Full Steam Ahead!


In my last post we talked about a great deal on 24 unit we found in East Cleveland. Since then we have closed on the property, sold it to a Canadian investor, brought in the rehab crew, hired a roofer, and hired a property manager who is actively working on filling all available units. Everything is moving along nicely. I love it when a great plan comes together. But it's all old news now. We're moving forward on our next investment opportunities.

I was back in Cleveland in mid-February looking at more properties and ran into 2 large properties which in some ways were the same, and in others vastly different. Both properties were in the 70 unit size, built about the same time with a similar layout, multiple buildings, all 2-story on nice properties in a good neighborhood for the area, but that's where the similarities end. The first property is in receivership and currently running at about 50% occupancy, has had a fire in a storage area in the basement of one building (covered by insurance), a burst hot water line in another building which damage a few units, needs newer, more efficient boilers, new windows and some other maintenance or rehab work. The property would probably come in at the $1M mark and would need $150K to $200K for new boilers and some rehab. At $1.2M with the required rehab, and brought back up to a respectable 90% occupancy, the property's NOI should be over $200K per year. That's almost a 17 CAP!

The property next door is about the same size, but it's been well maintained over the years with a more efficient central boiler system, new windows, clean, bright interiors, and really nice units, and a 98% occupancy rate. The property is not in distress, and could probably be acquired in the $2M range, and assuming similar operating expenses would be a solid 10 CAP or better.

So which is the better deal? It all depends on the investor. The first property has some issues but can be a great opportunity for an investor who can't afford the 2nd property. It will need some work done immediately, and some other work done as profits allow to bring it up to the same level as the more expensive property, but it's a great asset, and will appreciate with every dollar spent on it. The second property is also a great value for someone who can afford the higher price tag, and they will have the benefit of minimal ongoing rehab or maintenance costs due to it's excellent condition. We're hoping we can find both types of investors and hook them up with these properties.

I'll be back in Cleveland in a week looking at a few more unique properties that we've discovered. One is an 18 unit just down the road from my buildings which has a lot of promise in the $200K range. It should come in at about an 18 CAP and be a great investment for someone. There's also a really great opportunity we ran across last trip that includes 2 buildings next to each other. One was only recently shut down by the bank so it should still be in relative good shape, but the other has been boarded up for a few years and is probably a total write-off. What makes it interesting is how does one go about marketing this situation, and what requirements will the local council have of the purchaser? We'll keep you posted.

This is just a sample of what we're looking at in just one market. Starting in April we'll also be looking at a couple of great markets in Texas, and my partner is always on top of the deals in Georgia and Florida. We're also aligning ourselves with a financing group that specializes in financing the types of deals our investors are doing. We'll have more on that at the end of March.


Comments are closed.