Investing in North Minneapolis, Payne-Phalen, etc.

Minneapolis, MN · Member since 2016 · 51 posts · 19 votes

Hi folks,

Anyone here have experience in buy + hold rental properties in Folwell, Near North, Payne-Phalen, South of Maryland, or other higher-crime areas? In particular, I'm curious to know what expenses (insurance, security systems, etc.) would be required to mitigate the risk of property crimes.

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Scott Graff

Member since 2018 · 1 post · 3 votes

I own rental property in Payne - Phalen. Yes this is not Wayzata or Edina this is the hood in St Paul but as the trend for intercity core areas continues to show significant development I believe the rewards out way the risks. Yes there is crime in the area yes there is drugs and yes there is prostitution but those exist in other areas. End of story I am looking to add more properties in this area. Pricing is low and rent rates are raising plus it appears the area is up and coming and crime rates appear to be moving in the right direction. Time will tell of course but then again I am not a flipper I am a long term buy and hold investor so I have time. If you are afraid of working with minorities this might not be an area for you. Good luck in your investing!!!!

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Javier Sanmiguel
St Paul, MN · Member since 2016 · 38 posts · 12 votes
9y
I'm interested in what other investors have to say about this one. I'm a newbie and have been placing offers in these areas as well. I figure the numbers have to work exceptionally well to be worth the risk.
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Jordan MoorheadBusiness Member
Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
9y
Grigoriy Gorshteyn does
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Jay LohnBusiness Member
Real Estate Agent & Investor · Champlin, MN · Member since 2014 · 179 posts · 43 votes
9y
I would stay away from Payne-Phalen, no security system is going to help you very much as I knew renters in the area who had their lawnmower stolen as they were letting it cool down after mowing within 3 minutes of leaving it, others who had "tricks" getting turned in their detached garage and a teenage girl was just murdered there last week. Cheap prices don't make it worth the headache, my two cents.
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Josh Collins
Investor · Woodbury, MN · Member since 2016 · 90 posts · 72 votes
9y
I'm sure you could get homes for a good price here, but if you don't have a lot of experience in the area, I'd probably buy time by buying in another area that is a bit more stable. I really like the area of NE Mpls specifically looking in the areas just north of downtown (which will likely be a bit more expensive), between Marshall and University from Broadway to St. Anthony Pkwy, and lastly the area around Broadway and Central Ave. My feeling is that these are the up and coming areas of Mpls. They might already be there, but I see young families that want to be downtown moving here from their condos when they have kids.
I'd be curious as to hear what area realtors have to say about these areas. I know you aren't going to get a house for $40K like you might be able to in Near North, but I would focus my attention in the above referenced areas for solid cash flow and future appreciation.
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Jordan Grimstad
OP
Minneapolis, MN · Member since 2016 · 51 posts · 19 votes
9y
@Jay Lohn Gotcha - definitely understood. Two thoughts/follow up questions for you - 1) Could a property management firm help provide buffer some of the challenges, or would most of the challenges flow through to an owner? 2) To what extent would a property owner be exposed to legal liability of crime that occurs on the property?
Reason I'm so curious about these neighborhoods is the sheer volume of foreclosed properties (and dearth of investor demand) would seem to point to a potential opportunity if a property could be bought for, say, $20k (Zillow shows tons of sold houses in these areas at this price!), fixed up for $1-5k, and rented for $900/mo (this rental rate might not be totally right, but checking a few sources seem to indicate it's a possibility for a 2/1 house in these neighborhoods). Even if you set aside 75% of gross rents for operating expenses + debt service + legal outlay, you're still seeing >45% CoCR with a 25% down mortgage (~$2700/year in cashflow vs. $6k-$11k in initial investment).
Is that optimistic logic? Completely understood that this is a higher volatility investment than buying a nice 3/1 in Richfield/SLP/Bloomington and it would require the investor to be aggressive in bank negotiations, tolerate longer vacancies and/or higher maintenance/legal expenses, but the potential return seems to cover the additional risk.
As an aside - I don't disagree with you about the potential risks at all, just trying to identify some potentially creative niches in the market.
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Andy Schornack
Banker · Wayzata, MN · Member since 2016 · 59 posts · 17 votes
9y
Depends on the legwork and amount of elbow grease you want to put in. I have seen a lot of successful investors work in the area without security cameras. The best prevention is an attentive landlord/property manager. Just expect to spend more time at your properties getting to know tenants and neighbors.
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Scott Graff
Member since 2018 · 1 post · 3 votes
8y
I own rental property in Payne - Phalen. Yes this is not Wayzata or Edina this is the hood in St Paul but as the trend for intercity core areas continues to show significant development I believe the rewards out way the risks. Yes there is crime in the area yes there is drugs and yes there is prostitution but those exist in other areas. End of story I am looking to add more properties in this area. Pricing is low and rent rates are raising plus it appears the area is up and coming and crime rates appear to be moving in the right direction. Time will tell of course but then again I am not a flipper I am a long term buy and hold investor so I have time. If you are afraid of working with minorities this might not be an area for you. Good luck in your investing!!!!
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Constance Vork
Member since 2018 · 1 post · 2 votes
8y
I own three duplexes in North Minneapolis (near north, Hawthorne and Webber-Camden) and also live on the Northside. And am looking for more properties to add. And have a real estate team. :-)
I don't own anything on the east side in St Paul at this time yet I'm always looking there too.
The key is to rent to great tenants. I think there's a misconception that problem tenants want to live in areas like the northside and the eastside, and I've found that to be far from accurate.
If I can help you in any way, don't hesitate to reach out - I love chatting with investors!
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Jordan MoorheadBusiness Member
Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
8y
Hey @Jordan Grimstad
I think you'll find that the insurance requirements aren't much different but that you'll want to take some precautions to make your places nice to live in. I have a few Class C rentals and haven't had any major issues because I treat the tenants fairly.
[email protected]512-888-9122
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Tim SwierczekPro Member
Lender · White Bear Township, MN · Member since 2016 · 1k+ posts · 1k+ votes
8y
I agree with @Constance Vork . You can't control the neighborhood but you can control who you put in your property. I own only one property in Payne/Phalen but I also lived in the area for 19 years and we had a few minor issues but the biggest issues I have had were from bad tenants, not the neighbors. A security system could give renters peace of mind but I don't think it will do much to prevent a car or garage break-in.
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Tyler Forsythe
Minneapolis, MN · Member since 2020 · 9 posts · 1 vote
6y
What about now? With the market that kept heating up over the past couple years plus the increased crime this summer (more than normal, seasonal variation), are people still looking at (or avoiding) these areas?
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