All Forum Posts by: Evan Kraljic

@Joe Cassandra It’s insane in Minnesota too if you’re looking at it from an investors viewpoint. My small bathroom remodel should run me about 5k tops and that’s with redoing the plumbing, granted I’m only paying a plumber and not a GC to do it all. 

I'm not trying to dispute Keith Linne at all here though. As a GC he's certainly forgotten more about construction than I've ever learned but my point is that if you're looking at the renovation as trying to get as much value for your dollar as possible, there are ways to do a kitchen and 2 bathrooms for 20k and have it add maybe 75% as much value as doing it for 80k. Those are super rough estimates and will depend on your location and comps though. In general high end finishes aren't going to have as much ROI unless you're a contractor or very skilled DIYer.

My tenants are moving out at the end of the month and I'll be remodeling their unit over the next 1-2 months so while I can't give you what I'm doing in practice, I can tell you what I would be doing. 

Reach out to all your tenants and ask them what their employment situation is and if it's being affected by COVID-19 at all. If they lost their job, ask if they've applied for unemployment and send them a link if they have not. After that is done, bring up rent and ask if they are good for the next couple months or if they think they will have trouble making the payment. If that's the case then ask them how much they can reasonably pay and work with them on a payment plan. I'd try to get partial payments but delay the rent if you have to. Make sure you get all of this in writing too. Keep in mind if they are behind you have a security deposit that you can draw from when the lease is up (but obviously don't mention this to them as it would probably piss them off).

Let them know as kindly as you can that the rent isn't being forgiven but that the last thing you want is for them to have to worry about being evicted during all of this. I think it's in the landlord's best interest as well, especially if they're a good tenant. Hopefully that was somewhat practical advice but I apologize if it isn't because I'm not personally going through it yet. 

I think the most important thing is being empathetic to their situation. #1 because it's the right thing to do during these tough times. And also it's good business practice because if you piss them off and hear about evictions being halted then what's the motivation to pay their landlord anymore Granted no evictions should only apply to those whose jobs were affected, but some tenants may not read the whole article and also we'll see how that plays out during a shelter in place.

@Raymond Rashid I've decided that while I'm still going to renovate the attic area, I will be including it as part of the second unit. I could go very in depth on this but everyone's situation is going to be different and even for one situation you will get different answers depending on who you talk to. I can tell you a few things though.

Sprinklers would have been by far the most expensive cost for me. Retrofitting sprinklers to existing construction is not economically feasible at all. I didn't get a formal bid but one estimate was around 50k for a reference. That alone is more than it would cost to get all the electrical/plumbing/HVAC and cosmetics in rentable condition so I did not pursue further.

You will need two means of egress, sprinklers or potentially both depending on location of the unit (3rd story or basement) and other factors. Second entrance will be very situation dependent but I'd guess around 10-30k for a shoot from the hip answer. Other required upgrades would include replacing ceilings with 5/8" drywall and adding insulation, sound channeling to get to commercial code soundproofing requirements (5-10k?), fire rated doors (500/door?), and sewer/water access charge for qualifying a new unit which is $2500. It all adds up fast and you're at the mercy of the city which I did not desire considering I went into real estate to feel in more control of my investments (among other reasons).

Bottom line: Don't rely on adding a unit to make an investment work because chances are it will cost much more money than you had originally planned. I can finish that space and effectively add 2 bedrooms and a bath that could rent for 550/room which is probably 80% of what I'd get for renting as a separate unit. But the full triplex conversion might cost me 3x as much. 

There was a good post on this way back in 2017 by Ryan Luthi titled "How to find deals that cash flow on the MLS". Search either his name or that title and you should be able to find it.

Something I'd include with that post is to look for large units square footage wise relative to the amount of bedrooms they have, it's possible there is a room that could be converted pretty easily but hasn't for whatever reason which is what I had with a property I purchased. If you have an 1000+ sq ft 1 bedroom unit that could play as a 2 bedroom depending on it's layout of course, but it wouldn't feel cramped.

