Hi @Lynn Gupt, just echoing Ko's input above, as well as offering my perspective from a multifamily development point of view. Without knowing more details about the specifics of the project being proposed as it relates to your property, it's hard to say if there are any obvious big red flags that could negatively impact your property's future value.
That being said, I would try to find out as much information as possible about the new apartment building's design and layout - the two big things I would try to ascertain would be the location of the garage entrances/exits, as well as the location of any outdoor amenity spaces (pools, terraces, dog runs, etc). Just to give you an example of the type of thing you'd be potentially looking out for, if the community has a pool terrace planned and it's orientation in the new building would face directly towards your property, that could be a source of significant noise and disturbance for you/your tenants, and could make it much harder to sell your property once the new building is built and occupied.
On the positive side, new apartment buildings cost millions of dollars to develop and build, and developers really only sink that much money into areas where they're forecasting rent growth and property appreciation for their investment. This would generally bode well for surrounding property owners as well.
One other thing I would also try to scope out in the new building's planning docs would be whether or not they are including any retail/commercial space in addition to the residential apartments. A brand new building with commercial space on the first floor could mean new restaurants, shops, and businesses for the neighborhood, all of which would mean the area would become a more desirable area to live, and your property price would likely benefit as a result. It's amazing what one high-quality restaurant can do to uplift the rest of the surrounding neighborhood.
For what it's worth, anyone investing Minnesota should be aware of The Development Tracker - this publicly available resource shares great development information about proposed, planned, in-progress, and recently completed commercial and residential projects around Minneapolis, St. Paul, and Duluth, MN, as well as the greater Twin Cities metro area and Rochester. Their instagram account also does some great AMA-style development forums each week - definitely worth a follow for anyone who wants to see the latest and greatest in MN development info!
I heard that mentioned in the recent episode of the Rookie show too, and would love to know more about what platforms exist out there for the direct booking/purchase of add-ons in the STR space.
@Diana Mulvihill, what sorts of items/services would you be looking to use this platform for?
For what it's worth, some ideas I've seen pitched are grocery bundles (e.g. a breakfast bundle for 2-4 people with eggs, bacon, bagels, cream cheese, and OJ all pre-stocked in the fridge), meal kits, a pre-stocked drink fridge, charcuterie boards, premium coffee selection, bike/e-bike/scooter/kayak/canoe rentals, video game consoles, upgraded work-from-home office amenities (e.g. oversized computer monitor), etc.
I'm not a lawyer, but cocktail kits, bottles of wine, local craft beer, and other alcoholic items seem like they would fall into a grey area from liability perspective. I'd definitely be interested to hear if any of these add-on platforms have opinions on this specific topic - for example, if the guest purchases an alcoholic add-on through this third-party add-on site, do they have any waiver of liability which extends to cover the host?
Other ideas I've seen include taking white label products and putting your STR branding on them to sell. For example, any STR operators could choose a specific scent for their property, and then get the candle version of that scent for guests to purchase after they check out. Coffee mugs, coasters, pint glasses, blankets, or shirts could also fit into this category. You could also commission an artist or photographer to create a unique art print of your property, and then have that print available for guests to purchase as a reminder from their stay.
I would love to hear everyone's input on other creative ideas for items that an add-on platform could help facilitate!
Hey @Dalton Toelkes, sounds like an intriguing opportunity!
For the inherited tenant, I'd recommend a few things. First, talk with the current owner further to find out as much information as you can about why the current tenant has recently had issues with making their rent payments on time. If it's only a more recent development, there may be a very plausible reason for it (e.g. the tenant just switched jobs and there was a delay between his last paycheck at the old job and his first paycheck at the new job). If there have been a few months of late payments though, that definitely warrants having a deeper conversation with the current owner.
If the owner doesn't know much about the cause of their tenant's late payment situation, go directly to the source and have a friendly conversation with the tenant and introduce yourself. Ask them how long they've lived there, how they like it, and what they like most about the location and neighborhood. Tell them a little bit about your plans for the property - a lot of tenants' first thoughts are that a new owner will come in and either immediately kick them out, or immediately raise the rents. Assure them that as long as they're happy living there and pay their rent on time each month, you aren't planning on doing either right from day 1.
