All Forum Posts by: Don Petrasek

@Matt Comrey if you are looking in the city of Cleveland, water/sewer is a significant expense (bill also includes a waste collection fee).  I'm paying $40/$50 per month water and $55-$70 sewer on single families....so on a two family you'd likely be in the neighborhood of $150 or so a month for both.  It does vary city by city.  The combined water/sewer bill for my Lakewood two family is generally $55-$75 (I do have single people living in both units though).   When you lock down a property, I'd just ask to see recent water/sewer bills so that you know what to expect (but remember if one unit is vacant you're only looking at half the expense). 

Tenants are responsible for snow removal for all my properties....never had an issue with that but remind them that if there are any city ordinances (e g clearing sidewalk for kids walking to school) and you get cited....the cost will get passed on to them.  I also have tenants responsible for lawn care on 3.  They are small yards and I provide the lawn mower.  Hasn't been a problem but you do have to keep on closer eye out and remind the tenant of their responsibility from time to time.  To be honest on the other properties I got tired of reminding the tenant so just raised their rent and added lawn care.

@Michael Lewis if you share specifics (what Eric asked for) those of us who are local in Cleveland may be able to provide you with some direction/feedback.   What is the management company saying is the issue?  Its not unusual for it to take 30-60 days to vet applicants & identify a good one.

The weather here + Holiday season does slow down rental (and sales) activity but there are always people looking.  I rented my Lakewood double in two weeks at the beginning of December last year to a very well qualified lady who has been a model tenant.  But I had the rent slightly below market- I chose to give up $25-$50/month vs waiting a month or two to fill it.  I rented another house in the past about a week before Christmas- so the weather/season by itself is not likely the problem.

@Michael Lewis  I also have single families that don’t have garages.   I have had prospective tenants tell me that they wouldn’t look at a house without a garage, but that’s pretty rare (maybe 1 out of 25 or 30) and I’ve had no trouble renting them at market rates (comparable to houses with a garage).  For the right tenant (e g motorcycle owner) you might be able to charge a premium for a garage, but probably not enough to justify putting $ into one. 

Two things about city of Cleveland garages:

1) even if you have one, its generally not in great shape (and tenants dont expect them to be)

2) I just picked up rents yesterday- every tenant who has a garage had their car parked outside.  This holds true even in the winter 

Bottom line, no garage is not going to create a rentability problem here.  

@Susan Little I’ve bought pretty much all foreclosures in the Cleveland market and the comments above are all spot on.  There can be a lot of locked up value in them, but very difficult for a new out of state investor to manage.....even for an experienced out of state investor for that matter.   One thing I’d add to the list is that utilities typically aren’t on which is risky + a major pain when you transfer title.  On one house, the water dept wouldnt turn the water back on because the previous owner had messed with the meter multiple times and was on their blacklist.  They acknowledged that I had a perfect pymt record on other properties but it still had to be cleared by their “investigations unit”.  2 weeks later they finally turned it on.

You might consider looking for properties that are just cosmetically inferior......e g lots of big flowery wallpaper, pink tiles in the bathroom, etc.  things that turn off the retail buyer and in turn get the price down but that either are easy to correct or can wait.  

Shray a few things to consider:

With conventional lending, there are add-ons (points/rate) for non-owner occupied and additional units.  So you can’t compare an investor rate on a 3-family to an owner occupied single family rate - two different things.

I think local credit unions for the most part are going to be limited to working with people who live/work in the area.  Credit unions have to have some sort of membership requirement as part of their charter, e g firefighters and their families who work in X area, residents of X county, etc.  Many sell their loans so are going to offer you the going rate. 

The smaller local banks that I have talked to are reluctant to work with out of state investors, probably due to the added legal cost of tracking them down if something goes wrong.   

The local banks will be aggressive when it comes to terms, not necessarily rate. I talked to a few local banks the last time I refi'd as I wanted to keep the property in my LLC. They were willing to lend that way but at a commercial rate = 5.25% adjustable with a 5 yr balloon. Their conventional rates were about the same as the bigger guys.

If your loan is approved and the numbers work, I wouldn’t start shopping around now.  5.375% may not be the absolute best rate you’re going to find, but it isn’t worth jeopardizing a good deal over an 1/8 or even 1/4% difference in interest rate. 

BTW my last refi was with First Fed of Lakewood.  

@Jon Passow healthcare is an industry......Cleveland not only has the Cleveland Clinic but also University Hospitals which is a nationally renowned teaching hospital. There is a significant presence of healthcare related companies in the area (and growing).  There is also still a decent small specialty manufacturing base that is not going away due to 2nd or 3rd generation owners who grew up here.  We also have strong financial services (banking and insurance) employers - Key Bank and Progressive Insurance are based here to name just 2.  

