Mar 28

Our properties are in Milwaukee and I am scared.

The proposal to eliminate residency requirements for municipal employees will pass and will further weaken the demand for housing in Milwaukee.  The result will be more abandonment of homes in older, lower value neighborhoods as owners in the outer band of Milwaukee make concession to sell or rent homes vacated by the exodus of city employees.  You read the city can’t afford to bulldoze the stuff that needs to be torn down today.  Where will this leave us? Will we be the one city in the nation New Orleans and Detroit can look down at as a failure?

Another aspect is much of your income do you spend within a few miles of your home.  I buy most of my groceries a mile from home.  I shop at the Walmart that is a mile and half from home and the Target that is a mile in the other direction.  As people move out there will be less sales in those stores and they will require less employees resulting in more of my tenants going from barely making it to failing.  City workers in general make an above mean wages so this will be a dramatic impact.

You live in the suburbs or your properties are there so you think this will be a good thing.  But in reality you should be as concerned as me.  Suburban school districts will have to expand their schools to accommodate the influx of former Milwaukee residents.  That will adversely impact your taxes.  The only alternative will be to  diminish the quality of the suburban  schools as they become more crowded and understaffed.  All the while they will be shuttering MPS schools

School teachers that wish to remain teaching in Milwaukee should be the largest group opposing this as the first group to leave will be city employees with children who are not satisfied with MPS. This will reduce job opportunities at MPS.  Carmen and I lived in Milwaukee for a while, but ruled Milwaukee out when we bought a new house due to problems her daughter and son had at MPS.  We moved to Greenfield.  Schools are good and safe. But I am so close I can walk to Milwaukee in ten minutes.  We have a very responsive police department.  Our water and sewer rates are much lower than the city  that provides the service ironically.

City workers in general will see layoffs, reduced opportunities  and lower employment as people leave.  They will now have to fight for jobs with those who already live outside of the city, but would not take employment in the city as they did not want to or cannot for economic reasons move to Milwaukee. So although they are the ones pushing for this they too will be paying a price.

You are saying:  “Sure Tim, I agree and would love to contact my Senator and Representative but I’m too busy unplugging toilets and fixing broken windows to keep up with politics”  Well. fear not.  You can find who your state legislators are at:

Mar 26

WE Energies calls today.   They demand one of the staff gives them a tenant’s Social Security number or they are going to bill us.  There are two problems with this.  First a public utility cannot bill an owner if the owner gives them the name of the responsible party and more importantly third party disclosure of another person’s personal identifying information is illegal and just plain wrong in this day and age of ID theft.

Our frontline clerk says sorry, we’re not allowed ot give out tenants’ Social Security numbers.  The WE “Customer Service” person says if they do not get the soc they are putting the bill in our name in that case.  Our staffer hands the call off to her supervisor. The supervisor has an identical conversation and says “Here, Tim take care of this.”

So I pick up the phone and the first thing I do is ask the WE rep “What is your name and Social Security Number?”  Her response is as expected “I’m not going to give you my Social Security number!”  Okay so your Soc should not be shared, but our tenants’ should…hmm.

She obviously did not get the Social Security number and we equally obviously will not accept the bill


Mar 26

Tom Ortell was very active in many aspects of our industry.

He was a landlord, but so much more.  He cofounded of Milwaukee Asbestos & Lead Information Center where many of us and our crews received lead abatement training. He was the DILHR weatherization inspector  of choice for many owners. (Key Inspections)

For many years he has been lead faculty for Milwaukee Area Technical College’s  Real Estate and Property Management programs

His loss leaves yet another hole in our community.

Mar 11

In a previous post on foreclosures in Milwaukee I mentioned that rental owners spend $90 – 120 million per year in repairs and renovations, to which a reader expands upon by asking what do rental owners pay in property taxes per year.  I thought that an interesting and relevant question so we dug into it a bit.

Rental property owners in Milwaukee pay about $266 million per year in property taxes, another $26 million or so in special assessments, which could be everything from fire inspections to alley and sidewalk repairs to so called reinspection fees. The includes owner occupied properties with a rental unit, as they are landlords as well.

As a side note I was surprised to see how many properties that were clearly investor owned, the owner address was not the same as the property address or the owner is a LLC or corp,  were listed by the city as owner occupied.

Rental owners also pay somewhere around $32 million a year in sewer and water plus associated fees.  This number is much harder to arrive at and may be higher than this. I simply took the gross amount and divided it by number of dwelling units.

