All Forum Posts by: Michael Schraepfer

Hey Hillary!  

Here is my two cents from another Duluth Investor!  

I think this is a fun question, and I've seen an aspect of it echo as investors get going. So - first, I'll be annoying and answer your question with a question: Ok, so if you take either of the 18k or 56k routes as detailed above, what will you then do to grow after that?  Unless you can create an engine that funds future investments without having to wait years for returns to build up - you'll be back in the same spot. Every investor is faced with this dilemma in some way or another - you'll eventually run out of cash to put down on new investments. Its hard, and slow for an impatient investor (I'm impatient anyway) to perfectly roll a chunk of cash from deal to deal and get it all back time after time to reinvest again and again. Most of the time you loose some of the cash (in a good way) to illiquid equity in properties.  Thats just the nature of buy and hold investing - especially in a market like we're in these days!  So you either stop investing (or in many peoples case never start) or you need to wait and build up cash again.

The real answer to this dilemma is OPM.  I've always loved the saying "You're not an investor until you run out of money."  It's really kinda true. If you have down payment cash, then you're just buying stuff and anyone can do that till the cash runs out. Real investors get creative.

So, If I were you - I'd stay put and get that 18k liquid (having some cash is always good). Then I'd start looking for ways/deals to invest using Other Peoples Money. You'll need to sooner or later, or your investing streak will flame out.  How? Awesome question! There are a ton of ways to add some creativity into a deal. This is ultimately the stuff of legend and I keep learning new ways as the game unfolds. A few basic OPM ideas to start with are owner financed deals, friends and family loans, hard money lenders, house hacking and construction remodel loans.  

One thing I think that helps a lot in the beginning is to realize when investing is that you're buying 2 things: You buy the property, and you buy the terms.  I'll take an OK property with great terms any day.  Terms are often more valuable in the deal than the property itself. You need to find (or create) deals with some great terms!

Best of luck!

Matt I love this question!!!  

It's always good to be objective - and I think this is one of the differences between good and great at this game.  There are some good answers here, but many are anecdotal. I struggled with this question for a long time - searching for a better than anecdotal answer.  I.E. what you set out to do when you bought it x amount of months ago is irrelevant to what "is" today - and being aware and objective is smart.

An investor can do well either way, sure - but there is a right answer here. This is money and time which equates to math, so there must be a right answer...

Here is what I landed on: The issue is that all investors should have an IRR standard that they earn on their equity. For example, I started out wanting at least 20% annually, that was my IRR standard. As I achieved it and more I pushed my standard up. Whatever your IRR goal is, the point is with this clarity the decision is easy, but with out the benchmark no answer feels right. So, the question really is - what has your past annual IRR performance been? What is the IRR as a buy and hold in this deal? Does it meet your standard? If the IRR is not good enough, flip it or refinance and lever it up.
Actually - this analysis should be done on all properties and investor holds every year. This guides me to when the time is right and I should refi and re-lever up the swelling equity in properties I hold. I've learned over time, between appreciation and pay down most of my holds are below 50% LTV at 6-7 years and my IRR drops below my standard.

So - long story short. I'd create an IRR goal, and then calculate the IRR factoring in your cashflow, principal pay down, and nominal appreciation and make a decision based on that info.

Final note - I've learned at a handful of lenders up here if you hold the property over 1 year, they have no problem doing a cash out refi and levering a project gone well up to the new 80% LTV. So, you might be able to tap half that equity and get your IRR back up above your mark as a buy and hold.

Haha - I feel like this was a complicated answer!  I hope it makes sense - maybe I talked myself in circles!

Cheers!

Hey Dan,

I would highly suggest the monthly meetup we run.  Its the last Tuesday of the month at 7pm at our office.  The next one is August 31st and Bell bank is the sponsor and will have a few lenders there.  If you have any questions about Property Management I'd be happy to share.  

Cheers!

Hey James!

