Buying In East Cleveland, bad idea?

Question

Hi, I currently live in Denver and I am interested in buying a multi family somewhere in Ohio. Housing in Colorado is through the roof, hence why I am looking out of state. I chose Ohio, because I noticed housing is cheaper. I have also looked into upstate NY but my main focus is Ohio for now.

I am looking at a property that is a triplex, going for 49k, seller financing, currently vacant, and was told it can gross $1800 monthly.

I have some landlord experience as I have been renting out a SF in Colorado for 10 years now and I currently house hack. This would be my first time out of state investing, although I am not concerned. I know I will need to find good PM as that can make or break a good deal. I have read nothing but horrible things on BP about east Cleveland.

My question is for those who took a shot and bought MF out in East Cleveland area. What are you thoughts and opinions on this area? Should I look elsewhere in Ohio?

I would like to spend no more than 60k total. I have at most 20k to put down, although I would prefer to not reach that amount. Am I not shooting high enough for down payment?

I apologize in advance for the many questions. I look forward to all the responses.

Patsy Waldron · Answer

I would stay away from 44112. There are some better areas in the zip code (the ones that border on Cleveland Heights and South Euclid) but you would definitely have to be VERY familiar with the area to know whether this property is in the better part of the city of East Cleveland. The price makes me think that it probably isn't, and the projected rents are likely very optimistic (at least on a consistent basis).

Isaac Rowe · Answer

Very important to get a third party to send you comparables.  A lot of those deals look amazing, until you look at comps...

Tom Ott · Answer

Yes, sometimes East Cleveland looks like a very appealing are due to the numbers, but that market does not really seem all too promising. Plus Cleveland might end up annexing it soon anyways. Which might not help you too much.

If you go just a little farther east you will find some other markets that present a great ROI. You can try Euclid, Shaker Heights, South Euclid, or even Lake County. There are a lot of people there and rentals are always in demand.

Also, when considering MFRs you need to keep in mind that the numbers don't always work out that way. You have to remember "extra" costs such as snow plowing and grass cutting that fall on the owners. Also there is no guarantee that all units will be filled at the same time. It is almost impossible to sync up leases so they are ending at the same time.

Check out: Single Family vs. Multi-Family Investments for some more information on that.

James Wise · Answer

@Michelle Juarez

There are no properties in the Cleveland area that will regularly bring in $1,800 and cost under $50k. To purchase a rental property bringing in that much rent with any type of regularity you are going to need to spend well over $100k.

When looking at the greater Cleveland area it's important to know what you are looking at. Certain areas may appear close together on a map but here on the ground they are worlds apart. Give The Ultimate Guide to Grading Cleveland Neighborhoods a read to gain a better understanding of the different neighborhoods and housing you are seeing online.

Michelle Juarez · Answer

Thank you all for the responses. It looks like I should stay away from East Cleveland. The house is in East Cleveland, OH 44112. My budget is around 80k.

David Terbeek · Answer

@Michelle Juarez  Given your budget, I might check out Collinwood or Old Brooklyn as possible Cleveland neighborhoods.  The tenant pool has shown to be fairly stable for our clients.

Matt Motil · Answer

The majority of investors that have success in the war zone areas of town are local attorneys that don't have to worry about turnover costs from evictions of poor tenants. For normal folks, or out of state investors, the bad parts of any town will eat your lunch and cashflow in a hurry. Plenty of great areas of Cleveland to focus on for great returns that can't be beat that you don't have to worry about.

Tim Debronsky · Answer

@Michelle Juarez  I have to agree with @Jeff Brower @Jayson Lesyk I would stay away from East Cleveland.  Although I won't look at anything in East Cleveland, I have recently spoken with two different investors who have had success there.  I'm an investor/agent here in Cleveland we come across off-market and MLS deals often.  I'm currently helping several out of state investors buy rentals here.  There are several better areas than East Cleveland where you can be all in for $60k or less.

Jeff Brower · Answer

Also, try posting on the Cleveland sub forum. Many local folks will check in there quite often and may have some insight. Generally, I would tend to agree with @Jayson Lesyk

Jayson Lesyk · Answer

If you're out of state don't touch EC. POS means you'll pay more to rehab the property to habitable condition than you actually paid for it. The city is bankrupt. Not sure what the statistics are on abandoned buildings, but there's way too many. And whoever told you that a triplex in EC can gross 600/unit is flat out lying to you. Do some research on POS requirements throughout Cleveland and also property taxes. Those 2 can make or break you.