Rent Comps Vary Drastically in Milwaukee--How to analyze?

Question

Hi BP Community!

I am new to BP and have been lurking on the forums for a while. I am a recent transplant to Milwaukee (from LA) and looking to put in my first FHA offer in a 2-4 unit in about 2 months so that I can househack.

Something I’ve noticed in the city is that rent can change drastically from block to block-even with similar unit finishes and parking, which makes it hard to be confident in my underwritten rents. Zillow and rentometer seem useful, but not quite specific enough on a block by block basis.

How do people account for this in their analysis?

Marcus Auerbach · Answer

Great comments and good advice here! I'll add two pieces:

- rents on MLS are often below market. Reason: the same circumstances that lead to selling a property usually cause a lack of management, often rents that have not been increased in ten years etc.... top managed assets are usually not for sale (in the small MF space, totally different for appartemnt comeplxes).

- the higher you go up in rents the more fuzzy fair market rents get. If you are $50 high on a $700 rent, it will sit vacant. Once you go over $1,500 or $2,000 fair market rent tends to be more of a range than a point. People will pay significantly more for updated and contemporary homes than dated ones.

Michael Henry · Answer

@Greg Earnest the Housing Authority of the City of Milwaukee can be another resource. The selection -8 program subsidize low-income families rent for 1000s of residents.  They pay based on the market rent and property type e.g.  SF, Duplex, sq ft,  parking etc. Contact the rent assistance office and ask them what they are paying for the neighborhood you are looking to invest in (provide an address to a similar property)  and the feature you plan to include and they will tell you exactly what the rent is.

Rebecca Knox · Answer

Thanks @Daniel Monk for the mention.

I just got my appraisal back on a property and it mentions the same thing in the area the property is located which is Sherman Park.

In my preliminary evaluation, I use Zillow and rentometer as a benchmark. Zillow tends to be higher than actual. Also, you can search on Hotpads too for available rentals. If you look at the map, you can get a general feel.

In my full evaluation, I would check with a property manager in that area if I was unsure or if I would post in Brew City what others are charging in that area and probably 10 investors would respond back :)

Also, when your realtor pulls 'comparables', ask them to send you all real estate activity within 1/4 mile radius....for example, if it's a single family--ask for all single family activity 1/4 radius, not just comps. I prefer this because it helps me to see what else is happening in the area as well as many of the listings will have rents indicated in the listing comments to give you an idea.

One thing that I don't believe is considered is utilities. For instance, I am buying a rental with an inherited tenant who is paying $800/mo and all utilities including water whereas others are at $900-1000 without water. However, once I own the property, I will be restructuring the lease and increasing the rent instead and that's just my personal preference.

Greg Earnest · Answer

This definitely makes sense--the smallest details matter in markets like MKE. Thank you all for the advice!

Brett Kash · Answer

Location really does make a huge difference in Milwaukee. You really have to understand the boundaries of the neighborhoods to understand where to pull your comps from. A lot of time I think this is talking to someone who lives there or driving/walking the neighborhood yourself. Best bet is to get connected with the local investors (which you're doing, congratulations!) and ask around. I think each person knows the neighborhoods they own in really well and would be the best resource.

I think looking at all of the "for rent" listings (zillow, padmapper, etc.) in your area can quickly give you a decent idea of what rents are like. As someone who has spent a lot of time looking for a place to rent in Milwaukee before, amenities are super important in determining your rent. I think about parking (garage?, laundry, storage, yard/green space, etc.). The more boxes you check the more rent you'll be able to get. For my duplex, I looked for something that had all of those to ensure i could get the best rents (and the best renters).

Daniel Monk · Answer

Hi Greg!

I'm a newbie investor living in Concord CA, working towards buying my first property in Milwaukee. Hit up the Brew City REI Facebook group for tons of great connections and info.

@Rebecca Knox might have some feedback on accounting for the varying rents in your analysis.

Lets connect.

Donald D Michna · Answer

@Greg Earnest Rentometer, Zillow, and Craigslist are good resources to leverage to review near potential investment properties. Rents depend on the finishes, locations and amenities, but a good round number is a dollar per square foot for the Milwaukee area. A good property manager or real estate agent are also a good resource to use when looking at rental rates. Most of the time you can get this information by networking with othERS.

Jack Medford · Answer

@Greg Earnest I have started out by sticking with specific neighborhoods. My search was, in part, narrowed due to the Property Management I am using. They manage in some areas, and not others, so I try to focus on the highest yielding neighborhoods that are within their management radius.

I would recommend getting in contact with a couple management companies to find out where they manage and what typical rents are in the neighborhoods they focus. Agents can be helpful with analyzing rents, by management is the best place to start since they are actually filling the units. Even if you aren't planning to use management, you can try to utilize their knowledge.

The other thing is to just keep looking at properties. I'm talking about MLS listed properties (and the like) that list ACTUAL rents. It might take a month or so, but if you look at a property or two a day, you'll start to get more comfortable putting a range on every new one you see. I stick with a low end number when analyzing deals, and then ask my management company for verification if I am submitting an offer.

Hope this helps. All the best!

Rebecca Knox · Answer

If it was duplexes, then ask for all duplexes 1/4 mile out especially if it is in the city of Milwaukee. I want to see all activity including actives, expired and solds so I can come up with my own numbers and not be disappointed because I relied on someone else's opinions.  This is just my opinion but to me, my offer is going to be a lot different if the realtor sends me the 3 best comps vs if I see everything and notice there are several foreclosures on the block vs a block with none--plus you get to learn the neighborhood better and if it's a cash buy where appraisals aren't going to take place right away, then it can serve as a checkpoint (compare your property to get an idea of AS IS value). This isn't such a big deal for people that are very familiar with the neighborhoods but it's very helpful if you are an out of town investor.

Greg Earnest · Answer

Wow this is great info everyone, thanks for contributing. Seems like property managers will be a wealth of market knowledge going forward. And I can see how rent adjustment would be more sensitive the lower you get. I just sent my application to Brew City so I look forward to connecting with folks there.

@Michael Henry I never thought to use information from the Housing Authority, very interesting avenue.

@Rebecca Knox To your point about asking for real estate activity within 1/4 mile radius...So if I'm looking at a duplex, would I ask my realtor for some single families in the vicinity? Or just other duplexes that don't really comp out?

Rent Comps Vary Drastically in Milwaukee--How to analyze?

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