Whos's renting in the rust belt? Why doesnt everyone buy at those prices?

Landlord Forums & Rental Property Questions 167.6K Posts 17.3K Discussions

Hi guys,

I was just speaking to my brother via skype a few minutes ago.
He's in Australia.

I tell him Im planning on doing a road trip to Cleveland to check out some properties.

I explain to him that there are properties there going from 35K and up. He's going to be a RE agent in OZ and he just freaked out when I told him. He just could not believe how low the prices were.

So then he asks me: "Why do you want to buy there? Who's gonna rent from you if everyone can buy?"

My only answer was that I assumed people in the area had bad credit?
Then I realized how bad that generalization was. :oops:

But can someone explain this to me? I guess he had a valid point. I guess vacancies are higher in those areas but since you can purchase at such a low price, its still worth it.
Who is renting these properties?

thanks

I wonder as well. I invest only in California. But my thought process has been who is actually going to pay you rent if they can't afford to buy at those prices.

Interested to see the responses from BP members who in invest there.

A friend of mine invests in the metro area of Detroit and his philosophy is: A lot of families are getting foreclosed on, they need a place to live and a lot of them do not want to live in an apartment so they rent houses!

Many people seem to be programmed to live paycheck to paycheck, through bad times and good. Add to that the growing bias against home ownership, even among some who can afford it. And finally, the increased difficulty of getting a mortgage. Home ownership rates are declinIng even in very affordable markets.

Jon Klaus, SellPropertyFast | [email protected] | 214‑929‑6545

A lot of people would rather destroy someone else's home rather than their own. :)

There are not a lot of people with jobs that can afford to rent or buy. Ohio has been hit hard since globalizaton and the industrialization of other countries.

Shhhh ;) The problem is they can't get in financed and don't have the cash. 15 to 20K here gets you a $750 rental in a non war zone. Tenants are plentiful as they would rather have a house than an apartment.. or they have lost a house or walked away from a similar house that they owed 100k on and were paying more than the rent on an upside down mortgage loan.

I flip properties and rent in this area so I know both sides of the market. The rental market is very strong, but the the sales side of it is not for a few reasons:

1. Most lenders will not want to touch loans for such small amounts.
2. People who would be willing to buy in low priced areas typically do not have a high enough credit score, even though their income is sufficient.
3. A house for 35k will typically have city violations which require funds to be put in escrow until those violations are fixed. This takes cash, which most buyers in this market segment do not have.
4. Some people are still afraid to buy despite favorable prices/interest.
5. Many current renters would want to buy, but cannot because they had recent foreclosures or bankruptcies.

In general people in this area can buy the house they currently rent and save $100 to $200 per month in payments, but the reasons listed above prevent them from doing so.

I would be comfortable renting in this area, but be careful with your flips. You have to make sure the numbers are good and include a contingency for longer hold times.

Originally posted by Steve Sparks:
Shhhh ;) The problem is they can't get in financed and don't have the cash. 15 to 20K here gets you a $750 rental in a non war zone. Tenants are plentiful as they would rather have a house than an apartment.. or they have lost a house or walked away from a similar house that they owed 100k on and were paying more than the rent on an upside down mortgage loan.

So for 100k I can get $3750 of cash flow? Almost sounds to good to be true.

It is too good to be true. That's gross rent, not cash flow. Even if you pay cash, you have all the usual expenses. $1875 would be closer to your correct cash flow if you paid cash. Nevertheless, that's an 18% return.

Jon Holdman, Flying Phoenix LLC

Originally posted by InfusionRealty:
Originally posted by Steve Sparks:
Shhhh ;) The problem is they can't get in financed and don't have the cash. 15 to 20K here gets you a $750 rental in a non war zone. Tenants are plentiful as they would rather have a house than an apartment.. or they have lost a house or walked away from a similar house that they owed 100k on and were paying more than the rent on an upside down mortgage loan.

So for 100k I can get $3750 of cash flow? Almost sounds to good to be true.

He means $750 GROSS not cashflow.
That would be so sweet.

Doin' it all day in Atlanta. I had 12.5% net equity caps in 2008. Now, in 2011, prices are so low, and granted, rental rates have come down as well due to competition in the rental market. But even with the rental rates dropping, I have 18% net caps all day every day in non war zones. I live in south florida and cant do that in my back yard!

I dont mean to hijack your thread OP.
But Arbitrage8 I would be interested to know where in Atlanta you are getting those type of rates and what property price range?

Originally posted by Steve Sparks:
Shhhh ;) The problem is they can't get in financed and don't have the cash. 15 to 20K here gets you a $750 rental in a non war zone. Tenants are plentiful as they would rather have a house than an apartment.. or they have lost a house or walked away from a similar house that they owed 100k on and were paying more than the rent on an upside down mortgage loan.

SHHH! is right. I too am living proof that it really is a great time to be a landlord in the rust belt. I bought 3 houses last year all for under 20k and all are rented for 600 to 650 a month. I post the house and get a dozen calls a day. There are a lot of good people that are looking for houses to rent right now. Most are people that walked away from an upside down mortgage. I like these people because they take pride in your property. They know what its like to own a house. My houses are in a rural town 80 miles from Detroit so no war zones here. The economy is coming back here but if gas prices get up around $5 a gallon for any length of time you will see a full blown depression here.IMO

Originally posted by DAVID GAGE:
Originally posted by Steve Sparks:
Shhhh ;) The problem is they can't get in financed and don't have the cash. 15 to 20K here gets you a $750 rental in a non war zone. Tenants are plentiful as they would rather have a house than an apartment.. or they have lost a house or walked away from a similar house that they owed 100k on and were paying more than the rent on an upside down mortgage loan.