One very interesting factoid that I stumbled across while searching for the answer is the number of properties actually taken by the city through tax foreclosure was 745 in 2012, a very significant 60% increase over the 464 taken in 2011.  The treasurer is budgeting even a slightly greater number for 2013.  1152 properties entered the city tax foreclosure pipeline in 2012.  Source: Milwaukee City Treasurer Dept Metrics

Per the U.S. Census around 54.5% of all dwelling units in the city are rentals.  City assessment data puts that number higher, around 64%. The city publicly claims higher owner occupancy as they report the percentage of residential parcels rather than units that are owner occupied.  The census puts vacant housing units at 11.3% with rental vacancies at 4.2% 302,000 people in Milwaukee are tenants. Source: U.S. Census Fact Finder

Mar 09

The Journal is reporting:

Over the next three years, Barrett said raze orders in the city are expected to grow to 1,600 homes, with a cost of $24 million.  “We have a very severe problem right now,” Barrett said.

No kidding we have a “severe problem ”  This a problem that continues to grow rather than moderating.  The number of abandoned and foreclosed houses was bad nine months ago and with fresh snow on the ground you can see even a greater number of unoccupied properties than ever before. At least here on the Southside of Milwaukee these numbers are far worse than what is being reported by the city.

How much of the $24 million of anticipated razing costs could be avoided by making it more favorable to rehab properties and restore them to the tax rolls?

Perhaps the city would do better by working with, instead of against people willing to invest their own money, time and effort into putting foreclosures back in service.  I’m not even suggesting a hand up, just not the current beat down attitude. Not only would there be less spent on bulldozing, but more of the tax base would remain plus the positive economic impact for the community due to spending by owners to maintain and operate this housing.

Between taxes and the sewer and water bills the city gets  at least $5-6 million per year from 1600 functional properties. In the three year period Barrett defines this is a potential of $18 million in city revenue if the buildings were returned to occupancy. Add this to the $24 million to bulldoze and you are north of 40 million dollars.

Can every property that is deemed to be worthy of razing able to be salvaged, of course not.  But many that are in the pipeline today can be.  Every day that a property sits unattended is a day closer to the wrecking ball being the only option for that property.  There are many properties sitting vacant today that are worthy of repair, but will not be so six months or a year from now.

Additionally every time someone like you or I take on the challenge of putting properties back in service the local economy sees a benefit through the wages and materials we pay to get the job done.  All but one of my employees live in the city.  While the money you spend at the Home Depot doesn’t stay in Milwaukee,  the person who is employed by the Home Depot lives in the area and spend their wages here.

A downside for us, but an upside for the community is a greater amount of housing stock available holds rents down.  A more competative market also forces owners to do more to properties to get and keep them rented.

Once the property is back in service ongoing maintenance similarly impacts the local economy in a positive manner. It is estimated that repairs and improvements to rental properties represent $90 -120 million a year in the city of Milwaukee alone.   (These numbers are derived from our company’s experiences, the experiences of other long term owners that I’ve discussed this with and data from the Census Bureau’s Property Owners and Managers Survey.  Our data and that of many other owners indicate a slightly higher number than the Census)

Our company has the capacity and had the will to do 10-12 such projects a year without any government monies.  Heck if the environment was more favorable I could see us doing two properties a month.  We have not made an offer in MIlwaukee since November due the unfavorable policies adopted by the city. See my prior post on buying foreclosures in Milwaukee.  I talk to a lot of other owners with similar capacities that say the same thing.

Milwaukee acts like they are the only girl at the dance – as though real estate investors need to accept their petty obstructions and poor treatment because they are the only game in town.  But there are many other places to invest that treat owners much better.  One of our members is doing a big rehab in Beloit.  When I asked his project manager how it was going with the city he said they were unbelievably nice and truly seem they want to see the project succeed.  We are actively looking at the South Florida market today.

A few notes:

These 1,600 properties must be city owned or near to being city owned.  If they were bank owned the city could and would force the banks to demo the properties on the bank’s dime.  A growing trend is banks that  simply walked away from the mortgage rather than be subjected to the bad side of city regulations and fees. In another instance I spoke to an owner who the bank sued- he thought he lost the properties to foreclosure only to find out later that it was a money judgment only suit.  This adds to the zombie housing effect.  And you though only borrowers walked away.  😉

Our police chief is in the news speaking about the link between foreclosed and abandoned housing and crime.  I am certain he is correct on this.  But the Milwaukee Police do not do what they should in cases of property vandalism. See my prior post on property vandalism and the lack of police response.  This vandalism accelerate the rate of properties that are no longer viable for rehab.

Mar 03

The Journal had an article last week wherein city officials were lamenting about the effects of foreclosures on the quality of life in Milwaukee. Below is my experiences as we put a number of properties back on line without any government funding.

Short version

Think twice before buying foreclosures in Milwaukee as the city will add unnecessary costs and aggravation to your project.

Longer version:

We were buying a number of foreclosures over the past two years.  We would go in fix them up and put them back on line.  This was good for the city in general in that the properties would remain on the tax rolls rather than being vandalized and ultimately bulldozed.  This is good for neighbors in that these were no longer boarded eyesores.  It was good for the people we employ as it kept them working and in fact resulting in a couple of additional full time positions. And of course it was good for our company or we would not have purchased the properties.

