Out-of-State Investing in Cleveland
Flipper/Rehabber · Cheyenne, WY · Member since 2016 · 32 posts · 9 votes
Out-of-State Investing in Cleveland
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Rental Property Investor · Cleveland, OH · Member since 2016 · 69 posts · 108 votes
10yYou can get a nice cash flowing property in Cleveland for under $20K. Keep in mind, these are your older props built in the early 1900s. My standard is that $17K should generate $900 in monthly rent. These are your lower income neighborhoods so only do so if you're willing to engage with these toe of tenants. With that said, if you screen and have systems setup in the area, you'll be fine. By the way, I'm a New York City resident whom invests in Cleveland. In my opinion, Ohio has the best returns and is definitely advantageous for newbies looking to get their foot in the door.
19 Replies
- Flipper/Rehabber · Cheyenne, WY · Member since 2016 · 32 posts · 9 votes10y
Originally posted by @Ryan Arth:
Are you talking about a purchase price of 1-15k?
Yes.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes10y
Originally posted by @Ryan Conklin:
I am a college student trying to put some cash I have saved up into a rental property. I live in the Suburbs outside of New York City which means there's nothing under $300k worth touching. I want to invest in the Cleveland area since I can scrape together some cash for a property + 10k of rehabs. I have a few in mind ranging from 1k to 15k. I have heard to not touch anything to the east of Cleveland. Does anyone have any experience investing in this city? Any advice on out-of-state investing in general? I am just starting out and would appreciate any help I can get. Thanks!
If you buy something in the $1-$15k range you might as well just have set your money on fire. Being out of state, with no contacts it will be impossible to turn any profit on properties in neighborhoods like that.
My company is local and operates 500+ properties and we wouldn't even touch something in that range. With the market where it's at your going to need to spend at least $50k to own anything worth owning.
Give The Ultimate Guide to Grading Cleveland Neighborhoods a read. It should help you better understand what type of neighborhood you are looking at when googling houses from a few states away.
- Flipper/Rehabber · Cheyenne, WY · Member since 2016 · 32 posts · 9 votes10y
This is exactly why I thought I would ask first. I was trying to stay away from trying to get a loan since I'm a full-time student and have no steady income, I only work during breaks. Are there any specific neighborhoods you would suggest looking?
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes10y
Originally posted by @Ryan Conklin:
This is exactly why I thought I would ask first. I was trying to stay away from trying to get a loan since I'm a full-time student and have no steady income, I only work during breaks. Are there any specific neighborhoods you would suggest looking?
I prefer to invest in Parma & Lakewood above all other neighborhoods. However, 50k won't buy you into either of those neighborhoods. If you need to enter at a lower price point the south end of Old Brooklyn and West Cleveland area are decent C-Class neighborhoods.
- Rental Property Investor · Brooklyn, NY · Member since 2014 · 92 posts · 17 votes10y
Hi@Ryan Conklin seat down with a lender an use that 15k as a dp on a property an leverage the rest think big good luck.
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
save your money... do not borrow at your age until you are fully capable of repaying and you have significant reserves... this is where I see a lot of investors get in trouble.. they don' understand that you need reserves when you own rentals.. the more you own the amount goes down.. but you could go broke quick being undercapitalized to start. @James Wise whats your recommendation on reserves... I would think one would need at least 6 months of payments and another 5 to 10k in case you get the tenant from hell.. but that number does not go up exponentially as you grow your portfolio.
Ryan these deals are not rare and are not going any where be fully prepared before you jump in... in non appreciating markets or small appreciation markets if you need to wait a year or so to be properly capitalized your not missing anything... PM and team are ciritical for success
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes10y
Originally posted by @Jay Hinrichs:
save your money... do not borrow at your age until you are fully capable of repaying and you have significant reserves... this is where I see a lot of investors get in trouble.. they don' understand that you need reserves when you own rentals.. the more you own the amount goes down.. but you could go broke quick being undercapitalized to start. @James Wise whats your recommendation on reserves... I would think one would need at least 6 months of payments and another 5 to 10k in case you get the tenant from hell.. but that number does not go up exponentially as you grow your portfolio.
