Neighborhoods are being bought up by out-of-state investors with little to no interest beyond making money
Driven by an inconspicuous real estate ecosystem of online message boards, package deals, and cash-only buys, Milwaukee's rental properties continue to move into out-of-state hands.
Neighborhoods once full of owner-occupants or rental homes owned by local landlords are being bought up — often chunks at a time — by investors with little to no interest beyond making money. The situation is particularly acute in Milwaukee's north side Black neighborhoods, covering about one-third of the city's aldermanic districts.
The ownership changes frustrate neighbors and oversight authorities. Studies in Detroit, Las Vegas, Atlanta and other municipalities, including Milwaukee, have associated investor-owned rental properties with poorer maintenance, higher health risks and higher eviction rates when compared to those with homeowners and local landlords.
The increasing presence of outside investors in Milwaukee neighborhoods has prompted local nonprofit ACTS Housing to launch an acquisition fund aimed at competing with investors for single-family homes, so it can take them off the market and offer them to prospective local owner-occupants.
While meaningful, no one is suggesting that's enough to turn back the tide.
Since 2018, the city of Milwaukee has lost 2,700 properties owned by local landlords, according to a new report on housing trends from John Johnson at the Lubar Center for Public Policy Research and Civic Education at Marquette University Law School.
“These private equity landlords make homeownership less attainable, not necessarily by driving up prices, but by purchasing affordably priced properties in such a way that residents are entirely excluded from the marketplace,” the report noted.
Much of that lost local ownership means money goes out of state. A Journal Sentinel analysis found that since 2017, Wisconsin had a net loss of $285 million in real estate value to out-of-state owners.
Demographic changes impact the market
Eleanor Roundtree and her husband, Daniel, have been homeowners in the Sherman Park neighborhood for 27 years. She said most of the elderly homeowners on her block have either moved or died, leaving their homes to relatives. One was her next-door neighbor, Vanessa Lumpkins.
“She actually died, and her kids lost the house because … they weren’t paying taxes,” Roundtree said. “They just left, and let the house sit.” It eventually was seized by the city and changed hands multiple times. It was bought in 2018 for $15,500 by an individual . After three years, he sold it to a company called Metro Home Buyers LLC. That same day, Metro Home Buyers sold it to a company called Simpol Holdings. Both companies have opaque ownership structures.
The sale of that home and others seemed to change the character of the neighborhood, Roundtree said.
“My neighbor, who lives in the apartment building, had to call the police on them Sunday night because they were out in the street arguing and fighting,” she said of the renters in Lumpkins’ old house. “It’s horrible because they just let anybody live there.”
Lumpkins, Roundtree said, invested a lot of money in her home because “it was her pride and joy.”
At one point, the home (not including the land) was worth more than $100,000. Its latest assessment placed the home’s value at $36,800.
“It was a really, really nice house,” Roundtree recalled. “It’s not that way now. It would be nice if they would give the actual people over here who own their homes a chance to buy the homes. At least we could put decent people in them.”
Lumpkins is an example of how demographic changes are impacting the housing market.
Those over age 65 — which includes some baby boomers and some from the so-called silent generation before them — are putting homes on the market as they downsize, retire or move. Sometimes, as in the Lumpkin case, homeowners die and their homes are quickly sold by relatives, or are left empty and fall to the city.
In other cases, relativesrely on real estate professionals or homebuying companies to make the sales for them. In turn those entities may sell to local agents acting on behalf of out-of-state investors. Home-buying companies, such as Sell My House Fast, advertise this specific service: a webpage on its site is dedicated to “selling an inherited house.”
David Hicks, CEO of We Buy Ugly Houses, said it’s a situation his franchisees across 170 cities see often. “A lot of times, it’s houses they have inherited from their relative (and) typically, it’s someone who hasn’t been able to keep up with repairs.”
Sellers may neither know nor care about the ultimate buyer.
To date, the three most prominent investor landlords in the city — Highgrove Holdings, SFR3 and VineBrook Homes — have taken over 485 properties through package deals. Such deals involve selling properties in a bundle, usually at prices lower than what the sale of houses individually would bring. Such sales are out of reach of typical owner-occupants.