SHHH! is right. I too am living proof that it really is a great time to be a landlord in the rust belt. I bought 3 houses last year all for under 20k and all are rented for 600 to 650 a month. I post the house and get a dozen calls a day. There are a lot of good people that are looking for houses to rent right now. Most are people that walked away from an upside down mortgage. I like these people because they take pride in your property. They know what its like to own a house. My houses are in a rural town 80 miles from Detroit so no war zones here. The economy is coming back here but if gas prices get up around $5 a gallon for any length of time you will see a full blown depression here.IMO

The secret of the rust belt is slowly leaking out. My examples:
Metro Detroit
Purchased 3 houses 3/1 during 2010
Avg purchase price 25k
Avg rehab cost 7k
Avg Rent $825
Rented all 3 with a yard sign and before the rehab was finished..non sec 8.. 2 of the 3 tenants had a foreclosure
You can do the math :cool:

As usua,l markets tend to over react. It's like buying Citibank for $1.25 a share in 2009 or American Airlines for the same price after 9/11.

Jon Klaus, SellPropertyFast | [email protected] | 214‑929‑6545

Originally posted by InfusionRealty:
Originally posted by Steve Sparks:
Shhhh ;) The problem is they can't get in financed and don't have the cash. 15 to 20K here gets you a $750 rental in a non war zone. Tenants are plentiful as they would rather have a house than an apartment.. or they have lost a house or walked away from a similar house that they owed 100k on and were paying more than the rent on an upside down mortgage loan.

So for 100k I can get $3750 of cash flow? Almost sounds to good to be true.

I would sell 3 of my properties for 100K that are More like $2,600 net.. not trying to sell them.. Just sayin. And if you buy them distressed here this cash flow was created for 60K.

I just closed on my first property in the rust belt. It may not be the best of numbers, but it was my first property.

I'm looking for a second, and you gotta keep things quiet.. :o).. SHHHHHHHHH..

Originally posted by Ben Kevan:
I just closed on my first property in the rust belt. It may not be the best of numbers, but it was my first property.

I'm looking for a second, and you gotta keep things quiet.. :o).. SHHHHHHHHH..


WOW!!! That takes balls buying your first property 2500 miles away. I hope it works out for you. I myself want to buy some SFH in Georgia but can't seem to bite the bullet. I seem to be a bit of a control freak. Thats a habit I will eventually have to break if I want my business to grow :mrgreen:

I've been buying in the rust belt (NE Ohio) market the past four years. Won't go to Cleveland though... taxes are way to high. A county auditor being thrown in jail as a result... that and mismanagement of funds.

Honestly, I can't believe the number of great deals that are out here. William Ware's example is very common nowadays. The problem is finding the funds to carry a note for 1 to 2 year payback. As previously mentioned most banks don't loan at such a small amount and Hard Money only loans for 6 months.

Originally posted by John Buehrer:
I've been buying in the rust belt (NE Ohio) market the past four years. Won't go to Cleveland though... taxes are way to high. A county auditor being thrown in jail as a result... that and mismanagement of funds.

Honestly, I can't believe the number of great deals that are out here. William Ware's example is very common nowadays. The problem is finding the funds to carry a note for 1 to 2 year payback. As previously mentioned most banks don't loan at such a small amount and Hard Money only loans for 6 months.

I am new to the site but I too live in the rust belt and own and rent three homes. The problem I now have is that I can not get enough capital to continue to buy, rehab, and hold these properties. The surronding areas of Cleveland are really great places to live and you can find incredible deals. Most of the deals require some renovation however the homes are good bones and in good neighborhoods and rent quickly.

I do have a question John and the others what is the best way to get capital (because banks will not loan) I have been trying for the past six months can anyone point me in the right direction this is the first site that I came across where people know the real estate venture.

John Ellis, CDI, LLC | 216‑849‑6779

Hi John,

I have a property that I purchased in NE Ohio and I was able to use Peer to Peer (P2P) lending. The only problem is that they will lend you a maximum of 25k at 6 months at a time (of course you will have to make payments on time during that period). After 6 months you can re-apply for a new loan if less than 25k.

The really good thing is that you avoid banks and it does not go on your credit as an inquiry. Try searching for Prosper or Lending Club.

Hi, I have been investing in Rustbelt areas for 2 years and now own 14 1 and 2 unit houses. Many of my tenants have been foreclosed on by either the banks or the state for tax arrears. Most are section 8 so the rents are anywhere between $650 and $1000. I now buy, renovate, find tenants and sell these properties for $30-$35,000 to my friends and family with 15% net yields. [SOLICITATION REMOVED]

Originally posted by DAVID GAGE:
Originally posted by Ben Kevan:
I just closed on my first property in the rust belt. It may not be the best of numbers, but it was my first property.

I'm looking for a second, and you gotta keep things quiet.. :o).. SHHHHHHHHH..


WOW!!! That takes balls buying your first property 2500 miles away. I hope it works out for you. I myself want to buy some SFH in Georgia but can't seem to bite the bullet. I seem to be a bit of a control freak. Thats a habit I will eventually have to break if I want my business to grow :mrgreen:

The problem isn't that the property is 2500 Miles away. The problem is I live in California :o)

Originally posted by Eric Gonzales:
Hi John,

I have a property that I purchased in NE Ohio and I was able to use Peer to Peer (P2P) lending. The only problem is that they will lend you a maximum of 25k at 6 months at a time (of course you will have to make payments on time during that period). After 6 months you can re-apply for a new loan if less than 25k.

The really good thing is that you avoid banks and it does not go on your credit as an inquiry. Try searching for Prosper or Lending Club.

Thanks Eric

I will search them now I never thought of that idea I have been trying to think of unconventional ways. I will update you thanks again.

John Ellis, CDI, LLC | 216‑849‑6779