Duplex Manifesto ACQUISITION Guide: ARCHIE of ‘27
Georgi & Jack dove headfirst into duplex ownership in 2019. Their story is a roadmap for all purveyors who aspire to have an investment property. Following their off-market acquisition of Esme’ in Powderhorn, they knew from the onset that another building to cherish was in the crosshairs, motivation being to free themselves of career financial pressures.
“When we weren’t looking, we found Archie: a 1927 up-down duplex in one of our favorite small-town feeling neighborhoods in Minneapolis, Standish. Archie was ridiculously loved and cared for by its previous owner.” Georgi + Jack
It was love at first MLS-scroll, deeper love at first walk-through. But this is a story that comes with some learnings and some caution, as the acquisition wasn’t easy breezy like we all wish they could be.
Archie was meant to be: how did I know? Because the best real estate opportunities land at the least opportune times in your life-cycle: imagine that time you were out of town or the time right after surgery or that time in the midst of a family holiday. Fresh off their bootstrap remodel in Powderhorn, Georgi and Jack were window-shopping out of passion for their second duplex without the reserves to pull the trigger.
This is a story about the danger and benefit of dreaming. We’re looking back on our lessons learned with Archie to further the knowledge base of aspiring duplex owners :
Lesson #1: Maintaining poise in the acquisition & the long term hold
Lesson #2: Affordability & the Owner-Occupancy Card
Learning #3: Expect it when you least expect it - duplex inventory is the boss of your calendar
Learning #4: Don’t overplay uncontrollable variables
10,000 hours, the amount of time it takes to become an expert at something, is the beautiful thing about real estate investing: we’re all learning. It’s our aim to ensure you pick up on the lessons we have gained in the previous 12 years of securing classic homes, the double door ones are a touch more complex than singles :)
Enter Jerry: a seasoned agent who’s been selling real estate for decades from Rogers to Farmington to Saint Paul to Minnetonka. A real catch-all corporate realtor. Jerry so inconveniently listed Archie in the single-family MLS… this created a brief window of time where the real estate market was confused as to the origin of the property, we weren’t three steps into the main floor unit and destined fiscal suicide was imminent: Georgi and Jack had to go back to Ramen noodles and mustard sandwiches of their formative college years.
Georgi entered the craftsman first, loving his clearly cherished detail, she phoned Jack and Steve for a walk-through to follow, it was clear in the living room that Jack had realized the sniper reflexes of his wife-to-be.
“I can go back to being broke tomorrow, I’ve done it for most of my life since college so going back to broke feels pretty normal anyways. ”
Several lessons ensued on the acquisition of Archie, the allure of really wanting to secure the property, with a starving artist’s bank account. We went against Rare Form’s ideals of the acquisition and decided to write an “escalation clause” offer. We made it evident that we’d need to see the front page of whatever offer we were escalating above.
This is where the listing agents ethics became suspect. It was clear that the highest offer in Jerry’s possession was that of a “verbal offer” from a previous tenant. Legally a verbal and non-written offer is not valid in the arena of a multiple offer situation in Minnesota.
Emotions boiled as we felt purely swindled, after considering the ethical trapeze between wanting Archies immaculate craftsman arches, and teaching Jerry a lesson on above board dealings by reporting his subjective behavior. In all likelihood our written offer was competing against a fictional party- this is a classic “straw buying” scheme, and it’s illegal.
Georgi and Jack reluctantly agreed to sign an escalation clause above this phantom-straw offer, essentially this calm was produced by taking them on a walk down memory lane.
We have been investing in Real Estate annually since 2009, and this experience proves invaluable when parties to a transaction get heated over terms and conditions. Feeling like you’re overpaying in the moment of the deal is consistent in the investment marketplace.
Multi-family market values have increased steadily since the financial collapse of 2008. Eighty-five percent of our internal acquisitions were bidding war victories.
What happens naturally when you win a bidding war? The high of victory, enduring excitement, and then after 12-18 hours, it quickly turns to wondering how much you overpaid over the second strongest party.
Lesson #1: Maintaining poise in the acquisition & the long term hold
This emotion occurs time & again in multiple offers, only to be overcome by rolling up the sleeves and bringing the building back to her former glory. As tenants move in, a sense of immense gratitude sets in. As time progresses, the investment amounts shrink and the reaction of disbelief occurs with present values.
Rare Form is rooted in long term ownership, when you play Classic homes long, it’s less about the initial shock of the investment. After reviewing all this investment wisdom, they decided to do the deal despite Jerry’s deception - kicking and screaming they were, until the appraisal arrived 5,000 over agreed escalation price.
The fact is, Archibald was worth any relative geriatric escalation clause. As the dust settled, Archie proved to be a Bristol example of a double bungalow, as seaworthy as you can find with brilliant tuck-pointing, amazing masonry, fresh wood interior Marvins, a stem-to-stern confidence that only a building with a multi-generational steward would have.
“When the emotions are tied into the heat of the moment, it feels like you’re paying too much… however we’ve found that with a building of this stature in a coveted locale (steps off the light rail, several neighborhood hot spots within close proximity), you can’t really overpay.”
