Anatomy of a North Minneapolis Rehab
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Over the last several months, I have been working with many investors that want to rehab properties in North Minneapolis. As I have mentioned before, you can purchase some of these houses for $30,000. Lately, I have received many questions about how these rehabs work.
It has been a while since I wrote about Flipping houses. Unlike many Realtor blogs, you will never see posts about “my new listing”. This blog is for you: The new or seasoned real estate investor. I thought it would be interesting to show you one of these North Minneapolis rehab projects.
Background
Just like other areas of the country, Minneapolis has been hit hard by foreclosures. In my opinion, North Minneapolis has been hit worse than other areas with some streets having 5-10 REO (bank-owned) properties on them. These large numbers of REOs are driving down the REO house prices in these areas dramatically. Houses that sold for $150-$175k a couple years ago are now vacant and selling for $30-$50k. Most of them have had their copper stolen and all need some work (but that work varies from simple paint and carpet to something short of a tear-down).
This situation has created a unique opportunity for real estate investors to profit from this glut of bank-owned properties. Most investors are buying low, fixing up the property and unlike a traditional flip: renting it out, and expecting to wait 3-5 years to cash out.
Search Process/Criteria
You would think that with the sheer volume of REO properties on the market in Minneapolis, it would be easy to find a property to buy, but we are searching for just the right combination. Here is what we are looking for (in order of priority):
- Total cost of project including: acquisition, holding, rehab, and overhead costs < $95k
- ARV (after repaired value) = $125k or greater
- Decent floor plan/layout
- Close to properties of our other real estate investor friends.
That’s it. Note that I did not say anything about size, bedrooms, bathrooms, garage, basement, etc. Number 4 is simply to have someone to ask “what’s the neighborhood like”? Ultimately, if we hit #1 & #2, everything else does not matter. In fact, even a 1 bedroom house finished at $95k with $850 per month rent will cash flow!
North Minneapolis Rehab Example
Mr & Mrs Customer G purchased a 1.5 story single family house on 33xx Girard Ave N for $35k. This was a very typical North Minneapolis rehab. It needed new windows, new bathroom, new flooring, all new plumbing, plus new paint throughout (and other miscellaneous items). Fortunately, the kitchen only needed new counters and appliances, saving about $3000 in cabinets. The total renovation costs were $41k bringing the total project including closing and holding costs to about $80k. Best of all, the property was filled by the general contractor/property management group with a tenant that signed a 2 year lease and will cash flow about $400 per month. The property had a final appraisal of $159k, giving the buyer less than a 50% LTV ratio.
See some of the before & after pictures here:
What an outstanding deal! The buyer has a completely renovated property, fully rented for 2 years with decent cash flow and a mortgage for only 50% of the value. Keep in mind that this was a turn-key rehab. The buyers bought the house and 6 weeks later the contractor had renovated and rented the property. The buyers only took their down payment and closing costs out of their pocket (in fact-talk to me about how you can get your down payment back).
There are many similar opportunities out there right now. Contact me for more information.
Scott Ficek owns and manages almost 30 investment property units from single family to multi-family. Find his website at www.minnesotainvestmentrealestate.com or receive his blog via your RSS Feed or in your Email. He is also a Minnesota Real Estate Agent with Keller Williams Integrity in Minneapolis and helps new and seasoned investors buy and own Minnesota Investment Property.
March 12th, 2008 at 8:15 am
I love the before and after pictures they show what can be done. With a plan and formula for investment and return and a proven track record sounds like a winner to me.
I haven’t seen home prices like that in years in our area most are at least 200,000 for those small houses and thats even after the decline of the boom.
March 12th, 2008 at 12:50 pm
Hi ! I have got the most invaluable information about hiring a plumbing contractor who makes more sense than doing it yourself. Firstly, a contractor can work with greater expertise and put his experience to best use. Secondly, contractors work within fixed time and budget, which may otherwise exceed expectations.
March 13th, 2008 at 7:55 am
The number one thing people under estimate when flipping is expense and the other is time.
Having that in mind make a plan stick to it and choose time over the expense when you absolutely have to. Better to pay someone to do something then take two months to do yourself and pay mortgage and insurance etc.
March 14th, 2008 at 8:39 am
Good advice on plumber and electrician also good to have done professionally. Finding the right one is the trick. Ask around and get input from neighbors and realtors may know of a person to do quality work at a reasonable price and time.
This will allow you to focus on the demo and getting the walls, floors and other things done.
March 20th, 2008 at 8:09 am
I think rehab is one of the things that got me into real estate. I watched my father and he could fix most anything and rebuild and it looked wonderful. I love those TV shows as well for the before and after reveil. I also like design not wonder I like the idea of real estate right!
March 21st, 2008 at 7:40 pm
Thanks,
That’s just what North Minneapolis needs is more people purchasing properties to rent them out. Why do you think
Minneapolis is pulling so many rental licenses? Most of these homes are rentals that slumlords stripped the equity on and left to crumble. We want home owners! Not more section 8’s!
March 21st, 2008 at 8:15 pm
Misty-
Actually, you and I are on the same page. The slumlords are losing their properties and us responsible, decent investors are buying up those dumps and rehabbing them. We are essentially saving most from the wrecking ball. If you disagree, check out the 100s of vacant lots in the Phillips neighborhoods. Is that better?
North Minneapolis needs responsible landlords that will maintain their properties and properly manage their tenants. Our investors are pouring their own cash into that neighborhood to improve it and consequently improve the property values of the entire area.
March 21st, 2008 at 9:11 pm
Phillips used to be exactly what North Minneapolis is now.
If you remember back in the late 90’s, you couldn’t walk alone in the Phillips neighborhood. Thanks to the Abbott homebuyer program, the Midtown Phillips grant program and the razing of some of those problem properties, Phillips is now a more desirable neighborhood.
There are currently very good people renting their properties out in North Minneapolis and they did everything they were supposed to do -by the book- who are losing their homes to forclosure because taking the tenants to court to get them evicted after three months of rent free living in the home is just too expensive. Not to mention the repairs to the home after the credit worthy tenants have ruined it.
While I agree that the wrecking ball isn’t always the answer, it is much better than having renters.
Homeowners take pride in their homes, when you have more renters on a block than homeowners, you have problems.
April 10th, 2008 at 5:20 pm
What is the typal amount of time on the market right now, once the property is ready for showing?