So I've been on bp on and off for awhile now while in college, however I should be graduating in the summer and getting a job finally. I've really wanted to get into multi families in Cleveland or Warren Ohio where I currently live. I'm just hoping someone familiar with the area can give me some tips. I've listened to a lot of the pod casts and done some researching of my own and it seems in Cleveland and Warren there are some pretty cheap multifamilies. Most of these seem to meet the 2% rule or more and I just keep thinking I'm missing something because people talk about how deals are hard to find. I'm interested in areas like Lakewood and shaker heights. I know the taxes are higher in these areas but seems to be fairly good neighborhoods for the most part. So I'm hoping you guys can give me some past deals and what expenses are more hidden that I should be taking into account when evaluating these properties, as well as other good neighborhoods to look into. Thanks!
Feel free to message me when you get the chance to set up a call and I would be happy to discuss. I am a local broker that covers the Cleveland multifamily market extensively
@Robert Arquilla I don't see much of anything hitting the 2% rule in the Cleveland market. Most properties are around 1% which is still acceptable. I like Lakewood as the demand is very high and the tenant quality is quite good.
As much as I like the Cleveland market though if I lived in Warren I wouldn't invest in the Cleveland market I would be investing in my backyard as I imagine the price points are pretty similar. The further away from you a property is, the more expensive and difficult everything will be.
@James Wise thanks for the input. My thought on Cleveland was it's more diverse than Warren with more listings to chose from. But I think I'll definitely try and start local but the multi family market is fairly small.
@Charlie Gagliano thanks for that. Pretty busy with school midterms and such but I'll try and send you a message when I have a break!
@Robert Arquilla - to echo the above comments, 2% rule will be hard to find. We just picked up a rental in Cleveland Hts and are looking at about 1.5%. Which we feel is very good. We would have taken 1.25% based on the property.
We specialize in Shaker Hts and between the taxes, point of sale and rental rates you will be hard pressed to compete with areas like Warren. We live locally and prefer to work in our backyard rather than further out. We also appreciate the stability of these areas and in turn the low tenant turnover and vacancy rates.
Look into what utilities the tenant pays and which utilities the LL pays. Your biggest concern will be that most MF's have the LL pay for electricity (sometimes) and water/sewage (almost always). These can account b/w $200-$700 expenses per month which most people do not account for when running the #'s. This will quickly turn your 2% home into a .5% or 0% property.
Make sure to always account for all costs that others blatantly forget:
Insurance, taxes, prop. manag. (10%), tenant placement fee (4.25%), vacancy (8.5%), big expense (10%).
Over 1/3 of your rental income will be gone due to the above, and closer to half, due to the high taxes in Cleveland. When you add on mortgage, utilities (remember you will most likely pay water/sewage which is expensive), you will begin to see the true % the property will fall under.
Good luck and never forget to overestimate your expenses; it will save you in the long run.
EXCELLENT post @Brandon Curson - curious where you got 4.25% tenant placement fee from. You're assuming PM charges 1-mon rent for placement & you're assuming avg tenant stays 2 yrs & you're assuming PM renews tenants at no/low cost? I think MFs tend to get higher turnover so 4.25% tenant placement fee might even be a bit low on MF & depends on area too re: tenant renewals
@Eric P. Thank you very much Eric. Was using 1/2 months rent for the tenant placement fee and renewed yearly, which was more of an estimate. Would agree that this cost could be significantly higher, up to 1 month's rent per year. With a good tenant, who renews several times, this cost would be reduced, minus renewal costs, however, I would agree to say to make the tenant placement fee near the 1 month's rent mark so you do not under estimate your costs.
Are you an investor in the area Eric?
@Brandon Curson I'm about to start investing in Cleveland. Get in touch if you want to chat further
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