2-4 unit property that actually makes sense - Minneapolis

37 Replies

Hello Biggerpocketers, I have been vigilantly searching for a multifamily property to purchase as my first home in the Minneapolis area for the past 7 months and have found very few that actually make sense by standard metrics. These prices are absurd! Ideally my first purchase would be a 3 or 4 unit property that would reduce my monthly payments to make it much easier to save money for future properties. I have seen a handful of triplex and fourplex properties on MLS but can’t seem to get an offer accepted on the ones that are not overpriced by $50-100k. I actually had an accepted offer on a triplex that was going to work out super well but the deal fell apart - a story for another time. Any suggestions for how to acquire a nice 3 or 4 unit property? Seems like off market is the way to go. So far have tried MLS, Craigslist, Facebook marketplace, bigger pockets ads, direct mail (~200 letters with 1 semi-solid response), cold calling rental ads, and attending local meet ups to try to meet investors. Any advice would be much appreciated! If you live in the area I would love to meet up and chat!

@Mike Juliff you are correct of market is the way to go but that would require you are working with a Realtor that deals in PDF market properties or a wholesaler.  If your current Realtor does not specialize in  investment properties you will be best severed to switch to one that does.

Letters to homeowners produce results in very small percentages. It's just a numbers game. Most of the letters you send never get opened, I would speculate that around 5-10 % are read. Out of those most don't want to sell, the few that do want to sell have to have a good reason to be willing to sell off market and consequently take less m9ney. Usually thier situation must have a flaw that that does not work well with a traditional sale otherwise they would put it on MLS and get to dollar. Realtors and wholesalers send thousands of letters per month to get a few opportunities so while it's nice that your sent two hundred letters it's not nearly enough.

@Mike Juliff I understand wanting a 3 or 4 unit but the search is going to take 2-3x longer than finding a duplex that actually works.

There are 10X the duplexes out there on the market.

I do find off market fourplexes from time to time but much more frequently do I run into off market duplexes.

If you’re set on finding a 3-4 unit just be patient and stick in there.

I'm Finding creativity has been the key over the last year- hardly any of my recent purchases have been traditional approaches like a straight buy off the MLS or off market. Every deal including a purchase yesterday has entailed doing value adds and/or conversions to make the deal work financially so it's been anything but business as usual. They also have involved a little more risk so the number of deals Is less than before.

Originally posted by @Bruce Runn :

I'm Finding creativity has been the key over the last year- hardly any of my recent purchases have been traditional approaches like a straight buy off the MLS or off market. Every deal including a purchase yesterday has entailed doing value adds and/or conversions to make the deal work financially so it's been anything but business as usual. They also have involved a little more risk so the number of deals Is less than before.

in many markets we are in the value add cycle.. no value add no deal... at least a deal as defined by those on BP..  

@Jay Hinrichs

You are correct- it makes it harder for 1st buyers/newbies since it’s hard for them to know what’s possible and/or be able to do the work

It seems to me that apart from what stage of the RE cycle we are in, there are more people getting into RE investing. This also makes 'deals' harder to find.

Hi Mike I have a decent amount of access to properties in MN that others don't and have failed to find something that made sense to do this with for over a year.  I did end up finding something to cashflow in a good area, but when I did, I was able to sell it for a $140k profit instead based on what our market is willing to pay.  

If you consider that is what is generally required for a deal to pencil out, I think it helps put it into perspective.

I thInk the exposure to the value increases over the past 5 years caused a lot of people to realize “after the fact” how this was a good leveraged way to make money- it’s like investing in gold after it went from $200 up to $800.  Now what?

Thanks for the responses everyone. I know what I am doing runs contrary to what the market dictates right now. It would be great to already have a property that I could sell in order to finance other deals, or to focus on flips of any style of home, but I need a place to live and to get out of renting. I need a solid property from which I can grow and I can’t take the risk of losing my money on a flip that doesn’t work out because I don’t have anything to fall back on. Not that affordable flips are that easy to find around here anyway but it would satisfy the value add theory. I’m open to a little rehab but sellers don’t want to accept FHA 203k loans.

@Tim - I would definitely like to chat! I will contact you later this week. Really appreciate the offer.

@Jordan - I am not solely focused on 3-4 unit properties. I am looking at duplexes as well but it has been more difficult to get the numbers to work on those, especially the ones located in nice neighborhoods where rent is high. It would be great to grab something in North Mpls or Frogtown that will most likely appreciate in the long run but I also have my family to consider and I don’t feel comfortable moving them into a rough neighborhood.

I will continue my search and hopefully I get lucky here soon. It’s nice to know I’m not the only one struggling to find something around here.

@Mike Juliff there are still deals out there and sellers willing to take FHA 203k loans. Just keep trying and keep putting in offers based on what works. You'll land something soon!

As you stated a first property is "by all means necessary."  If not already, I recommend obtaining a salespersons license to also pocket a buy-side commission plus any seller contributions you write in.  If I were in your shoes, and focused on Minneapolis, I'd focus E. of 35 from 35W to Powderhorn Park area on south to the Minnehaha Creek searching even for an old up/down duplex (as others suggested).  For example, I have a duplex at 48th and Chicago with Rents of $1895 for a 2 BR (renovated)....that match W. of 35 area rents.  In sum, if no 3/4 units, purchase a value add best of breed duplex with low rents, hopefully with 2-3% buy-side commission and 1-3% seller contribution, with 10%down to save your cash for renovation then refi while you occupy.  Make sure upfront there are no pre-pay penalties or other prohibitions on 30 year money to cash-out refi  in 1-2 years (cash out refi when you occupy if possible).  Good luck!  

