All Forum Posts by: Isaac Larson

I definitely think about climate change and it's effects on the country in the long run quite frequently, but much like Tim, haven't considered it much while investing as I too live and invest in MSP.  That being said, should I decide to invest out of state in the future I do think it's something I will take into consideration, as quality of living in any given city will directly affect the income an investment can produce and the general tenant pool for a given area.  

With your first property being a owner occupied, you will be limited to areas you want to actually live and work in, so it seems that will likely be the driving factor of what city your first investment property is in.  I am glad to hear you are interested in purchasing owner occupied multifamily, and truly think it's one of the best investments you can make when you're young to set yourself up for the future!  It's also a great, relatively low risk way to get your feet wet in real estate investing to find out if it's something you would like to pursue more for future investments.  Best of luck!

Thanks for the tag @Evan Kraljic.  Jem - I'd be happy to chat anytime about investment properties in NE.  I have lived in NE for a while now and enjoy it a lot.  Shoot me a pm or an email if you'd like to connect and we will get something set up!

Investment Info:

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

Purchase price: $317,000
Cash invested: $90,000

The legal conversion is finished and the remodeled unit has been rented out. Final product is a legal duplex with two 3 bed 2 bath units. Remodel costs with permit and architecture fees was roughly $110,000. Main 3 bed 2 bath unit is currently rented for $2400/month with the tenant paying electric, heat, and internet. I still plan to do some light cosmetic updates to the upper unit and plan to rent it out for roughly $1950/month. Cash flow once fully rented will be $1600/month

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

I saw a lot of potential to add bedrooms to the main level and there is a lot of square footage in the home (2600 above ground square feet). I also really liked the 4 car garage :)

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

The home was listed as a duplex for a few hours and I saw it. It was cancelled and then moved to a single family listing. After about 30 days on market it was still there and I went to tour it. Prior to inspection I negotiated the price from $350k down to $323k. During inspection I further negotiated the price down to $317,300 with an additional $10k in closing costs. Most of this was due to multiple plumbing issues, electrical issues, and roof leak problems.

How did you finance this deal?

Commercial construction loan with Bank Cherokee. Down payment was 20% of the purchase plus the rehab and the other 80% was financed.

How did you add value to the deal?

Legally converted the home to a duplex from a single family with a potentially illegal accessory dwelling unit. Added a second furnace to the home, split the electric, added fire and sound separation between the units, and a complete main floor remodel plus floorplan rework to add two bedrooms.

What was the outcome?

Legal duplex appraised for $490,000 and I was able to cash out $56k while maintaining 25% down on the refinance.

Lessons learned? Challenges?

Happy to discuss further on the phone. Too much to write down!

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

I represented myself. Roger Hamilton with Bank Cherokee was my lender. I worked with several contractors for the rehab as well.

I think it would really depend on how tight the timeline is, whether they are planning on doing a 1031 exchange if they were to roll into another investment, whether the tax savings on the 1031 outweigh the loss they may take rushing to sell within the timeline, and the location and condition of said duplexes.  

It sounds like you're off to a solid start!  I would be happy to connect and learn a bit more about your current properties and discuss how to potentially get them into the cashflow zone.  I'd also be happy to share how I run analysis on properties when looking to add to your portfolio to help ensure the next one will be generating income as quickly as possible :)

I agree with everything Corey said.

In the current market climate, for small multifamily properties in desirable areas, it's becoming harder and harder to find properties even at the 1% rule.  Although I'm not as familiar with the less desirable parts of town, I'd even be surprised if you could find 2% properties there.

In the areas you're looking, I think 1% or very close can be achieved, but you need to "make" a 1% property.  Finding something that needs work, is poorly marketed, turning tenants and raising rents, or has potential to add bedrooms are some examples of what I mean.

Its doable, just takes some extra effort :) 

Yes of course.  Thanks for asking!

Here are the quotes I have thus far:

Furnace - $8500 for furnace and ac, $500ish to add separate gas meter

Electrical work & adding 2nd meter - $8200ish

Fire & Sound Separation - $7500 (not including electrical needed for lights)  I am working on getting this one down.

Sewer Access Charge Fee & Park Dedication Fee - $4179.9

Architectural Drawings - $2400

Paint entire unit - $3500

Permit fees - ???

The remainder of the budget was all for renovations and adding bedrooms to main floor.

The lot is zoned R1A, so with the 2040 Plan it has the ability to have up to 3 dwelling units.

The loan covered both the $317k purchase price and the $90k renovations.  I got in before covid, so it was still 80/20 for both portions. 

Investment Info:

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

Purchase price: $317,000
Cash invested: $90,000

I am currently converting a single family home to a legal duplex while remodeling the main floor and adding two bedrooms. Final product will be legal duplex, split utilities, 3 bed 2 bath up and down.

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

Initially I was just considering purchasing a duplex, but my financing situation was unique, so I ended up getting a construction loan. The home came on the market, and I saw potential in very poorly used space to add two bedrooms to the main unit. This brought the total bed/bath count from 4/4 to 6/4. Initially the numbers were very enticing, but going through the conversion unexpected costs came up to complete the legal conversion. Returns will still be good in a buy and hold scenario.

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

Initially, the home was listed as a duplex, and I look at every new multifamily listing in the Twin Cities. It was promptly removed a few hours later, and listed as a single family. I saw it again about 30 days later, and decided to go check it out. None of the marketing included photos of the second level, the main floor needed a remodel to save it from the 70s, and it was advertised incorrectly as a 4 bed 3 bath. Initial list price was $350k. Negotiated down to $317k with $10k in seller paids.

How did you finance this deal?

Construction loan with BankCherokee

How did you add value to the deal?

Reworked main unit floor plan opening up walls, adding two bedrooms, in unit laundry on main floor, separating electric and gas, adding second furnace, converting to legal duplex, new kitchen in main floor, new flooring throughout main floor, new plumbing on main floor, cleaned out garage.

What was the outcome?

TBD

Lessons learned? Challenges?

While the 2040 Plan makes adding density/units to properties easier on the zoning aspect, what they don't tell you is building code is very strict. Between hiring an architect, splitting electric, adding a furnace, SAC & PDF fees, building permits, and fire/sound requirements the costs add up quickly. Working with the City of Minneapolis during COVID is very challenging. Unless there is a giant buffer in potential returns, I wouldn't recommend doing a conversion in Minneapolis.

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

Represented myself on the purchase. Would highly recommend my lender, Roger Hamilton at BankCherokee, and my Insurance Agent, Paul Domier at American Family. And myself as an agent of course :)