Can tenants be found in poorer neighborhoods of Cleveland?

Question

Hi All,I've been looking at a number of low cost homes (~ $20k -$30k) in some low income areas of Cleveland, OH. They would be good cash flows if we could rent them for around $700-$800/month. My concern is the likelihood of finding good tenants for these SFRs as well as maintaining high vacancy rates. How can I find unbiased rental rate information for those specific areas?Thanks for any/all inputs. Mike KleinPoint Freedom Investment Group

Christian Carson · Answer

I've dealt in rougher neighborhoods, albeit on the east side, and here's my two cents.Lowering your rental price in a rough neighborhood might make your overall inquiry number go up, but not necessarily your conversion rate (that is, getting people to sign your lease). There are two things going on when you underprice a house: one, you get a lot of tire kickers who live in the neighborhood, and two, you get a lot more unqualified tenants. If you want to keep vacancy down, you might end up being forced to accept a tenant who is unqualified, or go Section 8. The problem is that when you're dealing with a $500 house, your minimum qualified tenant is making $1500/mo, which is hovering around poverty wage. People who make more than that are opting to live in the better neighborhoods, and people who make less than that are often coming with Section 8 vouchers. Your best bet is local advertising (church bulletin and lawn sign).If you're willing to jump through Section 8 hoops, you might expect $550-650 for the property. Anticipate a minimum 1.5 month vacancy for Cuyahoga County's procedures.

Timothy Murphy III · Answer

@Michael Klein In some cases, yes, and in some cases, no.As a general way to answer your question, I'd focus on areas with lower vacancy as a whole. I'd rely primarily on my observations of the area (are there lots of board ups? etc) and input from other owners / investors in the area. As a secondary source, I'd look at neighborhood / zip code / census tract level statistics.If you post or PM me some addresses or areas, I can let you know what my clients have observed.Tim

Michele Fischer · Answer

Rentometer.com, padmapper.com, or zillow.com are good tools, but don't rely on them too heavily. I use Craigslist to gt my market research - I go through the local listings every week to see what is available, where, for what price, for what deposit, and what deposit and other policies are.You will see more turnover in a low income area, because the tenants are just barely getting by, so any hiccup sends them in a tailspin. Our good news is that we can normally do cash for keys or work something out to avoid evictions. And we hustle to get them re-rented right away; consider your capacity to do that.Think about what unique things you can offer - in the property or in your policy, to make you and your property more appealing. Our properties with brightly colored walls, for example, are really popular. Extra bathroom, washer/dryer, lenient pet policy, play up what your unit has that sets it apart.Low income areas will take more time, energy, and will cause more gray hairs. It's not for everyone.

Bob E. · Answer

@Michael Klein You can get neighborhood rental information on Rentometer.com or padmapper.com.

Marko Zlatic · Answer

@James Wise Agreed

James Wise · Answer

That is one of the rougher west side areas. Not uninvestable but you if go south a little bit You will pay more but it is worth it.

Jesse T. · Answer

I would look at schools, crime and vacancy rate. If all of those seem ok, look at the rental market in the area. Do houses for sale sit on the market, but those for rent go quickly at good prices? If well priced houses sit on the rental market, it may be better to pass on the property.

Timothy Murphy III · Answer

@Michael Klein Check your PMs also.

Raul Rodriguez · Answer

If your making the tenant pay utiilities, you wont get $650 in that area. I'm a few blocks away from that address and it will be very difficult to get $650. I've noticed a lost of investors have came into these areas buy low and have been very succesful with land contracts. I'm fairly new to this but being a banker in this neighborhood gives me a some what good insight.

Michael Klein · Answer

Thanks for the reply. Specifically, we were looking at a foreclosed property at 3581 W 48th St, Cleveland, OH. Its listed at $18K. Rentometer.com suggests the average rent in this neighborhood runs about $650/month. Assuming this house needs only $5K renovation costs, it would generate a nice 17% ROI (or an acceptable 12% ROI if we needed to satisfy the lender with a $28K purchase price). Worried about finding and retaining qualified tenants. Mike KleinPoint Freedom Investment GroupGainesville, FL