All Forum Posts by: Marc Jolicoeur

@Dean Miller I would add that you should review all governing rules of the association, not just the rental restrictions. And also review the legal paperwork that established the association.

Important to note that not all townhomes are condos. Some are legally described as condo associations and others could simply be attached single family homes. AND, FHA certification only applies to the condos. Attached homes cannot get FHA certification. In my area (Minnesota) both types of projects are common so you have to look at the legal description.

Regarding getting approval for conventional mortgage financing, Fannie and Freddie will only allow a loan to a buyer if the number of owner occupants is more than 50% of total number units so number of rental units should be smaller, like 40% or less.  Also, no single investor can own more than 10% of the units.  And, no more than 15% of units can be delinquent on paying fees and assessments.

See the lengthy B4-2 section of this Fannie webpage:  https://www.fanniemae.com/content/guide/selling/b/...

For an idea of all questions you will need answered by the HOA before getting a Fannie or Freddie loan, see this standardized questionnaire that was recently released by Fannie/Freddie. https://www.fanniemae.com/content/guide_form/1076....

In review of this data, and by giving a call to the HOA manager, you should be able to figure out if your HOA would allow conventional financing with Fannie/Freddie.

In addition, FHA certification of the condo project will increase the property value because there is a larger pool of potential buyers for a flip or down the road. IF your townhome is legally described as a condo, it really should be FHA certified, or on the path to becoming certified soon.

This link has some helpful info about FHA certification: http://www.hindmansanchez.com/resources/pdf/fha-co...

Note that FHA certification looks at everything Fannie and Freddie wanted and more. It looks at the amount of reserves, budgets, insurance policies, and the actual community rules.

And to check if your condo association is approved, you can confirm it here: https://entp.hud.gov/idapp/html/condlook.cfm

Marc

I like to use www.rentometer.com median rental price estimates and I also look at the Zillow rent Zestimate.  

If the two websites agree, it's a highly reliable number to use.  Active listings in Craigslist are even better to determine your amount.

Marc

Personally, this sounds risky to me.    

I think your pool of potential renters will be very small. Those that want a larger home have so many options. They can rent all the $3500 homes all over the metro with the best school districts and a great commute to work. They can rent all the $3000 homes, all the $2800 homes, all the $2400 homes and all the $2000 homes.  Heck, maybe they can rent a home for $3500 on prior lake with a dock for their pontoon boat.  Or, a house in Eden Prairie, Edina, or Minnetonka closer to the cool kids, best schools and all the amenities, and much better commute?

You may attract a doctor or CEO moving into MN.... but why would he stay in Savage when he can live anywhere?

Does the home have everything to justify such a high rent?    Granite, hardwood, new everything, appliances to appeal a chef, large deck or basement for entertaining, screened porch, 3-car garage, great neighbors, great schools?

Savage justifies paying maybe $2200 a month in rent - not $3500.

Marc

@Steven Pesavento I am bidding every week on MLS REO or Short Sales right now that need work. The MLS has about 7% distressed homes right now and the overall inventory is historically low at about 2.5 months and probably lower for SFRs that work for rentals. I think for lower priced properties, its about 1.5 months of inventory. Google "The Skinny" to get a monthly update on the local market.

SFRs that need no work in good neighborhoods selling for over $200K don't make very much sense as rentals. You can't get them at any discount now.  You can get them to cash flow, but your cap rates are probably 3%-5%.  However, I think there are investors in North Minneapolis and some parts of St Paul who are able to get some much better cap rates. I don't invest in those areas so I could not really tell you their metrics.  You definitely need boots on the ground if you are going to invest there and I hear it is tough to get good PMs in some of the dodgy areas.

Distressed SFRs do make sense as flips or to fix and hold. If you can get a place for under $150 that needs a cosmetic remodel that is worth over $200, in a great school district you can cash flow it and can probably get 7% cap rate and 10%-12% CoC (including rehab cost). These metrics are my targets when I am making offers. I got two such townhomes last year. So far this year I am still waiting on a bank to accept my offers and have made a dozen. Some have gone to multiple offers. Be ready to offer all cash with no inspection contingency to have your offer stand out.