During this conversation with the tenant, also ask them if there are any maintenance issues you should know about, or things they would like fixed up - this will have the dual benefit of giving you the inside scoop on any deferred maintenance issues that the owner themselves might not currently be aware of, as well as giving you some ideas for improvements you could make that would give you cover to raise their rent in the future. I cannot overstate the importance of finding a way to build a good rapport with your tenants as early on in the acquisition process as possible, as it will minimize or prevent countless headaches further down the road.
When I took over my duplex with an inherited resident in one of the units, I had this conversation with the tenant prior to closing and found out that the toilet in their bathroom was clogging once or twice a week, and their shower head water pressure was super weak. After closing, my first orders of business were to swap out the toilet ($130) and install a new and significantly nicer shower head ($30), which solved both of their problems. This was the best initial investment I could have made into the property - it immediately signaled to my tenant that I was serious about taking care of both the property itself, as well as improving their experience as a tenant, and we've been on great terms ever since.
Let's say you talk with the owner and they don't know any information about the renter's situation. You talk with the tenant themselves, and they're confrontational and generally unhelpful/uninterested in working with you or giving you any information. I would then look at how long their current lease runs until, and make sure you're documenting all of their payment receipt dates after you acquire the property. If you only have to put up with a handful of late payments over 2-4 months before their lease term ends, you could simply non-renew their lease for cause (consistent late rent payments), and then lease it to a new tenant. If their lease runs for another 6-12 months though, then you have to decide if you're willing to take on the hassle of 6-12 months of chasing down rent payments, delivering late notices, threatening eviction actions, and potentially going through the eviction process itself. All of that takes either time, cash, or both, and none of it is a pleasant experience for you or the tenant.
During that time, would you have enough cash in your reserves to cover the mortgage for 3-6 months while the eviction process is playing out? Even though you'd be getting into the deal with $0 down, you should still have enough cash (or availability to access cash) to cover the worst case scenario of a tenant who immediately stops paying after you close on the property and requires you to complete an eviction action against them.
To your second question, I'm sure you've heard it before, but the 4 main ways you make money in real estate are cash flow, appreciation, debt paydown, and tax benefits/depreciation. If you're breaking even on the property and wouldn't be getting any cash flow in year 1, you would still have the benefit of the other three working for you. And if this is a good area in a neighborhood you believe in that has seen rent growth in the last 5-10 years, your cash flow would very likely increase year over year as well. Since you'd be looking to hold this property long term, look at what the property's cash flow and appreciation would potentially be 5-10 years down the road to help inform your decision.
All that being said, if you feel confident that you can cover the maintenance, capex, vacancy loss, turn expenses, and leasing costs for a few years while you wait for the cash flow to improve, and you have enough risk tolerance to handle a potentially difficult tenant in the first few months which could lead to zero rent coming in during that transition to getting a new tenant in place, then it sounds like a solid deal to get into with $0 down.
Lastly, I'll also caveat all of my statements above by mentioning that this all requires you to self-manage the property. If you were planning on using a PM company or third-party manager, this would add another ~10% to your monthly expenses, at which point I would no longer consider this to be a deal worth pursuing. Hope this information helps - keep us updated on whether or not you decide to move forward on this property!
Hey @Brett Riemensnider, sounds like you've got a fun project on your hands! I fully renovated the upstairs unit (~850sf) of an up-down duplex in Northeast Minneapolis last year, and that project covered a lot of the same items which you mentioned doing for your reno plans.
Window AC. Much like your property, my unit didn't have any central air or heating. For the AC, I went with the GE Profile ClearView window AC unit, specifically the 8,300 BTU model which runs off of a standard 110v outlet, and is available on Amazon with Prime shipping. We only have this one window AC unit in the bedroom of my STR unit, but coupled with a ceiling fan in the living room one room over, it does a really good job at keeping the apartment cool on even the warmest of days. This AC unit was super easy to set up and install, and is also wifi-enabled so you can see exactly how much power you/your tenants are using via the GE app, as well as giving you alerts when the filters need to be cleaned (pull-out reusable filters are very convenient and easy to maintain). I also really like that this is a U-shaped window unit which wraps over the window sill, meaning that you get to keep nearly all of your window's view and natural light, as well as it being theoretically harder for someone to break into the apartment by kicking in/pulling out the AC unit (ours is on the second floor, but the safety concerns for first floor units is definitely a consideration you'll want to factor in).
