Minnesota Investment Real Estate

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Is that a bold enough statement for you? Over the years, I have just learned to trust very little information that is supplied on the Minnesota MLS when it comes to investment property. Typically the only items that are correct are:

• Address
• City
• Price (usually-see below)
• Taxes

Even then, I have had one occasion to find the price was actually wrong! My customer put in an offer, that I felt was reasonable, on a house in North Minneapolis. The listing agent eventually came back and said that they had recently dropped the price on that house by mistake and it should actually be $20,000 higher! I told her I thought the wrong list price was actually the true market value! Unfortunately, she didn’t honor the price so we passed on the house.

Otherwise, NEVER trust the following items in the MLS for Investment Real Estate:

• Rent
• Square footage
• Owner expenses
• Bedroom count
• Age of house

As part of our process to purchase investment properties, we research each one of the above items (and more). Now I don’t want to criticize my fellow real estate agents, but I am not sure if they are simply lazy, they don’t really understand how to input an investment property in the MLS, or maybe they are just not investment property real estate agents. Either way, never trust the information.

Here is a great example of bad information. My customer found (and we toured) this property which was located in a part of Minneapolis at a typical price of $32k. The buyer knows that at that price, it was going to take some rehab to get the property in shape. When I booked the appointment, they told me their was a security system on the premises that I had to deactivate. At this point, I am thinking it must be pretty nice inside to keep a security system running on a vacant property.

We started our tour of the property, driving up to see a cute looking house in a nice neighborhood (I have removed the address to protect the guilty). On the kitchen counter was the below marketing brochure saying that a buyer could “Move Right In”.

(Click on the pictures for larger versions)

Only Picture on MLS (not bad looking)	The marketing sheet on the counter says “Move Right In”

That is about where the cuteness ended. The house had all the copper stolen, plastic keeping out the rain on one window, no appliances, a nasty kitchen floor, a bathroom ceiling that was falling in, and a pile of pigeon dropping almost 24″ tall on the totally shot roof. See pictures on this disaster house that you can have your tenant “Move Right In”:

All the windows needed to be replaced.	Do you think this kitchen is move-in ready?
An 80 year old rusty boiler.	Ceiling falling in from a leaking roof.
Think that plastic on window will pass a	Yes, that is a 24″high mound of pigeon
Section 8 inspection?	droppings!

After being through this house, I was almost tempted to start another stupid property repairs category and call it stupid investment property marketing!

Are you searching for investment properties on your own and running into similar properties?

Scott Ficek is a Minnesota Real Estate Agent with RE/MAX Advantage Plus in Minneapolis and helps new and seasoned investors buy and own Minnesota Investment Property. He owns and manages almost 30 investment property units from single family to multi-family. Find his website at www.minnesotainvestmentrealestate.com or use it to search the MLS for Investment Properties.

Whenever I am working with a buyer and we are looking at bank owned (or REO) properties, the question always comes up:

“How low of an offer can we make on this foreclosed house”?

Just like many other things in investment real estate, it depends. Typically, a “normal” offer will be 95% of list price. I have seen offers accepted as low as 75% of list price. Much below that and the bank thinks you are simply low balling them and most often they will not even respond to your offer. Here is a list (in order of priority) of how I determine how to answer the above question when buying foreclosures:

1. Most often, time on market drives both the price and flexibility of the bank when looking at foreclosures. There are two components under this category that determine how aggressive you can be when making the offer on that bank owned property:
   1. Total Length of Time on Market-In other words, how long has the bank been trying to sell it. The longer it is on their books, the more opportunity you have to make an aggressive/lower offer.
   2. Time Since Last Price Decrease-This is related to the above Time on Market in that the longer it has been since the last price decrease, generally the more aggressive you can be with your offer. The converse is also true. For example: even if the property has been on the market for 9 months, if the price dropped 2 days ago, the bank is going to be inflexible when looking at offers much below the new list price.
2. The current list price relative to the market. The banks have Realtors perform BPOs (broker price opinions) on the houses periodically. If they just recently received a BPO and you make an offer at 75% of that BPO value, they are typically going to be unwilling to negotiate the difference. The number of REOs in a particular neighborhood may also help you as the bank realizes there are other opportunities out there.
3. How strong is your offer outside of the price? Leaving out contingencies, setting a closing less than 30 days out, putting down a larger earnest money check, paying cash, or declining the property inspection are all strategies that make your low-ball offer more attractive.
4. Often, the listing agent will help or hurt your chances to make a low offer. If the property is listed by a seasoned REO agent and it has been on the market for a long time, the agent will sometimes encourage the bank to simply dump the property. Maybe they have not received another offer on it in months or maybe the agent thinks the bank is keeping the price too high.
5. Your buyer’s agent can help or hurt you. An inexperienced investment property agent can hurt your chances of successfully buying a foreclosure at a larger discount. They do not understand the above 4 pricing variables.
6. Although I have never tested this, there is a belief that banks will be more flexible at the end of the month when they are trying to hit their numbers. They may give you a great deal simply because they need a few more houses in the sold category to look good to their bosses.

Ultimately, using a seasoned investment real estate agent is really the key if you are going to be a serious investor in bank owned properties. There are so many moving parts and dead ends with foreclosed properties, it is important for the buyer to have someone in their corner that can mentor and advise them.

