Multifamily buy and hold Minneapolis area, best strategies?

15 Replies

My partner and I are real estate investors looking to level up in the Minneapolis Saint Paul area, looking for input and suggestions about what to do; here’s our scenario:

• Currently rent out a condominium in Saint Paul,

• est. sale price $155k

• $94k left on mortgage.

• Plan to 1031 this $61k towards our next purchase.

• $275k cash for downpayment set aside in addition to $61k condo proceeds for a total of $336k down.

• After closing costs and finance fees etc. we end up with about $1.1M max purchase budget.

• We have a multi-member LLC set up for the venture

We find ourselves on the fence between two approaches.

This market and this budget puts us at a newer (2005+) triplex in top neighborhoods.

Pros of lower doors better neighborhood:

• Traditional financing

• Fewer maintenance calls

• Higher quality longer term renters

• Better long term appreciation

Cons of this approach:

• Higher vacancy allowances

• More risk per unit

• Less standardized maintenance per unit

• Increased competition from newer triplexes the city is heavily encouraging to be built.

• Higher property taxes

The other approach is more working class neighborhood but 5-6 units under one roof. These are usually built in the 1920s or so

Pros:

• Lower vacancy allowances

• Less risk per unit

• More standardized maintenance per unit

• Better opportunity for value creation because it’s commercial

Cons:

• Lower quality shorter term tenants

• Higher cost commercial financing required

• Lower long term appreciation

Thoughts?

Originally posted by @Daniel Anshus :

@Vince Coffeen I think you should look into doing a joint venture with an apartment syndicator and get a lot more for your money.

 Tell me more about this option. It’s kind of rarefied air and we don’t really know anyone doing this. How much better returns are you talking about? 

Thanks for the insight

I wouldn't buy the nicest triplex in town, that's for sure. Which "working-class" neighborhood do you have your eye on? 

With $300k, swing for the fences and go for a 10% down deal with 10% owner finance. By getting into the $3 million price range you’ll get more bang for your buck, and get a commercial property that you can really add value to. Commercial interest rates are crazy low right now. 300k could be an amazing spring board into some serious deal making dough. I’m not trying to derail your current plan, just giving my two cents on strategy. I did something similar, message me if you have questions!

@Vince Coffeen

In just these couple of responses, you can see there are a lot of options/directions you can go. It's really worth exploring different ones so you can come up with a strategy that you think is best for you. Personally, we own 6 properties in the Lyndale/ Kingfield neighborhood you are talking about LOL and have just sold 2 in that neighborhood this year. One of the our goals is to continually trade up to newer properties in prime areas to reduce the work/expense and why we have begun building triplexes so I wouldn't discount that approach. Our ROI is good and it's new. You can command much higher rent and demand is high. Here's one we built on the border of Lyndale/Kingfield and have another that is shovel ready for Spring.

@Bruce Runn

You’re exactly right about options, we are lucky enough to have several, so this post here is part of the research beyond general knowledge and drilling into more local examples of what people have done and are doing.

I did some sleuthing and that property looks pretty nice Bruce. Would you mind sharing the numbers on that and also what you’re doing for spring?

Thanks

@Vince Coffeen congrats on commanding 1m in purchasing power. I do think you'll find the value add and opportunity for advancement is in the older small multis in more working class neighborhoods with value add potential. Consider buying a brand new triplex for 1m, I can't see this cash flowing and it's kind of one and done, no way to recoup your money. Now if you bought 3 distressed tri or 4 plexes using rehab loans then BRRRR'd them all, turning them into clean/ safe/ decent section 8 rentals, you'd be cash flowing nicely, have all your money back to rinse and repeat, and be doing us all a favor by bringing up some distressed neighborhoods, not to mention providing housing to people who need it most. Don't be afraid of 100 year old houses, where I am I don't think I've ever seen one less than 100 yeas old..

Totally different situation if you come upon a plot of land in a prime area that you can build on, then you could probably make the BRRRR work with new construction, defer to Bruce on that point..

@Bruce Runn

Bruce back when working in the office was more normal, I would often leave work and drive by your place on Grand and 35th on my way to pick up my 2 girls at daycare.  I recall the construction progress of it decently well from a bystanders point of view.  It has a very nice appearance finished!

@Jason Jones

I get a sense of pride every week when I drive by it.  It cash flows great but as Noah points out, I get the "Brrrr" part of the equity as I put the deal together and built the triplex.  It would make money as an investment post construction but your money can go further buying older multi family properties.  We have another triplex ready for construction and are waiting for sale of a large duplex to roll the 1031 proceeds into the new project.