All Forum Posts by: Eric Gunderson

@Joe Schaak really cool project! I love the West 7th neighborhood. 

The STR conversation is heating back up.

https://www.duluthnewstribune....

Our property makes a cameo appearance in the 2nd half of the article with a very flattering picture as well. If you're planning on a short term rental in Duluth, the rules might be changing soon. 

That's cool that you found a way to add value with a 3rd floor. What is the current zoning of the property? I'd think the city would be receptive to up-zoning your property given the lack of housing in the city. Good luck with the application, sounds like you've got a cool property. 

Thanks! The building grosses about $6100 per month and tenants pay their own expenses. There are also two coin operated washers and two coin operated dryers in the basement. 

@Sam Torvinen it appraised for $540k after repair and lease up bringing rents up to market. We needed to bring about $90k up front for the initial acquisition and construction loan. We were able to cash out refi and get back our initial money down. In short, we weren't able realize the gain in equity until construction was complete.

And yes we too were really drawn by the price, but oh man, it was a lot more work than we anticipated. It was a really awesome learning opportunity.

I was pretty far along in a deal (property under contract) in a commercial form district before we had to back out. Go here to use the county's mapping service to find out where the form district properties are. There's a drop down menu in the top right, and go to Zoning and Land Use. Anything zoned from F-1 to F-7 has special rules that don't count towards the city's 60 STR rental licenses.

We were planning on putting 4 short term rental units in a larger building downtown and it would have been allowed. I worked with Chris Lee, a planner at the city, to confirm this.

As far as management, Heirloom Property Management has a dedicated short term rental manager. They've quoted me numbers for management fees and they have historical numbers for occupancy rates, etc.

Although the previous deal didn't work out, we recently purchased an 8-unit in Duluth's Lincoln Park, and it just so happens (not by coincidence) to be zoned F-5 which would allow STR's. It's a 1 block walk to Bent Paddle and all the other cool stuff in the neighborhood.

So, there is a workaround for STR's, but you've gotta know where to look. There are a couple of hoops to jump through at the city, but it is allowed in the right areas.

Heirloom Property Management has worked with us on the rehabs of the properties. They manage our properties up there as well. It's nice to work with them because they have an eye on the post-work side of things. I've got a few names/contacts of GC's if you want to drop me a private message. 

Pros: Saving a little money, learning more about the process, and having a pretty direct relationship with the seller.

Cons: Maybe not having a lot of experience in closing transactions. Not knowing what to expect, if you're missing something, etc.

I'm a licensed broker, a little biased here, but I'd use an agent. You might save a little money on this one, but you're not forming a relationship with someone that might be bringing deals your way in the future. For this one, you could ask about a flat fee for a broker to go over your documents and facilitate the rest of your transaction since you've done most of the work yourself already. DM me if you have any further questions, I'd be happy to help.

Investment Info:

Large multi-family (5+ units) buy & hold investment in Duluth.

Purchase price: $225,000
Cash invested: $200,000

Contributors:
Mike Sevcik

8 Unit, brick town-home style building adjacent to downtown Duluth. Building needed a lot of mechanical upgrades, cosmetic work, and had a lot of deferred maintenance. Construction is now complete and the building was fully leased up within 9 months of acquisition.

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

Prices in the Twin Cities were on the rise. Comparatively, prices were lower in Duluth, but rents were higher in relation to purchase price. I was looking for more multi-family opportunities at the time, and this happened to show up on the MLS.

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

This deal showed up in the wrong part of the MLS. It only had a grainy, old picture, and the purchase price was almost too good to be true. Through a few back and forths with the seller's agent. We submitted an offer. It was initially not accepted. They chose to work with someone else. About a month went by, and I received a phone call from the seller's agent. We submitted another offer, went to tour the property, and began working towards closing.

How did you finance this deal?

Conventional financing with an interest only construction loan. Loan was converted to a 25-year amortized loan at the end of construction.

How did you add value to the deal?

Lots of places. The building was really falling apart, hence the low sale price. We had hoped for a little more life out of the roof, but after a heavy winter snow season, and below average cold keeping the snow from melting, the roof needed to be replaced. Unexpected but glad to have a new roof. New electric, plumbing, and heating systems were added, and cosmetic updates like new flooring, cabinets, and paint.

What was the outcome?

A well-located cash-flowing asset in Duluth! We love that there is a lot of investment (around 1 billion dollars) in the hospital system about 3 blocks from our property.

Lessons learned? Challenges?

This was the biggest property we had tackled, and there was a lot of efficiency in having the building mostly vacant when we acquired it. We learned a lot about having the proper contracts in place, and having specific language and consequences for not performing parts of the contract. We had issues with a basement full of personal items left at the property, but held money in escrow that was not to be sent to seller until basement was cleaned out. Get it in writing!

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Saint Paul.

Purchase price: $225,000
Cash invested: $45,000

Contributors:
Mike Sevcik

Four unit building which needed cosmetic updates. Each unit is a 2 bedroom, 1 bathroom unit. The property contains off street parking for occupants.

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

I was actively looking for more buy and hold opportunities in St Paul, MN.

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

I had purchased a 7-unit building from this seller the previous year. He mentioned he had a couple other properties, and I stayed in touch with him. We agreed on price and closing date at a McDonald's. It was a pretty easy, straight-forward deal.

How did you finance this deal?

Conventional financing with a 50/50 partner.

How did you add value to the deal?

Rehabbed units as they became vacant. Outfitted each unit with new carpet, paint, cabinets, vinyl plank flooring as they turned over.

What was the outcome?

A steady cash-flowing property with 4 stable occupants.

Lessons learned? Challenges?

This was the first purchase as a partnership, and still pretty early in my investing career. There were some growing pains with property management, and finding the right occupants in the beginning. If I did it all over, I'd try to purchase the property vacant so I could get in to update the units right at the beginning. I think that would have helped attract the occupants we were looking for.

Lesson learned: it really paid off to keep in touch with this seller! Don't burn any bridges.