Heating. In case it comes up during your project, I also removed all of the old baseboard heaters during my reno and installed new Cadet in-wall electric heaters in their place in every room. The heaters themselves (available at the big box stores) are great and keep the unit as toasty as you could ever want it to be during the winter, and they're much less bulky compared to traditional baseboard heaters. If you do install any Cadet heaters though, for the love of god please pair them with the manual knob-style thermostats - the Cadet electronic programmable thermostats are maybe the single worst product I've purchased in my renovating life, and were replaced almost immediately after installing them.
Doors and Trim. Any of the big box stores - Home Depot, Lowes, or Menards - are great for both items. For my money, I think Home Depot has a slight advantage in availability of in-stock door sizes/styles (which you can check online to find your exact style/size/swing and see which locations have it in stock), while Menards has a wider range of trim options.
LVP Flooring. I installed Home Depot's LifeProof LVP flooring into a 120-year old rental house in St. Paul - all DIY installed without much hassle over the course of a few days, and I liked the integrated underlayment that the LifeProof LVP flooring offered. That property's floors are far from level, and as Kevin mentioned above, the flatter your subflooring is, the better your LVP will hold up. 4 years on, the moderately wavey floors in the 1st floor of my 120-year old rental look as good as the day I installed them; the LVP on the 2nd floor, however, needed to be fully torn out and replaced with carpet because there was too much variance in the subflooring and it was causing the seams on the LVP to crack and come apart.
Shower Window. If you're going down to the studs in the bathroom already, tearing out the window trim/stool/apron is probably the best bet. If it's a vinyl window, or if you could swap out the existing window for a vinyl window without much hassle (e.g. if it's on the first floor and you have easy access to the exterior), then waterproofing the inside shower area around the window would be much easier. If it's an old wood window that can't be replaced or blocked super easily, you could always go down to the studs from the inside, put a piece of treated plywood (painted black) over the window itself, and screw that into place so that it's flush with the studs. From the outside, it will look like a dark room, and from the inside, you'll have a fresh slate to install your shower surround (just make sure you don't screw through the plywood and shatter the glass behind it though!).
Shower Surround. In case you're looking for input on shower surrounds, I can't say enough good things about the Mansfield NexTile 60x30x74 Alcove Panel Shower Surround - I ordered mine from Lowes and got it for under $600 with shipping. Installation was a breeze, the panels are super robust and easy to clean, and having an alcove/niche in the shower makes it feel like a much higher end experience for the user than the product's price tag suggests.
My only other piece of advice would be to go keyless with at least one set of door locks at the property. During the reno process, you can send any contractors or other helpers a keypad code to access the property without you needing to physically be there. After the renovation is complete and you're renting the unit, not having to worry about tracking physical keys is a super convenient perk for residents/guests, and also has the added benefit of minimizing the amount of lockouts and other headaches you'll potentially have to deal with later on down the road. Schlage Encode is my go-to for all of my properties.
Hopefully this all helps take some of the anxiety out of the reno process - take it one manageable step at a time, try to have fun along the way, and you'll be finished up in no time!
Hey @Mike Allen, I use the Schlage Encode Smart Wifi Deadbolts at my STR - one for the front porch door into the property (it's a duplex), a second for the main entry door into the upstairs unit itself, and then one on the supply closet in the unit for our cleaning team.
I don't have any third party management software in place at the moment, and therefore can't speak to the integrations at this point in time. What I can tell you is that I specifically got these locks because they appeared to have the most third-party app integrations, so I wouldn't be limiting my PMS options if I did move that direction in the future.
For now though, I manually update the lock codes for each guest ahead of their arrival, which takes about 90 seconds in total - super quick and easy. The locks and keypads have been very reliable overall, with the batteries in each lock lasting about 4 months with pretty active use, and handling some pretty extreme cold weather. The app also gives you a real time battery life percentage, so you can tell when they're in need of being changed out. I've found that the lock's wifi reliability drops pretty drastically when the lock batteries drop below 40%.
Speaking of, the Schlage app is very easy to use, allowing you to set up a maximum of 100 codes for each lock (admins, cleaners, guests, guest back-up codes, etc). I like that you can set up specific start and end dates/times for each code as well. We make sure the airbnb guest codes don't go live until our exact check-in time each day unless the guests specifically request an early check-in - this makes sure our guests don't try to get in early before the apartment is ready.