About a year ago the purchasing became more difficult. Not because there was no inventory, there was more property available in our market than ever.  Not because prices were rising, prices were actually the lowest I’ve since 1985.  No, the problem was that the selling banks were now verifying how much was outstanding in city taxes and city fines/fees before they accepted the offer.  If the city had too much in junk fees the banks would walk from the deal and apparently let the property revert to the city for back taxes. After a while the property is  vandalized to the point they have no economic value and are beyond rehab.

We had three offers that listing agents said our offers were solid, but the amount due the city in taxes, fines and fees exceeded that value.  All three properties dropped off MLS.  A couple of weeks ago I noted two remain boarded, vacant and today, a year later, vandalized. The third address I did not go by recently.

Here is another property I anticipate will revert to the city before long and will end up bulldozed instrad of on the active tax roll

At the beginning of this year the city threw yet another wrench into the process of putting boarded vacant and often vandalized properties back on line.  It used to be that only houses with orders to obtain a certificate of occupancy were required to go through this.  If you are unfamiliar with the process it involves paying for an expensive permit, then electrical, construction, plumbing and code compliance inspectors come through and find anything they think maybe a code violation.  They then require you to get plumbing, electrical and construction permits. They look at the dates on water heaters, furnaces etc and issue quad fee permits if someone in the ownership chain upgraded without permits.

Certificate of occupancies require odd expensive things.  In one such inspection we had a house with 1 1/4″ cast iron drain pipes for the bathtub.  Obviously this was installed either during original construction or sometime not too far after as all drains today are PVC and for many years before PVC was common drains were galvanized steel.  Cast iron is hard to work with, hard or impossible to find and expensive if you can find it.  The drains worked fine and did not leak, but the inspector ordered the drains changed to 1 1/2″ at a cost of nearly $1,800.

Back in October we bought a nice little single family on South 15th Place. The interior was in amazingly good condition and we had it rented a couple weeks after purchase.

There were a handful of minor exterior orders prior to our purchase.  These orders were issued upon the prior owner in September.  Even though the orders would have to be dismissed and reissued upon sale, we began them the Monday after the purchase. We also sided the property, which was not on the order.  The inspector signs the order off shortly thereafter.  Then the same inspector issues eight items on two notice letters in November.  It appears nothing on these notices were on the original September notice.  Petty, petty stuff – fine we do it a few days after we receive it.   Inspector signs it off. So far just a PITA and a waste of taxpayer money as well as wasting our money having staff chase a seemingly never ending list of things to do.

Same inspector comes back in December for the certificate of exterior code compliance. This inspection is required when you buy a one or two family rental property.  Four more petty, petty “violations” but this time he now also wants an occupancy permit.  I call his supervisor and am told it is now their policy to demand occupancy permits for anything they think was vacant for more than six months even if no order exists.  He even threatened to have the tenants removed.  At least his boss put an end to that nonsense.

Then in January we get a letter from the vacant building program. We responded that the inspector has seen the property occupied at least three times.  The person who answers the phone for the vacant building registration program says it doesn’t matter that an inspector saw tenants there in October, November and December, we need an appointment to meet you there to confirm it is occupied. And it wasn’t just one inspector that they may not have trusted enough to confirm occupancy, by then we had the certificate of occupancy inspections as well so three more inspectors were through the place and saw it occupied. Yet we had to meet someone from DNS there to prove it occupied.   You just cannot make stuff like this up…

Not an isolated incident:

This same inspector on another exterior code compliance application wrote defective siding on a house that was vinyl sided. I could not see any siding code violation.  I meet him there.  We walk around the house a couple of times because he is having a hard time finding what he wrote up. He points out an inch and a half crack in a piece of J channel by the back door and what may or may not be a missing shake on a gable end.  I pointed out the house adjoining our to the north as well as one across the street should be placarded due to the condition they are in. The inspector agreed with my comment that ours was the best on the block – and this is a highly visible block on an arterial street on the Southside.  Here are pictures of this property on the day of inspection as well as those neighboring it.

The larger effect of this:

I’m sure DNS and the city is all giddy over the hundreds of dollars in permits they collect from each property under their current scheme.  However, this is short term expedient and long term costly for the city.

As the city continues to make it more expensive and difficult to turn around vacant homes there will be an increasing number of properties that are no longer economically viable to rehab. This results in more houses being bulldozed and taken off the tax rolls due to unchecked vandalism and theft of anything metal inside them.

Despite what the City Assessor espouses, boarded, vacant, vandalized properties suppress all property values in their immediate neighborhood.

As more properties leave the tax roll the city will be forced to try and squeeze more money out of those that are left while providing less services.

The current city attitude is a no win for everyone.

Bottom line:

If you are thinking of buying foreclosures or other vacant property in Milwaukee make sure you figure in the extra costs and hassles associated with certificate of occupancy inspections.  Then decide if it is still worth it. There are plenty of other areas that welcome your investment of time effort and money as well as the jobs our industry creates.   Perhaps your investment would produce better results elsewhere.

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