What properties are cash flowing in Minnesota?

Question

Calling Minneapolis, Saint Paul and Twin Cities metro Minnesota investors. I am a beginning investor interested in owner occupying a duplex on the south side of the cities. Inventory on this type of unit is low and prices seem inflated. Nothing I've seen comes close to even meeting the 1% rule.

This leads me to ask the forum. What types of properties are cash flowing in the area now? Any area specific tips for finding these properties?

Thanks in advance for the feedback and discussion!

Shane Hedeen · Answer

@Dylan Barth,

You are right. When the market is up, everyone and their brother seems to want what you are seeking. The numbers on a lot of stuff on market is tough to make cashflow without a large amount of cash up front - lowering your ROI. There are plenty of people willing to jump at a lot of those deals right now, whether that's right or not.

The 1% rule is a rule like @Bruce Runn mentioned. Head to a riskier area in any market, and your returns increase. Head to the south part of the cities, and there aren't many 'risky' or higher return areas at all. Your returns and cash flow are lower, because they are very stable right now.

The best thing you can do is what @Jordan Moorhead mentioned. Keep your eyes open, as there are still deals everywhere. They don't always show up on the market, and the ones that do are gone quickly right now. If you can't find anything on market, you can always look into contacting owners off market directly to see if they'd like to sell.

If you buy right for cash flow, and stay patient good will come your way. Get your finances in order, go get pre-approved for a loan and speak with a lender or two. In today's market if you want to be ready to act with financing, you can't find the property and then go chase down your financing. If it's truly a good deal and on market, others will find the same thing.

If you ever want to chat or grab a coffee, just let me know! Would love to help your quest.

Bruce Runn · Answer

The 1% rule is a guideline and what you input determines the output.  What do you include for repairs, are the rents accurate or low for the area, do you need to include renovations to optimize the rent?  I find I have to go in and look at properties to determine if they qualify for my criteria which is pretty stringent.  You can't really make determinations from just looking at MLS listings.  That's like buying a car based on the write up from the dealer and not test driving it to see if it's a good fit for you.  I've bought numerous duplexes where I was able to raise the rent $100-$300 month per unit.  That makes all the difference in whether it cash flows a little or a lot.  I've also added bedrooms to places which changes the formula completely so you need to start going in and looking at places and know what the rent possibilities are based on the current market.

Marcus Johnson · Answer

I own a duplex in the Hiawatha (south east Minneapolis)  neigborhood and bought in 2014 when the prices and inventories were much better.  My duplex cash flows after capex, expenses, maintenance and many other categories, $700 (NOI) a month year to date.  I bought the duplex for $180k and owe $125k.

I've been researching the neighborhood for a year or so for more deals and appreciation has taken place.

4202 E 36th St, Minneapolis, MN 55406

If you take a look at this side by side duplex across from the middle school, they bought it in 2004 for $270 and are now trying to sell it for 280k.  Obviously they must have bought it at the height of the market back then and haven't made any appreciation.  But if they would have purchased it in 2014 they would have made quite a deal as I did on mine.   Gonna be hard to cash flow on this property unless you get the deal of the century.

So what I've learned from this is that this neighborhood is very desirable, has good appreciation if you buy at the right time and can cash flow quite well.  So basically my duplex has appreciated around 100k in 2 years.   If I were you I'd keeping searching for a deal and use all cash to beat out other investors, otherwise your going to need to wait for a correction in the market.

Dan Vleck · Answer

I should add that even in my market, I can't buy a retail property and expect good cashflow.  I buy fixer uppers and fix them myself, with contractors doing plumbing, electrical, roofing, etc.  We do painting and flooring and cleanup.

Eric Mayo · Answer

@Dylan Barth, I was getting frustrated finding properties in the southern suburbs, where I live. Nothing was cash flowing since a good chunk is going to pay the financing and prices rocketed up this spring. So I'm looking south. Have you thought about looking closer to home? There are 2 multi-families in Mankato on the MLS, and with the right price and ability to raise rents a bit, would be decent cash flow properties.

Brian Wagner · Answer

You are smart to focus on cash flow.  If you can't find anything just keep looking.  In a hot market you may also have to consider value add properties that need repairs or need to be redesigned to reach your targeted return.  I would say no matter what stay disciplined and don't let your desire to buy something push you into something that has a lackluster return.  Best of luck!

Dylan Barth · Answer

Thanks for the input, all.

@Bruce Runn, I agree that I need to look at more properties but I will say, the few I've looked at need at least $300 in increased rent to make the numbers work. Most are in B to B- neighborhoods that make it tougher to get those increases, even by adding a bedroom (which I found possible in more units than I anticipated).

@Dan Vleck Thanks for checking on the tenants/mortgage payment calculation. I am calculating rent from both units and long term cash flow as I won't be in the unit for more than a few years.

@Shane Hedeen Thanks for the tips. I'll be searching!

Dan Vleck · Answer

I'm in a different market, but I want to check if you are including rent that you would pay towards the mortgage.  The one percent rule is meant for the tentants payments.  If you are living in the duplex, you should be happy with a reduced mortgage payment.  Good way to get started, but don't expect it to cashflow if you are living there.  Good luck.

Jordan Moorhead · Answer

I haven't seen anything in that neighborhood that makes sense. Just keep your eyes open and be ready to jump on something as soon as it is available. Good deals are only on the market for a few days.

What properties are cash flowing in Minnesota?

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