First-timer out-of-state, Cleveland vs Detroit vs ???

First-timer out-of-state, Cleveland vs Detroit vs ???

Member since 2023 · 5 posts · 9 votes

Hey, BiggerPockets. First timer here, I live in Seattle, WA houses here are too expensive to make a mistakes for first timer, so I am considering start small from more affordable areas, like Detroit Metro Area or Cleveland, or maybe other locations more seasoned investors can recommend. 

My wife and me work in tech, we were considering house-hacking with 2-3-4-plexes, but risk is too high here and reward is too low, Seattle is not landlord friendly and we like to have flexibility. I read couple of books about REI, and I understand that during first years of investing I may do more mistakes and I want to make them frugal.

We recently came to the US, and have around 150k of cash on HYSA and some stocks, that I believe smarter to not sell to have different type of assets for diversification. 

I do not want spend my W2 income to cover house mortgages, to not have pressure if things like layoffs will happen, so my plan is to buy house in a good neighborhood that may have appreciation and some minimal cash flow after all expenses (management, maintenance and vacation). I know that I can put bigger downpayment and make it work, but ideally put 20% down. 

In Detroit Area, I consider East English Village, Bagley, Detroit University, to buy first house turn key around 150-200k, than after I gain some experience(~6 month) with just renting, go to the next level of complexity and do BRRRR there with people who I can trust after first deal.

I understand that team with their boots on the location is crucial, so I am planning to fly there for couple of days/week and team up offline first and then do business remotely.  

I was also looking on the Ohio market, as Cleveland or Columbus. But I like idea that Detroit, gaining it's momentum of renaissance and appreciation could be better there, but maybe I idolize it.

Columbus seems lucrative with tech companies investing there, but a bit fishy, because so many flippers already there, so many people realtors/flippers tryin to sell their flipped houses. Not sure I understand why they just don't want to rent them and gain appreciation, if it that good. Houses there twice expensive that in Detroit and I can afford them, but the risk to buy poorly fixed flipper is seems too high(I've seen couple of bad flipped houses for sale, that had some issues with permits after fixes).

Cleveland seems similar to Detroit. Due to high crime property should be picked block by block, and not by zip code. But because Detroit has bad reputation in the media, I believe many investors would avoid it and I may have lesser competition, in comparison with Cleveland. 

So my questions are:

1. Am I delusional to have turnkey investment with 20% down, managed by the manager, with minimal cash flow(100-200$) in A- B+ neighborhoods that have a chance of appreciation? 

2. Why are so many flippers in Columbus? Why they trying sell so hard and not rent out their properties? 

3. What's better for first timer Cleveland, Detroit or something else?

4. Any specific red flags to identify bad actors and avoid doing business with them in these areas? I do not like when people sell me too much, but I understand that it could be cultural difference. 

I will appreciate your pieces of advice! 

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Nicholas L.Pro Member
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
2y

@Kyryl Sokolov

Why have you ruled out house hacking?  It's a great way to build equity, and the goal of a house hack isn't to eliminate your housing cost - it's just to defray it.  Sure, it's hard.  So is everything in RE.

How many properties have you looked at?  How many offers have you made?  If you haven't yet, look into what Scott Trench is doing - luxury house hacking in Denver.  Similar to Seattle.  Has worked great for him.  Go look at 50 properties and if 0 don't work for you - great, you've ruled it out.  

Let's be clear - if you buy in an A or B neighborhood just about anywhere, your cash flow will be zero or negative.  You are not going to find a turnkey property on Zillow, buy it, and start netting $200 a month at today's rates - it's not happening.

https://www.biggerpockets.com/forums/48/topics/1159104-overl...

See this reply in the discussion

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  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    2y

    @Kyryl Sokolov

    Why have you ruled out house hacking?  It's a great way to build equity, and the goal of a house hack isn't to eliminate your housing cost - it's just to defray it.  Sure, it's hard.  So is everything in RE.

    How many properties have you looked at?  How many offers have you made?  If you haven't yet, look into what Scott Trench is doing - luxury house hacking in Denver.  Similar to Seattle.  Has worked great for him.  Go look at 50 properties and if 0 don't work for you - great, you've ruled it out.  

