Cleveland Multifamily 2020

25 Replies

Hey everyone, 

I've been exploring markets outside of the greater NYC area, primarily for better cash flow opportunities, and have been doing a deep dive into Cleveland, OH. There have been some very informative posts about the buying/selling process with regard to POS violations that have helped prepare me for an eventual purchase and its nuances. 

Following the 2+ year old guides that some fantastic BP members have posted I am now in the process of narrowing down to a few select neighborhoods (currently looking at but not limited to University Heights / Cedar-Lee / Parma / Shaker Heights / Detroit-Shoreway / Lakewood to name a few) to find that sweet spot of relatively stable cash flow, decent tenant pool and potential for some appreciation.  Curious to see if some of the ratings have changed over the past 2 years since creation. At this point I'm looking to take the next step in connecting with a few folks, professional agents and those that are more intimately familiar with the area to begin some conversations on my next steps towards a purchasing a few pieces of small MF property with a mindset of buy & hold.

I currently own a a few MF properties nearby that I self-manage remotely but given the distance, lack of market expertise and a growing family I would defer to a well vetted property manager on any future acquisitions in this area.

Not looking for turnkey as much as something that is a little rough around the edges - I am used to the ups and downs that come with buying in C areas for the 'best' return hence working with a great local contractor would be absolutely necessary. 

Looking forward to connecting with some great people in the near term. 

Thanks!

In general, Parma is probably the most trouble free from your list.  Detroit Shoreway can work out well, but it can be street by street and there is a lot of police cars rolling around the area after dark. Lakewood tends to be a great rental area.  Also consider West Park (44111) west of W 140 is best, but W 117 to W 140 will give better cash flow. Puritas Longmead  (44135) is similar to 44111, but best to avoid the area around 130 and Bellaire. You can also find better cash flow in Old Brooklyn (44109). The east side cities you mention are all a pain in the butt to work with due to picky rental inspections and high property taxes.

Best of luck.

Thanks Bob. I've read some horror stories about the inspections in some areas with up to 125% to be held in escrow until completion and re inspection. Details are anecdotal on what inspectors single out in certain areas (loose doorknob VS improperly pitched boiler exhaust haha) so it always comes with a grain of salt. 

Parma was on my shortlist and properties seem to go quick there, not much listed at the moment but I have my alerts set up the moment something hits the MLS.

I'll take a look into those areas you've mentioned tonight. Thanks again for the insight, much appreciated!!

Hey Garrett,

I agree with Bob in that avoiding the municipalities with the POS and more strict rental registration/inspection requirements will likely be the preferable route to go.  Parma, Lakewood, and the West side of Cleveland seem to be good fits for your needs and do not have point of sale requirements (as of now).  I would feel confident in saying that all of Parma and Lakewood will fit your mentioned criteria (although at a higher price point), but I would definitely do some research and talk with some locals about Cleveland beyond just relying on what is mentioned on some of these maps/lists going around on the forums, due to the fact that areas can be drastically different on a street by street basis.

Best of luck!

@James Maradits

There’s less then 10 doubles in Lakewood for sale. 15 sell a month - good deal pops up move quick. Like 1 day quick.

10-20 sell a month.

Lakewood is one of the most densely populated cities between Chicago and DC. However rents arnt that much different for an avg unit then Cleveland proper and taxes are much higher.

Also Lakewood has brought back POS on doubles. And they are not a breeze.....

@Victor Vella you are right about moving quick, and I see now that they have recently re-initiated the POS requirements for non owner occupied multifamily.  I actually see this as being an opportunity, however.  As I'm sure you know, prices have been skyrocketing, largely due to owner occupants "house hacking" doubles (on top of Lakewood being a very desirable place to live), so this may allow the right investors to come in and handle these repairs that an owner occupant buyer may not be able to take on and get solid properties at a little bit better of a rate.

