Looking to house hack / move to Minneapolis/St. Paul. Help?

Question

Hey everyone,

We are a young family (8yo and 10yo), and are looking to move to the Twin Cities. My wife's sister lives in town and we want to join them. We also want to take the opportunity to start investing, and house hacking seems the way to go. We are looking to get a 2-4 unit place by this summer, ideally in Mac-Grove, Highland Park, or South Minneapolis. I'm part way through Craig Curelop's book, and starting to see what the market is like.

It seems like a lot of the properties will have negative cash flow even after the first year when we move out. This looks like a combination of interest rates and just relatively high prices still (e.g. most duplexes I've seen start at around 600k). Is that normal? Does that mean the market is just too pricy for a good house hack right now? Have you had success within the last year or two house hacking in these neighborhoods? Any thing to point me in the right direction would be great!

Thanks so much,

Chad

Adam Tafel · Answer

@Chad Gardner - this is one of the most common questions we get from potential/future househackers.

It's hard to speak in such broad terms - one man's "cashflow" is another man's vacancy reserve, so whether you can pull it off or not will be somewhat determined by how optimistic you're willing to be. If you are pessimistic you'll certainly not see any cashflow. Better than each of those options is to be realistic, what most of us aim to do, but easier said than done.

Even without a budget for repairs/etc - let's just define "cashflow" as income left over after PITI & utilities for a moment - Mac Groveland and Highland Park are going to be tough. Solid 2-4 unit properties are so scarce in these areas (~21 sales in last 12 mo between the 2), the market simply doesn't allow a buyer with a low downpayment to enjoy any "income" out of the gate. This isn't so much due to interest rates - these neighborhoods have been this way for at least 4 years. Demand was much higher when rates were lower - you might be able to scoop a solid 1920s Highland up/down duplex for 10% under list and 20% less than it might have sold in 2021 - but current rates erase any potential savings. I would personally rather be the guy with the lower purchase price and higher rate, but it doesn't help a brand new househacker in the short term.

There are 2 ways to pull it off in Highland/Mac/Cathedral Hill/Summit Hill - 1. Go Big (4plex, spend 700k +) or 2. Buy Something Ugly. You'll need patience as these opportunities don't come often, but it can be done.

"South Minneapolis" is such a broad term - there might be as many as 25 different neighborhoods ranging from A-D class, each with their own pros and cons. If I'm looking to househack with my family (I had a toddler and a newborn the last time we did it) I might be interested in 1/3 of these neighborhoods, of which a few will absolutely produce some income (assuming you're number's aren't ultra-conservative) upon moving in year 2-3. Too much to discuss for a BP forum, but it can be done.

The good news - there are plenty of family-friendly neighborhoods between St Paul and S Mpls which offer decent opportunities for a househacker - you just need to know where to look, what to avoid, and where the opportunities are (undervalued properties, under rented units, value-add opportunities). To be clear - you aren't wrong, it's harder right now. I might have sold 20-30 solid househacks to new investors per year between 2020-2023 - this year I'm doing less than half that. All that means is you need more patience - and if you're looking for a summer move and making a gameplan in December you'll be just fine.

Joshua Silker · Answer

Hi Chad, my wife and I have been house hacking in the Twin Cities for the last few years and have a couple properties under our belt. We have found that setting our expectations about what we want is helpful (financial performance, level of renovation we can handle, forced equity opportunities, number of bedrooms, etc) and then waiting for a deal to materialize. Most of the time when I would analyze properties on the market the numbers just didn’t make sense, but when we found a property that worked we were able to move decisively. We’ve found a niche area that fits our budget and personal vision, and it has usually taken a few months of regularly analyzing deals to find something that works for us. Our duplexes were purchased in the $270k-$320k range. We chose these properties for cash flow opportunity and because they work nicely for house hacking because the unit you are occupying is a percentage of a smaller mortgage payment.

Around Minneapolis I think it is important to get to know the neighborhood. Things have changed in the cities, especially since 2020, and some areas that were once nice are still experiencing problems. It is also worth noting that the city of St. Paul has in the past enacted restrictions on raising rents. This caused a lot of developers to leave the city and has caused headaches for landlords. I don’t know where this is at currently as we are in Minneapolis, but as far as I can tell it’s been a bit of a boondoggle!

Hope this helps! -Joshua

Around Minneapolis I think it is important to get to know the neighborhood. Things have changed in the cities, especially since 2020, and some areas that were once nice are still experiencing problems. It is also worth noting that the city of St. Paul has in the past enacted restrictions on raising rents. This caused a lot of developers to leave the city and has caused headaches for landlords. I don’t know where this is at currently as we are in Minneapolis, but as far as I can tell it’s been a bit of a boondoggle!

