Multifamily buy and hold Minneapolis area, best strategies?

[Vince Coffeen]

My partner and I are real estate investors looking to level up in the Minneapolis Saint Paul area, looking for input and suggestions about what to do; here’s our scenario:

• Currently rent out a condominium in Saint Paul,

• est. sale price $155k

• $94k left on mortgage.

• Plan to 1031 this $61k towards our next purchase.

• $275k cash for downpayment set aside in addition to $61k condo proceeds for a total of $336k down.

• After closing costs and finance fees etc. we end up with about $1.1M max purchase budget.

• We have a multi-member LLC set up for the venture

We find ourselves on the fence between two approaches.

This market and this budget puts us at a newer (2005+) triplex in top neighborhoods.

Pros of lower doors better neighborhood:

• Traditional financing

• Fewer maintenance calls

• Higher quality longer term renters

• Better long term appreciation

Cons of this approach:

• Higher vacancy allowances

• More risk per unit

• Less standardized maintenance per unit

• Increased competition from newer triplexes the city is heavily encouraging to be built.

• Higher property taxes

The other approach is more working class neighborhood but 5-6 units under one roof. These are usually built in the 1920s or so

Pros:

• Lower vacancy allowances

• Less risk per unit

• More standardized maintenance per unit

• Better opportunity for value creation because it’s commercial

Cons:

• Lower quality shorter term tenants

• Higher cost commercial financing required

• Lower long term appreciation

Thoughts?