The tax rate in Lakewood is 2.93% vs Cleveland's 2.79% so this is negligible on a property of similar value, but I am seeing rents considerably higher in Lakewood like $900-1100 for a 2 bed duplex unit in good shape.  This is going to be harder to pull off in Cleveland unless you're in an area like Tremont/Ohio City/Gordon Square-Where the property values are similar or greater than Lakewood anyways.

@James Maradits

Exactly that is the arbitrage opportunity, owner occupant doubles and taking the work off the seller and the buyer. Spot on we successfully did a few last year.

And yes tax rate basis correct, that being said I’m speaking from a dollar invested standpoint

You can buy a $50,000 in Cleveland that rents for the same as a property that costs $120,000 in Lakewood. I’m exaggerating a hair but generally b/c property values are assessed higher in Lakewood your actual tax paid out will be more


Originally posted by @Victor Vella :

@James Maradits

Exactly that is the arbitrage opportunity, owner occupant doubles and taking the work off the seller and the buyer. Spot on we successfully did a few last year.

And yes tax rate basis correct, that being said I’m speaking from a dollar invested standpoint

You can buy a $50,000 in Cleveland that rents for the same as a property that costs $120,000 in Lakewood. I’m exaggerating a hair but generally b/c property values are assessed higher in Lakewood your actual tax paid out will be more

 Exaggerating By a FOOTBALL FIELD. There's a big difference between both cities. In most cases you get what you pay for. Higher taxes and just higher gets you better neighborhood, better schooling and better police.

Originally posted by @Victor Vella :

@James Maradits

Exactly that is the arbitrage opportunity, owner occupant doubles and taking the work off the seller and the buyer. Spot on we successfully did a few last year.

And yes tax rate basis correct, that being said I’m speaking from a dollar invested standpoint

You can buy a $50,000 in Cleveland that rents for the same as a property that costs $120,000 in Lakewood. I’m exaggerating a hair but generally b/c property values are assessed higher in Lakewood your actual tax paid out will be more

 lol nooooooo. This is not anywhere near accurate. I assure you the rent difference between a $50,000 Cleveland property and a $120,000 Lakewood property is substantial. In addition, and more importantly the type of tenant and risk profile is drastically different.

@Victor Vella 100% on point from my view. I see some properties come up on the MLS in Lakewood, run my numbers within six hours and say to myself 'this would work'. Within ten days there is an accepted offer and I feel like its both reassuring to know I've spotted a potential purchase where other investors have interest but also upset that I'm not ready to go put in an offer at a moments notice. This is a big reason on why I'm now reaching out to get my ducks in a row.

@James Maradits I could see the new POS regulations as a bonus for an investor in a way. High requirements would keep the barriers to entry a bit more difficult for a buyer short on capital. Are you (or anyone for that matter) seeing accepted contracts where the seller is to assume responsibility / make an offer contingent upon a clear POS report, or perhaps reduce the purchase price some level to offset POS?

Are you guys generally seeing more cash deals in the Lakewood area? No financing contingency? This area seems so hot I would want to make sure I can compete at the same level for a deal. 

@James Wise thank you for putting that guide together. Its definitely helping me be less overwhelmed on where to dig in further. 

Originally posted by @Victor Vella :

@James Maradits

Exactly that is the arbitrage opportunity, owner occupant doubles and taking the work off the seller and the buyer. Spot on we successfully did a few last year.

And yes tax rate basis correct, that being said I’m speaking from a dollar invested standpoint

You can buy a $50,000 in Cleveland that rents for the same as a property that costs $120,000 in Lakewood. I’m exaggerating a hair but generally b/c property values are assessed higher in Lakewood your actual tax paid out will be more

 Send these $50k properties that rent for $1800 a month my way please!

Originally posted by @Garrett M. :

@Victor Vella 100% on point from my view. I see some properties come up on the MLS in Lakewood, run my numbers within six hours and say to myself 'this would work'. Within ten days there is an accepted offer and I feel like its both reassuring to know I've spotted a potential purchase where other investors have interest but also upset that I'm not ready to go put in an offer at a moments notice. This is a big reason on why I'm now reaching out to get my ducks in a row.

