All Forum Posts by: Marc Jolicoeur

I would look at townhome condos in A and B class cities with very strong employment markets, and good schools.   

The long term maintenance is pretty simple.  An occasional hot water tank, dishwasher, or garage door opener.   You may need some repairs, paint and carpet every few years.  All of this can be handled remotely if you hire a property management company. 

I also like townhomes because they are more affordable and builders today are not building as many of them like they did 12 years ago.  Inventory is low and there will always be a strong demand for cheaper housing if ever you decide you would rather not hold your property anymore.

The risks are 

1) They crash / correct harder than single family homes in a housing market crash.    The neighbors get foreclosed on more than typical neighborhoods and that keeps values lower for longer.

2) HOA association decides to levy a $20K assessment on all owners in the neighborhood in order to upgrade everyone's windows, decks, roofs, and siding.

3) HOA increases monthly dues by $250 per month in lieu of a large special assessment.

Bruce suggested that Minneapolis might be a good city for this type of investment. I say probably look somewhere else where you can get a better deal.  Right now townhomes in our metro have 1.3 months of inventory and its the tightest market ever.   

I was successful in getting one last May that has an 8% cap rate and 11% Cash on Cash return after 25% downpayment, and assuming property management.   

However it took me about 100 offers over 14 months in order to get this one.  That would be pretty tough to do remotely.

@Account Closed make sure you check out the Minnesota local forums on here.  You will see there are dozens of us who are pretty active .   We just had a meet up last night actually.  

You can find a good number of local meetups posted on meetup.com.

@Andrew Lorei I hope some Minneapolis investors with first hand knowledge of owning in that neighborhood will chime in but I have been hesitant on this area for a couple of reasons:

- There has been a ton of new apartments built near the U in the last 5 yrs.   The inventory situation has completely changed since 5 years ago.

- With the light rail opening up a couple of years ago, living near the line has become more popular with students than como.

- 4-5 years ago the going rate was $550-$560 per bedroom within 1 mile walk of the Dinkytown McDonalds, and the rent dropped off significantly the farther away the walk to campus was.

- Since the housing market is strong, I see landlords trying to sell on the MLS for top dollar. I feel many are reporting income that may have been true a few years ago but probably has come down in the last few years. A few times, I asked for the numbers and found the landlords were using old numbers for income and may not be reflecting that price per bedroom has decreased recently.

Anyway - I think there could be good deals out there and I have no reservations of owning a student house in that area but just be careful you are not sold a cap rate or cash on cash return projection that the seller cannot prove with existing leases.

@Brandon Capelle I do the BRRRR strategy in the metro and would be happy to help you figure it out.

The key to the strategy working for more than one deal is to buy right (a deal).  You've got to buy at a good discount to retail.   Buy a fixer upper where you can afford the down payment PLUS the rehab budget.   Your capital will be tied up until to refi to get some of it back out.  If you buy low enough, you could even get all of your original investment out.

Risks are the following:

- appraiser games. They love to be conservative, even where there are good comps that support a higher valuation.  They are anchoring at what you paid for the place 6 months ago.

- A market correction could reduce the number of good comps and stop your strategy in your tracks.

- Rising interest rates.

- refi mortgage payment will be higher than original one.  That eats $150 -$250 into your cash flow so you need to plan for this up front making sure you will have plenty of cash flow AFTER you get the refi.

Its tough to find deals but that's key to being able to make this work.

@Nick Reynolds You should be able to get a refi from a mortgage broker.    Let me know if you need a name.

If you take this path make sure to plan for an appraisal to come in lower than you expect as appraisers like to come in low for a refi loan. Be conservative in your estimates. So if the comps are $225K to $250K make sure you count on the lower number. If you got the appraisal at $225K then you could get a new loan at 75% LTV which would put you at $168K. Pay off your $108K loan balance and you would have about $55K in capital to use for investments.

If you do a refi make sure you can afford the higher payment and also remember that interest rates are higher now than when you took out the other loan.

The alternative would be a retail sale at the two year mark to avoid taxes.  Wait until the spring selling season might also get you a bit more than selling in the fall.

If you don't mind living in a construction zone, you could do the refi, and take the money to put a downpayment on another HUD fixer upper. Move into it and do a live-in-flip. In the mean time, rent out your house for positive cashflow. Rinse and repeat a dozen times and love that cashflow income.

Forfeiting Security Deposit to break the lease is a bit of a problem if there is any damage to repair. You can't keep their money for breaking the lease, or you will be shy in the money needed to fix up the place.

It's better to call it a lease break fee and ask for it to be paid immediately when they ask to break the lease. Then If they damage the unit before moving out, then you can also keep some of their security deposit.

This is what I put in my lease:

In Minnesota, you can use the Security Deposit to pay for any money owed to the landlord, and you must send a letter to tenant within 21 days of taking back possession.

I ask lease breakers to pay my fee and only at that point I will start marketing and showing the property. They are on the hook for rent through the date the new tenants move in and I will pro-rate the last month if the move-in date is not the 1st.  I also will set expectations with them that it typically takes 45-60 days to get a good tenant in, and will also set expectations about how many days I expect to need for doing the turnover work.

The $500 is a fair compensation for needing to market the property and to do several showings.  

If they give plenty of warning - like 45 to 60 days, this works out pretty well for all parties and its a fair resolution.

If I was moving anywhere in the country and hoping to land in a good RE market for buy and hold, I would probably avoid the coastal areas where prices are high and rentals barely cashflow.

I have been able to get 8% cap rates in Minneapolis duplex and suburb townhome this year.  8% is tough to find but its out here.  You have to be patient and willing to fix up places before renting them.

Job growth is very strong, vacancies extremely low, incomming residents from other places, and the two urban cities are growing and popular with millennials. 

At the same time I think I would look long and hard at Milwaukee, Madison, and Grand Rapids before choosing Minneapolis.

Madison has a captive audience with student housing needs near the campus and downtown.   Even crappy rentals can fetch $550 per bedroom and I think its pretty much recession proof as long as you stay within the University's free bus loop or walking distance to the U or the Capitol.   Its a nice town.  I would not be concerned about the rentals but may be concerned about my own job security as its a smaller city with fewer employers.

Millwaukee looks to have a large housing stock of cheap houses and I think you might be able to do better than 8% cap rate.  The issue I would worry about is job growth and vacancies.   Try to research these two trends in MKE.

Grand Rapids - I know little about but I hear its a great place.

Dylan, a closing agent is not anything the same as a Real Estate Agent, Real Estate Broker, or a Realtor.  

In MN I typically see "closing agent" as a job title held by an employee who works at a Title Company. 

These are the people that check transactions are allowable because the property title is clear (no liens) and they do the legal paperwork for us and basically notarize all the docs we need to sign at the closing table.   In some states and countries, this role is done by an Real Estate Attorney. In MN it is customary for it to be done by a Title company.

@Dustin Ruff What are you looking to get into?    In our market, there are still some good buy and hold deals to be had but they are tough to find.  It takes a lot of persistence and grit to get them but they are out there.

Myself I am basically buying places needing some work, fixing them up, and refinancing a year later to get some of my investment out. (BRRRR strategy). I also self-mange and do a lot of the maintenance myself after work and on weekends.

Other folks on BP are buying a duplex and living on one side and renting out the other. That is a very solid plan to get you started.

Let me know how I can help.

For me it depends where they are moving to. If moving to a city or town with higher Cap rates, and good job market I would wait until the move.  If moving to NYC, LA, or San Fran, I would buy more in MN before leaving.