Choosing my First Investment Property

19 Replies

Hey BP,

My father has agreed with being on board with helping me purchase my first rental property. At this time, it seems like he is only comfortable with putting down $20,000 on this investment.

We plan on finding a property in the Minneapolis area. He wants to do a duplex, but we are still weighing the pros and cons about a SFH vs. multifamily homes.

Do you guys think I can find a multifamily home that is worth $100,000? 

Is it necessary to set up a LLC right away before purchasing our first investment?

Any advice about buying my first rental property (tips about financing, location, insurance, etc)? 

Multifamily in Minneapolis at or less than 100k is very rare and hard to find. Usually it would need extensive rehab and/or be in bad parts of town. For your first property i would stay away from bad parts of town. Is your budget capped at the 20k? If you buy a 100k property will you have money left for rehab?

I wish you luck but with that budget SFH might be better place to start.

I own some properties in western suburbs but have most of the contacts your looking for. PM me for details

Originally posted by @Travis Christl :

Multifamily in Minneapolis at or less than 100k is very rare and hard to find. Usually it would need extensive rehab and/or be in bad parts of town. For your first property i would stay away from bad parts of town. Is your budget capped at the 20k? If you buy a 100k property will you have money left for rehab?

I wish you luck but with that budget SFH might be better place to start.

I own some properties in western suburbs but have most of the contacts your looking for. PM me for details

 Hey Travis, how much is your typically multifamily home in the Minneapolis area? 

@London Stewart I'm passing around the same situation here in the KC market.  I go back and fourth daily on which path i should focus.  I tend to favor more units under one roof to spread my vacancy risk, but i'm not sure i have the required downpayment for one and i'm afraid if i wait it will just delay me getting into real estate. I really wish i would have gotten into this early enough to house hack. Best of luck. 

it's very hard to give typical price range but would say if you exclude extensive rehabs and the worst parts of town; they would start at closer to 150k for a duplex. At that price would likely still have 30 year old kitchen etc. 

London, can you find a multi-family in Minneapolis for 100k and under?  Yes...North Minneapolis (close to Jordan neighborhood) or South Minneapolis (close to DT).  

It would be a challenge (but doable) outside of these areas without increasing your budget or doing some creative finance type deals.  

I think that budget is better suited for a 3/1+ SFH where you can get in under 100k and collect rents between 1200-1400/mo with tenant paying all utilities. Having both SFH and multi-family rentals, the SFH cashflow better and have less tenant turnover.

Originally posted by @Tim Campbell :

London, can you find a multi-family in Minneapolis for 100k and under?  Yes...North Minneapolis (close to Jordan neighborhood) or South Minneapolis (close to DT).  

It would be a challenge (but doable) outside of these areas without increasing your budget or doing some creative finance type deals.  

I think that budget is better suited for a 3/1+ SFH where you can get in under 100k and collect rents between 1200-1400/mo with tenant paying all utilities. Having both SFH and multi-family rentals, the SFH cashflow better and have less tenant turnover.

Thanks for the advice, Tim. I am certainly going to start looking at more SFH since you mentioned that. When looking up properties on Zillow, I see a lot of foreclosed homes. Should I be looking into these properties or are they a bad idea?

Originally posted by @Tim Campbell :
Having both SFH and multi-family rentals, the SFH cashflow better and have less tenant turnover.

My experience is contrary. In high property value areas, the SFR rental will not even cover the mortgage and there's negative cash flow. I went to MFU 6-unit specifically for this reason - - to generate cashflow, not red ink.

Basicially, your SFR rent less mortgage, taxes and other expenses must exceed your rent to avoid red-ink.

Originally posted by NA Beard:
Originally posted by @Tim Campbell:
Having both SFH and multi-family rentals, the SFH cashflow better and have less tenant turnover.

My experience is contrary. In high property value areas, the SFR rental will not even cover the mortgage and there's negative cash flow. I went to MFU 6-unit specifically for this reason - - to generate cashflow, not red ink.

Basicially, your SFR rent less mortgage, taxes and other expenses must exceed your rent to avoid red-ink.

 Thanks. This is also something to think about. I guess I just have to look at the bigger picture when choosing a property. Right now, I am just trying to stick within my price range. Hopefully, I am able to choose wisely.

NA Beard London is speaking about the Minneapolis metro area. I'm not sure where you invest, but Minneapolis doesn't have the extremely high property values like the high density east/west coast regions. For around 100k, you can buy a 3/1 SFH in our area and get $1200 -$1400/mo rent in nice neighborhoods. If London's dad puts up a 20% DP, he'll pay $580/mo PITI and tenant will pay all utilities. When you deduct for PM, vacancies and maintenance you are cashflowing around $300-500 conservatively. That's an 18-30% ROI which is a good return in any region.

Originally posted by @London Stewart :
Originally posted by @Tim Campbell:

Thanks for the advice, Tim. I am certainly going to start looking at more SFH since you mentioned that. When looking up properties on Zillow, I see a lot of foreclosed homes. Should I be looking into these properties or are they a bad idea?

REO prperties in Minnesota are a great idea. There are REO properties in nice neighborhoods selling in MPLS metro for $60k-$70k right now. I have an offer on one now that needs $20k in rehab funds to get it occupancy ready. I'll be all-in at or under $100k and will find a tenant at $1250/mo in rent. I'll do that deal all day long.

