How to build a network to buy more rental properties in Cleveland

Question

My husband and I live in California and we completed our first purchase of a SFR in Cleveland (Garfield Heights) about 4 months ago through a turnkey company (purchase price about $61K with a monthly rent of $920 before expenses). We are now ready to look for more properties, but after searching through Zillow we are considering doing this without a turnkey company, but we understand we need we build a support network of contractors, property managers, real estate agents, partners and more. Do you have any advice on how to find a network of good people? We are both in the computer field (software engineers), are very solid and just good people, and are looking to use the income from rents to at one point cover our living expenses so we can quit the 9 to 5 and just spend time with our family. I also just got laid off so I unexpectedly have a good chunk of time to research, learn and work towards this. Any advice and/or introductions are greatly appreciated.

Thanks!

Monica

Thanks!

Monica

James Maradits · Answer

Hey Monica,

Congrats on the first deal under your belt.

It sounds like the numbers on the deal are nice and realistic, which isn't always the case with turnkey companies (IE the ones that sell a 60k house for 90k to the naive investor).  While I generally do believe there is opportunity for the savvy investor to out perform most turnkey companies, I think that particular deal would be hard to beat or even repeat a small deal like that from afar in this current market.  Deals in the eastern suburbs (Garfield, Maple, Cleveland Heights, Euclid, South Euclid, Shaker, etc) can be very tricky to navigate with city regulations, point of sale inspections, rental licensing, etc.  In some of the cities you will be required to put large sums of cash into escrow with the city for point of sale repairs before they will allow title to transfer.

Say for instance you were able to find this exact deal on your own for 40k vs 61k, but you had to manage and/or hire someone to manage the process.  Repairs will likely be 10k+ if nothing goes wrong (hint something always goes wrong), there will be fees due to the city for inspections/POS/etc, fees for project manager/property manager to be present to meet with city inspector/utility companies/etc, project may very well go over your anticipated timeline and now you've got extra months of vacancy and carrying costs, you have to pay the property manager the first months rent to lease the place, etc etc.  At the end of the day you spent a lot more time and effort and MAYBE came out a little bit lower than 61k, but most likely went over budget.

By no means am I saying this is impossible, but on these smaller deals things can go wrong quickly.  If you're going to do it, you're going to have to be serious and be confident in your team.  Keep in mind it's going to be harder to find high quality contractors, etc to work on a deal where they are going to make a few hundred or thousand dollars when they can go work for someone else on higher end projects to make more money.  Also keep in mind $10k over budget on a $40k deal could be detrimental while $10k over on a $150k deal will be a lot easier to bounce back from.

Best of luck to you moving forward.  Please feel free to shoot me a DM if you have any further questions I may be able to help with.

Steven Dragmen · Answer

Hello, I live here in Cleveland and have a GC background and am well versed (waiting on License) on current lead paint issues here in Cuyahoga county.  I complete between 10 - 15 renovations per year here in town in C areas and up using the Holton Wise neighborhood guide.   These deals I use my cash to purchase and complete the renovations then often sell to out of town investors as rental investments.  With this method I shield the investors from the contractor nightmares, provide them with turn key properties and always welcome their third party inspectors.  As an example currently finishing a 4 br in Cleveland zip of 44144 where your property tax bill will be a good deal less than Garfield with the same rent numbers.  Starting on one in Bedford OH which is a 5 br pulling permits now and am closing on a 3 br in Euclid East of E 260 January 2.  I also own 8 singles here in town that I hold as rentals so I am familiar with both sides of the business.  Would be glad to share any info with you that would help you here in town, feel free to reach out.

Ryan Evans · Answer

I'd say one of the biggest things is to know what you're looking for and why. You've got a deal under your belt so you're ahead of 90% of out of state investors in Cleveland, which is awesome. So moving forward if you're reaching out to agents, you should know your numbers, what kind of property you're looking for, and prove that you're ready to buy. If it's PM's or contractors, you should know what questions to ask and be ready to move quickly if you find what you're looking for.

Every week I'm contacted by new investors who want to "pick my brain" because they don't know what they're looking for and are too lazy to do the work themselves. They're often looking at ten other markets and just want me to "bring them a deal." I don't have time for that and the deals go to the people who know what they want. I'm not saying you're one of them at all. It sounds like you're doing the right thing. But if you know what you want and ask the right questions, you'll be able to develop real relationships quickly by showing you're not like the rest of the time-wasters!

Igor T. · Answer

Move to construction. Property in Garfield Heights is extreme risk as any other Section 8 areas. Cleveland gives unique opportunity as RE University. You get lots of experience but nothing more than that.

Account Closed · Answer

@Monica Crisostomo - my partner and I have been investing in Cleveland or a few years (I live in Boston, he lives in Chicago). We have positions in Chicago, Colorado Springs, New Haven, Tampa, Salt Lake City, and Cleveland. Currently only at 23 units in Cleveland (Ohio City, Edgewater, Newburgh Heights), but plan to keep expanding.

Going from 1 unit to 10 units is probably the hardest part (if you stay with duplexes and quads). You need people on the ground to source deals in addition to sourcing yourself. You're too small for anyone to care unless you can prove that you've done this in other areas, have the capital and expertise to expand (partners are not going to want to take the time to educate you on location in addition to real estate finance etc. PM me if you want to chat.

JC

Bob Prisco · Answer

@Monica Crisostomo its all about your team, find one that has done 100s, and handles everything

Tom Ott · Answer

Zillow is just a big mess. Many investors use it to find "comps" or the look at the estimates on there, but it all inaccurate and misleading. They pull their information for other sources and it is full of errors. Recently I had a listing, and Zillow said the taxes were $40,000! Clearly, that was a mistake.

Tom Ott · Answer

Investing OOS on your own is VERY difficult without a full team locally. I would pick your team carefully and never use Zillow to do anything in real estate.

Mansoor A. · Answer

How come? Do you mean Zillow specifically or MLS in general?

What's the biggest mistake you see them make?

James Wise · Answer

Price to rent ratio on that bad boy looks pretty good. Don't see any plausible scenario where you can improve upon that very often without really getting hands on in the business and taking on more risk. My opinion is that you should stick to deals like that as they are replicable and relatively low risk. The out of state investors who get too greedy and bite off more than they can chew are the ones who get chewed up and spit out. Trust me I know, I make several hundred thousand dollars per year liquidating their failures.

How to build a network to buy more rental properties in Cleveland

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