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Cleveland Suburb POS Violations Must Be Removed!!
Hey Cleveland Investors,
Who has dealt with the massive turd that POS violation escrow amounts has put on your potential deals? I know I have and there is nothing worse than having an awesome deal get shut down because of a 5 digit POS violation escrow amount!
All the suburban Cleveland cities that participate in this practice make it insanely hard for us investors to put in fair offers on these houses and because of that aspect these houses will continue sit vacant for months and months (of course lowering the market values) because no one wants to deal with the hassle of these absurd and arbitrary escrow amounts set in place.
City inspectors walk through the houses and point out every little thing they can possibly find wrong with a house and report it to the city. The city then places an amount based off a list of ridiculous codes that have the estimate numbers for each violation to be discovered by the inspector. The investor or owner-occupant purchaser has to put in this amount set by the city (with no contest of course) into an escrow account upon purchase and cannot touch these funds UNTIL the necessary violations are brought up to code, then and only then will you get your money back. How insane is that?? You can't even use the money they estimate for the repairs to make the freakin' repairs!!
Overall, I would just like to hear your thoughts and experiences dealing with this matter and hope we can all come together to finally put an end to this backwards and nonsensical regulation!
All my best,
Sawyer
Hi Sawyer,
All of us who invest on the east side have had to deal with the POS inspection and escrow nonsense. I see why they do it (it's actually helped right the ship in some cities to force owners to either keep up or fix their properties to an acceptable standard) but there is no question that it puts a big damper on our investment goals. I think the biggest nonsense is, as you point out, that you have to put the amount they determine in escrow and can't touch it until all the repairs are done. So you effectively have to have twice the rehab budget available before even buying!!!! I don't know what to tell you other than I know it stinks, and I commiserate. :)
I do not invest in cities with POS inspections for many reasons, this being an obvious one. It's one of those things that isn't going to change so you either accept it and play by the rules or you shop in one of the many areas that don't have these inspections. If it's that big of an issue for you than look elsewhere, you have lots of options.
Depending on when the inspection is done during the buying process the seller may have to fix or go into a deal with those POS violations looming over their heads.
I recently had a POS inspection done by the city of Lakewood about a week after our inspection. The POS violations needed to be fixed in 30 days from the inspection and we were able to get the seller to fix at his expense because they were due about 3 weeks before closing.
TL;DR - My offers are now "POS Violation Free" contingent. I do not do deals in areas that add an escrow on top of the POS repair list.
I have 5 buildings up there in Cleveland area with 12 units now and I am not a huge fan of the POS system but am figuring out guidelines for myself to work within its constraints and not go crazy. The only deal I did in an escrow area (Cleveland Heights) fell apart, partially complicated by the insane escrow (which was like $15k - just for the escrow), but because my lender did not understand POS/Cleveland RE and was having all kinds of problems with it as well.
I've since been sticking with areas that while they do have POS, there are no escrows. (Parma, Lakewood). Lenders HATE the POS reports and we had a lot of issues where things on the POS report labeled "safety issues" (like a non GFCI) the lender required we fix, but the seller didn't want to fix it, and we couldn't legally fix it because we didn't own the building. Basically a huge cluster. We ended up paying the seller more money (too much) to get it done because the property was so good. (They were some of those Lakewood quads that went up a few months ago.)
Over the 7 deals I've worked (2 of which did not go through.) I have learned that to make it sane for myself I do this:
- My offers are now including clear POS report requirement. I just don't want to deal with it, and this puts it on the seller.
- If I really wanted a building that was going to have a lot of POS items that were not likely to be taken care by the seller, it would be a cash deal. Adding complications with the lender on top of complications with the city, is just too complicated, so I think I need to take one of the complications out of the equation. You can't really do that with the city :)
- One thing we noticed is it really depends on which city inspector you get. Some of them give you 200 point lists of things to fix, some are reasonable people and the list is mostly things you would want to fix anyway (unless you are a slumlord.)
One of the benefits of investing in Cleveland proper, along with lower property taxes, is no POS. I especially steer clear of Cleveland Heights as an investor, due to their strict POS, relatively low values in many areas, and high taxes. If you can find the right neighborhood of Cleveland proper to invest in, the local government will mostly stay off your back, and your life will be a lot easier. I'm particularly fond of North Collinwood.
Some cities that have POS are more investor friendly than others. Some will go out of their way to make your life difficult. Here's how I'd rank them from least to most investor friendly:
1. Cleveland Heights
2. Shaker Heights
3. South Euclid
4. Bedford Heights
5. Maple Heights
6. Euclid
7. Garfield Heights
8. Willowick (dye test)
9. Eastlake (dye test)
10. Wickliffe (dye test)
11. Lakewood
12. Parma
13. Berea
By the way, Brook Park has no POS, but avoid at all cost as an investor. The building commissioner and building department are awful to deal with.
I vaguely recall an article in the last 6 months or so that said Cleveland proper was going to start doing them at some point in the near future.
Cheers on putting that list together @Steven Aviram . I've stayed away from the areas that have POS so far, but good to know what's out there!
@Steven Aviram I'm pretty sure Brook Park has POS inspections, I bought a house last year and had to Assume a few violations. I can vouch for the rest of your statement. I've called them for help a few times and they never responded.
The properties I have obtained, had POS too, but not much. Its good to get a home back to a baseline of a minimum quality. There are too many problem homes in this world, and I am glad to see that they are being corrected.
Now when I sell someday, that might be a different story, but as a buyer and a builder I personally like the POS.
Originally posted by @Steven Aviram:
One of the benefits of investing in Cleveland proper, along with lower property taxes, is no POS. I especially steer clear of Cleveland Heights as an investor, due to their strict POS, relatively low values in many areas, and high taxes. If you can find the right neighborhood of Cleveland proper to invest in, the local government will mostly stay off your back, and your life will be a lot easier. I'm particularly fond of North Collinwood.
Some cities that have POS are more investor friendly than others. Some will go out of their way to make your life difficult. Here's how I'd rank them from least to most investor friendly:
1. Cleveland Heights
2. Shaker Heights
3. South Euclid
4. Bedford Heights
5. Maple Heights
6. Euclid
7. Garfield Heights
8. Willowick (dye test)
9. Eastlake (dye test)
10. Wickliffe (dye test)
11. Lakewood
12. Parma
13. Berea
By the way, Brook Park has no POS, but avoid at all cost as an investor. The building commissioner and building department are awful to deal with.
I would put Shaker Heights in its own category. Cleveland Heights, while strict only requires escrow on severe items. Shaker Heights requires 150% escrow on EVERYTHING they find (down to loose door knobs).
Garfield Heights ain't too bad. No escrow is required. Probably the only city I would deal in
Lakewood to me has been fairly good. But I'm mostly on the west side with no POS.
Cleveland heights is the worst and I truly don't understand why they require so much escrow to be held with the city. It hurts anyone buying or selling there
Hey peeps,
Thanks for sharing your thoughts and experiences of POS Violations in the Cleveland suburbs!
I appreciate the advice and shared knowledge :)
-Sawyer
I've only had to dealt with POS violations once and it was in Maple Heights. They point out the most ridiculous items, but I understand that it is to maintain a standard of living, safety, and community appearance. Luckily mine was only 1500, but the city said it was too low and waited my GC to increase it to 3000, so he did but it still only cost me 1300 in repairs. Bedford was sued recently for the whole POS violations requirement but that's because the inspector kept coming up with new items after revisits.
I see it as a good thing, but some parts of the city go way over board on what they required fixed. I backed out of over a dozen deals because of how extensive the POS violations were.