Advice on SFH rental research in MPLS area

12 Replies

I am strategizing for my first move into RE investments, and feel the BRRRR strategy will work best for me - starting with purchasing my first primary home and rent out an extra room until I am ready to rent out the entire house. I have a few questions. 1. I will research typical rents per neighborhood, and their square footage and number of bedrooms and baths. I was planning to use the verious apartments hunting sites as well as craigslist. Any other recommendations? 2. Are SFH harder to rent out? Is there a general size (sq. ft. and bed/bath) that works best? 3. How to research/determine where the more desirable neighborhoods are? Is it as simple as proximity to transportation, entertainment, and freeways? 4. I've heard the City of Minneapolis is hard on landlords, making them jump through many hoops and requiring many inspections - and to plan on giving the city around $1k per year. Any feedback on this? Debating if I should focus on the burbs. 5. Also, any Mpls area investors have feedback on condo investments, especially on the BRRRR strategy? My budget is low....but not sure what worse, waiting ti soknehow try to save more money or a slow start. I am also considering trying to find s partner or private lender. However I am a little scared of partnerships and therefore and first seeing what I can do on my own. Any guidance or advice is much appreciated! Thank you, Anna

Anna Gorres

    @Anna Gorres  

    1. I will research typical rents per neighborhood, and their square footage and number of bedrooms and baths. I was planning to use the verious apartments hunting sites as well as craigslist. Any other recommendations?   ~Those are all great places to check and I would recommend them all and add https://www.rentometer.com/

    2. Are SFH harder to rent out? Is there a general size (sq. ft. and bed/bath) that works best? ~ SFR's are not harder to rent out, if anything they are easier because the prospective tenants do not have to worry if they will like the other tenants, they have more privacy, etc. I personally feel they are significantly harder to cash flow than a small multifamily like a duplex. In addition, they are either 100% occupied and receiving rent or 100% vacant and a big expense, where a duplex can be 50% occupied and when you have turn over or a non-paying tenant you still have some rent coming in. SFR's will nearly always be easier to sell and will also almost always appreciate better than a duplex, but if replacing your income is your primary concern I would strongly recommend you consider House Hacking a duplex.

    3. How to research/determine where the more desirable neighborhoods are? Is it as simple as proximity to transportation, entertainment, and freeways? ~ That's a huge part of it for sure. Universities & employment can also be added to your list. The thing is you can make money in areas that are average in nature because people like to rent in many areas for different reasons. For example, you can get a lot of demand for long-term SFR rentals in good school districts, or you can be close & convenient to Universities but not be in their immediate area. You likely already know the hottest areas U of MN, Uptown, but those areas come with a high entry cost. Bottom line you can make money almost anywhere if you purchase for the right price. I do not recommend that you buy in high crime or low-income areas as a new investor. Those rentals are very attractive on paper but are also difficult to manage and I feel they are a recipe for failure for a new landlord.

    4. I've heard the City of Minneapolis is hard on landlords, making them jump through many hoops and requiring many inspections - and to plan on giving the city around $1k per year. Any feedback on this? Debating if I should focus on the burbs.   ~ Most of my rentals are in Minneapolis and they do have a $1,000 conversion fee for SRF, but that is a one time fee.  They also charge some other costs so you could pay $1,200 in fees.  In addition, you need to address any of the inspection deficiencies which could be 0-Thousands so condition would matter to this number.  After that, you renewal costs for fees should be less than $200 so it's not that expensive.  Minneapolis does require you hire Minneapolis licensed contractors that are expensive and can add 100's to 1000's to each repair bill for things like electrical, plumbing, heating, AC, siding, and roofs.  That being said, I like being a Minneapolis LL and still think its worth buying in Minneapolis.  BTW- there are 2 ways to get the conversion fee waived.  I'd be happy to meet and share my Minneapolis LL experiences and show you how you can get the conversion fee waived.

