New investors in a tight market

[Amber Gonion]

Hello all,

Currently our market inventory is low and sometimes overpriced in the 2-10 unit (value add and under market rents excluded) and new investors often do not have a ton of cash to invest.  I want to show examples of how new investors can enter the market and learn while making money in a relatively safe transaction.  

Everyone looks at the townhome market with a skeptical eye. The first thing everyone points out is HOA dues. One thing about the HOA dues is that they pay for things like snowplowing (since we are in Minnesota), grass cutting, insurance, and such. Townhomes offer a low entry cost, low maintenance, low risk, are easy to sell, and require little experience to manage.

So lets take a look at what the numbers are, here are two actual properties we sold in the Twin Cities area (Eagan) in the last two months.

Sale price $103,500 2Br 1Ba

HOA $165/month professional management company

Taxes $585/year $48.75/month

Insurance Farmers $150-$230/year HOA coverage walls in.

Loan $393.31 30-year 4.5% 25% down

investor self manages (other wise 10% of rent includes filling unit) tenant pays water and utilities

Expenses $626.06

Rent $1100/month renter pays water, heat and electric.  Rented 4 days after purchase agreement signed.

Profit $473.94/month  

Sale price $110,000 2Br 1Ba

HOA 165/month professional management company

Taxes $621/year $51.81/month

Insurance Farmers $150-$230/year HOA coverage walls in.

Loan $418.02 30-year 4.5% 25% down

Investor self manages (other wise 10% of rent includes filling unit) tenant pays water and utilities

Expenses $653.83

Rent $1150/month renter pays water, heat and electric. Rented on 1st of month after closing on the 15th

Profit $496.17/month 

What I like about these types of deals is that newer investors can get into them easily, it is a good start to learn to manage with little responsibility, they make money, investor doesn't need to worry about snowplowing, or grass, and they are only worried about appliances HVAC and rent.    The new investor can buy multiples in the same development and sell them easily if need be or if they are looking for a larger property.  This isn't for all investors as many with hit their loan limits with too many units, but that is when they can sell them individually or as a portfolio.

There are many different ways of making money in the Minneapolis market I hope new investors will consider townhomes rather than D properties that are much too complicated for new investors.