@Luka Jozic BRRRR is still a good strategy - don't let anyone tell you otherwise. But gone are the days where you can expect to pull all your money out of the deal and still cash flow $200+ a month. I aim for 10-20% CoC on BRRRR deals.
Cleveland wouldn't be my market of choice given how old most of the houses are, but I know a lot of investors who have success there, so it's definitely viable. For C/C- neighborhoods you usually need to scale to 10+ doors; it's a numbers game.
Before the fur starts flying, can I at least make one simple statement about this situation? To live multiple states away and run a string of successful C-class long-distance BRRRRs anywhere in the Rust Belt is practically impossible. I think the OP is lucky not to have experienced catastrophic failure yet. This was taking on suicidal risk to begin with, and it's just going to get worse. I'm actuallu surprised and I'm sure there are volumes left unspoken here by the OP about how hard it must have been to make it this far. I only hope my own posts recounting what my hyperlocal experiences have been like here in Pittsburgh, the self-styled "Paris of Appalachia," do not in any way encourage people to follow the OP's lead. There's an omnipresent, ubiquitous brutality to life in general and running rental real estate in prticular here that just doesn't translate well into metrics and data.
Don't agree one bit with that statement and Im getting a feeling that most people in this thread are inflating the struggles I've been facing. First of all I said Im negative on most, not all. The ones Im negative on, two of them weren't even BRRRRs, I was negative because my old PM was robbing me and on the other cause I got greedy and agreed on unqualified tenants at higher than market rent that I had to evict after 3 months. The two BRRRRs that are negative is one because of the sewer (could and should have done a sewer inspection) and the other one is negative cause my old PM couldn't find a tenant for the second unit in over 3 months (my new PM filled it in 1 week and no issues ever since).
Would it have been better if I was there? Absolutely. Has my contractors and my old PM ripped me off on certain things that I can't verify due to being OOS, 100%. But thats part of the being OOS and as I gain more experience and I better team I can minimize that. I definitely don't think its gonna get worse from here I think the complete opposite. Yes I was expecting cash flow to be more stable from the beginning but I guess it takes a little bit of time. I haven't left more than 5-15K in ANY on my properties and have created a lot of equity in all of them except Toledo. And in terms of appreciation, according to Zillow data over a 8 year span, its been about the same for almost every market.
I was on a podcast recently and talked a little about what you are experiencing. I read this as someone using a short-term lens to focus on a long-term issue. In your thread, you are worried about short-term KPIs like monthly cash flow, yet you purchased the properties to follow the BRRRR method.
The social side of Biggerpockets, like newsletters, blogs, and SM sites, is part of the problem. Cash flow is constantly promoted and pushed, and often, the personalities lack long-term experience, so they can't talk about the best reasons we should be investing.
You purchased six properties, and we have to assume, based on your post, that you purchased and renovated them for below a current market value. If done correctly, you can refinance most, if not all, of your initial funds back out of the properties. You can eventually refinance all or most of your funds if not done correctly. Your properties have needed constant work, making you negative for the first year. In other words, your renters have covered a majority of your costs of ownership this year, including covering your debt, and you have to put some additional money in, which raises your cost basis. However, it doesn't read like that has been substantial.
This is investment real estate. You have to expect costs, headaches, and surprises. Those things can and will hurt your monthly KPIs occasionally and sometimes for long periods. However, over time, if a renter is covering a majority of your cost of ownership and even allowing you to get the added benefit of putting money away into a rainy day fund, you are winning the real estate game.
You are controlling significant assets with little money and using the revenue they generate to pay for them. Over the next 7-10 years, these properties will fluctuate up and down in value based on the current economy; however, real estate will move up and to the right over time. At the same time, someone else reduces your debt, and you get to use the tax code to improve your tax situation legally.
My advice is to be wise but continue. Be smart and invest wisely, constantly learning from each transition. Perhaps you do things differently with your subsequent purchase or your next management company. Whatever you do, don't focus on the monthly KPIs. You bought long-term rentals, so be a long-term investor. You did it passively, so don't expect substantial short-term returns. Be a long-term investor focusing on controlling as many assets as possible most safely. I tip my hat to you because you are way ahead of many of your peers. The ability to take action can be both brave and foolish. You sound like the brave side of the coin in that you did due diligence and respected the process. You also took quick action when things were not going as expected. From what I read, I think you are on track for success. You have to allow time to do its job. Time is the #1 ingredient in a long-term investor's success. Their success depends on how much initial action they take to build their portfolio.
Appreciate it to both of you! Yeah right now Im just gonna hold off for a little and stabilize, then I'll make a call if I will continue in Cleveland or maybe try here in Tampa. Tampa is great in the sense that the tenant quality is typically very high and appreciation as well, but finding something that would even break even will be very hard. Rent by room is an option that many people do here but even then it's not easy, and several randoms living under the same roof calls for its own problems and likely a lot more turnovers, so I'll see. I've also considered bigger multifamily 5+ units but need to research it more. Normal residential BRRRR just seems very difficult right now, but I also don't wanna put 25% down on every property I buy.