Ryan these deals are not rare and are not going any where be fully prepared before you jump in... in non appreciating markets or small appreciation markets if you need to wait a year or so to be properly capitalized your not missing anything... PM and team are ciritical for success
I don't know that I would say that one should absolutely have 6 months of operating expenses in their bank account before buying a rental property. I know I sure didn't when I bought mine. I spent every nickle I had and then some. It was not 2,000 miles away though so that played a major factor that's for sure.
What I can say for sure is that investors need to make sure they do not have to rely on the tenants rent to pay the mortgage, especially if they are out of state. If rent is due on the 1st and your mortgage is due on the 6th and you can't pay your mortgage without that rental payment.....you are in for a rude awakening. Maybe not right away, maybe not for a long time but eventually you will get burned and if you get burned on a property 2,000 miles away everything is more expensive because you are paying someone like me to do it for you and I do not work for free.
Investors with small portfolios need to know that they can afford to cover the holding costs of the properties when there is no rental income. This is why the bank's background check focuses so heavily on your credit and income when getting a non owner occupied residential loan and they are rather loose looking into you when you buy a large commercial property.
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@James Wise and my experience in your market ( well never did a deal in your market) but in those asset class's if you don't get rent.. your in for an eviction and those are not free.. and you will have turn over that will be some kind of money 1 to 2k generally.
even good tenants when they leave turn over is at least 700 to 1k.. some will get lucky no doubt but that is what I saw as average for our 350 home portfolio that we owned.
- Rental Property Investor · Cleveland, OH · Member since 2016 · 69 posts · 108 votes10y
You can get a nice cash flowing property in Cleveland for under $20K. Keep in mind, these are your older props built in the early 1900s. My standard is that $17K should generate $900 in monthly rent. These are your lower income neighborhoods so only do so if you're willing to engage with these toe of tenants. With that said, if you screen and have systems setup in the area, you'll be fine. By the way, I'm a New York City resident whom invests in Cleveland. In my opinion, Ohio has the best returns and is definitely advantageous for newbies looking to get their foot in the door.
- Manville, NJ · Member since 2015 · 141 posts · 87 votes10y
Originally posted by @Tyrell Perry:
You can get a nice cash flowing property in Cleveland for under $20K. Keep in mind, these are your older props built in the early 1900s. My standard is that $17K should generate $900 in monthly rent. These are your lower income neighborhoods so only do so if you're willing to engage with these toe of tenants. With that said, if you screen and have systems setup in the area, you'll be fine. By the way, I'm a New York City resident whom invests in Cleveland. In my opinion, Ohio has the best returns and is definitely advantageous for newbies looking to get their foot in the door.
I don't mean to hijack the thread but talking about investing in Cleveland...
I'm from NJ and prices here are, well... Way out of my range! I'm interested in investing in Kansas City but I haven't ruled out Cleveland. Actually, investing out of state I would be more comfortable with Cleveland as it is only a 7 hour drive in case I need to come over for a visit. Can you recommend any good companies that do wholesailing, management and the whole nine yards in the Cleveland area?
- Flipper/Rehabber · Kansas City, MO · Member since 2011 · 2k+ posts · 712 votes10y
My first thought when I hear someone talking about buying a house for $15,000 to rent out in Cleveland, Kansas City (my market) or in any similar market is WHY?
I can speak for Kansas City and I would assume that Cleveland would be similar. Yes, you can buy a house for $15,000 and you can rent it out . . . and make money . . . but for every out of stater that decided to take $15,000 out of the $30,000 they had, to buy a cash flowing rental property . . . . well here are the scenarios I have had these folks call me about . . . and they were calling me to buy the house from them because they had had enough.1. The awesome tenant the seller said lived there, never paid them a dime in rent and had to be evicted. So 3 to 4 months of no rent and $400 to $500 in eviction fees later, they had to pay someone to clean out the house at about $500. Someone to go in and make repairs on this rent ready house which started out as a simple few broken things and a bit of paint so maybe another $1000.
