All Forum Posts by: Marc Jolicoeur

Having recently purchased a 60 yr old property in Minneapolis that was a bit neglected, I can attest that maintenance and the GC role can really eat your lunch.  I do my own handyman maintenance and most of the GC-level coordination and I have been at the property about 100 times in the last two months since I bought it.

Gutters plugged and overflowing.  Water seepage in basement.

lawn cutting weekly

planting perennials

mulch

Cleaning out trash from the garage

Deep cleaning the kitchens and baths

5 plumbing issues under the various sinks and snaking the bathtubs

replacing a vanity

replacing old ceiling tiles

thermostat not working due to inadequate wiring in the wall

fire alarms beeping - some needed replacing

missing CO2 detectors per code

lots of painting

installing new laundry machines (x4) and required plumbing and venting

add a stair railing per code

code issue with main floor drain plugged

Installing blinds in bedrooms

If you plan to give everything to a GC or handyman - they will bleed you for the number of visits required to get an older place ready and all issues that are common when buying an older place.  

And this place was in good rental shape when purchased.   If you want to flip it you have to step it up to a higher level of quality.

@Katherine Lankford I have a full time job plus own three townhomes in the suburbs now and a duplex in Minneapolis.   I would be happy to share my strategies with you and also my opinion of where are good areas to buy and good types of properties for renting.

@Chris Baker I am also busy with my job and invest semi-passively in local rentals.   I am in Minneapolis if you would like to know how my investments are returning for me I can give you a pretty good picture of what it would look like to own rentals here, and hiring out the rehabs, repairs, and property management.  I am happy to open to the books and share my experience to shorten your learning curve.

I just got two more properties this spring.   Have 3 townhomes and a duplex now.

I am more hands-on and DIY right now than you would be.   It is my personality.  However I chose and plan investments with the intent to make them passive at a future date.

Marc

@Christine Grimley Since you are numbers oriented and experienced with spreadsheets I would recommend you build your own deal analysis spreadsheet and you put 100 properties through the deal analysis.  You will learn so much about the numbers behind the properties and you can do this at your desk in the evenings.

An extra $5000 needed for carpets and appliances makes a big difference in your ROI calculations.

Forecast your return on investment long term and make sure its worth all the extra troubles over and above investing in dividend stocks.   

Buying real estate in a hot market has inherent risks of paying too much and that a correction in the future could steal your equity and force you to keep the property longer than you intended to.

Stress test your model. You want to consider current rent estimates but also what happens if you have to drop the rents by $200 if there is a recession and the pool of renters shrinks due to double-bunking.

I am in Minneapolis and willing to meet up for coffee and walk through the spreadsheet I use.

Even in the hot market, I was able to buy two listed properties a couple of months ago that are both great investments.  But to do so I probably analyzed 1000 properties, and made offers on about 100 of them over a year.

@Matt Cecil Probably 90% of conventional loans offered by banks and by mortgage brokers are all the same under the covers. They are underwritten by using Fannie Mae and/or Freddie Mac standards so that the bank has the option to sell the note to the secondary market.   

Some local banks and credit unions may keep the loan in house and if they do that it is called a "portfolio" loan.   Portfolio loans are not as good as they may have a term shorter than 30 years or may have a bit higher interest rate.

Other big banks may keep the loans in house (like US Bank) but they may also decide 1 month, 1 year, or 10 years from now to sell the note on the secondary market.   

When loans are underwitten to Fannie or Freddie standards, then the note can be sold by the origniation bank to Fannie or Freddie.  They will then take that note and put it into a Mortgage Backed Security.    

My main point is that 90% of the 30-year-fixed loan offers you will see by loan officers are all the same thing under the covers.  They are a commodity.   You can and should shop around and get the best rate quotes and lowest origination fees.

Ask the banker if they do portfolio loans and if they offer the same rates and fees. Likely they do not compete as well.  However, using a small bank or Credit Union may be your preference if you think you will be buying a lot of property some day.  Relationships with bankers really help when you start buying multiple properties.

FHA is a different product and I do not recommend it for your strategy. It allows a low DP but needs to be insured with Mortgage Insurance forever. Even if you get to 20% equity through rehab or appreciation you cannot cancel the PMI. So, I would not recommend it unless its going to be a foreever house.

Sometimes you will see a listing asking for cash only. That just means they will prioritize offers where the buyer has all cash and the deal is not contingent on any financing. Often a seller with a house in tough condition will say cash only because he knows the house will not qualify for FHA financing or Conventional financing. For example if plumbing is not working or if there is no stove to cook on, the house is not livable and will not qualify for any FHA or conventional financing. Also if there is a lot of mold or other environmental issues.

Many small banks and credit unions will offer renovation loans to allow you to fix up a distressed property.      These loans are not conventional loans - they are more like portfolio loans and can have a very short term like 1 yr which means you are effectively using getting two loans.  One to fix and one refinance after the fix.   

