$19K City Foreclosure...a good buy?

Question

My wife and I are military, out of state investors looking at a $19K City of Milwaukee foreclosure duplex to flip and hold...this will be our first renovation! Property is taken down to the studs and city has already done an essential scope of work assessment totaling $66K needing to be completed in 180 days from date of purchase. House has been on the market for 87 days and we're thinking of offering $1K for the property, paying no more than $5K. I think the essential repairs plus the minor repairs (e.g., drywall, flooring, outlets, etc.) and amenities (i.e., stove and refrigerator, possibly washer and dryer combo), the reno budget will be closer to $75K-$85K; talking with a GC in a couple weeks to confirm. Plan to apply for a Fannie Mae Homestyle Loan to fund the rental. Properties in that area seem to cap out at around $120K-$130K on the high end and around $70K to $100K on average but those homes aren't fully renovated and have had little to no work done on them. Working with our property manager up there to confirm but I believe we can get at least $900 per unit (7 bed/2 bath). All in, seems like it'll be: $85K for renovation, $5K to purchase, $5K for closing costs + Fannie Mae loan draw fees + permits/inspections + agent commission totaling $95K. We plan to put 20% down, $19K, to remove PMI requirement. At $1800 per unit, it'll be close to the 2% Rule.  If I am able to pick up the house and keep all in cost to $95K, should I consider moving forward with the purchase? Am I missing anything? Be brutally honest...only way I'm going to learn!

Leroy K. Williams · Answer

This project definitely seems underbid. You have 2 full kitchen remodels, 2 full bathroom remodels, likely a full rewire if the house is down to the studs, Unless your HVAC system and plumbing was recently updated you may have to do major work there.

As a first rehab I would steer far away from this one.  Thee are too many moving parts.  As someone mentioned for your first deal you shou8ld look for a project that needs light/ cosmetic repairs and scale off this after you learn the investment area and build a team of trusted professionals.

Charles Clark · Answer

@Brian Lovingood

Appreciate you laying this out clearly—and respect for asking for honest feedback.

Short answer: this is very high risk for a first reno, especially out of state.

At that price point and condition, the biggest concerns aren’t the 2% rule—it’s execution risk:

• Studs-out + city scope + 180-day clock = zero margin for GC delays or overruns
• Milwaukee city inspections, permits, and change orders can easily blow past $85k
• Exit values of $70k–$130k mean little room if ARV or rents miss
• $900/unit feels optimistic for that asset class unless finishes and tenant quality are dialed in

Studs-out + city scope + 180-day clock = zero margin for GC delays or overruns

Milwaukee city inspections, permits, and change orders can easily blow past $85k

Exit values of $70k–$130k mean little room if ARV or rents miss

$900/unit feels optimistic for that asset class unless finishes and tenant quality are dialed in

If this were a second or third project with a trusted GC already proven locally, maybe. For a first deal, I’d strongly suggest either:

• A lighter rehab with more margin, or
• Partnering locally to share risk and oversight

A lighter rehab with more margin, or

Partnering locally to share risk and oversight

The deal isn’t crazy—but the risk stack is high, and first deals should be forgiving.

Frank Pyle · Answer

At that ARV range the deal is tighter than it looks, and the 180 day city deadline is the real risk for a first out of state rehab. Studs down jobs almost always run past the city scope once you get into electrical, plumbing, roof, windows, lead, permits, and inspection delays, plus carrying costs. I would also stress test the rents and the tenant profile since a big bed count can mean higher wear and turnover. If your lender and GC cannot move fast on draws and city inspections, the timeline can wreck the whole plan. What zip and unit layout is it, and do you already have a GC who has pulled permits and passed inspections in that area.

Jay Hinrichs · Answer

those big ole houses are money pitts.. Hard pass also price point puts you squarely in the roughest neighborhoods with the least reliable tenant base . just sayin.  Real Estate prices for Risk.. this is ultra high risk for anyone other than a local in the know investor and even they are not touching it.

Charles Clark · Answer

@Brian Lovingood

appreciate you laying this out so clearly—and thank you both for your service.Being brutally honest: the numbers are very tight for a first-time, out-of-state renovation—especially with a 180-day city deadline and a full studs-out rehab. At a $120K–$130K ARV, you’re leaving very little margin for overruns, delays, or appraisal risk with a Homestyle loan. Rent looks solid, but execution risk is high.I’d be cautious unless you can (1) lock in a guaranteed-price GC contract, (2) confirm true ARV comps, and (3) build in a larger contingency. If any of those are uncertain, this may be better as a learning deal to pass on—not a “must win.”Happy to dig deeper if you want a second set of eyes on the numbers or strategy.

Brian Lovingood · Answer

@Charles Clark

Awesome breakdown and I’m starting to see that you’re right on.

Finally spoke to our PM in Milwaukee yesterday and they had some of the same sentiments, especially with what we could get for rents and how fast we could get it rented.

Honestly, we are interested in the property but more so, wanted to go through the steps to purchase and renovate without necessarily pulling the trigger. Wanted to get some practice by reaching out to professionals to get insight and to make sure we are asking the right questions and looking at this from all angles before we start our first out of town flip.

We likely won’t go through with this one and will take your advice and start off smaller scale. Still planning to talk to a GC next week about this particular property to get their feedback but assuming they’ll echo the same about the budget for the renovation potentially blowing past $85K. Just hoping to get some good info on how a renovation works from a GC’s perspective and understand what to consider when estimating renovation costs.

Overall, we don’t want to waste anyone’s time by having professionals look into “practice” properties for us and giving us feedback based on expertise and experience but when someone like you takes the time to do it and give good honest feedback, it’s making us, as newbie investors, smarter on the subject; helping us see it through your eyes…really appreciate you taking the time to respond!

$19K City Foreclosure...a good buy?

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