All Forum Posts by: Andrew Weiner

I am in Cleveland and invested in Cleveland so I can't comment on out of state investing from the direct owners perspective but I can offer some pearls that I have picked up along the way. 

1.  Please visit the market you intend to invest in and tour the neighborhoods you are interested in, walk through several on market properties, see what the feel in the area is. 

2. Make sure that someone who is a local investor walks the property.  Realtors and even home inspectors don't have the same perspective as an investor who has had to pay the bills on rentals before.

3. Get clear on what your goals and expectations are and communicate them up front.  You may find out that what you are looking for is not available right now.

4.  Be patient!  buying the wrong house just to say that you own a rental isn't worth it.

5.  Make sure you keep cash reserves, construction and all trades in general are SKY HIGH right now.  Every tradesman knows that they are in demand and finding quality work at low prices is nearly impossible for an out of state investor.  Its hard for those of us that are on site every day and checking up on the workers. 

I wish you all the best on your search, if you want any specific insight on Cleveland send me a DM.

Andrew

This is VERY HIGH.  How did you find this accountant?  If they are set up for large corporate accounts they might have too much process that causes their returns to be that expensive.  Finding a smaller firm might give you a better value.  To me $350 for a basic LLc return and to provide you with a K1 is a normal rate.  This is much easier than a personal return.  Then $350 for a personal return is a normal rate for a full accounting company.  If you just have W-2’s and your K1 you should be able to do your personal return on something like turbo tax.

I would ask for a detailed break down of their hours and what it was spent on and possibly negotiate a settlement to be done with them and move on.  You do have the upper hand since you never authorized them to do more than $700 of work.

To answer your two questions from my recent experience:

you can get a loan with 25% down for an investment property and you should expect your rate to be ~1% higher than the typical owner occupied loan.  Also expect several thousands of dollars in additional costs above your down payment, 1st years property insurance, appraisal, title, closing fees, brokerage fees, origination fees, and general "we can just take advantage of you fees".  If the house needs work you may also need to put money in an escrow account for the city which you get back once you complete the repairs and have them inspected. 

Your second question is a tough one, you don't want to tie up/allocate too much cash on reserves for a property however if you are a newer investor you probably don't have tons of cash flying around and hits to your personal cash flow just feel worse than from a company operating account. I would say that a safe number is 2 months of rent for a single unit (so for a SFH its 2 months of rent, for a duplex its just 2 months of rent for one of the units). That way if you have a move out or some expense you have the cash on hand to make those medium cost repairs without contributing money out of pocket.

I always check the big ticket items (driveway, roof, garage, air conditioners) before purchase to make sure I should be good for a few years while I build equity that I  can use to pay for those repairs in the future if need be.  These items are the ones that I cannot do myself or have a handyman do (a good handy man can do water heaters and possibly even furnaces) and the material costs are high so there is no getting around the price. 

I hope this was helpful, if you want to DM I can give you some insight into how I set up my operating accounts and how/when I take draws, I will tell you that I am conservative on pulling money out because I want my investments to be as easy as possible.  My philosophy is that if I leave a few dollars in the property its worth having the peace of mind and will keep me into the properties for longer as opposed to trying to pull out everything as fast as possible and getting upset when a water heater dies and selling to get away from the stress.  Once you have more properties and they can cover each other a bit you might be able to move away from this approach.

Good Luck and keep us posted on how you do!

In the Cleveland area you can bill back water in a few different ways.  First and easiest is called RUBS, you can use a formula (there are a few that are industry accepted) and charge back the water based on a ratio system to the tenants.  Second way is to assign a flat water and sewer fee to each unit that get updated annually based on actual consumption, this can be easier for the tenants since is does not fluctuate but it doesn't discourage irresponsible water consumption and the third is to actually submeter.  Please note that in the city of Cleveland you are not allowed to bill a tenant for an unmetered utility, some suburbs may copy this but they have not yet.  You should have someone who is active in property management day to day who can help you know if this pops up for any of your properties. 

I don't think that Cleveland Water cares if you install your own meters after their meter for the purposes of passing on the charges to the tenants.  They will not help you or split your service and bill each separately.  Keep in mind that you may have to do some significant rerouting of your plumbing depending on how the builders ran the original pipe, in a top bottom they might have too much common pipe to get the metering done.

There are companies out there if you look into it that you can contract with they will install the meters, get the reads over cell signal, and then bill the usage back to the tenants.  The tenant would actually pay the third party the water cost and then the third party would pay the balance less their fees back to you.  By having them pay the third party it feels like a real utility instead of a landlord trying to nickle and dime them. 

All of these have advantages and disadvantages but in the end will net you more cash.  
 

Every home is different, you can request the POS report before you bid and see how much work the city wants.  Many of the suburbs have POS inspections, Cleveland Heights just has a reputation for being sticklers.  However even with POS and the city being a bit difficult to work with investors still continue to buy and make money there.

