All Forum Posts by: Ben Smalley

Ok I will circle back and let you know how it goes!

Couple points 

• Zoning will not change, you are changing the use, not the zoning and I mentioned the planning part
• I mentioned the 2nd exit which will be a large cost
• Good point, I made the assumption the head clearance was over 7'6'' which is required if not that would be a big expense
• Insulation - maybe. Many of the old homes in Cleveland do not have insulation. You would rent it as a 3rd bedroom with no insulation though?
• Plumbing I mentioned and would be a decent part of the cost 
• I wouldn't even worry about gas for a studio and make it all electric (electric HWT, Stove, radiant heat if you can) 
• Duct work - I didn't think about this because mine have electric floor heaters already. Duct work would be expensive if you had to provide
• New electrical panel and drop would be a large portion
• Laundry - is this a code thing? I do not think you need to add laundry to the basement. 
• All the other finishes can be done relatively cheap to the other costs mentioned. 

So like I said, I may have been low on my $20K estimate but at $30K in costs you're still at 15% return if you account for a small bump in water bill. The entire unit would be new, what on earth would you need to repair? There are also plenty of single nurses or sales people that would rent a really nice studio or 1 br. As many people on BP "there are good and bad tenants everywhere." 

But to each their own, I would go the 3rd unit route because I think it adds a lot of value to the property in addition to a good return. 

I gonna go ahead and disagree with @James Wise - I would 100% turn the upstairs into a 3rd unit. I am actually doing this with a property right now so I can give you specifics if you DM me.

Overall though you submit some forms to the city for a minimal fee. You will then need some drawings for a site plan which is relatively minor as well (<$1,000) then depending on the renovation that amount will vary. You will need to add a small kitchen, bathroom, and second exit if there isn't one. But overall let's say it costs $20,000. 

You will EASILY make that back in value. Look at the difference in sales price between 3-units in the area and duplexes. That alone is worth $20K. Then if you are getting $450 a month in rent that is $5,400 a year on a $20K investment which is 27% return. Even if my $20K estimate is low a 20% return is still great and adding value. Way better than an extra $100 a month in my opinion. 

If you don't have the cash or appetite for that then make it a 3 bedroom in the short term. Or if you have other investment opportunities to earn more than 20-27% then take that.

I really like Marc at Supreme windows. Great service, very honest and professional but they are a bit pricey but you get what you pay for.

I really like Pete and Pete. They will deliver and pick up the day you call if you call before noon

I like it much better now! Numbers look good. If the neighborhood is a good area (C-B) then I would do it. I know you are house hacking but is there anyway you could refinance after the renovations and get rid of PMI? Just a thought, otherwise looks good. I aim for a 40%+ cash on cash but I still think you're numbers are a little padding with costs.

I get a "page does not exist" when I click on that link

If you are self-managing and tenant is paying utilities then it could work...Also agree with everyone else, if you completely renovate a rental you won't need to worry about Capex for awhile so it seems pretty good.

Seems like a lot of work for 7% cash on cash return. If that's what you're going for then I would buy stocks with high dividends. Renovating a place takes a lot of time and energy so you better be at least getting 10%+

Overall I like Section 8 and think they are good. 

Pros: 

• "guaranteed' rent though this is subject to government funding (currently funded through HUD) but we did receive payments still during gov't shut down
• deposited to bank accounts
• tenants are generally better than cash tenants because their payouts demand it.
• See my con but because the process is difficult for tenants they are generally committed once they find a place and are settled. 

Cons:

• It takes awhile to move in a new tenant. If you purchase a building with an existing Section 8 tenant the paperwork is pretty easy and they can do it within the same month generally. For a new tenant you want to rent to, it requires you to complete paperwork and have tenant sign it and then submit to housing office. It can take a month or 2 to be approved so there is some lost rent but generally the stability offsets this.

I also want to correct some things someone else said:

• "of course, a class you'll need to take." - I never had to take a class as this is not required.
• The annual inspections ding things like: peeling paint, windows won't open, leaks, etc. All very simple that you or PM will keep in good order anyway. 
• "Section 8 requires that you accept a "median market rent" - which equated to 70% of true market." - also not true. We get the exact same with Section 8 as Cash tenants in some areas and in C neighborhoods get MORE than the market.