Investment strategies in current Minneapolis market

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Investment strategies in current Minneapolis market

Gavin Grady
Minneapolis, MN · Member since 2018 · 11 posts · 5 votes

Hello All,

I've always been extremely interested and drawn to REI and during my journey to increase my knowledge I found BP. I have spent the last few months trying to learn as much as I can through books, podcasts, forums, etc. I am continuing to expand my overall REI education, but I have recently been narrowing my focus to better understand how these different investment strategies relate to my specific market of Minneapolis/St.Paul.

I currently work in engineering and construction project management and I also enjoy home renovation projects on my primary residence. My original plan to get into REI was to go the flipping route and do the majority of the rehab myself along with my dad who has 40+ years of carpentry/construction experience, as well as sub out some specialty trades to contractors that my dad has connections with. However, through my research I have started to lean more towards buy and hold.

Where I sit today, I believe I am still about a year out from purchasing my first investment property as I want to save more cash and have my personal debt (student and car loans) paid off before taking the next step.

In the meantime, I am looking to connect with more local investors and BP members! I feel like I have already learned a lot from reading forum posts but wanted to get more involved!

I know the current Twin Cities market is crazy with low inventory and any good investment property opportunities are going quickly (learned this first hand when I bought my current home in St. Louis Park in 2017).

My main questions are:

- What type of investment strategy are most local investors having success with in the current market?

- What cities have proven to be good markets to find deals?

- Have investors started to move to more outer ring suburbs to find deals that work?

I apologize for a lengthy first post, I appreciate any responses in advance and I look forward to connecting with all of you!

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Matt Higgins
Property Manager · Blaine · Member since 2015 · 209 posts · 276 votes
7y

I was doing great on my flips a few years ago, but my preferred method of finding deals (online auctions) dried up.  I’m an agent and I still find some flip deals on the mls, but it’s tough if you’re not buying now and selling in the spring.  

That being said l wish I would have held all of the flips vs paying the capital gains and never making another dollar on them.  They all would have cash flowed.  Probably could have still made my 10-20k on the rifi, but that would have hurt the Cash flow.  

Best part of buy and hold is that you should be able to predict how much money you will make every month when you buy the place.  

Worst part of buy and hold is being patient enough to stack them 300$ a month profit checks until they add up to some real money.  

Appreciation, depreciation, and accumulation is where it’s at. 

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  • Matt Higgins
    Property Manager · Blaine · Member since 2015 · 209 posts · 276 votes
    7y

    I got all my good properties back in 11, 12, 13, maybe 14 in the north metro.  Then I went to the the surrounding areas of of Cambridge, milaca, Princeton, foley, st croix falls, etc.  Soon I was getting priced out of there and now thinking of moving even farther out.  

    Just read an article that listed Minneapolis as the top rental market in the country this year.  I have been flipping homes in north Minneapolis and I’ve held a couple that have been appreciating steadily.  It is possible to cash flow there too, but it’s hard to give someone a 120k for a preoperty they bought 5 years ago for 20k.  Also, the area is still pretty sketch.  Showed up one day and “oh great” a family moved into the garage, now what?  

    A guy I know who crashed out in 08 gave me some good advice.  Buy for cash flow.  When the market is hot you just have to buy farther out.  I guess that’s been my strategry and I haven’t had to change my criteria 

    2Reply
  • Todd Dexheimer
    Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
    7y

    I'd be careful of going too far out. There is little appreciation and if there is any job loss, then vacancy skyrockets. Also, hard to find maintenance and good tenants. Either be patient or change your strategy to commercial or out of state investing

    6Reply
  • Tim SwierczekPro Member
    Lender · White Bear Township, MN · Member since 2016 · 1k+ posts · 1k+ votes
    7y

    @Gavin Grady There are several ways that people are making money now. For example, I have clients who flip homes but I don't flip homes, while some like the suburbs and others the city. In short, there are many ways to make money in REI but the specifics do change. It's currently very hard to find deals that make sense for non-owner occupied financing on the MLS, but even that is not impossible. I recommend finding a Realtor that specailizes in investing as they will have access to off market properties that often have better numbers but also come with some version of an issue, which is why they are not on the MLS.

