Suggestions for a Duplex that has not Performed Well - Wisconsin

15 Replies

Hi Everyone,

I'm just looking for some suggestions on what to do with a duplex that has never performed well (seems like we need to keep adding cash for repairs and maintenance all the time and/or tenants are coming and going very quickly - sometimes just 6 months or so).

My wife and I bought this duplex in 2006 in Kenosha, WI right before prices took a steep dive. I must have looked at nearly a hundred properties and put offers in on three, before getting this one accepted. I felt good about the numbers at that time... We ended up putting some money into the place to strip the roof and put a new one on, update the electrical from fuses to circuit breakers, paint, and buy new appliances for the upper unit. After this, we cash out refinanced about 15K because of the increase in value of the repairs. We ended up with a loan for 105K @ 7.15 % (bad rate because one of us had bad credit). I initially managed the property myself, but at the end of 2007 we moved to Las Vegas, NV so I had to hire a property management company. In any case, we had one year from 2006 to 2012 that we actually netted money on the property at the end of the year. We have been losing around 2K-4K a year otherwise. Because of our W2 income we are limited to just taking a sliver of our losses (we are renting out the SFH we lived in before we moved to NV and generating losses on that one because rent doesn't cover mortgage).

Fast forward to 2013 and we had our bank contact us to refinance the loan. We did a streamline refi and got down to a 5.158% rate, which definitely helped cash flow, but we still had a bad year in '13 with tenant turnover, plenty of maintenance, and a new furnace right in time for Christmas.

We still owe 103K on this house after the refi and it is probably worth about 60K. We are moving back to Wisconsin around August and my brother in law is a carpenter so I plan on doing some work with him to bring the property up to better condition in hopes tenants will stay longer, however, the property is not in good area so I'm worried I might be spinning my wheels here. As far as numbers now, rents are 1200 a month while mortgage, taxes, and insurance run 812 a month. Property management takes 9% and tenants pay all utilities except for water (about $30 a month).

Any suggestions on what my best move is with this duplex? Thanks in advance.

Tough situation to be in. Unfortunately due to the bubble bursting your into a house for 103k that's only worth 60k.

I do not know if there is really a good way out of that.

Couple ideas come to mind.

1. Have you thought about selling it owner financing via a land contract? That would be the way to get the most money for the sale thus keeping your losses to a minimum.

2. Maybe new PM team. With more strict tenant screening. Although as you stated the area is not good so there is only so much a PM can do.

Is the market trending one way or another in Kenosha? Have rents been increasing?

Hi James,

Thanks for the reply. I've never looked into selling it via land contract. I just searched for that in order to get familiar with what that would entail though. We've thought about switching the property management but found it would cost us more in terms of monthly fee going up a percent and two different new PMs that would keep 100% of the first month's rent as a finder's fee vs. the 75% my PM keeps. I'm still not sold on my PM because I've felt like they've come in pretty high for some maintenance and painting they've done (they charge flat rate of $25 an hour for painting and handyman type work through a separate company owned by the PM's husband). The hourly rate is fair, but they've come in really high on hours for clean up and painting before. To try to combat that I'm having them send me detailed pics after every move out so that they would have a harder time justifying say ten hours for clean up when there is some light cleaning to do and a few bags of garbage to take out. As far as tenants go, I think the area is one big problem as well as my upstairs unit being less than desirable. We seem to always get people that can only pay about 200 bucks for a deposit and then I'm left with 500 plus dollars worth of clean up and repair when they move out... usually with a month of back rent due. When I asked about the deposit situation, the PM told me that in this area we are basically dealing with people who cannot put even a month of deposit down and they will find another landlord who will let them move in for a few hundred dollars.

Looking at the land contract/seller financing, I'm not completely against doing it but I am more interested in trying to ride this place out a little longer. With that said, I'm wondering if it would be silly to put say 5k or more worth of work into the place to make it more appealing and hopefully attract better tenants. At the same time it's already very underwater... Would it be silly to go that route?

Phillip,

As far as the market for multi-family homes in Kenosha, it looks very soft. I'm just looking at what is available for sale and prices of duplexes in this area are all over the board and very low... starting from 30K actually. For rents, I'm not sure overall, but for my property the total rent has gone down 100 since we bought. I just checked the classifieds and found the going rate for two beds in that area to be about 650 to 670, so we may not be getting as much rent as we should be. Overall, the 650 number seems to be where rents were in 2006 because that's how we decided to ask for 650 for each one of our units. I'm not sure if that number fluctuated in the meantime and is on its way up or down. Is there a way to check for rent trends?

