All Forum Posts by: Eric James

Hi everyone, I started investing in Cleveland about a year and a half ago and have acquired 6 LTRs (SFH and MFH) using mainly the BRRRR method in C areas. I've done fairly big renovations where in most cases, Im replacing almost everything in/on the house. First year has been tons of learning and despite all the research and preparation I did, I still did mistakes and learned things the hard way. I went with one of the biggest PMs that everybody vouched for, yet it took them forever to even place a tenant, and once they did, the tenants never paid on time. Additionally, despite the houses being newly renovated, every month there were new expenses and something breaking, almost as if they want me to not cashflow. The PM said they don't up-charge, but most repairs and expenses were ridiculously high. The result of this? No cashflow, in fact Im in the negative for almost every property so far, and yes I do put aside money for vacancies, capex, and repairs. I finally switched PMs recently and the new one seems much better but Im still getting pretty frequent repairs though much cheaper than the previous PM. The problem is that in this market, getting $2-300 a month cashflow is about as good as it gets, and one furnace, one turnover or whatever and that takes out the cashflow for that year, or even puts you in the negative.

Lets just say the experience hasn't been great, yet. Im trying to stay hopeful that it will turn around but I just keep receiving blow after blow. Just recently got hit with a 10K sewer line repair. I know, its my fault I didn't inspect the sewer line but in my defense, having such inspection contingencies makes it nearly impossible to find a viable BRRRR deal, as there are several investors lined up ready to pay more, in cash, and no contingencies. Im now starting to doubt wether or not Cleveland is actually a good market to invest in? Majority of the houses are old and require frequent repairs in addition to a poor tenant base that can't pay on time and don't care about their credit. On paper it looks good, but the reality is a different story. Im wondering if other markets might be better, with somewhat newer houses and higher quality tenants? But the thing with those markets are you'd be happy to break even, so even if repairs are less and tenant quality is better, I feel like it would end up being the same result.

For those of you that invest in Cleveland, do you have similar experiences? If not, what do you think you might be doing differently to make it work better?

One of the most common topics discussed on bigger pockets and other real estate forums is the decision between a property that cash flows and one that has the potential to appreciate. 

To take this further, I recently tuned in to the Bigger Pockets podcast and one of the featured guests proudly stated that they are negative cash flow but that's fine because the property is expected to appreciate in 10+ years. I know this is an extreme example but the framework is there.

I don't think making an investment decision based solely on predictions of the future is a wise decision. Some markets may not cash flow that well and I get that but to say that it's okay to be in the red for multiple years because you have underwritten the market and know values will go up sounds crazy to me.

I have only done a few deals to this point so maybe I am missing something but I would love to hear your thoughts on heavily weighing appreciation as the decision to move forward with a deal even when negative cash flows are the most likely short-term situation. 

Do you invest solely based on appreciation? If so, why?