Milwaukee has long been known as a boring midwest market where home values are low and appreciation is slow but offered investors affordable properties and cash flow. Recently, I like many other local real estate investors have noticed that fewer deals are hitting the market and when they do, they get snatched up in 1-2 days, often all cash, over list, and quick close. In speaking to other local investors and real estate professionals Milwaukee is being flooded by local and out of state investors buying up any and all decent deals. So why is Milwaukee all of sudden so popular? What’s got all these out of state investors coming to Milwaukee?
- During the beginning of covid a lot of investors hit the pause button on acquistions. There was a lot of hesitation as there was major uncertainty on how covid would impact the economy, lending markets, employment, and tenant collection. For many out of state investors during this time, it was too risky to put their money into secondary/tertiary markets like Milwaukee. At minimum they would feel safer putting that money to work in their primary market for 2-3% returns. Some local investors did the same and just sat on their capital as well.
- Now that we’re almost 2 years into covid, vaccines are here, lockdowns have gone away, and businesses for the most part are back to business as normal. Overall confidence in the economy and lending markets have gone up. Investors both local and out of state that sat on the sidelines are now ready to get back in the game and put their capital to work. For many out of state investors, instead of keeping that capital in their local market, they feel it’s safe now to put it in secondary and tertiary markets like Milwaukee to chase higher yields. There’s also many investors who have benefitted from the significant property value growth of their existing portfolio, as much as +20%. They are utilizing 1031 exchanges to transfer their capital, tax deferred, from high value unaffordable markets to acquire bigger or multiple properties in more affordable markets like Milwaukee.
- Most investors prefer to invest in a market that offers stability. Out of state investors saw that Milwaukee was one of the more stable and higer performing markets during the pandemic. Vacancy rates, rent collection rates, and employment numbers were better than most other markets. Milwaukee and WI is a landlord friendly state as well. In fact, evictions not related to covid were still happening during the pandemic. So in other markets where landlord/tenant laws and regulations are changing, investors are looking at places like Milwaukee.
- Inflation is rapidly rising at a national rate of 6.8% currently, cash sitting in a bank account is losing value everyday. Investors for the most part are no longer priortizing cashflow. They are just looking to for a safe place to store and protect their money from inflation. Real estate has long been known as one of the asset classes that investors use to hedge against inflation. Those who already own real estate will benefit from the effects of inflation, but those who are in the market to buy, prices are only going to continue increasing.
- Market metrics that are attracting investors to Milwaukee:
- Increase in jobs of +3.5%
- Avg vacancy of 3%
- Avg rents of $1,250/mo
- YOY rent increase of 6%
- Only 4,000 units under new construction
In summary, Milwaukee is a great city to invest in because it has proven stability and high performance even in the face of a pandemic. Major employers in the Milwaukee area are continuing to expand their footprint within the city, Milwaukee Tool and Komatsu have huge new developments in the works. There are multiple neighborhoods that are being revitalized through new business developments that will attract commerce and residents to these neighborhoods. Home of the reigning World Champion Milwaukee Bucks, the Bucks are continuing to finish the development of their already successful sports entertainment district downtown. This will continue to increase revenue from local and out of town visitors for nearby hotels, bars, restaurants, and short term rentals. There was recent talks of a brand new music venue on Milwaukee’s lakefront. Milwaukee is home to the world’s largest music festival, Summerfest which attracts hundreds of thousands of visitors from all over. Overall Milwaukee is growing and heading in the right direction.
For these reasons, many investors are taking notice of Milwaukee and jumping in. As I’ve stated in the beginning majority of the few deals hitting the market are closing all cash, above list, and quick close. Whether the property is a $100,000 flip or a $10M multifamily apartment complex, these cash offers are coming in hot. There is a huge influx of investors coming in with a lot of capital and they are chasing yield. It doesn’t matter if they overpay and only get returns of 5-6%, that’s still better than what they would get in their local market and now their capital is protected from inflation. Investors utilizing 1031 exchanges have a ticking time bomb and need to deploy those funds to avoid taxes.
So what’s the general investment outlook for 2022. For lenders, they didn’t do too well in the last couple of years as the lending market tightened up, forbearances, and slowdowns in asset classes like retail and office during the pandemic. Lenders are now relaxing loan requirements and removing things like covid reserves. The prediction I’m hearing from lenders is that 2022 will be a record year for lending whether it’s refinancing or new purchase loans. Even with interest rates predicted to be approaching near 4% by the end of 2022, it won’t be enough to slow down real estate. The cost to borrow money is still cheap. For investors small and large, it will be a record year for real estate sales as investors look to place their capital and hedge against inflation. With all this competition, finding deals will be even more challenging. As an investor, you’ll have to be ready with funding and investment team ready to pounce when a deal hits the market. You may have to start looking at fringe neighborhoods or more rural/suburban areas where less competition is. You may have to find a different investment strategy all together or invest creatively like repurposing commercial properties to residential. The deals will still be out there, you’ll just have to work a little harder to find them. Unless another unforeseen black swan event happens, many are bullish on 2022. Only time will tell what happens, happy investing! If you should need a local expert real estate agent in Milwaukee, reach out, and let’s connect!