    I would keep an eye on the market and network with investors through local meet ups.  Deals and markets are constantly evolving so what you would look at as a deal this year will be different next year.  For this reason, I would just get good at identifing deals for flip, rental or both so that you can adjust ast the market adjusts.

    4Reply
  • Gavin Grady
    OP
    Minneapolis, MN · Member since 2018 · 11 posts · 5 votes
    7y

    @Matt Higgins I appreciate the response! Sounds like you focused your original market in your own backyard and have continued expanding as the market increased. I give you credit for venturing into North MPLS, sounds like there are definitely some additional challenges there. Would you say that recently you have been able to make more deals work as a flip compared to hold due to lower cashflow rates?

    0Reply
  • Gavin Grady
    OP
    Minneapolis, MN · Member since 2018 · 11 posts · 5 votes
    7y

    @Todd Dexheimer I do get more concerned with the idea of moving further out in order to find deals, just wanted to see if others were having success with it. Starting out I would like to stay closer to home (west suburbs) in order to stay more hands on and I have a lot more familiarity with the area. I am definitely going to exercise patience and try to find opportunities for off market deals as well. 

    PS - thoroughly enjoyed and learned a lot from your podcast!

    2Reply
  • Gavin Grady
    OP
    Minneapolis, MN · Member since 2018 · 11 posts · 5 votes
    7y

    @Tim Swierczek you make a lot of good points. I am absolutely looking to continue to network in order to find that could help me out and hopefully I could provide them with some value as well. Any suggestions on Realtors? I definitely plan to continue to monitor the market closely while analyzing deals for multiple strategies. 

    0Reply
  • Jordan MoorheadBusiness Member
    Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
    7y

    @Gavin Grady people are making money right now by buying properties that need a significant amount of work and improving them to rent. You have to make a good deal, it's very hard to find turn key cashflow anywhere in the US. I would stick with properties in good areas and stay away from rural areas. As Todd mentioned, I see smaller towns shrinking and that makes everything about owning a property there difficult. I focus on major metros with job and population growth. Minneapolis is an excellent rental market with high demand.

    [email protected]512-888-9122
    The Moorhead Team5140 Reviews
    WebsiteView Page
    5Reply
  • Matt Higgins
    Property Manager · Blaine · Member since 2015 · 209 posts · 276 votes
    7y

    I was doing great on my flips a few years ago, but my preferred method of finding deals (online auctions) dried up.  I’m an agent and I still find some flip deals on the mls, but it’s tough if you’re not buying now and selling in the spring.  

    That being said l wish I would have held all of the flips vs paying the capital gains and never making another dollar on them.  They all would have cash flowed.  Probably could have still made my 10-20k on the rifi, but that would have hurt the Cash flow.  

    Best part of buy and hold is that you should be able to predict how much money you will make every month when you buy the place.  

    Worst part of buy and hold is being patient enough to stack them 300$ a month profit checks until they add up to some real money.  

    Appreciation, depreciation, and accumulation is where it’s at. 

    8Reply
  • Matt Higgins
    Property Manager · Blaine · Member since 2015 · 209 posts · 276 votes
    7y

    I have to chuckle at the “lil appreciation” comment.  I was buying homes for less than 50k out in Cambridge and 30k in milaca and now you’re over 150k and 100k respectively in them towns.  Literally that appreciation happened in 1 to 2 years.  I agree that I don’t like them markets at current prices, but towns like Austin have 30k people in them, a company like Hormel that has been there forever and 50k houses that rent at 750.  A lot less risky than trying to cash flow that 400k golden valley duplex Imo.    

