2 Years, 9 Properties, 33 Units…On The Job Training in Cleveland

21 Replies

It’s been some time since my last conversation starter and a lot has transpired since then. Below is an update to assist investors on whether Cleveland’s low priced multi-family market is compatible with both their personality and lifestyle.

After acquiring my first triplex in April 2016, I proceeded to buy 8 properties totaling 30 units. I sold two of the properties so now I have 7 properties totaling, 29 units. Current occupancy rate is 86%.

All of the properties are in Cleveland, OH with the exception of one triplex which is located in Canton. I’m not thrilled about Canton but it was too good of a deal to overlook. I bought it for $8K and the monthly rent now totals $1,425. To date, it’s the sweetest deal I’ve done.

On my first property sold, here are the numbers:

Net Purchase Price: $15,806
Net Rental Income: $2,781
Seller's Net Proceeds: $29,846
Total Income: $32,627
Return: 206%

If you understand numbers, don’t buy a stinker and know how to manage, you’ll make money. I say “know” because you must manage even if you hire a Property Manager. I look at my properties as children. They’re birthed at acquisition, rehabbed during infancy, stabilized throughout the teens and sent off once they are ready for college and LIFE UNIVERSITY. Even when you have a Property Manager, you must check-in periodically just as you would with a daycare. The property will dictate your check-in frequency. My properties with 2-3 units require bi-weekly or monthly check-ins whereas my apartment buildings require weekly attention. Apartment buildings are often glorified but they require much oversight, at least in Cleveland’s lower tier market.

Given investor’s fascination with Cleveland and rightfully so, let me share a few things about my experience with Cleveland as it relates to the lower income communities and the high yielding properties. Let’s start with the worst first:

CONS

  • Contractors cannot be trusted. Even if you do use one contractor for a large portion of your business, periodically use others for small jobs. This gives you options in the event you’re contractor goes afoul, becomes overwhelmed with work or provides a pricey quote. When advance payment is required, gradually pay in phases (15% - 25%).
  • Do not give tenant leads a chance. One bad apple can ruin the batch. If a tenant has a recent or lengthy criminal rap sheet, look the other way. You’re better off having a vacant unit rather than a vacant property. In addition to losing your shirt, you’ll lose your hair.
  • It will be a hassle to collect rent from certain tenants. Typically, I give tenants a 1-week to 2-week window before issuing the 3-day notice. 2-weeks is given to longstanding tenants.
  • Every day is a different day. Leaks, fires, robberies, shootings, evictions, tenant conflicts…it all comes with the territory. Be equipped to handle the unexpected.
  • It can be pricey to reach Section 8 compliancy The Section 8 code is strict and is subject to the inspector’s perspective. Therefore, if one inspector cites a deficiency that another didn’t list on the prior inspection, it’s back to the drawing board with another scheduled inspection. It can be tough sledding especially when you tack on CMHA’s inadequate response time.
  • The water and sewer rates are OUT OF CONTROL and The Water Dept is the Cleveland Mafia. I disputed billings at one of my properties. My attorney went to the Water Board hearing and mentioned their use of numerous charts supporting their position. He said it was a waste of time and money. As the mob says, “F U, PAY ME!”

PROS

  • Certain tenants are like clockwork with rent payment. Some will even pay early before the month begins. Section 8 is pretty sweet in this regards…deposits hit the 3rd of the month.
  • Security deposits will save you. Be sure to charge the appropriate amount.
  • For Buy & Hold investors, once a property is stabilized, the real fun begins
  • Late fees make untimely payors slightly welcomed. I have a two year tenant that consistently pays $50 in monthly late fees. Even after working with him on the rent due date, he's still late. Don't really understand the rhyme to his reason...some things are best left unanswered
  • You don’t have to be local…landlording only requires a phone and a computer. Initially I micromanaged from NYC, now I live overseas.
  • The triplex serves as the best combination of cash flow and time commitment.

If you’re willing to allocate the time and are competitive, Cleveland’s lower end market may be a suitable fit for you. If you’re passive, timid or indecisive, steer clear or have someone qualified to micro manage your property.

Do the PROS outweigh the CONS? To me, they do. Investing in these properties have given me the freedom and flexibility to resign from my job at 32, live internationally, wake up at the time of my choosing and still get paid on the 1st & 15th. Pretty sweet options if you ask me.

-Mr. 1st & 15th

Adjacent Properties Corp.

Originally posted by @Tyrell Perry :

It’s been some time since my last conversation starter and a lot has transpired since then. Below is an update to assist investors on whether Cleveland’s low priced multi-family market is compatible with both their personality and lifestyle.

