All Forum Posts by: Mike Trzaska

@Amrita Z. I live in Cleveland Heights now, but opted to invest in Old Brooklyn. When I was running the numbers in Cleveland Heights it was difficult to get decent cash flow with the high taxes, and in my opinion the area is stagnant in terms or appreciation. Not to mention the city is very particular about point of sale violations and permits. Cleveland Heights is a great place to live, but make sure you consider taxes, the city slowing down renovations, and fixing POS violations when you eventually sell.

@Luke Grieshop I'm in a very similar situation. I have purchased a property in cash and am considering pulling in a partner to limit my exposure. The partnership would be split 50/50. Would like to hear how you structured your partnership and the results. Did you think through 1031 exchange implications if you chose to sell the property down the road?

This is great. Thanks so much for the detailed information.
So what I am hearing is small commercial spaces are less in demand and will likely be rented to a business with low capital. Living in Cleveland and seeing the rise of vibrant urban neighborhoods like Ohio City, Detroit Shoreway, and Tremont (lived there for 6 years), these neighborhoods typically have a significant influx in local businesses in existing infrastructure early on and my Panera and Starbucks are a long way down the road :). This ties to what @Ryan Evans said of being hyper sensitive to location, which in up and coming areas is somewhat speculative, thus increasing the risk. That makes total sense. 

Now I understand the logic behind higher cap rates. The demand and vacancy risk above, as well as the difficulty finding financing are the contributing factors. My comps were completely cobbled together, I was just trying to get some sort of directional number. I looked at 5 properties, only two of which were recent sales that were stabilized. If you can't get to an accurate cap rate, do you just ignore it?

If you could find a building like this that hit your cash flow and ROI goals even if the retail/commercial space was vacant does that make you think differently about it?

I think what also attracts me to these properties is the thought that renovating and running these properties effectively could have an impact (albeit small) on the surrounding neighborhood and be an additional signal of progress. Being born and raised in Cleveland I feel a responsibility to have a small impact on the neighborhoods I invest in beyond just doing what needs to be done to increase cash flow and ROI.

I've been actively looking for my first rental property in the Cleveland area for the past few months, primarily I was focusing my search on duplexes, tris, and quads. I've recently been looking into small mixed-use commercial, typically buildings with 2-6 residential units and a couple storefronts.

In the same area where I have been looking for residential properties (and have been outbid on 5 offers) I am seeing small mixed-use buildings with 3-4 residential units and a store front for similar prices as triplexes in the same area. 

Looking at the income and expense numbers the mixed used properties would cash flow nicely. However, the cap rates I have seen in sales data for comparable properties are around 12%, where multi-family cap rates in the same area are around 8%. To me this small mixed used buildings look very attractive, but I am apprehensive about getting enough appreciation to cash myself and a potential investor out with a refinance in 1-3 years.

I'm looking for some guidance from those that have experience in these type of properties on the below:

-What are the drawbacks of these types of investments?

-Why such a big discrepancies in cap rate between these buildings and residential in the same area?

-Are these properties typically just a cash flow play or is there appreciation to be had in a good market?

-BONUS: Some of the properties have a bar on the ground floor, what should I consider before being a landlord to a bar?

Thanks in advance.

@Justin Windham Thanks for the info, will have to educate myself on the solo 401k.

@Michael Ohara Aloha, and nice to meet you. So you are located in Hawaii and invest in Cleveland? I love Cleveland, probably because I was born and raised here, but what drew you to the market? What neighborhoods do you invest in?

Thanks @Tom Ott

@Suny Capezzuto yep I’ve been in Cleveland Heights for about 6 months. My wife and I love it so far.

What are your thoughts on Cleveland Heights for rentals? I've looked at a couple MLS properties and it seems hard to cash flow here because of the high taxes. I have a couple buddies who invest in the area and do ok, they cater more to the student and hospital population.

@April Bartee glad to meet you. Where are you located and Where are you in your journey?

Mike Trzaska here. I'm a long time follower of this site, but now actively pursuing my first investment. My wife and I recently sold what I will call a "live-in flip" in the Tremont area of Cleveland, and purchased a cheaper property in Cleveland Heights. This freed up some equity that I want to put into my first true investment property.

I'm looking to connect with other investors, agents, property managers, and contractors to start setting up a foundation for BRRRR with a partner. Currently, I am casting a wide net of target neighborhoods: Old Brooklyn, Cleveland Hts., Shaker, Kamms Corner, South Euclid, Parma. Since I am considering a partnership with an old colleague I'm also looking to hear thoughts on how to structure the operating agreement and any "gotchas".

As a lifelong resident of Cleveland, I am happy to answer any questions about the area or can recommend the best place to have a drink if you are visiting from out of town. I am also an avid fly fisherman and willing to divulge my favorite spots for valuable advice :)

You stay classy Cleveland...

@Max Shaw I'm interested to hear how this played out for you. Would you be willing to provide a debrief? 

I am putting together an operating agreement and want a 1031 to be a potential exit strategy without a ton of complexity on the back-end.