Hey all,

A couple of partners and I are getting ready to deploy some capital in medium-sized multifamily in Ohio. We are looking to get into B neighborhoods or upper end C neighborhoods. Our primary goal is consistent cash flow, not particularly worrying about appreciation. Those of you who invest in or work with MF primarily, I am curious:

1. How do you see Columbus compare to the other major metro areas (primarily Cleveland/Cincinnati) in terms of cash flow? Am I wrong to think that cap rates have declined as a result of millennial movement into the city and constraint on supply?

2. What are the reasons you chose to invest where you did?

3. Do you see population and jobs continuing to leave urban centers in favor of suburbs?

4. Besides the excitement about affordable property values and some young people taking advantage of this affordability, what are the real driving factors that will carry these markets forward and ultimately transform them into healthy, sustainable areas?

5. Are there any local resources that I wouldn't know about and should check out to expand my understanding of these questions?

Much appreciation to anyone that is willing to speak with me and help out. If there is something I can do for you to make it worth your time, please let me know. Hope to be working with some of you soon!

-Joe

I'm only going to answer first point here.

What your asking is like me saying "which city in SoCal should I buy in, LA, Orange County or San Diego" they have their own pros and cons and unless you find someone that's live in all three cities or invests in all three the answers are going to be weighted/bias.

The Cap rates have reduced because many out of state investors have come into the market and raised the costs of purchasing these homes. Sellers of MF know they have an asset someone else wants and will hold out till to get the highest possible offer. It's not longer a fire sale in the rust belt, it's a sellers market also due to the limited supply of MF

Well, yes, they are different places, but I would be able to give at least an overview of what cash flow in each area looks like relative to the others based on the factors that differentiate them.

Hi Joseph, in Columbus we are shooting for a 10% cap rate for C class and a 6-8% for B class. It is hard to obtain those with the amount of competition and limited supply of MF opportunities. Columbus is seeing tremendous growth as the population is set to double in 15 years. The skyline is also changing with all the building going on. As an example for what I mean that we are shooting for a 10% cap rate, I helped a client purchase a 16 unit last year at an an 8.4 % cap rate for a C class property on the market. However, he was able to make improvements to increase cash flow. I think you will find the ROI you are looking for by networking with commercial agents and buying something off the market.

If you're looking for cash flow at a higher rate per invested funds than lower income areas the better in Ohio. I would select Columbus over other cities not just b/c Im here but bc there are a lot of jobs here, colleges here, federal/state/local govt jobs here. Almost recession proof with the govt and higher education jobs. Not to mention the the number of corporations here. but again, if you're looking for cash flow I would be in the areas inside the outter belt but not in the hot markets. Or do value add projects close to dtown that can appreicate and cash flow heavy after rehab. Ppl are not running to the suburbs for apartments so please keep that in mind. If ppl want to go to the suburbs here they will buy a house as it's cheaper than renting. Couldn't tell you cap rates, but there are multiple areas to buy value add and raise rents as there are a few neighborhoods transitioning for the better.

Good question. I am in the same boat. I am looking to invest in MF properties as well.

I would preferred columbus over Cleveland/Dayton/Toledo ( not necessarily cincinnati)) since Columbus is growing, expanding; lot of companies moving to midwest are coming to columbus. I can go into more details.

True, MF within the 270 belt is your best option. A cap rate of 10% I would call high but you should be able to get 8/9%. I recently looked at a property, cap rate was slightly above 10 but when I visited the property after my calculations/analysis, it was not worth it. 

Neighborhood is a big factor, I would say B-/C+ is good for MF; I donot know what is your budget but you will be looking at relatively higher prices than say you were looking in Cincinnati or Cleveland. I am looking at D too.

Yes, I do see population going to suburbs and would prefer to have home of their own. But this should not deter you since there is heavy mobile population in and around columbus. I would assume 80% occupancy for MF anytime.There is so much construction going on right now. They are selling Condos in Dublin for 600K.

The growth of columbus as a city and it's stability and sustainability to economic dips proves that the market will sustain and move forward. I donot think I am too concerned about it.

 Hope it helps.

Originally posted by @Sitaram Koppaka :

Good question. I am in the same boat. I am looking to invest in MF properties as well.

I would preferred columbus over Cleveland/Dayton/Toledo ( not necessarily cincinnati)) since Columbus is growing, expanding; lot of companies moving to midwest are coming to columbus. I can go into more details.

True, MF within the 270 belt is your best option. A cap rate of 10% I would call high but you should be able to get 8/9%. I recently looked at a property, cap rate was slightly above 10 but when I visited the property after my calculations/analysis, it was not worth it. 