After acquiring my first triplex in April 2016, I proceeded to buy 8 properties totaling 30 units. I sold two of the properties so now I have 7 properties totaling, 29 units. Current occupancy rate is 86%.

All of the properties are in Cleveland, OH with the exception of one triplex which is located in Canton. I’m not thrilled about Canton but it was too good of a deal to overlook. I bought it for $8K and the monthly rent now totals $1,425. To date, it’s the sweetest deal I’ve done.

On my first property sold, here are the numbers:

Net Purchase Price: $15,806
Net Rental Income: $2,781
Seller's Net Proceeds: $29,846
Total Income: $32,627
Return: 206%

If you understand numbers, don’t buy a stinker and know how to manage, you’ll make money. I say “know” because you must manage even if you hire a Property Manager. I look at my properties as children. They’re birthed at acquisition, rehabbed during infancy, stabilized throughout the teens and sent off once they are ready for college and LIFE UNIVERSITY. Even when you have a Property Manager, you must check-in periodically just as you would with a daycare. The property will dictate your check-in frequency. My properties with 2-3 units require bi-weekly or monthly check-ins whereas my apartment buildings require weekly attention. Apartment buildings are often glorified but they require much oversight, at least in Cleveland’s lower tier market.

Given investor’s fascination with Cleveland and rightfully so, let me share a few things about my experience with Cleveland as it relates to the lower income communities and the high yielding properties. Let’s start with the worst first:

CONS

  • Contractors cannot be trusted. Even if you do use one contractor for a large portion of your business, periodically use others for small jobs. This gives you options in the event you’re contractor goes afoul, becomes overwhelmed with work or provides a pricey quote. When advance payment is required, gradually pay in phases (15% - 25%).
  • Do not give tenant leads a chance. One bad apple can ruin the batch. If a tenant has a recent or lengthy criminal rap sheet, look the other way. You’re better off having a vacant unit rather than a vacant property. In addition to losing your shirt, you’ll lose your hair.
  • It will be a hassle to collect rent from certain tenants. Typically, I give tenants a 1-week to 2-week window before issuing the 3-day notice. 2-weeks is given to longstanding tenants.
  • Every day is a different day. Leaks, fires, robberies, shootings, evictions, tenant conflicts…it all comes with the territory. Be equipped to handle the unexpected.
  • It can be pricey to reach Section 8 compliancy The Section 8 code is strict and is subject to the inspector’s perspective. Therefore, if one inspector cites a deficiency that another didn’t list on the prior inspection, it’s back to the drawing board with another scheduled inspection. It can be tough sledding especially when you tack on CMHA’s inadequate response time.
  • The water and sewer rates are OUT OF CONTROL and The Water Dept is the Cleveland Mafia. I disputed billings at one of my properties. My attorney went to the Water Board hearing and mentioned their use of numerous charts supporting their position. He said it was a waste of time and money. As the mob says, “F U, PAY ME!”

PROS

  • Certain tenants are like clockwork with rent payment. Some will even pay early before the month begins. Section 8 is pretty sweet in this regards…deposits hit the 3rd of the month.
  • Security deposits will save you. Be sure to charge the appropriate amount.
  • For Buy & Hold investors, once a property is stabilized, the real fun begins
  • Late fees make untimely payors slightly welcomed. I have a two year tenant that consistently pays $50 in monthly late fees. Even after working with him on the rent due date, he's still late. Don't really understand the rhyme to his reason...some things are best left unanswered
  • You don’t have to be local…landlording only requires a phone and a computer. Initially I micromanaged from NYC, now I live overseas.
  • The triplex serves as the best combination of cash flow and time commitment.

If you’re willing to allocate the time and are competitive, Cleveland’s lower end market may be a suitable fit for you. If you’re passive, timid or indecisive, steer clear or have someone qualified to micro manage your property.

Do the PROS outweigh the CONS? To me, they do. Investing in these properties have given me the freedom and flexibility to resign from my job at 32, live internationally, wake up at the time of my choosing and still get paid on the 1st & 15th. Pretty sweet options if you ask me.

-Mr. 1st & 15th

Adjacent Properties Corp.

Well done sir. Very cool. What neighborhoods are the other properties in? 

Awesome! Glad to have some reassurance as I'm looking to scale up in a similar fashion in the Cleve! 

@tyrell perry
Great job Tyrell. What percentage of your units are section8? From my experience, CMHA is tough to deal with but getting paid on the 3rd is sweet. The issue is sometimes the inspector can be a stickler for little things. How do you keep your ‘eye’ on your property manager long distance? I also find it difficult to find CONTRACTORS in this Hot market. How do you manage that piece? They are backed up for 2-3 months.

