I just looked at a property at 14308 Lakeshore Dr in Cleveland. It's a 17 unit brick building for 255k, with a cap rate of 24%. It looks nice from the few pictures.

In the Phoenix area that would cost over a million and that's on the low end. Even if there is a 10 percent vacancy rate AND there is a significant CAPEX, your gone be making enormous cash flow with 20% down.

I obviously don't know the local market there but I'm curious how these deals are even available and why local real estate investors aren't gobbling them up.

The lowest anything worth owning in the Cleveland area is selling for around $30,000/unit right now.

the market is telling you what the risks are ..

Originally posted by @Paul W. :

I just looked at a property at 14308 Lakeshore Dr in Cleveland. It's a 17 unit brick building for 255k, with a cap rate of 24%. It looks nice from the few pictures.

In the Phoenix area that would cost over a million and that's on the low end. Even if there is a 10 percent vacancy rate AND there is a significant CAPEX, your gone be making enormous cash flow with 20% down.

I obviously don't know the local market there but I'm curious how these deals are even available and why local real estate investors aren't gobbling them up.

Prices are still very affordable in Cleveland. Just remember to do research into which city or neighborhood it is in. Sometimes there is a reason the house might be "very" affordable.

Happy Investing!

@Paul W. Yes, that price is for real. And Yes, that property is at E. 143rd and Lakeshore and it also happens to be across the street from the wastewater treatment plant.  

I would assume that Phoenix has low end areas with armed robberies as well.  

You should be able to adjust for the difference in cost of living between our two markets to see similar pricing ratios. 

@Paul W. Yes the prices here are for real. But most of the lowest priced stuff is either in really rough neighborhoods, needs a ton of renovation, or both. Management's also a tougher to handle in the low end areas.

@Paul W.   I believe I know the property you are talking about and the agent representing it. The agent was very clear in the loopnet listing that the property has been mothballed since Jan 2014 (almost 2 years) and is in need of significant rehab.

For a property like this the question becomes  can the local market rental rates justify the purchase and rehab investment at a return you are satisfied with; a reverse engineering approach.

With out even visiting, my quick assessment was that this was a $500-$600K ($200Kish purchase + $300Kish rehab + $100Kish contingency) project and that the local market rental rates would NOT give me the returns I want for the risk.

Last sold 13k.  

The crime heat map on Trullia does not look horrible. 

Interesting opportunity but I suspect that it is a higher risk deal then the heat map implies.

I'm not sure about Trulia's crime map...I recently bought two homes in the midwest and am looking for a property manager.  I talked to someone that really sounded good on the phone - the thing that sold me is he wanted to drive by the places first to be sure they are places he is willing to hang his sign in front of because they are in "rough neighborhoods" (not so on the Trulia maps).

The thing about that building is generally speaking, if it has been mothballed since 2014, electricity has been off for over a year and that means you will need to get the electrical re-certified.  Re-certification means bringing wiring and such up to code...which could cost you more than what you would pay for the property.

@Bob E.    this begs the question how does a multi family get mothballed..

everyone on BP thinks if they buy rentals they are set.. LOL...

every market has properties and those that own them that are not capable of keeping them going.

well maybe not SF  but most other markets.

@Jay Hinrichs  I agree-  I have vacant duplex that we bought cheap, it will take 40k to get it rehabbed - the 5 unit building next door is vacant too, while working on the duplex the owner came buy and offered it to us for 35k.  I think people suffer poor management, get non paying tenants in and then find they don't have the money to do the maintenance and rehab to keep good tenants in place, they lower their rents and their standards and things spiral down until they just let it go.  

Management, either done yourself or by others, will make or break you in this business.

You can find those deals in Cleveland.  There's a reason for the price at this location.  Crime Heat Map ?  That's hilarious.  Talk to someone who has boots on the ground at E. 143rd & Lakeshore.

@Account Closed Just goes to show you can't believe everything on the internet.  We were pitched a property once that looked good on Trulia and when we asked our boots on the ground they told us that crime had gone down, because it had gotten so bad everybody moved and there was nobody left the neighborhood!

Originally posted by @Account Closed :

You can find those deals in Cleveland.  There's a reason for the price at this location.  Crime Heat Map ?  That's hilarious.  Talk to someone who has boots on the ground at E. 143rd & Lakeshore.

It's a crying shame. 14,000 sq feet of building with 17 bathrooms, a short walk to one of the largest and freshest lakes in the world - yet no-one in the world could be found to pay more than $13k for the whole thing, just three years ago! And the way this thread is going, it looks like it's current market value might still be closer to $13k than it is to the asking price of $255k! 

Come on, Cleveland! Is being poor a suitable excuse to start destroying everything in sight?

Why pull out all the plumbing ($50k damage) - for such a meagre hand-to-mouth return?

And who's knowingly buying the stolen scrap for pittance, encouraging stealing again tomorrow?

Especially as, with a LITTLE bit of knowledge and discipline, the poor could OWN such units!

Yes, it sold for $13k in 2013. But not so many years before (1997) - it was worth $632k!

It's pure cowardice and laziness to destroy things. But it SHOULDN'T be so hard to save them!

I was in negotiation to buy a 3 unit in MA. Very nice location. I sent several contractors by the property to give me bids. Not a one of them came in under $100K. Even with the favorable seller financing, sometimes a deal just can't pencil out.... Until the bigger fool comes along (usually a person with a lot of money they didn't work to hard to get) thinking they got a good bargain takes the deal down and dumps piles and piles of cash into it.