Thanks,

Conrad

Section 8 or other voucher tenant possible?

Perhaps eliminate your PM.

@Account Closed take a look at rentometer.com and see if you can narrow it down to your area. See what the current listings really are going for.


It really sounds to me like poor screening. I would look for another pm first of all and find out if that is the main problem. You won't know if you keep looking the other way and bleeding year after year.

So your current pm charges you only $450 for a new lease up..but you need a new tenant every 6 months... Wouldn't it be better to pay $600 to the pm and get a 1+ year tenant? Less turn over costs, and the lease ups would be far less frequent making the higher initial cost a significantly better deal.

Steve,

Thanks for that website. It looks like we are in the lower 20th percentile... median $660 for two bed and average is 685.

I always wonder about the screening because the more turnover there is the more the PMs get a finder's fee. That math definitely sounds better to pay one full month to get someone in there longer. What I think we will do then is let this PM go when we move back. That way I can pick the next tenant myself and give management another try. If that doesn't work out, I'll pick a different management company. I figure there won't be hurt feelings if I'm letting them go in order to manage by myself, at least for a little bit.

Seth,

I believe the PM looked at section 8 but we didn't qualify for a couple of reasons, although that was a couple years ago so I'll have to ask again. We do get tenants that get support via vouchers after we issue a 5-day, but I believe that only happens once or twice before the support is not availalbe.

@Account Closed

Can you send me a private message with the address/location of the duplex? I know some people in the Racine/Caledonia area who deal with rental properties that I can ask about the location and get some additional input.

If you've owned the duplex for 7 years and have only been profitable one year, definitely something needs to change.

A good property manager is hard to find. Just look at the forums and all the posts complaining about bad property managers. That's why I do my own management at this time -- I guess I'm hard to put trust in people when I've seen bad property managers in my own city! (I've also seen bad landlords too but that's another story.)

The $200 security deposit business sounds a little shady. Would you classify the area as a C or a D in terms of neighborhood? (On a scale of A, B, C, D such as grades in school.)

@Dawn A.

typical out of area experiences.. this one is one of the few that did not go into default.. have to hand it to this investor to keep his mortgage up under the circumstance.. Most in his position walked.

@Account Closed - I wish I knew what to tell you because I have a very similar situation. Except that mine is 8 units total that I bought as a package deal (2 duplexes, a tri, and a small house). Lost money every year. High turn-over, thus vacancy is high. But I think the real problem is the transient nature of the renters (high turnover results in high vacancy numbers). Working right now to do a refi on the loan. Thinking of raising the rents. Might as well try to get more out of the people while they are there. And I really don't think that 10% higher in rent will cause the units to sit empty longer. Mine are very low-end types of properties. Basically, I paid too much for them, and then the economy crashed.

Originally posted by @Jay Hinrichs :
typical out of area experiences.. this one is one of the few that did not go into default.. have to hand it to this investor to keep his mortgage up under the circumstance.. Most in his position walked.

This is a different scenario as the person was in the area when they purchased and THEN moved out of state.

@Dawn A.

Same issues they moved out of state and now are absentee landlords and the property has not performed no getting around that.

My point though was I have to hand it for them for not walking and honoring their obligation when they signed their promissory note.. So many in their same situation just chucked it in and RIPPED rents and defaulted as we know that scenario is not in dispute.

@Dawn A.

I sent you that info. Thank you for taking the time to look into it for me.

@Jay Hinrichs

I can't say it's been a fun experience, but we are committed to making something positive out of this. I'm guessing things would have went a bit better if we were there, but just by reading about the numbers we should have been looking for when we were buying this, it might have been doomed from the get go.

@Bryan L.

Sorry to hear that! Dealing with just two units of high turnover is tough enough. The refi helped us a good bit though. Are you managing your own properties or are they out of your area as well? My property is low end as well. I actually met with an investor/realtor in the area a few times who showed me his portfolio and how it grew historically. He was adamant that the homes in shadier areas of town ended up giving him the best returns. I could see how the rent to mortgage ratio ends up looking good, but not with the high turnover. That's where I keep wondering if we did some more improvements, would people stay longer... or is truly just the transient nature of people attracted to rentals in this area?

@Account Closed Kudo's to you and your wife for not blaming the poor performance of this asset on your lender like so many investors did.

being a lender and being on the butt end of these deals your the type of person I would go to the matt for... And if you every need anything in the future please contact me.. Your the kind of Character borrower that is so lacking in the bizz... again good on you for not burning your lender.

@Account Closed - Mine are about 45 minutes away from my home and I have a property manager. I need to meet with her soon and discuss ideas to improve things.

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