For those who don’t subscribe, I will give you the highlights.....
They expect vacancy in Mpls/st paul to go from current 3.5% (2.5% last year) up to 7% next year, rents are expected to fall, and only 84% of C class renters are currently able to make their payment.
I always said I would move my investing towards downtown if values dipped, but I’m sitting on my hands until the eviction moratorium ends. Anyone out there love minneapolis or St. Paul at the moment? I will say that our management company hasn’t seen a dip in rents, vacancy, or economic vacancy, but our target area isn’t the metro.
I filled a few units in Minneapolis over the last month or so- they ended up about 10% less rent than I was expecting. One 2 bed condo in Whittier was especially slow for inquiries, It was previously rented at 1550 and ended renting at 1400. Even with the decrease, the interest was pretty low. It's a good time to try to keep your current tenants if possible.
I filled a few units in Minneapolis over the last month or so- they ended up about 10% less rent than I was expecting. One 2 bed condo in Whittier was especially slow for inquiries, It was previously rented at 1550 and ended renting at 1400. Even with the decrease, the interest was pretty low. It's a good time to try to keep your current tenants if possible.
@Jared LaLonde thanks for the market update. That’s a nice part of town. It’s my hope that rents will go back up once the moratorium ends. (If the moratorium ever ends). Would minneapolis be your preferred market to put new money to work? It looks like you’ve completed a lot of projects in both minneapolis & 1st ring suburbs. What’s your favorite market at the moment?
@Jared LaLonde I’m dealing with a similar situation right now with my 2/1 condo in Whittier. Just had long term (3 years) tenants terminate at the end of October and despite multiple price drops from what they were paying, we’re not getting any showings. My upstairs neighbor is also trying to sell her unit and isn’t getting much action on that front either. She brought up the idea that it might be proximity to the riots this summer that is hurting our neighborhood’s appeal. I also read about some of the stores leaving uptown, and I’m wondering if we’re going to see a major swing away from our neighborhood in terms of rental interest. I don’t have much more room to negotiate on price before I hit break even again but net zero income is better than paying the mortgage without any income. It will be interesting to see what happens in this area over the next few years. Personally, if I could sell, I would. I no longer trust the city of Minneapolis to support my investment in the community.
On the other hand, my Saint Paul properties haven’t had much of a problem finding new renters even during this pandemic. I’ve turned over 3 units in StP this year with barely enough of a gap to do all of the turnover activities.
@Jared LaLonde is your St. Paul property at a different price point? We had a really hard renting units in a renovated Lexington/Hamline building this summer. School being virtual definitely played a part in it. This opinion article highlights some of the issues going on in St. Paul for our industryhttps://m.startribune.com/citi... Minneapolis council narrowly passed funding for additional police this week. Hopefully an increased police presence will help. As an outer suburb guy I would say crime in general is the biggest concern with downtown. I would think covid is the biggest issue with uptown. If you can’t enjoy the restaurants, night life, and people why pay a premium to live there? I would wait and see what happens when life gets turned back on. That’s why I’m wondering if that area isn’t a solid long term play.
@Matt Higgins my portfolio consists of 2 and 3br C class units near downtown mostly in Minneapolis but also in St Paul. We try to set rents slightly under market, so 2br would be 1200-1250 and 3br would be 1350-1400. Even so, we've had a unit sit for more than a month now. It seems there's a good amount of inquiry, but no qualified tenants or serious applicants. Might just be a matter of playing the waiting game.. Weather will be nice the next week or 2, but after that might have to lower things anther 50 :(
I’ve owned a duplex in Southeast Minneapolis just north of Minnehaha Falls Since 2014. I turned over both units this year, and got higher rents on both. The odd thing I noticed was that unit one which usually has a line out the door, only had three people look at it and the third person signed and everything is good now.  also I just had the duplex appraised and the value is astronomical.
@Matt Higgins either Minneapolis or suburbs are ok with me. Minneapolis is going through a rough time, long term I'm betting it will still be a good rental market. Uptown is looking pretty rough right now though.. I'm putting money to work in mpls because it was already in process, I have a 6 unit project in NE Mpls that I'm planning to start in spring, but I don't want to have everything in Mpls alone.
This time of year through the holidays is usually slower for leasing, add to it Covid and the destruction done in parts of mpls and I not surprised that its slow in that area.
@Chris Gottshall I had the same situation, my tenants had been in that unit for 5 years, they didn't leave the neighborhood, but bought a single family house. I wrote the new lease for 9 months so we end in summer, and I'll probably sell that next year. Not because of the neighborhood, but the HOA fees and assessments etc.
We have about 30 units in mpls and saw this happening. Our fiduciary duty is to our clients so we really didn’t want to share the information we knew was going on for the last 6 month on a public forum. This is where having an agent with their pulse on not only the sales market but also the rental market to anticipate future trends and save you from paying too much or making a mistake.
We tell most of our clients that if you see a trend on BP about a hot area you are already too late.
I’m interested in where “the curve” goes next. I doubt the dozen people reading the thread will change the twin cities real estate market so I am not going to lie awake at night worrying about it. I enjoy hearing about what other people are experiencing in their leasing and sales.