2. The person managing for them (not always a good, licensed property manager, but one that will do what the owner says) gets a new tenant in quickly that has first months rent and security deposit and some form of job. Three to four months later the job is gone, no money to pay rent and after trying to work with the person for 2 or 3 months, the owner then goes through scenario 1 again and has about 8 months of no rent this time, plus the $1500 to $2000 in make ready.3. But before they get it rented again, the copper thieves get there and rip and strip all plumbing, all wiring, destroy the AC condenser unit and all in all cause $10,000 in damage, which the owner needs to pay to get the house re rented and they often pay someone to put the house back together again to go into a quick placement of a new tenant and get back into scenario #1 or #2 again.
Along about the time the other $15,000 in reserves run out, they decide they have to sell, but the house that they paid $15,000 for has all the damage to if from the first or second break in and is no only worth about $6,000 . . . so as one of the first reply's said . . .as a new investor going into an out of state market with $15,000 to buy a house . . . at least in Kansas City . . . save yourself the heartache and head ache and set your money on fire.
Or save it and do something else . . . .
Learn a LOT about investing out of state.Research the market you are going into and figure out the best markets.
Make connections in those markets and vet those connections.
Save up more money and move up from the war zone and go to a $30,000 to $50,000 minimum market where there is less crime, less vacant lots and vacant houses, where the police will actually respond to a call from a homeowner, where there are jobs for your tenants to work at, where there are schools for your tenants to send their children, where there are real grocery stores for them to buy real food (not gas station or fast food).
While I can't speak for Cleveland, here in Kansas City the $15,000 neighborhoods just have vacant lots with a few houses here and there, there are no jobs in the area, no amenities in the area, the schools are horrible . . . while that $15,000 could be spent on a down payment a few miles a way in South Kansas City, Raytown, Independence on a $50,000 to $80,000 house and you may not get the same returns on paper as the $`15,000 house, but you have less back end expenses, tenants who have jobs and the desire to feed their kids good food and send their kids to better schools and more occupied houses . . .less vacant lots, so less breakins and theft.
Move up on that price range to an $80,000 to $120,000 neighborhood and you can do even better. Rent to purchase price may not be so high, but the houses are easier to rent, they stay rented longer and they are less likely to be damaged by the tenant or a vandal.And yes I have owned $15,000 house in the Kansas City urban core and had an office with in a mile. To manage these houses you need someone who is going to go by the house weekly to collect the monthly rent a few dollars at a time to even get rent. To check on the tenant and the house weekly to make sure the boyfriend didn't just move in or the adult kids just move in, and that bad things are not happening in your house or that your tenant didn't just move out in the night in the middle of winter and turn off the gas, but not the water.
For my $15,000 which my IRA is looking to invest, I am going to get to know the major players in my market or any market. See who has been doing this for a very long time and knows what they are doing, who might need an extra $15,000 to do a deal that I could lend, fully secured by real estate, that they may only want for 4 to 6 months for a 15% return on my investment or maybe a $1,000 flat fee for 4 months. So that at the end of the year, I now have $19,000 to invest.
But that's me and the Kansas City Market. - Flipper/Rehabber · Kansas City, MO · Member since 2011 · 2k+ posts · 712 votes10y
And in Cleveland, I understand as a Landlord you need to be aware of Judge - who really likes tenants and really hates landlords (but that is a rumor I have hear about)
- Rental Property Investor · Cleveland, OH · Member since 2016 · 69 posts · 108 votes10y
@Kim Tucker Everyone is entitled to their opinion and I respect yours. However, real estate is not a one size fits all and there are good people who live in under served communities. There are rotten apples everywhere, hence the need for due diligence.
@Jake Recz Send me your email in a PM and we can discuss further.
