Ben Anton

Market Overview

Madison has a very insulated economy. North of 60% of the population works in the public sector via the university, state or local government. We also have a very healthy software-tech job-market bolstered by start-ups and former employees of the regions largest employer Epic Systems, a health care software giant with over 9000 people on the payroll. The region for years has had vacancy rates in the low single digits due to the demand of the University Of Wisconsin and thousands of millennials locating here. A recent report suggests Madison need add 1000 units per year to simply keep up with demand, not bringing vacancy to a healthier 6-7%. The city, on an isthmus between two lakes, is often winning awards for livability for those interested in health and fitness activities, music, festivals, and all sorts of outdoor activities.

Investment Price Points in Madison

In 2015 the average price of a single family home in the Madison metro was 221,000. It can be very difficult to get a single family in our market to cashflow. Many investors will put properties that nearly had short term flip potential in to a rental role after significant refreshing and updating. Many single family distressed home and foreclosures met this fate during the last economic down turn. I often think of these as a very slow flip. Buy - remodel - rent/hold - (refresh) sell.

The demand for single family homes right now is too great for many homes to sell at prices that allow for cash flowing rental with just 20% down. The single family demand is also nibbling away at some 2 through 4-unit stock (many older homes that were converted in to multi family homes. Many buyers are converting older more derelict 2-flats back in to single family homes). These slightly more difficult to finance rental properties can be purchased with less competition as they require buyers have 20-25% down, not just the 5% that many first time buyers offer. The number of condos that allow rental is also very limited.

For the most part, many associations do not allow investor buyers, or require the unit be seasoned (owner occupied for a time) before it can be rented. For the purpose of “Samples” I will include a condo option in with the entry level single family homes as the numbers may be similar. Because of low ROI in so many other investment avenues, we are seeing a lot of money invested in what many in my office call “Blue Chip” rentals. Low risk, updated, low needs, easy to manage multis. The low risk, low work, rentals often require more than 20% to cashflow but can be easily evaluated by cap-rate ROI projections. I have included some of these in the samples as well in the high-end multi unit examples.