My only knock on the locks is that their wifi range isn't super robust, especially if the wifi signal has to travel vertically between floors to get from the router to the lock. Try to get your wifi router on the same level as close as possible to the lock (<20 feet should give you great signal strength), and your Schlage Encode wifi reception should be in good shape. Hope this helps!
@Katie Henson, welcome to the BP community - definitely feel free to reach out if you ever want to chat about Twin Cities investing!
@Ali Harris, this is probably my favorite part of real estate investing: seeing the potential in a property that isn't readily apparent to most other people, and then executing a plan to bring your vision to life - so cool to hear you're exploring this!
I have a duplex in Minneapolis with an occupied unit that I'm looking at potentially doing this same thing to if/when the current resident moves elsewhere. Here are some of the driving factors I'm thinking about when deciding whether or not to move forward with this bedroom addition at my duplex:
Unit Layout. Can the layout comfortably tolerate the addition of another bedroom? Unless you're adding an exterior addition, you only have so much interior space to work with. As @Jason Park mentioned, definitely avoid wonky layouts or adding a tiny bedroom just for the sake of bedroom count, as these can actually make your property significantly harder to rent to prospective residents.
Code Requirements. Keep in mind that adding a bedroom doesn't mean just adding a new room with 4 walls and a door. Minimum bedroom square footage requirements come into play (a quick google search shows Texas having an 80sqft minimum size requirements for a single occupancy bedroom). Same thing for closet requirements, window access, and emergency egress availability. If you can't meet all of the other code requirements easily, it almost certainly wouldn't be worth the hassle to add another bedroom to your space.
Bedroom Access. Make sure you think about how the new bedroom will be accessed. Will the new bedroom door be directly off of the living room or other common area? Most places I'm aware of don't allow you to have the only access to one bedroom be from walking through another bedroom, so will you need to add a hallway to provide access around an existing bedroom?
Up-Front Costs. For my Minneapolis duplex, the 1BR apartment I'm looking at adding a bedroom to has a huge living room which spans 2/3 of the length of the entire property. Taking some of that space for the bedroom would only require framing in a non-load-bearing wall, closet, and bedroom door, plus adding a few electrical outlets/switches, and then finishing with insulation, drywall, paint, and trim. As someone with basic framing/DIY knowledge, this is something I would feel comfortable tackling over a long weekend and would only cost me around $500 in materials. If a GC were to do all of this work though, it would likely skyrocket the price squarely into the five-figure range. If you wanted to keep your up-front costs lower, how comfortable are you with putting in some sweat equity into different parts of the process? Even if it's just adding insulation or doing the painting at the end, you should determine how much involvement you are able or willing to take on ahead of time based on your budget.
ROI. For my Minneapolis duplex unit, the ROI potential on transitioning the apartment from a 1BR which would rent for ~$1,200/month up to a 2BR that could rent for ~$1,550/month makes a ton of sense. I spend $500 to get an extra $4,200 of rent over the course of a 12-month lease, leaving me with a 740% annualized ROI. If you haven't done so already, do a deep dive into what 1BR vs 2BR rents are for properties of a similar size, in the same neighborhood, and with similar interior finishes to yours, and this will help better inform whether or not the investment makes financial sense.
Investment Horizon. How long are you looking at holding your property for? If you are looking at potentially selling it in a year or two, you could see some equity increase by adding a bedroom. If your investment horizon is 7-10+ years but it will only take 2.5 years to recoup the full cost of the bedroom addition, then it might make sense to do the bedroom addition sooner rather than later. Using my Minneapolis duplex as an example, I'm planning on holding onto the property for at least the next 10 years. If we assumed a modest 2% annual rent increase on the base $1,200/month rent it's at now, the 1BR version of this unit would bring in a total gross rent of $157,675 over the next 10 years. Bumping it up to a $1,550/month 2BR would bring in a total gross rent $203,664 over that same 10-year period, giving me $46k in additional rental income.
Last thing I wanted to touch from your post is potentially adding a bathroom. In my mind, plumbing adds an order of magnitude in difficulty when comparing it to adding just a bedroom. If you are looking at adding a bathroom, try your best to locate the new bathroom as close as possible to an existing plumbing/drain source (either the kitchen, or to another bathroom). Close proximity to another source of plumbing - either side by side, or stacked one on top of the other - means easier access to existing water and drain/vent lines, which will almost always be advantageous for your project budget. Start with formulating your new layout around any existing plumbing sources, and then go through the same questions outlined above. Hope this helps - I'd love to hear where this one ended up!