@Carol Fenimore I wouldn't worry much about the unemployment rate of the overall area, Cleveland Heights has been a long time stable rental area.  There are better and worse parts of Cleveland Heights so you do need someone local who is active in the market to help guide you through an acquisition.  I think that almost every property can be a good deal at the right price so don't sweat the taxes or POS issues, if you can get a property that the numbers work and you have a good local contact that can make sure your not buying a lemon then I would go for it.  Personally I am renting out a unit in the area and I have seen tremendous demand for clean unit with responsive property management.

I feel bad saying this but many of my tenants have had issues with prior management companies ignoring them and letting the property fall apart.  I have had good experience keeping my tenants for longer terms because I answer my phone and address their issues in a timely manner.  If you are an OOS investor make sure that you find a solid property management company so that you don't have those issues.  

Ask your insurance agent the liability question in an e-mail, you want it in writing that you are covered for this type of an event.  I don't mean to sound alarmist but as a matter of business policy whenever I am getting a professional opinion (lawyer, accountant, or insurance) I ask for the response in e-mail so that I am always covered.  Those professionals have their own insurance and if they misinform you then they have coverage to make you whole for those damages.

I am curious to hear if anybody does the self guided tours on duplexes with a common door?  I feel like this is not polite if the other unit is occupied but I'd keep on open mind.  

@Michael McDonald

I will try to keep this brief but its not an easy topic.  I will note that the taxed in Cuyahoga county are high but you can potentially discount them a bit because of the tax value you get back in writing them off however you need to talk to someone who knows a bit more about the accounting side than I do to make a full assessment of how much value you get back.  Also the rents are higher in Cuyahoga county and in surrounding areas so it all gets priced in.

In Cuyahoga county there are the base city tax rates that are set by each municipality.  That is the base of the tax bill, however there are levys and special assessments (I have seen streetlights, tree maintenance, and others) that get added on.  For example when a tax levy for a school construction project gets passed and it says that it will collect $15 million then that is all it will collect regardless of the property valuations in the city.  What that means is that the county has some very complicated formulas that split up and assign a portion of the $15 million to each property.  If assessed values go up they still only collect $15 million and the effective tax rate goes down, if the values go down they still get their full $15 million and the effective tax rate goes up.

I hope this is helpful.  Please feel free to reach out, I am happy to run through how I evaluated the properties I bought in Cuyahoga County and where the taxes figured in. 

Andrew

@Len Miller Although I think this deserves its own page (and maybe it exists somewhere on BP) I would point out a few things that you should look at when evaluating management companies.

Do the principals invest in rentals as well as manage?  The reason why is because rental owners have a different way of looking at properties than other real estate professionals like residential brokers or home flippers.  Taking care of a property for long term physical stability while trying to maximize cash flow is a bit of an art, people that have been doing it for a while for themselves are more motivated to get it right.

Are they able to advise you on your personal investment goals?  Before I bought my first investment property I talked to a bunch of local investors, some of them gave me some generic albeit helpful info and then there were others who really helped educate me and gave me the confidence to do the deal.  Some of the management companies can serve as a real estate advisor for the acquisition (even if they aren't selling it) in addition to managing the property after you buy it.

Ask for references!  I am a huge fan of references, people always ask them but so often they don't call them and check up.  They might need to make sure you are serious first (they don't want to burden their clients with every potential customer) but they should be willing to give you a reference for an investor in a similar position to yours and have been able to provide top tier service.

(Disclaimer this doesn't apply right now with all the public health concerns) Have a sit down meeting with the operations people, not a sales person.  It's worth coming in and talking to the people that run the day to day operation, I hate dealing with sales people because they might be great, organized, punctual, etc. but then they leave you with an operations team that is lacking.  I know this isn't possible right now but if it does become realistic I would strongly encourage you to come into town and meet with a few managers and have them take you on an area tour of potential investment neighborhoods.

Don't get too caught up in the fees.  You need to ask about fees, maintenance, approvals, etc. but my experience has taught me that you get what you pay for.  All of the people in the management business have similar costs and profit goals, if they give you a lower percentage then they are probably making it up somewhere else.  Having a property manager that keeps a tenant longer with great service is worth well more than 1-2% monthly.  

I am a native Clevelander so feel free to DM me if you want any more info on the Cleveland market. 

Andrew

@Frank Agyeman-Duah I tend to agree with @Ron Szmik on upgrading for a first property.  There are a lot of potential perils when investing and D neighborhoods tend to throw you curve balls.  I would advise that you talk to someone who has investing and management experience in the immediate area who can help you hone in on your specific goals and create a profile of what your ideal investments should be.  I'm in Cleveland and there are a lot of people in the area that would be happy to help you with this and can advise on neighborhoods to look at and even help you evaluate specific deals.

Good luck on your hunt!

Andrew