Greetings Property Owner,
I hope this year-end letter finds you well. The purpose of this letter is to provide our property owners with an update on what has transpired across the Greater Milwaukee Area Rental Market during 2023, and a preview of what to expect in 2024.
Looking back on 2023:
Over the past 12 months, Milwaukee has made the headlines as the fastest rising rental market in the U.S. (with a population greater than one million) according to the latest report from Apartment List:
This is at a time when rents are dropping nationwide. Despite this 4% increase, Milwaukee still remains one of the most affordable metros in the U.S. making it worthy for your real estate investment considerations.
According to data from Rent.com, as of 11/13/23, the average monthly rents are as follows:
- Studio: $1,242 (+48% annual change)
- 1 Bed: $1,465 (+13% annual change)
- 2 Beds: $1,750 (+8% annual change)
Here’s a breakdown of 1 bedroom average rents by neighborhood, as reported by Rent.com:
- Historic Third Ward: $1,795
- Harbor View: $1,725
- Lower East Side: $1,655
- Walker’s Point: $1,650
- Downtown: $1,580
- Kilbourn Town: $1,580
- Northpoint: $1,525
- Harambee: $1,400
- Juneau Town: $1,385
- Murray Hill: $1,375
- Brewer’s Hill: $1,085
- Yankee Hill: $1,075
- Bay View: $1,050
- Granville Station: $1,009
- Avenues West: $927
- Northridge Lakes: $910
- Cambridge Heights: $825
- Timmerman West: $810
- Historic Mitchell Street: $795
- Arlington Heights: $700
- Valhalla: $675
- Sherman Park: $650
- Merrill Park: $645
Courtesy of Rent.com
Of course, rental data and averages vary greatly within the city, neighborhood to neighborhood, street to street. What’s most relevant and notable is our internal management record.
- Average annual rent increase: 8.3% (more than double MKE average)
- Rent delinquency beyond 30 days: 0.01%
- Tenant renewals: 77%
Delinquency:
We have achieved a delinquency rate for amounts due over 30 days of less than 1%. This is the result of administering careful consideration to the following;
- Thorough vetting of prospective residents to determine financial suitability and overall quality
- Enforced late fee policies
- Prompt communication
- Proactive payment plan negotiations
- Reevaluation of financial stability and past history prior to a renewal offer being made.
Lease violations, no matter how thorough the vetting process, do happen. Life changes, jobs are lost, and divorces happen just to name a few. Most lease violations are for non-payment of rent. When this happens, our philosophy is to remain firm but fair. Every attempt is made to work with residents while still protecting the rights of the owner. Eviction is always the last resort. We have found that treating all residents with respect helps to minimize damages, both from delinquent rents as well as from potential property damages when moving out.
Looking ahead for 2024:
The outlook for real estate investing continues to remain strong. Professional management of investment property will become increasingly important as landlord tenant laws are becoming more complex; fair housing laws seem to grow by the day; finding, retaining and oversight of quality maintenance contractors is a time consuming and very challenging process.
Tenant placement will remain critical in the performance and protection of your income property, and is the foundation in helping to achieve that performance and protection Our sister company, Residential Renters, is recognized as the best-in-class tenant placement agency and is strategic to management achieving both asset protection and performance.
Owners of investment properties are being subjected to more and more attempts by legislators in Wisconsin advocating for new broad sweeping tenant’s rights laws. Nationally, the Biden administration has proposed a Federal Tenant Bill of Rights. In short, the legal landscape from renting property will become more challenging, and the consequences of not “crossing the t’s and dotting the i’s” so to speak, even unintentionally, will only add to more liability issues along with the stress that goes along with it.
Another challenge facing landlords in 2024 is the increased cost of rental ownership. Property insurance costs and property taxes are expected to increase by double digits. The costs for maintenance and repairs have also increased dramatically over the past few years. Inflation, along with a reduction in the availability of quality contractors, have caused increases of up to 50% in items like paint, carpet, appliances, and general repairs over the past 24 months. We do expect the rate of these cost increases to slow somewhat in 2024.
We expect the effects of inflation, the ending of student loan payment deferment, and rental price increases over the past several years to result in some tenants delaying their planned renting experience, doubling up on housing, or simply not moving into a different rental property at all resulting in average rents to moderately increase by 3-5% in 2024 whereas the outlook in other comparable metro areas are showing signals of flat or declining rents.
To sum up the rental market in one sentence: Rental supply is moderately increasing, renter demand is strong, rents are moderately increasing, expenses are up, and legal risks have increased.
While this may not be the greatest news for investors, it is important to keep in mind that relatively speaking, we have maintained steady rental growth, annual double-digit home price appreciation, and generationally low interest rates. What we are experiencing now is simply a market correction back to a more moderate position as we come out of this decade-long hyper-growth cycle.
