Cleveland Is a House-Flipping Hot Spot, and Covid Is Helping

CLEVELAND—Economic upheaval has investors hunting for cheap houses. Many are finding them on the shores of Lake Erie.

The pandemic has stoked demand among investors, who were already buying more than one of every 10 homes sold in the U.S. They started gorging on houses after the last recession served up millions of foreclosures, and they’ve kept buying despite rising home prices, wagering on a permanent suburban rental class.

The current crisis strengthens the case for rentals. Homeownership is at risk of slipping further beyond the reach of many Americans. At the same time, spacious suburban living is en vogue. Other options for steady investment returns are limited.

That’s where Cleveland comes in.

Greater Cleveland has been one of the most profitable places in the country to flip houses and own rentals. The typical fix-and-flip project there, as elsewhere around the Great Lakes, sells for twice what it cost. The monthly rents collected often meet the landlord’s ideal of at least 1% of the purchase price.

California property-investment adviser Kathy Fettke steers clients clear of the Sunbelt cities where Wall Street gobbles up houses and surging prices have squeezed margins, guiding them instead to northeastern Ohio.

“When we take people from California, they see these beautiful homes and beautiful tree-lined streets; it’s like stepping back in time to what America was in the ’50s,” Ms. Fettke said.

Home prices are a blast from the past too, which is the real draw.

The median in metro Cleveland is $160,700, according to mortgage data and analytics firm HSH. That is well below the national median price of $274,600. Even better, there are plenty of run-down old houses to be had for less than $100,000.

Kelly Stumphauzer’s job is finding them. Her house-flipping firm, Prosper Cleveland, last year sold about 200 renovated rental houses to investors. It has nearly 60 fix-and-flip jobs ongoing and a waiting list of individual investors that has grown since the pandemic began.

Ms. Stumphauzer drives slow and overshoots destinations by a block or two so she can circle back, eyes peeled for sagging porches and boarded windows, the sort of decrepit properties that can be bought for $50,000, gut renovated, leased, then sold for $115,000 to some yield-starved saver interested in rental income.

“We cannot turn them out fast enough,” she said.

The pandemic spooked a few of her California buyers, she said, but there were more lined up behind them. To boost supply, she is exploring a build-to-rent business and planning to broker deals between investors and landlords looking to cash out without ousting their tenants.

Another company she owns manages about 600 rentals on behalf of investors. Tenants in 25 requested payment plans due to virus-related financial hardship. After dwindling for a few weeks…