All Forum Posts by: Marc Jolicoeur

The HOA amount was about $13,000 so it was pretty certain that the bank would redeem it at that price.

However, now the property needed some work as the entire main level was destroyed by the water damage (kitchen, half bath, and living area).   So an as-is fair market value was probably around $150,000 minus $20,000 in repairs or $130,000.  

Bidding at $100,000 would be around 77% of ARV or better. As a buy and hold $120,000 in acquisition costs would be a good cashflowing deal. As a flip, this would have about $35,000 in juice.

This scenario happened in Minnesota. I would like your advice to determine what strategies an investor can do in a similar situation to end up with the property at a discount to ARV.

A bank owned townhome with no mortgages or other liens on it is vacant.

The HOA for the townhome assessed the unit for costs that the HOA incurred when the vacant property sprung a water leak in a cold snap and it needed to be dried out.

The bank did not pay to dry out the unit or to fix it and it did not pay the assessment. Months later the HOA decided to foreclose on the bank for what was owed (plus fees and legal costs).

At the sheriff's sale, the high bidder was the HOA - so now the HOA owned the property. In Minnesota, there is a 6 month redemption period so a couple of months after the sheriff's sale, the Bank came back and redeemed it for the amount owed.

If an investor had gotten involved at the sheriff's sale and bid $10 more than what was owed to the HOA, when the big bank needed to redeem, they would have had to pay off the investor for the same amount.

Does this give the investor any benefits? Could I as investor start the conversation with the big bank at that moment and ask for them to accept a cash offer from me for the unit?  This interaction, I assume there are no real estate agents involved, no BPO, or other intermediaries.  Does this give me an edge at all to have a direct negotiation?

If the investor instead paid $100,000 at the sheriff's sale, the HOA would have had a big bonus to fill their reserves. And when it was time to redeem, the Bank would have had to pay the $100,000 if they wanted the property back. If not, they would let the investor keep it for $100,000 and they would have to write off the asset. Once the 6 month redemption period ends, the investor can do the renovations and flip it or hold it.

Is this a valid strategy to get Bank owned properties at 70% of ARV? What am I missing in this last scenario?

REO and foreclosure experts please weigh in.

I'm in.

@Account Closed I am also looking for properties to invest in right now and 2% deals do not exist.   Well maybe in a C or D areas. Certainly not in A or B areas where I want to be!    1% seems the norm currently in how properties are being marketed for sale in the Twin Cities area.  Most everything I am looking at (and passing on) has a 7% cap rate.

When calculating your costs consider that local taxes are rising yearly with property values.  Expect that this will cut into your cashflow unless you raise rents.      Look at the estimated taxes for 2015.

Also, don't forget about costs to shovel snow, pay for trash pickup, and lawn maintenance.  Most duplex renters will not do these for you unless you pay them.

Check with your mortgage broker on the 20% down. I normally plan to put 25% down in order to get the best rates and more banks competing for my business.  I think you pay higher interest if only putting 20% down.

I just moved out of Farmington last year to the city but have lots of experience there.  Lets connect.

@Sawyer Lubke you mention doing thorough due diligence.  Do you have specific tips or lessons learned regarding research on past work done in minneapolis with or without permits?

The CoC return is different depending on what kind of loans you are taking out.

I normally plan for 30 yr fixed rate coventional mortgages with 25% downpayment.  With that, I am looking for property that will give me about 13% to 15% cash on cash return and a 7% cap rate.

In Minneapolis area, these properties are tough to find at the moment.  I am currently looking at a few expired listings that may be close to these ratios and I am going to have to try driving for dollars and sending yellow letters.

Marc

The city of Minneapolis has a $1000 license fee for the first time a property is registered as a rental unit and there is a small annual fee.   St Paul and other suburbs have some fees but not as ridiculous as Minneapolis.    

http://www.ci.minneapolis.mn.us/inspections/rental/inspections_rentlicensefee

"When a dwelling is converted to rental property or has not had a license for the past 12 months, it must be inspected for compliance with the Housing Maintenance Code. The fee for this inspection is $1000.00. This fee is in addition to the annual license fee."

Since the housing stock in the city is 80-110 years old, the inspector is likely to find things you need to fix or change before it will get approved!

Minneapolis is not as great as it was a couple of years ago. Let me know if you need boots on the ground here. The twin cities have a very large number of rental units but the asking prices on MLS are too high. Rents are strong but the MLS deals are at best around 1% deals unless you go into sketchy areas where you might be able to make 50% more cashflow with probably 25% more risk.

I am on the hunt to buy something right now but I am finding it tough to find anything I like.   I am going to have to try Yellow Letters pretty soon.  

After you pay for property management, and for the $1000 rental license, I don't think Minneapolis proper is very good for out of state investors.   Some of the burbs are better.  Write me if you want some ideas of where to look.

Marc

@Shane Setzer welcome.   I am a buy and hold investor. I have one great townhome in Farmington and I am currently looking for my next great property to hold.    I also like South and NE MPLS, but also like many burbs west, south and east.

Check meetup.com for a couple of great groups that meet monthly and cater to newbies like us.  It's a great place to network.

Marc

Outer suburbs, exburbs, and bedroom communities will thrive or decline primarily depending on factors that affect commuters the most:

- Availability of trains and transit to the employment centers

- Price of oil and gas

- Construction zone delays

In the Minneapolis/St Paul Twin Cities metro, Minneapolis and parts of St Paul are gaining while the outer burbs are not appreciating.  Some of the inner ring burbs are expected to have massive increases in population due to their location near several employment centers.  I see a lot more MF projects and in-fill or teardown projects than I see new SF developments.

Personally, I commuted 50 minutes twice a day to the exburbs for 15 years while my kids were in school.   The outer burbs gave us a good life with good schools and a lawn, but spending 100 minutes a day in the car was a huge waste of time and energy.  Last year, I traded my 5 bedroom, 4 bath DR Horton McMansion for an 90 yr old 3/2 home in a nice residential neighborhood in the city. Now my commute is 15-20 minutes and we are close to everything. That is one hour a day we are saving and half the gas.

Preference for city or suburb is very individual and depends a lot on kids and schools so you will see people arguing both ways; but the maintenance costs of infrastructure long term may be the killer for the suburb.   Cities and states cannot afford to replace bridges. When they start going down they will certainly prioritize the higher traffic bridges near the city centers and main interstate arteries. They will not prioritize the highway to the suburb 20 miles out of the way.

Stay in the inner burbs near the employment centers. Avoid the exburbs