What’s actually going on in the Cleveland RE market?

[Tal Tamir]

What’s actually going on in the Cleveland Real Estate market?

The investment market in Cleveland is still very strong and I forecast it will stay that way. The reason: we have a lot of investors coming from out-of-state or out of the country where their local markets are completely unaffordable and generate little to no cash flow. This isn’t something new, but will escalate even more given the state of other “hot” rental markets that simply don’t make any sense to invest in right now (Austin, Dallas, California, New York, etc.).

In Cleveland, although the price of properties is higher than in recent years, you’re still able to achieve a strong return on your investment, and real estate investors know that.

Interest Rates - why they don’t matter.

Even with interest rates going up, real estate investors will simply adjust their offers on properties accordingly. At the end of the day, it’s a simple math equation to come up with the returns they need on their investment. Sellers will have to adjust their unrealistic selling prices of 2020-2022 to match the rising interest rates. And in reality, the “leveled-out” selling prices of properties will be in line with what the market calls for, whereas in recent years, investors were able to purchase them at that higher price because interest rates were so low.

It’s really a “give-and-take” correction happening: sellers will have to bring down the over-inflated prices of properties and buyers will be offering at a number that makes sense given the interest rates. The savvy investor also recognizes that rates will eventually come back down and when they do, they will be able to refinance into a lower interest rate loan - so it’s really in their favor to buy as many properties as possible while they are being sold for less, even at a higher interest rate.

Going off of that, the responsibility of pricing in the current market falls on the experienced investor-focused real estate agent to set realistic expectations and pricing guidance to their sellers. The two must work hand-in-hand to price accordingly.

All-in-all, the Cleveland market is neither a buyer’s or seller's market, it is for the foreseeable future, an investor’s market.

[Dave Poeppelmeier]

Quote from @Jeremy H.:

Doesn't Cleveland have a declining population? Hasn't it been that way for awhile?

That's my hang-up. I hear a lot about it, I'm sure there's some positives I don't know about, I'm sure there's some success and I'm sure there's some horror stories too. What gets me is the housing is cheap and there's a ton of renters. 

The macro data from some brief research I did awhile back didn't look good. 

In fact, Columbus looked a lot better. If I'm moving to Ohio, why do I move to Cleveland over Columbus? Columbus had an increasing population...there must be a reason more people are moving there...

I mean Cleveland is what, the 2nd poorest city in the nation. The poverty rate is like 30%. 

I'm not trying to be argumentative here, just playing devils advocate. Why should I invest in a city that's losing population and is one of the poorest in the nation?

Jeremy, this is what people that aren't from the Midwest/Great Lakes/"Rust Belt" don't realize: Even though you'll still have "declining population", it doesn't mean that Cleveland is a cesspool. Cleveland has trendy and up and coming neighborhoods, a fantastic restaurant scene, 3 major league sports franchises, and is doing well in general. The Rust Belt will continue to have declining populations because in the heyday of Manufacturing, the Rust Belt was the Mecca of employment. Ask anyone in Detroit about the cultural significance of the Motown Era when Detroit was hopping with the Auto industry. Same thing in Cleveland/Akron/Youngstown: people were flocking to these area for well paying jobs in Steel and Manufacturing. The population is going to continue to decline because people from that era, who stuck around, are literally passing away. Otherwise, if someone is worried about poverty and war zones... don't invest in those neighborhoods! If investors want cash flow, you go to cities like Cleveland, Cincinnati, Toledo, Akron, Dayton (making sure I get all the keywords in for everyone). I understand appreciation is a great way to build wealth, and there are A and B class areas of any Midwest city were, if that's what you're looking for, you can do at a MUCH lower point of entry than the coastal cities. You can invest for appreciation in Columbus, too. Columbus is absolutely the crown jewel of Ohio: Great economy, state government, literally limitless expansion potential as it's surrounded by cornfields, high property values. But, you're not going to cash flow well around there in general, because the secret has been out for a while. That's why investors looking to invest in Ohio (landlord-friendly state for the most part), are looking at the "declining population" areas as places to buy great properties that meet their cash-flow investment criteria. 

Bottom line: Sometimes the macro data doesn't tell the whole story.