All Forum Posts by: Evan Kraljic

@Mike Moe Agreed! I think looking at properties that have been on the market for awhile especially can yield opportunities since people will assume something is majorly wrong with the property and ignore it - I know I had those concerns like what am I missing here? Haha. Also there's a lot more inventory now than there was when I was looking for this property, I think there are more coming up that look like they're at least close to being deals, at least relative to the previous year.

@Brandon Plombon Thanks Brandon! Yeah there were a few points where I was questioning my decisions... the appraiser projected $950/month in rents when I had underwritten at 1300-1350 (albeit after light rehab). I knew his number was off since sub 1k for a 2bed is really low for Minneapolis but still seeing that and the condition it was on final walkthrough started to plant some doubts. Everything turned out okay, just a little more work than I anticipated.

Investment Info:

Buy and hold duplex in Minneapolis, MN

Purchase price: $275,000
Cash invested: $85,000 (~73k for 25% down payment and closing costs, the rest for renovations).
Monthly cash flow: $520 (will be $750 once HELOC is paid down)

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

I wanted to keep the momentum going from my first deal and knew that tapping into the HELOC from my first property would allow me to generate a return on that equity. I also wanted a house near my first househack and current primary residence that wouldn't require a ton of work, that way it would be fully stabilized before my next househack was available this fall.

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

MLS! This deal had been sitting on the market since September of 2020 with a couple price reductions, and my offer was accepted in Feb 2021. Due to the MN winter market and since it sat for so long, I was able to get an offer accepted for 20k below asking price. It was listed for 295k, I offered 280k with 5k of my closing costs covered to reduce my cash to close. This gets stated a lot but as an investor I would always try for this, especially an owner occupant loan where you can get more covered but this was strictly an investment property. One other incentive to get the deal accepted was we put in our offer that the inspection was a pass/fail, aka I wasn't going to nickel and dime them to get the price down for minor issues. Also added that I'd cover an appraisal gap up to 5k.

How did you finance this deal?

25% down payment - fixed 3.375% 30 year investment loan. Down payment was 100% funded from the HELOC I took on my first property. At 3.99% interest only on 70k this comes to ~$233/month as the minimum payment, but I'm also paying back a renovation loan with it and paying above the minimum to reduce my short term debt. Plus it's essentially a reloadable gun so paying it down gives me more cash available for future projects.

How did you add value to the deal?

Mostly a cosmetic remodel. Both units were vacant so I repainted the whole interior. Repainted cabinets and stainless steel appliances in one kitchen. I replaced the toilets, vanities, medicine cabinets, vanity light in the bathroom. Light fixtures throughout a lot of the house. Made custom storage for bedroom with no closet. Had utility company add a gas meter then had my plumber add in a water heater so I could split gas and bill to tenant. Lots of pest proofing on the exterior.

The biggest project was all the ceiling and wall repair required - had to demo one ceiling where the joists were split - only 2x4s plus water damage caused a major sag. Many others had small sags or just looks gross, so there was a mix of installing new drywall or sanding them down and all ended up with a knockdown finish. This is my least favorite type of work so hired this out to a handyman... more on that later.

What was the outcome?

All in all took ~10-12 weeks to remodel and get rented out, 1350 for each 2 bedroom unit plus a $25 pet fee for one. With PITI a little over 1400, 15% expense ratio for vacancy/capex/maintenance, $150/month allotted for water & garbage, and a $233/month minimum HELOC payment this deal cash flows about 520/month. Note: I do self manage and one tenant is taking care of lawn/snow removal in exchange for parking (very small yard and area to shovel). The margins aren't great, I consider this a base hit but allowed me to keep learning lessons for the next deal and gain some cash flow in the meantime.

Equity-wise I am all in for a little under ~290k (PP+rehab) and I think this property is conservatively worth at least 325k. I know Zillow and Redfin estimates don't mean **** but they are at 340k and 334k respectively now. This property is a little hard to comp but most of the duplexes with the same bed/bath count in the area (near Powderhorn Park, if curious) are selling for 400k+ with a couple over 500k, which is all kind of ridiculous to me. Granted a lot those properties are ~1200 sq ft/unit while mine are smaller at 800-900 and not quite as nice, but rental wise they can probably cap out at maybe $100/month than I am renting mine for.

Lessons learned? Challenges?

1. I need to be more thorough when going through properties during showings. I think I was excited for my second deal and overlooked some issues that I spent a lot of time addressing during the remodel. I have a checklist now and plan to take more pictures and document in the future, mostly for vacant spaces which this building was.

2. Setting expectations with contractors is vital, or any working relationship. I had worked with my handyman once before with mixed but overall positive results, and right after closing I was so pumped to get started I agreed to work with him even though he was working on another large project (and doing a poor job, at that). I waited a couple weeks when I could have been doing a lot of prep work myself, and ended up paying a fair amount over what he bid initially. I should have set more of a timeline and payment structure up front, but I will not be working with him again so not the end of the world. It's also important to have multiple contractors in a trade for situations like this (or people being busy). 