@Brad Schaeppi the duplex across from Pepitos? It was on the market a year or so ago I remember. By the way I own commercial behind Pizza Hut there. Small world. 

Pavel.  Yes that duplex.  Congrats on landing the mac n cheese tenant.   Sounds like El Burrito Minneapolis opens in July and theater in late August (we'll see).  

Mike, it sounds like you're willing to do what it takes. Good job pursuing a few different avenues. Getting a duplex now is better than maybe getting a four-plex in a year or two or whenever this market insanity ends. I'd encourage your openness to take on any solid 2–4 unit deal, and like Jordan said, the odds are much better with a duplex. Keep up your motivation, land your first property, build experience, and then nab that bigger deal when the cards come down. Good luck!

Everyone here is giving you solid advice.

Like @Bruce Runn most of what I have purchased lately is off market.  Last few purchases:

-off market flip, made $90k on a $30k purchase price

-off market 4 plex, getting $1,000+ cash flow per month.

-tax forfeited house we are converting to a duplex.

-off market triplex.

I also punted an off market triplex to my brother (which he is in contract on but I may still buy). All of the above was done in less than a year... And I also work full time as a CPA...

In the hopper now I have an off market triplex needing major renovation.  Purchase price is already good, just have to work on zoning as it was a triplex for 20 years (separate gas, electric, etc) and is not zoned SF.  Also have a large 6BR/6BA house needing major renovation that I may purchase and move into personally.  Deals are out there you just have to keep your eyes open and look for creative ways to find them.  I will admit that only one of these deals was financed under conventional financing and @Tim Swierczek got me into the 4 plex.  Others needed more skin in the game or a cash purchase which is likely down the road for you.

I agree with @Jordan Moorhead and @Dominic Scheck that a duplex can be a home run.  I work with many clients who have done very well here, one big advantage to a duplex is liquidity.  They are more utilized as owner occupants than a 3-4 plex.  Look up Jordan's success story on his duplex for how you should play the game.

@Pavel Ushakov and @Brad Schaeppi you two should connect if you haven't already.

Sorry for the long post, just  got back from vacation so looking for more RE stimulation.

@John Woodrich What is the process and how difficult is it to convert a single family to a duplex in Minneapolis? Is the city pretty am able to this? How about if the property used to be a duplex but is now zoned SF? Tons of houses in MSP with a coup,e BRs down and one up that could easily be converted. Thanks!

Mike-

First off, thanks for posting! I have been contemplating responding because because I am new to the game as well. Being new, I do KNOW that discussing deals is imperative and this form allows for access to a wealth of knowledge.

Speaking of knowledge, I have a great associate and friend who has been able to leverage this great platform. His name is @Brandon Hershey you may want to seek some advice from him, as I know he loves helping anyone in any way.

-Gino

@John Woodrich - not asking for you to give away your secret sauce,  but where is your dealflow coming from? My guess is your area of the north metro may be a little less competitive than core Mpls/St. Paul, but even so, it sounds like you're doing a heck of a job finding deals. Is it agent relationships, clients of yours, direct mail, a combo, etc.?

@Greg W. I haven't been investing in Mpls for several years now so am not up to date on their zoning ordinances.  If you post a topic in the Mpls forum you will find people who have done this recently.  I have a couple of clients who went from a duplex to SF but nobody who is currently going the other way.

Your other ways to research this would be to look at the zoning on your property, go to the city code and look at the permitted uses, conditional uses, etc.  You could also call the city.

The property I am working on is a full gut job so we can set everything up to be landlord friendly.

Originally posted by @Joseph Lee :

@John Woodrich- not asking for you to give away your secret sauce,  but where is your dealflow coming from? My guess is your area of the north metro may be a little less competitive than core Mpls/St. Paul, but even so, it sounds like you're doing a heck of a job finding deals. Is it agent relationships, clients of yours, direct mail, a combo, etc.?

I wouldn't say north of the metro is less competitive, we have far less MF than you will find in the cities. That is part of the reason I had been doing more flips. If I checked the MLS in my area I may find 4 MF properties sold the last 2 years... Part of why I am looking into new construction. Most of my recent stuff has come from who I know and them knowing what I do.

In my RE investing career I have lost focus at times but when I am focused it seems more things come to me.

@Joseph Lee @John Woodrich - I was wondering the same thing! of course without giving away any valued secrets. We just pulled the trigger on a north metro townhouse but no deals like you describe took place that's for sure.

Keep up the good work. It took us a few months to find one that would work and get one into contract. Close next week!

@Greg W. very difficult, next to impossible. However there's a plan in the works (hasn't passed yet) with the City of Minneapolis where any single family house can be re-zoned into a duplex/triplex/fourplex.

@Greg W. Pavel is correct, it isn't as easy in MPLS as it is in other areas.  They seem to realize there is a shortage of housing - specifically affordable housing and are working to open some doors for investors but it isn't a fast process.  Many of us on here have publicly commented on housing initiatives in the city to try and open the doors quicker.

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