@Dillon Eversole I think Cleveland is the best lower end market given its sound economy, market rents, available inventory and low entry point. When I evaluate comparable low-end metro markets (Detroit, Kansas City, Milwaukee, Indianapolis, etc), I look to see how their attributes stack up to Cleveland. Kansas City, Milwaukee and Indianapolis may have economies that are more solvent than Cleveland, however, Cleveland outperforms these markets in the remaining metrics. When it comes to non-metro markets, there may be cities with better deals than Cleveland but chances are, Cleveland has a stronger economy. Canton and Akron have low entry points (not as much inventory as Cleveland) but there are far less employment opportunities. 

@Alan Zee Only 1 of my units is Section 8. I assist a few buddies and one of their tenants is Section 8. I've went through the process twice. For my unit, I had an inspector cite cobwebs in the basement. The follow-up inspector thought the deficiency was ridiculous and could care less. The key is having a contractor or Project Manager that is familiar with the Section 8 code. Section 8 like most things in life comes with a little in-air turbulence followed by a smooth landing. In regards to my Property Manager, I communicate primarily via text. My contractors typically come through other owner referrals. When I scout or buy a property, I ask the owner of the contractors in place. I ask a few questions to gauge the contractor's workmanship and price. If they pass the initial gauge, I'll give them a small job. If they're good, I keep them in the rolodex. My existing contractors and Property Managers are other sources for referrals. There are times when I have to go online but I keep that to a minimum. 

Originally posted by @Tyrell Perry :

@James Wise Thanks. Neighborhoods are Glenvile, St. Clair-Superior, E. Cleveland, Union Miles

Man, congrats. It really takes some chops to wrestle in the tenant base and grab yourself some profit on neighborhoods like that. Many try and fail, especially folks out of state. Glad you have your systems worked out. 

@Tyrell Perry   You intentionally keep minimal section 8 tenants? 1/29 is section8. Is this because you want to avoid these tenants or avoid dealing with CMHA?  Are you invested in the C/B neighborhoods in Cleveland? 

@Michael Plante Checking in means requesting and retrieving a property update. The updates are primarily through my Property Manager. From time to time, my contractors will alert me of an issue. 

@Alan Zee Not intentionally. I pursue the qualified first come/first serve having both the security deposit and 1st month rent. Definitely not invested in B neighborhoods and I may have something in a C or C- area. The grading at times can be subjective. Additionally, just because it's a grade "F" neighborhood, doesn't mean it's a grade "F" street. 

@Tyrell Perry

Very well done sir. Im trying to do domething similsr to you in thst ive acquired 3 properties and 5 units in cleveland over tge last 6 months and am looking to get more. Mine are in 44105 and 44120. 

Keep up the good work man.

Originally posted by @Alan Zee :

@Tyrell Perry   You intentionally keep minimal section 8 tenants? 1/29 is section8. Is this because you want to avoid these tenants or avoid dealing with CMHA?  Are you invested in the C/B neighborhoods in Cleveland? 

 The CMHA program has tons of red tape. It is typically the program itself that leads investors to avoid it.

Things like long wait times for inspections, no direct point of contact and inspection criteria that changes with the mood of the inspector are all things that make dealing with CMHA much more difficult than it needs to be.

@Tyrell Perry

Just curious as to how you were able to scale from a single triplex to 30 units in 2 years. Did you buy mostly tri-plexes and 4 plexes? Did you use the BRRRR strategy ? I assume you had a w-2 for those 2 years in order to finance the deals? Thanks

@Alan Zee Currently I have an 8-unit apartment building, 6-unit apartment building, 3 triplexes and 3 duplexes. The two properties sold were duplexes. I'm selling another duplex now in the event you're interested.

As for financing, I had a solid paying W2 job and I reinvested the funds from the rent and the properties sold. None of my properties are financed, I own them all free and clear. 

That’s amazing, very interested in getting involved near that area. Can you give an example of you more typical deal as far as purchase price, expenses net cash flow? Obviously we can’t hope for a 200% return on every deal. Just want to know what to expect. Thanks!

@Ari Lasky Returns fluctuate based on a number of factors (unit quantity, purchase price, occupancy rate, repairs required, contractor costs, etc.). With that said, within 2.5 - 3 years, I expect to fully recoup my investment on multis of 4 units and under. During the first year, returns may be low as the property is being stabilized. Post stabilization, returns will increase substantially and the operating margin should range between 30% - 60%. 

I target properties under $25K, anything above that amount needs to be stabilized generating a 30%+ return. 

tyrell thank you for the incredible insight . Loaded with good info and very inspirational.I look forward to your posts in the future . Could you please give me some insight on what criteria you use for screening tenants in these lower income areas . Obviously credit score is something you probably overlook or atleast are leanant on .