    5. Also, any Mpls area investors have feedback on condo investments, especially on the BRRRR strategy? My budget is low....but not sure what worse, waiting ti soknehow try to save more money or a slow start. I am also considering trying to find s partner or private lender. However I am a little scared of partnerships and therefore and first seeing what I can do on my own. Any guidance or advice is much appreciated! Thank you, Anna ~I would not recommend condos in Minneapolis. It's a complicated topic, but there are 2 major economic factors that make them a super risky proposition. The short version is that you have a ton of high-end rental competition all over the North Loop, NE Minneapolis, and Uptown and you're competing against Billionaire's (Think Doran Properties). Second and more importantly this market is going to change in the next 5 years due to point #1. Doran and other major developers built the high-end apartments to sell them as condos after 10 years. This is because state law is not favorable to developers of condos and those developers have been burned so badly these laws that they can profit more and have better tax advantages by building "condos" renting them for a decade and then selling them as condo's 10 years later. When they do this the market forces will be too much for a small investor and could put you under. Even if it doesn't you cannot control it and would be subject to market forces out of your control and that is a bad investment.


    ~Tim

    Tim Swierczek, Lender in WI (#103522) and MN (#103522)

      Welcome @Anna Gorres !

      Tim had some great advice and he certainly knows the rental market in the area.

      1. I use Craigslist, Rentometer and Zillow to give me a good idea but I also know typical rents in neighborhoods that I focus in.

      2. 3 bed, 2 bath is always great. Personally I don't like stuff under 2 bedrooms and I think it'll be hard to find a 2 bedroom house that cashflows in most neighborhoods.

      3. For me it's just as important to figure out where I don't want to be. Personally I love Northeast and Longfellow but unfortunately so does everyone else!

      4. I've never had any problems with Minneapolis and they've always been straightforward on what they need done.

      5. I do know guys that kill it with condos but they are only buying bank owned properties and nothing that is on the market. Condos scare me personally.

      Jordan Moorhead, Real Estate Agent in MN (#40542303)

        Welcome to BP @Anna Gorres

        You mentioned you're into interior design - with your background, have you considered partnering up with investors focused on fix & flips, or maybe even some general contractors?  Maybe offer to help on the design side for a small piece of the equity?  Seems like a sweet way to get in the game if you can find the right partner!  

        As for your questions -  @Tim Swierczek and @Jordan Moorhead pretty much nailed it, 

        1) When doing research, I use zillow, hotpads, apartments.com, craigslist, and rentometer.

        2) I'd say in general SFH are actually more attractive to tenants because they get more privacy. However, bigger units, 4 or 5 Beds, are always going to be harder than 1-3 beds because it will either have to be a family or a group of friends, and I can say by experience that trying to get 4 or 5 people to agree on a place can take time!

        3) You hit on the most significant factors here.  I would add prevalence of crime to that list as well, though.  Google "trulia crime heat map" then search your neighborhood and you can see the neighborhoods with a lot of crime. 

        4) Ya, I'd say most people would not consider minneapolis a "landlord friendly" city.  There are quite a few inspections involved in the rental process, and all of those take time.  However, I'd still advocate buying in the cities because the rents are that much better here!  Especially if you go for a small multifamily, 2-4 units.  

        5) I don't have much input here since I never even really looked into buying a condo. I didn't like the idea of paying HOA fees.

        Something else to consider with units over 4 bedrooms is that Minneapolis has a limit of 4 unrelated people per dwelling.

        Jordan Moorhead, Real Estate Agent in MN (#40542303)

          Wow, the advice on BP never ceases to amaze me. 

          @Tim Swierczek

          Thank you for the many tips and advice in your post. You told me exactly what I needed to hear, that SFH will not bring in the income I need as a first time investor, and to not be lured in by low purchase prices if in low income or high crime areas. However, most duplexes seem to be in these areas. Is it ok to invest if you are in a pocket neighborhood with less crime and better housing? I also had no idea that major apartment developers start as rentals with a plan to convert to condos - that will absolutely keep me away - thank you! I would love to meet to learn more about your LL experiences and how to get a conversion fee waived.