Neighborhood is a big factor, I would say B-/C+ is good for MF; I donot know what is your budget but you will be looking at relatively higher prices than say you were looking in Cincinnati or Cleveland. I am looking at D too.

Yes, I do see population going to suburbs and would prefer to have home of their own. But this should not deter you since there is heavy mobile population in and around columbus. I would assume 80% occupancy for MF anytime.There is so much construction going on right now. They are selling Condos in Dublin for 600K.

The growth of columbus as a city and it's stability and sustainability to economic dips proves that the market will sustain and move forward. I donot think I am too concerned about it.

 Hope it helps.

Thank you for your thoughtful response and insight. We have a budget of $500k-$750k to start out. Ideally we're looking to start slow with a couple of smaller projects to get a feel for the market we choose. 

I am curious what your take on Cincinnati is. I have a lot of family there so that is kind of tilting the scales toward Cinci over Columbus right now. Prices being lower for comparable property classes, as you mentioned, is also enticing.  

@ Joseph Todd

There are so many factors that come into play. Columbus - few data points, Facebook is opening a data center in New Albany, Amazon opened warehouse near columbus and planning another one in the surroundings. Chase is planning more construction in columbus. OSU (Buckeye) plays out too, with 52K total strength 4 largest Univ in US. So, CMH is booming ( seems like it). 

I am sorry but donot know much about Cincinnati. However based on my limited research ( through friends and families), cleveland and Toledo is not the best market.  But if you have good roots in Cincinnati, I would explore.

I am trying multiple options, maybe look at a decent property of 4/6 units and see how it plays out. Like I said, knowing the area is pretty critical. Just driving around in the last year gave me so many insights.

There are some good MF options if step out of the city little bit and in good price range. But I still need to know if they are good properties in long term.

@Joseph Todd what kind of a return are you hoping/planning to get? That will definitely determine the neighborhoods you should be looking into, regardless of the metro area you choose.

Columbus is definitely booming, Cincinnati is growing too. I'm a Cincinnati investor and agent personally, and we're seeing a lot of what's been mentioned in this thread so far as well. It's the out-of-town money that's lowering cap rates, because people from the coasts are willing to get a lower ROI that we midwesterners are accustomed to.

@Joseph Todd   

Eyy..I'm from Santa Monica too...well that's where I grew up...went to Samohi and all.  

I just moved to Cleveland a year ago to invest.  Most here will say Columbus because it's the biggest city in Ohio and they finally built an IKEA...RIP.

I kinda think Columbus is like Dallas, people already came and ate it up.  It's hard to get any good deals worth the tenant pool that you are trying to attract.  But I do feel that with a bigger population and more attractions comes more power to the landlord, you have a bigger pool to be selective with.  You'll get a better cap rate in the smaller cities like Cleveland and Cincinnati but the tenant pool might not be as strong.  

Originally posted by @Joseph Todd :

Hey all,

A couple of partners and I are getting ready to deploy some capital in medium-sized multifamily in Ohio. We are looking to get into B neighborhoods or upper end C neighborhoods. Our primary goal is consistent cash flow, not particularly worrying about appreciation. Those of you who invest in or work with MF primarily, I am curious:

1. How do you see Columbus compare to the other major metro areas (primarily Cleveland/Cincinnati) in terms of cash flow? Am I wrong to think that cap rates have declined as a result of millennial movement into the city and constraint on supply?

2. What are the reasons you chose to invest where you did?

3. Do you see population and jobs continuing to leave urban centers in favor of suburbs?

4. Besides the excitement about affordable property values and some young people taking advantage of this affordability, what are the real driving factors that will carry these markets forward and ultimately transform them into healthy, sustainable areas?

5. Are there any local resources that I wouldn't know about and should check out to expand my understanding of these questions?

Much appreciation to anyone that is willing to speak with me and help out. If there is something I can do for you to make it worth your time, please let me know. Hope to be working with some of you soon!

-Joe

 They are all VERY similar. It probably depends on what property you find. For example, if you find a property in a C- area of Columbus or a property in a B+ area of Cleveland, one is most likely going to do better than the other! If you invest in suburbs then that is really what you want to research. Compare the suburb you like in Cleveland to the suburb you like in Columbus. Either way, you gotta get down to the lower level of the research. The all over area is going to give you a lot more complicated results. 

Best of luck to you!

