Single family rentals in Milwaukee?

Question

Hi all, I am a newbie with a house in Bayview. I have another property I am interested in moving into and renovating and or purchasing and renting as a single family rental. I would also like to keep my house and rent it out.

Both houses are three bedroom and 1.5 bath. Garage 1,800 sf. generally what is a good range to put in my proforma for rents?

Secondly is it harder to rent out single family homes?

Lastly any pro tips?

THANKS!

Matt Maurice · Answer

Hey Eric,

Welcome to BP!  Bay view continues to be a strong market, that house should be easy to rent & manage.  Single families are our most popular rental across the board, and because your tenant will be responsible for all utilities (including water), lawn and snow your return can be similar to some multi-family properties.

3/1.5 in Bayview can still have a pretty large rent range depending on which side of KK you are on and finishes.  I'd suspect you should be between $1,300 - $1700, potentially a bit higher if you have nice finishes.  If you haven't used it before, www.rentometer.com is a cool tool that will help in your rent price selection.

Good luck!

Marcus Auerbach · Answer

@Eric Gebhardt we have made the switch to SF almost ten years ago and I have never looked back - easy to rent, easy to manage, no tenant to tenant conflicts etc.

Rents depend very much on the location (especially in Bayview like Matt said) the school district and the level of condition and finishes. When you look at properties around the median price point you have on the lower side what I call "functional tenants" - looking for the best deal that meets their functional requirements - number of bedrooms, yard, parking, commute. They are budget minded and will accept dated finishes. Rents are typically between $1100 and $1400 depending on neighborhood and property size if I may generalize that across Milwaukee.

We target what I call "lifestyle tenants" who want an open concept floorplan, a finished basement, modern lighting, great outdoor space and basically new everything - and are willing to pay for it. We rent mostly to families, so school district plays a big role as well. Our rents range from $1,400 to $2,200, with an average around $1,550.

There is actually a rental market over $2,000 in Milwaukee, but with a smaller tenant pool. And then you have your lux segemnt $3,000 to $5,000 (probably less then 1% or the market) and ultra lux over $5,000 (extreme outliers). As you go up in range your turnover and vacancy times increase quickly and you are dealing with very high expectations. Commercially it is obviously better to stay close to the median, however there are investors who will disagree with me and focus on lux - typically new developments.

Here is a pro-tip. Generally speaking I would say MF cashflow a little better out of the gate, SF are a little stronger on the equity side. Of course we are no where near a 2% rent to value ratio - typically a little under 1% - but we have a much better rent to capex ratio: a new furnace will cost exactly the same, no matter if your rent is $600 or $1600.

Marcus Auerbach · Answer

@Eric Gebhardt you are asking the right questions - I always tell people to work on two things before they look at property:

1.) develop your financial model

2.) define your target audience

The financial model is basically an financial analysis of a hypothetical property. You tweak your numbers until you have them the way you want them and you feel they are achievable. In mathematical terms it is basically an optimization problem - where is the optimium ROI as you are moving all the other parameters. And then you need to ask are they realistic and achievable?

Your target audience is who you want to rent to. That defines the neighborhood and the type of property, as well as the features. A young couple of college grads wants something else, than a young family, a travelling nurse or a single section 8 tenant.

Once you have answered both questions its relativley easy to find the right property. We typically buy a little under 1%, because I am emphasizing equity, but if you focus on cash on cash return you will be at 1% or even a smidge over.

Brett Kash · Answer

@Eric Gebhardt congrats on taking the dive into real estate. I’m not SUPER familiar with bay view rents (East side guy here) but that’s a large house and assuming it’s in good shape I could see you renting for 1250 to as high as 1500. Obviously these aren’t rules of thumb but just my gut feeling. My advice would be to jump on Zillow and some other websites where people are posting rental units and see what they are charging. You want to price yourself at or just below your similar properties. You may not find one like yours which will require you to interpolate a bit but that’s where I would start. Good luck!

Adam Gollatz · Answer

Hi Eric,

To answer your second question, it is very easy to rent out single families. They appeal to people because you’re not sharing yards or common areas or dealing with common walls and noise. With that being said, it can be harder to rent and turn a profit. You only have 1 tenant covering all your expenses (maintenance, cap ex, etc)

Your first question I’m not exactly sure what your asking. i generally look at rent as a function of the purchase price to initially weed things out. I’m sure you’ve heard of the 2% rule.  Nicer areas like bayview I try to hit 1.25 rent to purchase or so. That gives some stable cash flow but those areas are generally appreciation investments unless you bought at a really good price long ago or are doing heavy rehab. In other areas I try to hit 2 all the way up to 4+%. And how high or low in that range is determined by area and purchase price. Rougher areas and lower purchase prices I need a higher percentage to make the numbers work. I like total rent to be over 1000.

Was that what you were looking for? Feel free to reach out directly if you got any specifics you want to discuss.

Eric Gebhardt · Answer

@Adam Gollatz thanks and yes that is very helpful interestingly using the 1% rule matches what my proforma is telling me, the breakdown make so much sense. @Brett Kash I completely forgot about Zillow for renting thanks!

@Marcus Auerbach Very good advice thank you! I think the concept of asking for 2k+ in rent is just scaring me, in that I feel I have less than a 50% chance to find someone and thus will be stuck with a flip with small margins or worse - a loss.

This changes my thinking on the new property in that either my offer price goes down on the new place or I will have to rent our current house as it is way more finished out thus attracting the life style tenant. Great protip also! I have been struggling to find deals that meet the 1% rule in our market.

Gregory Chadwell · Answer

Hi Eric: I lived in Bay View or over 15 years and have 3 properties there also im getting ready to list a duplex (estate sale) next Monday for less than 250k (east of KK)  Feel free to IM me and good luck.

Single family rentals in Milwaukee?

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