All Forum Posts by: Account Closed

Where in Minneapolis is this located?

@Raven Parmer I think you are getting very good advice on this thread.

I must admit I share your design thoughts. I have passed on some small flip deals in the past because I didn't want to do a cookie-cutter deal. Dumb, maybe, but architecture and design are in my blood and like you mentioned, to some of us there is more to it than ROI. Disclaimer: I work acquiring large multifamily deals (very unemotional) and that's where I make my money so spec building and design to-date are just hobbies. If I seriously enter those markets, I will bring my aesthetic but be very careful about designing for the market.

All the "J's" are giving you the right advice.  If you want to really make money as a flipper or spec builder, you build for the market.  Plain and simple.  Are there possibly some niche markets in which you can build and do what you want and make money -- yes. But you will be limiting your buyer pool and taking on more risk.

I've been to Louisville several times scouting apartment deals and I have a decent sense of the market.  I used to live in San Francisco and I could build to my exact tastes there all day long and the market would respond favorably.  But now I live in Minneapolis and I have to be much more careful.  My sense is in Louisville you need to be as well.  Most people here want a craftsman or arts and crafts home that look like all the other homes in the neighborhood.  I get a lot of compliments on the interior design at my house and my extremely modern aesthetic, however, I don't think the majority of the market would really want my furniture or art.  Or maybe they would, but they likely wouldn't pay extra for it.

That said, if you aren't out to make a million a year and want to do a handful of well-done homes in a specific neighborhood that you think they'd work in, I'd say go for it.  Here are a few examples of spec builders/flippers building for a specific area.  Steve Jones (bettershelter) in LA flips entry level houses to hipsters.  Quest in Cincinnati builds modern homes.  Neither one is cookie cutter at all.  My guess is Steve makes far more money because he has a large market in LA that would want his product and that Quest is much more a niche builder, but both seem to have found success.

http://bettershelter.com/

http://www.questmodernhomes.com/

Brokers/agents only become irrelevant if the data on these sites is actually accurate.  To date, it is not.

I feel silly even having to ask this question, but how exactly does a "cash offer" transaction occur on a home/lot?  Deals are moving quick in my area, often with several cash offers made in the first day a deal is available.  

Are most of these folks just making offers with no financing contingency, then tapping lines of credit or using other instruments to close these deals, or are they literally wiring cash from their checking accounts at closing? One builder I spoke to said he always offers "cash", but usually that just means his bank will give him a proof of funds letter and then he figures out how to close it after that.  

In the large multifamily world in which I work, most everything is bought with financing and even when someone says they are offering cash, it is still financed somehow.  We never include a financing contingency, but the assumption is always that the deal will be financed.

I'm sure there is a simple explanation for this that I'm missing.  

Also, the schools in SE Minneapolis are considered good.  The schools in SW Minneapolis are considered outstanding.

Edina has one of the top school districts in the Midwest.  Most homes that are listed at $500,000 in Edina are tear downs and developers buy them and rebuild homes that they sell for $2 million.  Edina is the wealthiest city in Minnesota.

The neighborhoods you listed in South Minneapolis are all in SE Minneapolis, which is considered less desirable than SW Minneapolis.  SW Minneapolis is probably 2nd to Edina as far as high end areas in the MSA.  Cash flow is hard to find in SW Minneapolis due to high prices.

That said, SE is very middle class and a good market for renting.

Originally posted by @J Scott:

Originally posted by @Account Closed:

My company bought a 204-unit apartment building off auction.com earlier this year. Pretty wild experience. Had to put down 10% day 1 nonrefundable. Deal has worked out well thus far.

Sean -

Did you find there was more or less competition buying an apartment off Auction.com versus the more traditional ways apartments are sold?  I didn't even realize that you could buy large apartments off Auction.com...I'm wondering if there's less competition for that reason...

 J,

Sorry, didn't see this until just now.

About 50% less competition that we were seeing on a typical deal of that size, for several reasons.  The asset we bought would have attracted around a dozen qualified offers if marketed traditionally.  We later were told there were 6 qualified bidders, 4 of whom were serious and didn't just submit 1 low ball offer.  We also think we were able to purchase the property for 5-10% below market value, which is EXTREMELY rare on a large property of that size. 

1. All due diligence, unit inspections, lease reviews, etc had to be completed prior to bidding on the auction.  In other words, if you won the auction, you had to be prepared to close in 21 days and had no additional opportunity to inspect, negotiate, etc

2. No negotiating the seller's purchase agreement.  It was take it or leave it.

3. Prior to be approved to bid, you had to show proof of funds equivalent to $12 million

4. The winning bidder paid a 5% buyer's fee to auction.com.  We were able to finance this as part of the purchase price thankfully.  We obviously knew this fee was there ahead of time and set our maximum bid 5% lower.

5. 10% of the purchase price had to be deposited in escrow within 24 hours of winning the bid.  This money was non-refundable.  On our deal, it was over $1 million.

6. 21 day close.  That prohibits a lot of groups who cannot secure bank financing quickly.  We spent a lot of time and money prior to the bidding to ensure we had our financing ready to go.  If you do not close, the seller could come after you for damages.

In short, pretty risky way to buy a property, but also a way to get a discount in a competitive market.  I would think smaller multifamily properties (10-85 units) might be a good deal on auction.com as that would eliminate the smaller investors, but the size wouldn't be worth the hassle for larger groups like ours.

I just got a $30k quote to build a new, two car garage.  In my experience, depending on your market, MAYBE you get an extra $50/month for the garage.  If you are in a high density, cold weather market the value increases.

But, an extra $600 per year that costs $30k = 2% cash on cash return.  Not worth it based on that metric alone, but as always there are other factors.

My company bought a 204-unit apartment building off auction.com earlier this year. Pretty wild experience. Had to put down 10% day 1 nonrefundable. Deal has worked out well thus far.

Another thing to consider...most other industries or corporate type jobs that pay over $80-100k are going to require some long hours as well. Not at night per se, but you won't have control of your time the way you sort of do now. When you have a boss and they say jump, you usually have to answer how high. Just something to think about as you evaluate your options.