Analysis 431 Lynnhurst Avenue W, Saint Paul, Minnesota

23 Replies

Hello guys, my name is Bruno Franco Netto, I'm a biggerpockets member and I'm also a real estate agent and investor in the Twin Cities area. I'm starting to use the Biggerpockets calculators to analyze deals and I would like to ask your opinion on one of those deals:

431 Lynnhurst Avenue W, Saint Paul

Built in 1885

4 Units, 2 Garage

$254,900 price

2 days on the market

I'm thinking about it in terms of making it a rental property house-hacking style with a 3.5% FHA loan, 4% interest, 30 years fixed.

My analysis is the following:

Expenses: 

Principal and Interest - $1175

Property Taxes - $415

Property Insurance - $100

Mortgage Insurance - $100

Utilities - $300

Vacancies - $265

Repairs and Maintenance - $132

Capital Expenditures - $132

Property Management fees - $265

Total Expenses - $2884

Income

Unit 1- $700

Unit 2- $525

Unit 3- $850

Unit 4- $575

Cashflow after moving out of the property and hiring property management company - negative $234

So basically according to my analysis this is not a great deal at the current price but I'm curious to see what you guys think about the analysis. 

thank you,

Bruno Franco Netto

I also ran numbers on this property a few weeks ago for 3.5% FHA and came up with very similar numbers except that I estimated property insurance at $225 and slightly higher mortgage insurance.

@Bruno Franco Netto Based on the numbers you presented I would not do that deal. As a side note, I do agree with Dustin above, insurance on a 4plex in MN is never $100/month.  I would guess it to range $150-$250, but something close to $170 would be typical.  Also in this market, those are very low rents.  I would suspect the place could either use a rehab or the units are just too small to be appealing.  I would recommend running a model that includes a rehab and what that would do for rents, most likely with a lower offer price.  Good Luck

Hey Bruno!

I noticed a couple things here:

at that price point and 4% interest it would be $1,194.89, you may have missed the 1.75% UPMIP added to loan amount.

Mortgage Insurance would also be $163.99 a month, under 95% LTV is a .8% PMI rate

Also, FHA rates are currently around 3.65% in the market!

Hope this helps!

Hello everyone, thank you so much for your help, it is certainly extremely helpful and most appreciated. It seems that this might not be the best deal to pursue at the current price although if the price could be negotiated a bit it could potentially still be worth it. It seems that the biggest problem is that rents are pretty low like Tim said, I'm not sure why that is.

Originally posted by @Andrew Tortora :

If minimum wage goes up so will rents barring an exodus of renters.

Why do you think rents in St. Paul will increase with a minimum wage increase?  Most people don't work at minimum wage and the increase will have no effect on them....

Separately the numbers on this deal don't work.  At the same time there are a lot of people on here looking for investments who might become a competitor if you post a good deal in the future.  You may consider leaving out the address in the next post.  Good luck on finding a property.

Hi Ryan, yes I'm using the numbers provided by the listing agent in the MLS. Since those numbers are quite specific I believe that the units are probably currently rented but I wonder if they aren't rented below current market rents given that they seem to be quite low and as far as I can see the property is in good shape and the location is solid.

Have you guys been able to find properties with positive cash-flow lately? It seems that every property I analyze ends up being a negative cashflow property,, this one was actually one of the most promising ones I've seen lately... I'm currently looking for a good, positive cashflow multi-property for one of my clients and there doesn't seem to be a whole lot out there... What do you guys think?

Hey Bruno, the price point for this deal would have to come down A-LOT or figure out how to bring up rents. At the end of the day rents always save the day and possibly this deal. It's not a bad location, call around other rentals in the area. Good luck!

Originally posted by @Nick G. :

Aren't repairs/maintenance and CapEx the same thing? Just curious, not that it would make a huge difference, but for my own knowledge.

No.  Repairs and maintenance typically account for smaller, unexpected problems with the property.  For example let's say you are in a C-D neighborhood and someone damages your fence or if your washing machine needs repair.  These would be considered repairs.  These are typically unexpected but budgeted for based on general observation of what needs work and past property history.

CapEx accounts for the replacement of larger, hopefully planned for items. For example if your roof is 10 years old and you are expecting it to last another 10, you will plan for a CapEx expense to cover the roof replacement in 10 years. This may not be an expense you are paying this month but you are more or less saving to reserve for the larger replacement.

Hope that helps.

Hey Nick. If you're using the BiggerPockets calculators those two things are actually accounted for separately. Repairs and maintenance are your monthly/regular expenses just for maintenance. Capital expenditures are big item repairs that only come every once in a while such as roof, furnace or window replacements. In this case I estimated each as being a 5% of the gross income of the property. Would you guys agree with that estimate?

