Minneapolis, MN · Member since 2008 · 50 posts · 12 votes
We are in the market to buy and hold and plan to put down 25%.We have a seasonal real estate agent working with us, who is also a friend. Rent in the areas we are interested in is about $1300 – $1550 for a 2 bds/1 ba.
We were thinking of a duplex priced at $440k, built in the early 1900s and has funny, damp smell in the basement. We asked for info on the property: details, incomes, expenses and have not received it yet. One unit is currently vacant. Now within one week, they received two offers!I was thinking that even at $390k, it still would not be a good buy, so why are these properties moving so fast? Are these buyers relying on future appreciation? Or am I off base in thinking that the price is too high?
Real Estate Agent · Saint Paul, MN · Member since 2014 · 95 posts · 82 votes
10y
Congratulations @Jackie Sladky, I also just had an offer accepted on a 4-Plex in Saint Paul. This will be my first proprty.
I was having the same issues as you, high prices that are not justified by the rents. I started networking like mad, going to REIA groups and telling everyone what I was looking for. I got some good leads on off-market deals but the one I am pursuing right now I found on Craigslist. If your current deal falls through I recommend forgetting about finding a deal on the MLS. Comb Craigslist FSBOs, go to REIAs, call property managers and ask if any of their clients' buildings are for sale, send mail to properties you like, call "for rent" posts on craigslist. You will probably get the best deals from the worst landlords (because they are bleeding money and are sick of the hassle) so call the ones with no pictures, or bad pictures, the ones that don't list the rent, have misspellings etc. If they have nice pictures and clear information about the property they probably have a good head on their shoulders, and they will probably not want to sell or want to sell for more money because the property makes money.
The areas where I see potential deals are Powderhorn/Phillips in South and some neighborhoods in North in MPLS, and Midway/Frogtown, W 7th, and the E and W side of Saint Paul. The housing stock tends to be older in these neighborhoods but there are always some newer builds. Personally, I think there is a significant drop in value when you get older than 1920. Some of these neighborhoods I listed can be a little rough, so I look for an independent coffee shop/cafe, coop grocery stores, and trendy bars moving in. If you see some of that activity there is a good chance the tenant pool will improve over time.
Its really competitive right now, so the good deals go to investors who dig deeper.
I recently had my purchase agreement excepted on a duplex in the Seward neighborhood, but the appraisal came back $35k lower. Perhaps my analysis was off. Anyone else have trouble with appraisals?
So sorry to hear that. Did you use comps to come up with your purcahse price? I am also looking in south Mpls. The comps are in the low 300s but I wonder if an appraiser would disagree? I am not sure how they base their assessment?
Minneapolis, MN · Member since 2008 · 50 posts · 12 votes
10y
@
The investment is going well. One unit moved out the day after we closed – by choice. The other three units are staying even though their leases expired. One set of the tenants is a definite keeper. The second one is okay. The third set will have to stay on a month-to-month lease, and all with rent increase to keep up with the market. We are very responsive and show our tenants respects, but they know that we mean business. All pay rent on time. The sloppy ones cleaned up after themselves and so far, no one gave us reason to turn them out and especially, we are not ready yet to do so.
Our current issue is that we know just a few trusted professionals. All four of us work fulltime, and I live in Northern CA. My daughter and son-in-law (my business partners) live about a mile away from the building, so they went there to check on the place and talk to neighbors. We want to have some work done in one unit, but our GC is not available for another two months. A highly recommended GC gave us the quote that is about double our estimate. If I were local, I could try going to meetups and talk to people and connect to professionals. I guess it takes time to establish relationships and know people. BTW, my friend knows someone who helps landlords evict bad tenants, in case we have a need. If and when the time comes, my partners will want to evict people rather than paying them, so it’s good now to get to learn as much as possible about our tenants.
Rental Property Investor · MN · Member since 2015 · 186 posts · 149 votes
10y
@Jackie Sladky I recommend your daughter and son-in-law join "nextdoor.com" for that neighborhood, and ask neighbors for GC recommendations, or people with specific trades you're looking for. Those will be trusted, as your neighbors used them, tried them.
Hi Laura - I didn't actually use comps for the duplex as there didn't seem to be many recent comps that were similar. Instead, I used a spreadsheet to arrive at a value and presented an offer I was comfortable with (if financed). It turns out the appraiser used the comp method. He also showed figures using an income method that came out $17k hire than the comp appraisal. It sounds like the lender agrees the income method is more accurate on the duplex and is looking to have a second appraisal. I'm still learning how to analyze properties and I won't be bummed if I lose this property....it needs a bit of cash put into it. Thanks for the response - cheers!
Investor · Minneapolis, MN · Member since 2015 · 48 posts · 14 votes
10y
@Mike Edgar Perhaps this can be negotiation point if the purchase agreement was subject to financing (and the bank doesn't agree with the pricing therefore won't give you a loan)? I am also trying to take setbacks as "learning opportunities." Sadly, these learning opportunities are so expensive!
Real Estate Agent · Bloomington, MN · Member since 2015 · 87 posts · 30 votes
10y
One of my clients is closing on a Duplex next week. He is going to be an owner occupant. He was able to pickup a newly renovated property that was restricted to O O only.
We had to bid $26,000 over asking price and barely got it. The market is a little nuts right now.
For an owner occupant duplex, you want to analyze with you living in the property and as well as you not living in the property.
You should cash flow with you not living in the property. With a 150 purchase price, rents should equal 1500/mo from both units (1% rule). Remember this is just a rule of thumb and gives you a general take on if this is a deal to pursue or not-
Use the BP calc as well since you will forget some expenses.. etc.
Minneapolis, MN · Member since 2016 · 3 posts · 0 votes
10y
@Laura Thorne - Sounds like the deal is still alive. The low appraisal has been a good tool for renegotiating. The seller came down $18k on the purchase price and the new purchase agreement is closer to what it will hopefully appraise for on this second appraisal. In hindsight, I think my first purchase agreement was too high as I got caught up trying to win the bid. It's a crazy market, I'd prefer to wait until the market gets better to buy, but I really want to get out of my expensive apartment and start working on the real estate investment plan to financial freedom :-).
As for analysis, I'm not really at the 1% rule, though it would be nice. The rents on the duplex total $2k/mo with a $220k purchase price. The property does have potential for another bedroom, which could help improve the cash flow. I know it's probably not the best deal as the property does need some TLC so the real purchase price is a bit higher (which will likely be cash), but I do plan owner occupy this one for 3-5 years; while investing in other deals.