Advice on SFH rental research in MPLS area

[Anna Gorres]

I am strategizing for my first move into RE investments, and feel the BRRRR strategy will work best for me - starting with purchasing my first primary home and rent out an extra room until I am ready to rent out the entire house. I have a few questions. 1. I will research typical rents per neighborhood, and their square footage and number of bedrooms and baths. I was planning to use the verious apartments hunting sites as well as craigslist. Any other recommendations? 2. Are SFH harder to rent out? Is there a general size (sq. ft. and bed/bath) that works best? 3. How to research/determine where the more desirable neighborhoods are? Is it as simple as proximity to transportation, entertainment, and freeways? 4. I've heard the City of Minneapolis is hard on landlords, making them jump through many hoops and requiring many inspections - and to plan on giving the city around $1k per year. Any feedback on this? Debating if I should focus on the burbs. 5. Also, any Mpls area investors have feedback on condo investments, especially on the BRRRR strategy? My budget is low....but not sure what worse, waiting ti soknehow try to save more money or a slow start. I am also considering trying to find s partner or private lender. However I am a little scared of partnerships and therefore and first seeing what I can do on my own. Any guidance or advice is much appreciated! Thank you, Anna

[Tim Swierczek]

@Anna Gorres  

1. I will research typical rents per neighborhood, and their square footage and number of bedrooms and baths. I was planning to use the verious apartments hunting sites as well as craigslist. Any other recommendations?   ~Those are all great places to check and I would recommend them all and add https://www.rentometer.com/

2. Are SFH harder to rent out? Is there a general size (sq. ft. and bed/bath) that works best? ~ SFR's are not harder to rent out, if anything they are easier because the prospective tenants do not have to worry if they will like the other tenants, they have more privacy, etc. I personally feel they are significantly harder to cash flow than a small multifamily like a duplex. In addition, they are either 100% occupied and receiving rent or 100% vacant and a big expense, where a duplex can be 50% occupied and when you have turn over or a non-paying tenant you still have some rent coming in. SFR's will nearly always be easier to sell and will also almost always appreciate better than a duplex, but if replacing your income is your primary concern I would strongly recommend you consider House Hacking a duplex.

3. How to research/determine where the more desirable neighborhoods are? Is it as simple as proximity to transportation, entertainment, and freeways? ~ That's a huge part of it for sure. Universities & employment can also be added to your list. The thing is you can make money in areas that are average in nature because people like to rent in many areas for different reasons. For example, you can get a lot of demand for long-term SFR rentals in good school districts, or you can be close & convenient to Universities but not be in their immediate area. You likely already know the hottest areas U of MN, Uptown, but those areas come with a high entry cost. Bottom line you can make money almost anywhere if you purchase for the right price. I do not recommend that you buy in high crime or low-income areas as a new investor. Those rentals are very attractive on paper but are also difficult to manage and I feel they are a recipe for failure for a new landlord.

4. I've heard the City of Minneapolis is hard on landlords, making them jump through many hoops and requiring many inspections - and to plan on giving the city around $1k per year. Any feedback on this? Debating if I should focus on the burbs.   ~ Most of my rentals are in Minneapolis and they do have a $1,000 conversion fee for SRF, but that is a one time fee.  They also charge some other costs so you could pay $1,200 in fees.  In addition, you need to address any of the inspection deficiencies which could be 0-Thousands so condition would matter to this number.  After that, you renewal costs for fees should be less than $200 so it's not that expensive.  Minneapolis does require you hire Minneapolis licensed contractors that are expensive and can add 100's to 1000's to each repair bill for things like electrical, plumbing, heating, AC, siding, and roofs.  That being said, I like being a Minneapolis LL and still think its worth buying in Minneapolis.  BTW- there are 2 ways to get the conversion fee waived.  I'd be happy to meet and share my Minneapolis LL experiences and show you how you can get the conversion fee waived.

5. Also, any Mpls area investors have feedback on condo investments, especially on the BRRRR strategy? My budget is low....but not sure what worse, waiting ti soknehow try to save more money or a slow start. I am also considering trying to find s partner or private lender. However I am a little scared of partnerships and therefore and first seeing what I can do on my own. Any guidance or advice is much appreciated! Thank you, Anna ~I would not recommend condos in Minneapolis. It's a complicated topic, but there are 2 major economic factors that make them a super risky proposition. The short version is that you have a ton of high-end rental competition all over the North Loop, NE Minneapolis, and Uptown and you're competing against Billionaire's (Think Doran Properties). Second and more importantly this market is going to change in the next 5 years due to point #1. Doran and other major developers built the high-end apartments to sell them as condos after 10 years. This is because state law is not favorable to developers of condos and those developers have been burned so badly these laws that they can profit more and have better tax advantages by building "condos" renting them for a decade and then selling them as condo's 10 years later. When they do this the market forces will be too much for a small investor and could put you under. Even if it doesn't you cannot control it and would be subject to market forces out of your control and that is a bad investment.

~Tim