We do have several strategies in place to ensure you and your property remain protected and financially strong:
#1 – Resident Retention: As the financial costs of resident turnover have always been the most significant expense landlords face, we will continue to focus heavily on resident retention in 2024. In 2023 our lease renewal rate was 77% with average rents increasing by 8%. Although natural attrition due to life circumstances such as a new job, marriage, divorce along with the conscious decision to not renew leases because of delinquency history, job loss, or other types of leasing violations all impact lease renewal opportunity, we are committed to ensure all of our quality residents will remain in their properties in 2024. The reason we are able to achieve this industry leading lease renewal percentage is largely due to creating a positive experience with our residents during their lease term. Things like fast repair services, online payment options, and good old fashion customer service ensure our residents feel respected and want to stay with us. It might seem like a novel idea in today’s world, but we actually pick up the phone and talk to people. This all results in avoiding unnecessary turnover and vacancy expenses.
#2 – Minimizing Vacancy Time During Turnover: For those properties that do experience turnover in 2024 we will ensure the property is brought back to full rent-ready condition as quickly and as economically as possible. Our affiliation with the Residential Renters agent network ensures maximum exposure to people looking for a rental as our leasing team constantly monitors all market activity. This high touch process allows fast feedback to ensure we minimize vacancy time.
#3 – Competitive Contractor Pricing: Maintenance, from the usual leaking faucets and ceiling fans not working to the more extensive make ready renovations, is one of the most stressful parts of income property ownership. Our contractors are an integral part of our success in making sure your real estate asset is protected and performs well, both in the short term as well as in the long term. We constantly evaluate all of our contractors based on three factors;
- Pricing
- Quality of Work
- Responsiveness
We will continue to ensure we receive competitive pricing as we benefit from both our internal economies of scale, and a loosening in the labor market. With the industry shortage of skilled trade and maintenance tech resources, contractor oversight has become most vital as pricing, quality of work, and responsiveness can quickly swing out of balance. Knowing that the most expensive mistake you can make is to hire a cheap property manager, we know that Chuck in a truck just might not cut it.
Operational Updates:
Over the last year we have added new features and offerings to our owner-clients and valued residents. Here are a few of the most recent…
Utility Concierge Service: In addition to assisting residents with setting up utilities, we are now offering owner-clients an option for us to assist with owner-client utility payment responsibilities. This service is optional at the request of the owner and shall be billable at a rate of 20% of billable invoice.
Resident Rent Reporting: Encourages on-time rent payments while allowing residents to build their credit profiles.
Resident Rewards Program: Incentivizes profitable resident behavior (e.g. on-time payments and lease renewals) to attract, retain, and delight great renters.
As for the costs of property management operations, we have seen increases across the board including;
- Cost of Insurance has increased by 90%
- Cost of Labor and Supplies have increased up to nearly 50%
- Cost of Operational Systems have increased by 25%
Despite these significant increases to our operational costs, we have elected to absorb and endure rather than pass these costs on to our owner clients. However, in order to maintain our high level of service and to maintain high-level lease renewals going forward in 2024, it is necessary for us to modestly adjust the lease renewal fee. We have made this minimal increase with much thought and deliberation as we are sensitive to our investors’ costs of owning real estate in Wisconsin. The response was favorable and supportive.
Our entire team at Safe House are dedicated to providing you with real estate asset management services performed with integrity, transparency and responsiveness, benefiting both you as owner as well as the residents.
If you have questions on any of the above or would like to discuss your property or other real estate investment options, please reach out to us.
To conclude our year-end, we wish to leave you with a brief reflection of what owner-clients value most about our approach to property management.
Safe House Property Management was founded on the philosophy that we are in the people business of which property management revolves upon. Properties don’t rent homes, people do; properties don’t request timely responses to issues, people do; and properties don’t violate lease terms, people do.
Our mission is to improve the lives of our owners by eliminating tenant calls at the most inopportune times, or completing repairs and renovations quickly and economically as possible to fill a vacancy. To improve the lives of the residents by being able to respond quickly to repair a maintenance issue, or renewing a lease avoiding the stress and disruption of moving and their kids needing to relocate to a new school. Being successful in attaining that goal will result in your real estate asset increasing in value.
This fundamental principle is what drives us each day and differentiates us from the majority of property management companies who are merely property operations centric. Our success is derived from four core values:
Responsiveness: From Owner-Client to Tenant relations, responsive communication and good old fashion phone calls are necessary to maintain quality relationships. Being accessible and being heard is important to any relationship.
Dependability: Our Client-owners trust that we will be taking proactive measures to ensure their income properties are well cared for and expectations are met.
Accountability: Our Client-Owners know that we will not only take accountability and fix issues as needed, we hold tenants accountable to the terms and conditions with best practice lease oversight.
Trust: Our client-owners entrust us to make the right situational calls and to make problems go away.
On behalf of the entire Safe House Property Management team, and on behalf of your residents – thank you. We are grateful for the opportunity to partner with you and we look forward to serving you in 2024 and beyond.
Dennis Becker, Managing Broker
Safe House Property Management
Benjamin Jacobs, Managing Director
Residential Renters