New member from Minnesota

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New member from Minnesota

Kyle Kipka
Investor · Cottage Grove, MN · Member since 2016 · 24 posts · 11 votes

Hello, my name is Kyle and I'm from the St. Paul area in Minnesota. I have been interested in real estate for several years now (currently 27 years of age) and have been trying to learn as much as possible and gain some experience along the way. My full-time job is working as a design consultant/salesman for a home remodeling company.

About 2 years ago I purchased my first property, a foreclosed condo on St. Paul's east side. This was a cash purchase since I was unable to obtain financing at that time (not enough credit history, 100% commission job, etc). The place was in terrible shape but I managed to complete a full interior remodel while living there with some help from friends, youtube videos and some paid help. It took me about 1 year to do that as I had to complete the work as I could afford to and had the time but I'm now satisfied with the way it turned out. I've learned a lot from that one and and made a couple good connections for future work. 

Late fall of last year I purchased my 2nd property (1970's built, split-level home) in my hometown of Cottage Grove, MN. This was also a foreclosure but was much more expensive then the first so I was able to purchase it with an FHA loan on a 30 yr mortgage.

I now need to decide where I go from here which is the main reason for joining the forum at this time. I'm hoping to gain some additional advice moving forward on what decisions make the most sense for me personally and to figure out the path I want to go (flip the properties, convert into rental(s), etc). 

So far I've really enjoyed learning about the world of real estate investing and I'm looking forward to learning from more experienced investors. 

Thanks

~Kyle      

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Marc Jolicoeur
Investor · Minneapolis, MN · Member since 2012 · 187 posts · 117 votes
10y

@Kyle Kipka I would look at both properties as rentals and do the numbers.   Do they both cashflow at least $300 after ALL expenses, maintenance, and projected vacancy rate?   If you think you can keep them long term (10 years) and cashflow without any major repairs like roofs, furnace, windows, etc.. then keep them long term.   

If keeping, refinance the condo now that you have built up good equity and while rates are low.   Use the cash out money from the refi as downpayment for your next deal or to buy a home to live in.

On the other hand if you feel they will not really cash flow that much, or you don't think you will want to keep them for 10+ years, or if they have big upcoming issues, then I would actually consider selling both of them now.  The markets are very good this year to sell and you may be able to get a premium that you might not be able to get in 2, 3 or 4 years.

If you sell, use the proceeds to buy more distressed property at least 20% of discount to current value minus repair estimate.   Living in one unit of a duplex or quad is a great idea to be able to get in with a low down payment.  These deals are hard to find so you will need to be resourceful.  Networking with wholesalers and multiple RE agents will help.

When running the rental numbers assume 10% for property management fees even if you plan to manage them yourself.  You should cashflow $300 per unit after the PM fee is counted.   If you need help calculating cashflow you can use the tools on BP or I can share with you a spreadsheet that I use.

To estimate rents I use www.rentometer.com median price and the Zillow rental zestimate.  I have found that using these two disparate sources to be very accurate in our market.  Double check this number by looking at active listings on craigslist.

Good luck and let me know how I can help.

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  • Account Closed
    Rental Property Investor · MN · Member since 2015 · 186 posts · 149 votes
    10y

    Welcome Kyle!

    I would buy a duplex, make it owner occupied - move upstairs and rent-out downstairs. Rent out the split-level home as well. And keep on buying while living in that duplex :)

    1Reply
  • Tim Johnson
    Investor · Becker, MN · Member since 2014 · 144 posts · 82 votes
    10y

    Hi @Kyle Kipka.  Sounds like you have a great start in real estate investing!  

    It sounds like the BRRRR strategy would be a good one for you. Basically it's what you've been doing: Buy, Rehab, Rent, Refinance, Repeat!

    Best wishes as you continue your real estate journey!

    0Reply
  • Marc Jolicoeur
    Investor · Minneapolis, MN · Member since 2012 · 187 posts · 117 votes
    10y

    @Kyle Kipka I would look at both properties as rentals and do the numbers.   Do they both cashflow at least $300 after ALL expenses, maintenance, and projected vacancy rate?   If you think you can keep them long term (10 years) and cashflow without any major repairs like roofs, furnace, windows, etc.. then keep them long term.   

    If keeping, refinance the condo now that you have built up good equity and while rates are low.   Use the cash out money from the refi as downpayment for your next deal or to buy a home to live in.

    On the other hand if you feel they will not really cash flow that much, or you don't think you will want to keep them for 10+ years, or if they have big upcoming issues, then I would actually consider selling both of them now.  The markets are very good this year to sell and you may be able to get a premium that you might not be able to get in 2, 3 or 4 years.

    If you sell, use the proceeds to buy more distressed property at least 20% of discount to current value minus repair estimate.   Living in one unit of a duplex or quad is a great idea to be able to get in with a low down payment.  These deals are hard to find so you will need to be resourceful.  Networking with wholesalers and multiple RE agents will help.

    When running the rental numbers assume 10% for property management fees even if you plan to manage them yourself.  You should cashflow $300 per unit after the PM fee is counted.   If you need help calculating cashflow you can use the tools on BP or I can share with you a spreadsheet that I use.

    To estimate rents I use www.rentometer.com median price and the Zillow rental zestimate.  I have found that using these two disparate sources to be very accurate in our market.  Double check this number by looking at active listings on craigslist.

    Good luck and let me know how I can help.

