Minnesota Owner Occupied Duplex?

Question

My wife and I are planning to move to Minnesota within 3 years. I have a lot of experience on CMBS and multifamily loans but not much on the ownership side apart from a duplex that I managed for my parents in college. Due to the unusually high rent and single family prices I am looking into the idea of purchasing/building a duplex when we move to Minnesota to reduce the monthly mortgage expenses by having a renter supplementing the payment. The hold period would likely be 5 years before we would want to transition to a single family home.

That being said, I have 0 knowledge or experience in Minnesota duplex ownership. The ideal location would be on the west side of the cities as her parents live an hour and a half west of the cities. The budget based on what I have been able to find would be in the $250-350k range.

General Questions:

- What is the ideal financing method for less than 10% down payment? I am interested in FHA given the low down payment requirement since this would be an owner occupied duplex.

- If we were to build the property, what would be the best method to determine layout, costs, etc? Although building the property would be a headache I believe this would allow some piece of mind that everything is brand new and should have minimal maintenance for the first few years.

Minnesota/Twin Cities Specific Questions:

- What area would be ideal to pursue? We are willing to have a 30-45 minute commute to have the right buy BUT the further we are from the city the lower the rent we can ask.

- Are there any lenders you would recommend discussing options/specifics?

- If you have developed properties how stringent are the regulations and would it be better to buy an existing property? I have heard it isn’t developer friendly.

- Any tips/tricks/advice/warnings for this idea in the greater MSP area?

Tim Swierczek · Answer

@Cody Hilke Here's my take on your questions in bold below

General Questions:

- What is the ideal financing method for less than 10% down payment? I am interested in FHA given the low down payment requirement since this would be an owner-occupied duplex.  If you are a former military member a VA loan is a great choice, but I assume you would know that if you were in the military.  If you don't qualify for a VA loan, then you possibly have 2 good loan options.  The FHA loan you mentioned with a 3.5% down payment or a Conventional 5% down program.  Many people will try to tell you that one loan is better than the other and if you look at them in a silo the conventional  is better in most metrics, however, if you look to expand your small multi-family holdings then you should look at the total picture and about half the time the FHA is the better option when you take everything into consideration.

- If we were to build the property, what would be the best method to determine layout, costs, etc? Although building the property would be a headache I believe this would allow some piece of mind that everything is brand new and should have minimal maintenance for the first few years.  This is beyond my scope.  You either need to buy plans, or find a design firm to help with this.  You probably know this but to build a new duplex is significantly more than you are looking at for a budget, not that that is bad more on that below.

Minnesota/Twin Cities Specific Questions:

- What area would be ideal to pursue? We are willing to have a 30-45 minute commute to have the right buy BUT the further we are from the city the lower the rent we can ask.  Going west is very tough on budget 30-45 minutes from downtown.  It's some of the highest pricing you will find in MN.  I'd suggest you reconsider that you will save more car time by looking at a shorter commute living somewhere closer to work and likely North or East but have a bit longer drive to your in-laws.  If you save 10 minutes each way that's 20 minutes/day and it would justify a slightly longer drive to your in-laws.

- If you have developed properties how stringent are the regulations and would it be better to buy an existing property? I have heard it isn’t developer-friendly.  I have no knowledge in this area

- Any tips/tricks/advice/warnings for this idea in the greater MSP area?  Look for a great existing home, a new build is very expensive and will make it very difficult if not impossible to cash flow unless you buy in a very high rent area.

John Woodrich · Answer

When I think western suburbs I think SLP, Hopkins, Minnetonka, Wazyata, Excelsior, Eden Prairie, Chanhassen, etc and it will be very difficult to find a duplex for your price range.  These cities have a limited supply and the prices are pretty high as they all have pretty good school districts.  Also, with that budget it will be very tough to build anything as land costs in those cities are very high also and construction costs have been increasing....

Sounds like you are willing to have a 30-45 minute commute, I would star there and see what cities it lands you in and start looking at prior sales.  That will give you an idea whether your expectations meet the market prices or whether you have to look for other options.  Feel free to message me if you are looking for a realtor who specializes in investments or a mortgage broker to discuss your options.

Jordan Moorhead · Answer

@Cody Hilke it’s certainly easier to buy an existing property and more cost effective. FHA would be a great option and besides North Minneapolis there really aren’t any bad areas.

Armin Nazarinia · Answer

@Cody Hilke- I agree with the feedback from many on here, however the one item I would add is the timeline you said is within 3 years. A lot can change within that time in a market. Are you more towards the later part of that 3 years you're looking to move or something sooner? That could change what might be best and what the market really looks like. Feel free to DM me if you'd like to chat more.

Brent Paul · Answer

St. Cloud has a ton of duplexes that I have seen come to market the last 6 months..  You aren't going to find many if any duplexes in my area for that price unless it's an off market deal.  You will need to look a little further out or find something that needs a reno.  There are definitely deals to be had if you network with the right people.  I was offered a duplex for a fair price at a network event last weekend.  But unfortunately I have too much on my plate right now to go after it.

I bought my last house with conventional and only 5% down.

A new build is very expensive unless you are getting the land for dirt cheap and doing one of those modular homes or pull barn homes.  I was quoted 160k but that was in wright county and on 5 acres of land surrounded by farms.  You are looking in the 330k + in the metro area to build.  Land is so expensive it isn't worth it unless you have tons of it laying around to burn.

Amber Gonion · Answer

@Cody Hilke we have and manage  a couple of properties in the western suburbs and have sold a bunch in those areas.  It is surprising how much opportunity there is in great suburban areas that a very comfortable for house hacking.  My husband started in house hacking in a nice suburb 20 years ago with great success.  There is inventory that would be far more investor friendly that building at this time.

Craig Kamman · Answer

To do a duplex in that price range, look towards Anoka or Shakopee or further out.  You might be better from investment standpoint to purchase a couple townhomes instead of a duplex.  Duplexes tend to get bid up by owner occupants making them difficult to cash flow.

Brendan F. Nagle · Answer

@Cody Hilke

I have a SFH with a mother in law suite, and a new remodeled basement in St. Paul. Should be within your range depending on what year you move. Its now a 4 bd 3ba with a 5th bd if you removed the kitchenette upstairs. Depending on how much of the house you would need, you can put a big dent in the mortgage. PM me for details, but my situation isn't unique. There are many houses in MN cities and suburbs that could be the house hack you are looking for. Several agents @Kurt Pauley @Justin Moorhead that would help you find the right spot. Plus with a SFH finding a lender- Community, Credit Union, or big Bank should have options. Good luck with your journey.

Minnesota Owner Occupied Duplex?

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