Originally posted by @Joseph Todd :

Hey all,

A couple of partners and I are getting ready to deploy some capital in medium-sized multifamily in Ohio. We are looking to get into B neighborhoods or upper end C neighborhoods. Our primary goal is consistent cash flow, not particularly worrying about appreciation. Those of you who invest in or work with MF primarily, I am curious:

1. How do you see Columbus compare to the other major metro areas (primarily Cleveland/Cincinnati) in terms of cash flow? Am I wrong to think that cap rates have declined as a result of millennial movement into the city and constraint on supply?

2. What are the reasons you chose to invest where you did?

3. Do you see population and jobs continuing to leave urban centers in favor of suburbs?

4. Besides the excitement about affordable property values and some young people taking advantage of this affordability, what are the real driving factors that will carry these markets forward and ultimately transform them into healthy, sustainable areas?

5. Are there any local resources that I wouldn't know about and should check out to expand my understanding of these questions?

Much appreciation to anyone that is willing to speak with me and help out. If there is something I can do for you to make it worth your time, please let me know. Hope to be working with some of you soon!

-Joe

Hi Joe, 

Just taking the 5 year projected job and population growth into account, Columbus is a far better place to invest than other cities in Ohio. As I and others have stated before on these forums, as the state capitol, with OSU graduating 6000+ students a year etc...it makes Columbus more recession proof than other Ohio cities and also and shows there is a strong ongoing need for multifamily property here in Columbus. 

@Joseph Todd I personally would focus on deep underlying trends like population growth.  Overall, Ohio has poor to negative population growth - except for Columbus, which is still drawing people in.

Columbus also is anchored by state government, large universities, and the businesses that both of those things attract.  In the aftermath of the Great Recession, I tracked the unemployment numbers for many markets around the country, and I noticed that cities that were dominated by government and universities were not hit nearly as bad as those with other core bases for their economies.

I've also noticed a trend on BP for people to be attracted to many markets solely because the high cap rates.  Cap rates are a function of demand, and the demand is affected by the underlying fundamentals.  High cap rates can *sometimes* result from markets with good fundamentals being overlooked.  (South Carolina was like that when I got into the market, which is why I focused there while everyone else was salivating over Texas.) But that is not usually the case.  Usually high cap rates reflect the market's insistence that investors be compensated more for the risk they are taking.

Another error is new investors going to high cap rate markets because they compare those markets to other markets - but they neglect to look at historical cap rates in the markets they are investing in.

If one market is trading at 6% and another is trading at 9% right now, when Market A returns to the historical level of 8%, Market B is not going to stay at 9%.  It's going to return to its historical level of 12% or whatever it was.  Investors need to take this into account in their investment decisions. 

And, even more importantly, in those high cap rate markets, they need to understand what will happen to the jobs when a recession hits.  Movements in cap rates are irrelevant unless you are trying to refinance or sell.  But a spike in unemployment will definitely hit you hard.  You should focus some analytical attention on this factor.

Hi all,

It is all dependent on your team!! I invest primarily in Lake County area of Cleveland and Akron and the team, having low vacancies, brokers, etc.... is what is important.  It is very difficult to build a team and get honest team members to help you grow your business.  Both areas are very good I am sure.  However, the blue collar areas I invest in are now about $34,000-$40,000 a unit on multifamily and I can rent 2br 1ba for about $720 and 1br 1ba for $620 a unit. 

That is tough to beat in solid C class blue collar areas.

Swanny

I am invested in Columbus but mostly in Cincinnati. I started in Columbus investing in SF. The reason I moved my investment funds to Cincinnati is that I found a very good property manager in Cincinnati.

My point is that there are properties everywhere but the most important factor  must and should be the management team!!!  A good manager will make you happy. Bad manager, even if the property is B class and up, will make you regret.

So, first look for the right manager and the rest will come.

I hope this helps

Hi @Michael Swan - I am also from California. This week I am in Ohio looking for investment properties. I spent the past couple days in Cleveland, and I found 2 multi-family units around 175k. They are both in Shaker Heights with an annual income around 28k/year. What kills is that the property tax here is so high, like 4%. After all operating cost, and without property management (they are both well-maintained properties rented to very good tenants), I will net about 7-8% cap. Wonder if it's a good investment from your point of view.

Hi Elsa,

Commercial is even higher property tax about 6% in Shaker Heights. Crazy man!!  Don't be afraid to reach out to me.  I always leave Mon, Thurs, and Fri from 3:15-6:15 available to talk on the phone with BP Nation. I am signing in Cleveland on Sat morning for my next 34 unit deal.  

122 front doors and counting now.  None in Shaker Heights and Cleveland Heights.  Focused on Euclid and Lake County right now.

Swanny