Buying a Rental in Lorain? Rental License and Budget Basics

I bought my first investment property at 23. The biggest lesson from those early years was that the purchase price is only the start. The paperwork, the repairs and the months before the rent starts coming in decide whether a rental actually makes money. If you're looking at a rental in the City of Lorain, here's what to plan for.

Lorain requires a rental license

The City of Lorain requires a license, which the city also calls registering your rental, before a rental unit can be occupied. You apply with the Building, Housing and Planning Department and list the owner's contact information, the property address, and the number and type of units. If you don't live nearby, you have to name a local agent who can accept legal notices.

The city's registration form lists the fee as $100 for the first unit and $25 for each additional unit. It's nonrefundable and not prorated. The license lasts one year, and tenants are supposed to get a copy.

It doesn't transfer when you buy

This is the part buyers miss. A Lorain rental license isn't transferable, and it ends when ownership changes. So when you buy a rental, even one with tenants already living there, you need your own license. The city's code calls for the new owner to notify the city and get a new license shortly after the title transfers, so put it on your closing checklist instead of waiting for a letter. The city has been updating its rental code this year, so confirm the current deadlines with the city.

Expect an exterior inspection

According to the city's application form, registration comes with an exterior inspection to check compliance with local property maintenance codes. Units also need to be sanitary and free of fire and health hazards. If violations turn up, the code gives you time after notice to fix them before the license is issued. That means the outside of the property should be in your budget from day one: gutters, steps, porches, peeling paint and the garage.

The county and the city tax office want to know too

Ohio also requires owners of residential rental property to register with the county auditor. In Lorain County, plan on doing that soon after you close. We walked through the same county step for another market in our post on buying a rental in Twinsburg. Confirm the current deadline with the Lorain County Auditor.

Lorain's income tax rules also ask rental owners to file a report of their tenants by April 15 each year, covering the prior calendar year, with names, addresses and move-out dates. It's an easy one to forget in your first year. Put all three, the city license, the county registration and the April tenant report, on one calendar the day you close, and set reminders for the renewals. It's the kind of avoidable hassle that eats into your time and your returns.

Build the first-year budget

Here's how I'd lay it out before making an offer:

• Repairs, with at least a 10% contingency on top of the estimate
• Licensing and registration fees
• Vacancy and turnover, because even a good rental sits empty sometimes
• Holding costs: taxes, insurance and utilities while the unit is empty
• Property management, if you aren't going to handle it yourself

Write it down before you make the offer, not after you own the place.

Know the rent before you buy

Your offer should start with a real rent number, not a hopeful one. We pull rent comps for investors quickly, sometimes right from the inspection driveway, and we described how in our post on rental comps. If the numbers don't work at a realistic rent, the house isn't a deal, no matter how cheap it looks. I'd rather pass on ten houses than buy one that loses money every month.

Buying it with tenants in place

If the property comes with tenants, ask for every lease, the current rent, the security deposits held and the payment history before you're committed. Remember that you'll need your own license even though the tenants aren't moving. We covered the seller's side of these deals earlier this week in our post on selling a Cleveland rental with tenants in place, and it's a good list of what to ask for as a buyer.

Before you buy, ask the city whether there are open violations on the property, and get a full inspection of your own. A rental with a long list of open items can be a good buy, but only if the price reflects what it will take to fix them.

If you're looking at rental property in Lorain, schedule a time with me or someone on our team at 21mike.com.

Mike Ferrante
The Mike Team at LPT Realty
www.21mike.com
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