All Forum Posts by: Lee Yan

@Peter Tverdov

I also plan to bring in partners for bigger purchases, anything above 300k.

@Peter Tverdov

You make good points about risk of having low LT. I am slowing down and plan to sell 2-3 properties in the next 5 years before any more purchase. I am bullish on rental market as I been tracking housing inventory/rental in MN  for the last 3 years. Here's my assessment on the market in Minneapolis, please let me know your thoughts on my thoughts: ( this would only apply to MN and I do track economical data at my day job)

1. Demand- is being outstripped by the low supply of affordable (=< 250K) single family homes and affordable multi-family rentals (lowest inventory in 20 years). This market pressure will likely increase as builders stopped building houses under $350k due to thinning profit margin. With the tighter lending standards by banks and the "wait and see" attitude of the millennials, we predict the demand for median single family rentals and affordable small multi-families ($1200-$1500) will continue to increase over the next 4 years.

2. Supply - The average backlog for builders in MN are 3-4 years, which is further pressured by shortage of qualified labor and higher turnover/costs. We had predicted last year the supply would not catch up with demand for 4 years, but we are pushing that time line out to 5-7 years. (While tighter government policy may lead to less immigrant population, it will only affect certain housing pockets around Minneapolis/ St. Paul)

3. Job market - Historically, rental market in general has been tied to the job market; US job market is stable and will continue to be so for the foreseeable future. While we are not crazy about the growth, U.S will be the most stable economy in the world. This and the supply pressure will keep the pool of qualified renters filled for the next 10 years.

4. Competition - While we are seeing new apartment complexes being built, those tend to be high rental fees and does not compete with affordable single family/small multi-families. Our renters much rather pay $1200 to $1500 for a 2-3 bed single family or 3 bedroom apartment than pay the same amount for a 1-2 bedroom apartment in the newly build apartments.

5. Bubble – This type of investment is independent of the state of the housing market, as we are supported by stable cash flow and not the outcome of the market price. It is not cash intensive as flips and can be managed part time or through a rental company. We would argue flipping is getting too competitive at the moment and margin is tighter as people are fighting over limited supply of rehab potentials. I also would avoid flips unless you have the necessary knowledge and can do some of the work yourself. The housing market value is increasing at a historical pace but is there should be slight correction in the next few years.

6. Rental rates – YOY we have increased our rent by average of 15%. Our portfolio consists of duplex, four-plex, single family, townhomes and condos. We are seeing the highest increase in single family homes, followed by 3 bed+ units and 2 bedrooms units.

Peter you are correct about the risk of LOCs, however, as long as the rental market remain strong, (which I am seeing as getting stronger in Minneapolis and the banks agrees), banks will likely see my business model as safer lending and keep the LOC open. I am working with Citizen bank of Minnesota, they are a 140 year old community bank HQed in a small town in MN. Aside from service and competitive rates, they also value their long term relationship with customers. These type of banks recall loans as absolute last resort and will work with you during crisis. I got look at my spread sheet closely but I should be between 15-16% equity on the portfolio. I have about 5k per property for cash reserve, it may seem low but when I buy property I avoid ones with major repair such as bad roof or siding(aside from the flips). I am also planning on selling my condo and I believe it will be a 25k gain. With my current cash flow I can choose to pay off a property under 200k every 3 - 4 years or keep acquiring. I like to get to 2-3 year pay off period and roll up to 40% equity before acquiring again. I say that now but will not pass a deal if I see one.

Thanks Steve, you are right about CD as contract for deed and the risks it carries. The brothers are older gentlemen and owns the property free and clear, they own about numbers of property in the area and their motivation was retiring. We did get a lawyer and a broker and went through a closing company for all paper work involved.

We are seeing a higher demand for rental properties YOY since 2013 and we believe this trend will continue for the next 5-7 years. Below are a list of factors we have analyzed to support our outlook and the decision to continue expanding our rental portfolio

1. Demand- is being outstripped by the low supply of affordable (=< 250K) single family homes and affordable multi-family rentals (lowest inventory in 20 years). This market pressure will likely increase as builders stopped building houses under $350k due to thinning profit margin. With the tighter lending standards by banks and the "wait and see" attitude of the millennials, we predict the demand for median single family rentals and affordable small multi-families ($1200-$1500) will continue to increase over the next 4 years.

2. Supply - The average backlog for builders in MN are 3-4 years, which is further pressured by shortage of qualified labor and higher turnover/costs. We had predicted last year the supply would not catch up with demand for 4 years, but we are pushing that time line out to 5-7 years. (While tighter government policy may lead to less immigrant population, it will only affect certain housing pockets around Minneapolis/ St. Paul)

3. Job market - Historically, rental market in general has been tied to the job market; US job market is stable and will continue to be so for the foreseeable future. While we are not crazy about the growth, U.S will be the most stable economy in the world. This and the supply pressure will keep the pool of qualified renters filled for the next 10 years.

4. Competition - While we are seeing new apartment complexes being built, those tend to be high rental fees and does not compete with affordable single family/small multi-families. Our renters much rather pay $1200 to $1500 for a 2-3 bed single family or 3 bedroom apartment than pay the same amount for a 1-2 bedroom apartment in the newly build apartments.

