2 Years, 9 Properties, 33 Units…On The Job Training in Cleveland

[Tyrell Perry]

It’s been some time since my last conversation starter and a lot has transpired since then. Below is an update to assist investors on whether Cleveland’s low priced multi-family market is compatible with both their personality and lifestyle.

After acquiring my first triplex in April 2016, I proceeded to buy 8 properties totaling 30 units. I sold two of the properties so now I have 7 properties totaling, 29 units. Current occupancy rate is 86%.

All of the properties are in Cleveland, OH with the exception of one triplex which is located in Canton. I’m not thrilled about Canton but it was too good of a deal to overlook. I bought it for $8K and the monthly rent now totals $1,425. To date, it’s the sweetest deal I’ve done.

On my first property sold, here are the numbers:

Net Purchase Price: $15,806
Net Rental Income: $2,781
Seller's Net Proceeds: $29,846
Total Income: $32,627
Return: 206%

If you understand numbers, don’t buy a stinker and know how to manage, you’ll make money. I say “know” because you must manage even if you hire a Property Manager. I look at my properties as children. They’re birthed at acquisition, rehabbed during infancy, stabilized throughout the teens and sent off once they are ready for college and LIFE UNIVERSITY. Even when you have a Property Manager, you must check-in periodically just as you would with a daycare. The property will dictate your check-in frequency. My properties with 2-3 units require bi-weekly or monthly check-ins whereas my apartment buildings require weekly attention. Apartment buildings are often glorified but they require much oversight, at least in Cleveland’s lower tier market.

Given investor’s fascination with Cleveland and rightfully so, let me share a few things about my experience with Cleveland as it relates to the lower income communities and the high yielding properties. Let’s start with the worst first:

CONS

• Contractors cannot be trusted. Even if you do use one contractor for a large portion of your business, periodically use others for small jobs. This gives you options in the event you’re contractor goes afoul, becomes overwhelmed with work or provides a pricey quote. When advance payment is required, gradually pay in phases (15% - 25%).

• Do not give tenant leads a chance. One bad apple can ruin the batch. If a tenant has a recent or lengthy criminal rap sheet, look the other way. You’re better off having a vacant unit rather than a vacant property. In addition to losing your shirt, you’ll lose your hair.

• It will be a hassle to collect rent from certain tenants. Typically, I give tenants a 1-week to 2-week window before issuing the 3-day notice. 2-weeks is given to longstanding tenants.

• Every day is a different day. Leaks, fires, robberies, shootings, evictions, tenant conflicts…it all comes with the territory. Be equipped to handle the unexpected.

• It can be pricey to reach Section 8 compliancy The Section 8 code is strict and is subject to the inspector’s perspective. Therefore, if one inspector cites a deficiency that another didn’t list on the prior inspection, it’s back to the drawing board with another scheduled inspection. It can be tough sledding especially when you tack on CMHA’s inadequate response time.

• The water and sewer rates are OUT OF CONTROL and The Water Dept is the Cleveland Mafia. I disputed billings at one of my properties. My attorney went to the Water Board hearing and mentioned their use of numerous charts supporting their position. He said it was a waste of time and money. As the mob says, “F U, PAY ME!”

PROS

• Certain tenants are like clockwork with rent payment. Some will even pay early before the month begins. Section 8 is pretty sweet in this regards…deposits hit the 3rd of the month.

• Security deposits will save you. Be sure to charge the appropriate amount.

• For Buy & Hold investors, once a property is stabilized, the real fun begins

• Late fees make untimely payors slightly welcomed. I have a two year tenant that consistently pays $50 in monthly late fees. Even after working with him on the rent due date, he's still late. Don't really understand the rhyme to his reason...some things are best left unanswered

• You don’t have to be local…landlording only requires a phone and a computer. Initially I micromanaged from NYC, now I live overseas.

• The triplex serves as the best combination of cash flow and time commitment.

If you’re willing to allocate the time and are competitive, Cleveland’s lower end market may be a suitable fit for you. If you’re passive, timid or indecisive, steer clear or have someone qualified to micro manage your property.

Do the PROS outweigh the CONS? To me, they do. Investing in these properties have given me the freedom and flexibility to resign from my job at 32, live internationally, wake up at the time of my choosing and still get paid on the 1st & 15th. Pretty sweet options if you ask me.

-Mr. 1st & 15th

Adjacent Properties Corp.