All Forum Posts by: Keith Linne

@Derek Lacy - thanks so much for the feedback! I originally used $1,800 as my insurance placeholder during underwriting for this first property (assuming for a commercial style policy), so I’ll still be safe cash flow/return-wise. I have to say, I was hopeful $800 annually would be attainable, but figured it wouldn’t be likely. My understanding is that Encompass doesn’t specifically ask the dreaded student housing question on their app (I certainly have no intention of lying on an app); however, if I’m understanding you correctly, it sounds like regardless they reserve the right to inspect in the first 60 days and cancel if they determine it is a student rental? Would you happen to have a recommendation for someone who might be able to help out a small fish on the commercial front in MN? I’ll do some networking as well, but a warm connection is always preferred.

@Will Gaston - I spent the afternoon reading through this thread - excellent information and I really appreciate your willingness to share your experiences. I'm working on obtaining my first student rentals in MN this year, with a goal to hit 50 properties within 5 years. 

As I work through the underwriting process for our first offers , one sticking point I'm hitting is insurance. The broker I work with has a few provider options; however, some exclude student rentals completely while others exclude water damage and fallen trees (not a risk I'm willing to take). We're going to purchase our first few properties personally; however, I can only use our current insurer (Encompass) for 4 rental properties before that is tapped out as an option. 

As a reference point, a policy for ~$100,000 SFH is $800 annually through Encompass. Once we acquire a 5th property and jump to a different provider, the annual premium doubles ($1,600). Have you found more expensive insurance is simply "the nature of the beast", or is there a better way my broker and I can go about keeping costs down on that side? The deals I'm pursuing should work well regardless, but I'd like to shave as much as possible on the expense side (without taking unnecessary/ill-advised risks).

If things take off properly we'll setup an LLC and move into a commercial loan portfolio for the long term, so I would be curious whether that helps/hinders options as well.

On another note, is there any chance you'd be willing to share a generic copy of one of your leases? I'm currently in the phase of adjusting a stock lease from a PM and it sounds like you've got some great tips for how to keep things on track.

Any insight is much appreciated!

@Brent Coombs - I appreciate you taking the time to look this over! Coincidentally, I had thought a bit about the BRRRR strategy (forgot to mention that piece in my initial post). The agent I'm working with thought we could hit an ARV appraisal value of ~$125,000. My hope is that I can pull out the full investment, which would definitely be a huge bonus.

As far as management is concerned, kind of a hybrid of your points (1) and (2). I should be able to get it down to 10% of rents collected with a professional management company; however, I'm assuming since this is my first property there will be some headaches with coaching them how I'd like to approach ongoing communications, repairs, etc.

Hello everyone!

I work full-time as a general contractor and have my Residential Building Contractor and Residential Real Estate Broker licenses in Minnesota. From 2011-2014 I flipped roughly 30 houses, so I have a solid background in comping properties, rehab costs, etc.

This year, I'm aiming to pickup my first buy and hold investment property. If things go well, I'd like to own 4 units by the end of 2018, and continue to scale from there.

With the above in mind, I'm analyzing as many deals as I can and would greatly appreciate feedback regarding the below property (whether you feel anything is missing, your thoughts on the returns/cash flow, etc). I think I should pull the trigger, but I would welcome both agreeable and dissenting opinions!

Student Rental (4BR/1Ba) - $90,000 List Price

Offer: $80,000 purchase price, 3% seller paid closing costs, 20% conventional financing

Cash Outlay: $20,000 ($16,000 down payment, $4,000 rehab)

Rent: $1,240/mth

Mortgage Payment (P&I): $344/mth ($64,000 @ 5% interest, 30 year am)

Taxes: $133/mth

Insurance: $150/mth

Vacancy: $112/mth (9% - playing this conservatively)

Maintenance: $75/mth

CapEx: $125/mth

Management: $149/mth (~12% rents collected, conservatively assuming full occupancy)

Utilities: N/A (covered by tenants)

I like this deal for a couple of reasons. First, it has fairly low entry cost for my first property (relatively speaking). I'm factoring $20,000 out of pocket for this deal; however, since it's rented through March 2019 the "rehab" money I'm noting ($4,000) shouldn't be needed until first tenant turnover. This gives me a maintenance/CapEx cushion from the outset, if there's a break down or emergency.