Let me help you, I am a Minnesota Real Estate Agent with RE/MAX Advantage Plus. I work exclusively with investment property buyers in the Minneapolis and St. Paul areas and own 28 rental units myself. Investment Properties are my passion.

Nathan asked a question on my post “Give Me Your Investment Property Questions“:

“What is the fastest way to acquire 10 investment properties?”

I think there are several questions and a couple answers to this question:

Questions:

1. Why do you want to own 10 properties?
2. Are you looking to leave your day job and work on your investment real estate exclusively?
3. Is your goal to use investment property as a supplement to your retirement or is it to add cash to your monthly income?
4. How much time and financial resources can you devote to building your investment property portfolio?

Answers

1. Regardless of how quickly you want to acquire 10 investment properties, the most important decisions you can make is to partner with a great Mortgage Banker and a great Real Estate Agent. These individuals must own investment property and specialize in investment real estate. A good team can absolutely help you be successful at growing your investment portfolio (I have see a bad team or no team send investors into financial ruin).
2. Once you have chosen your Mortgage Banker, I recommend that you follow every single piece of advise s/he gives you in regards to your financial future. Do not make a major purchase or change without his approval. He understands much better than you what that new car will do to your chances of getting a mortgage for that next investment property.
3. Assuming for a second that you don’t have an extra $400k sitting around to invest in real estate (for 20% down payments), in this market, I would be capitalizing on rehabs as a way to stretch your limited down payment pool as far as possible. We are working with many investors right now that are going to acquire 5-10 new Minnesota investment properties and spend very little of their initial down payment seed money. Read about those Minneapolis investment property opportunities here.
4. I also recommend that you buy your properties in clusters. You do not want to be driving across town (especially when gas is $4 per gallon) every time you need to unclog a drain or show an apartment.
5. Get yourself organized early with an accounting system for your investment properties. Without setting this up early you will be letting money slip through your fingers by not keeping on top of what your tenants owe you.
6. Lastly, read how I manage 28 rental units and get prepared! There are many tricks and time saving tips to managing a larger portfolio.

Setting a goal to acquire 10 investment properties is a good goal to look forward to. If you achieve it, you can set yourself up for a lucrative financial future.

Have you always wanted to buy investment property, but never knew where to start? Don’t Wait! Get Started now.

Scott Ficek is a Minnesota Real Estate Agent with RE/MAX Advantage Plus in Minneapolis and helps new and seasoned investors buy and own Investment Property. He 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.

Chris over at Kansas City Real Estate Investing has a great post that many people don’t think about. Go on over and check out why it may be better to pay down your credit cards than to Buy An Investment Property.

Have you always wanted to buy investment property, but never knew where to start? Don’t Wait! Get Started now.

Scott Ficek is a Minnesota Real Estate Agent with RE/MAX Advantage Plus in Minneapolis and helps new and seasoned investors buy and own Investment Property. He 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.

I probably look at 100 investment properties per week on a busy week. These days, 90% of the properties I tour are bank owned or REO properties. Every so often one comes up that is a short sale. Initially, I was pretty excited by short sales. Here were properties that were often in better condition, selling at REO pricing, and had less rules for submitting offers than foreclosures.

In the last couple months, though, my attitude and mood toward Short Sales has changed dramatically. Here is why:

1. Short sales can take weeks and months to receive any response from the bank regarding the offer.
2. During this time, you will get no information about the process or offer.
3. Despite the length of time it takes to get a response on a short sale, often the end of the redemption period deadline is looming.
4. After weeks and months, another offer can come in at the last minute and be accepted by the bank.
5. Banks have been doing foreclosures for decades and have systems and people in place to handle these. It seems like they make it up as they go along when it comes to short sales.
6. I have had full price, non-contingent offers turned down because the bank has decided to wait and let the property go into foreclosure.
7. Unfortunately, some real estate agents are not trained to do short sales and simply don’t understand all the intricate details of a short sale.

Of the last 5 purchase agreements I have written for short sales, 4 have ended in complete frustration. Knock on wood, but one is going OK to date (but we submitted it 4 weeks ago). Although I will submit any offer, I am advising my customers to avoid short sales at this point.

Have you always wanted to buy investment property, but never knew where to start? Don’t Wait! Get Started now.

Scott Ficek is a Minnesota Real Estate Agent with RE/MAX Advantage Plus in Minneapolis and helps new and seasoned investors with their Property Investment. He 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.

For those of you buying single family houses in Minneapolis, this may affect you, please read on. On March 18, the Minneapolis City Council enacted a new rental license fee called a “Rental Dwelling Conversion Fee“. This new fee is a one-time fee of $1000 when you convert a property from homestead to non-homestead. You will pay it the first time you apply for a rental license. Here is the definition from the Minneapolis Rental License website:

Dwellings Converted to Rental: Whenever a dwelling is converted to rental usage, the dwelling shall be promptly inspected for compliance with minimum housing standards. The fee for this required inspection is one thousand dollars ($1000.00). This fee shall be in addition to the annual license fee. Exemptions: buildings containing 6 or more units; dwellings owned by nonprofit entity (as defined); new construction.

Recently, there are a significant number of single family houses in Minneapolis being purchased by investors and converted into rentals. This new fee will affect some of those purchases. Be prepared for it.