CLEVELAND — Anne Dalzell and her husband, John, decided more than 30 years ago to build a life together in Cleveland’s Collinwood neighborhood.
For almost a decade, they’ve owned a home on a quiet street, about a one-mile walk from Lake Erie. And they’ve watched the house next door change hands several times.
An Ohio company bought it for $35,500 in 2017. A few years later, a New York-based investor paid $80,000 – adding the property to a portfolio of more than 40 rental homes in Cleveland and nearby suburbs, according to loan records.
“The worst part, from our point of view, was the porch roof was falling down,” Dalzell said, describing how the two-bedroom house gradually deteriorated.
“The renters that we had … were nice people,” she added. “But they weren’t gonna do anything. They had trouble just keeping the lawn mowed.”
Then the property went vacant. And a local nonprofit stepped in, buying the almost century-old house and renovating it as part of a bid to raise property values, boost homeownership and price investors out of the market.
“It’s gonna be a multi-year approach,” said KC Petraitis, vice president of real estate for that nonprofit, Cleveland Neighborhood Progress. “And it should be, right?”
New research from the Federal Reserve Bank of Cleveland shows that investors now own one in three single-family homes in some pockets of Northeast Ohio. Last year, real estate speculators, flippers and landlords were responsible for 43% of the house purchases across hotspots – mainly low-income neighborhoods – of the Buckeye State and western Pennsylvania.
And more of those investors are coming from other states, including California, New York, Florida and Nevada, said Matt Klesta, a senior policy analyst at the Cleveland Fed.
It’s a phenomenon he’s been hearing about for years, in roundtable discussions and community surveys. So he dug into the data, analyzing home sales and ownership in seven counties – and drilling down in the places where investors are the most active.
“Some investors come in and they buy a home, they fix it up and they’re a very good landlord. Or they sell it to an owner-occupant,” Klesta said during a recent interview.
But others aren’t doing much – minimizing spending and trying to maximize profits in a market where there’s still plenty of cheap real estate and steady renter demand.
“Unfortunately, those are the ones you see,” Klesta said. “You drive down the street and don’t really see the well-maintained homes. But you’re gonna see that house that’s got some problems going on … You really see the bad actors.”
In a research paper published in early September, Klesta explains his findings and talks about trends. He doesn’t take a position on investor ownership of single-family homes – activity that some state and federal lawmakers want to curb.
“We don’t make policy recommendations,” Klesta said of the Fed, which produces research as part of its effort to better understand how the economy is working for people.
“But,” he said of that research, “we want to get it into the hands of people that do, so they can make that informed decision.”
'It is a boxing match'
Petraitis has seen firsthand the damage that absentee landlords can do.
“When you don’t know what your house looks like and you don’t know what your tenants are doing on a day-to-day basis, that’s a problem,” he said.
Cleveland Neighborhood Progress is using a mix of public and philanthropic money to buy houses and fix them up for owner-occupants. The nonprofit won’t sell to investors.
To avoid displacing tenants, it also won’t buy occupied rental properties.
The housing investments are part of a broader effort to shore up so-called “middle neighborhoods” – working-class stretches of Cleveland that are at a tipping point, teetering between growth and decline.
“We went around and we said, ‘Hey, we think we can launch a housing initiative to kind of combat a couple different things,’” Petraitis said. “One was investor activity. … Two was building equity for homeowners that still live on these streets, to really make sure that they feel comfortable in these areas before we lead down a pathway of decline by disinvestment. Which is a long and slow death. But once it occurs, it becomes very expensive to resolve – if you can resolve it.”
Over the last two years, Cleveland Neighborhood Progress affiliates have acquired 19 houses in four city neighborhoods: Collinwood and Lee-Harvard on the East Side, and Old Brooklyn and Jefferson to the west.
Many of those purchases are in hotspot areas that Klesta identified in his analysis – places that have been magnets for investors over the last few years.
“It is a boxing match,” Petraitis said of competing against investors to buy homes. “It is not a one-round-knockout kind of situation. We are going to be here for multiple rounds, and we’re not going anywhere.”
The nonprofit’s willing to take some financial hits now, with the goal of boosting housing quality and filling gaps in the market.
Cleveland Neighborhood Progress paid $85,000 for the rental house that Dalzell and her husband were so tired of looking at. Then the nonprofit spent more than $180,000 to fix it up, according to city permitting records.
“I was really surprised at how much they did to it,” Dalzell said, while standing in her front yard. “I mean, it was a little two-bedroom, one-bath place.”
Now, there are four bedrooms and two bathrooms inside. Workers transformed the unfinished attic into living space. Outside, there’s fresh siding, a new porch, a white fence around the backyard and a new two-car garage.
Contractors also gutted the kitchen, installed new windows and replaced all of the mechanical systems in the basement. The house went up for sale in February and recently went under contract at just under $205,000 – about $60,000 shy of the total project cost.
Other home-renovation projects will be less dramatic, and less costly, Petraitis said. Cleveland Neighborhood Progress has purchased three more houses on Dalzell’s street, so far, and four more within a few blocks.
“It’s a chess board,” Petraitis said of determining where – and how much – to invest. “I’m gonna lose the pawn here. But I gotta think strategically down the road.”
He and his coworkers aim to buy, renovate and sell 200 homes through the middle neighborhoods initiative. They’ve raised almost $12 million toward a potential $22 million program budget, which will cover residential projects and investments along commercial corridors.
So far, the money is coming from the City of Cleveland, Cleveland City Council, the state, Rocket Community Fund, KeyBank and the Cleveland Browns.
“Assuming the market conditions get ripe and get better, we should be at break-even – maybe even make a little bit on the backside,” Petraitis said of taking the long view.
Dalzell likes what she sees from her porch.
Since 2016, she and her husband have invested steadily in their home, where they can live on the first floor as they age. They’re not planning to move anytime soon.
One of their adult sons lives in the basement. A family friend lives upstairs.
“We did what we did to this house because we plan to stay here,” she said. “We’re in the neighborhood for the duration.”
Now that investment seems a bit more secure.
“We don’t have to worry about covering the mortgage when we go to move out,” she said, gesturing to the newly renovated house next door. “Cause, you know, that’s definitely gonna help.”