Johnson, research fellow at the Lubar Center, found that the popularity of package deals has risen alongside investor-ownership in Milwaukee neighborhoods.
Conducting package deals often allows local landlords to offload their properties quickly and without the additional hassles of financing or negotiating with prospective homeowners.
Mark Cimbalnik is one of those landlords.
Cimbalnik, the owner of Simba LLC, has been in the real estate business — a family business for him — nearly 40 years.
Earlier this year, he sold 23 single-family homes to one of the most active out-of-state investor companies in the market, VineBrook Homes.
He made $3 million, but said he likely missed out on another $1 million by not selling the homes individually. Still, he considered it worthwhile because of the speed and ease.
His reasons for wanting to sell are echoed throughout the industry. Tenants can be difficult to deal with. The tax burden is too high. Despite the state’s legislative slant toward landlords, he believes they are actually at a disadvantage. And inflation has pushed him to raise rents.
One of his biggest complaints was the impact of the pandemic and sluggishness of rental assistance. A tenant would apply for assistance, and it might be months before Cimbalnik would learn the tenant had been denied. "Now she owes us $4,000" in additional accumulated rent, he said. "Then, when she runs out, we always lose all our money.”
Cimbalnik blamed “liberal” judges who sometimes expunge Milwaukee residents’ old eviction cases for making the rental environment less friendly for landlords.
“These liberal judges say, ‘We’re going to expunge this case because it’s going to be too hard for her to find something.’ Well, I don’t want you expunging the case and then it goes to my brother, and he gets stuck with a deadbeat” renter.
Since selling, Cimbalnik said, his former tenants see the difference between renting from local landlords versus out-of-state companies.
“I’ve had multiple tenants call me, crying, saying ‘Nobody gets back to me,’” he said. “And then I tell them, ‘See? You had it good with Simba. But I tell them, ‘If you had paid your rent on time, I probably would still be your landlord.’”
Landlords dump properties rather than fix them
According to a 2021 study of national landlord surveys, the share of landlords who listed their properties grew from 3% in 2019 to 13% in 2020. The study also determined that nearly 30% of landlords who lost out on significant amounts of rent — 50% to 74% of their rent intake — began taking steps to sell.
Even those who didn’t lose rent found maintenance more difficult due to the increasing cost of construction, and supply chain issues. The same was true for would-be house flippers who sold their fixer-uppers after realizing the endeavor was losing profitability.
Cimbalnik said he encounters many landlords who don’t want to put money into their buildings. When problems and costs mount, it’s easier for them to throw up their hands and quickly sell.
After selling a four-family home near North Sherman Boulevard and West Capitol Drive, Cimbalnik said he noticed they hadn’t been cutting the grass.
“I think it was out-of-town investors who bought it, and they’re not maintaining it,” he said. “After I sell it, I don’t care what they do with it."
Investor purchases have also been fueled by the current low supply of homes for sale, which has drastically increased demand and driven prices out of reach for typical, middle-class resident who want to own a home they can live in.
Investors are typically cash rich, capable of affording expensive repairs and willing to close quickly. In today’s market, they may be the most attractive buyers, especially for real estate agents looking for quick and easy commissions. Moreover, those investors often become reliable contacts the next time a home — or homes — come up for sale.
Some real estate agents even purchase contact lists of homeowners and send them regular invites to sell their homes. Mary Beth Gaspar-Waite, a broker and the owner of Cornerstone Realtors, said it’s not unusual for her or her employees to cold-call homeowners to see if they are interested in selling.
If a homeowner has to sell quick, Gaspar-Waite said she knows there are investors from Texas to New Jersey she can call in an instant. Such sales happen off-market, outside traditional Multiple List Services, or MLS websites, such as Zillow.
“It’s a sound investment," Gaspar-Waite said. "And more than ever in this environment, it makes sense.”
Home-buying companies embrace dilapidated housing
In some sales, homebuyers often act as a kind of middle man, buying properties in need of rehab and turning them into “turnkey” properties that are sold to investors move-in ready. Again, it's the kind of work a single homeowner can't turn around as quickly.
