This case evaluates a two-unit multifamily property in Cleveland, Ohio under a fully unlevered framework.

The goal is not to validate asking price.
The goal is to test capital durability under conservative assumptions.

Under normalized rents, expense discipline, and a 9% exit cap, the asset fails to preserve capital.

This analysis evaluates:

• True rent comparables (not listing assumptions)
• Tax reassessment exposure
• Insurance inflation risk
• Deferred maintenance probability
• Vacancy normalization
• Cap rate expansion stress
• Rehab contingency overruns

Final verdict is based strictly on capital preservation principles.
 

1. Acquisition Snapshot

Location: Cleveland, Ohio
Property Type: Duplex
Year Built: 1925
Purchase Price: $145,000
Estimated Rehab (Moderate): ~$120,000
Total All-In Cost: $277,300

2. Stabilized Operations

Gross Annual Rent: $22,200
Vacancy (8%): -$1,776
Effective Gross Income: $20,424

Total Operating Expenses: $8,007
Stabilized NOI: $12,416

Yield on Cost: 4.48%

3. Exit Assumptions

Exit Cap Rate: 9%
Implied Stabilized Value: $137,965

Equity Created (Value − All-In): -$139,335
Margin of Safety: -50%

Unlevered IRR (3-Year Hold): -16%

4. Risk Observations

• Income does not support total capital deployed.
• Rehab assumptions materially impact return profile.
• Exit valuation is highly sensitive to cap rate expansion.
• Yield fails to compensate for operational and liquidity risk.

5. Verdict

Status: FAIL

• At a 9% exit cap, this asset supports a maximum all-in cost near $120,000 to achieve a 15% margin of safety.
• Projected all-in cost exceeds this threshold by more than 100%.
• Capital impairment risk is significant under conservative underwriting.

Closing Position

This asset does not meet minimum capital preservation thresholds under conservative underwriting.

At a 9% exit cap, stabilized income supports a valuation materially below projected all-in cost. The resulting negative equity and sub-5% yield on cost fail to compensate for operational, liquidity, and execution risk.

Absent a significant reduction in basis or a structural improvement in income, this opportunity does not warrant deployment of capital.

Verdict: REJECT