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Owner Occupied Advice?


Phteven
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With all the development going on in my area, I feel like it's a prime time to step into the multi family housing game. Specifically, I'm looking at owner occupied Duplexes. My 5 year goal is 3 duplexes. Current rental rates for 1 unit are roughly mortgage payments, and there is a distinct lack of sub $2k/mo housing in the area.

 

I'm looking for any resources I can dig into to learn more about this before making the jump. I've spoken to some local friends that have experience in the area, but I know the wealth of knowledge here is just about greater than anywhere else and I'm not one to leave any stone unturned.

 

I'm considering a Management company to source tenants and manage the property, as their reach is much greater and the software used for maintenance is much better than what I've seen I have access to.

 

Any advice?

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Curious to hear thoughts as Twin cities market is going crazy from what I hear from my friends. It is a lowkey great place to live, looks like people are OK with the cold now and are moving there now both internationally and US, wonder why they're picking MN.

 

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Curious to hear thoughts as Twin cities market is going crazy from what I hear from my friends. It is a lowkey great place to live, looks like people are OK with the cold now and are moving there now both internationally and US, wonder why they're picking MN.

 

 

I can't say enough great things about the Twin Cities. I worked for General Motors in Detroit for 2 years and couldn't come back enough, so I moved back in Feb. The seasons are amazing, the people are wonderful, and there are quite literally endless things to do. Local musician, Atmosphere said it best in "Say Shh.."

 

As far as the market, the state is offering huge incentives for companies to build here. Amazon, Shutterfly, TireRack, etc are all building and hiring in the $12-$18/hr range and they can't get people fast enough.

 

Concurrently, the housing developers are all building $2k/mo high rises and $350k+ new construction houses. Not much a person making sub $20/hr can do with that. So there's a huge void and almost every sub $250k house is gone within a week. Most of these buyers are cash buyers, so I can only assume investment companies are buying them up and renting them in short order.

 

It's crazy, to say the least.

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If you're going to live there, you might as well manage it yourself, it's not that big of a deal and the tax benefits are HUGE. If you sub that out you lose almost all of the tax perks.

 

Are you buying this to cashflow or to break even and make your gains on long term appreciation? Out here (SoCal) it's too expensive to buy and rent right now. Multi-Family can work (testshoot is in this biz, he can speak more intelligently about it), but it's big $$ and the cashflow isn't there right now, at least that I have seen.

 

Are you looking to buy or build?

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Agree with emanon on managing it yourself. Do you have a good commercial agent? (If not, I can recommend a good one who is also a car guy) What areas of MSP are you looking to target?

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I'm fortunate enough with my day job that I don't need cash flow. I'm looking for long term wealth growth and appreciation.

 

Looking to buy existing structures, not build.

 

Luis, I'm open to recommendations. I'm open to really anywhere in the Twin Cities with preference towards landlord friendly cities such as Savage, Prior Lake, etc.

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I'm surprised you want to live next door to a tenant then.

 

Look at the cost vs rent delta on multi-family properties and single family homes. Also factor in utility overhead on the multi-family depending on the metering situation.

 

If you find something interesting post a link and we can give you some feedback.

 

Fortis would tell you to buy commercial. If you're liquid enough to play that game it can be a big money maker.

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I'm surprised you want to live next door to a tenant then.

 

Look at the cost vs rent delta on multi-family properties and single family homes. Also factor in utility overhead on the multi-family depending on the metering situation.

 

If you find something interesting post a link and we can give you some feedback.

 

Fortis would tell you to buy commercial. If you're liquid enough to play that game it can be a big money maker.

 

Exactly, I don’t like to hold RE where people put their head down to sleep, most view renting residential as dead money because they see no value in it, also the sense of entitlement kicks in, commercial premises is where they generate income and they see it as profit sharing, easier pill to swallow, also I wouldn’t have the heart to kick you out of the house when you can’t afford to feed your children but I would have no issues with kicking you out of commercial premises.

There are many other benefits, the downside is the cost to get in, a lot higher than resi.

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I completely understand the commercial vs resi argument. The problem, like emanon said, is liquid required to enter the commercial sphere. I see MF real estate as a stepping stone, a safe way to get into the game.

 

Even if all that comes of this is living rent free (or almost) for a year or two, That would go a long long way to making the next step. 5 year goal is 3 MF residences, then with the liquid made through that and the day job, stepping into something bigger. Time is on my side, as far as age is concerned (25 years from retiring 12 years early)

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Looking at craigslist posts, it seems a 2br duplex goes for around $1k/mo and a 3br around $1,300. $2,300/mo works for a low $200k purchase price if the included utilities aren't too bad.

