Is the last, affordable city a good place to invest?

[Jonathan Feliciano]

Hi BP Community,

I recently read in an article that Cleveland, OH, is one of the few remaining cities with affordable housing. 

To those who have invested in real estate here, what's your opinion on the Cleveland market? Have you made a decent profit / cash flow in this city?

[Nathan Gesner]

Quote from @Jonathan Feliciano:

I just posted about this elsewhere. Property is affordable and looks good on paper, but your actual experience may be very different due to costly turnovers, bad renters, vacancies, etc. 

I see Cleveland as the Canary in the coal mine for the maret. Housing prices stayed flat in Cleveland for 30+ years. People were selling houses for $10,000 six years ago and then prices shot through the roof for the first time. Can you name one time in the last 100 years that we saw property values jump so high, so quickly, without a correction?

[Min Zhang]

Hey Jonathan! I personally love the Cleveland market for its cash flow. I invest heavily in this area as an agent. Affordable homes under $100k are prevalent in the Cleveland area. Markets with more supplies. I do have clients buy in Cleveland, generally anywhere from 10-18% COC return. Let me know how I can help!

[Samuel Diouf]

Cleveland is great if you only want cash flow and aren't as focused on other factors such as population growth/decline and economy trends. Columbus, Ohio is a great market to consider if you're leaning towards appreciation. Multiple, billion dollar companies are investing heavy in our area, such as Intel, Google, and Amazon. Which will bring plenty of other investors and general business to the area. I moved here from Florida after seeing the projected growth.

[Vadim F.]

Cleveland is definitely peaking right now. Inventory is low and prices are high. Getting something in a decent area where you would expect to cash flow is hard to come by today. You'll be lucky to find anything that will yield you 8% or more in C class areas (which is more then a HYSA or CD will if you keep that money in the bank but there is a ton more risk). 

[Simon Ashbaugh]

Loving the Cleveland market. Cash flow is king there and the affordability lets you invest in more properties!

[David Leggett]

Cleveland has been a strong rental cash flow market for years, at least the 10 years I've been working with investors in this market, and with rents being near all time highs in this area, I don't see that changing anytime soon. 

Cleveland has never claimed itself to be a great appreciation market, but the investors that bought properties with me in Maple Hts for 40-50k in 2018 have properties that are now worth 90-110k.  And it's like that across the board.    Prices might definitely correct themselves over time across the country, but I don't see any projections of them going down 30-40% anytime soon and all the projections I've seen, prices are going up.

But with rents being so high, and prices still relatively low, compared to a lot of other markets in the country, my experience in this market doesn't lead me at all to believe the bottom will fall out anytime soon.

If you've been in Northeast Ohio over the last 5 years you can see for yourself how much they've built up the downtown and University Circle area and literally have poured billions of dollars into it's medical infrastructure, which is one of the best in the world, creating thousands of high paying jobs and people willing to pay high rental prices.

But I do agree with Nathan that it's all about having the right team and property management to be successful in this market.  But I don't think those things you're talking about like costly turnover and bad renters are unique to this market.  Are those not issues investors face in any market?  Maybe because there are more low income areas people assume the tenants will just naturally be bad or something, but that hasn't been my experience and kind of a negative stereotype in my opinion.  I don't think Cleveland is unique for having bad renters, you just need to have an excellent team and property management in place.

[Michael Smythe]

@Jonathan Feliciano you can say this about Detroit, Columbus, St Louis and many other Midwest cities.

Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.

If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.

So, when investing in areas they don’t really know, investors should research the different property Class submarkets.

Here’s our OPINION for the Metro Detroit market (use as a template for your target area!) that we’ve learned in our 24 years, managing almost 700 doors across the Metro Detroit area, including almost 100 S8 leases.:

Class A Properties:
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% the more recent norm.
Tenant Pool: Majority will have FICO scores of 680+, zero evictions in last 7 years.

Class B Properties:
Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
Tenant Pool: Majority will have FICO scores of 620-680, some blemishes, but should have no evictions in last 5 years

Class C Properties:
Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.
Tenant Pool: majority will have FICO scores of 560-620, many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.

Class D Properties:
Cashflow vs Appreciation: Typically, all cashflow with zero or negative relative rent & value appreciation
Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
Tenant Pool: majority will have FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.

Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

[Ryan Arth]

On the one hand, some people think things are peaking here and that pricing will soften (or worse) and yet this article states that here we are in one of the last affordable markets. This should draw further capital and also people looking to relocate for the cost of living. 

Outside capital has come in and shored up pricing from the bottom up, driving up the lowest end of the pricing spectrum (or as low as investors were comfortable going). If the returns are there for the investor, they will continue to operate the property or will trade it to someone else who will do the same. These properties are the ones that show the impressive 3x and greater price gains. But if the value tripled on a 40K house you did only net 80K. So your ROI may not always be the most important metric, cash gained needs to be taken into account.

Outside of that property class, things here are super competitive, the same as everywhere else. This is especially true for homes attractive to owner occupiers. Low inventory and pent up demand are keeping prices higher (and still rising), even in a higher than previous (but historically average) interest rate environment. 

[Patrick Drury]

@Jonathan Feliciano
Cleveland market can be solid for cashflow. I would recommend being in areas on the West Side of Cleveland like West Blvd, Cudell, Old Brooklyn, Clark Fulton, Edgewater, Jefferson, and Brooklyn Centre. The reason is the rent-to-price ratio is good so you can cash flow, and most of the West side doesn’t have a Point of sale inspection which is really annoying.

[Bradley Buxton]

@Jonathan Feliciano

Affordable is a relative term. There are also more factors to consider than capital investment.  Consider your time and energy investments.  OH is less expensive than CA or even where I'm at in Reno Tahoe area. If you are in CA the travel time and energy to manage a 4 hour flight away is cumbersome.  Once you have established references and a team it will become easier but it's never passive and takes time. Consider all of your life dimensions and what can you wallet and your time afford. 

[Joe S.]

If I live closer to Cleveland, I’m sure I would invest there. With many things where you live and  have the most access can make a difference in whether or not something turns out to be a good investment or not. 
I did some brrrr’s out of my geographical area a couple years back, and I’m starting to regret it.

For one a person is at the mercy of the Contractor long distance. The next problem I’ve encountered is that  many of property managers may not even know the difference between a hammer and a Phillips screwdriver. So contractors are giving them crazy bids  and they’re trying to pass them on to us. 

[Ryan Arth]

Quote from @Joe S.:

If I live closer to Cleveland, I’m sure I would invest there. With many things where you live and  have the most access can make a difference in whether or not something turns out to be a good investment or not. 
I did some brrrr’s out of my geographical area a couple years back, and I’m starting to regret it.

For one a person is at the mercy of the Contractor long distance. The next problem I’ve encountered is that  many of property managers may not even know the difference between a hammer and a Phillips screwdriver. So contractors are giving them crazy bids  and they’re trying to pass them on to us. 

 Correct, and PMs incentives aren't directly aligned with yours, as they are just passing through bids. They are more concerned with closing out issues than they are with getting multiple bids to get the best contractor for the job.

[Brad S.]

Quote from @Jonathan Feliciano:

Hi BP Community,

I recently read in an article that Cleveland, OH, is one of the few remaining cities with affordable housing. 

To those who have invested in real estate here, what's your opinion on the Cleveland market? Have you made a decent profit / cash flow in this city?

********************
I have not invested in Cleveland, but I'm going to throw in my unsolicited 2 cents anyway.

Affordable is always relative. If an area is considered "the last affordable city" after the big run up in prices we recently had, I'd be concerned. Basic supply and demand would dictate either supply rising greater than demand or a significant lower demand, or a more-likely somewhere in-between. Either way, it would be concerning to me, as an investor. It would cause me to do some deep diving into specific stats to try and reveal the general story. Like trends in population, business, income, housing supply, etc.

As always it comes down to an investor’s specific goals. Are they looking for cash flow exclusively, moderate to high appreciation potential, or both, etc.

Typically, with more “affordable” markets, you get better relative cash flow but also more intensive management concerns (vacancy, collection, maintenance, turnover, etc) and less appreciation. And to get the #’s most people want, would require more doors (higher quantity), and therefore more time/energy intensive mgt issues. And that is moving further away from “passive.” I, personally, would rather have better quality than quantity, with reasonable nominal returns. But, the real challenge and skill, is in recognizing future opportunity today, or creating it with value-add opportunities.

