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The Fargo Edge: Mastering Your Market
Kyle Reedstrom (00:01)
Hello, hello, this is Kyle Riedstrom. This is the Midwest Invest Report. I'm excited to have you back for another week. We are diving deep into Fargo Morehead's real estate market. Again, I'm your host Kyle. You guys know the gig. I've been in real estate for a long time, born and raised from this area. And we created this show to teach you about the market you live in. We're taking different topics, different things about the market, different things about real estate investing and buying homes, or putting them all in one place.
So hopefully we can dive deep and give you more knowledge in that part of our world that we have every day. And so guys, the rundown today, I'm going to give you a little market minute. I always like to do that, bring you into some things we're seeing on the market right now. We're actually going to get into some subscriber. We actually have a newsletter with Midwest Mess Report. If you do not have that subscription yet, you guys stop what you're doing.
Go down in the show notes and sign up for our newsletter. It's coming weekly. We're putting more and more information in there. We're really excited about it. But some of our subscribers in our newsletter asked a few questions about the real estate market. And as part of this show, we want to bring you as relevant information as possible. And so if you have questions, I want to use this prompt. Ask a question in the comments. Ask a question if you're subscribing to the newsletter.
We want to answer those on air for with different segments like this. And that's what we're doing today is we're going to be going through some Q and a three questions that we got from our audience. And I'm going to have some answers for you. After that, we're going to get into our journal prompt to end. Uh, I have a little resource that I want to share with you guys, and then we're going to end the show. So that's the rundown. Let's get into the market minute. You guys, I want to do a little screen share here. So I'm going to bring you in to what I'm seeing on the market.
in terms of single family right now. I'm going to pop open my screen. So if you can see this on my screen right now, I know some of you might be listening, and this might not be as relevant, but follow my words as well. I did a big old square around the Fargo-Moorhead West Fargo Market. And I like to go up here and click multi-family just to see what's out there. Right now.
on the market for multifamily properties, if you're looking to invest, there is 11 properties available and one of them is under inspection. So there is 10. And you guys, a couple of leads are dummy listings from our MLS. Yeah, so there is less than 10 multifamily properties available for purchase in our market right now. If you've seen thin inventory before, I don't think you've seen it like this.
Because this is the thinnest multifamily inventory I've ever seen in our market. And I think that's worth noting. Guys, what does this mean? This might mean if you're a seller and you own multifamily property, it could be an amazing time to sell because there's just no options for people. And when there's no options for people, supplies diminished. Economics tell us that demand has increased. So this could be a cool opportunity to sell in a market that hasn't really heated up quite yet.
We're not sitting here in a 2020 or 2021 market. But with low inventory like this in the multifamily space, there's going to be a big push. And there's still people looking. I know that for a fact. So less than 10 properties total. What else does this mean? This means that a lot of people are holding onto properties. People aren't selling right now. Maybe people are trying to stabilize properties. Maybe they're not performing that they don't want to sell.
Maybe the numbers don't support what they want to sell for guys. This is just an interesting thing Generally speaking all of the years. I've been in real estate for the last decade Usually our Fargo Moorhead MLS multifamily section carries between 20 and 30 properties Available to check out and we're talking we're less than 10 right now. So that's a really interesting thing You guys if you're looking in the multifamily space if there's something that you're curious about
Some of these transactions are happening where they're off market. Some of these are happening where they're not getting to the market quite yet. If you want in on some of that deal flow, I really gotta urge you, you gotta find that real estate professional that's gonna key you in. Obviously we love to work with you guys. We do this all the time. So get involved in this MLS, get involved with the real estate professional if you're really looking for those multifamily goals. But as part of these 11,
which is actually less than 10, because there's a couple. There's one sold in the dummy listings, right? There's one on here on Oak Street. It's a 16plex. And I just find it curious, because this one's been on the market for over 100 days. It's rare to see a 16plex on the market like this listed at 950. And I just think there's opportunity with stuff like this. I don't know the seller's story. I don't know why they're selling. I don't know what the motivation is. And generally, when we're talking about this stuff,
If you're able to have a game plan with a property like this, you obviously can play the negotiation game. You can go back and forth, do whatever. But if you have a game plan for a 16-unit property like this to increase cash flows, I mean, this can be a really awesome opportunity and a rare thing we see in our market, especially when it's thin like this. So if you're curious about that, I just wanted to dive in. That's kind of just a look into one of the properties that is on our multifamily MLS right now.