@Bruno Franco Netto the problem in finding cash flow now is that prices are high and financing is readily available. Many newer investors are driving up the prices on mulit-family by purchasing the house to live in with conventional FHA financing. To some - being able to cover their rent payment is a sound investment. That may be feasible at a price of $XXX,XXX. To an investor, the interest rate will be higher and they will have a larger cash down payment. To make the same deal work it may be $XXX,XXX - $50,000. I would argue that there are many multi-family selling too high which has driven up the list prices. Personally I don't invest solely for cash flow so I don't analyze many of these deals anymore. I need a larger upside (renovation) before I commence my rental cycle to make a property a go. It requires more cash up front but I can get a flip property return along with a rental return.

I don't invest in Mpls or St. Paul right now because I don't know the pockets enough but the more deals you look at the more solid your numbers will be when the right property comes along.  Rent price is a big deal so there may be opportunities to make a property work if you find it under market rent but I would want some solid support for that before taking that approach.

I am not sure of your client's cash position but the best play may be to keep looking but plan to wait out the market until prices drop/interest rates rise further.  Or you can find some properties which have been listed a long time, figure out what number works for you, and throw some offers.

Good Luck

Originally posted by @Bruno Franco Netto :

Hey Nick. If you're using the BiggerPockets calculators those two things are actually accounted for separately. Repairs and maintenance are your monthly/regular expenses just for maintenance. Capital expenditures are big item repairs that only come every once in a while such as roof, furnace or window replacements. In this case I estimated each as being a 5% of the gross income of the property. Would you guys agree with that estimate?

I personally don't take a percentage, that could be way high or low depending on property circumstances.  You could be way off by taking 5% if you had a $25,000 roof replacement in 5 years.  For repairs I look at the prior repairs expense amounts and I walk the property to see if they are keeping it to my standard.  I form a number from that.

For CapEx I like to plan it out a bit. I am a CPA and have a renovation background, I estimate CapEx costs and timeline and plan accordingly. In most instances they are a part of a planned renovation budget and may get dealt with upon purchase.

Sweet, thanks @John Woodrich , that makes a lot more sense to me now.

It seems to me that CapEx would be extremely dependent upon the property itself, since it varies widely due to the health of the subject property in question, and it would be best to do it by evaluating each of the major systems and allocating a monthly replacement amount for each,

Repairs and maintenance seems like one you could definitely get away with a percentage, though it would still need to take into account the general health of the property.

Thanks again!

@Nick G. you are correct. CapEx is always going to be dependent on the property. A percentage estimate is better than nothing but a property with new utilities, roof, siding and windows will always be less than a house with old windows and a 30 year old roof.

Repairs and maintenance is easier to use a percentage but in my experience it will be based on location.  Crappy area in the city will have a high cost, nicer area will typically have a lower cost.  Of course this can change based on build quality and general condition.

@Bruno Franco Netto Seems like a bad deal at that price. However, that's the list price. What's the property worth to you? With your calculations it seems like the property is worth a lot less. And if so, then at what price does it work? You said your an agent, so you must've run some comps and if so then how'd they look? How's the market as far as turnover? Is it a renter's market? What's the condition? Have you seen it in person? (As you know they NEVER look the same in person).

Oh and that whole thing about higher minimum wage means higher rents... All you have to do is look at Seattle. They raised the minimum wage there and guess what happened? Income went up 3% and hours worked went DOWN 9%! Shocking right? Not really. 

@John Woodrich Macro Economics would state that with more money comes higher prices so if more people have more money Rents go up, in a situation where there is a low income rental property available and someone making minimum wage or a bit higher can rent it than by all means with a rise in minimum wage there should be more people able to rent said property.  With more people able to rent there may just be competition (demand) which could drive prices up.  But these are far out speculations, your right to ask.  I probably wouldn't have posted that had I thought more about it. this situation is too micro for that macro of an assumption.

@Andrew Tortora your macro theory implies that their are people who are making less than minimum wage that are looking to rent and are currently unable to rent.  If this is the case - demand will push prices up but in reality a $15 minimum wage will not have an increase in demand in the local housing market because it will not realistically create new demand.  

A $15 minimum wage will not lead to "more money", essentially you are moving money from business owners to select people who are working under $15 per hour, assuming they are able to maintain staffing and they are not cutting hours...  

Funny thing about economics is that it makes sense - so we rely on it.  Reality doesn't always make sense.

We can agree to disagree on this issue :)

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