[Calc Review] Help me analyze this deal, Inner cities Milwaukee.

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Jack Medford
Investor · Nipomo, CA · Member since 2014 · 366 posts · 401 votes
7y

Where is this property actually located? Inner city Milwaukee is pretty rough. I think your vacancy assumption is way too optimistic, especially if this is in the rougher areas. Also, 15% total for CapEx/Repairs is probably on the low side for the inner city.

I also agree with @John G. that your insurance numbers are way too low. Water & Sewer is also likely to much higher since it is standard in Milwaukee to have landlords pay for that utility. 

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  • John G.Pro Member
    Rental Property Investor · Brainerd, MN · Member since 2015 · 72 posts · 42 votes
    7y

    Your insurance of $40/ month seems way to cheap.  If that's accurate then you need more coverage.  I would make sure you have atleast 1,000,000 lia.  Im my guesses it would put ins. in the 175-225/ month range.

    Also, is that milwaukee, WI.  If so, then you are missing your heat cost's, which on a building like that will be prob 250+ per month.  Make sure you do your due diligence on this one.

    As you have it, the investment looks great...but I think there are a few things missing.

    Hope this feedback helps you

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  • Jaysen Medhurst
    Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
    7y

    @Diana Villalon, your numbers look pretty good. You should probably account for some electricity costs (hallway lights, etc.). 

    You'll probably need to put down a full 25%.

    What do you know about this neighborhood? The fact that you're hitting the 2% rule in this market and there appear to be couches in front of the property make me nervous. I don't have the stomach for D-class properties myself.

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  • Jack Medford
    Investor · Nipomo, CA · Member since 2014 · 366 posts · 401 votes
    7y

    Where is this property actually located? Inner city Milwaukee is pretty rough. I think your vacancy assumption is way too optimistic, especially if this is in the rougher areas. Also, 15% total for CapEx/Repairs is probably on the low side for the inner city.

    I also agree with @John G. that your insurance numbers are way too low. Water & Sewer is also likely to much higher since it is standard in Milwaukee to have landlords pay for that utility. 

    1Reply
  • Diana Villalon
    OP
    Kailua-Kona, HI · Member since 2018 · 45 posts · 9 votes
    7y

    @John G. Thank you for taking the time to reply. I edited the report and it comes down significantly to a montly cashflow of $285.

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  • Diana Villalon
    OP
    Kailua-Kona, HI · Member since 2018 · 45 posts · 9 votes
    7y

    @Jaysen Medhurst You are correct I think that for being our first investment a D-class is not going to cut it. 

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  • Diana Villalon
    OP
    Kailua-Kona, HI · Member since 2018 · 45 posts · 9 votes
    7y

    @Jack Medford Thank you for taking the time to reply. It does look like a pretty rough area and with the adjustment we made to the report it doesn't looks as apealing. 

    0Reply
  • Rebecca KnoxBusiness Member
    Specialist · Milwaukee, WI · Member since 2014 · 1k+ posts · 1k+ votes
    7y

    Also, many contractors and PMs don't work in that area or will do so only for a premium because of the crime and safety risk. Some hire a PM only to find themselves managing the PM. Being from out of state, have you thought about lighter blue Trulia areas such as other neighborhoods of the north side, south side Milwaukee?

    Captain Save-A-Home LLC
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  • Joshua Martin
    Investor · Milwaukee, WI · Member since 2016 · 389 posts · 193 votes
    7y

    Others have definitely pointed out some things to be mindful of when investing in our city. On this particular one I would say the only thing that matters up front is location. The numbers almost always work on the inner city, the reality is rarely so rosey. My partner's first experiment in MKE was a three unit in a D class area. He's been attentive (as in managing his PM), but after 18 months the review is fairly mixed and he's looking to sell. When they're rented they cash flow like a mofo, but they're terribly hard to keep rented, and turning a unit 3 times in a year gets pretty costly. I'm sure he'd be happy to tell you about his experience, PM me if you want me to connect you.

    The other problem with a lot of MKE and particularly these old 6, 8, & 12 units is that in addition to being 100 years old (so all of your plumbing is likely this galvanized steel that's all corroded) the heat is the real killer. Uninsulated buildings often running on one boiler. I don't know if you've heard, but Wisco gets pretty cold in the winter so an accurate heating cost is staggering :)

    Plus on your particular analysis, as someone else mentioned, both your CapEx and Maintenance numbers are low. $120 a month on maintenance doesn't really get much done if you think about it.

    Anyways, best of luck!

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