Evicted_ Poverty and Profit in the American City - Matthew Desmond Page 0,61
from other people’s failures….I’m catching the properties. I’m catching ’em.”
“If you have money right now”—that was the rub. The mortgage sector had shriveled up during the financial downturn: in 2007 alone, the number of loan organizations fell by 25 percent.11 Fearing insolvency, banks still in operation turned into miserly lenders, instituting stricter lending standards, requiring pristine credit, and demanding large down payments. “If you want a loan this year,” the Washington Post reported, “you’re going to have to pay more—thousands of dollars more in some cases.”12 Landlords, naturally, were more succinct. “Banks went from stupid to stupid,” their assessment went, meaning that banks had spun an about-face, going from being reckless to overly cautious. That was too bad for real estate investors not flush with cash because there were deals to be had: gorgeous, unprecedented deals. Rents had soared during the run-up to the crisis, in large part because the housing boom and aggressive property flipping left landlords with bloated mortgage payments and higher tax bills. After the crash, property values fell (and with them mortgage and tax bills)—but rents remained high. In January 2009, the Free Foreclosure List distributed to Milwaukee real estate investors displayed around 1,400 properties, each listing for “$30,000 or more below assessed value.” The properties were ordered from least to most expensive, beginning with a two-bedroom unit listed at $2,750. Ten properties down, there was a three-bedroom going for $8,900. Ten more down: a four-bedroom for $11,900.13
If Sherrena couldn’t buy a property outright, she financed the purchase in a number of ways. She took out conventional or even adjustable-rate mortgages. When she saw a deal but didn’t have the down payment, Sherrena sought out “OPM” (“other people’s money”) or “hard money”: shorthand for rich white guys from Brookfield or Shorewood who offered high-interest loans that didn’t require any money down but instead placed a lien on the property. Sherrena put it this way: “Usually the banks say, ‘We want twenty percent down.’ Here’s this private money guy saying, ‘Hey, I’ll give it to you, but your interest rate is going to be twelve percent, and you have to give me this money back within six months or a year.’ ” If Sherrena defaulted, she would lose the house to the private lender.
The same thing that made homeownership a bad investment in poor, black neighborhoods—depressed property values—made landlording there a potentially lucrative one. Property values for similar homes were double or triple in white, middle-class sections of the city; but rents in those neighborhoods were not. A landlord might have been able to fetch $750 for a two-bedroom unit in the suburb of Wauwatosa and only $550 for a similar unit in Milwaukee’s poverty-stricken 53206 zip code. But the Wauwatosa property would have come with a much higher mortgage payment and tax bill, not to mention higher standards for the condition of the unit. When it came to return on investment, it was hard to beat owning property in the inner city. “You buy on the North Side because they ‘cash flow’ nicely,” said one landlord with 114 central-city units. “In Brookfield, I lost money. But if you do low-income, you get a steady monthly income. You don’t buy properties for their appreciative value. You’re not in it for the future but for now.”
Sherrena looked for properties that would give her a cash flow of at least $500 a month, after expenses. The house Ladona would rent easily cleared that bar. Sherrena owned it free and clear, the repairs only set her back $1,500, and the monthly rent would be $775. If the house inspired Sherrena to dance, it was because she knew she would recoup her total investment in about two years. She was used to this rate of return. Shortly after buying the black-and-white house, she bought a duplex off Keefe Avenue for $8,500, repairing it for $3,000. It would take only eight months to make that money back. After that, “it just cashed out.”
Sherrena estimated her net worth at around $2 million, but equity was icing on the cake. The real money was made in rents. Every month Sherrena collected roughly $20,000 in rent. Her monthly mortgage bills rounded out to $8,500. After paying the water bill, Sherrena—who owned three dozen inner-city units, all filled with tenants around or below the poverty line—figured she netted roughly $10,000 a month, more than what Arleen, Lamar, and many of her other tenants took home in a year. As Sherrena liked to put it: “The ’hood is