Sherrena bought the house she was going to rent to Ladona a few weeks before flying to Jamaica. It was a large, late colonial–style home with a round turret and generous porch. Someone had recently painted it black and white. The roof was new and so was the water heater and so were the wood-framed windows. The front door opened into a living room with a vaulted ceiling and an intricate mosaic fireplace. There was one bedroom downstairs and three upstairs, which you reached by mounting a long, bending staircase. Thick carpet lined the upstairs bedrooms, two of which, judging from the paint, used to belong to children. The house was in such fine shape that the inspector told Sherrena that he wanted to move in himself.
The black-and-white house was on a quiet street in the inner city. Sherrena judged the block stable “because it’s been vacant one whole year and not one fucking window is broken” and because “the people lock it down. If you come over [to the house], they out on their porch like, ‘Can I help you?’ They have their eyes on the street.” Sherrena’s new pride and joy had cost her $16,900. She paid cash for it. She had purchased properties for less—$8,000, $5,000—but none were as stunning as this one. A few days before Ladona was scheduled to move in, Sherrena stopped by the house to check on the repairs. She walked through its rooms and smiled in disbelief. When the feeling welled up, she did a little dance.
Since the foreclosure crisis, Sherrena had been buying properties throughout the North Side at a rate of about one a month.10 In some cities, as many as 1 in 2 foreclosures was renter-occupied. The crisis had provided landlords an almost magical opportunity. “This moment right now,” Sherrena reflected, “it’s going to create a lot of millionaires. You know, if you have money right now, you can profit 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 good. There’s a lot of money there.”
—
Quentin pulled the truck onto a dark and deserted street. There was one more stop to make: Terri on Cherry Street. This was Sherrena’s most far-flung property, located on the West Side of Milwaukee, near Washington Park and a fifteen-minute walk to the colossal Miller Brewery. Sherrena pounded on Terri’s door, loud the first time and even louder the second. The porch light flicked on and shone down on Sherrena. She was in the fur-lined Coach boots with matching purse she had bought in Jamaica.
“Who’s that?” a gruff voice barked.
“It’s the landlord.”
“Oh,” the voice said, resigned.
“That’s right,” Sherrena whispered to herself as the locks came undone.
Inside, the house was warm and smelled of dinner fried in grease. A single, small lamp was on, stingy with its light and leaving parts of the room veiled in shadow. Sherrena found Terri in the company of some elderly kin and older children. Terri was a plump and pretty woman, with dark skin, long braids, and an empty stare. She was mentally slow and received SSI for her condition. Her boyfriend, who had answered the door—Antoine, a bony man with slicked-back hair—leaned against the wall, just beyond the edge of the light.
“Um, what’s going on?” Sherrena asked Terri.
“I ain’t got any money with me and—” Terri’s voice trailed off.
Sherrena leaned over Terri with her hands on her hips. “Terri,” she began, using her stern-teacher voice.
“I know.”
“Just give me the money….I’ll give you a receipt.”
A moment passed, then Terri said, “All right,” and reached into her pocket. Seeing this, several of the older children left the room.
Sherrena accepted a thick roll of cash. “Who did your hair?” she asked, reaching out and spinning one of Terri’s braids. “You like her hair, Antoine?”
Antoine was bringing a cigarette to his mouth. The lighter’s flame momentarily brought his face out of the darkness. It was a face creased with humiliation.
Lifting herself into the Suburban, Sherrena said to Quentin, “We got fourteen—fourteen hundred….Why I can’t get rid of her.” Terri rented a four-bedroom apartment for $725 a month. She still owed $350 plus a late fee but said she’d have the rest of the money tomorrow.