Looking at Milwaukee

15 Replies

Hello mid-west!

I am completely new to this website, and to real estate in general. My fiancee and I are looking to invest in duplexes or single homes in Milwaukee. My fiancee and I have wanted to real estate for quite awhile, but we are really new to a lot of the lingo.

Rule of 2%. So I am currently talking to a owner of a property he wants to sell for $50k and claims there is a renter currently paying $850. He also claims the home has been newly renovated. Am I right in believing that this nearly satisfies the Rule of 2%? I am just trying to figure out how the calculations are done.

Newbie

This is a good number to buy at.   but do this

1.  What is value.   

2.  Don't over pay for a piece of property

3.  50k loan would equate for roughtly a 400 to 500 dollar monthly payment (Depending on credit and down payment).

at $850 per mo you are good.   

Here is a link i created several days ago to help you out as a new investor.   Its great that you have a fiance that wants to work with you to help build your financial future together.     

http://www.biggerpockets.com/forums/93/topics/1362...

Welcome to bigger pockets

Medium bannerfans 19631991  1 Gerald Harris, Vacant Land 54 | [email protected] | 704‑996‑6472 | http://land54.com

That "2% rule" is chock full of assumptions.  It works for rents around $500.  As rents go up you can go with a lower ratio and still generate income.  In this case the ratio is 1.7%, which is good enough for $850 rent.

This would be my more detailed initial evaluation:

Price: $50,000

Down: $10,000

Loan: $40,000 (can be challenging to get a small loan like this)

Payment $239.82 (6%, 30 year fixed)

Rent: $850

Expenses, Capital, vacancy: $425 (50% rule of thumb)

NOI: $425

Cash flow: $185.18 monthly, $2222.16 annually

Cash on cash return: 22.2% 

Looks good.  Never take a seller's numbers at face value.  Verify everything.

If you manage yourself you will earn the PM's cut, making this an even better deal. But you are earning the extra returns by doing the PM job.

Jon Holdman, Flying Phoenix LLC

Thanks both of you! This is great.

We were thinking about calling local banks and credit unions in Milwaukee. Does this ever work?

@Charles Horn MAKE SURE you see the property or have somebody who knows the market and is not involved with the deal see it.  I had a guy in Milwaukee who I was buying 9 properties from all "fixed up and renovated" not only were they in bad areas but they needed roofs, had foundation problems, ect and our first 18 months of CF would have gone to repairs

Medium second city real estate logo   white close upBrie Schmidt, Second City Real Estate | [email protected] | http://www.SecondCity-RE.com | IL Agent # 471.018287, WI Agent # 57846-90 | Podcast Guest on Show #132

If the rent on a single family is only $850, it is either in a rough area or in rough shape if not both. Milwaukee has a lot of great areas to invest in but keep in mind that the neighborhoods do transition very quickly.  There are a lot of duplexes out there listed between 50-70k that will get 12-1300 in rent. Take brie's advice and get some eyes on the property and neighborhood before you spend to much time on it. 

Originally posted by @Brie Schmidt:

@Charles Horn MAKE SURE you see the property or have somebody who knows the market and is not involved with the deal see it.  I had a guy in Milwaukee who I was buying 9 properties from all "fixed up and renovated" not only were they in bad areas but they needed roofs, had foundation problems, ect and our first 18 months of CF would have gone to repairs

Can you imagine what the property must have looked like before it was "fixed up and renovated"?

Medium logoSharad M., REsimpli | [email protected] | 619‑786‑3482 | http://reSimpli.com | Podcast Guest on Show #155

Charles, 

@Ed Riggenbach  is right and that house is likely in a rough neighborhood.  I know the Milwaukee market.  Feel free to contact me and I can give you the run-down on the neighborhood. Knowing your numbers is great but there are other variables to consider.

-Troy

Two things come to mind: Ask to see a lease or proof of rent - $850 is a bit high, depending on the location. Also, don't forget to include the property taxes which are also higher. I looked at a $50k home in South Milwaukee yesterday and taxes were about $1,400/yr. My relatives that invest in REI there are pretty picky depending on the neighborhoods. Good luck!

@Theresa W. $850 rent for a single family home is pretty low in Milwaukee; especially if it has 3BR. Prices are very reasonable but property taxes are very high in Wisconsin.  You just have to factor that into the deal.  $1,400/yr property taxes in this area is extremely low.

-Troy 

Thanks @Troy Owen  - I didn't realize it was a 3 BR.. I grew up there, but have been shell-shocked at what my relatives pay in taxes.  Still, a good deal if the numbers work.. Thanks!

I would always advise anyone looking to invest out of state to make sure you know what you are getting yourself into.  It can be highly profitable, but like ANY type of investing if you don't know what you're doing and don't have any help, you could wind up losing money.

Is $50k for $850 a month rent good?  I have no idea.  There's no information about the property or the location in the post. Those things matter more than just 2 numbers.

Dawn Anastasi, Core Properties, LLC | http://www.coreprop.biz | Podcast Guest on Show #29

Just as a comparison basis on the property tax front:

A 2 bed 1 Bath upper lower duplex in Milwaukee; zip code 53207, 1800 sg ft, 2 car garage, has property taxes at $4000, appraised at $135K

A 2 bed 1 bath SF in Colorado, zip code 80521, 1 car garage, ~900 sq ft on a 8000 sq ft lot has property taxes at $1200.  Depending on the area you invest in Milwaukee, property taxes can really affect your cashflow.

There are a multitude of reasons why taxes are so high in Milwaukee...but that is a conversation for another thread.  

Originally posted by @Brie Schmidt:

Do you know what else is really awesome about Milwaukee?  When you transfer title the city comes out and does an inspection and gives you 90 days to fix it

This is not from transferring title ... this is the Department of Neighborhood Services. You are actually paying for the inspection if you check your HUD. There are 2 inspections, an initial one, which will list out all the stuff that's wrong with the exterior of the property and gives you 90 days to fix it. If you can't fix it in 90 days you can ask for an extension, but most of the time you should be able to fix code compliance issues in 90 days.

Hopefully this has kept the exteriors of properties looking a lot better than if this program was not in place.

Dawn Anastasi, Core Properties, LLC | http://www.coreprop.biz | Podcast Guest on Show #29

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