@Brett Riemensnider, I had demo debris from an 800sf unit that required a dumpster rental. With drop-off and pick-up in Northeast Minneapolis, I paid just under $400 base rate for a 10-yard dumpster with a 7 day window.
However, I also had a ton of plaster and lath that we had demo'd out of the unit and ended up getting hit with another $95 weight overage charge from the dumpster company. Sounds like you might not have as much debris to get rid of as I did, but it would probably still be worth it to ask about what charges you would incur if the dumpster is overweight at pick-up. Hope this helps!
Hey Alex, sounds like you've got a solid set-up planned for the new duplex! For furnishing short- or mid-term rentals, finding the right balance between stuff that looks good, but which also offers solid durability and keeps your budget in check can be difficult.
If your budget is your driving factor with your design decisions, I'd start surfing on Google image search or Pinterest - find a picture of a finished room that you like, and then reverse engineer it from products on Amazon and other similar budget-friendly sources. It's amazing how far this process will get you!
For my airbnb unit (the upstairs apartment in an up-down duplex in NE Minneapolis), I found a few really high quality pieces to anchor the rooms (living room couch and lounge chair from Room and Board, and a pull-out sofa sleeper from West Elm). Anything that is almost guaranteed to be used daily in your rentals (i.e. couches, bed, chairs), I'd try to invest in as much quality as you can for those specific items.
Some store sites will let you filter for "contract grade" or "commercial grade" items - these are the sorts of furnishing that get put into higher-use commercial applications such as hotel lobbies, apartment building amenity spaces, etc. These are generally going to be more durable than other furnishings you might come across.
Outside of that, nearly everything else I sourced for my Airbnb unit was from Amazon or Target. This includes the bed frames and mattresses, both of which are the Zinus brand off of Amazon (shout out to Robuilt for the recs on those!) - I've had nothing but positive feedback on the 8" memory foam mattress I put into my Airbnb rental. HomeGoods also had a ton of great pieces on offer when I was furnishing my Airbnb - lamps, mirrors, side tables, chairs, stools, kitchen and bathroom accessories, throw pillows, blankets, etc.
I am very much NOT a fan of Ikea furniture - most of it is recognizable (not in a good way), looks and feels cheap, and also doesn't hold up well at all over time, but certain pieces may have a time and place in your rentals (lighting, kitchen accessories, silverware/plates/bowls, etc). If you do go the Ikea route for any furniture, always start on CraigsList or FB Marketplace for used items.
If you're renting the space on platforms that don't rely on reviews like Airbnb/VRBO, you could probably keep the furnishings to a relative minimum and help keep your start-up costs down. If this is the case, don't be afraid to do the bare minimum to get the space up and running, and then add items as needed over time after you have some rental income to play with.
However, if you are planning on transitioning these to STR's in the future though, I'd definitely recommend getting as close to fully set up as possible before launching. Reviews are everything, and a few bad reviews early on because you didn't have a comfortable bed or were missing kitchen supplies can tank your listing for a long time before you're able to recover. Adding some artwork to help give the place more character - $100-200 on Etsy or Society6 can get you some really unique prints that will help your apartments show well in listing pics and really set them apart from the competition.
If you have the space outdoors, the quickest and easiest amenities to add are a fire pit and BBQ grill (or maybe a patio as well, if you're so inclined). I'm a big fan of the Yukon Solo Stove with stainless steel lid, which turns into a legit coffee table when not being used for fire - it isn't the cheapest set-up in the world, but the one I put into one of my LTR properties 3 years ago still looks nearly brand new, and was a huge selling point when I was getting it leased out. A set of bags boards would probably be a nice touch as well. Anything else beyond that is likely going to take a good chunk of time and investment to get up and running. If you have a fully fenced in yard, you may also have a great set-up for being a pet-friendly MTR, which could mean extra revenue/pet rent without much effort on your end.
Hope this info helps - keep us updated on how this ends up working out for you in the coming weeks!
Welcome to the BP community, Alex! Feel free to message me if you ever want to get together and talk RE - love to hear more about what you're investing goals are in the Twin Cities market!