We are obsessed with the original glass doorknobs throughout the building.
The previous owner left us a box of vintage doorknobs that we’re keeping for the future.
Lesson #2: Affordability & the Owner-Occupancy card
Financial analysis on owner occupancy purchases is always a rosy picture, as the penalty for non-investor down payments is subsidized by owner occupancy in the eyes of the lending world.
We initially wrote a low offer, hoping we could sneak in undetected due to the classification as a “single-family” home on the MLS. We were soon told there were two other offers, so we adjusted with an escalation clause. This was my (first &) last experiment with escalation clauses, Rare Form’s success in multiple offers is rooted in traditional honest offering tactics that are strategically created to favor the perspective of the older risk-averse seller.
Buying in Rare Form Lesson: If you’re willing to reach a certain number, offer that from the start when you’re in multiples. Taking the strong position early was critical for us to establish goodwill with the seller.
Owner occupant financing amplifies the motivation with low allowable down payment percentages. The difference in 19k (the range from our offer to the top of our escalation clause) comes down to less than a thousand dollars in cash to close - this difference is a shrug when you’re looking at a long term investment.
There is a deep well of intel behind the numbers of multifamily investing - to keep from too much fiscal snore, I’ll just emphasize that the ability to owner-occupy and get into a building at 5% down (or… less) while having your mortgage payments subsidized by your tenants is a true attainable gateway into real estate investing.
The lower your annual earnings are, the more duplex ownership is tailored for you. Owner-occupying is a springboard into real estate investing, and is designed as such: subsequent investments require 20-25 percent down. These initial moves are critical in landing a building with staying power that can perform without too much investment in condition and maintenance.
We tuned our gravity boilers and they’re well oiled for decades of even radiant heat.
Learning #3: Expect it when you least expect it - duplex inventory is the boss of your calendar
Sound duplex inventory is becoming increasingly scarce following the appreciation of rents and affordability index of debt. This mix made Minneapolis an optimal place for return yields as a factor of building affordability. Going back over 10 years, none of Rare Form’s multi-unit purchases made the script that a personal calendar creates - they arrive when you least expect or want them to, time & time again.
Same applies to us - we weren’t really looking… but then again, I’m always kind of looking. We found Archie because it looked too special not to walk: a 1927 double bungalow in one of our favorite small-town vibe neighborhoods in Minneapolis, Standish. Archie was ridiculously loved and cared for by its previous owner (Richard Donnelly): new Marvin windows, impeccable stucco work on the exterior, new concrete paths + patio, refinished hardwoods, original millwork and shaker cabinets, the list goes on. Finding this caliber of duplex in this squeaky clean condition is becoming unicorn level, especially when on a budget as small as ours.
Did anyone catch the previous stewards name? Richard Donnelly.
Of Donnelly Stucco, for those of you that know the trades in Minneapolis, Donnelly is a top-notch stucco mason, they are ‘the name’ when it comes to union grade masonry, stucco, and mortar work in Minneapolis. This minute detail is actually the most remarkable statistic about the Archie, and it wasn’t until closing day did Jack Samels meet the stucco baron himself.
This ties in so many loose ends in our minds: why would a duplex owner sink this much dough into tuckpointing? The entire picture is mint beyond the regular condition of multi-units: the perfectly sloped capstones, the freshly dashed stucco, positive sloping fresh sidewalks, marvin windows with wood interior, in summary the state of Archie’s exterior unicorn status.
Now we comprehend this outwardly flawless example: because if you are Richard Donnelly, mint masonry is your middle name, so why would your duplex be excluded? This is the very essence of fate, the gift of time and place: as we were waiting in the wings when Richard was ready to pass the torch Archie & his flawless masonry.
Learning #4: Don’t overplay uncontrollable variables
In the weeks leading up to closing, we formulated a plan based on the existing tenants, existing lease & what they verbally agreed to. All of that changed in a moment - the tenants changed their plans and a pandemic struck. Attempting to maintain a current owners tenants through a sale, and negotiate with them during a transaction very much muddy’s the water, we find it best to wait until closing to assume the back and forth of value and benefit.
How does one show an occupied apartment during the start of a global health crisis? It was a challenge. We still didn’t know much about the virus and everyone was scared and in lockdown, so we had to rely heavily on photos and facetiming, including a video walkthrough made by the existing tenants. We were able to find really amazing tenants that love Archie as much as we do, so it’s all about trusting the process and allowing time to pass.
Unlike our other duplex, Esmeralda, Archie was a quickie one-weekend-per-unit hitter. We were able to get in there in-between turnover and paint everything, install new (old) light fixtures & fanimations, and hang curtains in every room. I’m a big believer that the details matter, so it felt good to spend some time making the units welcoming to their new tenants.
Someday down the line we’ll think up ways to make the kitchens function more for the modern day: dishwashers and hood vents would be nice. But for now, they’re simple & sweet, reminiscent of my great-grandmother’s kitchen in smalltown Kansas.
Overall lesson: there is no predicting the timeline, as REAL ESTATE NEVER SLEEPS. We used up all of our savings to acquire Archie, and have zero regrets. We’re in it for the long haul and are proud to call him our own!