But yeah, reach out if you if you're curious about more for more information on that obviously reach out to your go-to real estate professional And then take a look at that but that one has been on the market and is hanging out Along with some others. I see some duplexes on here and other things So wanted to give you a snapshot into the multifamily market in Fargo Moorhead. That's that you guys I want to get into the content I'm excited for it
what we did with the content this week is we reached out to our subscribers of our newsletter, the Midwest Invest Report newsletter. We asked, what's something about our real estate market
you have concerns about or you're curious about?
And I got a couple of really cool responses. I actually tweeted this question out there. I tweeted some of the questions that were given to us. And I want to answer some of them on the air with our Q&A session today. The first question, how do real estate investors plan to navigate the five-year interest rate expirations that are coming up in 2025 and 2026? OK, what we're talking about here,
is in 2020 and 2021, there was a lot of investors that leveraged that awesome interest rate and refinanced or got into new properties. There's a lot of loans that happened in 2020 and 2021. Right now with interest rates being a little higher, there's not as many refinances happen. There's not as many purchases happen because interest rates are higher. The numbers are not as attractive. There's still transactions going on, but-
With interest rates being low, we saw a ton of activity. And a lot of those commercial lenders, what loan product did they give? I know I was one of these. They usually give you a 20 to 30 year amortization. That's what calculates your monthly payment. But they give you a five year rate lock. It's a five year arm is what they call it. Adjustable rate mortgage.
So for five years, your rate is locked. But after that, it's going to go to wherever the market's at. Unfortunately for a lot of us, if it went to the current market interest rate, our interest rate would increase by 20%, 30%, maybe even 50% increase in our interest rate. We could go from sub-4 interest to 6%, 6.5% interest rate. What does that do to our investments? It definitely rocks the boat quite a bit. So how do real estate investors plan to navigate this?
Yes, we've seen this coming for a little while. And I can speak only on our behalf. But I think smart real estate investors, if you're not thinking of it yet, and you have rate locks that will be expiring in 12, 24, 36 months, you need a plan for where that cash is going to come. Yes, you could refinance. But I mean, if you refinance anything, you can pull cash out. You can buy cash down. But you're still going to have a cash flow problem because that interest rate.
is going to increase that payment so much. OK, so if you haven't been making plans to improve your rents, lower your expenses, improve your cash flow somehow, this is where this is going to catch up with you. If you're just steady betty, haven't changed the rent, still a long-term rental, it's been good, and you don't have a big cash flow buffer that can be absorbed, this is where I think people are going to get in trouble. They're going to have investments that are doing
average cash flow doing OK to not cash flowing at all. And that's something that's going to happen. That's why we're bringing up this question. How do real estate investors plan to navigate this? I think the way that you're going to navigate this is you got to really get a plan to increase your income fast. We actually did a YouTube video. We can drop that link in the show notes on different ways to increase your cash flow, six different ways actually to increase your cash flow for your real estate investment.
One of the ways we've been doing that, you guys, specifically, is we started furnishing some units. We had a fourplex, for instance. We had a couple units that we liked. They were good quality. We put furniture in them. And we started renting them out to traveling nurses. We rented them out by the night on VRBO, Airbnb. These all were attempts for us to increase the income, keep expenses somewhat level, and then have more of a buffer in cash flow.
So if situations happen later down, we're going to have that buffer with interest rate variability. Now again, there might be a day where interest rates go way back down, and then it's going to be awesome for everybody. It's going to be a heyday. That's why they do that in the economy. But we got to plan for these. I think that's such a great question. I'm so glad it was asked. Second question, let's get into it. Guys, if you have any comments on my answer to these questions, I would love to hear.
I think there's a lot of wisdom that listens to the podcast, a lot of wisdom that's read in the newsletter. Ask your questions, but also provide your answers, your comments. I think that's awesome idea share. Second question, how do I identify a burr deal in the Fargo-Moorhead market? This is a really cool thing. First off, if you don't know what a burr is, it's a really popular real estate term. Get on your Google machine right now and check it out.