Second, the property seems poorly managed. Similar properties (4BR) are renting for $1,400/mth + utilities ($350 + utilities per bedroom). With proper management and updates, I should be able to increase gross rents by $160 monthly ($1,920 annually) after the first year. I also have 12% projected as management cost and I’m figuring that cost at full occupancy to remain conservative; however, based on conversations so far I believe I can get this down to 10% of rents collected.

I see this property throwing off roughly $1,812in cash flow ($151/mth). COC return is 9%. Equity accrued is $944, for a total first year ROI of ~13.8% ($2,756/$20,000). If the rent increase goes as planned, second year cash flow increases by roughly $125 (after accounting for the increased vacancy and management allowances). COC jumps to ~16.6% and total ROI 21.5% (equity of $993 accrued in year 2). Those figures are the reason I'm interested in the property, especially since it's a long term play.

I know there are many investors who caution against student rentals; however, I’m younger (29) and don’t have an issue with the extra time/headaches required to manage these types of rentals. For each “con” to this niche, I see an offsetting “pro”.

I hope the above makes sense. If you have a moment, I’d greatly appreciate your feedback!

Kyle - I work full-time as a general contractor in the Twin Cities and just sent you a PM with information a company I highly recommend. Hope that helps!

@Nicholas TenBrink - You are right on with the projected costs!

I rehabbed properties full-time in the Twin Cities from 2011 until 2014 (I now work full-time as a general contractor), and sealing typically ranged between $900 and $1,200 for a standard single family home. 

It's super easy to do. Hire a reputable well sealing company (I recommend Bergerson Caswell, Inc or Don Stodola Well Drilling Co, if in the Twin Cities area), schedule the work, and pay them once it's finished. Both of the above referenced companies take care of the appropriate filing with the MN Dept of Health. When it comes time to re-sell the property, you simply provide a Well Disclosure and copy of the Certificate of Well/Boring Sealing (which you are given after work has been completed), and you're all set. Certainly do not let the need to seal the well deter you from the deal.

I hope that helps! Feel free to followup with any additional questions!

@Daniel Sattler I agree with @John Woodrich and @Dan Bryskin. I rehabbed properties full-time in the Twin Cities from 2011 until 2014 (I've worked full-time doing client work as a general contractor ever since), and the slowest times for re-sale were always early November through mid-February. That being said, anything will sell, if priced correctly - especially entry-level homes (first time buyers without kids, etc, as they aren't tied down by the school calendar). 

We took two approaches with properties that would hit the market in the "dead" months noted above. 

(1) Buy at a slightly lower than normal price, so we could list very aggressively for a quick sale (while hitting the same margins)

(2) Factor in the additional holding costs it would take to get into the spring market. My experience has been that "early bird" buyers start looking again in mid-February to get a jump on the rest of the market.

Best of luck with your investing!

@Karli F. I see that I'm a few days late to the discussion; however, I work full time as a general contractor in the Twin Cities area. I rehabbed houses full time from 2011 - 2014, flipping about 30 over the course of that time. If you're still looking for a contractor and gathering estimates for this project (definitely get 3-4 for comparison purposes), I would welcome the opportunity to view the project and provide you with my thoughts. Please send me a direct message if you're interested in connecting. Thanks in advance!

I work full-time as a general contractor in the Twin cities, and state statute requires we include a mandatory optional cancellation form for cancellation of contract for any reason within 72 business hours/3 business days. I believe that statute applies to the entire service industry, but I am not certain. My opinion is that a professional Realtor would allow you to modify the length of the contract, if desired (no one should want to have a client under contract unwillingly), so it may be worth simply having the conversation. Good luck!

I highly recommend Matt with Floor Coverings International. Does all types of flooring, and is very budget-concious.

I've used him on dozens of projects. Shoot me a private message, and I'd be happy to share his contact info!