Investing in Cleveland: Does It Make Sense?

One of the untold stories of the housing market meltdown and foreclosure crisis is the opportunity that it presents to responsible investors to purchase and rehab homes in the city.

This was one of the messages conveyed at a forum hosted by Cleveland Action to Support Housing (CASH) on investing in Cleveland real estate. The event was held this past Thursday, Sept. 4th at West 65th and Detroit Ave., in the heart of the Gordon Square Arts District of the Detroit Shoreway neighborhood.

Douglas Moltz, loan officer with Shorebank Cleveland, described the opportunities and challenges of investing in our current, urban real estate market. On the one hand, he told the audience of 30+ nonprofit and development professionals, there has never been a better time to buy. If you are an investor, you can scoop up a foreclosure or a short sale for a below-appraised value.

One particular investor, Moltz said, recently purchased a home in the Collinwood neighborhood of Cleveland, rehabbed it, and rented it at a profitable level. Once the work was completed, the owner was at a less than 50% loan-to-value ratio. This means that while the property would have appraised for over $80,000, the owner only had spent about $40,000, resulting in a kind of “instant equity”.

On the other hand, Moltz related, investors must be both savvy and selective to be successful and avoid the pitfalls that led to the current housing crisis. They must choose marketable neighborhoods in which to invest; identify properties that fit within their budget and scope of work; complete the type of workmanship and finishes which buyers and renters demand; and obtain the necessary financing to complete the project while keeping funds in reserve.

Additionally, if investors intend to resell the rehabbed property, they must examine recent sale comps, factor in the decline in value across the market, and anticipate the fact that many homebuyers today expect to get a deal. They have to examine the pricing of other homes on the market so as not to be undercut by the competition. And they should be prepared to wait longer for the property to sell in many cases.

David Sharkey, Vice President of Progressive Urban Real Estate Inc. (PURE), addressed the fact that rehabbers in today's market must have a "back up plan" that includes lowering the price or renting the home until the market improves and the seller finds a buyer. He stressed that homes continue to sell in many neighborhoods in Cleveland, despite the market downturn.

Marcia Nolan, Executive Director of CASH Cleveland, stated that her organization has formed a partnership with Shorebank and other lenders in Cleveland to offer special, low interest rates to owner-occupants and investors. Currently, the rate is 3.6%, approximately three points or more below a conventional rate (even for an owner-occupant). Taking advantage of this program saves investors and homeowners thousands of dollars in interest, and allows owners to build up equity more quickly. CASH provides technical assistance with identifying the scope of work on a property, and monitoring construction quality.

For more information about special programs for investors and owner-occupants that are rehabbing homes in Cleveland, visit www.cashcleveland.org.

To search for homes in Cleveland and other urban neighborhoods across Northeast Ohio, visit www.progressiveurban.com and go to the search page.