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Cleveland is hot-spot for real estate investors, house flipping

Real estate construction
Posted at 4:00 PM, Jul 09, 2020
and last updated 2020-07-09 22:42:25-04

CLEVELAND — For years, Greater Cleveland has been one of the most profitable places in the country to flip houses and own rentals.

When coronavirus shut down businesses, the work in Cleveland’s house flipping world never even took a break.

“It’s been quite resilient and the demand for our product has skyrocketed,” said Kelly Stumphauzer, owner and founder of Prosper Cleveland.

Stumphauzer got into the market more than a decade ago as a single mother looking for work. Soon after, her company Prosper Cleveland was built from the ground up.

Stumphauzer takes a hybrid approach. She buys old and distressed inventory throughout Cleveland and its suburbs and rehabs the homes from start to finish.

Some are then sold to traditional buyers, but the majority are filled with a tenant and then sold to investors living on the coasts, many from California.

“I have a lot of investors looking to send a kid to college, retire early, maybe replace some income,” Stumphauzer explained. “And they’re looking in places outside of their own because typically where they live, it is unaffordable to do this.”

A few things make Cleveland such a hot spot for this—there’s still some available inventory here, it’s affordable and the price-to-rent ratios are considered some of the best in the country.

“And it’s a win-win for our community because we are dumping tens of millions of dollars into these neighborhoods and doing the necessary repairs to bring very old housing stock to current standards and provide people safe and desirable places to live,” Stumphauzer said.

Stumphauzer did this during the Great Recession and said that she found rental prices have stayed steady or even appreciated, despite what housing prices have done.

For investors, they’re finding it’s a safer bet right now.

Lakshmi Balasubramanyan is a banking and finance assistant professor at Case Western Reserve University. She said that stock market volatility can be unnerving if you’re not in it for the long haul.

That’s where real estate investment comes in, if you have steady employment and income.

“Real estate tends to provide more stability in terms of cash flows,” Balasubramanyan said. “So depending on how that investment is done — whether it is for primary residence or whether it is for rental purposes —in both ways, now it is a good time to do that because rates are favorable. Just given the uncertainty, real estate as an asset, as an alternative asset to stocks would be a good investment.”

To give you an idea of why the Midwest is such a hot market for this, you can look at these graphs from Attom Data Solutions. They show the change in price from the original purchase to resale on a flipped house.

Housing market graphic

Places such as Dallas, Denver and Phoenix see small gains, while places like Cleveland, Pittsburgh and Toledo see huge returns.

According to Attom, the median flip house in Cleveland cost $60,000 last year—and sold for about $124,000.

For Stumphauzer, every house flipped is a meaningful investment in where she lives.

“I really feel good about what I’m doing,” she said. “I like to consider this conscious capitalism. It’s obviously very profitable, but I feel like what I’m doing for the community is a really positive thing.”