Milwaukee is driving me nuts.
Rental Property Investor · Overland Park, KS · Member since 2015 · 492 posts · 234 votes
Please excuse me for a moment, but Milwaukee is driving me absolutely nuts. I don't understand how you investors make it work here. The properties are in junk condition, your property taxes are absolutely out of control, and the rents you're charging are way too low given the taxes. How are any of you making money here? There is so much government overreach with taxes, city inspectors, etc. Why are you investing in this city? Nobody is moving here, and the roads are garbage as well. I've been trying to do it so I can self manage, but I don't see the numbers lining up no matter how many times I run them... Please help me understand.
Side Note: I relocated from Kansas City. So this way of "life" is different and hard to understand.
A couple years ago I had an intern who was working on his Real Estate degree at UWM. He told me about his paper about the role of fresh water as a driver for economical development and why he would choose to invest in Milwaukee over many of the other booming cities in the US, many of them in hot and dry climates. After all, Milwaukee is right on the largest fresh water reservior in the world - the Great Lakes. His research was pointing to an increased importance of fresh water as a basis for economical development in the future. It made total sense to me.
Fast forward to today: Milwaukee has been in the news lately quite a bit - Foxconn (one of the largest manufacturers of consumer electronics with 1.3 million employees) has announced a 10 billion dollar investment in a new plant creating up too 13.000 well paying jobs in Southeast Wiscinsin, probably Racine or Kenosha - close to the lake. The facilities will be 20 million square feet - roughtly three times the size of the Pentagon. And guess what - water is a critical ressource for LCD production and clean room operations. A project this sice has economic ripple effects: it is estimated that the construction alone will create 10.000 jobs. Supporting industries and businesses providing infrastucture and services will benefit as well.
But that's not the only news. Downtown Milwaukee has seen a major turn around and building boom in the last years. The brew city has been voted as one of the most attractive places for enterpreneurs and millenials. And it shows, we have construction going on everywhere!
Among the biggest projects anchoring the boom:
Large projects already completed over the past year include the $101 million 833 East office building, the $53 million latest phase in The North End apartments and retail development, and the $52 million Kimpton Journeyman Hotel.
Finally, there are several new and ongoing downtown-area developments below the $50 million mark, including apartments, offices and hotels.
Of course, Milwaukee has it's challanges too. The city is among the most segregated ones in the US and parts of the inner city have a bad reputation for crime and violence. It will remain a challange for the city leaders and the comunity to work on this issue. These are the area's where one can pick up houses for 50k, 30k or even 10k - but they come with their own set of issues and are in my opinion not a very good long term investment.
The surrounding areas and suburbs are doing quite well and demand for rental properties is high. While we have plenty of new multi family developments shooting up everywhere, many of the catering to high end tenants with rents around $1800 to $2600 and up, nice single family rental properties remain a rare comodity and are high in demand. The supply of sub $200k SF properties is limited to existing inventory, as new construction starts at about $300k, with the majority in the $300-$500k range. High cost of construction does not allow for new SF developments under $200k effectivly capping supply.
Demand and supply have been forcing SF prices up and will in my opinion (short of a major crisis) continue to do so. All good areas in the Metro area have seen double digit appreciation in the last years (while the inner city has been flat). My personal focus has been on single family homes in middle class areas, with rents typically around $1500.
Rents have gone up in the last years, but there is a limit in affordability based on household income and we make it a point to not participate in the annual rent increases, at least until we see substancial increases in average net wages. I feel it's worth it, based on basically zero vacancy rates and very low turn over (we are typically under 15%).
I expect the market for high end multi family to reach a saturation point soon, probably putting pressure on high end rents, but there will always be a subset of tenants who prefer the life style of a single family home in a residential area over an appartment building, even if it's really nice.
The idea of a backyard BBQ with friends and family is just too much engrained in the American dream.
I would be interested in learning more. Always good to get different perspectives on investing!
@William S. are you able to come out to the Milwaukee REI Club meeting tonight? I'll be there and I'd love to discuss.
Hi Taylor. I am also very interested in learning more about the area you're investing in. Where can I find more information on the REI group you were talking about? I was unable to find a meeting for today August 3rd
@Jeremy Wartner Hi. Sorry I missed your post, I wasn't notified. The group will be meeting in about 2 weeks again. I'll send you a message the next time it is on. Here is the link for the last meeting.
https://www.biggerpockets.com/forums/521/topics/471845-milwaukee-real-estate-investors-club
It sounds as though cash flow isn't your number one priority which is mine. I would suggest running the numbers and see what your ROI is before investing. I had a friend with 7 figures saved up wanting to do what you wanted to do and was ready to just jump in. I sat him down and did the math for him in comparison so other properties and he quickly changed gears realizing that there is opportunity to make more money in changing his mindset. He is up to 3 doors right now and couldn't be happier. Know the numbers, buy the investment, make money.
