Thoughts on the Minneapolis Market?

Question

For investors in Minneapolis:  What are your thoughts on the current Minneapolis real estate market? What are your goals, and what strategies are working well for you to reach those goals? Where do you see the market moving in the next 5 years, and how are you compensating for it?

Personally, I'm looking to buy my first househack in Minneapolis in the next two years, but I also want to learn about what is working for people in Minne, whether its MultiFamily, SFH, Commercial, etc.

Thanks for your time and I look forward to your responses!

AJ Smith

Todd Dexheimer · Answer

There is a reason why certain areas are cheap. Look at the income levels, crime rates and other trends in neighborhoods prior to investing. I am not going to tell you to invest in a certain area or not, but just that you need to understand where you're investing

Bruce Runn · Answer

@Mack Benson

I’d say, I’m hearing there are a fair number of investors wanting to 1031 into more expensive properties but quality properties aren’t really out there-  For  people that need something near turn key, you’ll pay full retail price which is below the 1% rule and closer to .8% based on sales over the past 6 months- seems like 2-4 unit rentals are selling in the 5.5-6.5 cap rate range- I don’t see how investors are making money if they aren’t self managing as a management co. Takes most of the profits

Matt Higgins · Answer

@Bruce Runn

It sounds like you have some good systems in place and put a lot of time into it.  I’ve found that it’s not always a matter on “if” you’re willing to self manage, but it’s more of a matter of “if” you are good at it.

A lot of the people who are self managing are running month to month and not increasing rent while their expenses go up.  It might not matter over the course of a year, but it adds up over the course of a decade.  The same people aren’t running their financials correctly and have no clue on how profitable their investments are.  The same people don’t collect rent on time every time, screen properly, advertise vacancy effectively to reduce missed rent, respond timely to tenant request or repairs to reduce turnover, have modern management software, or the time needed to provide safe and affordable housing.

That’s not you!, but for the average guy they get a lot for that 8%.  I would suggest a new investor starts with property management.  There, I stumped for our industry.  Thanks for giving me the opportunity.

Noah Chappell · Answer

Yeahh North Minne can be a little patchy in terms of crime, etc. I wouldn't say stay away, because you'll likely get the best rent/price ratio in Minneapolis, but I'd definitely walk the neighborhood (during the day) first, & pay close attention to the Trulia heat map.

I personally prefer North End Neighborhood St Paul or parts of Frog Town St Paul, likely similar return as compared to N Minne, but to me somehow seems a little more calm & blue-collar, but I admit I haven't compared the crime stats...

Bruce Runn · Answer

@Jay Lohn

There are still deals out there, but you have to go find them. I bought 4 properties in great locations last year and have another purchase already in for this year with a 2nd purchase/deal in the works.  You can still find good opportunities but it takes work  but as you say, I go fishing every day.

At this point, I'll likely sell 3 or 4  properties this year but 2 or 3 of them already have a soft commitment from people who know me and are in my circle so there won't be realtor commissions and that savings is shared-I do this as I know they can close the deals once we settle on a price so I don't have to worry about some of shenanigans/games a bunch of realtors and buyers try to play.

Mack Benson · Answer

@AJ Smith I'll take a stab at the MFH part of your question. The space is tough, there are a lot of buyers and not many sellers so prices are inflating at a high rate. I've been told this price inflation is also preventing many sellers from listing because they feel they will need to 1031 into an equally over priced property. I'm not sure exactly how valid that is but it's what I've been told. The 5-10 unit properties can be listed on the MLS so you'll want to be set up with a search. 15+ unit properties are going to be listed by one of the commercial brokers in town but they haven't been advertising then much lately and have been trying to work with their preferred buyers. If this is a space you are interested in I'd suggest networking as soon as possible with brokers and those buying apartments.

Noah Chappell · Answer

Twin Cities has a lot going for it, up there with some of the best US cities, though comparatively prices are accessible even when rents are high. I think in a hot market local knowledge becomes especially important. A turnkey duplex with units renting for 1300 apiece could go for 350-400k & up in North East/Uptown/Seward, etc, while one with mild cosmetic distress in a continuous but improving neighborhood can go for 1200 apiece and $200k, thus hitting 1.2% or better.

If you are seriously considering a house hack, I'd move here & rent month to month for a few wks-months, then make offers when you find a neighborhood in path of progress close to jobs & downtown, on transit line, low crime, etc. I wouldn't try to throw a dart at the city & buy from far away, you'll like overpay or end up in a really rough neighborhood.

Evan Kraljic · Answer

Minneapolis is a really hot market and has been for the last 5 or so years. Vacancy rate has around 3% the past couple of years which is around the lowest in the nation for major cities, so there is a high demand from renters and especially for affordable housing (2 br for <$1300, give or take). Minneapolis also has a great job market with one of the largest number of fortune 500 companies headquartered here for any U.S. city.

As Mack Benson mentioned, it is very much still a seller's market so finding a deal that works can take time. I can't speak to larger multifamily but I remember you mentioned you are looking to house hack a 2-4 unit for your first property and that is a tight market. Most deals sell for less than the 1% rule (i.e.: a duplex that rents for 1250/side might sell for 300k) so the ones that are priced at 1% go quickly. Because of this I'd say it is important to find an agent who is really plugged into the market, one who invests themselves and has a solid pipeline of off market deals.

Along with that, you've gotta create value within the property you purchase to make it a good deal. Add square footage by finishing out an attic basement (if it makes sense), fix up the kitchen and bathroom in the unit you'll be living in, stuff like that. I will say that when I was in your shoes I was looking for a mostly turnkey property... the property I ended up buying could use a major overhaul but the price was right and it was an off market deal at an ideal time for me personally so that was an opportunity I didn't want to pass up.

Last thing on Minneapolis which is a point of contention for many investors here, the laws are becoming more and more tenant friendly. Here's a good thread on it, just so you are aware that screening will get a little more tricky soon but there are stills ways around the new ordinance legislation put forth.

https://www.biggerpockets.com/forums/52/topics/794977-murder-inclusion-in-minneapolis?highlight_post=4669221&page=2#p4669221

Some other things they have implemented are the largest property tax increase in the last decade which was use to fund affordable housing in the Twin Cities. I don't think I need to point out the irony in that situation. On a brighter note, I have heard that minimum wage is being raised to $15 in 2022 for large companies and 2024 for smaller companies. Regardless of where anyone stands on that issue that can only mean good things for those who own rental properties.

Didn't mean to get all political at the end but it's an important thing to be aware of, just don't let it scare you away from a great market overall. Overall, I would say it isn't easy to break in for a new investor but if you build the right network and are committed to buying your first property you can make it happen no doubt.

Account Closed · Answer

I must say, there are a TON of good points on this. Particularly, @Bruce Runn makes the strongest point - with such huge competition, it is really tough to get a great cap rate, and if you don't self manage, things could get ugly.

All that being said, I feel it's NEVER a bad idea to house hack, wherever you are.  Really tough strategy to beat as you're beginning out into a new market.

Good luck!

Troy Warling · Answer

I’m a new guy looking to begin with a SFH as a start. In that regard, sounds like North Minneapolis is a good place to start looking. Really appreciate everyone’s input on this subject!

Thoughts on the Minneapolis Market?

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