15K Duplex with 2K in gross income in Milwaukee

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15K Duplex with 2K in gross income in Milwaukee

Nate B.
Lender · Emeryville, CA · Member since 2016 · 18 posts · 6 votes

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



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Joe Scaparra
Investor · Austin, TX · Member since 2013 · 662 posts · 1k+ votes
6y

Did you read the description very well.  It is only available to OWNER OCCUPANTS.  Are you planning to move Milwaukee.  Or am I reading that wrong and to qualify for the 20k assistance you have to be owner occupant?

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  • Frank Hinck
    Rental Property Investor · Minneapolis, MN · Member since 2020 · 540 posts · 285 votes
    6y

    @Nathan Belete

    Talk to experienced Milwaukee investors, there are some great ones on the BP Podcasts including a Cali guy

    1Reply
  • Nick P.
    New to Real Estate · Milwaukee, WI · Member since 2020 · 3 posts · 0 votes
    6y

    @Nathan Belete East of Milwaukee River is a city called Shorewood which is only 1.5 sq miles, densely populated with lots of rentals and top 5 school district in state. Many doctors and lawyers.

    0Reply
  • Joe Scaparra
    Investor · Austin, TX · Member since 2013 · 662 posts · 1k+ votes
    6y

    Did you read the description very well.  It is only available to OWNER OCCUPANTS.  Are you planning to move Milwaukee.  Or am I reading that wrong and to qualify for the 20k assistance you have to be owner occupant?

    3Reply
  • Brett Kash
    Flipper/Rehabber · Milwaukee, WI · Member since 2016 · 153 posts · 84 votes
    6y

    @Nathan Belete the link you posted is in what I would consider a near D neighborhood. You can make money with rentals in that area but it’s high turnover and you will have a lot of tenant issues more than likely. Anything west of Holton will be a similar story. I live about 12 blocks from this house (4 blocks east of Holton). Unless you have a boots on the ground property manager with experience in neighborhoods like this and a trusted GC for the remodel you won’t likely be successful. If I were you I’d try to stay in more of the B to C+ Neighborhoods as an out of state investor.

    0Reply
  • Nate B.
    OP
    Lender · Emeryville, CA · Member since 2016 · 18 posts · 6 votes
    6y

    Thanks @Frank Hinck - Which  podcast would you recommend? 

    Thanks makes sense @Nick P.! Given the proximity to well paid individuals, it doesn't make sense why properties west of the river would decrease drastically. Normally, I'd expect a gradual decrease proportional to the distance covered west. The huge price swing seems to indicate, from a stats perspective, either an arbitrage opportunity or a factor that I've yet to take into account. 

    @Joe Scaparra Yes, I have. While that particular listing is for OO, there are many that are available to investors. The one below is listed at 2.5K with 75k of estimated repairs. These opportunities are endless and I'm curious why?



    https://www.redfin.com/WI/Milwaukee/629-W-Clarke-St-53212/unit-631/home/168179032



    https://www.redfin.com/WI/Milwaukee/629-W-Clarke-St-53212/unit-631/home/168179032

    1Reply
  • Nate B.
    OP
    Lender · Emeryville, CA · Member since 2016 · 18 posts · 6 votes
    6y
    Originally posted by @Brett Kash:

    @Nathan Belete the link you posted is in what I would consider a near D neighborhood. You can make money with rentals in that area but it’s high turnover and you will have a lot of tenant issues more than likely. Anything west of Holton will be a similar story. I live about 12 blocks from this house (4 blocks east of Holton). Unless you have a boots on the ground property manager with experience in neighborhoods like this and a trusted GC for the remodel you won’t likely be successful. If I were you I’d try to stay in more of the B to C+ Neighborhoods as an out of state investor.

    Brett, that makes total sense. Thanks for info. What would you consider to be C+ to B neighborhoods?

