First Cleveland Investment: Triplex showing 45% COC return. Am I missing anything?

[Golan Corshidi]

Hey all,

I used all the advice and wisdom from these channels and decided to do my first deal out of state. I would love your feedback on how you all think I did. 

I live in San Francisco and bought a triplex in Cleveland, Ohio in a Class C neighborhood. Based on my numbers, it shows a 45% cash-on-cash return. That seems way too high. Am I missing something?  Maybe I need to budget more for tenant default, vacancy, maintenance, or something else. 

Background:

I had never been to Cleveland. I did extensive research on the market and based on purchase prices and rents in the area it seemed like a good investment. I bought an almost rent-ready triplex sight unseen in September and got it fully rented within 60 days of closing. 

Numbers:

Purchase Price: $140,000

Cash Invested: $42,000

Income:

Unit 1: $1075 + utilities. Unit 2: $950 + utilities. Unit 3: $800 + utilities 

Total: $2,825

Expenses:

PITI: $980

General Maintenance: $50/month

Maintenance Reserve: $143/month 

Other Fees (admin stuff like LLC, registration fees, etc): $70/month

Total:  $1,243.

Monthly Cash Flow: $1,582

Cap Rate: 13.5%

Cash on Cash Return: 45%

I appreciate any feedback or advice on this deal as I am just starting. 

[Golan Corshidi]

Quote from @Bill B.:

You have a kick butt deal, if you generate ha;f the cash flow you’re planning on you’ll be ok. So it won’t matter if you forgot things like management fees (or the value and costs of your mistakes if you plan to self manage.) Advertising (photos and listings.) turn over costs, snow removal, and those kind of things. The big deals will be vacancy, capex and appliances. (3 water heaters, stoves, fridges, microwaves?, washers? dryers?, dishwashers? ac units, furnaces, etc etc.) best case you only have 15 of those, not 21 or 27. With an average life spans of 6 years you’ve got 2-3 per year. I know, you have “repairs”already. But that’s going to be toilets, faucets, leaks, garage doors, etc etc. 

I’m not saying you have a bad deal, or I wouldn’t buy it if it was located somewhere warmer without income tax. (Ps. Subtract income tax and tax prep from your cash flow. :-)) Run 2025 through quicken and at the end of the year you’ll have real numbers and you can come back to this post and see how close you were. Hopefully you’ve increased rents and your above expectations. 

Thank you Bill. ill add the other expenses and report back in a year!