When to buy my first deal

Question

Marc Jolicoeur · Answer

@Josh Hagen I cannot speak to the multifamily apartment market here but for single family, inventory of properties for sale is very low.  I believe its 30 year record low inventory for houses priced under $200K.

I have been offering on one or two REOs per week since April 1 in the suburbs and have not been able to get any deals. Even if I make mine a cash offer, I am finding that it goes to multiple offer situations and it settles $20K higher than I was willing to pay (80% of ARV minus repairs).  I seriously don't know how these other investors are able to pay that much for properties and make a profit on the flip.    Possibly they are planning to rent and hold a few years betting on appreciation.

The thing is, there is a good chance now that there will be a couple more years of appreciation like we have seen the last 3 yrs.    The twin cities are attracting new residents from elsewhere in the country and many of them have good jobs.   I have two tenants in my rentals and both are out of towners, and I work at a mid-sized company that seems to attract new employees from other areas just as much as hiring locals.

What will cause the housing market here to correct?   Well, a severe recession could do it (like the last one) but that is really not the most likely path for Minnesota.    We can't lose 20,000 construction and mortgage company jobs next time.....as we never hired those guys back since the last recession.   Our job market is pretty tight right now and has room to adjust before it would cause thousands of people to lose their homes.

Foreclosures are now 10% of the meagre inventory and foreclosure trends have been dropping for years.    Hedge funds bought up tons of inventory 3-4 years ago....  if they try to liquidate all, then that could do something to inventory that would be good news.

So, what is a newbie to do?   I say look at 1% deals, or properties that have been on the market for a while that are mispriced or need a renovation.  You need to get in at some sort of a discount from current value.   I try to get 15% equity going in.   Often you need to force appreciation somehow.  Finish the basement, add a master suite, fix up the yard, update the interiors, etc..   Do your numbers and be conservative.     Plan for maintenance, management and capex.  As long as you cashflow $300 for a house, or $125 per door on a multi, I would say pull the trigger.  If its in a good school district or an improving area, then it should appreciate - but don't count on it - just buy right.

Christian Rasmussen · Answer

@Doug Thompson - I think a better way for me to phrase it, is investors that are looking to have their 'hands' in hundreds of deals in MN over the winter/spring.

Christian Rasmussen · Answer

@Oscar Brooks

@Josh Hagen

Just for a bit of confidence come winter time. I'm working with a group of investors that are looking to acquire hundreds of properties in MN this year. They, for good reason (maybe reason I don't know 100%) are waiting until winter to really unleash the beast so to speak. If have learned anything from my days investing, it's that the big guys, the guys that do it right, are rarely wrong - and this year particularly, I feel that winter is going to be very busy for me, and for anyone willing to do those winter deals. Another thing about winter is half the investors drop off because they don't want to worry about getting a prop with foundation issues unknowingly (my first flip - I bought during winter and closed right before the melt in spring. The melt came and we had a lake in the basement. My first construction job EVER, on my first flip, was to dig a 7 foot deep moat around the entire house, and seal the foundation. 20k job if hired. We did it ourselves, 2 of us, in 3 weeks for 1k. BUT - this is a great example of why investors drop off during winter.).

Best,

Christian

Christian Rasmussen · Answer

@Josh Hagen

Hey Josh. Winter time is when all the deals happen. Winter is always a good time to jump, if you know what you're getting into. That being said, full time investors (such as myself) can't get stagnant, so I can't rely on winter to bring me all my deals. I need to find deals throughout the year to maintain my business. I think that the 2% rule is great but it's not set in stone at all. Most important thing is to make sure you're cashflowing, and gaining equity in the property. Also important to have reserves for future repairs or deals . I say if your cash positive throughout then it's a reasonable deal. If you're interested I could take a peak at some of the deals you're looking at and show you how I analyze deals. Everyone has their own method and nothing is absolutely right or wrong. My business partner and I's motto is 'If the numbers works, we'll make it work'.

MLS is a great resource but all the deals are getting picked up really quickly now a days. A good deal will be gone in 72 hours max. My partner just finished a property that had 12 showings and 2 solid offers in the first 4 hours on the market! When I go look at deals in the cities that have just been listed, I'm always there with 1-4 other groups of people looking at the home. So it's hot! Wait for the cold, or move quick in the heat!

Hope this helps, PM me if you have any questions or want to grab coffee sometime and discuss further.

Best,

Christian

Jay Lohn · Answer

@Josh Hagen

Welcome to BP.  I would use the old saying work smarter not harder and find as many bird doggers as you can to find deals that fit your investment strategy and have them presenting deals to you so you can get your eyes on as many potential deals as possible in this hot market until you find one that eventually sticks.  Good luck!!

Andy Schornack · Answer

There is certainly two market dynamics going on in the Minneapolis marketplace. You have the larger multifamily segment, 10+ unit properties, and the smaller 5 or less unit projects. The larger you get, the lower the cap rates and the more competitive the local market has become. I have my concerns on the top end but have been wrong for the last couple of years as rates have fallen and rents have continued to increase (perfect storm for multifamily investors).

The smaller rental market it is still very competitive but we have a seen a number of deals that have been attractive to investors.  I don't agree on the winter vs summer optionality. The number of "deals" are probably immaterial in the big scheme of things. Usually it's the best time to buy on an improvement deal because you want to go to market in the spring/summer on rents.

The best deals right now require some work, i.e. building out an additional bedroom, updating units, etc. that drive improved rents. It may be tighter as is but maybe through some small improvements, rents can more than offset the cost to improve. Particularly in good locations, these units have been renting fast. Otherwise, I would venture out to more first ring suburbs looking for deals if you are more focused on good cash on cash returns vs driving most the returns through real estate appreciation and debt reduction.

Best of luck to you!

Matt Skog · Answer

Sorry, hit 'post' there. Been learning a lot about the SFH side of things here, but there doesn't seem to be much about multi-family. I'm interested in starting big and going bigger, with the backing from my corporate boss.

Matt Skog · Answer

I'm literally just starting out with commercial real estate ventures, beginning with 30  unit apartments. My regular job's head honcho is the VP of a large bank and they are involved in the business already, but no one is currently in my desired field. My aim is to look for non-recourse financing with them, and paying down the debt in a largely unpopular manner. I've been reading up on a lot of

Doug Thompson · Answer

Winter buying sounds like a very good strategy @Christian Rasmussen

This group you are working with is positioned to buy HUNDREDS of properties?

I'm not that experienced, but I don't know if the market will be soft enough this winter to justify that kind of blanket purchasing.  It would seem that there would have to be a real expectation that next spring/summer will be even tighter than this year, with high prices and low supply.

When to buy my first deal

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