Section 8 Rental Deal Analysis and Hard Money Loans

[Tracy Meyers]

Hi BP Community,

I'm looking at a deal in Cleveland, Ohio and this will be my first deal. I'd like to get some perspective about the viability of this deal and the prospect of securing hard money.

The property is a single family home, with Section 8 paying the full amount of rent ($900). This is over market for the area (market rent is around $700) but the tenant wants to stay long term. I've received disclosures stating $900 is the actual rent amount so that is not a concern. Even at $700 rent it would still cash flow well.

It's in a D neighborhood but by all appearances the neighborhood is safe. The home has some high CapEx ($200 per month to set aside) since it has some big repairs that will be required in the next 3-5 years but I'm willing to overlook that since since the rent is guaranteed and over market. It looks like I'd be able to secure the deal for 15% under market value as well.

I'd like to get a hard money loan for this deal, but I understand that it's much more difficult to secure financing these days. So my questions are as follows:

1) Has anyone had success getting hard money in Cleveland since the pandemic, and if so, how did you go about it?

2) Is this a good deal? Does it sound too good to be true?

Thanks in advance for taking the time to address my questions and concerns.

[John Koster]

I know that at the right price there are examples of deals working in any area, but with the current economic situation and an uncertain near future, I would avoid investing in a D area right now, especially if you're an out of state investor.   Section 8 payments are a nice guaranteed income, but in a bad economy, a D neighborhood can become an F neighborhood quickly. If that happens, then you have:

- A neighborhood that a single mother section 8 tenant won't want to stay in.  

- A property that requires a lot of maintenance that many Property Managers won't want to work in.

- A property that is worth next to nothing that will be very difficult to sell.

In the last downturn, properties in B neighborhoods in Cleveland were selling for what C-/D+ areas are selling for now.   Many investors don't believe in timing the market, but I would rather be safe than sorry right now.  

Good luck!