All Forum Posts by: Don Petrasek

@Sagi Trybel the answer to your question depends on your flipping strategy - single or multi family, high end trying to set a record for the neighborhood or just a quick refresh in & out, $s available, etc.  It’s kind of like asking what’s the best neighborhood to invest in.....it depends on the investor’s strategy and resources.

Inventory is still tight here in Cleveland, seems to be loosening up just a little since the start of the Holiday season and new virus spike.  I have multiple buyers in the $150K-$200K price range and its been a struggle to find anything to even show them.  Basically its the low end of the first time buyer range in the suburbs and some parts of the city (e g Kamms and Warren Village on the west side).  Smaller homes, usually bungalows up to about 1300-1400 sq ft.  You could do well just focusing on that market.

@David K. I had a running (gushing) toilet in one of my Cleveland singles for about 10 days until I could get to it.  Normal water bill = ~$35, water bill for the month that included the 10 days = $234 (sewer was over $400) - so your high bill could very well be one toilet or faucet continuously flowing.  If you have the automated reader installed on your meter, you can look at usage on each property/meter daily if you want to via the CLE water site.  Its a pretty nice feature - allows you to confirm that issues are actually resolved and also have access to stats if needed 

Yes you should have a separate bank account and credit card for real estate even if you don’t incorporate. If you don’t have a separate account, you’ll spend a lot of unnecessary time sorting transactions and deciding whether they are personal, consulting or real estate related.  Also get a simple expense mgmt app that you can download all of your transactions into.  I use Hurdlr because it auto tracks my mileage and generates a schedule C for you at any time, but there are other apps just as good. 

I’ve had a half dozen electricians tell me the same thing.  If they are doing work in the house and are OK with leaving it as is.....its fine.  Electricians will not risk their reputation/license by leaving anything that’s dangerous behind on a job.

For it to be up to code, its important that you have the ungrounded outlets on all circuits that have the knob and tube (the two prong type).  In my houses, I make sure kitchens and baths have all romex circuits (grounded) and then try & add one grounded circuit per room to supplement the ungrounded knob & tube.  Unless its very challenging and costly to do so.  My houses have basements with the panel in the basement so its usually pretty easy to run romex from the panel and then up a wall. 

Never had a problem with appraisers, insurance, or city inspectors following the above.  

@David Duquette  the whole idea behind a scope of work is to be detailed and to have a clear map of what is to be done and what isn’t.  Without detail, a scope of work isn’t worth much. In your example, “remove wood and loose items in basement.”  Let’s say you have a 2x4 wall, scrap wood, a dehumidifier and misc junk left behind.  Your intent is probably to get rid of the scrap wood and misc junk, but unless you say that as the contractor I don’t know that you want to keep the wall up and leave the dehumidifier behind to keep the basement dry.  

Reroute bathroom sinks from 1 to 2 sinks.  Is the existing vanity to be demo’d or reused? What size new vanity is going in?  Exactly where?  what type?  How should sinks be placed on it?  Without this detail, you’re going to wind up either with things done in a different way than you expected.....either spending more than you wanted to or winding up with lower quality than you wanted. 

@Garrett R. congratulations on the savings discipline and also your choice of occupation.  Everyone I know in the trades has warned me of an upcoming shortage of skilled trades people as the current workforce retires....so you’ll be in a position to earn a very strong income for years to come.  

At your age and with the outlook being good for your personal income to grow, I'd recommend buying as much as you can with the least amount down as possible so that you can acquire a number of properties quickly. That means FHA\house hacking\letting your roommates or tenants pay your mortgage allowing you to save for the next one. Real estate investing is really just a matter of time. Even if you overpay, most properties will wind up correcting themselves over time if managed properly......and you have plenty of time. So the more you get in place now, the better off you are going to be 15 or 20 years from now.

@Robert Matelski's advice is spot on. Here is a chart that I pulled from the MLS that shows average sales prices in CLE in the area that goes from West Blvd to the Cuyahoga River. This is the "lower west side" which includes Ohio City and some more moderately priced areas. You can reach your own conclusions about appreciation in CLE based on facts and statistics like these rather than relying on statements from someone who doesn't live here. Even with this appreciation and crazy market (multiple offers on most listings), housing prices are still at the point where buying makes far more sense than renting. There seem to be more retail buyers at the low end of the market right now which is creating new opportunities for investors looking to liquidate properties.

I tell my clients that there is no right strategy or area.  Its a matter of fit with your personality and lifestyle.  For example, if you have a demanding job with travel (when things get back to normal) you may be better off with A or B type properties with a lower return and less management hassles.  On the other hand, if you have time and a little bit of badass in you low C and D properties might be a good fit and get you a higher return.  Also how much risk you are comfortable with, how much discretionary income you have, how long you plan to stay in the area....all those things should factor into your strategy.  

@Nathan Bischof have you talked with a lender yet?  That is the first step, since the amount of mortgage you qualify for is going to be one of the primary drivers of your strategy including the area you focus on.  I work in all the areas you mentioned.  Multiple offers on day one or two are common for good properties that go on the market as inventory is still really tight (both single and multi family).  If you can go the conventional financing route, I’d recommend that as it will be more attractive to the seller - the downside is that for multi family you need at least 15% down.  Another downside of multi family is that you’ll probably be competing against cash offers more often....but both strategies can work.  Let me know if you’d like some help refining your strategy.  I have a rental return calculator that I share with my clients, would be happy to share that with you. 

@Andrew Weiner's comments are spot on especially #2- if you are going to live in the property buy in an area that you are comfortable in even if it means sacrificing part of your return. Remember that you're going to have very little cash invested with FHA financing, so even a few hundred dollars worth of cash flow when you move out will mean a very good cash on cash return. Inventory in the Cleveland market is very tight right now so you will have to be patient and persistent. I'd recommend considering a two family as well as 3-4 families have been hard to come by. With a two family, there's often either a finished third floor or the opportunity to finish one which will give you at least an extra bedroom for the up unit increasing the rent....

@David Lyons a couple of add-ons to what the others have said:  15 yr tenants may feel a sense of entitlement which can make it pretty tough to deal with them even on small things.  I'm also guessing rents aren't at market right now?  I always prefer having at least one unit vacant and adding my own tenants.

In addition to comparable sales, you should look at the value based on the return the property will generate.  In the price range you're in, the return should be somewhere between 10%-12%.  Take rents less expenses and back into a value....if you need help doing that, let me know- I've got a spreadsheet that I share with my clients that does the math.