Need help - Offer Time, but is the rent right?

Question

Guys -

I've been looking for a property for a while now. I posted a few weeks back about a duplex with good numbers. That deal fell through because another investor beat me to the table with an offer.

I've found another property I'm interested in, this time it is a 3/1.5 single family home in a decent working class neighborhood. The home is on Heaton Road in Columbus, Ohio.

I'm having trouble determining what the rent should be. Using Rentometer.com I come up with 950-1100/month rent. Using Padmapper.com, I come up with around 780/month rent. I couldn't find anything in the area on Craigslist other than the apartments mentioned below & by padmapper.

I've driven the neighborhood and there is a complete lack of "For Rent" signs out.

So the deal is make/break on the monthly rent:

- $800/month the deal is too thin, with predicted cash flow at $42/month, Cap rate at 11.5% and CoC of 3.1%

- $950/month the deal is pretty solid with cash flow at $168/month, Cap rate 14.1%, and CoC of 12.4%

Home details:

-Home is owned by Fannie Mae. I'm trying to purchase for approximately 40k.

-Home needs about 25k in rehab. It will be a nice home for the area, but not top of the line.

-I'm approved for financing that requires 25% down, therefore I am financing the rehab costs. Interest rate is approximately 5.1%. (I only have about 21k cash to invest)

-The rear of the home faces the "Sunny Isle" apartment complex (http://www.apartments.com/Ohio/Columbus/Sunny-Isle-Apartments/654397?resp=true#media-photos) - these small 3 bedroom apartments rent for 600/month including utilities.

-1640 sq ft + 2 car garage + Storage shed

So my questions:

-What do you think would be a reasonable rent for this place?

-How can I get more accurate rent estimate? Are there other places to check?

-Is there a rule of thumb for pricing single family homes compared to apartment complexes in the same area?

Pam R. · Answer

Hi John. I can't speak authoritatively for the rents in the area, although I suspect $950 is a push. There are a ton of complexes in the area - you shouldn't have a problem talking to them and finding out their rents and amenities, to at least give you a better comparison point.

However...I haven't been to that area of town in a while...for a reason. I question your characterization of the neighborhood.  How close is the house to Tamarack Blvd and Northland Arms apartments? There were several murders in that complex in 2012, and that complex is considered to be a war zone.

There are definitely better and worse parts of that neighborhood, but in general the Northland/Forest Park area is considered high crime, so you definitely need to factor that in to your equation. $950/month renters in that area will likely be people whose credit/background info don't qualify them for better parts of town.

On the plus side, that is a huge multi-ethnic area - I'm talking off-the-boat immigrant communities (hence all the ethnic groceries in the area). Not just one ethic group either - it is truly an immigrant destination. So I suspect there are populations of people seeking to live in the area.

Is Section 8 something you would consider?

@Justen Ashcraft - Not a student housing area.

Happy New Year. Good luck.

John Van Fosen · Answer

@Pam R. Yes, I've been looking in North Linden too! Thanks for the advice!

Pam R. · Answer

@John Van Fosen - glad you took a look at the area. If you head north, closer to 161 in that area, the neighborhood gets better. It's that Morse Rd corridor that is the worst. And I know there are some decent pockets further north, and you can probably find some deals. I had friends who lived up by 161 until a couple of years ago, and I was over there quite a bit. The neighborhood was starting to decline, not a war zone, but the houses and residents began to reflect dropping incomes and real estate prices (bad for the homeowners like them, but good for investors).

Have you looked into anything in the North Linden neighborhood? That may be a neighborhood that could meet your needs. Very low prices on houses (you'll make your money on buy-and-hold there, not property appreciation), lots and lots of renters, and a level and type of crime that you may find acceptable. For the sections of that neighborhood that I've visited over the years, it's not a place I'm afraid to go at night. Now, I wouldn't leave my purse on the car seat or copper pipe laying in the front yard and expect to still find them there an hour later, but I'm definitely not afraid to visit the eastern half of North Linden.

Good luck John. Keep looking for the good deals!

John Van Fosen · Answer

@Pam R. - Thanks for your reply.

It is close Taramark Blvd - about a block east. I did a google of Northland Arms apartments - YIKES! I think you might have saved me a costly mistake here. The Northland Arms apartments have been renamed Northern Isles apartments, and they are very close to this property. I am willing to consider Section 8 tenants, but am trying to avoid these high crime areas. It is an interesting area - we were looking at the crime maps yesterday, and it is very high crime right around those apartments, but very low in most the rest of the neighborhood.

I hadn't heard anything about the murders in the area. Looks like I'll need to readjust my focus area a little bit!

Thanks again!

John Van Fosen · Answer

Corey - Good suggestion. I've called a few places, but was not able to talk to anyone directly. Left some messages, guess I'll see what falls out.

Corey Liepelt · Answer

John, I would suggest you call around to a few property management companies and see if you can find a few companies that manage rentals in the area. Tell them your situation and see what they can tell you about area rents for SFR. They'll be interested in helping you for the potential opportunity to manage the property when you've completed the rehab.

Need help - Offer Time, but is the rent right?

Most Popular Reply