At We Buy Ugly Houses, CEO David Hicks said franchisees typically can spend anywhere from 20% to 60% of a home’s value on rehabs.
With more than 1,100 franchisees across the country, Hicks said every one has relationships with rental property owners and investors they can call when they have properties to sell. In Milwaukee, they turn around about 200 homes a year.
Hicks said his company does try to sell to a local buyer, but that can be tricky given out-of-state investors’ use of local agents and complicated ownership structures.
Joe Vils, a real estate professional with CB Home Solutions, said it’s not uncommon to hear from landlords, relatives and others who have fallen behind on repairs and want to sell their property “as-is,” or regardless of the condition.
“Some are in pretty rough shape and need TLC, and we’re more than willing to take on that responsibility,” he said. That responsibility can include anything from repairing foundations to roofs to interior damage, and everything in between.
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Vils said his company often encourages homeowners who have well-maintained properties to list them with a realtor.
But when it comes to dealing with dilapidated houses, improving them, and putting them into the hands of investors, Vils said that’s his business.
“It’s quite a bit, it’s our full-time job,” he said. “We get calls every day.”
Investors see Milwaukee as a prime target
Like so many other aspects of life, the internet also plays a growing role in moving local homes into investor hands.
Social media groups, message boards and sites like “Build, Buy, Rehab, Rent, Refinance and Repeat” are convenient ways for investors to connect with capital, properties and one another.
Websites such as Connected Investors and Bigger Pockets are dedicated to helping the players in the industry make connections. One Facebook community, “Team – Milwaukee Real Estate,” regularly features posts advertising homes for sales, cleaning and rehabbing services, and investors looking for property.
Some are open about their out-of-state status. “I have invested heavily in St. Louis,” one person wrote on a website. “Looking off market in other cities. I really like Milwaukee.”
Another asked, “Hi, any investor need every month probate leads of WI state?” referring to wills and inherited properties.
These virtual spaces make it easier for realtors and investors to communicate without a property ever reaching the open market.
Dave Tomblin has spent nearly 50 years building the reputation of his firm, Tomblin Asset Management Group. He expanded that reach by creating Highgrove Holdings Management.
“Realtors will come to us directly because they know once you say you’ll buy the property, you’ll close,” he explained.
Tomblin manages $1.1 billion in real estate and boasts operations in Arizona, New Jersey, Wisconsin, Washington, Minnesota and California, where his company is based.
Tomblin has connections to sellers all over. He works with banks who come to him when they have distressed properties. Wholesalers and individuals reach out to him when they want to sell. He has found success with one broker in Milwaukee that he gives a bonus, given the properties he buys don’t lend themselves to large commissions.
“We’ve done about $25 million worth of business with him since 2012 when we first came to Milwaukee,” Tomblin said.
Like home buying companies, Tomblin believes he is rescuing properties from ruin.
“Over 50% of our properties come from people that are in trouble," he said. "They think they know what they’re doing, and they don’t.”
Tomblin said he intentionally targeted Milwaukee’s predominately Black area where homeownership rates have plummeted since the Great Recession.
According to Johnson’s research with the Lubar Center, out-of-state landlords own 23% of the rental housing in predominately Black neighborhoods. Even though out-of-state investor-owned homes in majority white neighborhoods fell by roughly 100 from 2018 to the middle of 2022, out-of-state investor-owned homes in Black neighborhoods increased by nearly 1,900.
Tomblin, nevertheless, is steadfast in saying his company doesn't hurt communities, and doesn't undercut local buying.
“We buy properties no one else wants,” he said.
This project is supported by a grant from Marquette University Law School's Lubar Center for Public Policy Research and Civic Education to make possible journalism on issues of importance to the Milwaukee area. All the work was done under the guidance of Journal Sentinel editors.
Talis Shelbourne is an investigative solutions reporter covering the issues of affordable housing, environment and equity issues. Have a tip? You can reach Talis at (414) 403-6651 or tshelbourn@jrn.com. Follow her on Twitter at @talisseer and message her on Facebook at @talisseer.
This article originally appeared on Milwaukee Journal Sentinel: Milwaukee neighborhoods are being bought up by out-of-state investors