And to answer someone that asked about ARV, yes I do create a big chunk of equity in my BRRRR properties so at least I have that.
Agree with @Eric Gerakos you're just adding problem children. You don't need more properties. You need to develop a subject matter expertise and treat this like the hands on business that it is.
Narrow your focus, stop buying properties, and figure out what you actually know really well rather than letting FOMO, spreadsheet calculations on faulty pro formas, and advice of strangers on the internet influence your investment decisions.
I don't want to pile on...we've all made mistakes and figure things out as we go. Be kind to yourself and feel free to send me a DM if you think that I can be helpful resource.
Thanks for sharing your experience. I didn't buy in Cleveland but bought in Indianapolis Class C in 2023. I've had similar experiences with a SFH I've owned for a year, repairs called in 7 times out of 9 months.
I'm not buying anymore Class C properties in Indianapolis or anywhere. I put in 3% for appreciation (which is typical for Indy outside of 2018-2022) and 4% rent increases. I don't know anything about Cleveland. What did you put in for appreciation and rent increases per year when you ran your numbers?
If I were you, I would pause and re-evaluate and not put any offers on Class C properties anymore, especially OOS. I think it's better to have fewer high quality properties than lots of inexpensive ones (all those cap ex, repairs, tenants, PM fees). Could selling off those properties and buying one or two properties in appreciating areas be an option? What about buying near where you live?
Hi Luka, Cleveland has its pros and cons for sure. Where are your properties located? That will likely make the biggest difference on if it cash flows or not. I invest in Cleveland (BRRR and flip) and am a realtor. The sewer expense is a big hit. For deals I do, I try to write in under the inspection section in the purchase agreement, "any and all recommend by home inspector including but not limited to inspections checked no above." This will then allow me to do a sewer scope if/when the inspector finds a sign of a potential backup. Not bulletproof proof, but it helps!
Could you clarify, does that mean you can do the sewer inspection before closing, or after? Cause my biggest issue with finding BRRRR deals is like I mentioned above, if I put in inspection contingencies, my offer is not strong enough and the seller picks any of the other 5 buyers that have no inspection contingency.
Dude.. most deposits in the mid west are 500 to 1k.. So you put that up and you can do your inspection ( sale is not subject to it) and then do your sewer scope if its bad retrade or walk away far cheaper to lose 1k than get stuck with a 15k sewer line repair just the cost of doing business.
Hi Luka, Cleveland has its pros and cons for sure. Where are your properties located? That will likely make the biggest difference on if it cash flows or not. I invest in Cleveland (BRRR and flip) and am a realtor. The sewer expense is a big hit. For deals I do, I try to write in under the inspection section in the purchase agreement, "any and all recommend by home inspector including but not limited to inspections checked no above." This will then allow me to do a sewer scope if/when the inspector finds a sign of a potential backup. Not bulletproof proof, but it helps!
Could you clarify, does that mean you can do the sewer inspection before closing, or after? Cause my biggest issue with finding BRRRR deals is like I mentioned above, if I put in inspection contingencies, my offer is not strong enough and the seller picks any of the other 5 buyers that have no inspection contingency.
just curious where you live if you're willing to share
did you tour these properties yourself before you bought them?
Im in Tampa so no I didn't its obviously a challenge to be OOS. I do have a decent team but its still hard to not miss anything. Like I said one of the biggest hurdles in Cleveland is there are sooo many investors ready to buy cash with no inspections at asking price, sometimes sight unseen. So for me doing BRRRR, which requires a discount typically to work, I have almost no chance, especially if I start asking for contingencies. But then if I don't, even if I have a contractor walk it they can miss stuff, like a broken sewer line for example.
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?
'
I TRIED to help you but you " know better". I get on avg 800 per month NET income 15- 20% NET (based on cash purchases) on SF, and more on my duplex's. My maintenance is little to nothing as we do the reno correctly. I also tried to help you with PM I'm aware of them all 99% are terrible and will charge you 3k to replace a furnace when the real cost is about 1600. I just got $900 for a 1 br in East Cleveland. I'm going to get 1500 for a 3 br in Lee Harvard, fully renovated all in 75k, do the math :)
All the best
Im not interested in buying turnkey and also not buying cash, I would run out of money real quick. I need to be doing BRRRR thats the only way to scale somewhat fast. Im glad you're doing good.
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?
'
I TRIED to help you but you " know better". I get on avg 800 per month NET income 15- 20% NET (based on cash purchases) on SF, and more on my duplex's. My maintenance is little to nothing as we do the reno correctly. I also tried to help you with PM I'm aware of them all 99% are terrible and will charge you 3k to replace a furnace when the real cost is about 1600. I just got $900 for a 1 br in East Cleveland. I'm going to get 1500 for a 3 br in Lee Harvard, fully renovated all in 75k, do the math :)
All the best
Im not interested in buying turnkey and also not buying cash, I would run out of money real quick. I need to be doing BRRRR thats the only way to scale somewhat fast. Im glad you're doing good.