Hello, Everyone! 

First of all, I would like to introduce myself to the forums. I am a recent 22-year-old college graduate with a structural engineering job in St. Paul. I am also almost ready to commence my homeownership and real estate journey investment!

My goals are to gradually build wealth and cash flow over time while having a normal engineering career. slow and steady wins the race I guess :)

I have been considering two common newbie strategies either owner occupying a duplex or to buy a simple single family property such as a townhouse for less but then plan to move within the next year or two and move on to the next property while renting the other. I understand that if I go duplex and owner occupy I will probably not find a unit that will pay all my expenses (mortgage, taxes, Insurance, contingencies etc) so I analyse them as if I am renting both sides which I would intend to do once I move on. My down payment situation would allow me to put 20 percent down on a small townhome or home for a future house rental but I would probably not be able to put quite 20 percent down for a habitable duplex in this market and maintain sufficient reserves. leading to my question for all you MSP investors out there. 

Given your knowledge of this market would you recommend one strategy over the other? I can't seem to find very many duplexes that are at a reasonable price and out of the bad parts of town, but I have found some now and then. I am open to Minneapolis, St.Paul and their respective inner suburbs. 

All discussion or advice is appreciated. Thanks :)

@Sam Stoffels I would personally recommend house hacking. I'm not very familiar with the St. Paul market, but house hacking is the perfect strategy for newbies looking to break the ice with real estate investing. Not only do the tenants cover a majority or all of your living expenses(If you got a hot deal, you could potentially cash flow a good amount while covering all costs), but you get the close, upfront land-lording experience. You mentioned duplex a few times, but you can also go for a triplex or 4-plex. I'd personally target 4plex>triplex>duplex due to better returns. 

You're right there with the tenants, so accommodating the requests of tenants is much less of hassle, and you can build up lard-lording skills much easier. You can also get into a house-hacking multifamily easier in terms of financing. FHA loan only requires 3.5% down, which is very appealing. If you need to do some repairs, you can just roll in a 203k loan, and pay 3.5% for that as well. I would look to see if you could find any triplexes/4-plexes in a nicer area. Even if you're paying 300-400k for a 4-plex, it might make sense in regards to the local rent comps. Good luck!

@Sam Stoffels 1. Send me details on your structural engineering biz. I ALWAYS need someone to recommend for this to my clients when foundation weirdness comes up, I'd love to add you to my list.

2. I'd keep your options open. As you know, our market is crazy right now. I look all over, see a lot of properties in a fairly wide range and decide what makes the most sense for you! Maybe you'll find you want to buy something a bit crappier, put only 3.5% down and use your extra cash to fix it up and make it more desirable/renter friendly when you move out and into your next property, whatever it might be. 

I'm in town if you want to chat. =) 

I would definitely reach out to @Sam Steadman . He has a lot of expertise in this area!  He has helped me a ton with investment properties and what ones are the best.  He is very knowledgable and is always open to sit down and grab a coffee! 

Hey @Sam Stoffels , my wife and I just purchased a duplex that we are owner-occupying in Southeast Minneapolis in December and know the struggle of finding a duplex where the numbers work. I still thinking owner-occupying a 2-4 plex is a great way to get into the game if you can find one where the numbers work. BTW, I think you're 100% on the right track by analyzing them for when you're renting out all units and not living there, since that is the long-term goal. 

My advice is to be persistent, keep researching and doing showings of properties (or start if you haven't), and look for areas where you can add value that others may have missed (add a BR in that poorly-laid out basement, have tenants pay for utilities where the landlord was covering for them before, etc.) which may justify you putting in a higher offer than those other 5 people who didn't see that potential. 

Also, as others have mentioned, you shouldn't need to put 20% down, as FHA is always an option. Unless things have changed in the new year, there are also some 5% down traditional mortgage programs where you won't have to deal with FHA requirements.

As a newbie, I'd recommend finding an agent and a lender/broker. Even if you don't end up using them, you can get hooked up with an MLS search, learn about the market, and learn about the financing options that are readily available for you. I can recommend both our agent and lender if you're interested. Just shoot me a message.

Good luck!

@Sam Stoffels in our current twin cities market I think duplexes and townhouses are tough to find; and both are GREAT strategies for a newbie.   

Regarding townhouses, there are a few downsides. HOA costs will cut significantly into your cashflow and associations can impose all sorts of rules and fees to restrict the number of rentals. If you owner occupy for a year with intention of making it a rental later, you could get caught in a rule change.

On the other hand you don't have to hire out snow clearing or lawn cutting, and don't really have to budget for exterior maintenance long term.

Duplexes in the area are often older buildings and may have deferred maintenance.   Cash flow or rate of return should be much higher with a duplex but I would estimate much higher capital costs long term.

Side note:

If you plan to owner occupy for one year you have a great advantage over other investors. You can buy HUD and Homepath homes that need a bit of work and you can bid on them two weeks before other investors. You should be able to get a good discount, and you might not need to put 20% down.

I also believe now is a great time to lock in great interest rates and its only going to get a lot more expensive to get financing later.

So, consider looking for a HUD or Homepath that needs cosmetic updates; get in with a low downpayment 3.5%-5% and use your extra cash to fix it up. Live in the house for one year. If rates are still low, refinance to get most or all of your money back out. Rent it out and go buy another place to live in.

When you do the numbers on these deals make sure you would make some cash flow on it once fully rented and refinanced one year from now.  Good Luck