@James Maradits I could see the new POS regulations as a bonus for an investor in a way. High requirements would keep the barriers to entry a bit more difficult for a buyer short on capital. Are you (or anyone for that matter) seeing accepted contracts where the seller is to assume responsibility / make an offer contingent upon a clear POS report, or perhaps reduce the purchase price some level to offset POS?

Are you guys generally seeing more cash deals in the Lakewood area? No financing contingency? This area seems so hot I would want to make sure I can compete at the same level for a deal. 

@James Wise thank you for putting that guide together. Its definitely helping me be less overwhelmed on where to dig in further. 

 Generally speaking (of course this is going to vary on a case by case basis) I would expect the higher price point homes in Lakewood to have fewer POS violations and require less repairs so this might not prove to be a huge hinderance.  It is fairly common to request that POS violations be completed by seller when making an offer.  I've done plenty of these with clients in the Eastern suburbs where POS is common.  Assuming POS violations may give you added leverage on a deal if need be, but it would be ideal to not have to get involved with the process if you can have the seller handle it.

I wouldn't say you necessarily have to be making a cash offer to land a deal in Lakewood, but obviously it helps.  A lot of the lower price point/value add type deals will definitely attract cash buyers and be harder to compete with, but most of the turn key/higher end stuff won't make sense for cash buyers to mess with so financed offers are common here.  If you're giving the seller what they want and not asking for repairs or concessions, your offer will likely be considered reasonable.

@Garrett M.

Our team did $1,200,000 in acquisitions last year with most units in Lakewood. Singles, doubles, flips.

I can tell you if it’s a deal in a higher demand part of Lakewood you gotta play ball. You either pony up in price, strong offer, and if it’s the right fit.....Pony up on Price/strong offer/quick close/ removal of contingencies. 25% of the time on good deals 72 hours is too late.

Feel free to pm me - Id be more then happy to give you more thoughts as a fellow investor

@James Maradits

I didn’t say there’s 50k properties that our renting at $1800.

You said avg rent for an ok duplex unit n Lakewood is $900-1000 I agree. You mentioned prices sky rocketing b/c of owner occupants - that’s the core of what I’m saying as an investor I don’t care what the rent is I care about

- ROI

- ROT ( return on time/money velocity)

- Return on Capital

- appreciation/risk with market cycles

- Liability

The cheapest Duplex in Lakewood currently is listed for $149,000 and combined rent of less then $1400 a month ( last time I looked)

My point is sure rents can be raised a few hundred dollars, but let’s say you raise $600 for the overall unit. And your $800 a month more then a Cheap duplex assuming value stayed the same your locking up $100,000 for 10 years to return that capital and still have the asset. And during that time b/c values are higher in Lakewood your holding cost are longer which would make that time even longer. ( I obviously get you can change numbers with debt)

Ultimately what I’m saying is prices are stupid in Lakewood for rentals as an investor if you pick one up. Consider the current market conditions now. There’s not a lot selling right now. 10-15. The issue is lack of supply. B/c of this there’s duplexes that are selling for $250,000 that are half way nice. What happens when supply changes.

That being said I did pickup a $75,000 single that needs $5,000 and rents for $1500ish 😁 In a great location on east side

@James Wise

Agree dramatically on the risk profile, buy the wrong street in Cleveland good luck exiting, vacancy I get it. That’s why I don’t put more then 15% of my portfolio in a property I can’t exit quickly ( based on current market day supply and some comp data)

I’m just saying in Lakewood your investment is getting diluted b/c of rediculous prices, values and now (again) point of sale items. Strictly as a rental. But that’s up to each individual investor to make that determination. There’s always two sides of a trade 😁

@Federico Gutierrez

Lol yes on cashflow. I’ll give you two football fields.

I think meant to imply Return on capital on Lakewood as strictly as a rental is tough for me as an investor to see with my own glasses.

I just sold a duplex that had one tenant $650 other unit vacant for $200,000. It’s a classic probably $2,000/a month unit. Clean unit.