Real estate term. And the BRRR stands for buy, renovate, or rehab. Buy, rehab, rent. So you're going to buy the unit, rehab the unit. You're going to rent it out, and then you're going to refinance the unit. And then the last R is repeat. So you just keep doing that over and over again. It's a really cool strategy in real estate investing. It's a great way to build awesome. It's a great way to build.
build an awesome portfolio, but then able to pull your cash back out and then buy another property quickly. Some people that buy a real estate investment, put all their money into it and they have to sit and wait to save up and save cash flow. The BRRRR model allows you to do this quickly because you're pulling equity that you created, equity that you forced into the property. You're pulling that out and using it to buy your next property. So how do you find that in our market specifically? You guys, we don't have a market.
where we're seeing a lot of really distressed property. And I always say there's two ways you find a really great burr opportunity, and that's distressed property or a distressed seller. And in our market, we don't have a ton of properties that are very distressed, a bunch of areas that are very distressed, and properties are getting sold for $0.70, $0.80 on the dollar.
Because those are awesome BRRR opportunity. So you can go in, put that sweat equity in, improve the value, and then pull your money out. One of the more common ways I'm seeing people do the BRRR strategy in our market is the distressed seller route. So you're finding situations in which a seller needs to get rid of a property, and they're not motivated by the sales price. These do exist. I know all of us are in investing, and we all want to make.
money and income from this, but there's a lot of life situations that might happen. There's a lot of things going on with sellers where they just need a property to be gone. A perfect example that I came across was there was a probate situation with a seller. The primary occupant had deceased, and the kids were now taking this on. And if the kids didn't sell the property, which was paid off, by the way, by a certain date, the state just got it.
And so you guys, they weren't motivated to get every single dollar out of this thing. But yes, they wanted to get money from something that has value. But they just needed a solution to this problem. And so in that case, there was a stress seller, an investor was able to come in and offer simple closing, clean, no contingencies, take on that property for the right price. So we're usually looking for one of those two things to find a burr property. You guys, the other way to create a burr property in the multifamily space.
Let's take that 16 unit. If you take a property like that, now you might not have to go do a ton of work to these units. But if you're able to just focus on the stats, and if you're able to rethink how the utilities are paid in that property, lowering expenses, if you're able to create a plan for 12, 18, 24 months to improve that rent based on market stats, you can just manipulate the numbers because you're managing and operating it really well.
And that can force value back in the property. And you can totally do a burr property without having to do a bunch of rehab or even acquire it for some really, really low price just by managing the numbers really, really well. So don't forget that one as well. Great question there. Our third question definitely falls in the category of the homeowners that are listening to this video right now. What's the best ROI when it comes to home improvements?
or what's the ROI when it comes to these home improvements? And he has specifically about two, adding a fireplace and finishing my basement. This was from Justin, who's one of our listeners subscribers. Justin, shout out to you. So adding a fireplace and finishing my basement. Let's start with the fireplace, you guys. A fireplace.
I get this all the time. And you guys, I don't want to be the guy that's sitting here telling you your awesome fireplace was a bad idea, because it's not. If it's for your lifestyle and that's something you wanted, that's something you should do. We do many things in life. We spend money on many things that we just want and that we want as part of our quality of life. But fireplaces, that awesome concrete patio you got in the backyard, that fence that you spent $10,000 on.
All that sod is cool trees you planted. These are all things that add to the sellability of your house, but they don't always correlate dollar for dollar for increasing the value of your house. Now, again, if you're going through a neighborhood and you're looking at a $500,000 rambler and a $525,000 rambler and a $515,000 rambler,
And the 525 has a bunch more cool items, like fireplaces and patios and things. It might make that buyer more attracted to that 525 property. But it doesn't mean that property got priced up because of those items. A lot of times, it's just a price per square foot. And what I want to say here, you guys, is I usually give a range of value when I'm looking at a seller's property. If I go into their house, they're saying, hey, what's my home worth?
I see a price range here of houses selling between $460,000 and right under $490,000. And so I'm giving a range because not every house sells exactly at the same rate, and they're not all exactly the same, right? So this looks like our range. When you have more of these items, like fireplaces, really cool amenities in the house, real cool exterior amenities,
Generally, we can slide your house value closer to that range and try to sell it for that. Doesn't mean it's going to, but we can price it closer to that higher range. Whereas a house that has none of these extras, I might be like, hey, we might be more attractive selling down closer to that bottom of that range. So does it equate to some ROI? Yes, it can. It can slide you up the range. But generally speaking, it's not going to give you dollar for dollar ROI on your investment into a.
