Minneapolis 2040 - how does this affect your plans?

Question

Minneapolis, MN recently passed Minneapolis 2040 - a plan to upzone many of the existing SFH neighborhoods to allow triplexes and further density along transit corridors. Minneapolis / twin cities investors, how is this news affecting your plans for investment in the twin cities metro?

Bruce Runn · Answer

@Kristen Schade

In the 2040 comp plan is for allowing non owner occupants to have ADU's.  You will only need 1 rental license.  On converting a garage to an ADU, that is only possible if it has a 4 ft frost free footing which is rare.  If it is on a slab, you can not convert to an ADU unless it already existed as an apt. .   You can message me if you have any questions.

John Hageman · Answer

Hey Bowman. I think the 2040 Plan is really interesting and there's a lot of layers to it, more so than to paraphrase Oprah, "You get a triplex! You get a triplex! " There's some great resources online to see how specific parcels are going to be impacted. Here's a jumping off point for everyone.

http://www.startribune.com/find-out-how-your-block...

I'm not a contractor but from what I understand, whenever you build a new unit everything needs to be built to current code. Between that and material prices it's going to be much harder to make the numbers work when trying to "add one more unit" to an existing/very old house. I've got a duplex in NE MPLS that has an attic which is screaming for a 3rd unit. I know I'm going to have to build a new staircase for the 3rd unit because of rise/run and update the electrical from knob and tube in the 2nd unit before I get to make any substantial progress.

Bruce Runn · Answer

@John Woodrich

Hi John,  The first step is the Met Council has to approve/ratify the 2040 Comp plan MPLS approved in December.  The Met Council will take approx. 6 months.  The City Council then needs to vote to approve again.  The city then has to make the zoning alterations to get zoning in line with the plan and I'd guess that may take 1-2 years.  Once the plan is ratified and then voted on, it becomes the defacto guideline.  You could push through something without the zoning changes in place as they would be approved via a variance but they'd have to fall in line with what the comp plan spelled out and you'd have to go through the normal channels for variances but a variance would be given.  Would cost some money/take lead time of planning commission agendas ect but if you are like me and sitting on an empty lot, you'll want to move asap.

Bruce Runn · Answer

@Jordan Moorhead

@Pavel Ushakov

@John Woodrich

I just closed on a duplex last week and got a convertible construction loan against the purchase/addition of an ADU to the duplex.  The loan was based on the ARV/post reno projected income and the appraiser used triplexes as comps.  I've already received a soft commitment to purchase (in a year and a day) from an investor at the projected ARV.

Tyler Erickson · Answer

@Bruce Runn I think you may have taken my comment as more of a dire warning than it was intended. It was simply to provide a perspective from the valuation side of the equation, since that was on topic. Of course, this will mean good things for a lot of people. But it’s worth it to recognize that most appraisers have very different opinions when it comes to appraising unique properties. I haven’t checked to see if there have been many ADU properties sold in the past year or so in the Minneapolis area, so it may be a non-issue, but it’s always worth it to keep in mind that an appraiser is paid to formulate a data-driven opinion (opinion being the operative word here). When unique appraisal problems exist, so do many different perspectives as to how to solve them.

Of course, it’s up to each person. I’m just trying to provide insight and something to think about, that’s all.

Have a good rest of your day!

Kristen Schade · Answer

Currently, the city of Minneapolis will not let you get a rental license for both a single family home and an ADU on the same lot - one has to be owner-occupied.  I wonder if they will change this law with the 2040 zoning to allow 2 rental licenses on a single family lot...  I have a little investment property on Xerxes by Linden Hills park that has a newer garage building I was considering converting to another unit if it could be rented out.

John Woodrich · Answer

@Bruce Runn Great to hear!  I have talked to a couple appraisers and neither are really sure how they are going to handle it yet.  I believe @Jordan Moorhead has one in TX and think he mentioned they are valuing it at 50% of the regular price per sqft out there.  My initial thought was that they would value them similar to underground price per sqft but it is good to hear they aren't discounting them out the gate.

John Woodrich · Answer

I agree with  @Jordan Moorhead that appraisals will be a concern for people who plan to add units and sell in the near horizon.  They won't be valued at the same price per sqft and it will take appraisers some time to figure out how they are going to deal with these.

Out the gate I think an ADU will work on properties in nicer areas, for an investor who plans to hold for the long term and doesn't have an immediate need to lever all the way up.  It may not make sense for someone who wants to sell the property in the next couple of years or for someone who can't afford to leave some equity in a property.

Pavel U. · Answer

I'm with @Jordan Moorhead with my plans, however I MIGHT add an ADU to one or two of the existing properties.

John Woodrich · Answer

@Bruce Runn

Thank you - that is exactly what I was thinking!

Minneapolis 2040 - how does this affect your plans?

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