Dramatic Increase of Investor Ownership of Homes in Cuyahoga County Leading to Lower Housing Values and Lack of Compliance with Local Housing Codes

March 6, 2022

Real estate investors purchasing 1-3 family homes in Cuyahoga County, Ohio, tripled from 2004 to 2020, according to a new study [] released by the Cleveland-based Vacant and Abandoned Properties Action Council (VAPAC) and based on ground-breaking research done by Dr. Timothy Kobie at the Cleveland Building and Housing Department. Many of these homes are being converted to rental properties.

The study also found that lack of repairs and other negative outcomes associated with investor home purchases disproportionately affect Cleveland’s African American communities and communities with high poverty rates. The greatest increase of investor buying over the period studied was in the east side of Cleveland. In 2020 investor purchases exceeded individual purchases: investors represented 45.76 percent of all property purchased in the east side to 44.79 percent purchased by individuals.

According to The Impact of Real Estate Investor Activity on the Cuyahoga County, Ohio Housing Market 2004 -2020 [], “Unscrupulous east side investors are frequently making a calculated, but risky, assumption that they can purchase a property, make illegal repairs without permits, and/or move tenants in without making any repairs or without complying with local building and housing ordinances or State law.”

“There are many good investors complying with laws and acting responsibly, but our study reveals that the problems associated with bad actors are growing rapidly,” said Frank Ford, VAPAC’s chair and senior policy advisor at Western Reserve Land Conservancy, Ohio’s largest land trust. “If we don’t get a handle on this now, the recovery and stability that some communities are beginning to experience will be set back by decades. Many people are raising a red flag about this problem in other parts of the country, and it’s having a huge impact in Cleveland. But new leadership in Cleveland’s City Hall, and on Cleveland City Council suggests this is the perfect time to tackle this problem aggressively and creatively.”

“Our region indeed has investors with great intentions in providing safe, healthy housing that is needed in our community,” said Ayonna Donald, vice president, Ohio for Enterprise Community Partners. “However, a multi-prong approach is needed to protect our affordable rental housing market from being whittled away by unscrupulous investors. Specifically, protecting tenants by enacting comprehensive renter’s rights, source of income protection, and pay to stay legislations to ensure everyone has a place to call home.”

Key findings include:

  • Countywide, investor buyers nearly tripled from 2004 at 7.17 percent to 21.1 percent in 2020.
  • The greatest increase occurred in African American communities and communities with high poverty rates on Cleveland’s east side. From 2004 to 2020, business buyers increased by almost 30 points. This is nearly a threefold increase in less than 20 years.
  • Investors are buying homes at discounted prices, often paying the full purchase price in cash and with zero contingencies.
  • Non-local investors often operate through multiple shells of limited liability, supported by local property managers similarly protected by limited liability structures. These property managers may or may not be operating with appropriate state licensure and can use these legal structures to shield them from compliance with local ordinances.
  • A perfect storm of housing market conditions has contributed to the increased investor activity. Following the foreclosure crisis, home sale prices dropped dramatically – but rents did not drop. Investors from other parts of the country and around the world can pay cash for a $20,000-30,000 home and collect rents the same as when the home was valued at $80,000 before the foreclosure crisis.
  • The result of this rise in investor ownership is a housing market that is increasingly rental, no longer controlled by local actors, with limited opportunities for new home owners and the associated benefits of stability, health and wealth building.
  • Current public policies do not adequately account for the increase in business entities owning residential real estate, nor address the harm being done to homeowner property values, tenant security and neighborhood stability.

In addition to analyzing housing data, the group also assembled personal observations from community leaders and public officials frustrated by irresponsible investors failing to maintain properties and hiding behind layers of fictitious company names.

“I don’t know why we call them ‘investors’,” said Jayme Lucas-Bauer, neighborhood development project manager with the Old Brooklyn Community Development Corporation. “They don’t invest anything. They just extract every dime out of those houses and walk away when they require demolition.”

Beyond the dramatic increase in investor activity, the VAPAC study also found that municipal, county, state and federal agencies are not adequately equipped to respond to the problem, and are too often disconnected and working in silos. Code enforcement officials are equally frustrated with chasing down elusive investors.

“The most difficult thing we do is find professional magicians, people and companies that intentionally don’t want to be found,” said Thomas Vanover, Chief Building Official with the City of Cleveland.

“We need every tool in the tool box”, said Sally Martin, Cleveland’s new Director of Building and Housing. “We are working across departments to collaborate on ways to ensure that properties are brought into safe, secure and habitable condition. No one should have to live in substandard housing, and owner occupants should not see their equity drained away as a result of the actions of irresponsible investors.”

The study was the result of hundreds of hours of analysis by a 15-member group organized by VAPAC, which was founded in 2005 with a mission of collaboratively bringing together stakeholders to address vacant and abandoned property issues created by the mortgage foreclosure crisis. The group, which was an all-volunteer effort by community leaders, attorneys and housing advocates in the community development field in Cuyahoga County, began the study in 2019. Data used in the study is from the Cuyahoga County Fiscal Office and from Case Western Reserve University’s NEO CANDO data system, which houses extensive longitudinal data on properties in Cuyahoga County.

Key recommendations include:

  • Fully fund the Cleveland Building and Housing Department up to and potentially beyond the level of its projected revenue; give the department all the tools it needs to combat this problem.
  • Amend local ordinances and/or state statutes to require greater disclosure of responsible parties at the point of property transfer, including individuals behind property management companies, limited liability companies and other fictitious name entities to ensure compliance with applicable state laws and local ordinances.
  • Amend local ordinances and/or state statutes to authorize local county fiscal officers to prevent the filing of deeds until delinquent property taxes are paid.
  • More aggressive action by the Cleveland Law Department to pursue and prosecute investors who flaunt local building and housing codes.
  • More creative action by the Cleveland Law Department to use civil actions in addition to criminal proceedings against irresponsible investors.
  • Create a cross-departmental and cross-governmental task force that breaks down the “silo effect” and combats bad actors who try to game the system with endless enforcement delays.
  • Enact municipal ordinances for “right to counsel”, “source of income protection” and “pay to stay protection” to protect tenants from abuse by absentee investors.
  • Restore and fund the Cleveland Tenants Organization.
  • Simplify and streamline the Clerk of Courts process that enables tenants to deposit their rent in escrow when repairs are not made.
  • Explore the feasibility of a countywide housing court similar to the Franklin County (OH) housing and environmental court, so that suburban homeowners and tenants can receive the same protections enjoyed by Cleveland residents.