@Israel Torres Actually cash flow is my priority at the moment. My duplex will provide appreciation for me. However, I am unsure if c-class rentals will work long term, given the tenant selection, increase risk of theft, and replacement costs eating up a larger percentage of the rents. If I were to pursue this area I would pay cash because I'll need more buffer per month for issues, or BRRRR and not use any of my money to derisk.
To be successful in Milwaukee you often have to throw out conventional wisdom. We are taught that you want to find the bad house on a good block, but it often works the opposite way in Milwaukee.
Considering its a sellers market, If you are looking for SFR in Tosa, there is a good chance you will over pay and your asset will under perform. On the other hand you can find a property in Sunset Heights, Nash Park, Silverswan or Rufus King neighborhood that will over perform at a fraction of the cost. These old neighborhoods have had life long home owners that take pride in keeping their homes in order.
Block by block you can find pockets in Milwaukee and be very successful!
A couple years ago I had an intern who was working on his Real Estate degree at UWM. He told me about his paper about the role of fresh water as a driver for economical development and why he would choose to invest in Milwaukee over many of the other booming cities in the US, many of them in hot and dry climates. After all, Milwaukee is right on the largest fresh water reservior in the world - the Great Lakes. His research was pointing to an increased importance of fresh water as a basis for economical development in the future. It made total sense to me.
Fast forward to today: Milwaukee has been in the news lately quite a bit - Foxconn (one of the largest manufacturers of consumer electronics with 1.3 million employees) has announced a 10 billion dollar investment in a new plant creating up too 13.000 well paying jobs in Southeast Wiscinsin, probably Racine or Kenosha - close to the lake. The facilities will be 20 million square feet - roughtly three times the size of the Pentagon. And guess what - water is a critical ressource for LCD production and clean room operations. A project this sice has economic ripple effects: it is estimated that the construction alone will create 10.000 jobs. Supporting industries and businesses providing infrastucture and services will benefit as well.
But that's not the only news. Downtown Milwaukee has seen a major turn around and building boom in the last years. The brew city has been voted as one of the most attractive places for enterpreneurs and millenials. And it shows, we have construction going on everywhere!
Among the biggest projects anchoring the boom:
Large projects already completed over the past year include the $101 million 833 East office building, the $53 million latest phase in The North End apartments and retail development, and the $52 million Kimpton Journeyman Hotel.
Finally, there are several new and ongoing downtown-area developments below the $50 million mark, including apartments, offices and hotels.
Of course, Milwaukee has it's challanges too. The city is among the most segregated ones in the US and parts of the inner city have a bad reputation for crime and violence. It will remain a challange for the city leaders and the comunity to work on this issue. These are the area's where one can pick up houses for 50k, 30k or even 10k - but they come with their own set of issues and are in my opinion not a very good long term investment.
The surrounding areas and suburbs are doing quite well and demand for rental properties is high. While we have plenty of new multi family developments shooting up everywhere, many of the catering to high end tenants with rents around $1800 to $2600 and up, nice single family rental properties remain a rare comodity and are high in demand. The supply of sub $200k SF properties is limited to existing inventory, as new construction starts at about $300k, with the majority in the $300-$500k range. High cost of construction does not allow for new SF developments under $200k effectivly capping supply.
Demand and supply have been forcing SF prices up and will in my opinion (short of a major crisis) continue to do so. All good areas in the Metro area have seen double digit appreciation in the last years (while the inner city has been flat). My personal focus has been on single family homes in middle class areas, with rents typically around $1500.
Rents have gone up in the last years, but there is a limit in affordability based on household income and we make it a point to not participate in the annual rent increases, at least until we see substancial increases in average net wages. I feel it's worth it, based on basically zero vacancy rates and very low turn over (we are typically under 15%).
I expect the market for high end multi family to reach a saturation point soon, probably putting pressure on high end rents, but there will always be a subset of tenants who prefer the life style of a single family home in a residential area over an appartment building, even if it's really nice.
The idea of a backyard BBQ with friends and family is just too much engrained in the American dream.
The city of Milwaukee is a safe bet but the taxes are out of control. The mayor is seeking an increase between $30-40 a year. The way to make money is to wait for good deals and act quickly when they are in front of you.
This is an interesting perspective. As an LA investor - MKE is cash flow heaven! The property taxes are a bit higher, however you can get 12% cap rates on long term rentals with minimal work. I'd definitely explore some of the more vibrant parts of the city (Brady St., Lower East Side, etc.) and see what you can find.