My question to you would be what are your long-term goals and would you rather have the cash from sale or the cash flow right now? Are you looking to sell so you can have more liquidity to scale up to something bigger? Or are you sick of owning it and looking for a good time to dump your asset?

One thing I'd always recommend is to look at how your asset is performing currently vs. what it is worth on the open market. So look at comparable sales and/or talk with an agent to see how much money you'd receive at the sale. Then look at how it is performing as a rental, so what rents are you receiving for each unit and what have your expenses been like the last 12-24 months. 

There are a lot of different ways to attack this. One is simply look at the rents you're receiving as a function of it's market value (what is the monthly rent/sale price?). Also look at how much you're cash flowing per door and determine if you could realistically achieve that by purchasing deals that are on the market right now. And how much equity do you have in the property? If you could achieve 100k at the sale and you're only cash flowing $500/month I'd say it's a good time to sell because that's like a pseudo 6% COC return.

In general I'd say selling to try and time the market isn't a good enough reason since real estate is going to appreciate over the long term. But if you think you'd be better served having the cash right now or it's not performing super well from a cash flow perspective then by all means try and sell it. I'm just throwing out some things to think about.

I should clarify, nothing wrong with using OPM but in paying cash you're losing out on all the leverage you get when you can buy a househack for 5% or less down at sub 4% interest rates for owner occupying. Again I don't know your financials or anything but just dropping in my 2 cents.

Welcome to BP and the twin cities investor community! There's no shortage of experienced investors here who love helping new people learn about real estate so keep doing what you're doing with going to meetups soaking in knowledge others around you. I'd recommend joining the Millennial Investor Focus Group on Facebook, it has been really helpful in building a network of contractors to reach out to and other twin cities specific real estate questions I've had.

One question/suggestion for you though, if you're planning on house hacking I think the best strategy is taking advantage of the super cheap and low down payment financing that owner occupying opens up for you. That's awesome that you've already had the initiative to raise OPM before your first deal but I'd save that if you're going for a BRRRR or a real fixer upper that wouldn't qualify for a conventional mortgage. Just a thought though, I don't know your situation and that's more something that an experienced lender would be able to help you out with better. Tim Swierczek, Conor Hesch and Kim Burke are three really good ones in the twin cities. Kim has a 0% down with a construction loan -> refinance option that I haven't used but it might appeal to you since you mentioned you have a background in construction. Good luck!

@BRIAN CUBERO Yeah I would say that is a much more reasonable number. I'll try to give you a very general breakdown of Minneapolis just to get your started. Minneapolis has 4 general quadrants centered around downtown. There's North Mpls, which is west of the river and I94 and generally considered the worst part of Minneapolis in terms of crime and property value. I would stay away, especially as an out of state investor. Northeast Minneapolis is east of the river and generally thought of as a pretty great place to live and own rentals. Property values have really shot up here due to an emerging craft brewery scene and other gentrification. I'm not going to claim I'm knowledgeable enough to grade all the properties but I'd say Northeast is around a B. 260k would be the low end for property values here, but there is a large inventory of duplexes so you could maybe snag one for around that number. I'd say low 300s is the median but that's a guess, I don't have the MLS data to support it.

Then comes South Mpls which is massive and the main boundary here is Interstate 35W. West of I35W is called Uptown, which like Northeast has really shot up in value and you probably won't sniff a duplex here for 260k. Although there is one up for 280k right now (3336 Stevens Avenue, Minneapolis 55408 if you're curious). The east side of 35W doesn't really have a great name to classify it all. I can tell you that as a general rule of thumb for South Mpls, the further south you go the nicer homes you'll see but those are far above the 260k figure you threw out. There are plenty of duplexes around 260k in South Minneapolis but you've gotta find a really good realtor who you trust because like a lot of places it can change block by block from a B- with a solid rental market to a C- neighborhood with gang activity, heroin junkies, etc. Having just started out I don't know the neighborhoods that well but especially as an out of state investor it's imperative that you build a good team who really knows the area well. 