5. Bubble – This type of investment is independent of the state of the housing market, as we are supported by stable cash flow and not the outcome of the market price. It is not cash intensive as flips and can be managed part time or through a rental company. We would argue flipping is getting too competitive at the moment and margin is tighter as people are fighting over limited supply of rehab potentials. I also would avoid flips unless you have the necessary knowledge and can do some of the work yourself. The housing market value is increasing at a historical pace but is there should be slight correction in the next few years.

6. Rental rates – YOY we have increased our rent by average of 15%. Our portfolio consists of duplex, four-plex, single family, townhomes and condos. We are seeing the highest increase in single family homes, followed by 3 bed+ units and 2 bedrooms units.

sorry about all the "long story short" quotes

 I started out by renting my condo to a friend 3 years ago when my company moved me all  over for a work assignment. I was able to save up quite a bit as my living expense was paid for and I put away all my salary and paid down my condo with the rent. I started looking at investing my savings and realized real estate is the best way to go, I began reading books and listen to podcasts religiously and guess which podcast I listened to the most :) .After returning to states I found these two old school investors (brothers) on Craigslist who were willing to CD out their 260k duplex near dt Minneapolis ( Marcy Holmes) for 10% down and 5.5% int, I knew just enough to jump on the deal and it worked out great. It was cash flowing and only need cosmetic work, I also had a friend who knew about fixing houses so I worked out a deal where I give him a certain % equity so he would help me with updating and maintaining the property. We have since increased rent and the property is apprised at 320k. The whole experience provided me with more confidence and I began to look for SF Brrrr opportunities. Long story short, I found two single families in a up and coming neighborhood in Saint Paul, one was 75k, apprised at 130k after updates and the other 90k, 150k after updates. I also began working with a portfolio bank and build good relationship where they provide me with access to line of credit and quick refinancing. Long story short, the two brother who CD us the duplex liked us so much they CD-ed us a $450k four-plex ( Marcy Holmes again) at better interest rate. We were also able to do few cosmetic update and raise the rent 20% on that one as well. Long story short, since than I have bought 2 more single family rentals( one financed and one on CD in North Minneapolis), a duplex , 4-plex and one more 4-plex I currently have under contract. Its been a crazy ride but I tried to avoid all the mistake mentioned on the podcasts and books and so far I am loving the experience. Sleep was not easy the first few month and I was working between 60-80 hours per week.  Now every thing is cash flowing and I have cash reserve/line of credit set up for emergencies. I have a go to contractor I call for most of the work and I am setting up a website to help with application process.I am actually looking at a apartment building now and have asked the owner if they are interested in doing CD, they have said they may be open to it, this would almost double my portfolio but I am looking to raise funds from family and friends... wish me luck

Lee

Also I want note that we are charging 1200+ for 2 bed single family and 1400+ for 3+ bed in those areas and we are not seeing demand going away any time soon. thanks.

Hi David, thanks for the feed back. I should clarify we are talking about single family homes including "suburbs" around Minneapolis (SE Como, North, Marcy Holmes) and St. Paul  (North End, Dayton Bluff). The immigrations effect I'm referring to is in regards to construction work force, as couple of my partners are in the industry and they are seeing higher turn over and are worry about the work force/rising cost of labor due to tighter policies. You are right the demand for rentals by immigrants might go down, however, I see that effect isolated to areas in certain pockets around Minneapolis and St.Paul. You are also right about the hard to find properties, as we are only seeing those coming up sporadically mainly from people looking to retire or moving out of state.  

Hi Everyone, we have been acquiring single family rentals (>10% cap rate) in St.Paul and Minneapolis the last 12 months and we are noticing the demand for affordable single family rental (1100 - 1500)  is increasing exponentially. This is noticed by many and I want give our view of why this is going on and our prediction on the future state:

1. Demand- is being being outstripped by the low supply of affordable (=< 200K) single family homes (lowest inventory in history). This in turn cause the supply of rent-able single family supply to be even lower. With the tighter lending standards by banks and the "wait and see" attitude of the millennials, we predict the demand for single family rentals will continue to increase over the next 3 years. 

2. Supply - The average backlog for builders in MN are  3-5 years and with the tighter immigration policy, the backlog may get longer. As construction industry is seeing shortage of qualified labor and higher turnover. We had predicted last year the supply would not catch up with demand for 4 years, but we are pushing out that time line out to 5-7 years. 

3. Job market - Historically, rental market in general is tied to job market, US job market is stable and will continue to be so for the foreseeable future. While I am not crazy about the growth, we will be the most stable economy in the world and that will keep the pool of qualified renters filled. 

4. Competition - While we are seeing new apartment complexes being built, those tend to be high rental fees and does not compete with affordable single family rental.  Our renters much rather pay $1200 to 1$500 for a 2-3 single family home than pay the same amount for a 2-3 bedroom apartment, which if you look at the new apartments, will not get you much.... 

Again this is based on our simple view and we would love to hear your feed backs and takes on the rental market. thanks.

Lee