I, personally, have owned “affordable” rentals in other areas, which appeared to cash flow relatively well, only to sell them almost 2 decades later for a loss or about even. And generally, they took longer to rent, longer to sell, cost relatively similar (maybe moderately less) to repair and rehab as other less affordable areas, and had more turnover than desired.

I also have a good friend/investor who owned over 100 sfr doors in the Detroit area that they were acquiring amazingly cheap, then rehabbing them. He was unpleasantly surprised with the management/collection/vacancy/repairs challenges there were on them, which drastically cut down his returns, raised his stress level, etc, and he had a long difficult time finding an avenue to exit owning them. I believe he did relatively well, but he wasn’t aware of the journey it was going to be.

That said, there are good opportunities in every market and the skill is in recognizing them and/or find those local experts/teams to help find and take advantage of those opportunities. But, if you look at affordable markets just because they are “affordable,” you may look back one day and realize they weren’t as “affordable” as they appeared. It may be like the metaphor of the drunk guy looking for his lost keys where the street light is, even though he lost them somewhere else. Maybe the lesson is to use a flashlight, or someone else’s, and search where your keys are more likely to be or wait until the sun s comes out.

Most seasoned investors will tell you that real wealth is made through appreciation. Ask yourself, do you want a $100k house that is worth $150k in some future time, or would you rather have a $250k house worth $375k in the same time period.

[Regina Blake]

Hi, yes, I would definitely agree that Ohio is a great place to invest. Nowadays, there is a lot of over bidding for the properties in Ohio. It is a very competitive real estate market.  Thanks!

[Gladimir Lobo]

Cleveland is often talked about for its low entry costs and high rents. Some argue there's no appreciation, but our experience differs. We helped an investor purchased three houses in Maple Heights and Garfield Heights for $100k and sold them for $530k! The reality is, there are no bad investments, only inexperienced investors.

[Peter Stewart]

Indianapolis is a very affordable market as well. Many people looking in OH also look in Indy, and many stop looking in OH to focus on Indy after comparing the two. You can still get cash flow here and you can do all 3 major strategies (short, medium, long term rentals) as well as BRRRR's and flips.

Here is a link to a BP podcast I was on discussing the Indy market: 

If you want to chat more about the Indy market and the opportunities here, you can schedule a call with me: https://calendar.app.google/acFPv7ZPzwHef42A6

[Bobby Macik]

Quote from @David Leggett:

Cleveland has been a strong rental cash flow market for years, at least the 10 years I've been working with investors in this market, and with rents being near all time highs in this area, I don't see that changing anytime soon. 

Cleveland has never claimed itself to be a great appreciation market, but the investors that bought properties with me in Maple Hts for 40-50k in 2018 have properties that are now worth 90-110k.  And it's like that across the board.    Prices might definitely correct themselves over time across the country, but I don't see any projections of them going down 30-40% anytime soon and all the projections I've seen, prices are going up.

But with rents being so high, and prices still relatively low, compared to a lot of other markets in the country, my experience in this market doesn't lead me at all to believe the bottom will fall out anytime soon.

If you've been in Northeast Ohio over the last 5 years you can see for yourself how much they've built up the downtown and University Circle area and literally have poured billions of dollars into it's medical infrastructure, which is one of the best in the world, creating thousands of high paying jobs and people willing to pay high rental prices.

But I do agree with Nathan that it's all about having the right team and property management to be successful in this market.  But I don't think those things you're talking about like costly turnover and bad renters are unique to this market.  Are those not issues investors face in any market?  Maybe because there are more low income areas people assume the tenants will just naturally be bad or something, but that hasn't been my experience and kind of a negative stereotype in my opinion.  I don't think Cleveland is unique for having bad renters, you just need to have an excellent team and property management in place.

 Hey David, Great insight. Do you have any property mgmt. companies you can recommend in the Cleveland Area? I'm looking to invest in the west side; Detroit Shoreway, Ohio City, Tremont, Clark Fulton, and West Boulevard areas and I'd love to connect with a good mgmt. company to not only help me manage but to give opinions on certain areas and rental rates. Thanks!