From an ROI perspective I should have raised rent on the tenant to make the property more marketable but not my style when we only have possession for a short time. Probably would have sold for $215,000 if I did.

Victor,as a Cleveland resident for 28 years, with a little experience in flipping/rentals in west side and Lakewood,I agree with you! I am looking to restart my fixing houses life.Actually I olmost bought a rental house on W 100th.,but my low FICO and luck of knowledge(plus my busy schedule as a truck driver),don't helped me out. I will really like to meet and talk(learn) from people like you,especially when I have the help and inspiration from family that I have!  With $45 000 you can buy a duplex,in need of repairs($15 0000-$20 000),with willing to help inspectors,happy to pay more tenants(after repairs and improvments). Plesse let me know if you have the time to squeeze in your busy schedule a phone call to discuss further! Thank you!

@Garrett M. I have been active in Cleveland since 2014 or so.  This is one of the better threads I have read as far as location advice goes.  Thanks for kicking that off.

@Victor Vella  I agree on Lakewood, but there is a lot of opportunity in and around the greater MSA as well as further south into Akron.

@Viorel Naidin

Hey Viorel id gladly connect to share my experience, and thoughts as an investor. I have a similar start - born and raised in Cleveland, worked full time, did real estate on the side with the guidance of family. 10 years later I had the opportunity to go down the agent vs investor route ( or both)

I chose investor, it’s important to find your right role for your personal risk tolerance, time, energy etc.

Ill pm my contact info give me a ring

@Garrett May you are way overthinking,  buy everywhere ( to a point ) .  The areas you listed will not be your better cash flowing, MAYBE you will be at 7- 8% net caps. ,10 -14% net caps are to be had. Its ALL about your team. 

Good Luck 

Welp, in short and echoing what most Cleveland investors on BP are saying I believe that the Lakewood area is at a local top, at least for the time being with the hype train being in affect for some time now. I'm currently on the fence on buying in another well established area, like Lakewood, or looking into other areas that have more potential upside. 

Unless a screaming deal comes along that other investors don't see (unlikely) ill be looking into other areas that have potential (though not my main driver) for appreciation with 10+% returns (cash on cash) like Old Brooklyn/Parma/Euclid but are less of a 'sure thing'.

Not too much inventory on the market at the moment in some of the previously mentioned spots but I'm going to be ready to jump if something comes up. 

Would anyone be able to advise as to how difficult it is to find a qualified tenant in some the those areas like Parma/Euclid/Brooklyn/West Park? I admittedly am a bit spoiled owning property in NYC where I can post an ad and get over dozen interested responses in a matter of hours so I'd want to level set my expectations here. 

West Park and Parma are the easiest ereas to find qualified tenants (from your list).   Old Brooklyn & Euclid less so, but still pretty easy.

Originally posted by @Garrett M. :

Welp, in short and echoing what most Cleveland investors on BP are saying I believe that the Lakewood area is at a local top, at least for the time being with the hype train being in affect for some time now. I'm currently on the fence on buying in another well established area, like Lakewood, or looking into other areas that have more potential upside. 

Unless a screaming deal comes along that other investors don't see (unlikely) ill be looking into other areas that have potential (though not my main driver) for appreciation with 10+% returns (cash on cash) like Old Brooklyn/Parma/Euclid but are less of a 'sure thing'.

Not too much inventory on the market at the moment in some of the previously mentioned spots but I'm going to be ready to jump if something comes up. 

Would anyone be able to advise as to how difficult it is to find a qualified tenant in some the those areas like Parma/Euclid/Brooklyn/West Park? I admittedly am a bit spoiled owning property in NYC where I can post an ad and get over dozen interested responses in a matter of hours so I'd want to level set my expectations here. 

 Of all the properties you mentioned Old Brooklyn is going to have the lowest quality tenant base. The heart of West Park IE the Kamms Corner area will have the highest but will drop off considerably the further you get from Kamms Corner.