Hope this helps! -Joshua

Hunter Beckstrom · Answer

Welcome, @Chad Gardner!

I have been househacking a duplex in Minneapolis for over a year. This property has been a cashflow play, but ideally my next small multi-family (2-4 units) would be similar to what you are looking for in terms of a higher-priced appreciation play.

As mentioned by others, I have found local meetups to be very beneficial. While it sounds like you currently are not in the area, one great meetup is "Minneapolis Real Estate Investor Meetup". Happy to get you connected to folks.

Best of luck and don't hesitate to reach out!

- Hunter

@Tim Swierczek Appreciate all the great info you consistently share in the forums related to the MSP area! Looking forward to checking out your Investing Show as well.

James Hamling · Answer

Let me simplify this for you Chad.

If you going appreciation, your going "path of progress" and the fever pith place for that is NW metro outside the loop (494-694 loop). Maple Grove, STMA, Dayton but Dayton and Rogers are laggards in the school system where STMA and Maple Grove are literally famous school systems.

If inside "the loop" DONT buy-4-appreciaition because it's probably gonna take many years if not decades for anything of great measure.

Fact is St Paul is the grand champion of idiotic political actions to tank a city/market. And Minneapolis is that dopy lil'brother chasing the other off a cliff.

Both these cities have some serious pain to work through. They are not markets for the new or novice. Unless your into making this hardest possible from get-go.

Suburbs in path of progress is the low hanging fruit. There is friendly cities to such, people flocking there because it's where people want to live. It's more forgiving for the new and novice.

And as for a multi, I'd argue it's best to build, not buy, especially if going out to the NW "burbs". Such units are painfully in short supply and sky high demand. I'd build a quad, and there is a laundry list of ways one can select to be amply rewarded for such.

Can get it rent stabilized, sell 4 profit, rinse and repeat. You can sell on financial method because there is such short demand there is all but no comp's to use for comp method, and if selling as turn-key, yup, financial method will be your friend for sure.

Or or or.....

Jonathan Greene · Answer

Welcome. House hacking with two children can be tougher than expected because you will always need to take a larger or the largest unit which will reduce your cash flow on the property even more. House hacking cash flow increases depending on how little space you can live in for a year (or more).

I can't speak to Minneapolis inventory directly, but multi inventory is low in a lot of places. As an owner-occupier, you can pay more than an investor would, but as I said above, you are going to be a little hamstrung in return rents unless you can get 3 other units and then that is a do you want to live with three tenants that close when you have two kids.

Find some local real estate investor meetups in the area and you will meet a lot of house hackers who can tell you their stories.

Wale Lawal · Answer

@Chad Gardner

House hacking in the Twin Cities can be a rewarding experience with the right strategy. Maximize financing options, look for properties with value-add potential, focus on cash flow calculations, and consider nearby neighborhoods. Consider smaller multi-family properties and network with local investors. Balancing rental income, appreciation potential, and location can provide a primary home and a long-term investment portfolio.

Good luck!

Julio Gonzalez · Answer

Glad to have you on the forum, Chad! You came to the right place for information! -Julio

Tim Swierczek · Answer

Hey @Chad Gardner

I just did an analysis if St Paul multifamily purchases with @Adam Tafel for our Twin Cities Real Estate Investing Show. Our analysis was much different than what you have found. The median MF sold for 380K over the last twelve months.  The areas you are looking in are a step below the most expensive so I have no doubt they are higher, but you are also looking at a small sample size when you only look at homes available for sale now. In other words, by analyzing sold properties you can see what has sold and what will likely come up again. More expensive homes have longer average days on the market. The average days on the market for median priced homes are less than half the 600K average DOM. So you will naturally see more of those higher-priced homes in those markets. I recommend you find our podcast listen to the analysis and then contact Adam who is a St Paul expert. He can help you find plenty of home that will be a better match for your criteria.

Chad Gardner · Answer

@Joshua Silker Thanks for this! Good to know about St.Paul for sure. I'm still doing some thinking about which strategy, cash flow vs. appreciation, makes the most sense for us as a family. My main concern about actual house hacking for a few years in a row is that we don't want the kiddos to have to change schools once we relocate up there.I'm thinking about getting an appreciation-oriented duplex/triplex in a pricier market with good schools that we could stay in for several years, and saving for an actual cashflow property that'd we buy as an investment property instead of a house hack. Does that seem reasonable?

Looking to house hack / move to Minneapolis/St. Paul. Help?

Most Popular Reply