Chasing CRE Yield in The Midwest: How Northeast Ohio Has Become a Model of Rental Rate Resiliency in a Softening Market

By Tim Leber, Vice President

Chasing CRE investment yield has taken investors all over the country. However, as a loan originator residing in Coastal California, it’s easy to overlook some of the presumably less appealing locations to focus on the next ‘hot’ rental market. (By the way, if you are just hearing about something as ‘hot’, you likely have already missed the boat…) One of the biggest mistakes I see smaller family office and high net worth real estate investors make is using larger private-equity funds and quasi-institutional investment managers as a bellwether to target capital deployment. The strategies implemented by these larger groups could be drastically different from the opportunity smaller investors can find by venturing off the beaten path in search of yield in a tight capital markets environment.

While much of the nation’s CRE investment is taking place in the Sunbelt, some of the ‘fly-over’ locations in the Midwest still offer an attractive opportunity to smaller CRE investors, particularly those interested in SFR portfolios and sub-150-unit multifamily investments. One market that stands out above the rest is Northeast Ohio, specifically the Cleveland Metropolitan Statistical Area (MSA) and its surrounding suburbs.

Ohio’s major MSA’s in general, have been experiencing a long period of property value appreciation and rental growth over the past several years. The main difference between Ohio and the rest of the country is that, unlike most ‘newsworthy’ or ‘sexier’ MSAs in the coastal United States, rental yields in this market have kept pace with the rapid increase in property value.

Purchasing a portfolio or assets at today’s prices while still having rental income supportive of meaningful leverage alleviates much of the pressure small investors feel when having to give more equity on deeper value-add deals. With strong economic performance, a renewed focus on middle-class jobs, and its growing population, Ohio is becoming an increasingly attractive location for real estate investors with a smaller and more opportunistic footprint.

Although it seems like deals are harder to find lately, sometimes the ever-evolving CRE market requires you to look a little harder and be willing to explore markets that would have been out of your typical scope. It is important for any investor to stay up to date on the latest trends and developments in Ohio and to partner with a highly involved property manager or operating partner, especially if they are new to a market.

In this article, we will explore the latest rental property investment trends in Ohio and provide insights and tips for investors looking to make the most of this promising market. Whether you are a seasoned investor or just starting out, this article will provide you with the knowledge and tools you need to succeed in Ohio’s rental property market.

Here Are Some Reasons Why Ohio May Be A Good Investment Opportunity

Affordability: Ohio’s housing market is known for being affordable compared to other states in the region. This makes it an attractive destination for investors looking to purchase single-family homes at a lower cost and potentially generate higher rental yields.

Steady Growth: Ohio’s population has been growing steadily over the past few years, particularly in urban areas like Cleveland, Columbus, and Cincinnati. This population growth has led to a growing demand for housing, making Ohio’s rental market an appealing opportunity for investors. Rental growth in Cleveland peaked in Q2 of 2022 at 5.5% YoY but is still growing at a 3% YoY rate, with only studios and small 1-bedroom units seeing a slight slip in asking rents across the market.

Strong Economy: Ohio has a diverse economy that includes sectors such as healthcare, education, and manufacturing. This provides a stable job market for tenants and reduces the risk of rental property vacancies. With the focus on diverse middle-class jobs, NE Ohio has been able to maintain an average market occupancy rate between 3-5% over the past several years, with projections for smaller unit count properties not exceeding about 7.5% in even some of the more conservative scenarios.

Emerging Markets: While larger cities like Columbus and Cleveland have traditionally been the focus of Ohio’s real estate market, emerging markets like Akron and Toledo offer opportunities for investors looking to diversify their portfolios. Manufacturing jobs have made some of these smaller markets relevant again for investors looking to lease out larger two- and three-bedroom units in both small multifamily properties and single-family residences (SFRs) to families benefiting from these more stable, usually union jobs.

Here Are 5 of the Hottest Cities in Ohio for Rental Property Purchasing

Columbus: As the state capital and largest city in Ohio, Columbus has a growing population and a strong job market. With its diverse neighborhoods and affordable housing options, Columbus is a popular destination for young professionals and families.

Cleveland: Cleveland has undergone a major revitalization in recent years, making it a prime location for rental property investment. The city’s low cost of living, diverse economy, and abundance of cultural attractions make it an attractive destination for tenants.

Cincinnati: Located on the Ohio River, Cincinnati is a hub for transportation and commerce. The city’s thriving arts and culture scene, along with its affordable housing options, make it an ideal location for rental property investment.

Dayton: Dayton is a city on the rise with a growing economy and a low cost of living. The city is home to several major universities and research institutions, making it a popular destination for students and academics.

Akron: Akron is a smaller city with a lot of potential for rental property investment. The city has a strong manufacturing industry and a growing healthcare sector, providing a stable job market for tenants.

Overall, Ohio’s affordable housing market, steady population growth, strong economy, and tax incentives make it an attractive destination for real estate investors looking to invest in single-family homes in 2023. However, as with any investment, it’s important to conduct thorough research and analysis before making any decisions and consult with local real estate professionals for guidance.

CoreVest Finance provides attractive long-term debt products for stabilized rental portfolios as well as credit lines for new acquisitions. For more information about how CoreVest can help you grow your rehab or rental business, please call Tim Leber at 949.344.7889 or email [email protected].

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