Originally posted by @Tim Campbell :

NA Beard London is speaking about the Minneapolis metro area. I'm not sure where you invest, but Minneapolis doesn't have the extremely high property values like the high density east/west coast regions. For around 100k, you can buy a 3/1 SFH in our area and get $1200 -$1400/mo rent in nice neighborhoods. If London's dad puts up a 20% DP, he'll pay $580/mo PITI and tenant will pay all utilities. When you deduct for PM, vacancies and maintenance you are cashflowing around $300-500 conservatively. That's an 18-30% ROI which is a good return in any region.

 Tim, You are amazing for breaking all of this down for me specific to the area I am looking in. This helps a lot. 

Hello London,

I have a few rentals in the Minneapolis area and am also currently in the Market for Multi Families. If you would ever like to get together and talk about this market in this area, let me know and I would be more than happy to help any way I can.

Brandon.

I've been doing some work with a broker who does a lot in REO properties. @TimCampbell I think you really need to define what a "nice neighborhood" is and if you are referring to getting the $1200 - 1400 rents in those same neighborhoods for a 3/1 at 100k or less. The ones I have seen close in the past 6 months that have sold for under 100k are not in what most investors would call nice neighborhoods and they have definitely needed more than 20k in repairs let alone updates. In the south metro you will find 3/2 with a 2 car garage for that rent range and the properties start at 200k and only go up from there.

Originally posted by @Tim Campbell :

NA Beard London is speaking about the Minneapolis metro area. I'm not sure where you invest, but Minneapolis doesn't have the extremely high property values like the high density east/west coast regions. For around 100k, you can buy a 3/1 SFH in our area and get $1200 -$1400/mo rent in nice neighborhoods. If London's dad puts up a 20% DP, he'll pay $580/mo PITI and tenant will pay all utilities. When you deduct for PM, vacancies and maintenance you are cashflowing around $300-500 conservatively. That's an 18-30% ROI which is a good return in any region.

@Tim Campbell Would you be willing to share the neighborhoods that you're finding these deals in?  You are describing the exact scenario that I'm looking to get started with and would love to know where you're looking.  

Originally posted by :
Originally posted by @Tim Campbell Would you be willing to share the neighborhoods that you're finding these deals in?  You are describing the exact scenario that I'm looking to get started with and would love to know where you're looking.  

I personally invest in the west metro (Crystal, Robbinsdale,  Golden Valley, BP, BC, New Hope, MG, Plymouth and some parts of MPLS).  I've also started to venture into parts of Iowa and some rural areas anchored by a large employer.  I represent investors all over the metro so I'm very familiar with what the market is doing.
Originally posted by @Steve Bauer :
Originally posted by @Tim Campbell:

NA Beard London is speaking about the Minneapolis metro area. I'm not sure where you invest, but Minneapolis doesn't have the extremely high property values like the high density east/west coast regions. For around 100k, you can buy a 3/1 SFH in our area and get $1200 -$1400/mo rent in nice neighborhoods. If London's dad puts up a 20% DP, he'll pay $580/mo PITI and tenant will pay all utilities. When you deduct for PM, vacancies and maintenance you are cashflowing around $300-500 conservatively. That's an 18-30% ROI which is a good return in any region.

@Tim Campbell Would you be willing to share the neighborhoods that you're finding these deals in?  You are describing the exact scenario that I'm looking to get started with and would love to know where you're looking.  

 I personally invest in the west metro (Crystal, Robbinsdale, Golden Valley, BP, BC, New Hope, MG, Plymouth and some parts of MPLS).  I've also started to venture into parts of Iowa and some rural areas anchored by large factory employers.  I also represent investors all over the metro as an agent so I'm very familiar with what the market is doing in the 7-County metro area.

Originally posted by @Eric Mayo :

I've been doing some work with a broker who does a lot in REO properties. @TimCampbell I think you really need to define what a "nice neighborhood" is and if you are referring to getting the $1200 - 1400 rents in those same neighborhoods for a 3/1 at 100k or less. The ones I have seen close in the past 6 months that have sold for under 100k are not in what most investors would call nice neighborhoods and they have definitely needed more than 20k in repairs let alone updates. In the south metro you will find 3/2 with a 2 car garage for that rent range and the properties start at 200k and only go up from there.

 Really no reason to define "nice neighborhood".  That is subjective and depends on your criteria.  In reference to what you said about "most investors", your sample size of "most investors" is probably very small and limited to the investors you are aware of.  What I've found in the world of investing is that their isn't a one-size-fits-all.  Strategies are very eclectic in the world of investing depending on who you talk to.

In reference to Richfield, it is in high demand and has been for the past few years. The average days on market for a 3BR+ property in Richfield is (51) days compared to (80) days in the metro area. Also, there are approximately (64) 3br+ SFH for sale in Richfield compared to 11,000 in the metro area according to InfoSparks. So I understand why prices are higher in Richfield based on the high demand and short supply.

Personally, I don't like investing in saturated markets where everyone is.  I'd rather fine unique locations that are under the radar and where properties just sit for months with no attention.