Cleveland Ohio Investment Property Market Update

[Uri Gofman]

As someone that is very active in the Cleveland Ohio market, I have been receiving a significant number of inquiries recently from existing clients and new investors asking about recent trends in the investment property marketplace.  The biggest question on many people's minds is whether the market is crashing and if, as a result, there is an abundance of great deals.  While the recent pace of interest rate hikes has put pressure on the market and has caused pause on the part of some investors, the market has not crashed and inventory remains very low.  

Pricing in the Cleveland market continues to remain mostly stable and in certain pockets, I am witnessing transfer prices that are higher than they were even at the height of 2022.  I will attempt to dissect the differences between some of these submarkets as well as the driving forces that are causing these trends.

The overall number of transactions is down from last year as there are fewer buyers and fewer sellers in the marketplace.  Those buyers that were 
leveraging the low interest rates to build their portolio have slowed down as the rates have creeped up.  In turn, sellers that have secured attractive long term debt are staying put with many of their existing properties and collecting cash flow instead of trying to trade up as the property they would trade up to would have to be secured using significantly more expensive debt.  This dynamic is causing inventory levels to remain historically low and keep the market in equilibrium.  

One dynamic that I am observing in the current marketplace is the migration to quality and safety.  Suburban properties and more stable Cleveland neighborhoods are continuing to enjoy strong demand from buyers as they tend to offer more predictability in financial outcomes and less volatility.  As inventory levels remain low, many of these properties are going under contract shortly after hitting the market.  Some of these buyers are buying cash and are largely unaffected by higher interest rates while others continue to buy using bank financing and are settling for smaller short term cash on cash returns.  These types of investors can continue to accumulate assets into their portfolio in the short term consistent with their long term goals with predictable range of returns and without significant deviation.

Sellers of properties in more difficult, less stable areas within the City of Cleveland are not faring as well recently as some of the demand in those areas has tempered in comparison with 2022.  These are properties that tend to have less demand from qualified tenants and as a result are less predictabile as far as financial forecasting is concerned.  There are discounts in the marketplace that can be identified in relation to last year's market for this asset and class type.  Buyers that are willing to navigate these choppy waters may be rewarded with significantly higher returns or may end up having regrets about their decision.  Investors that find themselves gravitating to these types of properties may be able to mitigate some of their inherent risks by employing certain criteria to limit some of the commonly associated pitfalls.

The Cleveland market remains a stable investment option in the current economy with mostly predictable ranges of financial outcomes.  

As with all endeavors, if you are new to a marketplace, do your due diligence!!!  

(1) If possible, drive or fly into town for a few days and explore neighborhoods.

(2) Identify experienced people in the market who are competent, trustworthy, and who you enjoy working with.

(3) Always pay for an independent property inspection on any property you are buying.

(4) Never buy any property with you last dollars.  Always maintain reserves.

Hoping that you find this useful.  Wishing you only the best in your investment journey!

Uri