Newbie in Cincinnati (NKY) - 2 Deals to chose from

[Chris Eden]

I am a new investor in the Northern Kentucky area. My region is essentially the southern suburb of Cincinnati. I am focusing on an urban area. I am looking to invest in my first property and essentially have two deals that I am considering. My main question is, what deal should I take? Or more importantly, should I try to do both?!?

Deal 1: a $42,000 duplex in a blue collar area with a motivated seller. If I do this deal I am going to owner-occupy for a year or so and do an FHA loan. Both units are move-in ready and vacant, but they bring roughly $500/mo when occupied. All utilities are separate and could be payed by tenant, but there are no appliances (fridge or oven) in either unit. I seem to be getting reasonable FHA pricing on this deal - 3.5% down, 3.5-4% rate, asking owner to pay closing, etc.

Deal 2: I have a solid lead on a yet-to-be-listed $70,000 triplex in a hotter neighborhood. The building has a large two bedroom top floor, an efficiency unit in back and a small commercial space in front. All units are occupied on month-to-month agreements. This unit has the same furnace, electrical and water heater for the whole building, so I would pay utilities. The owner is wealthy and doesn't want to deal with the hassle of land-lording OR selling in a traditional sense. He is free and clear on the property and is considering seller financing for the right buyer. This would require around 10% down, a short term agreement until I can potentially refinance in 2-3 years, a finders fee for the middle man (3-5%?) and other costs. 

Finally, a little about me: I am a college graduate, early 30's, make about $60K a year and have reasonably stable finances. I have been researching real estate investing and pouring over listings in my market for at least 6 months (BP has been awesome, btw). My inclination is to jump in with both feet and go after both deals. Both are cash flow positive with solid cap rates and I am going in with eyes wide open (as much as possible) Anyone wanna talk me off the ledge?

[Chris Eden]

Bob - You clearly have much more experience than me, so thanks for the advice!

All in all, I am comfortable focusing on Newport. In fact my search is focused on Newport and east along the riverfront through Dayton. I have avoided Covington and west, because it appears as if Newport's success is having a negative impact on Covington's population (not whole numbers, but quality tenants).

Monmouth Street has truly come back to life recently. Google maps just doesnt do it justice. New restaurants on every block (Sis's, Packhouse, and several others), bars are doing what they do, a new development called "Monmouth Row" at 5th & Monmouth, new city buildings at 10th & 11th and Monmouth. Its a good mix of old (Pepper Pod, Dixie Chili, Knife shop, etc.) and new at the moment. I would argue its better to move out some of the strip club and gambling and move in more family friendly businesses, but its taken some time to find that balance. And It's funny you mention the Ovation property (http://www.bizjournals.com/cincinnati/news/2016/08/17/corporex-buys-nearly-3-acres-for-massive.html) It seems to be alive again. The state is also expanding the AA Highway/Route 9 (it is already about 1/4 done) through the Westside of Newport to increase economic development along that route. That explains why some of the public housing around there has been torn down. Its part of a plan, not just more parking lots

I would encourage you to stay engaged in the region - I would argue that the metro area has in many way's "turned over" from the glory days of the 50s-70s. Maisonette has a new tenant called Boca which is great. Orchids at Palm Court is a top restaurant in the entire Midwest if you ask me! (food in general in the area is amazing right now) Downtown is coming back slowly but surely, the Banks project is on phase 3, GE just moved over 1,00 employees to the riverfront and P&G is consolidating more of there people downtown on a regular basis. Over the Rhine of course is a story in and of itself, and it is pretty amazing what has happened there. And as a whole, both Cincinnati metro and Campbell County are growing (https://en.wikipedia.org/wiki/Cincinnati_metropoli...) especially with millennials and YP’s. All this to say, I clearly have a passion for the area and believe in its potential. Just trying to spread the love. 

I will continue to look into the things you bring up, and I do appreciate the advice. One question though, it appears to me that for a buy-and-hold investor, inflation and fluctuating market demand are not all bad. Of course a rising tide lifts all boats, but generally if the value of your debt decreases while rents and the number of renters increase, that's not a bad thing? The duplex does not have a view, but it is in a very walkable neighborhood with good amenities: new restaurants, shops, police and fire and convenience stores within two blocks. Both units bring about $550 right now, and all utilities are separate and updated so tenants would pay those. I am hoping to add value by slowly renovating kitchens, adding coin laundry and other income generators. I just cant start with a top level property in my price range.