Newbie in Minneapolis

Kerry O'Neill · 2016-08-17T21:08:36-07:00

Hi all-Just dropping in for a friendly 'hello' to the community. I'm currently looking at getting started in real estate with a few (2-4) small multi-family units.As a first step, I'd like to get into an owner-occupier duplex via an FHA loan. I've been looking at properties since mid-April (4 months) via a realtor/the MLS. I've been primarily looking in South Minneapolis and Northeast Minneapolis and am open to St. Paul as well. Given my work and lifestyle, living in the urban core makes the most sense to me.While I haven't been looking that long, it seems like I may be looking for a unicorn. I've seen several properties with multiple offers on them that are extremely expensive given the rental income they'd likely generate. I've really only seen one property that would generate decent cash flow (on paper) and likely had low near-term capital expenditure requirements, but it sold within a day (an offer was actually accepted while I was driving up for the showing). I expect to have to wait until off-peak real estate season (fall/winter)or longer -- and be quick when something promising becomes available. I don't know a ton yet but have been impressed with this community and am open to suggestions pertaining to the Minneapolis area. I'm excited to learn more!

Andrew Mayamba

Real Estate Investor · Minneapolis, MN · Member since 2014 · 3 posts · 0 votes

10y

Hi Kerry

I'm a real estate investor and licensed real estate broker. Welcome to the forum. I do have a side by side duplex in Columbia heights..minutes from NE Mpls if that might work for you..I recently sold a duplex in NE. 25 Showings, multiple offers..Columbia heights gets is not as close to downtown as NE Mpls however, thinking long term, those RE values positioned in the right communities, should experience some significant gains over time. (Please note: these are my broker opinions & should not be supplemented for RE advice.)

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Dave VisayaPro Member

Moderator

Audio Engineer and Investor · Cebu City, Cebu · Member since 2013 · 7k+ posts · 881 votes

10y

Hey @Kerry O'Neill, welcome to BiggerPockets! Definitely start jumping into the community here and feel free to ask any questions related to Real Estate investing!

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Jay LohnBusiness Member

Real Estate Agent & Investor · Champlin, MN · Member since 2014 · 179 posts · 43 votes

10y

@Kerry O'Neill

Welcome to BP, your best bet is to find a distressed duplex with some equity gains to be had. But if you are set on using FHA financing it will not work as they would need a property in a certain condition to finance it. You should look at some different financing options 203K with a renovation budget built in or possibly hard money & re-fi once renovations are complete. Using the BRRR method.

Lohn/Paulno Property Management, LLC53 Reviews

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Shane Hedeen

Real Estate Agent · Saint Louis Park, MN · Member since 2015 · 213 posts · 82 votes

10y

Welcome @Kerry O'Neill!

Great to hear you are looking to do a little house hacking to start with a Duplex. You are looking in possibly the two of the hottest areas (South and NE Mpls) in the city right now, as you and many other people are looking for exactly what you are looking for, in those areas. Depending on the neighborhoods of Saint Paul, some are very tight on cash flow right now as well. People are stretching to make deals work, and with interest rates, unemployment and the job market where it is, people are feeling very comfortable getting into bed with a deal that is far from great. To each their own I suppose.

From all looks of it, winter isn't going to give you a much better deal, and there are plenty of stats to de-bunk the whole idea that things are drastically cheaper and everyone is desperate in the winter. Sometimes happens, but not enough to bank on in my opinion.

Hopefully your agent is investor friendly, or is one. Hopefully they made the suggestion that @Andrew Mayamba already made to possibly consider moving outwards a bit for a deal more fitting to what you're looking for. There are way too many agents who frankly don't work too hard, so hopefully you have found a good one you like and trust. If you are set on those areas, then just keep on looking and be ready to jump in when the right one comes by.

Best of luck searching! Keep on learning and contributing to the forums here on BP. It's a great place to learn more about what you're seeking.

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Jake Hartnett

Real Estate Agent · Saint Paul, MN · Member since 2014 · 95 posts · 82 votes

10y

There are no deals available in the areas you are looking at, and I think that is pretty normal. I think investors got lazy in 2009-2013 when there were deals all over the place. Now, if you want a deal you have to find a property with something wrong with it. That is what my uncle has been saying for the last 40 years. "Buy a property with something wrong with it that you can fix." Unfortunately, FHA doesn't really let you buy a property with anything wrong with it.

On the flip side, to make a deal work you either need a great price or great financing. Lucky for you you can get great FHA financing. If you are cash flow positive at all you are likely to see 100% ROI because you basically have nothing into the property, especially if you get decent seller concessions.