 

What are the landlord paid utility costs for each property?

 

On the 607 virginia street property. It was sold in 2016 for $40k and relisted for sale at $55k in 5/2017, but didn't complete the sale, so this was a recent remodel/flip for some investor. This can be a little sketchy depending on the quality of work and what was really done. You're dealing with a 120yr old property so there could be a lot of potential problems hidden under a fresh coat of paint. They should have lots of documentation on the remod, permits pulled, etc. Did they do it right or is this lipstick on a pig to maximize profit? Who will get caught holding that hot potato when you uncover it needs $40k worth of work in a couple years that was all hidden?

 

Was it repiped and rewired recently?

How do the support beams and basement structure look?

Any documentation on lead abatement?

How is the roof?

 

The 4006 property has been under the same owner since 2000, this tells me they will know a lot more about the property history and any work done most likely had longevity in mind. It has been listed for sale recently but never moved.

 

Take a look at these, I'm not sure if their location is drastically different from what you posted but they haven't been whored around nearly as much.

 

https://www.coldwellbankerhomes.com/mn/minn...n/pid_25826502/

 

This one looks really good, lots of big work done by a long time owner.

https://www.coldwellbankerhomes.com/mn/minn...n/pid_25998155/

 

 

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On the 607 virginia street property. It was sold in 2016 for $40k and relisted for sale at $55k in 5/2017, but didn't complete the sale, so this was a recent remodel/flip for some investor. This can be a little sketchy depending on the quality of work and what was really done. You're dealing with a 120yr old property so there could be a lot of potential problems hidden under a fresh coat of paint. They should have lots of documentation on the remod, permits pulled, etc. Did they do it right or is this lipstick on a pig to maximize profit? Who will get caught holding that hot potato when you uncover it needs $40k worth of work in a couple years that was all hidden?

 

 

This. I flip homes and see more often than not the renovator does not pull permits and skates by with shotty electrical, plumbing, etc... I pull every permit and have engineering reports to go with my properties and its a huge selling feature to know its all done right, its way too easy to hide the ugly.

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Crime data for the two emanon posted

 

Don't sweat crime data on a micro level, not much REALLY changes block by block and truthfully it won't affect much. Drive the area and look at comps, that's all you need to know on a P&L level.

 

Any property you're serious about, request 24 months of utility bills as part of your due diligence.

 

I'm happy to share whatever knowledge I can to help you out, as others here have graciously done for me in the past. Don't be scared but go into this with your eyes open and don't be afraid to ask or walk away if something doesn't feel right. This is definitely an investment that can eat five figures in a hurry if you get caught off guard.

 

Also, I would strongly weight out buying a better property for a little more money. There are lots of options in your price range and some much better than others. By the time you factor construction costs, headache, lost rent, etc, the extra $20-30k for something done right is well worth it up front. Especially when you're just getting started, off the hip estimating repair costs is a risky game to play.

 

Check with your local building dept, and find out what the rules are regarding lead and asbestos. Out here in CA it's a miserable (read, $$$$) thing to work around. If it's required, a recent permitted remod should have most of this handled which is a HUGE plus.

 

If this is anything like my local apartment owners association, the knowledge base and resources are WELL WORTH the small annual dues.

http://www.mmha.com/MEMBERSHIP/Property-Owners-and-Managers

 

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I definitely owe you a beer if you're ever in the area! Huge huge help. It's a lot of great info and eye opening, for sure. It just fuels the excitement and drive to learn more! Thanks!!

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not to detract from your area of choice, but Milwaukee (personally) offers lots of opportunities with higher returns.

If you are not stuck on the twin cities, I would give a peak a little south.

 

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not to detract from your area of choice, but Milwaukee (personally) offers lots of opportunities with higher returns.

If you are not stuck on the twin cities, I would give a peak a little south.

I absolutely am set on the TC, but good info none the less.

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N Minneapolis? I'd stick to Prior Lake/Savage.

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Rental Real Estate is hard when you only have a few units. I would do the management yourself. If you do farm it out you shouldn't pay more than 6% and I don't give a shit what they tell you, don't pay 10. They find the people and they do pretty good at that, and then every month you will wonder why the heck you are paying them.

 

As far as throwing people on their ass. It isn't your fault that you have to throw them on their ass. It was their decision not to pay you. I had one lady who first rented in 1989 and she didn't move out until she died in 2006. Never any issues. I promise you that not all tenants were like that. I wish.

 

Been through fires, floods, roaches, murders, drugs, drugs, and more drugs.

