" neighborhood in Cleveland or Columbus cheaper than you could buy in a "C-" neighborhood in San Diego.  From my perspective, you can really save yourself a lot of hassle if you target those nicer areas.  Use your "California dollar" to buy a little less hassle if you're going to go to a cash-flow market.  Don't just go for whatever numbers (from thousands of miles away) look best on a sheet of paper.

    But what do I know...

    2Reply
  • Account Closed
    San Francisco, CA · Member since 2017 · 56 posts · 23 votes
    9y

    @Gwen Fyfe

    Congrats on you investments!  I drove through there while I was scouting the Cleveland area and thought it was a good area for the price.  Do they also have the POS requirements and how did that work out?  Also, what is the tenant market like there?

    0Reply
  • DL Martin
    Rental Property Investor · Cincinnati, OH · Member since 2013 · 292 posts · 280 votes
    9y
    Originally posted by @Andrew Johnson:

    @Paul Contreras   

    To add maybe a slightly different perspective in favor of those "cash-flow" markets you can probably buy in a "B" or "B+" neighborhood in Cleveland or Columbus cheaper than you could buy in a "C-" neighborhood in San Diego.  From my perspective, you can really save yourself a lot of hassle if you target those nicer areas.  Use your "California dollar" to buy a little less hassle if you're going to go to a cash-flow market.  Don't just go for whatever numbers (from thousands of miles away) look best on a sheet of paper.

    But what do I know...

    If you can afford C- in San Diego, you are completely out of your mind to even think about buying B or B+ in Ohio. 

    Buy the C- in San Diego and manage the thing yourself. 

    DL

    2Reply
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