Minneapolis Triplex Renovation

15 Replies

Hi,

My wife and I are looking at multifamily property for our first purchase. We found a triplex in Minneapolis that needs a ton of work. Basically it needs to be completely gutted from the looks of it, but we have a contractor looking at it today to get more specific.

If we purchase, we plan to use a FHA 203k loan which includes the renovation cost in the loan. Renovations must be done by a licensed contractor.

Any thoughts or cautions going in to this would be very appreciated. Obviously the biggest factor is how much renovation will cost.

Here are some links to information.

Analysis, assuming 180,000 offer and 160,000 of repairs: 3401 Longfellow Avenue

Images: Link

Thank you so much!

Someone else can confirm but I don't think you will be able to use a 203k loan for that project.  From what I remember I believe the renovation budget is capped around $35k for that type of loan.  @Tim Swierczek probably knows, he is a local financing expert.

If you don't have much cash your only means to doing this would likely be through a hard money lender or obtain private financing.

@John Woodrich & @Gabriel Leake FHA 203K loans do allow for rehab amounts over the 35K amount, they just have additional restrictions. There are plenty of things to warn about on this loan type and structure. Too many to mention each one so I will hit you with the 2 that I feel are most important.

1- These loans take a long time for your lender to process and they cannot start until you get them the FINAL construction numbers in the format they need, along with all the FHA required contractor documentation.  This often takes weeks longer than it should and will require diligence on your part to get completed.  Every week they are delayed is a week later you will close.  You will need to consider this loan as an urgent and important second job until completion.

2-  The contractor you choose will make or break your experience.  I recommend working with a contractor that knows 203K loans.  Many think they can just work the system with change orders and get paid when they want but FHA does not play that game and if your contractor is bad with managing its money you will suffer.  

I’m actually representing a buyer on this one too and have been in it quite a bit. I think I saw your wife there today with her agent and contractors!

@Tim Swierczek is there a rehab limit for 203K loans?  Been a long time since I have looked into these.  

Just looked into the listing, looks like the terms they are considering are cash or conventional rehab loan. Before going too far you may just want to contact the listing agent and see if they are willing to accept a 203K loan.

 

@John Woodrich there is technically no limit to the amount of the repairs. That being said FHA does limit the loan amount by # of units and County. A triplex in the Twin Cities is limited to $551,650, which means the total of the rehab & purchase price, less down payment could not exceed that figure.

Conventional rehabs do limit the amount of rehab done to the property.  It was capped at  50% of the properties future value, however, I believe there was an announcement that number was changing.  It was a recent announcement and I'm not sure it's effective yet, but that restriction did kill a deal for some clients of mine in 2017.

@Gabriel Leake (just in case you want to see this reply)

No way this one goes for $180.  Just saying.   I bid on a duplex in Longfellow 2 weeks ago with an all cash, no inspection, no contingency, 2 week close,  26K over ask and didn't even come close to being in the running.

@Jordan Moorhead yes, that was us! I understand it won't go for $180,000, but trying to get a feel for what makes sense or doesn't. 

Thanks everyone for the info on the 203k. I'll have to confirm those things.

@Bruce Runn wow this market is crazy. My sister and husband are trying to house hack in Minneapolis and put an offer out $30k over asking price and their offer was not accepted.

@Josh Cook

I'm closing/selling an off market duplex tomorrow, close on selling another off market duplex sale next month, and will be putting a SFH on the market in july but looks like it may be sold before it would ever hit the market- obvious trend a group of us pursue?

@Gabriel Leake

I was through that property and the renovation is really going to big since a lot of it will be to the stud reno and start over.  I'm a GC/investor and have done a lot of renovations and have taken on really big quasi uninhabitable projects like this.    My repair number is/was north of $160.0  on this one and we are really cost efficient.  If you get it, make sure you've included everything in that estimate.  My last two full renovations were $150,000 and $225,000. 

@Jordan Moorhead , I will let them know thanks! They are currently by Lake Harriet right now in a very nice house trying to find a place on the west side of the metro to buy which is way more expensive than St. Paul.