 

Maintenance will gouge you. I used a property management company for 1 year and replaced 34 ACs that year. When it was probably some simple BS like a capacitor, or fan motor. They don't give a crap. Now that we handle all of the maintenance internally much easier.

 

So with 6 units, who do you call for paint, or carpet, or HVAC? When you get 50 you can get some people that you use on a regular contract basis. When you get 100 you will get some full time maintenance. I have over 150. We buy paint when on special by the pallet. Would bought 3 semis full of clearance carpet, and save a ton. You won't do that with 6 units. Once you get 500 you can now have 3 AC guys so that when the first one is drunk and the second in jail you still have the other guy to get some work done.

 

Also I didn't need the cash flow so all of my loans are short term. I house I got a 10 year on and actually lose about $35 per month. Another 15 year and only make like $50 per month. But damn when retirement hits. 168 paid off units @ $1000+ per month will be a pretty good retirement.

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Rental Real Estate is hard when you only have a few units. I would do the management yourself. If you do farm it out you shouldn't pay more than 6% and I don't give a shit what they tell you, don't pay 10. They find the people and they do pretty good at that, and then every month you will wonder why the heck you are paying them.

 

As far as throwing people on their ass. It isn't your fault that you have to throw them on their ass. It was their decision not to pay you. I had one lady who first rented in 1989 and she didn't move out until she died in 2006. Never any issues. I promise you that not all tenants were like that. I wish.

 

Been through fires, floods, roaches, murders, drugs, drugs, and more drugs.

 

Maintenance will gouge you. I used a property management company for 1 year and replaced 34 ACs that year. When it was probably some simple BS like a capacitor, or fan motor. They don't give a crap. Now that we handle all of the maintenance internally much easier.

 

So with 6 units, who do you call for paint, or carpet, or HVAC? When you get 50 you can get some people that you use on a regular contract basis. When you get 100 you will get some full time maintenance. I have over 150. We buy paint when on special by the pallet. Would bought 3 semis full of clearance carpet, and save a ton. You won't do that with 6 units. Once you get 500 you can now have 3 AC guys so that when the first one is drunk and the second in jail you still have the other guy to get some work done.

 

Also I didn't need the cash flow so all of my loans are short term. I house I got a 10 year on and actually lose about $35 per month. Another 15 year and only make like $50 per month. But damn when retirement hits. 168 paid off units @ $1000+ per month will be a pretty good retirement.

 

What are those units worth if you are collecting $1000 pcm? I am interested to see what ROI is on something like that over there.

 

Locally ROI on residential is very low, 50% or less when compared with commercial and the headaches 100% greater LOL

 

 

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But damn when retirement hits. 168 paid off units @ $1000+ per month will be a pretty good retirement.

 

fcuk man, well done on the scaling up! I've been stuck at a handful of units and when prices spiked here in SoCal it no longer made sense to expand.

 

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What are those units worth if you are collecting $1000 pcm? I am interested to see what ROI is on something like that over there.

 

Locally ROI on residential is very low, 50% or less when compared with commercial and the headaches 100% greater LOL

 

They all vary. I picked up one of the houses for $72,500 in 1991 and it was my personal house for 10 years. 800 sq feet with 2 roommates and a girlfriend. This is now worth about $225,000 and it is renting for $1375.

 

Picked up an apartment complex for 540K in 1995 (at a steal, because it previously sold for 1.7M) and it is now worth about 3.3M and rents are around $1100 - $1300 per month x 32 units.

 

 

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Also I didn't need the cash flow so all of my loans are short term. I house I got a 10 year on and actually lose about $35 per month. Another 15 year and only make like $50 per month. But damn when retirement hits. 168 paid off units @ $1000+ per month will be a pretty good retirement.

 

 

This is exactly what I'm looking to do. I don't need the cash flow. I live modestly enough and don't need a huge space.

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They all vary. I picked up one of the houses for $72,500 in 1991 and it was my personal house for 10 years. 800 sq feet with 2 roommates and a girlfriend. This is now worth about $225,000 and it is renting for $1375.

 

Picked up an apartment complex for 540K in 1995 (at a steal, because it previously sold for 1.7M) and it is now worth about 3.3M and rents are around $1100 - $1300 per month x 32 units.

 

That’s fantastic, that apartment complex is killing it for you, 14% return on current valuation and 85% on your purchase price :lol2:

 

That’s the reason I love real estate, there is nothing sweeter than passive income because the most important thing for me is my freedom to do whatever I want whenever I want.

 

I am very happy for you, well done!

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