I'm completely new to the real estate investing. I live in Brooklyn, NY where I don't see how it is possible to make money on a buy-to-rent strategy. Prices are simply too high. However, I have been exploring Minneapolis where property prices are much lower and yet there appears to be healthy demand for rentals as reflected in pretty good cap rates and low vacancy rates.
What are (more experienced) people's experience of the market? Would you say that it is a good place to look to buy something in the next 3 -6 months? Is there anything that I'm overlooking in my brief analysis above?
Originally posted by @Lorenzo Bernasconi :
Is there anything that I'm overlooking in my brief analysis above?
The reason property is so high in your area (rent growth and appreciation). The added expense and risk of investing in unfamiliar areas at a distance.
@Lorenzo Bernasconi Minneapolis is a great market for rental property right now - it was even better a year ago. I have clients buying rentals in that market as fast as they can, they are all in the area.
Market aside - you have to decide if long distance land lording is for you, everyone has a different risk tolerance and trust level of property managers.
I am buying rentals in the suburbs now. Most of the twin cities market is good, but I would not say it's a slam dunk anywhere.
There are a few C and D areas in Mpls, StPaul, and some northern inner ring burbs I am avoiding because I have heard that the city rules make it tough on landlords, and there are many "professional" renters who could make your life hell. I have even heard that it may be tough to get a good property manager working in those same areas for you.
Before buying, take a look at city rules and fees and tax rates. These will affect your ROI and there is quite a difference depending on which cities you are looking at.
In the A and B areas, you should have no trouble at all getting low vacancies, few evictions, and good property management. HOWEVER, the cash flow and ROI will be much smaller because of the high price points.
Personally, I am finding the cap rates for SFH, small MF, and townhomes are all around 7% in A, B, and some C areas using realistic assumptions for long term hold. Getting a 20%-30% discount to ARV is impossible with MLS listings and even in REOs as there are a lot of investors competition in buying.
Since you are investing at a distance why don't you find the great property manger first and then ask him where is there a good area to invest in? If they are happy to work for you in North MPLS, then my warning may be completely unfounded.
You have a bit of an arbitrary question, I would backwards plan out your goals and then it will be a lot easier to find out if the area is fitting your threshold. i.e I want to buy only single family vs. mutli family in the suburbs, I need to have 20% cash on cash returns, and cash flow more than $300+ per unit.
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