I'd like to take you back to where it all began, with a triplex on Minnehaha Avenue in Minneapolis that holds a special place in my heart. My name is Justin, and I am one of the two co-founding partners behind BLVD Ventures. minThis triplex, tucked away in Minneapolis's Longfellow neighborhood, served as the cornerstone of my real estate journey. I purchased the property in July 2016 for $307,000, it consists of two units in the front and one unit in the rear. After investing $25,000 in renovations to enhance its appeal, I ultimately sold the property in September 2020 for $475,000. The triplex featured a variety of unit sizes, including a 1-bedroom, a 2-bedroom, and a 3-bedroom with a single bathroom.
How I Found It
I discovered the triplex on Minnehaha Ave through a local real estate agent. After reaching out to the listing agent and scheduling a property tour, it became evident that marketing this property would be a challenge due to the poor condition of the rear unit. Neglect from the tenants had left it in dire need of extensive repairs. Equipped with this knowledge, I made an initial offer of $300,000, $50,000 below the asking price. Following some negotiation back and forth, the seller and I settled on a purchase price of $307,000.
One valuable strategy I have picked up when purchasing 2 to 4-unit properties is to engage directly with the listing agent instead of hiring my own. This approach enables the listing agent to earn double commissions and puts me in a better position to win the deal.
Why I Liked It
The property not only offered a strong return on investment (ROI) but also surpassed the criteria set by the "1% rule" analysis. According to this rule, if the monthly rental income from a property is at least 1% of its purchase price, the investment is considered financially worthwhile. In this case, with a purchase price of $307,000, the 1% rule would require a minimum monthly rental income of $3,070 for the deal to make sense.
My complete analysis included conducting a comprehensive rental comparison study, it became evident that the combined rental income from all three units had the potential to reach $3,500 per month. This discovery indicated that the investment had even greater income potential than initially anticipated, further solidifying its attractiveness as a sound real estate opportunity.
My Business Plan
To attain my targeted rental income, I crafted a strategic renovation plan that allocated $25,000 toward property enhancements. The primary emphasis of this budget was on renovating the rear unit due to its subpar condition. While the upper front unit required new carpeting, the lower unit was move-in ready, having recently undergone a renovation with contemporary finishes.
Right after the property acquisition, I wasted no time in replacing the carpet in the upper unit. Simultaneously, I initiated the leasing process. I successfully signed two leases which provided valuable income to offset operational expenses while I tackled the renovation of the back unit. Though I did end up exceeding my budget by approximately $5,000, the result was a beautifully upgraded property.
How I Financed It
My financing strategy for this property was a creative approach that involved utilizing a bank product with a 75% loan-to-value ratio, featuring a fixed interest rate of 5.5% for a five-year term. Additionally, I leveraged a Home Equity Line of Credit (HELOC) against my personal residence to cover the entire purchase price, amounting to 100% financing. I used cash to fund the $25,000 needed for the property's renovation.
How It’s Going Today
This project marked an excellent beginning for me. It generated consistent cash flow throughout the holding period, allowing me to gain valuable experience as a landlord while also offering affordable and quality housing for the local community. In 2020, I successfully sold the property to an owner-occupant for $475,000, achieving a strong overall return on my investment. Of course, like any real estate venture, it had its share of challenges and successes along the way.
Cutting My Teeth As A Landlord
This property was a tremendous learning experience for me, and it taught me valuable lessons, both in terms of what to do and what to avoid. One significant lesson was the importance of selecting a property manager with a strong pet policy; unfortunately, the property manager I initially hired lacked this. Their lax policy led to the presence of an inappropriate dog, which tragically resulted in an incident where the dog escaped and fatally harmed a neighbor's cat. Additionally, I encountered my first eviction process at this property, which was a challenging experience.
These trials ultimately provided me with invaluable hands-on experience and inspired me to develop my own systems and methods for conducting business more effectively. This experience deepened my enthusiasm for the entire real estate investment process, and the sale of the property served as a catalyst for future growth.
Furthermore, this experience highlighted the potential benefits of offering passive investment opportunities to investors. I realized that enabling investors to participate in real estate without the day-to-day ownership responsibilities could provide them with the upside of real estate investing while sparing them from the difficulties and complications associated with active ownership.