    Let's be clear - if you buy in an A or B neighborhood just about anywhere, your cash flow will be zero or negative.  You are not going to find a turnkey property on Zillow, buy it, and start netting $200 a month at today's rates - it's not happening.

    https://www.biggerpockets.com/forums/48/topics/1159104-overl...

  • Michael SmytheBusiness Member
    Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
    2y

    @Kyryl Sokolov we know the Metro Detroit area VERY well, in business 24 years, manage over 700 doors or which almost 100 are Section 8.

    1) Yes, you are a bit off on this expectation. You CAN do it with C+ to B- properties though.

    2) Lots of flippers in Detroit also. Many of them are trying to fix & flip properties to OOS investors. Often, to get the highest sales price possible, they are fixing up properties to B or higher standards - that are in Class C areas. The buying investor expects Class B results, but they get Class C results because the Location Class is more important than the Building Class.

    3) Best is if you can invest locally, so you can be more hands-on. If you need to go OOS, read this:
    https://www.biggerpockets.com/member-blogs/3094/95954-a-tale...

    4) Do NOT trust anyone! Ask a LOT of questions that force people to explain things so that you can understand them or can verify yourself independently. 

    We've helped a lot of investors make WISE decisions in the Metro Detroit market:)

    Logical Property Management4.9453 Reviews
  • Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes
    2y

    Hey Kyryl, I can talk with you about Detroit all day. I own 12-doors there and live in California. I'm also hopefully still closing on a new acquisition here soon (delayed due to probate).

    The areas you're mentioning in Detroit are great, but it's unlikely you'll see positive cash flow purchasing something turnkey in those specifics spots. For example, I own 5 homes in Morningside, which is right next to East English Village. Nothing turnkey on the MLS will positively cash flow for you today, and EEV is a strong community than Morningside (read: higher prices).

    You have enough capital to do BRRRR deals in Detroit today that would put you in solid areas where you'd cash flow. And if you're working with the right folks, you can identify strong up-and-coming areas. That's what I've always done and that's how I was able to invest in Morningside from 2019-2020 (I no longer buy that neighborhood because prices are too high).

    I do work with a team that does a ton of BRRRR's in Detroit. We did 200 transactions last year and have done more than 100 already this year. We used to operate in Cleveland as well but no longer do. The numbers on the west side of Cleveland have gotten too high to make the numbers work. The east side looks attractive but it's far less stable than the Detroit market. So we generally focus on Detroit now.

    Happy to chat, send some resources, etc.

  • Samuel DioufBusiness Member
    Real Estate Agent · Columbus & Cleveland, OH · Member since 2023 · 1k+ posts · 1k+ votes
    2y

    It really depends what your goals are.. do you solely want cashflow or do you want your investment to accumulate wealth through appreciation. Columbus will be your best bet if you want the growth. There are a lot of flippers selling because they do real estate full time and will likely be looking to sell to a more passive investor. They can't keep them all due to debts or other personal reasons. With the amount of money you have you could find some great opportunities in Dayton, Ohio as well. 

  • Member since 2023 · 5 posts · 9 votes
    2y
    Quote from @Nicholas L.:

    @Kyryl Sokolov

    Why have you ruled out house hacking?  It's a great way to build equity, and the goal of a house hack isn't to eliminate your housing cost - it's just to defray it.  Sure, it's hard.  So is everything in RE.

    How many properties have you looked at?  How many offers have you made?  If you haven't yet, look into what Scott Trench is doing - luxury house hacking in Denver.  Similar to Seattle.  Has worked great for him.  Go look at 50 properties and if 0 don't work for you - great, you've ruled it out.  

    Let's be clear - if you buy in an A or B neighborhood just about anywhere, your cash flow will be zero or negative.  You are not going to find a turnkey property on Zillow, buy it, and start netting $200 a month at today's rates - it's not happening.

    https://www.biggerpockets.com/forums/48/topics/1159104-overl...

    > Let's be clear - if you buy in an A or B neighborhood just about anywhere, your cash flow will be zero or negative.