    5Reply
  • Gavin Grady
    OP
    Minneapolis, MN · Member since 2018 · 11 posts · 5 votes
    7y

    @Jordan Moorhead this makes a lot of sense and reinforces some of the ideas/strategies I have been focusing on. I fully expect to put in a significant rehab in a property in order to make the numbers work. I'm not afraid to get my hands dirty and put in the sweat equity starting out to give myself a better chance against the bigger guys out there using a GC. in order to accomplish this, would have to keep my target market close to home. Areas I've been targeting are primarily west burbs - SLP, Hopkins, Golden Valley, Plymouth, Maple Grove, etc. thoughts on these areas?

    0Reply
  • Bruce Runn
    Investor · Minneapolis, MN · Member since 2014 · 743 posts · 927 votes
    7y

    @Gavin Grady

    The problem you'll run into is there are a fair number of active investors that are GC's as well solely doing their own projects so their costs are always more efficient for reno.

    2Reply
  • Jordan MoorheadBusiness Member
    Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
    7y

    @Gavin Grady for mutli family or SFH?

    [email protected]512-888-9122
    The Moorhead Team5140 Reviews
    WebsiteView Page
    0Reply
  • Gavin Grady
    OP
    Minneapolis, MN · Member since 2018 · 11 posts · 5 votes
    7y

    @Bruce Runn that is a fair point, no doubt and absolutely something to keep in mind. More or less just trying find the smallest leg up I may have compared to other new investors with less construction experience or access to trusted subs. I have no doubt I have a lot to learn which is exactly why I am here seeking advice from those with more experience!

    0Reply
  • Matt Higgins
    Property Manager · Blaine · Member since 2015 · 209 posts · 276 votes
    7y

    I’ve been there starting out.  Trust me, working on you’re own properties will make you hate this business.  The less contact you have with the tenant and toilets the better.  

    Everyone knows the 1 percent rule.  Can you find a 1 percent deal out there?  Where are you going to find the “significant rehab” properties cheap?  If you don’t pay the GC you will still be paying the holding cost while you spend your nights and weekends trying to fix that place up and not collecting rent.  Sounds miserable to me.  

    Like I said earlier.  The best part of buy and hold is that you should be able to know how much money you will make when you buy.  I would suggest it would be hard to budget the rehab on cost and time if you don’t have significant experience.  Regardless, run the numbers before you buy anything.  

    I have one property that loses me money.  My wife wants me to pay that property off, but I keep it to remind me how much holding a loser sucks.   

    2Reply
  • Gavin Grady
    OP
    Minneapolis, MN · Member since 2018 · 11 posts · 5 votes
    7y

    @Jordan Moorhead initially thinking SFH to get some experience before shifting into Multi at some point

    0Reply
  • Jordan MoorheadBusiness Member
    Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
    7y

    @Gavin Grady starting with 2-4 unit properties isn't any harder than managing a SFH. I'd start there as you're more likely to find cashflow in small multis than SFH.

    [email protected]512-888-9122
    The Moorhead Team5140 Reviews
    WebsiteView Page
    2Reply
  • Bruce Runn
    Investor · Minneapolis, MN · Member since 2014 · 743 posts · 927 votes
    7y

    @Gavin Grady

    You have to start somewhere and I feel ok pointing out what some people are up against as I was taught-"You don't know what you don't know".  Understanding the competition is always good as since you are just starting off, it's great to ask questions and do what you are doing as people will weigh in the good, bad, or ugly.  I figured you aren't looking for positive reinforcement but what the reality is.

    2Reply
  • John Woodrich
    Flipper/Rehabber · Minneapolis, MN · Member since 2016 · 1k+ posts · 1k+ votes
    7y

    @Gavin Grady the west metro is not an easy place to get your feet wet, prices are high, property taxes are high, and there are a lot of people chasing the areas.  If you are looking for MF, there isn't much supply.  Doesn't mean you can't be successful but you just have to work a bit harder.  I grew up in Hopkins and started there purchasing in Hop, SLP, Mtka, etc but I was fortunate to start in 2007 :)  My brother still owns a couple properties we purchased in that area for under $70k.

    @Matt Higgins the north metro hasn't dried up yet, I am buying a place in Cambridge for under $30k!

