Thinking of buying rental property - Third Ward, Walkers Point or Brewers Hill (Milwaukee: real estate)

[GreatApe]

I'm thinking of buying a condo as rental property. I have $150,000 cash to spend on the unit. Looking around it seems I could get a 1 bedroom place in the Third Ward/5th Ward/Walkers Point area, or also in the Commerce St./Brewers Hill area. Property taxes seem to be around $3500 a year, and I'm assuming condo fees would be another $300 a month or so. Looking at rents on Craigslist and the estimates on Zillow/Trulia, it seems I could get $1400-$1600 a month for the place. So I'm assuming I could net $10k a year or so on the place, which would be a 6-7% return, without figuring any appreciation of the property itself.

I'm leaning towards a condo since I'm thinking the maintenance would cost less than a house, and require less time to maintain. No yard, no roof, etc. The mechanicals would just be a furnace/AC and water heater.

Thinking about property appreciation, it seems to me that the Third Ward area has pretty much reached the peak as far as growth and gentrification, so the chance for appreciation is less than in Walkers Point or the Fifth Ward. It seems to me that those areas are where the Third Ward was 10-15 years ago. In fact, I just purchased a home in New Berlin and moved from renting in Brewers Hill for 2 years, and in the Fifth Ward for 3 1/2 years before that, so I'm pretty familiar with the areas.

Does anyone feel that the possibility of future growth have been minimized in the Third Ward, and that it would be smarter to purchase something in the Fifth Ward/Walkers Point or Brewers Hill areas? I plan on keeping the unit for 5 years or so.

[HyperionGap]

I wouldn't buy a condo if I was planning to rent it out. Take your 150,000 cash get a commercial loan to leverage yourself and go buy a multi-family complex. Your return will be much higher than 6-7%.

[brian571]

Originally Posted by HyperionGap

I wouldn't buy a condo if I was planning to rent it out. Take your 150,000 cash get a commercial loan to leverage yourself and go buy a multi-family complex. Your return will be much higher than 6-7%.

+1. You don't want a condo association and/or other residents involved in your rental business. If you find yourself in the unfortunate circumstance of having a bad tenant, they will be and can make your life miserable. The association could also pass a non-rental provision at some point in the future and you'd be left holding the bag on a property you can't rent but still have to pay maintenance fees and a mortgage on. There was also a glut of condos in these areas a few years ago. Not sure if that's still the case, but that would impact your ability to sell if/when you want to. I'd stay away and go for a multi-family somewhere else in the city or in the near suburbs.

[Milwaukee City]

I would go for a 4-plex anything 5 units or more requires a commercial loan.

[Ralph Shinners]

I would vote for the Third Ward just on a hunch it would appeal to more renters. If I was planning to rent it out, this would be my greatest concern.

[scalderonatshorewest]

I would recommend a condo specially since you are not going to be around to see the tenants because in the condo there will be more regulation that will have to be follow and that way you are not unaware of what is going on your property because been the owner you also have responsibility of what goes on the property.

[brian571]

Originally Posted by scalderonatshorewest

I would recommend a condo specially since you are not going to be around to see the tenants because in the condo there will be more regulation that will have to be follow and that way you are not unaware of what is going on your property because been the owner you also have responsibility of what goes on the property.

Most HOAs and other unit owners don't want renters around. I see them making his life a living hell, especially in the event any bylaws are broken. The HOA can levy fines that are, in practical terms, not contestable and can place liens on the property if they are not paid. If enough other unit owners agree, they can outlaw renting and he'd be stuck with the property, the mortgage, and the monthly maintenance fees and no way to recoup any of it short of selling. They can push his renters out if they don't like them. I can't imagine being a landlord and placing that much trust in an HOA. The less people meddling in your business the better.

[GreatApe]

The points regarding HOA's are very appreciated. I haven't had to deal with condo or HOA associations in the past and I overlooked that. I don't think I want to get into multi-unit rentals, since I was thinking of eventually using the condo as a second residence. My thoughts right now are to rent it out for a few years, then use it as a weekend/summer home. So I'm trying to find a location that I would eventually not mind living in for the equivalent of a few months a year down the road.

I've also thought about renting on HomeAway or VRBO for short term vacation or corporate rentals, but I just don't see much tourism in Milwaukee to be able to rent it on a consistent basis. I believe I'm going to have to rethink my plans. I may end up just dumping the money into my stock portfolio and wait a few years before buying. I just think that real estate prices are only going to go up over the next 5 years or so, so I was hoping to jump in at a relative low price.

I appreciate all of the input.

[SamirD]

I don't have the cash, but was thinking the same thing since I recently apartment hunted in the city and found more condos and that they had more for the same money.

However, those potential problems from an HOA could be a real issue. On the flip side, I can't see all HOAs being this bad as there is a whole realtor outfit (mydwelling.com) that is primarily dedicated to renting condos.

Some of my wife's co-workers were telling her the history of the condos downtown, and how many people from the suburbs bought them a few years ago when they were cheap, and now rent them out to people living in the city. I think the market has gotten past this point now as $150k is about market value for a condo in a market the size of Milwaukee. If you could pick up a condo sub-$100k, then even some HOA pains would still make it worth it.

The bigger problem I would think is the sustainability of the economy for Milwaukee. There's a lot going on in the third ward and downtown, but what is economic driver behind that? If that driver dries up for some reason, you could be stuck with a property that would lose value and tenancy.