     Nicholas, thank you for explanation about clearing my expectations for A and B neighborhoods! I will consider to put bigger downpayment then, to have positive cash flow.

    >Why have you ruled out house hacking?

    I live in Seattle, not because I like it, but because my company make green card for me and I must stay here till the end of the process. Our next panned destination is Bay Area. If we buy house now for house-hacking, and move in the next year or two, we still need to manage it out-of-state, right?

    On top of that, houses here are too expensive(1-1.2 mil), we need to put all money we have to avoid PMI, to buy duplex or SFH with ADU. So I trade risk related to out-of-state investment, with risk to hold huge leverage in over-bloated market in tenet friendly state, but I am losing opportunity to build a skill-set of out-of-state investing which will help me to scale faster and be flexible in the future.

    If we buy cheaper house but further from the city, we will spend a lot more time in the commute(3 days in the office mandate), in this case we will trade time(commute) for money(affordability) it makes it not an investment, but another work. Current commute - 10 mins walk to the office. 

    But one undeniable benefit of house-hacking is to ability to reduce w2 taxes for primary residence with interest rate payments. So my thought process was, to start small with cheap OOS, gain experience and than after my green card ready, move to bay area and buy 2-3-4plex to house-hack there. Plus time line will be in 2 years, so it will allow me to qualify my experience as investor to use potential profit from 2-3-4plex for mortgage. And thats where I defray housing cost. 

    Am I missing something? Thank you for your help!

    >https://www.biggerpockets.com/forums/48/topics/1159104-overl...

    Thank you for valuable piece of information.

  • Member since 2023 · 5 posts · 9 votes
    2y
    Quote from @Michael Smythe:

    @Kyryl Sokolov we know the Metro Detroit area VERY well, in business 24 years, manage over 700 doors or which almost 100 are Section 8.

    1) Yes, you are a bit off on this expectation. You CAN do it with C+ to B- properties though.

    2) Lots of flippers in Detroit also. Many of them are trying to fix & flip properties to OOS investors. Often, to get the highest sales price possible, they are fixing up properties to B or higher standards - that are in Class C areas. The buying investor expects Class B results, but they get Class C results because the Location Class is more important than the Building Class.

    3) Best is if you can invest locally, so you can be more hands-on. If you need to go OOS, read this:
    https://www.biggerpockets.com/member-blogs/3094/95954-a-tale...

    4) Do NOT trust anyone! Ask a LOT of questions that force people to explain things so that you can understand them or can verify yourself independently. 

    We've helped a lot of investors make WISE decisions in the Metro Detroit market:)


    >How many properties have you looked at? How many offers have you made?

    I looked at 6 properties in Seattle, and 10ish in Bay Area. Made 0 offers. 

  • Real Estate Agent · Colorado | stan.store/JamesCarlson · Member since 2014 · 2k+ posts · 2k+ votes
    2y

    @Kyryl Sokolov

    I agree with almost everything @Nicholas L. said. 

    I agree that anything you can do to offset your mortgage is a great thing. The single-minded focus on cash flow, even while house-hacking, has prevented so many people from buying here in Denver and Colorado Springs. 

    What I don't agree with is the idea that you need to look at 50 homes. If you're working with a good house-hacking agent, and you know what you want to spend, together you should be able to quickly narrow down to areas that work and home styles. There's only so many types of homes out there. After about 10 or 15, you've seen what you're going to see. Beyond that, you're starting to spin your wheels.

    I want two things for my first-time investors in Colorado: 

    1. Avoid analysis paralysis that prevents you from buying at all. Not buying anything because you're frustrated is worse than buying a not-quite-as-good property. 

    2. Start the clock sooner rather than later. You need to stay in a home for at least a year, so the sooner you buy the quicker that clock starts and the sooner you can start saving to buy the second or third.

  • Terri B.Pro Member
    Realtor · Bellevue, Detroit · Member since 2023 · 63 posts · 14 votes
    2y

    Let's connect if you need help in Detroit Identifying, analyzing and acquiring properties in Detroit. 

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