Flipping in Milwaukee?

[Kelly Orth]

We are considering several different markets for flipping entry level homes. Is it possible to get cheap properties that are not entangled with the city?   We like WI because we are from MN and their are homes for sale so cheap. 

[Marcus Auerbach]

@Kelly Orth not sure what you mean by entagled? Let me try and answer, hope to cover your question. There is a minimum rehab cost for a house - roughly between 30k and 60k for a small single family home depending on scope and finishes.

The cost of rehab does not change much, weather you buy a cheap house, a median house or an expensive house (we are talking about the same typical Milwaukee 1,200 SF home, just in different neighborhoods).

You are trying to improve the value enough to cover your remodel cost plus generate a profit. This increase in value is often about roughly 30% - houses in any given neighborhood only sell within a bandwidth. What you are trying to do is buy at the very bottom end of the bandwith, maybe even below and sell at the top or even above.

The problem is that you have to fit your profit and your rehab into that 30% (or whatever it is). Because the rehab is a somewhat fixed cost you can't take this down to the cheap houses in Milwaukee. The math just does not work. 

Most flippers I know work in the 150-200k range. You have enough room to fit your rehab budget into the price range. It's very hard to do this at lower price points. Even finding a buyer is not easy, which seams like a paradox: as soon as someone qualifies for a loan they shoot for the best possible neighborhood they can afford, and thats often over 150 or 200k. If someone can only afford 100k or less, they don't qualify for a loan in the first place. The few they do are shaky buyers; not easy to work with and deals fall trough on a regular basis.

Its almost easier to go up in price and flip more expensive homes - if higher the price the easier it often get's to negotiate a large enought $ discount to make room for rehab and profit.

Hope this makes sense, tag me if you have questions!