All Forum Posts by: Adam Tafel

What was your experience like working with Redfin? 

Not only does it vary from state to state, but city to city. I make these calls for clients all the time, call the municipality and be polite! Someone in zoning/licensing will be able to answer this, don't waste you time looking online. "Mother-in-law" units are just non-licensed duplexes in the eyes of many cities, but here in the Twin Cities they have been loosening restrictions on ADUs. St. Paul requires the owner to occupy in order to rent the ADU, as does Minneapolis. Many suburbs allow them to become fully licensed rental properties.

@Jason Larson - what method did you use to find the seller? Was this property listed? 

Your cash-on-cash return diminishes as your down payment increases. I would rather see $200/door at 5% down than $400/door at 20% down, as my return in the latter scenario is 50% of the first. That's obviously a dumbed down example, and there are plenty of other factors to consider. I would rather see $150/door on a property with brand new mechanicals than $250/door on a property with ancient heating/electrical systems. I would rather see $150/door in a class A neighborhood than $250/door in a C- neighborhood. I want to be able to self-manage locally, so anything further than 45 minutes from my home would need impressive cashflow. 

It's great to quantify your criteria for an investment, but don't get too caught up in your dollar-per-door goal. I'm personally not looking for anything under $250/door, many of our deals are being found in C-B class Twin Cities neighborhoods. Cashflow is your cushion against loss, always keep that in the forefront of your mind. It's not guaranteed income, buying and holding real estate is a long-term path to wealth. We routinely find deals between $200-$300/door, mostly 2-4 unit MF. 

This is great! Would it be helpful to hear another investor chiming in to suggest staying local? I personally stay within my own market because of my knowledge and faith in the area, but I think you've got a solid plan. Reliable/affordable/honest property management will be key to the plan, I would add that to your to-do list. Obviously factor in travel expenses, some of these cities will be more expensive to fly to than others. The most successful out-of-state investor I know routinely checks up on his properties, I would build this into my budget. I wouldn't mind having a few investments somewhere warmer, good excuse to visit Texas/Florida a few times every winter? 

A commercial investor I admire stays within a specific neighborhood of Minneapolis. He knows why the southeast corner of a particular intersection will perform better than the northwest corner (his words), and that comment has always stuck with me. Commit to becoming that sort of market expert in whichever market you choose, and don't leave these judgement calls up to your Realtor. Keep us posted! 

I've been renting my the room for a few years now in a SFH. To answer your questions:

1. Pros: Diversifying your risk. I'd rather have 1/4 of the home miss rent than the entire household. I'd rather have to kick one bad tenant out than an entire family. 

2. I let my tenants have the final say. I take care of the pre-screening process, and they conduct an interview. I want responsible, courteous, hard-working tenants in my household, they tend to get along without too many issues.

3. Current investment is a 3/1.5. It would probably work better as a 3/2, but my tenants all have opposite schedules, no competition for showings in the AM. 

4. Other tips:

One of my tenants is very good friend. I don't charge him utilities, give him a break on rent, and allow him to have a dog. He's my unofficial eyes and ears, and takes pride in the home. If you can keep a tenant or two within your social sphere you'll likely have an easier time than managing 4 strangers from Craigslist. 

I also rent the master bedroom out on Airbnb for some extra cash, with a 30 day minimum. I've had a guy paying $1200/mo in there for months, cashflowing like crazy at the moment! If you can afford some nice furniture/linens it's worth a shot. 

Include utilities in rent to simplify things. Include a weekly cleaning service in rent to simplify things. Get professional pictures taken, they will pay off. Do your best to create a community that will be attractive to good tenants. Most rent-by-room tenants are in a transitional phase in life, and will be willing to pay a premium for a clean, safe, respectful environment. There are plenty of creepy guys on CL with $400/mo rooms, but you'll get tenants willing to pay $800 if they feel secure.

@Nathan Christensen - Here's my two cents on off-market vs. MLS:

"Off Market" is a hot term on BP and beyond, but don't confuse it with "good deal". We are finding great cashflowing properties on the MLS all the time, I also have hundreds of off-market "deals" hit my inbox every week, many of which I'd never buy. My main gripe with off-market sellers is lack of motivation. Many times the owner wants a full offer at market value, otherwise they'll either keep it or list it. I'm about to list one of my homes in a month, and I'm entertaining a few off-market offers before I do. Am I going to accept a lower offer and get someone a great "deal"? Of course not.

Listed homes are owned by sellers who need to sell. Nobody lists a home for fun. Don't get into an MLS bidding war on a hot property in a cool neighborhood, look for the homes that need work, sitting on the market for a few weeks, overpriced, smelling of cat pee, etc. I'm not anti-off-market or pro MLS, just offering some perspective. Typically when someone hits a home-run deal it's off market, and the seller is unaware of the home's potential value. Thanks to Zillow and Redfin this is happening less and less often, as anyone with internet access has a good idea of what their home is worth.

Are you going to find a turn-key duplex in a cool neighborhood on the MLS that cashflows $350/door? Nope. I approach my investment search from all angles. I have wholesalers emailing me listings all the time, Realtors sending me "coming soon" and off-market opportunities, and I check the MLS multiple times every day. I do some cold calling on distressed properties and write the occasional hand written letter to potential sellers.

@Luis Arellano - talk to @Tim Swierczek ^. The majority of my clients use him for MF deals, he'll have a much wider array of options vs. a credit union. 

@Nathan Christensen - I have investments in both West 7th and the West Side of St. Paul, big fan of both. West 7th isn't nearly tapped out, plenty of opportunity there. The appreciation on the West Side has been incredibly strong for the past 7 years or so, well above the Twin Cities average. Both are good picks for househacking. 

@Ilya Plugovoy - slight typo on my end. What I meant was recoup your entire down payment on an FHA MF househack, which would come out of your 150k. You could get into a solid investment for around 15k out of pocket, live expense free for the next few years, bringing your reserves back up to 150k before you move.