3. Keeping up with the market is also important even when you aren't in a position to buy. I had seen a few properties sell abnormally low in this area so I figured that I could get some cash flow near here, or use those sales to negotiate a lower purchase price if necessary. These properties sold during winter which I think played a role... as mentioned before sub 350k is tough to get now so knowing what areas should be priced at and trying to scoop properties below that is a very obvious, but tried and true method to build equity, particularly if you're okay with buying properties that need a facelift.

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

Same agent/lender as my first deal!!

Agent: Kent Hranicka with the Duplex Doctors

Lender: Conor Hesch with Bell Bank

Title: Sarah Weaver with Chicago Title

Contractors: Would not recommend my handyman and I DIYed a fair amount, but I do have an electrician for small jobs and also Dennis with Arrow Pest Control was very knowledgeable/helpful for this situation. 

Hi Dominique, I would recommend joining a couple local facebook and meetup groups. There are a few active real estate groups in the twin cities, one that is investor focused and another is an off market deals group run by a local wholesaler who has a great reputation from what I can tell (I don't personally know him). There are several wholesalers who show up at the meetups hosted by the investor group too. Feel free to send me a message and I can provide you with the group names, BP can be weird about taking down posts if you name outside groups.

Yeah that is a crazy price for windows. Earlier this year I replaced 8 windows for a little over 3k (labor and materials, which were about 50/50 split). I've done a window replacement myself and they aren't too bad but I figured for 8 of them it could be worth hiring out if I found a fair bid. Send me a message and I can give you my guys' contact info. It's 2 older guys - they can be tough to schedule with if they're really busy on other jobs but they did good work for me.

So do you have no off street parking at your place currently with the garage non-functional? I definitely would not prioritize this if you can't use it other than for storage, but is there access to pour concrete back towards your garage so it's connected to the alley again? It won't be super cheap, but if so that may be a priority for me down the road, especially if you have no off-street parking currently. That's a selling point for tenants and can generate income too, although the payback period may be awhile there if you need to pour concrete and fix the garage too.

@Amanda Ian Yeah, moving in with family is a good decent option. If you went the property management route, would you continue managing their property once you’ve found your next property and we’re no longer on-site?

Property management is typically done for around 10% of gross rents from what I've heard, so getting a free place to live for managing a property seems like an asymmetrical trade. Unless you're talking about managing a 10+ unit building in which case, are you really qualified to do that? Especially short term, then relinquishing that within 1-2 months once you've gone under contract on your next househack. 

I think the most logical solution here is to stay in your current home until you find your next property, then move out once you've closed. Or if you don't mind moving twice in a short time period you could explain your situation to a landlord and find a spot to rent MTM and rent our your current residence if you think you're leaving that much money on the table. I'd rather funnel that energy into finding a deal though and move once, but that's just me.

Hi Marcela, yeah it can be pretty overwhelming trying to find the best areas to invest when you're starting out. My recommendation would be to find an agent who invests in the Twin Cities so they know what different properties can command in rent. 

For a very broad generalization, I would say NE Mpls is nice area that has gentrified in the past decade and now an average duplex there is probably around the 350k-400k range. You can find some around 300k or less but those will likely have smaller units and/or deferred maintenance. North Mpls has the lowest property values in the city, I generally do not look for properties in that region so I don't want to treat it as a monolith, just like any other part of the city it can be block by block but I stay away personally. South Mpls is a huge area and I would say for a rule of thumb here the further south you go the better off you are in terms of crime and safety. Although East of Hiawatha Ave (HWY 55) you have neighborhoods like Seward and Cooper which are pretty nice. From personal experience owning rentals in the area, once you get south of 38th St the number of multifamily units decreases by a fair amount - more single family = more homeowners = better neighborhoods in general. Also in South Mpls, west of 35W is considered Uptown and property values are higher there than east of 35W due to better amenities, more YUPPIEs and gentrification like what happened in NE. 

That's a very broad strokes overview, but for any specific property you'll want to do your diligence by working with your agent and verifying rents on Rentometer, gosection8, or anecdotal current data from listings on Zillow/Marketplace. I don't personally look at single family in Mpls because I think it would be really difficult to cash flow, unless you were renting section 8 in North Mpls, which is a niche I know some do very well in. However, if you were looking for lower turnover and more of an appreciation play vs. cash flow single family could still be a good strategy, all depends on your goals as others have mentioned previously.

Off market from my agent and on the MLS. If you're serious, find a good investor friendly agent that can help source deals, or at least let you know what they think is good, decent, or bad when touring on market properties.

Watch some BP webinars that Brandon hosts where he goes through deals, read books, listen to podcasts. The resources are all out there to help you succeed but finding deals in today's market is not easy so you need to put in EFFORT to make deals good too.

Talyssa D'Avila and her partner own a business called Hybridize Reside LLC that specialize in these conversions in Mpls, so I would try reaching out to them.

Hey Tiana! You're ahead of me in terms of rentals but I'd be super interested in talking to you about how to boost up your cash flow - I could talk real estate numbers all day haha. #3 is a tricky one, I could give some suggestions there too but I'm guessing you've already looked into this a bit so not sure how much I can add there.