All Forum Posts by: Brad Schaeppi

@Jamie Bolinger  Ask the following questions to all potential brokers (in addition to commission splits, fees, etc.)  1)  Who will be my mentor, what is his/her experience in total # of MF transactions broken into buyers/sellers, how available is he/she, and what expectations (if any) will he/she have in return for advice (beyond commission split)?  2)  How will I not be competing head to head for the same business and potentially lose out on new business due to prior contact (call that may not have lead to anything), and 3) How much flexibility do I have to negotiate deal commissions with clients?  

Good luck!  My final two cents:  There are very few brokers with over 5 years of high volume MF experience in the Twin Cities.  Many of them are learning as they go.  Listen to their advice, but think for yourself.  

Pavel.  Yes that duplex.  Congrats on landing the mac n cheese tenant.   Sounds like El Burrito Minneapolis opens in July and theater in late August (we'll see).  

As you stated a first property is "by all means necessary."  If not already, I recommend obtaining a salespersons license to also pocket a buy-side commission plus any seller contributions you write in.  If I were in your shoes, and focused on Minneapolis, I'd focus E. of 35 from 35W to Powderhorn Park area on south to the Minnehaha Creek searching even for an old up/down duplex (as others suggested).  For example, I have a duplex at 48th and Chicago with Rents of $1895 for a 2 BR (renovated)....that match W. of 35 area rents.  In sum, if no 3/4 units, purchase a value add best of breed duplex with low rents, hopefully with 2-3% buy-side commission and 1-3% seller contribution, with 10%down to save your cash for renovation then refi while you occupy.  Make sure upfront there are no pre-pay penalties or other prohibitions on 30 year money to cash-out refi  in 1-2 years (cash out refi when you occupy if possible).  Good luck!  

My two cents:  

1)  @Tim Swierczek is correct on Minnesota landlord law, landlords are not required to pay a specific utility per se.  Tim is also correct about the ticking time bomb if a tenant's name is on the water bill.  If you go direct to tenant name on water, obtain additional security deposit to cover non-paid water (it can run hundreds to thousands of dollars).  

2) BE AWARE of the single meter statute 504B.215 and tenant advocate attorneys.  I have defended a landlord against a tenant rent escrow (duplex tenant) seeking a large settlement due to no access a garage, but allegedly paying for electric utilities for the garage.  The issue would have nominal in cost to address had the landlord also not had attorney costs language in the lease for the landlord (that is another issue).   

Real quick, duplex type properties can quickly become utility liabilities if not handled the correct way (ex:  2 meters but only 1 washer and dryer).  The statute also distinguishes between "utilities in rent" vs. "utilities separate from rent."  If you have fact or property specific questions, DM me.  

To All:  

Positive: You might source a great off market deal at a crazy low GRM: like 3-5. You are your block. If you can stay to best of breed (original 1920s units) vs. chopped up house.

Neighbor problems are your problems.  If you don't have a thick skin, not for you.    

A well kept and well managed property in any neighborhood will outperform the competition.  

Good luck!  

@Rosa Hopkins owning investment properties is a business.  Landlords offer housing for a fee.  You are not getting the benefit of the bargain.  Given you don't want to get involved, hire an attorney to evict for non-payment of rent.  The eviction will likely be in the county of the property.  Find an attorney who will due it for a flat fee and call around.  Good luck.

You asked for resources.  I offer stick to an easy formula out the gate of each deal you look at.  I would encourage back of the napkin Gross Rent Multiple analysis of properties for sale.  How many times is the Asking price of In-Place Annual Gross Rents?  There are plenty of caveats in 2-4 unit properties where the tenants may directly pay the heat as well as 5+ properties that pass through costs like a condo building, but the rule holds.  Start keeping track of the GRMs of buildings for sale.  It is a quick way to call BS on the broker's package or quickly sniff out a deal.  Broker's commonly underwrite expenses low to artificially inflate estimated returns.  Stick to the income analysis first, then back into the expense analysis.  You will quickly pick up on the range of GRMs to run the 1st grade math on a bldg and determine--wow that Seller has a reasonable ask out the gate--I should invest more of my time to run the #s.  Good luck!  

I agree with @Scott S.  I switched over to full time legal and know all those folks very well.  A great ally is also a great well connected commercial loan officer.  

Jeff.  

@John Woodrich is correct.  Legal can come later, especially if you are purchasing multifamily as an individual.  If you have any doubt, draft the Buyer/Purchaser as Jeff Marciniak and/or assigns.  Sometimes Sellers frown upon that language as smart sellers are wise to avoid contract flippers.  That said, do your homework on the rental license status and past violations.  While you likely don't need an attorney to draft a residential PA (1-4 units), there is key language you need to add to the addendum to avoid surprises at closing--i.e. $0 in security deposit transferred at closing with $0 in pro-rated rent that you have to evict at your cost.  If you notice any new capital, make sure you request the Seller to transfer the warranties at closing.  Good luck!  

You may consider whether or not your topic addresses tenant based or project based S8.  

https://www.cbpp.org/research/housing/policy-basics-section-8-project-based-rental-assistance