Happy to help a bit here.  Most of this information is on the city of Duluth website but being every city is organized differently at first glance it might seem a bit discombobulated. Also - there is a TON of mis-information out there in our market on licensure in Duluth.  Literally half of the landlords and realtors out there have some part of what is required or allowed wrong.  The reason why is - from 2008-2016 the city council changed the rules literally yearly and there were a LOT of variations through that time period. Here's my best stab at how licensure works in Duluth:

1.  Any property can get a long term rental license in Duluth.  You'll still hear comments like, "well isn't there something about it needing parking", "or if it is too close to another rental", or "in some neighborhoods they are not allowed".  All of those were true at one point or another - but not anymore.  It has settled down the last 5 years with no changes and appears to remain so (they've focused on reinventing vacation rentals every year as of late - lol).  

2. A license costs $250 dollars plus $25/bedroom in the property.  

3. If the property is a single family or duplex and does not have an active license there is an additional $1500 "conversion" fee.  If it is a triplex or larger the conversion fee does not apply.

4.  Licenses are 3 years long, and at every consecutive renewal you pay $250 plus $25/bedroom.  

5. If it is a single family or duplex, the property needs to have 1 less parking spaces than there are bedrooms in the unit.  With a minimum of 2 spaces.  I.E. if it is a 4 bedroom house, it needs 3 spaces.  If it is a 1 bedroom house it needs 2 spaces. If you do not have the required parking, at every 3 year renewal you will need to pay an additional $100 per missing spot (which is pretty minor concession to allow any property to be a rental).  If the property is a triplex or larger - the parking requirements do not apply except in new construction.

6. A unit can only be licensed up to 5 bedrooms unless it is over 2500 SQFT, unless already previously licensed for more.  (don't let those licenses lapse).  

I hope this run-down helps.  Many rentals for sale will obviously come with a current license.  It costs $25 to transfer that license upon sale - that is very easy.  

Maybe in another post I'll go through what is a legal bedroom and the process for adding them! That often comes up when looking at new properties.  

Cheers!

Hey Jerad - No Fee or Signup! Just come and enjoy!

Hey Investors!

I wanted to get a message out - the Twin Ports REI Meetup at Heirloom is finally back! Next week - Tuesday 7pm at our office! We've got an extra timely speaker this month - Diana Dodge, the Eviction Expert from Johnson Killen & Seiler!

I'm mostly look forward to seeing everyone in person again finally!  Bring a friend - Cheers!

https://www.biggerpockets.com/forums/521-events-and-happenings/topics/957173-rei-social-heirloom-investment-club-monthly-meetup

Looking forward to seeing everyone in person next week!  It's been too long!

Thanks for all of the comments and feedback - several good perspectives! 

This is an idea I've had for a while that I'd like to bounce off the northern Minnesota Duluth, MN / Superior, WI investors!  

I've been working on a hyper-efficient new construction duplex plan. Last year the city of Duluth relaxed its zoning setbacks to encourage in-fill housing on existing street/utility infrastructure. You can effectively build a duplex on any 25' wide lot in town - and lots like this are everywhere.  My concept is a 2 bedroom up, 2 bedroom down, slab on grade duplex. Each unit would be an efficient 750 sqft with in-unit laundry.  All utilities separated, no garage just off-street parking in the rear. Each unit would have a modest deck.

I feel like these would rent for 1300 each as new construction units.  I think they could be built for 300k.  

In a time where there is little available and financing is affordable - is this a good deal?  How do you feel this pencils out?  There would be a savings on maintenance with the new construction aspect for at least 10 years.   

Is it worth it?

Hey guys! 

Ha, what a subject. So actually there is data! There has not been a police call or citation issued to a vacation rental yet in Duluth Police's to date. It's a great talking point though for councilors who want to get some bandwidth in supporting their voters. Neighbors always worry about a new vacation rental next door and the councilors have to lather up about it or they will seem unconcerned. There have literally been reports to the lack of police calls. There also have been zero vacation licenses revoked after issue because of issuing complaints from concerned neighbors - none and that has been reported. The last talking point they like to drum is the impact on our affordable housing stock - which several planning commissioners have asked for data to support as logically by their nature vacation rentals not be in the affordable long term rental category.  

At the end of the day, with any change - neighbors will almost always have a "NIMBY" approach as its known.  "Not In My Back Yard" is the acronym.  Neighbors will say they like it, but my neighborhood is different. If councilors don't lather up, regardless how baseless the issue they won't get reelected. Drives me crazy.