    3Reply
  • Matt Higgins
    Property Manager · Blaine · Member since 2015 · 209 posts · 276 votes
    7y

    Ha, good to see u in here John.  John is my accountant.  He’s literally changed our life.  Any free advice you can get from him is a real value.

    Too bad you just come in here just to brag up your deal and make me feel like I missed out on one.  

    2Reply
  • John Woodrich
    Flipper/Rehabber · Minneapolis, MN · Member since 2016 · 1k+ posts · 1k+ votes
    7y

    @Matt Higgins I am on here too much - will start to hibernate soon with the tax rush.  

    3Reply
  • Gavin Grady
    OP
    Minneapolis, MN · Member since 2018 · 11 posts · 5 votes
    7y

    @Bruce Runn I appreciate the honesty! That’s what I was coming here to get!

    0Reply
  • Gavin Grady
    OP
    Minneapolis, MN · Member since 2018 · 11 posts · 5 votes
    7y

    @John Woodrich I grew up in Hopkins/Minnetonka area as well so I realize this area is not the easiest place to find a deal right now. I figured this would be where I started to look based on familiarity and would continue to expand into other areas as I got a better feel for the market. Thanks for your insight!

    0Reply
  • Patrick Costello
    Minneapolis, MN · Member since 2015 · 6 posts · 5 votes
    7y

    @Gavin Grady @John Woodrich @Matt Higgins @Bruce Runn @Jordan Moorhead

    Just wanted to introduce myself. I'm a new real estate investor literally weeks away from diving in :) 

    Gavin - thanks for making this post! I'm actually listing my South Minneapolis house in a couple weeks with plans to house hack somewhere in the Twin Cities. I've got a real estate agent who is a long time investor and feel like I'm in really good hands and learning a ton from him. Posts like this one specific to the Twin Cities and MN help confirm some of my newbie observations and learn a ton from other seasoned vets. 

    My goal is to stay in the Minneapolis/St. Paul area and not travel too far out. 

    A few properties have popped up over the past few months that either need work or hit that sweet spot between price and rents that allow for solid cash flow as an owner-occupier but as you all have observed, they do seem to be few and far between. 

    There are a few in the Linden Hills, Fulton, Summit Hill neighborhoods that we can afford as well. On the one hand, these are great neighborhoods and the properties are in great shape. On the other hand - even with the high end of the market rents the cash on cash return is pretty low. Do you guys see these as solid appreciation plays? I suppose the livability factor as an owner occupant can be taken into account here as well. 

    3Reply
  • Matt Higgins
    Property Manager · Blaine · Member since 2015 · 209 posts · 276 votes
    7y

    Be interesting, maybe john has an opinion, but curious as to what the new tax plan will do to properties with high property taxes in states with high income taxes (like ours).  New York already seeing a population drop.  Minnesota has always been a steady market, but my guess is the new tax plan could change that. 

    Having someone who knows what they’re doing assisting you is 100% the way to go.  There’s always a deal somewhere.  If there wasn’t money to be made in great properties in great locations there wouldn’t be cranes everywhere  

    0Reply
  • Alyssa StromBusiness Member
    Real Estate Agent · Saint Paul, MN · Member since 2015 · 224 posts · 214 votes
    7y

    @Gavin Grady You definitely started in the right place. Most days, I can't believe how much value BP provides for free! As everyone has noted, there is a lot of competition for distressed SFH and any MF plus low inventory. That being said, you have enough time to be patient. Run some numbers, tour a few properties and start looking for ways to add value to the ugly ones. With your background, your Dad's expertise and your buy and hold plan you could definitely focus on finding a distressed MF. As @Jordan Moorhead mentioned a 2-4 unit building isn't much more difficult to manage than a SFH. Watch the MLS, start networking, attend meetups, tell people what you are looking for and you should have some luck. I'd also recommend expanding your search beyond the western suburbs. If you aren't planning to live there, determine what type of class of rental portfolio you'd like to build/manage and find the neighborhoods/cities that match metro-wide. I personally think there is still a lot of value in Saint Paul and would be happy to chat specifics if you're interested in this side of the river!

    4Reply
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