Thinking inversely, sometimes a high cap rate is a bad thing. That area is not good. When I moved to Cleveland for work I started at the crossing of lakeshore blvd and route 2 and drove east on lakeshore. I am into boating so I wanted to be near the lake. When you are in that area, you will notice bars on windows of the gas stations, people hanging outside in the middle of the day, homes boarded up, etc. I drove east until I hit Willowick/Eastlake and only then did I start to feel comfortable looking for a place for myself to live.

Originally posted by @Brent Coombs :

Originally posted by @Jim Sheridan:

You can find those deals in Cleveland.  There's a reason for the price at this location.

Especially as, with a LITTLE bit of knowledge and discipline, the poor could OWN such units!

I am going to close on a house right now. The tenants will pay in rent in the first year the cost of the home. The second year will pay for all other expenses associated with the getting it ready and operating the property. The third year will give me most of the money to buy another home.

This is an average deal in the area. Truly, I probably paid more then I needed too.  

It goes a little deeper then knowledge and discipline. Who you hang around with is what you will believe and act like. The poor really believe that they have no way out. You will not convince them otherwise. I have to remember that. You give them more then they expect and they will not work till they need more. I use local people to help me get the homes ready.  Between reading about the poor mindset and talking with them I have found this to be true. You can only help them the way they think they need help.

I know the area and it is not good. What is sad is that there are FAR worse.

To some people these properties are their bread and butter, but you do reach a mathematical threshold where the building isn't worth the repair cost.

There have been burned homes and buildings in East Cleveland that have sat like that for years. Not to mention entire blocks where there are no people.

And just like the mid 2000's people from expensive states ask how can you lose on a building that is $xxx?

The rise of the Internet has taken investment capital that would have otherwise inflated certain local markets and deployed it into cost effective markets. It has also brought out those who may have sat RE investing out due to cost in their market.

This smoothes out the inflation a bit nationally, but it also inflates markets like Cleveland more than they would naturally, due to the ease of distance investing now.

Many articles in our local business journal recently discussed how lifelong apartment reposition-ers are moving into development due to the completion in the apartment space. It is more cost effective to build in that asset class, to them.

its social and functional obsoleteness at play.. along with supply and demand  more housing than good renters or buyers.. this is what happened in Detroit.. 50k surplus homes..

The east side of Cleveland is typically a big no no zone for investing as most Clevelanders will tell you.  There are some neighborhoods and suburbs that are exceptions, but I cringe when wholesalers email me "GREAT DEALS" on the east side of town when they personally have never set foot in the city.  There are streets on the east side that literally look like war zones--extreme poverty, entire blocks abandoned and taken over by homeless and animals, etc.

That being said, that apartment is pretty close to the "Waterloo Arts District" which is a pretty trendy neighborhood that I could see further gentrifying quite a bit in the near future.  That's just my speculation, though.

Hello @Paul W. !

I am a newbie future investor that does not currently own property but I have been a Clevelander for 25 years. I have lived and rented in some of the most affluential A neighborhoods (Beachwood 44122, Moreland Hills 44022) some mid grade C neighborhoods (Maple Heights, 44137) and some absolute warzone F neighborhoods (Crestwood Avenue, Cleveland 44104 - for an accurate idea). In that F neighborhood I have literally heard gunshots every night for nearly a month, seen people conduct drug deals and advertise/offer drugs in broad daylight, gamble in the middle of the street (again in broad daylight), children younger than high school age running the streets truant, endless fighting and domestic violence, etc.... you get the picture. This was only about a mile up the street from a very historic artsy and 'boutique' block called Larchmere Blvd. Expensive condos (Larchmere Court) and trendy restaurants (Felice Urban Cafe) are right at home next to some very rough side streets. Only about another half mile or so up the road are lavish homes, a few exceeding the 500k mark. The point I want to illustrate is that Cleveland is an incredibly diverse city with its own geography. Like @James Maradits mentioned, the property you're looking at is right up the street from the Beechland Ballroom and a somewhat artsy area. I am still learning and educating myself, so I don't feel comfortable enough to offer a properly informed and appropriate opinion on your particular property. However, I would recommend you definitely coordinate with someone deeply and intimately knowledgable in our city's different areas, suburbs, and demographics. I would further urge you to find someone focused on either the east or west side of the city as they are very different in their demographics, 'sub-cultures', and neighborhoods/communities! Hopefully I offered some insight to you. If you are more interested in my own experience in a low income/violent/F Cleveland neighborhood feel free to PM me!

Hopefully someone here might work with or invest themselves in East Cleveland that can offer you greater advice and information? And if I misspoke as to the representation to our city and 'market', please someone correct me! I'm new here just trying to help in any way I can.

Waterloo would have to become the size of Tremont for that building to gain a benefit from proximity.

Cindy Barber is a great person and the Beachland is fantastic, but I don't see that type of growth anytime in the next ten years, it doesn't have the cash influx that Tremont has from all of the bars and restaurants.

Originally posted by @Ryan Arth :

Waterloo would have to become the size of Tremont for that building to gain a benefit from proximity.

 That was my thought exactly. That area of EC and Euclid is pretty desolate!

Thank you BP community for the discussion about my 17 unit offering at 14308 Lakeshore. It was interesting to read everyone's opinions and viewpoints about the offering, area and market.  All opinions aside, the property has been put under contract with a closing to occur next week and is no longer available. 

Matthew,

Good to hear! Glad the listing is working out for you! Keep us updated on it if you can.