          @Jordan Moorhead

          I was thinking the 3 bedroom 2 bath was a hot spot, as it seems to be the sweet spot for first time homebuyers as well. I also love NE (just moved out of there, actually, as the house I was living in got sold) and S. MPLS. As you said - it's difficult to get into! I was also thinking Columbia Heights, but I think there are mostly SFH in that neightborhood. I guess I will need diligence and patience. I set a goal to make my first move in 2018, and am really hoping I can make it happen. Therefore I may need to focus more on how to raise capital than on purchasing a property. I think raising capital seems harder/scarier but it likely where I need to focus.

          @Eli Sunderland

          I am in a new career of interior design (graduated from U of M in 2015), and have thought about your recommendation. I am self employed, but have a full time contract with a GC who also does 1-2 new construction homes a year and owns over 40 rental units. So, it is a bit of a sticky situation as I need my monthly contract income (this is my only source of income right now). I do need to grow my income without cutting down on the amount he pays me, so will need to figure out how to 1.) take on new non-competing projects that 2.) doesn't interfere with my hours at the contractor, as it is a stable paycheck. I'll have to sit down with the owner in the near future. As far as partnering with him, a partnership on a rental property may be an option if I can bring credit or financing to the table, but I am getting paid to do the layout design, drawings, and material selections for his new construction investments and client remodels, so no opportunity on that end. I do wonder if I could find a win-win for both of us, a private money lender who doesn't have a contractor. I could maybe do the design in my spare time and bring work to my GC. Do you have any other ideas or feedback? 

          Anna Gorres

            @Anna Gorres Columbia Heights is still a good bet.

            I’m actually on the lookout for a SFH to rehab right now using bank financing, you may not need to come up with as much cash as you think.

            If you ever want to get a cup of coffee and talk real estate shoot me a message on here. I’d be more than happy to help!

            Jordan Moorhead, Real Estate Agent in MN (#40542303)

              @Anna Gorres - Do you have any goals on your purchase?  How much cashflow would you expect to make it worthwhile?  Also, have you considered a live-in-flip?  you could get into a place with a construction loan, live in it and fix it up for a year or two then either rent it or sell it!  Just a few thoughts.

              @Anna Gorres Columbia Heights actually has a lot more duplexes and four-plexes than you would think. I am super familiar with the area and especially the crime rate in the city so feel free to message me if you questions regarding the area.

              Hey Anna. I actually have a house in Columbia Heights and am doing the BRRR strategy on a smaller St. Paul Condo right now. You can shoot me a PM for more specifics.

              @Jordan Morehead

              Thank you for the offer - I will likely take you up on that!

              @Eli Sunderland

              Having a goal is a necessary first step, thank you for asking. I would like around $300/mo in cash flow. My primary goal is to increase my monthly income so that I have more financial freedom to expand my small business. 

              I have thought about a live in and flip, but my monthly income is low (went back to school, in the first few years of my 2nd career, which means also starting over financially) and the only homes I can afford on my personal income are in low income/higher crime areas or need major rehab. I am not comfortable with any major construction budgets at this point. I was hoping the BRRR strategy would work, but after looking at some homes in my price range I no longer think that will be the best start for me.

              My Current Options: I have been approved for the refinance part of a buy, rehab, rent and refinance of a 1-4 unit investment property. I am close to qualifying for the hard money part to make the initial purchase, but am not quite there - also trying to keep my finances somewhat flexible. I am also now looking into purchasing an owner occupied MF unit - I have a feeling this will be my best bet.

              Other Options: I had also thought about finding a cash partner to do a flip with, and using the proceeds as a down payment for a MF unit. I am a little scared of doing a flip as people keep saying the market is getting overpriced. I may be a bit too new to know how to analyze a flip in this market. 

              I set a goal to make something happen in 2018, and am doing my research now. I feel like I have to focus and make things happen or 'get off the pot'. There has to be a way - if there is a will there is a way, right? 

              Anna Gorres

                Originally posted by @Anna Gorres :

                @Austin Hendrickson

                Are you doing buy and holds or fix and flips?

                 Buy and holds. Well essentially a fix and hold on some properties. 

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