[Bobby Macik]

Quote from @Patrick Drury:

@Jonathan Feliciano
Cleveland market can be solid for cashflow. I would recommend being in areas on the West Side of Cleveland like West Blvd, Cudell, Old Brooklyn, Clark Fulton, Edgewater, Jefferson, and Brooklyn Centre. The reason is the rent-to-price ratio is good so you can cash flow, and most of the West side doesn’t have a Point of sale inspection which is really annoying.

 Hey Patrick, Do you have any property mgmt. companies you can recommend in the Cleveland Area? I'm looking to invest in the west side; Detroit Shoreway, Ohio City, Tremont, Clark Fulton, and West Boulevard areas and I'd love to connect with a good mgmt. company to not only help me manage but to give opinions on certain areas and rental rates. Thanks!

[Eric Gerakos]

When I hear "affordable" I always think, undesirable since price is always based on supply and demand. I prefer to invest where people actually want to live. Less vacancy, better tenants etc.

[Jimmy Lieu]

Quote from @Jonathan Feliciano:

Hi BP Community,

I recently read in an article that Cleveland, OH, is one of the few remaining cities with affordable housing. 

To those who have invested in real estate here, what's your opinion on the Cleveland market? Have you made a decent profit / cash flow in this city?

Hi Jonathan, yes, Cleveland does offer some attractive affordability and investment potential. While you're interested in Ohio and affordable market, I'd recommend that you also look into Columbus Ohio. Columbus offers a diverse economy, strong rental demand, and a rapidly growing population. Investors here are seeing solid cash flow and long-term appreciation. As an investor and agent here in Columbus Ohio, if you have any questions or want to connect, definitely reach out!

[Bob Stevens]

Quote from @Jonathan Feliciano:

Hi BP Community,

I recently read in an article that Cleveland, OH, is one of the few remaining cities with affordable housing. 

To those who have invested in real estate here, what's your opinion on the Cleveland market? Have you made a decent profit / cash flow in this city?

 Opinion, It has been the best overall rental market for 10 years 25- 35% net caps on top of the triple quadruple or more . Still get 15-20% net . 

[Bob Stevens]

Quote from @Samuel Diouf:

Cleveland is great if you only want cash flow and aren't as focused on other factors such as population growth/decline and economy trends. Columbus, Ohio is a great market to consider if you're leaning towards appreciation. Multiple, billion dollar companies are investing heavy in our area, such as Intel, Google, and Amazon. Which will bring plenty of other investors and general business to the area. I moved here from Florida after seeing the projected growth.

 Your kidding right bro?  Cleveland and the burbs have tripled, quadrupled or much more over the last 10 years on top of the 25- 35% net caps. East Cleveland is next to BOOM!! Parts have already.  Each time I go there is a new massive residential building, downtown major renovations, Amazon with 2 mill + sq ft, Shewing Williams new 40 story building being built in the heart of the city and so much more. I guess there has not been any appreciation lol, I get your a broker in Columbus and want biz, totally understand. But to say baseless things about Cleveland is well, ,,, 

You moved TO Columbus from FL, odd. I live on the beach in FL and would never move to OH. 

HMM nit so bad on top of the 30% ish net caps  

44109 (median home price went from roughly 50k to 125k in 8 years)

https://www.zillow.com/home-values/77009/cleveland-oh-44109/

44102 (median home price went from roughly 30k to 120k in 8 years)

https://www.zillow.com/home-values/77002/cleveland-oh-44102/

44106 (median home price went from roughly 100k to 200k in 8 years)

https://www.zillow.com/home-values/77006/cleveland-oh-44106/

[Robert Ellis]

Quote from @Bob Stevens:

Quote from @Samuel Diouf:

Cleveland is great if you only want cash flow and aren't as focused on other factors such as population growth/decline and economy trends. Columbus, Ohio is a great market to consider if you're leaning towards appreciation. Multiple, billion dollar companies are investing heavy in our area, such as Intel, Google, and Amazon. Which will bring plenty of other investors and general business to the area. I moved here from Florida after seeing the projected growth.