$7,000 fireplace or a $10,000 patio. Okay. I just want you to have that in mind. I hope that that's a great question, Justin. I'm glad it came up. Now let's get to the finishing your basement. This one can be a little different because generally speaking, finished space in a house is very valuable. When we talk about price per square footage, we're usually talking about price per finished square footage.
Because obviously an unfinished basement doesn't cost $200 a square foot to have an unfinished basement. It's nothing. But to finish that space, that's where the cost is at. So if you have unfinished space in your house and you're thinking about finished that, generally an appraiser is going to give you a lot of credit for that. If an appraiser is going and looking for seven comparables to your property and your basement is finished, he's going to go find all seven that have finished basements. If you have an unfinished basement, he's going to go try to find properties that also have unfinished basements.
And innately, these properties are going to be in a different price category than the finished ones. OK, so I think putting $50,000 into finishing your basement, if you don't go crazy and you're not adding all these extra amenities like fireplaces in the basement, if it's just finished usable space, bedrooms, bathrooms, things like that, and living, that's generally going to equate usually, I'm going to use an approximation, but dollar for dollar on your investment.
You're maybe not gonna gain a ton of ROI on that, but having that extra space is going to, if you spend 50, are you gonna get that extra 40 to 50 to 60,000 in value in your house? Generally, that's what we're seeing. Okay, I hope that answers your question. Again, you guys have been in this game for a while. This is my little disclaimer. This is not fact, this is not law. These are my opinions. I think you guys should comment your answers into the comments section below. Add those comments into the newsletter. I know we're gonna have these in our newsletter this week.
So hopefully that helps great discussion and thanks for the questions to our guys that submitted those Okay, guys, I want to get into the spinal part of the show here today Usually our journal prompt and I actually want to share something with you It's something that I've just been diving deep into I got a recommendation from a podcast It's this right here. It's called the living your best year ever journal. This is a journal by Darren Hardy He's been putting it out for years
And you guys, I've just been diving into this. And it's something that we have some really clear goals in 2024 as a team individually. And this journal, I'm really excited about where this is taking me. It's creating more and more clarity around those things. And if you're someone that's into that, someone that needs that prompt, maybe something physical that you can hold, guys, check out this journal, Living Your Best Year Ever by Darren Hardy. Get it on Amazon. And my question for you today is,
What new year's goal needs to be re-energized for you? We're coming into March, coming into the end of Q1, and all those goals and big ambitions that you started hot on, have they fallen off yet? Are you still sticking with them? Were you going to the gym a lot more in January than you are here at the end of February? Okay, just a question to ask, and what would it look like for you to re-energize those goals? On our team, I know we operate in a 90-day world.
Every 90 days, we're refreshing. Every 90 days, we're rethinking what our goals are. We set big goals. Yes, yearly goals, we set three-year visions. But we really focus on these 90-day sprints. And guys, sometimes a journal like this can really prompt you to stay consistent. Because one of the superpowers that he says in here, and I want to share this with you. I loved how he said it. I underlined it. Whenever I'm asked the number one skill I would attribute to any unusual excess I've had.
I'm quick to answer. My ability to set, stick to, and achieve big goals. So if you're searching for success, if you're trying to get to that next level, guys, that might be a tool that can help you. What's that New Year's goal that needs to be re-energized for you? All right, gang, that's the show. This is the Midwest Invest Report. Again, I'm Kyle Regstrom. You guys, this is our podcast version, but this all exists and more in our newsletter.
We're getting an amazing following with that. We're getting awesome feedback. And we're engaging with our people. We're all trying to learn together on this. You guys don't miss subscribing to the Midwest Invest Report newsletter. Click the link below, put your email in. It's free, you'll get it every week. We wanna get to know you. We wanna hear from you on that newsletter. There's awesome links, polls, questions on there. You guys, let's be a fun community in this real estate community in Fargo-Moorhead together.
through the Midwest invest report newsletter. You guys, it's been great talking to you. We'll see you again next week. Have a good one.