The rental market here is very strong.  I rented my Lakewood double in two weeks last December (worst month here due to weather) and had my pick from 4-5 very strong candidates.  We are just finishing getting a single family in Cleveland ready for rent.   Yesterday while we were there, we had 2 neighbors knock on the door saying they had friends or relatives who were looking for a rental + one guy from down the street who wanted to buy it (in the course of about an hour and a half).  We're raising the rent about 6% (over last years raise) and may go even higher.....no doubt it will rent in a few days, there's no inventory.  

Having friends and family here to help is key.  That makes market choice a no brainer to me.   Good luck, let me know if I can help in any way.

@Account Closed  I remember the post you are referring to but can't remember the exact details.  Cleveland does cite when the trash collection guidelines are violated, but I've only heard of it happening in extreme cases.....like when you're tenant loads up the entire tree lawn 5 feet high on garbage day (or the weekend before).  Not many cities can support unlimited garbage pickup - effectively on demand dumpster service - so I don't find this unfair.  Cleveland is now using roll out cart pickup.  You're supposed to only place garbage in the cart, but I see people putting garbage bags and even smaller items out every week that are picked up without incident as far as I know.  There is a monthly bulk pick up as well.  Most other cities here have the same type of policies.  Search the city of Cleveland's website Waste Collection and Disposal Department & you'll see that everything is very clearly spelled out. 

As far as notice goes, I think any city is going to tell you that they provide notice to the property address and/or possibly to an address they have on file due to a rental registration and that's where their responsibility ends.  I think that if you're repeatedly fined and found in non-compliance, you could end up in court so you need to make sure that your property manager is handling that stuff (and letting you know when its occurring).

I have a clause in all my rental agreements that says if I get fined for something the tenant did (like loading up the tree lawn with garbage) - the fine gets passed to the tenant.  I have to remind some of them from time to time, but its been effective.  

I've always held title in an LLC name, the main reason being limiting my liability in the event that a tenant or someone else initiates a lawsuit or other action as a result of something that occurred on the property (nothing to do with financing- as you note the bank has the overriding claim). I have seen some insurance people say you can cover this just as well by getting enough liability coverage...which I also have (for the LLC) and may be true. I'm not an attorney but most I talk to seem to favor holding in an LLC name but do caution that its not going to 100% insulate you personally from claims.

The other reason is that it makes it a little easier to self manage......as far as the tenant is concerned, I'm the manager and a company owns the property. That eliminates some of the confrontation and awkward situations when you have to tell them something they don't want to hear (the company made the decision, not me). I imagine that you aren't going to self manage being out of state, but holding in an LLC name might still have the same advantage in terms of making you less accessible.

As you note, there are downsides. There have been posts here saying that Cleveland and surrounding cities were targeting LLC owned properties for compliance but I haven't experienced that (and have my properties registered as LLC owned in Cleveland and 3 suburbs). The major downside is that you need an attorney in the case of an eviction- you can't represent the LLC yourself. Also depending on how you finance, you could technically be violating the terms of your mortgage by transferring ownership from your name to your LLC name (conforming financing is only available in your name, not LLC name). But I've never had any lender call me out on that or even ask about it.

Overall, I prefer having all my properties titled in an LLC. If nothing else, it promotes the idea that your real estate investing is a business. I form my LLCs using an online company - takes about 15 minutes and has worked just fine. PM me if you want to link for that.

Good luck.  Let me know if I can help you with anything in Cleveland.

I've bought a number of properties that were 60-70 years old and needed significant work (zero maintenance for the last 30 yrs and appeared as if the TV show Hoarders was recently filmed there)....my typical budget is $20K- $30K including major items like roof, windows, plumbing/electrical upgrades- you can do a lot to the typical 1200 sq ft rental for $25K.  I have a two family that's closing in on a hundred years old and there's no difference between that one and the others in terms of issues or condition.   

Houses don't start automatically deteriorating after 20-30 years, lack of maintenance or faulty repairs is what causes issues.  As someone said, its about the numbers not the age of the house.  I have seen some newer houses that are going to have issues in a short period of time due to the way they were built/materials used.....so anyone buying those and relying on age as an indicator of the amount they're going to have to invest is going to be in for a surprise.

@Caleb Heimsoth  as Bob noted, there are people who will paint for $175/day but availability might be a big issue and it also depends on what quality you're looking for (e g does it matter to you that the old paint bleeds thru in a couple of spots)

if you figure around $1.05-$1.10/sq ft (of wall space, not just floor space) that will put you on the low end of retail, will give you a decent quality job but won't include wall repair or baseboards/trim

dry locking the basement should be around the same price but that stuff has a pretty overwhelming odor so you might get contractors saying they either don't do it or want a premium....get yourself a quart and open it up if you don't know what I mean....

I've got a painter and other contractor referrals.....most will work anywhere on the west side.  PM me if you need names.  overall I think you are looking at closer to $2k for the work you mentioned.