House Hack in Minneapolis, MN - Cash Cow

[Evan Kraljic]

Originally didn't want to post this because it felt a little self-congratulatory, but I like hearing other people talk about their wins and getting inspired by them. If anyone wants to reach out, especially those in the Twin Cities market about how to get started house hacking feel free to connect with me and maybe I can help you out in some way!

Investment Info:

Buy and hold duplex in Minneapolis, MN

Purchase price: $236,000
Cash invested: $60,000 (~14k for down payment and closing costs, the rest for renovations).
Monthly cash flow: $1300

What made you interested in investing in this type of deal?

This was my first rental property which I ended up house hacking to utilize the low down payment. Also it felt like landlording on easy mode since living at the property made it easier to take care of snow removal and lawn care, other maintenance requests, and familiarize myself with the typical quirks of a 1907 built home.

How did you find this deal and how did you negotiate it?

My agent found this deal off market and we just offered what the seller was asking. Ended up bumping from 235 to 236k because the city mandated inspection (TISH) brought up some repairs that the seller had to take care of before the sale.

How did you finance this deal?

5% down conventional HomePossible loan. $1500 BorrowSmart grant applied towards closing costs as well.

How did you add value to the deal?

Oh geez, where to begin. All new plumbing and electrical, full gut renovation for kitchens and bathrooms on all 3 floors. New vinyl siding, garage doors, and concrete out back for additional parking. Framed in entryway to create 3rd bedroom on second floor.

Finished off ~800 sq ft on 3rd floor which was previously uninhabitable by running new plumbing, electrical, and HVAC up to 3rd floor, scraped all wallpaper and skimcoated over walls, painted. Overall conversion was from a 4 bed, 2 bath duplex to 7 bed, 3 bath triplex.

What was the outcome?

Currently living in this property and will be cashflowing ~$1300/month with all expenses accounted for. Granted, I am renting out the second floor to a business which is paying extra due to additional occupants and risk involved, but even if I was renting at market value I'd be over 1k/month with no housing costs for myself.

Was able to tap into ~100k of equity with a HELOC, although 33k had to be used to pay back a loan I took out through the city to fund some renovations that was hired out to contractors. Will be using the remaining HELOC funds to purchase a 2nd duplex for 25% down which I currently am under contract on.

Lessons learned? Challenges?

Do these posts have a character limit? Haha but honestly with this being my first deal and having absolutely no handyman experience before starting my rehabs it was a constant learning experience. I'll hit the main ones though.

1. Take care of all your mechanicals (electrical, plumbing, HVAC) at once. 

- This mostly applies to plumbing for me but since I was living in this property and wanted to have a functional bathroom and kitchen I starting with renovating the first floor (while living on second floor), finishing that, then started the process over with the second floor. I could have probably cut a month or two off my timeline if I was willing to do all the demo and plumbing rough-in at once, including having both sets of cabinets/counters installed with one trip. Granted I would have had to live at my parents and commute an hour+ to work each way, which I had just got done doing when I moved into this property and did NOT want to go back to that, lol.

2. Expect the unexpected and always be ready to pivot.

- I was pretty deadset on converting this building from a duplex to a triplex until I realized all the complications in going from residential to commercial building code. So I ended up doing most of the same work but just including it with the upper unit as a massive 2 floor, 5 bed/2 bath unit. On a more microlevel, pretty much any first time renovation project will likely have hiccups so be ready for that and don't get discouraged. If you're getting super frustrated, maybe call it a day early and get back after it tomorrow when you have a clear head and time to think about it. This helped me reduce burnout. 

3. "Set a goal so big that you can’t achieve it until you grow into the person who can."

- This is a little cheesy but I first heard this quote before purchasing this property and it has stuck with me since. I did not plan on buying a fixer upper for my first deal given my complete lack of experience with any home improvement projects, but couldn't pass up this deal when I saw it.

I planned on hiring out most of the renovations to a GC or contractor who specializes in bath/kitchen remodels, but after getting my first bids back I realized that I couldn't afford it. So it ended up turning into hiring subcontractors for some of the specialty trades and bridging most of the other gaps myself and with my incredibly helpful parents. 

I looked at every project as the opportunity to learn a new skill and figuring out what I liked and didn't like. I figure that in the future when I have more capital and less time I can focus on the fun stuff (cabinets, flooring, tile) and hire out the obnoxious tasks like drywall.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Agent: Kent Hranicka with the Duplex Doctors

Lender: Conor Hesch with Bell Bank

Contractors: PM me, I don't want them to blow up too much and not return my calls for future projects :)