Looking for a property management company is Milwaukee

[Jesse Dickens]

Looking at purchasing a duplex in Milwaukee. I live in Denver and would definitely need property management. It's not in a great neighborhood, but the numbers look great and justify the risk for me. Would love some recommendations on property management.'

Thanks!

[Matt Maurice]

Thanks for the mention @Marcus Auerbach!

Careful with having too much confidence in a turn-key company, just because they are occupied and potentially with a warranty of some sort, doesn't mean the property will be problem-free.  Sadly, I had a client purchase a turn-key property to 2 years later find mold in a newly constructed wall in the basement.  After the removal of the wall, we found extensive foundation failures that will cost $30k or more to remedy.  Make sure you perform appropriate due diligence prior and keep an eye out for things that don't seem to make sense (like a new wall in an unfinished basement).

To touch on the capital expenses topic...  there is a bit more to the equation than just water heaters, furnaces and roofs.  Paint, flooring, cabinets, countertops to name a few items often overlooked.  The rougher the area, the more damage generally caused to a unit (not always, but often).  Here is what I would expect your turns to look like with units that rent for $650 / month in MKE:  You will be repainting the entire unit, fixing broken cabinet doors, holes in a couple of the doors, the oven will look like it's never been cleaned (because it hasn't), things you didn't think could get all that dirty like baseboards, windows & exterior doors will need a lot of TLC to get clean, there will be at least one truckload of stuff left behind and any carpet in the unit will be needing replacement.

Sometimes I recognize my posts come off a bit negative nancy, and by no means do I want to create a blanket argument that this is always the case with a $650 rental.  But if you have 10 turns, 6-8 of them will look like this and a couple of them you will have gotten lucky with less work.  

Now you have some decisions to make.  The turnkey company made this property pretty before you purchased it, the tenant stayed 2-years we will say.  Your first turn with this unit you can:

• 1. Return it to the condition it was so you can attract a better resident 
• 2. Skimp out a bit to keep the costs down, degrading the condition of the unit but not horribly
• 3. Sell it

The first time an investor goes through this cycle, they will generally pick option 1.  Now if you are a small investor from out of state, you likely won't have a network of 1099 contractors you can hire to do this work for as cheap as the local folks do.  A reliable maintenance company will cost $2,000 - $5,000 to do the turn I described (a full repaint alone is $1,500 of that).  So you think to yourself, "wow I must have gotten a bad tenant but the next one will be good".  Some clients will blame the turnkey company for placing a bad tenant, or the management company for not properly enforcing the cleanliness rules in the lease, but the fact of the matter in low entry point, high rent ratio asset classes you are more likely to get this type of tenant than a good one, regardless of your vendors.  For easy math, let's say the turn cost $2,400.  I already mentioned the tenant stayed for 2 years, so your turn cost was roughly $100 / month for that one unit.  And by the way, that $100 / month didn't cover the backed-up sewer drain, the toy that was thrown in the toilet that you had to argue for 45 minutes why the tenant had to pay for that and eventually just ate the bill, the broken storm door that the "wind" ripped off the house...  ok I think you get my point here.

Option 2 generally pops up on the second or third turn, because human nature steps in and you get very tired of spending $2-5k a turn when people don't take care of the nice things you offer them.  So now we aren't going to do a repaint, we will patch the holes in the doors, jimmy that storm door so it "works" again and not even bother cleaning all of the hard to do stuff.  Now you've fired the reliable maintenance company because they are too expensive, and are on to the wheel of fortune that makes up the lower end handyman world.  You are smart enough not to give anyone a down-payment for this type of work, so at least you don't get stolen from but what used to take 1-week to do takes 2-months, with always the promise of "we will be there tomorrow to start".  The situation becomes more and more frustrating, and you start to develop this animosity towards vendors (managers, handyman, cleaners etc).  Furthermore, the condition of your property is on the decline, which won't help resell or future maintenance issues. 

Option 3 happens within 2-6 years I find.  You've had a few turnovers, put in more work than you ever wanted (this is supposed to be passive, right?), and you are just fed up.  The people bragging about these deals on BP must have been wrong, it's not possible let me just sell it and be done with this nightmare.  You'll clean up the property an sell it off to the next OOSI as turn-key operational property.  

Look, high rent-ratio properties can work, but there is an equivalent high-risk factor.  Investment logic doesn't change when you get into real estate, the riskier the investment the cheaper the acquisition and higher potential returns.  The folks that can make these properties work are usually local investors that do this full time.  It takes full-time attention to manage & maintain these types of properties for the numbers that will work.  You can't afford to pay a painter $1,500 to paint a unit, but you can look the other way on Chuck in a truck who shows up at 1pm every day to do your painting with a mad dog 40 (or 3).  As an OOSI, these properties will work if you get a little lucky and you end up with that long term tenant.  But from my experience, it's very very rare.

A quick note on my experience... I bought my first property in 2005 (18 years old),  I've owned dozens of properties in Milwaukee (one in Madison for a short while) including one duplex I bought for $11,000 at an auction in 53206.   In 2014 I started a management company, in 2016 we went from 100 - 400 doors taking on literally anything.  I've dealt with shootings, overdoses, tools getting stolen, vans getting stolen, accidents, porches collapsing, picking up rent in cash and almost getting mugged, bed bugs, evictions...  I no longer manage in these areas, have sold all my properties that fell into this category and have seen countless people go down this road.  My advice, spend a little more on a property and get something that will stabilize.