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

[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

[Andrew Johnson]

@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...