Low Price Properties in Cleveland - Under $50K

[Da Shiek Woodard]

Understanding these are likely D class neighborhood, what are some success/failures any of you have had with these types of properties in your portfolio?

[Andrew Postell]

@Da Shiek Woodard thanks for posting.  Lower valued homes do provide some specific challenges but they also provide some benefits as well.  While not "all inclusive" here's a list of "pros vs. cons" for properties at this price point:

Pro's
More Affordable for us
If I make a mistake, it will be a smaller mistake
More cash flow

Con's
Hard to get lending
Your expense ratio is higher (if you replace a ceiling fan, it costs the same if the property is worth $20,000 or $200,000...so the RATIO is higher at this price point)
Your class of tenant is very different
Might be hard to get a property manager at this price point (and other vendors too)

So while I was able to make a profit on these houses when I invested at this level I don't invest at this level anymore.  I have continually upgraded my properties through the years and have a good portfolio of properties.  For me, I began at $30,000 homes because I had to...I had no choice.  I didn't have the funds or resources to purchase anything higher value than that at the time.  Sometimes we don't have any choices.  But now that I do have a choice, I perform better on a different price point of home.

Hope all of that makes sense. 

[Shane Kelly]

Every person I've seen make low cost rentals in Cleveland work has been a local investor. I had someone make a connection with me interested in buying low cost rentals for a hedgefund. They didn't care at all about location, as long as it made them money and was worth more than 50k on the backend so they could refinance with their lender. Crazy to me, I don't see it working out for them. If you really want to make this work, you really need someone who can fight for you in D-class areas in the city you're interested in and knows it super well. Best of luck!

[Bob Stevens]

Quote from @Da Shiek Woodard:

Understanding these are likely D class neighborhood, what are some success/failures any of you have had with these types of properties in your portfolio?

 Hello well you are not going to get anything all in 50k anywhere in Cleveland, ( I can you cannot :))   2nd if you are trying to go it alone, I strongly recommend STOP. it will not end well. I have years of experience there with a lot of success, Again I can do it as I have a team in place, but you 100% should not. 

Good luck  

[Bob Stevens]

Quote from @Shane Kelly:

Every person I've seen make low cost rentals in Cleveland work has been a local investor. I had someone make a connection with me interested in buying low cost rentals for a hedgefund. They didn't care at all about location, as long as it made them money and was worth more than 50k on the backend so they could refinance with their lender. Crazy to me, I don't see it working out for them. If you really want to make this work, you really need someone who can fight for you in D-class areas in the city you're interested in and knows it super well. Best of luck!

 Interesting ,, every investor I have seen buy in these areas are from out of state/ country. Mostly Europe 

[Nate Sanow]

Quote from @Andrew Postell:

@Da Shiek Woodard thanks for posting.  Lower valued homes do provide some specific challenges but they also provide some benefits as well.  While not "all inclusive" here's a list of "pros vs. cons" for properties at this price point:

Pro's
More Affordable for us
If I make a mistake, it will be a smaller mistake
More cash flow

Con's
Hard to get lending
Your expense ratio is higher (if you replace a ceiling fan, it costs the same if the property is worth $20,000 or $200,000...so the RATIO is higher at this price point)
Your class of tenant is very different
Might be hard to get a property manager at this price point (and other vendors too)

So while I was able to make a profit on these houses when I invested at this level I don't invest at this level anymore.  I have continually upgraded my properties through the years and have a good portfolio of properties.  For me, I began at $30,000 homes because I had to...I had no choice.  I didn't have the funds or resources to purchase anything higher value than that at the time.  Sometimes we don't have any choices.  But now that I do have a choice, I perform better on a different price point of home.

Hope all of that makes sense. 

 Your point on ratios is a new thought to me. Brilliant, thanks for sharing that. 

[Lori Williams]

I started with a class C/D neighborhood, but I'm intentionally turning it into a Class B neighborhood, so I never had to deal with class D tenants.

Most class D neighborhoods have higher crime rates (putting your property at risk), low end tenants who are high risk of not paying their rent (why would a section 8 renter rent in class D when they can rent in class C?) and damaging your property, precisely because they are class D renters. 

It might be better to invest a little more and be in a class C neighborhood, where you'll get better rents, have a little better class of renter, and less risk overall.

I know a lot of investors rent in class D neighborhoods, but the reality is it's usually a conveyor belt of renters, damages, fixes, rinse and repeat. Your property values really don't go up (and may well go down). Your rents are low and may go down as well.

You buy a 10k property in a crappy neighborhood and the amount of rehab you have to do is probably in the neighborhood of 60k- 70k or more (roof, furnace, wiring, plumbing, mold remediation and other things to bring it up to code). And the house won't be worth 30k when you're done with it. And think what type of person would want to rent that house (because even after putting 50-70k in it, it probably won't be all that pretty and the properties surrounding it certainly won't be)

At that point, you have 60-80k in it, and you can buy a 60-80k house in a different neighborhood that's better, put 50k into it because it's not as bad off as the other house, and have a house that's worth 100k+ when you're done with it. It will qualify for financing, and then section 8, or you can get tenants who are employed and will pay their rent on time.

If you want a 50k house that's not entirely crap in a bad neighborhood, Cleveland may not be the best market, just because the prices are high. (Also, my examples are more Youngstown than Cleveland because that's what I'm familiar with)

[Bob Stevens]

Quote from @Da Shiek Woodard:

Understanding these are likely D class neighborhood, what are some success/failures any of you have had with these types of properties in your portfolio?

 Not sure whom you are speaking with but you are not buying all in for 50k or less. I can you cant :) BTW no challenges, just screen them properly and go with govt program tenants 

[Bob Stevens]

Quote from @Da Shiek Woodard:

Understanding these are likely D class neighborhood, what are some success/failures any of you have had with these types of properties in your portfolio?

I am closing on a 4 br behind the RTA in East Cleveland for 55k all in. Many (that simply do not know any better) will tell me i am crazy. Well, that's what they told me 10 years about ALL of Cleveland and the burbs , look how wrong they all were.

BTW I will get 1200 so high ROI, little more than 9k net about 17%

ITS ALL about knowledge and your team. 

[James Wise]

Quote from @Da Shiek Woodard:

Understanding these are likely D class neighborhood, what are some success/failures any of you have had with these types of properties in your portfolio?

All in for under $50k in the Cleveland market in 2023 will put you into an F-Class neighborhood.