Who should I know? Where should I buy?

Question

Im based in California. My parents live in Woodbury, MN. Long term goals are to eventually invest in Minnesota... Who should I know in my network for when I plan to buy some properties out there??? also I like the idea of duplexes and triplexes in Minneapolis but im told there are bad areas to buy? I think everywhere is a good place to buy for the right price and cashflow. Thoughts on this?

Todd Dexheimer · Answer

If you're looking for duplexs and triplexes, connect with agents that are selling them. @Daniel Anshus would be good to connect with. There are many bad areas in Minneapolis and St Paul, along with in some suburbs.

I would strongly disagree with the thought of "it's a good place to buy for the right price."

Adam Widder · Answer

Rent control has been passed in Saint Paul, and has the opportunity to be passed in Minneapolis. That doesn't mean avoid either of the those cities. That's where most of the 2-4 unit properties are located. It could make properties around MSP increase in price. Your theory on everywhere is good if the numbers makes sense holds true everywhere. Happy to jump on a call or check out my Youtube if that helps as well to understand the area or how properties are analyzed here.

Daniel Anshus · Answer

@Thomas Morley hey Thomas so there are definitely areas many investors avoid in the cities. And after the recent rent control that passed in Minneapolis and Saint Paul many investors are panicking. If you don’t know Saint Paul just passed a 3% rent cap and Minneapolis passed it so the local government can implement a rent control in the future. So many people are rethinking or backing out of those cities

Eric Fernwood · Answer

Hello Thomas,

There is always a strong tendency to invest where you feel comfortable. However, this does not mean it is a good investment location. Fortunately, there are objective criteria you can use to evaluate a location, which is illustrated below.

Details on each of the process steps.

• Appreciation - The number one location selection criteria is appreciation. Inflation constantly erodes buying power; each year, it costs more to buy the same set of goods. If you buy in a location where pre-COVID prices and rents increased faster than the current inflation rate, you will continue to have the funds you need. If not, the initial cash flow will be the highest you will ever receive, and you will have a continuously declining standard of living.You may have noticed that I use rent increase and appreciation interchangeably. The reason is that appreciation and rents are tied together. If prices increase (appreciation), rent will follow, but with a 2 to 10-year lag depending on the market. What is happening with property prices today is an excellent indicator of what will happen with rents in the future.
• Population Size - Greater than 1 million. Small towns may rely too much on a single business or market segment.
• Population Growth - If people are moving into a location, many things have to be right. I would not invest in any location where the population is stagnant or declining.
• Crime - People and companies will not move to locations perceived as dangerous. One source of cities to avoid is Neighborhood Scout's 100 most dangerous cities. Avoid any city on this list.
• Disaster Risk - Some parts of the country are more prone to natural disasters. The best indicator for natural disaster probability is homeowners insurance cost. I would avoid states with high insurance rates. Note, even if insurance pays for all the damage your property suffers, you still lose. When a significant disaster occurs, people and jobs move to locations where they can make money today. The location may take years to recover, or it may never recover. ValuePenguin is a good source for the relative cost of insurance by state.
• Operational Costs - Costs like property taxes, insurance cost, state income taxes, regulatory costs (ex: time and cost to evict, rent caps, rent control, certificates of occupancy), inspections, rent control, etc., have a tremendous impact on your return. Select a location with relatively low operational costs. Operational costs are a direct hit on profitability.

You may have noticed that I use rent increase and appreciation interchangeably. The reason is that appreciation and rents are tied together. If prices increase (appreciation), rent will follow, but with a 2 to 10-year lag depending on the market. What is happening with property prices today is an excellent indicator of what will happen with rents in the future.

Thomas, as long as you select a location which meets all of the above criteria, you should do well.

Zach Walker · Answer

Hi Thomas,

Lately we have seen clients in the Excelsior neighborhood and have seen great returns!

Jeffrey Evans · Answer

I would say you need a good agent/whole saler in the area to help find the deals, good property management good GC if going to do brrrr or add value type deals and a good lender being hard money and traditional finance team.  I agree that any area can work if the numbers work.  But at the same time I wouldn't recommend buying in D areas or war zones or anything.  I like the in between.  Hard to cash flow in A and B+ area unless you get a killer deal.  plus in those areas the people that can afford to rent usually end up purchasing.  I like the B-to C- neighborhoods since the type of tenants that live there usually are not goin to leave right away and purchase.  Turnovers and vacancy can be a cash flow killer.

Who should I know? Where should I buy?

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