All Forum Posts by: Evan Kraljic

Yeah finding cash flowing properties on the market right now can be difficult. With your HELOC and cash on hand you're definitely in an advantageous situation though as you could look at some triplexes/fourplexes that may be priced out for a lot of investors, myself included. You could try checking out 2021 3rd Avenue S, Mpls 55404. High price tag at 720k but it is a fourplex in Uptown, and an absolutely massive one at that (7500 sq ft!!). Also, in the description it said it's open for owner occupant starting in November which works for you house hacking, and it has been on the market for 3 months, so you could offer under asking and have a shot at it getting accepted. At 5% down and 2.5% interest rate (maybe optimistic even for owner occ, but that's what it defaulted to) the PITI is ~$4300/month or at 20% it is ~$3400/month. It also lists out $5300 in monthly rents combined for units 1, 2, and 4, which I'm assuming means unit 3 is the one you occupy.

I'd say even at the 5% down option once you consider paying for water/sewer/garbage and budgeting for reserves like capex/maintenance/vacancy you'd be close to living for free there. Not to mention for a massive loan like that you are getting over 1k/month in principal paydown basically right off the jump. If you decided to go with 20% to avoid PMI or when you move out yourself cashflow would only get better of course.

Now I have no reason to sell you on this place, just went through that exercise to show that with how low these interest rates are some of these 3/4 units with a higher purchase price can still cash flow. 

My first questions would be how much is on the HELOC and what is the current interest rate on your mortgage?

If you haven't refinanced in the last couple years, a cash out refi could be a good idea with how low interest rates and you'll be able to pull that equity out tax free. But if you already have a competitive interest rate and if most of your equity is already accounted for with the HELOC, I'd maybe just skip the refi and use the HELOC as a down payment on the rental.

Also something to consider, if you refi with an owner occupant loan (better interest rate) you'll need to live there for another year. Which is fine as long as you don't plan to house hack your first investment property... you didn't mention that so I'm assuming you won't be, so hopefully you'll have enough with the HELOC or cash out refi to afford the 25% down payment here.

I'm really just spitballing and giving out potential strategies here, but the real recommendation is to talk with a mortgage lender who can put actual numbers behind what I'm throwing out and they can give you the best way to proceed. @Tim Swierczek is one of the best and I bet he'd be willing to hop on a Zoom call with you to sort this all out. Good luck!

My best deal is still in progress but I purchased a duplex for 236k which has a third level that was a good size (~800 sq ft) and finished but in really rough shape when I purchased it. Like no one had lived there in probably 30+ years bad. The rest of the house wasn't too great either. Ended up doing a full gut rehab for kitchen and bathroom in both of the existing units and painted all the rest of the units, refinished cabinets in pantry, new light fixtures and other small cosmetics. Also converted a spare room into a bedroom on the second floor unit. 

After finishing that I rented out the bottom unit for $1425/month, and am renting a room on the second floor where I live for $550 + split utilities to a friend. Just off the first two units I am close to living for free with all expenses considered - PITI is now ~$1520 after my refinance. Once the 3rd floor is finished I will either furnish it and make it a short term rental or move up there with my friend and rent out the second floor. The second floor rental value for a 3 bed should be ~$1600. If I did short term rental upstairs I could probably get 2k/month but would have higher vacancy, turnover/furnishing costs, and have to cover more on utilities since they'd be included in the rent. Either way I should be cash flowing $1200-1500/month on top of living here for free, so this deal is an absolute cash cow.

You will not be finding any 2% rule properties in the Twin Cities. 1% rule properties are also scarce, and don't expect to just find them sitting on the market unless if it's is in a rougher neighborhood. To give you a reference point, I had an appraisal done recently in South Mpls in what I would consider a C+/B- neighborhood, and the GRM used for the income approach to valuing my property was 121.48, which was an average found from maybe 40-50 rentals in the area. GRM is gross rent multiplier, essentially the inverse of the 1% rule. So while a 1% property would have a GRM of 100, this 121.48 results in a 0.82% property (1/121.48).

For advice, I would just say that while yes, MSP is a hot market right now, that doesn't mean you should just wait for it to cool down. There are deals to be found in any market, but it hot markets you need to make it a good deal, don't expect it to just fall into your lap. 

Now for the logical follow-up, how does one make a deal good? Raise rents to improve your cash flow, which is either by finding a property with below market rents and/or renovating so the property can rent for more money. I'd be careful with the first one right now though due to the eviction moratorium which states that you can't end any tenants leases right now unless they are breaking laws, which will probably be in place through the winter here. 

The most ban for your buck when it comes to increasing rents is by finishing more square footage (attic or basement) or converting a spare room to a bedroom. Also you said you're pretty handy so if you find a place with an outdated kitchen/bathroom you could DIY most of it to renovate it cheaply and raise rents that way. I did all of the above with my first duplex and while it has been a lot of work, the cash flow will be pretty good when all is said and done.

@Nathan Letourneau Sorry for the confusion Nathan but they assemble then in house before shipping them. Very cost competitive given that you don't need to assemble them. Another place you could check out is Building Materials Outlet (BMO) is Eagan, which also sells stock cabinets, unfinished or painted. Check out their website and I believe they have a price list published on there too. 

Hey Natan, couple important things to bring up here. 