I think we are all going to have to wait it out for a market correction or find motivated sellers using direct mail marketing.  Getting a deal from a wholesaler is probably a great option but normally I am not really interested in the deals that I get in my inbox because they are not the better school districts where I love to invest.

Marc

Summit-University is too big of an area to classify. There are parts on the east end of that hood called Cathedral Hill that are A.  And of course along Summit Ave or 2-3 blocks from Summit those are A.

However there are parts closer to the I-94 freeway and north of the freeway that are very dodgy, almost C.  Certainly B.

I cannot speak as specifically about the St Paul neighborhoods but I can probably give a few words on each:

- Summit University - strong demand due to being close to many colleges.  Area around Selby and Snelling is really good.  Demand growing because of the new soccer stadium being built nearby at Midway.

- Thomas Dale Frogtown - is the lowest area in terms of desirability but probably the best in terms of cashflow.   I would definitely consider this area, especially if close to the light rail line (4-6 blocks)

- West Seventh is an opportunity.  Potential area for gentrification. Lots of OLD houses (1800's).  I would look at the newer builds or properties you can totally renovate on top of a  new foundation.

- West Side - I am not a big fan.   It's probably a great rental area but I would not live there myself because I find it hard to get around.  Far from light rail and freeways.  Proximity to downtown is great tho.

- Mac/Groveland is very desirable.  Similar to Summit/University there is strong rental demand because of the colleges nearby.

A couple of similar areas to check out:

- The areas adjacent to Snelling and University is about to pop due to the new soccer stadium coming in.  It's going to be a great area and prices are still low there now.

- Watch for the Highland area just north of Ford Parkway. These are mostly single family but there may be pockets of duplexes and small apartments there too. Once the Ford plant is redeveloped, this will be a really great area too and will have better transit connections.

PM me if you need boots on the ground.... I have some extra time lately and always love looking at properties, taking pictures and video, etc...

Marc

I think Bryant will be decent for rentals. It is not a hot area and probably not a gentrification area either for higher appreciation.     From a long term perspective, this entire area of south Minneapolis has been improving over the decades. 

I think Bryant is a pretty diverse working class neighborhood with a mix of cultures and economic standings.

To the south of Bryant, we have Field middle school which is one of the best middle schools in the city.  Nearby we have the Tiny Diner which is awesome, and on the west side of the freeway we have Martin Luther King Jr park, and the shops and restaurants on Nicollet (Pats Tap).

There is a wide range of desirability in this part of South Minneapolis with Northrop and Field neighborhoods being highly desirable class A or B+ types of neighborhoods to your south, and "Central" and west Powederhorn being a class C area. Central is particularly bad with many run down rentals in one small area.

In Bryant, I would expect some security issues if you hold this property for long.    Garage breakins to steal bikes, car breakins to rummage through the glovebox.  Occasional tagging of grafitti by youth gangs.    Occasional theft of laptop or TV through an unlocked window or screen door.  Plan for having to do some repairs.

When you research this property make sure you look at rental comps from Central, Powderhorn, Regina, Bryant, and Bancroft. If you stray too far away you may fool yourself into thinking you can get a higher rent amount, but the tenants may not feel it is worth it as I know lots of people who would not live there and many others who would find it is just fine.

I live 8 blocks south on Chicago

On MLS deals in the twin cities I lost 3 cash offers in the last 2 weeks due to multiple bidders. In one case there were 35 other bidders buying with cash or hard money.

Adding an inspection contingency probably hurts your offer unless you are bidding higher than everyone else.      If you feel confident there are not too many hidden issues remove the inspection contingency.  Maybe just add 10% contingency in your rehab budget instead for surprises like a broken HVAC or old wiring.

@Jeremiah Dexter can you clarify how you do this?  Do you stipulate the month to month rent amount in the lease?   Can you spell out what communications you give the tenant and what is the timing of each?

@Daniel Murphy Welcome to the site.  I have a couple of rentals and completed a small flip this year.   Currently looking hard for a flip project and saving up as much as I can to start making cash offers.  I have a lot of spare time right now so would be happy to meet up for coffee and share what knowledge I can.