Last thing: I know it's difficult to do research on out of state markets so I'll give you a few pointers. The first is to get realistic about what your financing situation/risk tolerance is and what you can afford. Then start looking at the past 6months to a year of multi-family home sales on Zillow, Realtor.com, Redfin etc and you can get an idea of what the pricing is in various areas of the market. Then pin down just a couple markets (2-3 tops) to dive deep in and start reaching out to locals there and building a team. If you had looked at prices of sold duplexes in Minneapolis you would realize that your price change was unrealistic so that's why I'm bringing it up, no disrespect intended though. I know it's a lot of work but that's what it will take. Good luck!

@BRIAN CUBERO Hey Brian, I saw you mentioned Minneapolis on your list and thought I'd chime in. While Minneapolis is a great market to invest in from economic and job factors, I don't think it's reasonable based on the ideal property you laid out. You mentioned a duplex/triplex between 100-130k that you could do light rehab on to bring it to 150-170k. I can tell you based on looking at properties for the last 6 months that your goal is a unicorn in the Minneapolis metro area. I'd say 100-130k is a good range for price per unit and even then it's a bit low which means you're probably looking at a C or lower neighborhood. To find a duplex all in under 130k would mean it's probably a full gut rehab job and even then it'd probably be in area like North Minneapolis, which I would say is not a wise first investment for an out of state investor. 

If you were referring to price per unit in your previous response then I apologize. But I'm just trying to give it to you straight. Mpls/St. Paul has a strong rental market but prices are high so if that's your goal I'd be looking at those Ohio cities, or elsewhere in the rust belt to southeast US. 

Good luck!

Minneapolis is a really hot market and has been for the last 5 or so years. Vacancy rate has around 3% the past couple of years which is around the lowest in the nation for major cities, so there is a high demand from renters and especially for affordable housing (2 br for <$1300, give or take). Minneapolis also has a great job market with one of the largest number of fortune 500 companies headquartered here for any U.S. city.

As Mack Benson mentioned, it is very much still a seller's market so finding a deal that works can take time. I can't speak to larger multifamily but I remember you mentioned you are looking to house hack a 2-4 unit for your first property and that is a tight market. Most deals sell for less than the 1% rule (i.e.: a duplex that rents for 1250/side might sell for 300k) so the ones that are priced at 1% go quickly. Because of this I'd say it is important to find an agent who is really plugged into the market, one who invests themselves and has a solid pipeline of off market deals. 

Along with that, you've gotta create value within the property you purchase to make it a good deal. Add square footage by finishing out an attic basement (if it makes sense), fix up the kitchen and bathroom in the unit you'll be living in, stuff like that. I will say that when I was in your shoes I was looking for a mostly turnkey property... the property I ended up buying could use a major overhaul but the price was right and it was an off market deal at an ideal time for me personally so that was an opportunity I didn't want to pass up. 

Last thing on Minneapolis which is a point of contention for many investors here, the laws are becoming more and more tenant friendly. Here's a good thread on it, just so you are aware that screening will get a little more tricky soon but there are stills ways around the new ordinance legislation put forth.

https://www.biggerpockets.com/forums/52/topics/794977-murder-inclusion-in-minneapolis?highlight_post=4669221&page=2#p4669221

Some other things they have implemented are the largest property tax increase in the last decade which was use to fund affordable housing in the Twin Cities. I don't think I need to point out the irony in that situation. On a brighter note, I have heard that minimum wage is being raised to $15 in 2022 for large companies and 2024 for smaller companies. Regardless of where anyone stands on that issue that can only mean good things for those who own rental properties.

Didn't mean to get all political at the end but it's an important thing to be aware of, just don't let it scare you away from a great market overall. Overall, I would say it isn't easy to break in for a new investor but if you build the right network and are committed to buying your first property you can make it happen no doubt.