If it says FHA or rehab loans that does not preclude you from using a Conventional loan or a different kind of renovation loab but it does mean that the seller thinks the house will qualify for an FHA loan or for an FHA rehab loan.

Anyway since you will avoid FHA loans for your strategy I would simply start a conversation with multiple lenders and ask the following questions:

- Do you offer low down payment 30 yr fixed loans for Owner Occupants? (3.5%, 5%, 10%)

- What is the difference in interest rates or loan fees for low down vs higher down payment?

- What is cost of PMI?

- When can I cancel PMI and what steps are needed in order to cancel it?

- Are these loans kept in house or sold on the secondary market?  (doesn't really matter but nice to know)

- What sort of rehab or renovation loans do you offer?   And what does the property need to qualify for these?

- What do you need from me to provide a pre-approval letter so I can make offers? Will you pull credit?

Explain to the Loan officer that you intend to improve the property to force appreciation.  Also that you may move out in 2-3 yrs and keep it as a rental.   Good Loan Officers will help you through and consult with you on what your best options are.

If you only plan to stay in your property a couple of years and want to rent it out afterwards, you should do your analysis on the property as if you were going to rent it out now.   That way when you do move on, you wont be stuck with a house that is not a great rental.

For financing, you can get a 30 yr conventional loan.  Most banks and mortgage brokers will offer you a range of options from 3% down up to 20% down if you plan to live in the house at least a year.    The interest rate and fees they charge will vary depending on how much you put down and how good is your credit score and debt to income ratio.  The amounts they charge also vary day to day depending on interest rates.  Do shop around and get multiple quotes on the same day to see which lender is giving you the better deal.  It could swing by $1000 in closing costs and by 1/4% which is significant.

Note if you put less than 20% down you may need to pay mortgage insurance which is like an add-on to your mortgage and you need to make sure the loan you get will allow you to cancel that PMI when you have 20% equity.

FHA loan may not be available if you buy a fixer-upper to try and force appreciation. The property may not qualify and getting the loan is a bit tougher because the appraisal is more tricky.

Use the rental property calculator or make a spreadsheet and input all the numbers, mortgage, mortgage insurance, property taxes, insurance estimates.    

Estimate current rents for similar properties using rentometer and the zillow rent zestimate. 

Make assumptions about how much you need for capx reserves, maintenance reserves, and property management.

Plug all of this in your calculator or spreadsheet and see how much cashflow you are making. If its not $200 that means this property is not a great rental. Don't buy it if you plan to rent it in a couple of years. You will see by doing this type of analysis how your mortgage cost changes and cash flow increases if you put 20% down and don't need the PMI.

If you end up with 5% or 10% down and you cash flow on paper after mortgage, PMI, taxes, insurance, maintenance, capx, and property management, it might be a good buy.

Once you convert it to a rental you do not have to say anything to the bank. However, you should update your insurance. It will go up. Also, you should expect the city and county to increase the taxes for your place as the values go up. Hopefully by then you can get a new appraisal, have 20% equity and cancel the PMI but don't count on it because values could go down.

You will notice that once you get to more expensive houses > 300K the numbers do not work very well.  Taxes and insurance are pricier, and the asking rent is not necessarily higher.   So, you might want to try shopping for "average" houses that are cheaper and in great locations where rents will be strong even if in a recession.  Or, by a duplex or fourplex.

In twenty years we will have 50% more population and cars.  The Met Coucil is not going to allow expansion of the metro due to high infrastructure costs (water treatment, sewers, roads).  Buildable land is actually quite limited.   The governments are going to want is to build up not out.

Current commute from a far out suburb might be a reasonable 30-40 minutes today but once that burb gets all of its lots filled with Mc Mansions, and those houses have teenagers, can you imagine how many cars will travel the same road?  The local cities will be forced to add traffic signals for the higher amounts of traffic and that just extends your daily commute.

The fact is that McMansions in the outer burbs are not a good investment.   Even if they do appreciate for a while with the overall market they will be hit hard during recessions, and last to re-appreciate due to the undesireability of the longer commute times.

I think your idea of a lakefront place makes a lot of sense versus buying tract homes.  However, if its far from the action and the jobs, future commute times could also be a major impact to these values long term.

I really like the suggestions of West Bloomington, Edina, or Kenwood.   Stay within 10 miles of 494/694 or you will go crazy on your daily drive.

Then again, self driving cars will probably make the commute more efficient and we may not even need to go the office anymore due to telecommuting.

@Andrew Mickelson  Welcome to the site and let us know what you need help with.  

@Jeremy Barth I would also like to hear about what you would like to sell. Please message me.

This is a new property for me but I have a large detached garage behind a duplex in the powderhorn park area and tenant applicants are clamoring to rent each half for $100 each.  Especially in a roommate situation multiple residents on one side would be happy to rent more than one spot.