I had a house I flipped in Lindstrom hit the market a month ago. After getting 4 offers the first weekend I took the highest & best. The appraisal came back 20k under contract for no reason so I cancelled contract. Then I put it back on the market this weekend and had a couple showings, but nothing close to 3 weeks ago. I ended up going back to previous offer and taking the 20k hit. (Still made descent money). Obviously the holidays is the worst time of the year to put a place on the market, but our agency currently has a couple deals that have been a struggle to get to a close. This is a problem we were not having a month ago.
It’s probably just the time of year, but I have been talking to more and more people that are not feeling good about their work situation and have fears of losing their home or having to move. In my personal portfolio there seems to be more and more county assistance available to landlords. I forgave $4000 worth of rent a couple weeks ago to a tenant in Brooklyn Park in a cash for keys situation only to find out a few days later that the city has new funds available to pay landlords. I didn’t qualify since my tenant no longer lives in the property. I would strongly urge any landlords near the metro to search out options for available rental assistance.
It's a good point that pretty much nothing a couple dozen people do, changes the market. I think what Amber/I are saying is some people shifted buying patterns 6-12 months ago. I still bought and sold this year but with a different objective so my portfolio reflected a shift. Ultimately, positioning yourself to take advantage if/when prices drop is important. I also did what you found which was accepting a couple offers for a bit less than anticipated to move them was important. Same with rents, full occupancy at a slight discount is a long term plus versus having empty units in the winter.
@Matt Higgins I can second what @Amber Gonion and @Bruce Runn are saying, I started shifting all my clients from the Mpls market many months ago for all acquisitions. Minnesota is still my #1 performing market in the US, but we are doing 0 buying in the Minneapolis market. It's market analysis and the writing has been on the wall for some time, so many of the buy's in the last 3-6 months have been at leveraged points way beyond any logical sense, and based upon a fantasy land of rental rate growth that is well beyond sustainability. 50%+ of gross income in housing expense is NOT sustainable.
That said, there is significant markets of opportunity in Minnesota. I don't feel like laying out a treasure map here to flood my "farm" markets and shoot myself and clients in the foot as we are getting stellar buys, but yeas sub 3% vacancy with 12%+ COC is not only possible but I am doing it literally every day for my clients.
Now, market analysis is "my jamb", that's whats brought me all over the country and world talking REI, but it's really not all that hard for others to do in this instance. Do research to find where are people going, not just today but for coming years, where is the appreciation happening, where is supply/ demand cycles favorable, where do people have the ability to pay sustainably the market rates and cross reference all this by acquisition costs that leave a profitable margin on the table.
I find the #1 problem with people not finding deals is they most often don't want to put in the work. There is this goofy expectation that everyone will just point out where the treasure chest can be found, how to dig it up, and oh yeah here is the key to open it. It takes work. And honestly, I have already said more than I should have as someone willing to put in the work can sort out the rest.
I'll clarify that I'm still buying in the Minneapolis market as I don't stray further than a couple miles from my house but just bought/pursued a different type of property strategy within my market.
Glad to hear that. What are your thoughts on the new landlord/tenant screening criteria? I check the commercial and multifamily sales daily and I still see a lot of things moving. However, the landlords my wife and I have talked to in Mpls have all cut rents, had vacancy go up, and are having struggles with their collections.
Majority of our product is in norther suburbs and greater Minnesota where our #s have been solid during the pandemic, but all of a sudden deals are harder and harder to find. I have always liked our niche, but I don’t think long term masses of people are going to pay up to live in rural minnesota, and the suburbs will always have to compete with the newest school and the cost to build 10 minutes farther out. If I liked the political environment in Minneapolis even a little bit I would invest more there. That being said, NYC-CA-OR aren’t known for being landlord friendly and they have the highest priced real estate in the country.
I don't see the tenant screening as a big deal. I know people get pumped anytime something changes but you just have to do a little work to screen which is an individual assessment which I do anyway. My personal opinion is MPLS made a mistake by limiting security deposits as I would accept some tenants that may have had something negative but with a double security deposit, now I won't. They just made it tougher for those people as I've had several people with evictons offer me extra money up font and now I have to say no. We only lowered 1 property's rent as it was for a Dec 1st move in (today). All of my opening during the summer rented at full price and I've received 99% of rents YTD. I bought 4 properties and sold 2 TY and plan to sell a couple duplexes in 2021 but expect they will be owner occupied as they are prime areas in Uptown and SFH's are more expensive and tough to find affordably.
Thanks Todd. I know few have their finger on the pulse of this town better than you, but I will not put you on the spot and ask you if you like MPLS 5 years from now? Or if St. Paul better is a better market? Or if it’s go to the sunbelt altogether?
I think our market will be ok in 5 years. It's a slow steady market. Minneapolis is going through some major issues and depending on the direction they go, it will suffer for many years. St. Paul is in a similar boat, just to a smaller degree. I think many of the suburbs will gain momentum due to this. Overall the market has been seeing cracks for years. We have lost several fortune 500 companies and more are coming due to our high taxes.
This market is over-priced in both multi-family sales price and in rent prices. I expect both to decline over the next 12 months.
It's not doom and gloom. I still own real estate in the market and will buy when the opportunity presents itself.
BTW, I recently talked with a CEO of a REIT that owns a lot in the Twin Cities and he shared many of my concerns. They have pushed pause on purchasing in the market.