1) Have you toured the property yet? I know which property you're talking about since I own a rental in the area and try to keep up on the market although I'm not in a position to buy right now. There are no pictures on the ad, and while you mention the place will need to be rehabbed and throw out a ballpark of 80k, what is your basis for that? 

2) A fourplex going for 200k in that area is likely to be in really rough condition, so I'm not even sure this property would qualify for conventional financing which you mentioned you are getting pre-approved for. In addition to that, if you aren't even pre-approved yet it sounds like the cart is a little bit in front of the horse here. You're asking the right questions though in assuming you may need to go with BRRRR from the start, but just to be real with you... the market is hot here so if that property is as good of a deal as you think it might be it will get snapped up really quickly.

Now to give you some actionable advice. Talk to Kim Burke with LeaderOne financial as they have a loan program that works well for properties like this. They give a loan based on 85% of the ARV (once rehab is done), with 0% and interest only payments at the start. You can use this loan to pay contractors for the rehab. Also look up the fix up loan through CEE, that could be helpful as well but comes with its own strings.

Most importantly, walk the property, and do it with a contractor so you can get a reasonable estimate on how much it will cost to fix it up. You should pay them for this but it's worth it for a financial commitment this big. Construction isn't cheap in Mpls. While it may be possible to rehab that place for 80k, I highly doubt that will be the case if it's ARV is 500-600k which sounds reasonable given what I know for the area. If it can be rehabbed for that price, the place will likely sell for closer to 300k and/or to a cash buyer. I'm not trying to be a debby downer here, but just being real with you. If the numbers are actually as good as your estimating here, that place will be gone by the end of the week, and I'd be surprised that it has lasted this long even.

Kona Cabinetry in Burnsville is great. Talk to Johnathan Hastin on John Besser and they will hook you up with some solid RTA cabinets, better quality than what you'd get from a big box store or Ikea. They also offer install for a flat fee $75/cabinet, which allows them to remove sales tax from the equation since they're now offering a service and not just a product (or something like that). 

They have a connection with silestone quartz countertops too but I didn't have the best experience with the installation there so I might opt for my own subcontractor on counters if I used them in the future.

Hey Ray, one of the more affordable conferences you will find is the North Star Real Estate Conference, hosted by Todd Dexheimer. It's listed at $259 for two days but there are promo codes for $100 off which you could contact Todd for or it gets advertised on his podcast. I have not been to it before, first one was in 2019 and the Spring 2020 one got delayed due to COVID but it says it may happen this fall instead.

Hey Steven, congrats man!

So just to give a brief lay of the land, Wayzata is in the west metro which is going to have higher housing prices and if you're looking outside of Minneapolis, not a very large supply of duplexes to house hack. On the west side of Minneapolis as you go from South to North you get progressively cheaper, generally speaking. SW Mpls and Uptown are expensive, you won't see many duplexes below 400k there unless they need a lot of work. For example, there was a recent posting 5912 Washburn Avenue South which is a duplex with 3 bed/1 bath on each side, below average finishes (for that area at least) that's posted for 426k that will still probably get snatched up fast. Tough to cash flow starting out there. North Mpls has the cheapest prices in Mpls (duplexes for ~200k) but also more crime, especially recently I've heard of a lot of shootings up there so I wouldn't recommend. 

A nice compromise might be trying to find a place in the Harrison, Willard Hay, or Near North neighborhoods. They are bordered by North Loop and Bryn Mawr on the south which have some of the higher prices in Mpls since that branches in Downtown Mpls and Uptown, respectively. I can only give you a high level view though, as with any neighborhood I'm sure these have their good and bad blocks so rely on an agent who knows investment properties and those locations really well to tell you whats up. 

Good luck and hope you get the job. The twin cities are a great place to be, like any Minnesotan will tell you. We're a little biased :)

What a coincidence, I also bought my first duplex on Lake St and Park Ave recently, if you're owner occupying we might be neighbors haha. I'm actually going to be listing a 2 bed unit for rent soon (probably this week) and am not really planning on wavering from the price I've had in mind for awhile, which is $1400. Based on comparable rents and the renovations completed I think that is fair, if anything I'd probably go up $50 before bringing it down. 

Four bedrooms are tough just because there are going to be a lot fewer properties to compare yours too, as I'm sure you're aware of. With that being said, depending on the condition of the property 2k seems fair for that area. As for wondering about if rents may decreasing following the riots... I can't really say. For me having experienced the riots first hand, it was scary for those two nights where the majority of fires happened but once the curfew was strictly enforced it has been quite calm since then. Seeing businesses burned down within a block of your place obviously isn't very comforting but I can't say it really has impacted how I feel in regards to my own safety in the neighborhood. However, I realize that as a 24 year old guy my views on this will likely be different than a family with kids, which could be a target for a 4 bedroom although I think 4 20 somethings living together is more likely. 

Anyhow, like I mentioned I will be listing my unit for rent soon and I'm sure questions about the riots and general safety of the neighborhood will be very common. I will tell people straight up that I'm probably not the best person to ask having only lived in the area for ~6 months but I've never felt unsafe aside from the 2 nights of intense rioting. That being said, use common sense, I would not advise walking down Lake St. at night by yourself... urban living 101 type stuff. I'll let you know how it goes once I get some actual experience talking to potential tenants about this and seeing how much interest I get. Ultimately my feelings don't mean anything towards what I can get in rent, the market will decide that for me.