Here is what you might do: Buy a property where you want to live, in a desirable neighborhood, and with amenities you want. Make sure you are living cheaper than renting, preferable living for free. (This will be easier with a 4-plex or a duplex if you are renting out additional rooms in your unit.) Get your systems in order, bookkeeping, tenant screening, build your team of handyman, plumber, etc. Think of this as a practice house that doesn't cost you money.

Remember, you are house shopping and investing, one of them has to suffer. Even if you plan to move out after 12 months you might find that you aren't able to if the market shifts, so buy something you wouldn't mind living in for a few years.

I'm not saying buy a bad deal, but it sounds like you are looking for a turnkey property in a hot neighborhood that cash flows. Something has to give.

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Amy Ranae

Real Estate Broker · Maple Grove, MN · Member since 2016 · 216 posts · 80 votes

10y

Hi Kerry, you may indeed be looking for a unicorn. I'm looking for something similar although in a different part of town (Maple Grove/Osseo/Plymouth area). I've had good luck driving around until I find a building I like, then looking up the owner in the public record, then looking them up on a background check website like InstantCheckmate (I have no affiliation w/ them) to get their email address and/or phone number and reaching out. I've gotten a response from quite a few, just haven't been able to put a deal together yet. Let me know if you need help w/ this, I'm licensed, and I work in NE a lot.

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Ryan McMonigal

Investor · Eden Prairie, MN · Member since 2014 · 13 posts · 1 vote

10y

Hey @Kerry O'Neill,

Looks like you have been looking for exactly what I have been looking for as well. Like others are saying, there are no deals on the MLS and people are doing whatever they can do to string average deals together with interest rates being so low and people's lack of confidence in the stock market. A lot of the duplexes and multi-family properties that are for sale now are from investors and people who bought between 2010-2012 for next to nothing and are cashing out now.

I was looking for months and couldn't find anything until I came across some of the city of Minneapolis' listings. A duplex for $28,000 in North Minneapolis caught my eye and this February I made an offer, which didn't get accepted until May. This was a perfect property for an FHA 203k loan and the cash flow was great with 3 bedrooms in each unit. I was really excited to close on it but my co-workers and parents talked me out of it because of some shootings near by so I was back to square one.

After looking for months again without finding anything on the multi-family side, I decided to change my strategy and look for single-families homes that needed rehabs to flip and I am closing on one September 1st. I have room mates to cover the mortgage during the rehab. While I believe rentals are the best long-term strategy, you can build some great equity in this market by doing some flips then later roll them into rentals.

My opinion is that you look for a single-family home in South or NE Minneapolis, use an FHA 203k loan to finance your repairs then sell it off in 3-6 months. I could not justify paying what other people are paying for multi-family properties now. @Shane Hedeen is also spot on in saying that prices will not change during the winter and because a lot of people buying multi-family properties are investors, they do not care what the weather is doing.

All the best with your search and happy to help with anything along the way!

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Bruce Runn

Investor · Minneapolis, MN · Member since 2014 · 743 posts · 927 votes

10y

@Jake Hartnett

There are deals out there with "something wrong" that do cash flow. You just have to decide if you can handle the "what's wrong" piece-LOL. Jake and Amy are right that there's no such thing as a perfectly finished turnkey/unicorn that is a deal. The caveat that I push is that you have to go look at all of those duplexes to see what the property looks like. You can't make a decisions based strictly on MLS information. Some of my greatest successes have come from adding bedrooms, renovating, putting in sweat equity, figuring out what the real rent could be ect. to turn a little bit of an eyesore into a gem.

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Kerry O'Neill

OP

Minneapolis, MN · Member since 2016 · 2 posts · 2 votes

10y

Hi all -- First off, thank you all for the feedback and sound critique of my approach so far. I completely agree that I'm unlikely to find a 'unicorn' in the areas I've been looking so far. I have seen plenty of properties I could have purchased so far but none of them have fit my cash flow requirements.

Based on the feedback I've received, I think I need to adjust my strategy to include one or more of the following:

1. Look outside of the hot zones of S. Minneapolis, Northeast, or St. Paul. I could definitely get into a turnkey property in any of these areas but it wouldn't align with my financial goals.

2. Purchase a distressed property for a lower amount and improve it via cash/FHA 203k program. @Ryan McMonigal -- good suggestion on single family properties; I haven't been looking at those but the idea is sound.

3. Continue business as usual until I find something that fits my cash-flow requirements -- ideally, I'd be living for less than rent/hopefully free and could use the savings to put toward capital expenditures/improvements or another down payment. This may not happen in the near term so diversifying my strategy is required.

Again, thanks all for the feedback; it confirms a lot of my observations so far and has given me a lot to think about. I'll keep researching, learning, and contributing to discussions on here where I can. I'm excited to learn and hopefully find a property that's a good fit!

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