    2Reply
  • Account Closed
    Minneapolis, MN · Member since 2016 · 35 posts · 7 votes
    10y

    Hi @Kyle Kipka,

    Welcome to the forums! I would agree with @Account Closed, look for a duplex (or 3plex or 4plex), obtain homeowner financing (either 3.5% FHA or 5% Traditional)

    I purchased my first home (duplex) and did 5% down, and the renters cover 60% of my mortgage. My property is in SW Mpls (on the edge of Edina) so I didn't get the optimal rent/price ratio but you could probably find a 3plex and the two renters cover your entire mortgage payment plus a little extra profit, and a 4plex would add even more profit.

    Then whenever you're ready to move out, just backfill your unit with a renter and keep the property. Tada, and then things keep getting better and better.

    0Reply
  • Kyle Kipka
    OP
    Investor · Cottage Grove, MN · Member since 2016 · 24 posts · 11 votes
    10y

    Thanks for the welcome and for the advice! 

    Marc Jolicoeur, I've been working the numbers and I think I am in pretty good shape to try renting. My condo is paid off (have about $50K into it in total) and everything inside is now brand new after my remodel so all I have to pay is $175/month for the association fee plus property taxes (which are extremely cheap). In the current condition I'm realistically hoping that it would rent for $900-1000 a month which would should leave me about $500 profit a month assuming additional fees that come up and could be closer to $700 profit certain months if everything goes well. 

    Seems like a good situation for renting but I go back and forth with selling it instead. I could realistically get $70k for it according to what similar units have been selling for on the MLS and end up with around 20K profit for my efforts (around 3 yrs profit if renting).

    I purchased my house for $170,000 (currently the mortgage is 166K) which makes the mortgage payment just about $1300/month. I currently rent out the lower level to a friend for $800/month which certainly helps with my payment. If I sold the condo and used the money (plus the 20K I've currently saved up) I could pay down the mortgage and refinance to get the monthly payment down (saving me about the same each month as the profit from renting the condo). 

    I guess my question is to the strategy I want to use moving forward. Does it make more sense to purchase more properties to rent (I see you mentioned holding rentals for 10 or more years) or flip properties to have money to use for future investments in my case? I don't know anything about the types of financing available for investment/rental properties but I do know that since I can't use rental income for at least 2 years it might be difficult for me to get enough money to make my next move just going off my income and debt ratio. Any suggestions? 

    0Reply
  • David Moore
    Investor · Crystal, MN · Member since 2013 · 486 posts · 277 votes
    10y

    @Kyle Kipka

    Greetings and welcome to BP.  I think one thing that I haven't seen in your description is what your goals are.  Do you want to have multiple properties that provide enough cash flow, so you can exit the rat race?  Do you want to go for areas where you can achieve capital appreciation?  Are you a value investor?  

    I recommend the J Scott book on Flipping Houses, and reading Rich Dad/Poor Dad.  The reason on book #1 is it helps you identify your back yard.  J Scott has a detailed history on why he chooses to invest in a specific area of his specific target area.  If you can get to know an area, and its trends, you can get to know where, for instance, rents are pressing higher, or where new employers are coming in, or new development that benefit a neighborhood (like a Microbrewery).  

    I have found in reading and research, I've been able to narrow in on investments that make a lot of sense to me, and fit my goals.  At a recent Twin Cities BP meeting, I met a guy who invests only in duplexes, and only in uptown in Minneapolis.  His strategy was flat out brilliant.  He did the same thing over and over.  He just invests in what he loves.  @Marc Jolicoeur has a specific strategy he pursues.   

    1Reply
  • Marc Jolicoeur
    Investor · Minneapolis, MN · Member since 2012 · 187 posts · 117 votes
    10y

    @Kyle Kipka Keep in mind that if you sell your condo you may need to pay taxes on your profit.  Long term capital gains may cost you around 15% (depends on your financial situation)

    One risk for keeping the condo is HOA risk. If keeping long term, there could some day be a special assessment to replace the roof, or the decks, or parking lot, etc. The cost of this may end up in a special assessment, or a higher condo fee. Higher fee could scare away potential buyers in the future and overall it puts a lid on property values.

    Again, I would use a long term horizon to determine which way to go. If you think you will want to own it long term, I would keep the Condo and use the $500 a month to invest in something else every year.  

    Here is another idea: You could borrow about 50K (75% LTV) if you got a mortgage on the condo and the renter would pay it all off, and you could use $30K cash to refi your home to a lower payment. Then use the other $20K cash to invest in a third property!

    0Reply
  • Kyle Kipka
    OP
    Investor · Cottage Grove, MN · Member since 2016 · 24 posts · 11 votes
    10y

    @David Moore Thanks for the advice, I've heard of those books but haven't read them. I'll make sure to pick up a copy and do some reading. To answer your question about the goals I have regarding my interest in real estate investing I would say that I'm most interested in building up enough of a cash flow to cover all my bills and enable a greater freedom in the way I live my life. I've also wanted to be my own boss so to speak and build something up myself instead of relying solely on a paycheck. 

    @Marc Jolicoeur I've thought about the capital gains tax but I've had this property homesteaded for 2 years (since I lived there during my remodeling) which I thought would eliminate that tax although I'm not to knowledgeable since I've yet to sell a property and go through that process. As far as the HOA I don't foresee any problems with this part of it since the one for this building has a decent surplus of funds in savings and likes to get repairs done for the best price possible. I also am familiar with the association president and it's really laid back.

    I am definitely leaning toward keeping it and renting it out since that seems more in line with my personal goals but I'm still somewhat hesitant to take the plunge and need some more info first. Any suggestions for resources I could use to help me get started as a landlord (basics of finding good tenants, rules/laws I must follow for this Saint Paul property, etc).

    0Reply
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