All Forum Posts by: Marcus Auerbach

 yes, exactly what Rebecca said ;-)

Quote from @Jay Hinrichs:

Quote from @Marcus Auerbach:

Milwaukee has a few no-go zones that are not safe and I would not invest there. We leave that to OOS investors who love their cash flow spreadsheet above everything else.

But what most of these statistics leave out that the City of Milwaukee is only about one third of the population of the Milwaukee metro area, but it has all the crime, poverty etc The surrounding 19 municipalities are pretty much the opposite, so if you take the whole metro area, it's pretty average.

One thing I find interesting is that Milwaukee does not have much gang-related crimes. 

Here are the 134 homicides of 2024:

Marcus I suspect if you overlaid a zillow whats for sale over those homicide notices the least expensive property in the city will coincide. 

Yes, that is in fact the case. Anyone can test it, just filter for sale under 150k, you get the same outline. If you filter under 100k you get the core.

This is going to sound harsh. When you picked this financial framework you have made the classic noob mistake of looking at everything through a cash-flow lense. The good news is that this deal is a great learning opportunity and you start asking the right questions. Let me back up.

The four basic sources of wealth with RE are:

1.) Equity: forced appreciation and natural appreciation

2.) Leverage and amortization: principal pay down

3.) Cash flow

4.) Tax benefits

Cash-flow is one of the smaller benefits and should not be the primary reason you buy a property. To gain an intuitive understanding of this use the BP rental calculator, punch in 1 million property value, 10k monthly rent, 3% appreciation, 3% annual rent increase. Look at the results after 10 years and after 30. Cash flow get's dwarfed by the other components. If you increase appreciation to 5% the results get even more extreme. 

Once you realize this, you start asking the right questions: how can I manipulate the input-numbers to optimize the outcome.

As far as this property: keep it and let time do it's thing. It's called buy&hold not buy&sell for a reason. Cost of selling is too high. Cash flow and property value will improve with the years.

Give inflation a chance to work for you. In 1960 a new construction home in Milwaukee was 14,900 - including air conditioning and AC was a big deal back then! Today that house is worth about $350,000.

You want to grow your portfolio wide, before you grow it deep. 

The more properties you have in the game for the longest period of time, the better. So you want to pay as little as possible for existing loans and use as much as you can for additional down payments.

Once you have enough (which is not easy to determine) you start paying off the one with the smallest principal first, that will increase cash flow. Now you focus all free cash flow on the second etc. until all properties are paid off.

But that's still not the end game. At this point you are out of tax write-offs, so it's probably the best idea to take out new 30y loans and pay yourself - borrowed cash is tax free.

The party with exuberant returns is clearly over, we are back to reality and normalized returns. 

You can still make solid profits with STR, but the times where you could buy any weird cheap property, put some lipstick on and rake in the profits are over. Quality matters now and with that you see a consolidation to professional operators and prime locations. We have a few clients in Milwaukee who have traded out of STR and into LTR with us.

And even in vacation destinations, a wave of regulations down to the municipal level cuts into the viability of STR or in some cases renders them impossible.

Last summer we rented a house on a small lake in Wisconsin for a family gathering. It was great, someone brought a guitar and we I think 10 people are sitting around the firepit having a good time. Even though we are all in our 50s and kept it down, it was clear that we were the loudest on the little lake.

Most other homes were either dark or there were two people quietly enjoying a drink, like our neighbors. The homes are close together, each lot has maybe 80-100' of frontage. While they were good sports and did not say much other than hello, I could tell they would rather not have us there. And another group next weekend, maybe even less restrained. While most other homes are only occasionally used by their owners. 

I can see how someone will go to the next townhall meeting and be angry about the nuisance STR brought to their quiet sanctuary ...

I know Knight Barry has in house counsel, but Stewart Title and Land Title are also great choices for investors

Milwaukee has a few no-go zones that are not safe and I would not invest there. We leave that to OOS investors who love their cash flow spreadsheet above everything else.

But what most of these statistics leave out that the City of Milwaukee is only about one third of the population of the Milwaukee metro area, but it has all the crime, poverty etc The surrounding 19 municipalities are pretty much the opposite, so if you take the whole metro area, it's pretty average.

One thing I find interesting is that Milwaukee does not have much gang-related crimes. 

Here are the 134 homicides of 2024:

Land Title or Stewart Title. Also, Knight Barry.

I have built as the GC and the amount of management, red tape and paperwork really shocked me. A full rehab is so much easier! But I would say it is still an interesting idea. And an asset worth owning.

Nope. The Milwaukee metro has about 67% of all listings sell over asking currently. 

We have no inventory and according to Refin we were the #1 hottest market in the US in February with a 20% median sold price increase. But I have to note that February was an outlier; I would say half of that number is realistic.