New to REI looking to invest in Cleveland and Chicago surrounding areas

[Jalia Tucker]

Hello everyone,

Very new to investing and trying to navigate all the options. I currently have no investment properties, but have the goal of 10 in the next 5 years. I think the Midwest is up and coming and I chose my locations for nostalgia reasons and because I have family in both areas. Also amount of money to invest is another concern. I took out a HELOC and am trying to maximize how it's used and stretch it as far as possible. My thought was to invest in growing areas with more affordable properties and lower rents so slower growth over time, but I also have short term goals and don't know how to balance both desires.

I have also toyed with the idea of turnkey properties as well as syndications, but I am not exactly sure I have enough assets to assume the risk. Lastly the concept of asset protection seems overwhelming and I am not sure how to build things, and I want make the least amount of mistakes from the beginning.

Would love to connect with anyone in either the Cleveland or Chicago area. I'm continuing to read and research on my own but would love to connect. 

[Michael Smythe]

@Jalia Tucker be sure you fully understand what you're getting yourself into with your, "invest in growing areas with more affordable properties and lower rents".

This will often lead you to Class C properties, so you'll need to understand what to expect with those types of properties/tenants.

Read our standard advice below:

Beginning investors need to STOP believing all the fluff about rental investing, especially with the overheated real estate market trending to historic norms. Many believe unrealistic assumptions and often apply those assumptions to the wrong property classes.

In our OPINION (always verify your area for yourself!):

Class A Properties:
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% the more recent norm.
Tenants: Majority will have FICO scores of 680+, zero evictions in last 7 years.

Class B Properties:
Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
Tenants: Majority will have FICO scores of 620-680, some blemishes, but should have no evictions in last 5 years

Class C Properties:
Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
Vacancy Est: Historically 10%, but 15-20% should often be used to also cover nonpayment, evictions & damages.
Tenants: majority will have FICO scores of 560-620, many blemishes, but should have no evictions in last 2 years. Verifying previous 2-years of rental history very important! Also, focus on 2 years of job/income stability.

Class D Properties:
Cashflow vs Appreciation: Typically, all cashflow with zero or negative relative rent & value appreciation
Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
Tenants: majority will have FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, recent evictions.

Make sure you understand the Class of properties you are looking at and the corresponding results to expect.