Investing in the City
After more than 40 years of living in the suburbs, Catherine Lawrence decided to follow her own path. Her two children were grown. She lived in a condo in North Royalton that she hated. It was time for a change.
Lawrence was then a nurse at Lutheran Hospital in Ohio City and a board member of Project AFFORD, which builds homes at affordable prices in the neighborhood. She fell in love with a home the nonprofit was rehabbing and bought it.
"I liked the neighborhood. I loved the diversity and, in a very strange way, it is an opportunity to make a difference," says Lawrence, 53, who moved into her three-bedroom bungalow on West 50th Street six years ago.
"It's kind of like I am an urban pioneer. It's like buying land out in the country, except I did the reverse," says Lawrence, who now works as nurse manager of a palliative-medicine unit at The Cleveland Clinic. "I think that if this city is going to survive and flourish, we have to reclaim it. I think that by taking a piece of land in the middle of a tarnished area and fixing it up, you are sending a clear message. You are telling people that the area is worth fixing up. You move down here and you buy your own little postage stamp and you make it a very lovely postage stamp."
Her stamp is among hundreds of rehabbed homes throughout Cleveland's neighborhoods. Several areas of the city are active renovation markets, including East Side neighborhoods such as Hough, St. Clair-Superior and Collinwood; Slavic Village to the south; Lee-Harvard and Buckeye-Shaker to the southeast; and Ohio City, Cudell, Detroit-Shoreway, Clifton-Baltic and Tremont west of downtown.
"There is a lot of competition right now for homes in those neighborhoods, particularly those homes that have seen some neglect," says John Lynch, an agent with Keller Williams Realty Greater Cleveland and also a builder with JEKS Builders Inc. "There's a lot of people that want to be in this business now. It's a good market and it's a good business, if you go in and do the job right and give somebody a fresh-looking house."
Buying a house to live in: Buying in a neighborhood on the upswing such as Ohio City or Tremont can be profitable, says David Sharkey, vice president of Progressive Urban Real Estate, which has offices in Cleveland Heights and Ohio City. Though the trendy locations seem to have gotten a jump-start in the last several years, their transformation started decades ago.
"There is demand for housing and people start buying in areas that supposedly weren't good and decide to take a chance on it," says Sharkey, who has lived in the city — on East 40th Street and in Tremont and Detroit-Shoreway — for more than 15 years. "When you look at Tremont now, there are some of the best restaurants in Cleveland and it feels really walkable. When you go there, there are people walking around at all times. It's an exciting place to be."
When looking at older homes in Cleveland, some of them built 100 years ago, homebuyers should consult with a Realtor and a home inspector to determine how much work needs to be done and how the home will compare with the market. Paying $100,000 for a house that needs $40,000 in repairs and improvements might not be a wise investment if the home prices in that area top out at $120,000. Another factor is how long you plan to live in the house.
"You'll see people over-invest in neighborhoods or a street that does not command the price that they need to get out of it, and you'll see people who will almost under-invest in a house in an area that could use more," Sharkey says. "They'll put in cheap doors, bad windows, or just take the cheap road."
In neighborhoods where home values are increasing and people are looking for historical character, buyers don't want to see a sliding window on the front of the house; they want to see double-hung windows that better fit the architecture.
Buying a house to rent: Becoming a landlord is a big step: You bear responsibility for the home but don't have daily control over what is happening within the four walls. When buying and rehabbing a rental property, investors should make sure their apartment or duplex is in an attractive location and up to speed with the market in order to command the highest rents.
"Renters have a lot of choices," Sharkey observes. "They like in-suite laundry and air conditioning. There are little things that you can do in your rentals that can make it nice and make it stand out [against] the competition."
Investors should be sure they can manage two houses and afford to make timely repairs whenever necessary.
Buying a house to sell: No formula can be applied to every house, says Lynch, who has spent as much as $120,000 to rehab a duplex. Another home, he notes, could cost $10,000 for minor repairs and a fresh coat of paint. Investors should work with a budget and be prepared for repair costs to increase as work begins since more issues might be uncovered.
"There are some people that can walk into a house and see its potential in a deplorable condition," Lynch says. "There are others that can't see it, can't imagine how much it would cost to fix it. You want to buy right and buy low and bring it to its potential and try to gear your final product to the market that you are looking at."
In many cases, rehabs involve installing new windows and aluminum or vinyl siding, renovating outdated kitchens and bathrooms, laying down new carpeting and, of course, layering lots of fresh paint. (See page 115.)
"Rehabbing is done in varying degrees. There are some [rehabbers] that do fantastic work and they give somebody a good-quality home, and there are others that put a Band-Aid on something when it needs major surgery," Lynch notes. "At the very least, [an investor] should come in and look at the mechanical systems of the house — the plumbing, wiring, heating system — and take a look at windows and the roof and make sure the house is structurally sound. Hopefully, you are setting a standard by which the other rehabs should be judged."
In the past six years, Lawrence has watched more and more people fix up their homes on her street and in her neighborhood. Between appreciation and the work she has done, the value of her home has increased by more than $40,000. She has also benefited from a 10-year tax abatement from the city and from not having to pay a suburban income tax.
"What I enjoy seeing the most is people that do a beautiful job in rehabbing these old houses, or when they build a house that blends in with the rest of the neighborhood," she says. "Those people who have good hearts and come down here and rehab the houses moderately so that people can buy them or rent them at a moderate price — that's a good thing."
12:00 AM EST
July 20, 2004