Drive around Milwaukee and it’s not hard to find someone willing to buy your house.
They advertise on small, often-handwritten signs stuck into the grass or tied onto light poles. There’s usually a phone number. Sometimes a reminder that the unnamed sign creator will take your house in any condition.
Kathe Hoffman lives in Glendale and says she sees the signs around the city all the time. And she gets incessant mailers with offers to buy her home — even though she’s not selling.
So she turned to Bubbler Talk to ask who is buying these homes and what happens to them.
To answer that question, we turned to Mike Ruzicka, president of the Greater Milwaukee Association of REALTORS. He says that even though the signs can look like hastily made craft projects, they’re not necessarily scams.
“Basically it’s a type of flipping, which is a completely valid business model,” he says. “These organizations are coming in and purchasing a property under what the price would be if you listed it for example, to (sell) on the open market, and they take the property, they fix it up and then they resell it.”
Sometimes, the houses are flipped and converted into rental properties or multifamily housing.
Here’s how it works: Cash homebuying and flipping
The key part that makes the business work is paying below the home’s market value, according to one owner of a Milwaukee area flipping company. She answered questions about the process, but didn’t agree to go on the record because she says she has several deals in the works right now and she doesn’t want to jeopardize them.
Before a flipper buys a property, their assessors walk through the house, tally up all the work it needs, and then deduct the cost of those repairs from the offer presented to the seller. The company also factors in how much it hopes to profit from the sale.
For example, a home valued at $250,000 could be sold to a flipper for $200,000. The sale would go through quickly without the seller making any repairs. The flipper may then gut the home, do the repairs and list the house for, say, $300,000.
That math usually works better if the home is in need of lots of work or if the seller is eager to be done with it.
Ruzicka says it serves a purpose in the real estate industry. He says he sees families looking to sell their late parents’ home quickly. That’s especially true if the children live across the country or don’t want to invest time in cleaning or repairing the house before putting it on the market.
But there’s a tradeoff.
“The seller and the people who are listing the property really have to understand that they're doing it at a significant discount,” Ruzicka says. “Because the flipping company wants to make a profit. But it definitely serves a niche.”
Flipping companies often move faster than working with a real estate agent—they can close on the home in as fast as seven days instead of 30 to 45 days.
When things move fast, it can be easy to miss red flags. Ruzicka says anyone looking to work with a cash homebuyer should do their research.
He recommends calling the Better Business Bureau and your local realtors’ association to see if the person buying your home has pending judgments against them or has been ordered to take ethics training.
How flipping affects Milwaukee’s real estate market
Flipping can stress a housing market that’s already pricing people out.
Since the pandemic, Milwaukee has seen a spike in out-of-state investors buying properties, leaving fewer affordable options for aspiring homebuyers
Chad Venne is a professor and the director of UW-Milwaukee’s real estate program at the Lubar School of Business. He was thrust into this particular area of the industry last year after his grandmother died.
“We were contacted by a number of buyers from the moment she passed. And they were offering us a quick close, no inspections, no contingencies,” Venne says. “But that was a house that had been in our family’s history for about 70 years.”
Home flippers can use public records to target their advertising to families that may have paid off homes or people who may need cash quickly — like someone moving into a nursing home or a person who has just gotten a divorce.
People who sell may solve a short term problem by getting the cash, but could create long term problems by selling their family’s largest asset below market value.
A 2019 investigation by ProPublica found that franchises like We Buy Ugly Houses sometimes inked contracts with homeowners suffering from dementia. The homeowners' families later fought the companies once they found out their elderly relative had sold their home.
So parts of the industry can be sketchy, Venne says.
But he says Milwaukee isn’t currently overrun with home flippers depleting single family homes and turning them into rentals. Mostly because the market is competitive and sellers know they can get a good offer if they list with a real estate agent.
Venne’s family ultimately decided to sell his grandmother’s house, but not to one of the “cash for homes” flippers.
They sold to a nonprofit called Acts Housing, which flips homes, but guarantees the home will be sold to a family instead of used as an investment property.
“They work with a lot of people that might not have access to traditional lending routes. Maybe they have a low credit score, no credit score, maybe they have blemishes on their record,” he says.
“The Acts Housing team works with them to try to get them in a position where they can buy and become a homeowner.”
After generations in his family, Venne says he hopes his grandmother’s house can become the anchor for someone new.
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Katherine Kokal is a reporter at 89.7 WUWM - Milwaukee's NPR. Have a question or a story idea? You can reach her at kokal@uwm.edu
