How stupid is it to buy in Cleveland in hopes of Appreciation?

15 Replies | Cleveland, Ohio

I'm working with James Wise and Holton Wise's company right now to buy luxury property and make them into airbnbs. I've been running the numbers, and while some can't really cut it as an airbnb, some of these properties can kinda work as an LTR. Low COC% but they are in places like Tremont, Ohio City and Detroit Shoreway. Some of the nicer area's of Cleveland. How stupid am I being if I were to buy an expensive property in the hopes of appreciation there?

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It really depends upon your goals. I have some properties in Mississippi that cash flows well that Appreciation has been very little for many years.  I bought one property 16years ago for 40k.,If I was to sell the property it would probably be worth 60 to 65K. 

You’re looking in the wrong area for Air B&B btw way. Those are not the areas for those types of rentals. Send me a private msg and I’ll gladly help you out! 

Originally posted by @Alex Henry :

You’re looking in the wrong area for Air B&B btw way. Those are not the areas for those types of rentals. Send me a private msg and I’ll gladly help you out! 

They may have indeed maxed out their appreciation potential though. Airbnb and buying for appreciation are two very different strategies that are often hard to reconcile.

Awesome, I'm glad to hear you guys are doing so well. I would say some great secondary markets for airbnb would be Sandusky, Port clinton, and Geneva would be great places especially in the spring and summer months.

Originally posted by @Alex Henry :

Awesome, I'm glad to hear you guys are doing so well. I would say some great secondary markets for airbnb would be Sandusky, Port clinton, and Geneva would be great places especially in the spring and summer months. 



 @Alex Henryyep I like those areas a lot too! In fact I’m under contract on a house in Geneva specifically for STR. Sandusky is tricky because their zoning is very restrictive and there are only a few tiny areas where you can do it legally. Like you mentioned those areas are VERY seasonal…

Since we are in an inflationary environment  real estate purchased prior to this cycle and during this cycle will go up in value. These properties you purchase will without any doubt increase in value. Printing money  has that effect on real estate. Spend whatever you can and ride the wave with the rest of us. You just need to pay attention to your cash flow so you can operate the property without it relying on you to personally keep the property operating. 

Why does Real estate appreciate? High demand and low supply. Strong economic growth. Diversity. Population growth. And much much more. Cleveland's overall macro economic factors do not include many of the parameters I included above. There will be pockets in CLE metro that may have more of those parameters and give you the appreciation. If you want to ride the appreciation wave you should look at expensive metros and not CLE. Hope this helps..

Originally posted by @Wei Jie Yang :

I'm working with James Wise and Holton Wise's company right now to buy luxury property and make them into airbnbs. I've been running the numbers, and while some can't really cut it as an airbnb, some of these properties can kinda work as an LTR. Low COC% but they are in places like Tremont, Ohio City and Detroit Shoreway. Some of the nicer area's of Cleveland. How stupid am I being if I were to buy an expensive property in the hopes of appreciation there?

I've been doing major looking at Columbus and Clevenland Ohio, flew to Columbus a few months ago, recently found what I thought was some money-makers, but the numbers never pan out. i find that that even though the prices per unit are often around $50,000 and in Califrornia the price per unit is more than  $300,000 you will find that the profits in California are superior compared to Ohio. 

The major problems with Ohio is the property taxes appear to be 2-1/2 times higher than in California. If I purchase a $4.8 million property in California the property taxes are about $50,000 per year. Two days ago, I was looking at a $4.8 million property in Cleveland and the broker's marketing package stated the property taxes were $98,000 per year. So, I sent the broker an email to confirm the taxes and he sent back an email with calculations stating that the taxes are $198,000 per year. That is 4 times the cost for California property taxes and if I purchase the 48-unit property I would have to pay more than $36,000 out of my pocket every year to own the property. 

The other major problems with Ohio is the rents are too low and it doesn't look like rents can be increased like in California and with little to no rent increases the value of the property increase little to none. The big money is earned from appreciation and not from collecting the rents. Below are examples of a 10-unit in California for $210,000 per unit and 48 units in Cleveland for $100,000 per unit. The more-expensive property in California blows the Cleveland property to smitherines. Another problem with Ohio is the major inherent and additional costs and losses for owning out-of-state properties.

The 10-unit is in California and the 48 units is in Ohio. I will take California any day. The reason the 10-year profits are close is due to the paydown on the mortgage principal, but then I believe the expenses for the 48-unit are far below what the broker is stating because this property has an elevator underground parking.

Originally posted by @Kyle Tom :

@Jack Orthman, Born and raised in CA. I would never invest here. You forgot to mention the part where if a tenant stops paying rent in CA, you can't evict them!

 We own several apartment buildings and have to evict 1 tenant about every 4 to 5 years. It takes almost exactly 7 weeks to go through the court system up to the day a sheriff locks the tenant of of the apartment. There was 1 or 2 evictions where it took an extra 30 to 60 days, but I never get emotional because dealing with tenant problems is a part of being in the rental business. With the new laws enacted in the past 2 or 3 years, it appears that almost every tenant will contest an eviction, but in the end it will be the tenant who had been and will always be a loser. I have a tenant who has been in his rental unit for 11 months of his 1-year lease and even though he keeps the place clean and pays his rent a few days late I already sent him a Notice To Vacate because he swears at my wife and threatened to sue us because we told him he owes several late charges, never paid a $400 Cleaning Fee when he moved in and because he brought roaches into his apartment and after we had a professional pest control company treat his apartment he still threatened to sue us because he says there are roaches in his apartment, but we did several thorough inspections, gave him several products to eradicate roaches and we never saw any indication that he has a roach problem.