This article gave me second thoughts on Investing in Cleveland OH

[Wei Mai]

Hello BP,

I have been looking into investing in Cleveland Ohio for a few months now and have been researching neighborhoods to begin in. Today, I came across this article about the most distressed cities in america and basically ranked Cleveland #1 on the most distressed cities. Should I be deterred from investing in this market? Would like to hear all your thoughts. 

Article here America's Most and Least Distressed Cities

[Joel Owens]

I know nothing of Cleveland Ohio but I know this.

If you look at Macro trends nationally most of the growth is coming to the warm belt states.

So when making investment decisions it comes down to can you get something similar in a more high growth area for the long term in another state that is not declining or flat lining for economic metrics?

Example in GA we are slated to grow by about 5 to 6 million over the next 12 to 15 years. You could basically drop the whole state of SC on GA and that is how fast we are growing. I think Texas is one of the few states outpacing us right now. Florida is also growing well. Migration patterns people tend to want to live in warm climates and cost of living is pretty low as well.

I can see local investors in Ohio investing heavily where they live. I am talking if you are a national investor looking at markets equity growth tends to outpace cash flow long term so appreciating markets tend to make more sense than cash flow only markets.

I do not invest in residential but know a ton of friends who do.

There are bad spots in every state for sure to invest in. 

So if the choice was for instance a high growth state like GA and property was 100k for 800 rent or Ohio for 100k for 1,000 rent the difference is not large enough. One market you are getting about 200 more a month rent but long term the rent growth tends to be higher in appreciating markets and the equity growth upside is more whereas the other more flat lining market is cash flow only.

It's just like for me if I can own a commercial strip center for 11% return or a restaurant for 15% I will not do the restaurant because of the time and work involved. Now if restaurant return is 25% we are talking a different ballgame. There is a headache and active versus more passive component to evaluate a return.

Plopping 40k down for a few hundred a month cash flow doesn't do anything for me.

Talked to a South African investor the other day when he was visiting the states in GA. He loved SFR because in other countries you usually cannot load up on 10 financed loans like you can here so it is all perspective. What one person does not like at all another loves.

If I was analyzing cold belt states and did not live there the return metric would not have to be just a little higher but very high to invest there versus warm belt states with better projections for long term growth.

Again not bashing Ohio investors should just analyze each state for opportunities for risk/reward.