 Your kidding right bro?  Cleveland and the burbs have tripled, quadrupled or much more over the last 10 years on top of the 25- 35% net caps. East Cleveland is next to BOOM!! Parts have already.  Each time I go there is a new massive residential building, downtown major renovations, Amazon with 2 mill + sq ft, Shewing Williams new 40 story building being built in the heart of the city and so much more. I guess there has not been any appreciation lol, I get your a broker in Columbus and want biz, totally understand. But to say baseless things about Cleveland is well, ,,, 

You moved TO Columbus from FL, odd. I live on the beach in FL and would never move to OH. 

HMM nit so bad on top of the 30% ish net caps  

44109 (median home price went from roughly 50k to 125k in 8 years)

https://www.zillow.com/home-values/77009/cleveland-oh-44109/

44102 (median home price went from roughly 30k to 120k in 8 years)

https://www.zillow.com/home-values/77002/cleveland-oh-44102/

44106 (median home price went from roughly 100k to 200k in 8 years)

https://www.zillow.com/home-values/77006/cleveland-oh-44106/

 AGREED I MOVED FROM OHIO TO FLORIDA 

[Bob Stevens]

Quote from @Robert Ellis:

Quote from @Bob Stevens:

Quote from @Samuel Diouf:

Cleveland is great if you only want cash flow and aren't as focused on other factors such as population growth/decline and economy trends. Columbus, Ohio is a great market to consider if you're leaning towards appreciation. Multiple, billion dollar companies are investing heavy in our area, such as Intel, Google, and Amazon. Which will bring plenty of other investors and general business to the area. I moved here from Florida after seeing the projected growth.

 Your kidding right bro?  Cleveland and the burbs have tripled, quadrupled or much more over the last 10 years on top of the 25- 35% net caps. East Cleveland is next to BOOM!! Parts have already.  Each time I go there is a new massive residential building, downtown major renovations, Amazon with 2 mill + sq ft, Shewing Williams new 40 story building being built in the heart of the city and so much more. I guess there has not been any appreciation lol, I get your a broker in Columbus and want biz, totally understand. But to say baseless things about Cleveland is well, ,,, 

You moved TO Columbus from FL, odd. I live on the beach in FL and would never move to OH. 

HMM nit so bad on top of the 30% ish net caps  

44109 (median home price went from roughly 50k to 125k in 8 years)

https://www.zillow.com/home-values/77009/cleveland-oh-44109/

44102 (median home price went from roughly 30k to 120k in 8 years)

https://www.zillow.com/home-values/77002/cleveland-oh-44102/

44106 (median home price went from roughly 100k to 200k in 8 years)

https://www.zillow.com/home-values/77006/cleveland-oh-44106/

 AGREED I MOVED FROM OHIO TO FLORIDA 

 Yes, nobody TO Ohio LOL, 

[Calvin Thomas]

Quote from @Nathan Gesner:

Quote from @Jonathan Feliciano:

I just posted about this elsewhere. Property is affordable and looks good on paper, but your actual experience may be very different due to costly turnovers, bad renters, vacancies, etc. 

I see Cleveland as the Canary in the coal mine for the maret. Housing prices stayed flat in Cleveland for 30+ years. People were selling houses for $10,000 six years ago and then prices shot through the roof for the first time. Can you name one time in the last 100 years that we saw property values jump so high, so quickly, without a correction?

 True, but do you really think the price surge in Cleveland is now signaling to the market that it is time to reverse course and have a titanic drop?  One could say, people are targeting Cleveland because mostly every other major metro in the US is too expensive to invest in.  Compare Cleveland to Jersey City, NJ or Boston, MA.  You're making a couple hundred a month; if you're lucky in Boston or Jersey City.  Whereas, in Cleveland you might be making more.  Investors follow the money. I've been hearing for years about Cleveland. I have no interest in OH, let alone Cleveland. The place is gentrifying since people cannot afford to live or invest in the New England area + New York City Metro, Northern Jersey, Southern Florida, California, etc.

People are then targeting for areas where people can follow the money and see where the next gold mine is.  Not saying Cleveland is, as I know nothing about that area.  I've always compared it to probably Jersey's Camden or NYC's south Bronx.  @James Wise would know the pulse of the Cleveland market better than anyone here.