- Flipper/Rehabber · Kansas City, MO · Member since 2011 · 2k+ posts · 712 votes10y
@Tyrell Perry Yes, you can make good money in the urban core - but I don't advise it for a first time investor, who maybe only has the $15k to $30k to get started. It takes a lot more hands on and I have seen time and time again, the new investor that invests their only money into the transaction and lost it all.
@Tyrell Perry You however have the reserves and the team, where by it would make sense for you.
But for @Ryan Conklin, being in college and "scraping together some cash for a property" , I would not advise it.I have a few people here in KC that have perfected their model for the $15 to $30k in the urban core - that I have vetted and know personally, I would say investing as a private partner on a deal or two with that person or someone like these folks, maybe Tyrell, and you would probably make more money.
I wholesale urban core houses from time to time I have a pool of about 4 of 5 investors who buy, so I love to sell to them. But where do I get the houses, sometimes from long time family owners, but more often from the investor in the scenario I posted earlier who just wants to get out. Sometimes from the investor I sold the house to at $15,000.
- Rental Property Investor · Cleveland, OH · Member since 2016 · 69 posts · 108 votes10y
@Kim Tucker I concur. One can definitely lose their shirt making these under $20K investments without nothing in the bank. In Cleveland, many landlords do not provide sufficient property upkeep so an investor has to be prepared when the "Must-Do" repairs arrive and tenants vacate.
With that said, many landlords are charging below market rents so after making those repairs, one can increase the rents. For example, I had a tenant vacate early whom was in the property upon acquisition. The tenant was paying $450. I put $2,800 into the unit to get it rent ready. I put it on the market at $515 and it's now being rented at $615 as the tenant has a washer/dryer and pets. There is opportunity but you will need the rainy day reserves.
- Real Estate Broker · Cleveland, OH · Member since 2012 · 771 posts · 252 votes10y
Be very careful buying low end property from a distance. They require more babysitting and it's hard to find a competent property manager that works in the rough areas because the management needs are more involved and the rents are cheaper, meaning less of a management fee on a percentage of rent basis. I see cheap Cleveland properties marketed to out of town investors virtually every day that are basically ripoffs. Properties advertised as "University Circle / Case Western area" when they're technically sort of close by but in complete warzones. A lot of out of town buyers end up getting stuck with a house that needs more in repairs than it would ever be worth.
There are guys making good money on dirt cheap properties in Cleveland (and I assume many other markets) but they're typically hands on locals with a deep understanding of their market and real estate as a whole. The upside is that you can get yourself to free and clear and have recouped all of your initial investment real fast. I know one team that operates exclusively in 44103, one of Cleveland's poorest zip codes. It's a family business that self manages and does all their own rehab work and does full rehabs to keep ongoing maintenance to a minimum and allows them to command top rents. They also pick and choose their streets within the zip code very very carefully. Their reward is that they recover their entire investment within 3 years on average. Someone else might go broke trying the same model without the same skill set and localized knowledge.
If you're dead set on operating in the cheapest neighborhoods then do it closer to home and be sure you can commit the time to be very hands on and learn the business. Otherwise partner up with reputable operators and buy into a more expensive asset class. You'll limit your upside but reduce your risk.
- 10yIsaac RowePro MemberRental Property Investor · Cleveland, OH · Member since 2014 · 214 posts · 86 votes
@Ryan Conklin What Tim says is right on. It is very hard to be successful when buying super cheap properties out of state. I would recommend buying a little higher price properties in better areas if your going out of state.
In the end no matter how good the investment looks on paper if the tenant tears up the place and doesn't pay you will lose money. There are professional tenants out there who know how to play the system and take advantage of landlords etc...
Make sure to work with people you trust, and think very carefully before buying super low end.
- Full-Time Investor & Agent · Amherst, OH · Member since 2014 · 149 posts · 50 votes10y
@Ryan Conklin I definitely agree with Tim and Isaac on buying cheap properties in the inner city if you are out of state. Shoot for B & C neighborhoods. You will pay a little more, but the stress relief will be well worth it.
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