Minneapolis Market

[Eli Sunderland]

Hey guys, I'm currently looking for my first property, most likely a SFH in the NW minneapolis suburbs. I plan on house-hacking it, renting it to some buddies from college. My question to all of you is: what are your general thoughts on the housing market in Minneapolis area? Would you say the Minneapolis market is fairly hot right now? Having just started, I don't really have a good reference point to compare today's prices to.

Also, For those of you already investing in this market, what is a general "rule of thumb" I should be looking for in my properties? I know about the 2% rule, but I don't really see many properties that fulfill that rule.  What percent do you all look for when analyzing deals in the minneapolis area?  Any tips on the whole property analysis process would be awesome!

I really want to avoid the "paralysis by analysis" epidemic that many first time investors struggle with, but I also don't want to start off with a bad deal, potentially putting myself back for awhile.

Thanks! Any input would be very much appreciated!

[Marc Jolicoeur]

1% deals are much more the norm around here.    This is a rule of thumb so don't make any decisions based on 1% rule.

I would also recommend you buy a property that you would keep long term as a rental.   Some day you will be tired of house hacking and will want to move out to a new place and you may want to have someone rent the whole place rather than renting bedrooms.   

Selling a house has significant costs associated and if you got in with a low down payment now and pay market value, and decide you need to sell in 3-5 yrs you may find that you are underwater.

Instead, buy a place that would be a great rental and buy it as an owner occupant now, to house hack it.

Open up a spreadsheet and work up a full estimate of your costs vs rents.

- Estimate your rent using craigslist, rentometer, and Zillow rent zestimates

- Assume 1 month of vacancy out of 24

- Estimate your taxes for non-homestead

- Estimate insurance for a landlord policy

- Estimate your mortgage amount based on the rates and terms you can get today on a fixed rate loan.

- Based on the property you are considering, estimate when you will need new roof, HVAC, and other big ticket items

- Assume 5% maintenance costs

- Assume 10% for property management

- Estimate how much you will need to put down and need for closing costs.

If the property cash flows with the above assumptions...it might be a good investment.    I look for about 8-10% cash on cash return on the money I invested in rehabbing and for the downpayment, and closing costs.

House hacking, you should be able to make even better cashflow as you will have homestead taxes and insurance and will not have vacancies and will not need property management.

But in 5 years when you are tired of renting out rooms, you will have yourself a good rental.