I've been working with an experienced contractor in Milwaukee who told me a couple of days ago that these properties for sale for $10k will need $40k in repairs. People who think they are getting a house for $10k need to be very careful about the real costs of repairs. I'm sure a rehab could be done for less than $40k but that would take knowledge of local contractors and possibly cutting corners on the rehab. The contractor I am working with cuts very few corners and the cost is higher but I think is worth it. Also, the tenants in Milwaukee don't have the best reputation as far as taking care of the properties. I've heard many complaints about filthy living conditions, break ins, vandalism, leaving the place a mess, pet damage, etc. Best to be very careful all the way around - pay as little as possible on the front end, expect big rehab costs, screen the tenants as much as possible, and prepare for the worst and try to avoid.
... follow up.. I'm staying at a beautiful airbnb near W Highlands and N. 29th St. and just heard violent arguments, tires peeling out, women screaming, and assumed cops were called .. this is a beautiful Victorian home built in 1895 restored by the owner, whose son asks her when she's going to move out of the ghetto, just be careful where you buy and how much you pay here ... don't be fooled by a low entry price tag
This should not come as a surprise.
Greater Milwaukee has fairly average midwest prices, the median is about $225k, suburbs usually $250-400k, downtown condos about the same, new construction mostly $400-600k. So take a moment to think about why could it be, that in a certain part of town properties are selling for under $50k?
If it sounds to good to be true, it probably is. Inner city properties sell for a small fraction of replacemet value, because that is the only way anyone would even consider to buy one in this area.
Sure, the cash flow is fantastic, but here are the issues:
- values are so low, that it does not pay to keep the properties up (capex would be wasted)
- many good property managers will refuse to manage in those areas
- many good contractors will not take on jobs, the risk is too great
Of course there are PM's and contractors that do work there, and you have to ask yourself why are they okay with that?
Want some examples: the first thing you will notice is wreckless and agressive driving (even by my standards), people running red lights at full speed long after the signal changed etc - what you don't whitness very often because it happens so fast: items stolen out of cars, cars stolen, tools stolen, materials from jobsites stolen, copper pipes cut out of basments, people following the UPS van to pick up amazon packages and selling content on craigslist, someone in serious withdrawal pain may ask you for $5 gas money and then ask for your wallet and cell phone while flashing a gun, domestic violence, people yelling on the street, shots fired at night etc.
Good deals can be found, even in the lower priced areas, if that's your cup of tea, but I do recommend to keep away from the bargain cave high crime areas, becaue you get what you paid for it, maybe even less.
All so true … today I was working with the contractor on one of the 2 duplexes I own in these troubled areas and one block over the street was blocked off on both ends by police, who were out there for hours. Last I checked one man was being cuffed and taken into custody and there were several officers standing outside one of the houses. This is not good for property values or the nerves of the landlords/tenants. I am keeping my fingers crossed that the money I have invested in fixing up one of the duplexes will be a decent investment. The contractor will likely rent the lower unit he is working on and he will be a good tenant who will keep an eye on the property. The upstairs tenant loves the unit because of the work that the contractor did and the property is getting into good shape, similar to the Airbnb I am staying in which had so much trouble across the street last night. Good luck to all who invest here and I hope things get better soon for everyone.
@Taylor Debs did you buy that property yet? And what are the programs that you're speaking of?
@Taylor Debs did you buy that property yet? And what are the programs that you're speaking of?
No. I put in an offer, but I rescinded after they removed a part of the roof. Replacing a roof and fixing the resulting water damage to the exposed room wasn't worth it. Shortly after my offer I was going through a divorce so buying a property wasn't a good idea anymore even though I've seen some that I would have liked. Maybe next year I'll start looking seriously again.
I believe the program I was referring to was the Rental Rehabilitation Program. I sat through the required Landlord Training Program in case I found something that qualified. https://city.milwaukee.gov/DCD/NIDC/RentalRehabLoan#.W_TN5xNTlE4
My Dad does some lending and is familiar with these city owned properties that are for sale at $10k. The city will often say you will need to make these repairs which cost $20k to fix in order for the home to be habitable. What they don't tell you is that $500 repair for flooring is for the two SF section in the living room to be fixed but in reality you need to replace the whole floor to make it presentable and get a decent tenant. Or you need a $500 patch on the roof to stop the current leak but in reality your 3 weeks away from having 30 leaks due to the age of the roof.
@Taylor Debs no worries, I'm sure you'll get one soon.
Thanks for the info on the program!