Vacancy % & capEx on multi-family properties in Cleveland

Member since 2021 · 4 posts · 2 votes

Hello Everyone! I'm looking to invest on a multi-family home in Cleveland. This will be my first multi-family purchase, I'm having hard time calculating possible operating expenses and vacancy rate on a property since most of the properties don't have this information listed. This will help me gain good understanding on cash flow.

I wanted to check what % of income is your operating expense and vacancy rate been so far on average for your multi-family homes?

1 Reply

49 views

Most Popular Reply

Nate Hedrick

Rental Property Investor · Cleveland, OH · Member since 2016 · 42 posts · 20 votes

Agree with @Bryan Thomas

This stat about Cleveland is often quoted bit I think it's a bit misleading. While general population decline can certainly be a negative factor when choosing a real estate market, it doesn't provide any insight into the metrics within that market's neighborhoods. My vacancy remains extremely low and cash flow is extremely solid.

I don’t have enough personal experience in Columbus to weigh in there.

3 Reply

See this reply in the discussion

10 Replies

Jump to latestLatest

Sort by

Nate Hedrick
Rental Property Investor · Cleveland, OH · Member since 2016 · 42 posts · 20 votes
5y
Hi @Varun Garg, where in Cleveland is the property located? Vacancy rates can vary by individual city.
CapEx will also fluctuate based on the condition of the property. I usually use 5-10% of rental income as my monthly CapEx reserve but that's only for my initial analysis. Once I have a property inspected I adjust based on the actual anticipated need. For example, if I know it's going to need a new roof and probably a furnace in the next 5 years, I make sure the costs of those items are accounted for in the monthly CapEx reserves.
2 Reply
Bryan Thomas
Realtor · Lakewood, OH · Member since 2016 · 37 posts · 13 votes
5y
@Varun Garg hi varun, feel free to send me some example properties that your looking at and I can give you a better idea of % vacancy and capex.
1 Reply
Varun Garg
OP
Member since 2021 · 4 posts · 2 votes
5y
@Nate Hedrick

@Bryan Thomas

Thanks for the response. I did more research on Cleveland, it seems like population in Cleveland is declining at a rate of 0.5% YOY. This is concerning a bit for me from investment stand point (nothing personally against Cleveland). Since this is my first investment, I'm just trying to be cautious here. How has Cleveland turned out for you from investment stand point?

Columbus seems to be good option, any experience on owning a multi-family home in Columbus?
1 Reply
Marc RiceBusiness Member
Real Estate Agent · Columbus Cleveland Dayton, OH · Member since 2018 · 2k+ posts · 1k+ votes
5y
@Varun Garg
Cleveland does have a decreasing population but makes up for it in strong cash flow. The issue is you’ll also have much higher headaches with the Cleveland properties which will hurt your long term returns.
I’d recommend to check out Columbus as well so you can see how a market with increasing population and job growth compares. Both markets are great, you’ll just want a solid local team who can guide you through the purchase and stabilization process.
[email protected]614-363-2787
Marc Rice | Investor Friendly Agent at Reafco Tailwind Team574 Reviews
Website View Page
1 Reply
Remington LymanBusiness Member
Real Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes
5y
Originally posted by @Varun Garg:
Hello Everyone! I'm looking to invest on a multi-family home in Cleveland. This will be my first multi-family purchase, I'm having hard time calculating possible operating expenses and vacancy rate on a property since most of the properties don't have this information listed. This will help me gain good understanding on cash flow.
I wanted to check what % of income is your operating expense and vacancy rate been so far on average for your multi-family homes?

I have never calculated this. I just try to buy at steep discounts compared to what the market prices are.

[email protected]614-541-8475 Podcast Guest on Show My Job Laid Me Off, So I Replaced My Salary with Rentals
Reafco512 Reviews
Website View Page
2 Reply
Bryan Thomas
Realtor · Lakewood, OH · Member since 2016 · 37 posts · 13 votes
5y
Originally posted by @Varun Garg:
@Nate Hedrick

@Bryan Thomas

Thanks for the response. I did more research on Cleveland, it seems like population in Cleveland is declining at a rate of 0.5% YOY. This is concerning a bit for me from investment stand point (nothing personally against Cleveland). Since this is my first investment, I'm just trying to be cautious here. How has Cleveland turned out for you from investment stand point?

Columbus seems to be good option, any experience on owning a multi-family home in Columbus?

In the right areas, I don’t feel that population decline. Units get leased up within a week and I’ve had plenty of applications to choose from for quality tenants.

0 Reply
Nate Hedrick
Rental Property Investor · Cleveland, OH · Member since 2016 · 42 posts · 20 votes
5y
Agree with @Bryan Thomas

This stat about Cleveland is often quoted bit I think it's a bit misleading. While general population decline can certainly be a negative factor when choosing a real estate market, it doesn't provide any insight into the metrics within that market's neighborhoods. My vacancy remains extremely low and cash flow is extremely solid.
I don’t have enough personal experience in Columbus to weigh in there.
3 Reply
Brandon SturgillBusiness Member
Real Estate Broker · Columbus, OH · Member since 2013 · 3k+ posts · 1k+ votes
5y
@Varun Garg we typically operate managed properties at between 20-30% of gross income...my advise is to plug in 40% operating expenses, or even better, run scenarios at 30%, 40% and 50%...see what the best and worst case returns look like.
I know it's a common misconception, but capex is not an expense...it's a set-aside and it's depreciated once incurred...think "capital investment"...
937-979-7000
Realize Multifamily Group11 Review
View Page
2 Reply
James MaraditsPro Member
Real Estate Broker · Cleveland, OH · Member since 2015 · 239 posts · 224 votes
5y
Originally posted by @Marc Rice:
@Varun Garg
Cleveland does have a decreasing population but makes up for it in strong cash flow. The issue is you’ll also have much higher headaches with the Cleveland properties which will hurt your long term returns.
I’d recommend to check out Columbus as well so you can see how a market with increasing population and job growth compares. Both markets are great, you’ll just want a solid local team who can guide you through the purchase and stabilization process.

2 Reply
James MaraditsPro Member
Real Estate Broker · Cleveland, OH · Member since 2015 · 239 posts · 224 votes
5y
Varun,

Unfortunately there isn't a one size fits all answer for this. Your operating expenses will vary greatly based on quite a few factors. Location, property type (single vs multi, older vs newer, etc), and management will all need to be taken into consideration.

"A" class properties will generally be less expensive to operate than "B" class properties, "B" than "C" and so on..

Properties that have been well maintained or preemptively updated with modern plumbing, appliances, etc will be less expensive to operate due to less maintenance issues occurring.

Single family will generally have less operating expenses due to tenants typically being responsible for all utilities, landscaping, etc, opposed to multifamily which often times has shared water (or other utilities) and perhaps some landlord paid expenses to maintain landscaping or common areas. In my experience in the market, my single family tenants generally tend to stay longer terms than multifamily tenants.

Management will be a big expense if you're not self managing. It's safe to assume a property manager will take roughly 10% of the gross rent each month, and charge 1 month's rent to place a tenant. If you have a turnover every year management alone will have you effectively only operating off of 9-10 month's rent after they take their fees.

Like @Brandon Sturgill mentioned, it would be a good idea to run numbers at various levels to check for worst case scenario outcomes and make sure that the numbers work at different levels.
1 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.