New investor House Hack Questions

[Jeffrey Hennen]

Hey everyone,

I’m a newer investor trying to figure out the best strategy for house hacking in the Minneapolis metro, specifically in the current market.

About 3 years ago, I purchased a duplex in Mound. Unfortunately, the deal did not go well. I struggled heavily with vacancy while trying to renovate and improve the property. Looking back, I think it was a combination of poor exterior appeal during renovations and the fact that Mound seems to have a relatively small renter pool compared to other parts of the metro.

Even after dropping rents significantly, I still had trouble finding tenants and ultimately decided to sell. I ended up exiting the deal with about $40k after the sale, so financially I’m now in a much better position and looking to re-enter the market more strategically.

My current plan is to buy another owner-occupied multifamily or house hack property, live in it for 1-2 years, then move into another house hack and repeat the process.

The part I’m struggling with is determining what I should realistically prioritize in the Minneapolis market today.

Right now, I’m mainly targeting areas around the outer 494 loop:

• St. Louis Park
• Hopkins
• Richfield
• Bloomington
• Minnetonka
• Eden Prairie
• Plymouth
• Maple Grove
• Eagan
• Possibly parts of South Minneapolis near Powderhorn

My thought process is:

• I want areas with historically solid appreciation
• I want stronger rental demand than what I experienced in Mound
• But I also can’t justify paying $700k-$900k for a duplex that barely works financially

My biggest question is this:

For a first serious long-term house hack in this market, should I ONLY pursue properties that fully break even or cash flow after accounting for:

• Vacancy
• Maintenance
• CapEx
• PMI
• Lawn/snow
• Repairs
• Property management assumptions

Or is it reasonable to accept slight negative cash flow in exchange for better appreciation, stronger areas, and future rent growth?

I’m putting around 5% down and trying to avoid putting myself in a situation where the property becomes a burden after I move out.

I’d really appreciate opinions from investors familiar with the Minneapolis/St. Paul metro, especially people investing in the first-ring suburbs or South Minneapolis areas.

Thanks!

[Jeff Schemmel]

@Jeffrey Hennen

Saint Louis Park has been excellent for househacking.  I have several clients who've really enjoyed good returns renting rooms in single-family, fixing them up for 2 years, and moving out.  This maintains your goal of lower cost of living, takes advantage of your handy skills to build equity, and gives you multiple exits.  More importantly, if you live in the home 2 out of the last 5 years, you can sell without taking capital gains hits and you can even hold it as a rental for 2-3 years after you move out and still take advantage of that.  SLP supports great rents, so you can easily ask for 800-1000/room + utilities while you live there.  An entire single-family 3/2 or 4/2 rents anywhere from 2600-3000/m, more for including pets/garage in the lease.

All things said, and without knowing a whole lot about your last deal it doesn't like it went horribly; you exited with equity, and you made a good decision to buy where you did and apparently made good enough renovations to add value.  Vacancy is tough, and while you try for zero, the best thing you can do is do a good job assessing demand/baseline historical rents for the last 12 months and look at comparable on-market rentals to give yourself a good picture of what is possible.  As Aaron said, making sure you're marketing units between march-september is ideal; september is even on the later end of what I prefer personally.

happy to help anytime, keep at it.  It's tough to pencil anything out, but if you have an avenue to add value and time on your side you can do it.