SFR property conversion cost may increase 4x in St. Cloud, MN

[Jacob Seaquist]

Hello fellow Central Minnesota real estate investors. 

Tomorrow night the City of St. Cloud, MN will have a meeting to discuss and vote on increasing the conversion fee for the second time in two years. In 2014 the fee went from $125 to $500. If you don't know what a conversion fee is, it is a fee you must pay when taking a previously non rented single family residence and making it a rental property. Now the city is going to raise the fee from $500 to $2000. Keep reading if interested in investing in St. Cloud or if you already are an investor. 

Some other facts that show this increase is not the solution to the problem. 

St. Cloud's homes are currently 48% rental properties or around 14,500 (A mix of multi family and SFR)

St. Cloud Times reports (citied at bottom of post)

"A common perception is that rentals bring more blight to neighborhoods. Because tenants don't own the property, they don't care to maintain it. And landlords are only out to make a buck.

But a Times analysis of city data reveals only about 18 percent of all property maintenance violations and about 20 percent of all nuisance violations recorded in 2015 were at rental properties."

Monday, June 6, 2016
6:00 P.M. Regular Meeting
City Council Chambers

400 Second ST. S

St. Cloud, MN

Below is an excerpt from the city council agenda. 

Background: The Neighborhood Best Practices 2016 Action Plan presents numerous recommendations to enhance neighborhood quality of life with particular emphasis on code enforcement activities. Implementation of the task force's recommendations will continue in the coming months. A number of implementation activities are currently underway. The City Council has approved CDBG funding for two additional code enforcement positions during Program Year 2016. Staff and consultants are well into customization of the Community Development functions of the enterprise software upgrade. Go-live date is scheduled for late 2016. Several best practice recommendations require no action of City Council, but call for changes to staff practice and policy. Staff is increasing utilization of administrative citations for repeat offenders and criminal charges for unresponsive property owners. The following is a summary of the City Code revisions proposed for consideration on June 6, 2016: --Vacant Building Registration - The attached ordinance requires registration of vacant residential buildings and establishes related property maintenance standards. The vacant building registration fee is proposed as $2,000. --Provisional License - The attached ordinance adds violations of Section 680, Weed, Rubbish, Snow, and Ice Removal, to the list of "strikes" leading to a provisional rental license. --Habitual Non-Compliance - The attached ordinance requires a provisional rental license for properties consistently violating city code, but bringing the property into compliance prior to citation. --Rental Conversion Fee: The conversion fee for new rental properties will increase from $500 to $2,000. --Provisional License Fee: The provisional license fee would increase from $1,500 to $2,500. --Administrative Citation Fees: Administrative citations for minor and major offenses will increase as suggested by the draft ordinance.

Budget/Fiscal Impact: Increases to fees and citations are proposed to off-set the cost of code enforcement activities.

Relationship to Overall Goals: Enhancement of neighborhood quality of life has been a consistent objective of the City Council's annual goals and strategic plans, Comprehensive Plan, and task force reports during the last 10 years.

Options: A public hearing is required to adopt the attached draft ordinances as presented or revised.

Necessary Action: The ordinances may be adopted by simple majority vote of the entire City Council (4 votes).

I discussed this with a local inspector last week when I had two of my properties inspected and they were under the impression that this increase would create more unlicensed properties in the city.  I do not believe this to benefit any parties involved besides the city bringing in more revenue. This possibly will decrease investor money in the area and definitely create a barrier to entry for all investors, especially new investors in real estate looking for SFRs.  Please feel free to leave any comments or feedback for my post.  ********Most of all if you invest in St. Cloud or are interested please join me tomorrow night in voicing your concerns and opinions. ******

Monday, June 6, 2016
6:00 P.M. Regular Meeting
City Council Chambers

All of my information cited in this post came from  SCTimes article Stakeholders at odds as St. Cloud home rentals double. Jenny Berg, March 12, 2016 StCloudCity.com (city counsel agenda)  Thanks!