Deal or No Deal: Cleveland, OH Commercial

[Lena Wang]

Hi, I have a deal and was wondering if someone can give me some advice. 

This is a 6 unit commercial building in Cleveland, OH. IGNORE the fact that this probably won't appreciate much. Assume buyer looking for CASH FLOW. Assume that buyer has little risk of not able to pay the balloon sum. 

Deal or no deal? @J. Martin, @Paul Choi, @Andrey Y. Others please also feel free to comment. 

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The seller purchased this almost entirely vacant and highly distressed asset in cash in 2016 and has had X company handling the management and renovations since. Now that the project is almost entirely complete the seller to recoup his cash and collect the interest on the mortgage he is holding. 

Sell price: 

$234,900

HIGHLIGHTS:

• Mortgage Terms
• 35% down payment
• Amortized over 30 years with a 7 year balloon
• 6.5% interest
• Rent Roll
• Unit 1 3 beds /1 bath. (Over 1k sq ft) Renovation under way. Market rent $750/mo
• Unit 2 1 bed / 1 bath. Currently leased $535/mo
• Unit 3 1 bed / 1 bath. Currently leased $495/mo
• Unit 4 3 beds / 1 bath. Currently leased $725/mo
• Unit 5 2 beds / 1 bath. Currently leased $625/mo
• Unit 6 Retail. Currently leased by a Barbershop for 5 years. The business owner is making
• renovations to the unit and the rent is tiered. The rent will top out at $700/mo
• Total Gross Rent $3,830/mo
• Highlights
• Each unit is separately metered for gas and electric (Tenants pay)
• Over $100,000 worth of work performed by Property Company representing the seller since 2016. Including a brand new $50,000 roof in 2017
• Current property taxes $4,377/year
• Owner pays water & sewer
• As this was a complete renovation there are no historical financials

[Jad Boudiab]

@Lena Wang based on the rent amounts, I am assuming this is located in a C grade neighborhood? I may know the exact property you're describing.

Few things to note - unless the property is held in an LLC and you acquire that said LLC, you will likely pay taxes of $8,500/year NOT $4,377/year, as the county will reassess the value to your purchase price.

Nice to see sub-metered gas and electric. Budget for water and sewer costs of $75/unit on average, a bit more if you have more occupants in the 3 bedroom units.

Does this place have a dumpster? If so, that's an additional $150/month to add to your expenses.

Best of luck, do your due diligence, and feel free to reach out if you'd like broker representation, I'm confident one of my investor focused agents can guide you well.