    0Reply
  • Andrew Becker
    Milwaukee · Member since 2020 · 6 posts · 1 vote
    6y

    @Nate B. Although I am new to real estate, I have lived in Milwaukee for many years and want to expand on what @Brett Kash said in a more general sense. It does not surprise me that prices in properties swing so drastically as you have described. Milwaukee is very segregated both economically and racially. Even different streets within the same neighborhood can be different in both crime rate and median income depending on where you are looking in the city. Deals do exist, but if things seem like a steal, I would definitely double check the location with an experienced investor from Milwaukee (like you are doing with this post haha) that can make sure the area is what you think. Good luck! :) 

    0Reply
  • Bob Prisco
    Specialist · Cleveland, OH · Member since 2018 · 1k+ posts · 666 votes
    6y

    @Nate B. do not touch it ! You have zero experience in the area and you want to take on a 100k rehab are you kidding!!!  There is a reason why it is has not sold . You need to find a team that will protect you , allow them to handle all you do zero. There are 10 -14% net caps out there with built in equity 100% hands off. Its all about knowledge and your team

    Good Luck 

    0Reply
  • Adam Chmielewski
    New to Real Estate · Port Washington, WI · Member since 2020 · 17 posts · 14 votes
    6y

    A key thing to also note in these descriptions also is the "essential repairs" part. That number (depending on the lister) is most the likely the money needed just to bring back the property up to code and habitable again. There is a very good chance you need a lot more money for nonessential repairs to make it "rentable". 

    2Reply
  • Marcus Auerbach
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    6y

    @Nate B. make no mistake - Milwaukee is a very hot and competitive market. Most good properties will sell within days, sometimes hours and multiple offers. Ask any of my buyers, they will tell you. If something is on the market for more than 10 days you know that 50 people have seen it in person and took a hard pass. 

    Entry level duplexes in decent neighborhoods go for about 200k-225k. Some buyers start looking in the 150 range but usually adjust quickly. If you go a step up from MPS schools you'd be in areas like Wauwatosa, which sells currently for about 250k-300k depending on condition. East side is usually 300k up. Rents also change with the neighborhood, so any will work for house hacks or investments, but it is not easy to get a good one under contract. 

    If you want to see how much people are paying over check out the video on my BP profile page.

    0Reply
  • Rebecca KnoxBusiness Member
    Specialist · Milwaukee, WI · Member since 2014 · 1k+ posts · 1k+ votes
    6y

    Yes--when it saids ACTS, owner occupancy is required--also, that is a D area but in my opinion an investor would've scooped this up in a heartbeat. The Trulia crime map and you will see the pockets in that area. ACTS is a community non-profit that helps disadvantaged people become homeowners.....and that property is in Harambee which is much different values than Riverwest or Brewer's Hill which probably would come up in comps but your realtor would be able to advise you of that big difference--being west of Holton vs. east of Holton or the further north of North Ave (things start getting sketchier towards the Locust St area and north of that, the lower the comps. In the city, I only review sales activity 1/4 mile radius and even that can be sticky in some areas such as this one or the Rufus King area unless you have some local expertise helping you. 

    Captain Save-A-Home LLC
    WebsiteView Page
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  • Chaim Lampert
    Milwaukee, WI · Member since 2019 · 54 posts · 44 votes
    6y

    There is no way you would rent that out for 1k. Section 8 is usually based off of Zip codes. I would say that in this area  with a nicely fixed up unit, you could get about $750 max

    0Reply
  • Brock Mogensen
    Real Estate Syndicator · Milwaukee, WI · Member since 2018 · 1k+ posts · 907 votes
    6y

    That property is definitely in a rougher area.  Duplexes in B class areas will usually go for $150-$200K.  When investing in deals out of state I would suggest connecting with a good property management company before buying a deal.  A good PM will be able to help you with mapping out your ideal location.

    0Reply
  • Darren Budahn
    Investor · Milwaukee, WI · Member since 2014 · 811 posts · 420 votes
    6y

    @Nathan Belete

    Do not touch these properties if you aren’t local or don’t have a trusted team in place. There is no way you will ever manage a major rehab from across the country in these areas while trying to deal with the city of Milwaukee. The property on Clark you listed costs 2K. Rehab is 75K. You know how much equity you’d have if you spent 75K on this house? The answer is less than zero. And the property on Richards you referenced would never rent for $1,000 a month

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