New to Real Estate Investing

Minneapolis, Minnesota
House Hacking
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New to Real Estate Investing

Jack Stang
Member since 2023 · 5 posts · 4 votes

Hi, My Wife and I will be moving back to Minnesota (Twin Cities area) in January 2025. We are looking to start REI with a house hack. Looking for advice on what areas are good/bad. I analyzed a few properties and they came back very cash flow negative, any advice on accurate inputs for the twin cities area would be appreciated. I just finished the How to Invest in Real Estate Book by BiggerPockets. 

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Jeff SchemmelBusiness Member
Real Estate Agent · Saint Paul, MN · Member since 2014 · 384 posts · 401 votes
3y

Hey Jack!  Glad to hear you're coming back, there's a lot to love about living here.  Good call house hacking, that was my strategy too!  My wife and I are on our second househack, just about to start our third and it's been a fun ride.  When househacking, I tend to lower the weighting on my cashflow and split my analysis into 3 parts.  First, how much is this place going to save on my cost of living when I first move in.  I set myself a % cost of living reduction a property must help me achieve before moving to part 2.  Second, what does it look like after I move-out?  3rd, what improvements or "value-add" can I bring to the table with this one?  I tried to look for properties I could improve as I lived in it over time, not all at once, and that would help me improve the cash flow.  We're playing the long game, and house hacking, while not a get rich quick thing, is a great way to supercharge your returns by putting low dollars in and getting all the benefits of real estate investing in one.  

As an agent, we are barred from commenting on things like "good and bad" areas, however we can comment on facets of an area that improve the likelihood of stronger appreciation and/or rental rates.  There are excellent crime data tools online that present a solid dataset that would help you choose which neighborhoods are good and bad.  Happy to chat anytime; would love to hear what got you thinking to move back!

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  • Jeff SchemmelBusiness Member
    Real Estate Agent · Saint Paul, MN · Member since 2014 · 384 posts · 401 votes
    3y

    Hey Jack!  Glad to hear you're coming back, there's a lot to love about living here.  Good call house hacking, that was my strategy too!  My wife and I are on our second househack, just about to start our third and it's been a fun ride.  When househacking, I tend to lower the weighting on my cashflow and split my analysis into 3 parts.  First, how much is this place going to save on my cost of living when I first move in.  I set myself a % cost of living reduction a property must help me achieve before moving to part 2.  Second, what does it look like after I move-out?  3rd, what improvements or "value-add" can I bring to the table with this one?  I tried to look for properties I could improve as I lived in it over time, not all at once, and that would help me improve the cash flow.  We're playing the long game, and house hacking, while not a get rich quick thing, is a great way to supercharge your returns by putting low dollars in and getting all the benefits of real estate investing in one.  

    As an agent, we are barred from commenting on things like "good and bad" areas, however we can comment on facets of an area that improve the likelihood of stronger appreciation and/or rental rates.  There are excellent crime data tools online that present a solid dataset that would help you choose which neighborhoods are good and bad.  Happy to chat anytime; would love to hear what got you thinking to move back!

    4Reply
  • Bryon AndrewsBusiness Member
    Real Estate Agent · Saint Paul, MN · Member since 2018 · 201 posts · 104 votes
    3y

    Hey Jack, welcome back to the cities! (In a year and a half) You have the right mindset by wanting to house hack as my wife and I have done it a couple of times in Stillwater, MN just outside the city. I wish I had a crystal ball as to say which areas are going to be best to house hack in 2025! I would determine what areas fit your criteria for where you want to live in comparison to family, jobs and community. After that, you can dive into what specific areas within that will give you the best option to house hack. A couple other books I would recommend are Rich Dad, Poor Dad and The Millionaire Next Door. Both are great mindset books as you continue to research. As to accurate inputs, there are a ton of variables that will be property specific.  

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  • Jack Stang
    OP
    Member since 2023 · 5 posts · 4 votes
    3y

    Thanks for the help guys. Looks like I need to do a lot more research as I don't even know what questions to keep asking.

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  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    3y

    @Jack Stang when you mentioned that the properties you were analyzing were cash flow negative - what did you mean?  You are occupying one of the units if it's a 2-4 unit property...so it will always be cashflow negative because you are taking up one of the income producing units.  The right way to examine it is how much does this property REDUCE my homeowning expenses.  If you analyze it that way then I think you'll be ok.  Keep in mind you will still have all of the OTHER things you need out of your primary home - commute time, school zones, crime rates, space, etc etc etc.  Maybe you are flexible on those but maybe you have other personal needs as well.  House hacking is a good way to OFFSET the costs of being a homeowner.  I hope all of that makes sense.

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  • Jack Stang
    OP
    Member since 2023 · 5 posts · 4 votes
    3y

    Hi Andrew,

    I was analyzing a property as though I was not living in it because I only plan to live in a Small-multi family unit for a year or two and then buy a single-family house for my wife and future kids, so I wanted to see what long-term cash flow would look like. I talked to @Jeff Schemmel and he helped me input reasonable inputs, and now the properties have better cash flow. 

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  • Ryan ThomsonBusiness Member
    Real Estate Agent · Colorado Springs, CO · Member since 2018 · 1k+ posts · 1k+ votes
    3y

    @Jack Stang I wonder if your criteria may be a little unrealistic for the current market.

    House hacking is tough to cashflow in year one (with current house price run-ups and interest rates) for a couple reasons:

    1. You are living in one of the rentable units

    2. You are only putting 5% down so your loan amount is much larger and therefore your mortgage payment.

    I would consider your net worth ROI. What I mean by this is considering how much your down payment returns to your net worth (appreciation, loan paydown, tax benefits, AND rent avoidance). Don't forget to include rent avoidance in your numbers! You have to live somewhere.

    You may need to lower your return or cashflow expectations so you can get into a house hack that will allow you to avoid throwing rent money away every month. You know this, but don't forget all the other ways real estate makes you money. Paying down your mortgage and owning an asset that will appreciate over the long term.

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  • Jack Stang
    OP
    Member since 2023 · 5 posts · 4 votes
    3y

    Thanks for the advice Ryan, I understand that when I'm living there the cash flow will not be as high due to my wife and I taking up one of the units. I was estimating cash flow for the long term, and long term we don't plan to live in the small multi-family property.

    0Reply
  • Daniel Anshus
    Realtor · Bloomington MN (bloomington, mn) · Member since 2016 · 451 posts · 263 votes
    3y

    @Jack Stang congrats on thinking ahead! Running your numbers correctly is huge and you need someone like @Jeff Schemmel helping you. Jeff is a leader in the small multifamily community and will definitely put you on the right track. 

    1Reply
  • Tim SwierczekPro Member
    Lender · White Bear Township, MN · Member since 2016 · 1k+ posts · 1k+ votes
    3y

    Hey @Jack Stang you are in good hands with @Jeff Schemmel

    1Reply
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