15K Duplex with 2K in gross income in Milwaukee

[Nate B.]

Hi All,

I am an investor from the Bay Area looking to expand my portfolio out-of-state. I'm looking at the numbers in Milwaukee and they just don't make sense; see attached links. 

This duplex that is on the market for 15k, has been listed for over 100 days, and is surrounded by other duplex's priced between 100-400k. The description says the property needs 91k in renovations, lets round up and say 100k. That would mean this duplex would cost 115K all-in. 

Here is the kicker, section 8 payment standards in Milwaukee ( see attachment) pay 1k for a 2 bedroom unit. Thats 2k per month in gross income for this duplex. 

In other words, a 115k investment would yield 24k per year in gross income; a break even of 4.7 years. When looking at the CAP rate (using estimated annual fixed cost of 4k), thats a 17.4% CAP.

What am i not seeing ? There are so many opportunities that I'm starting to wonder why people aren't buying. Whats also interesting is that property values jump 10x (in come cases) when you go east of the Milwaukee river. 

Property Link:

https://www.redfin.com/WI/Milwaukee/2556-N-Richards-St-53212/unit-2558/home/170679097

Section 8 link: 

https://www.hacm.org/Home/ShowDocument?id=5101