5 Things to Look For When Buying a Rental Property In Minnesota

Selecting a rental property in Minnesota is becoming far more difficult than in was in the past. Investment prices have risen thanks to Minnesota’s strong economy, lack of affordable housing, and high demand. Now, more than ever, investors need to do their homework prior to their purchase. As the old saying goes, “you make your money when you buy” so here are 5 things that should be considered prior to purchasing your next investment property in Minnesota.

1. 1.  Cash Flow

An investment’s ability to cash flow is the difference between receiving a check or writing a check at the end of the month. The calculation is as simple as subtracting all expenses from the projected rent. This is a number that can be calculated on the front end and shouldn’t be skipped. Make sure that all expenses are included and set aside a budget for vacancy, capital expenditures, and management.

1. 2.  Location

It’s often possible to raise rent, reduce expenses, and boost the performance of your rental property. However, the location of your investment will never change. Is the population shrinking or growing? Is the property located in an area with a diverse workforce that isn’t reliant on one industry? Is the property located on a busy road? Does the property allow for adequate parking? Open the school district is the most important consideration for families so you will want to invest in an area with great schools. Great people will always want to live in a property with a great location.

1. 3.  The condition of the property

The condition of the property will affect all aspects of the properties performance. A property in poor condition will require capital up front to get it ready for rent, it will require capital expenditures over the life of the investment, and it will require additional capital when it comes time to sell. Buying a property in subpar condition can create an opportunity to add value for the experienced investor, but a newer investor is often better served by purchasing a property in rent ready condition. Remember, only subpar tenants will live in subpar conditions.

1. 4.  The age of the property

Often the age of the property will determine the kind of mechanicals, electric, and plumbing in the property. A newer investor may want to stick to houses with forced air heating and avoid houses with knob and tube wiring. The foundation is also a huge consideration when selecting an investment property. A newer investor may want to stick to houses that feature block or poured wall foundations free of any major flaws. These foundations are found in homes built in the last 50 years or so. In Minnesota it’s best to avoid houses with additions. These additions are often added on to smaller, older homes, and have been known to sink into the ground as they are not built on the original foundation. In our climate we should also look for properties with a full heated basement. Minnesota winters are too fierce for plumbing that receives insufficient heat. There are plenty of great older homes in Minnesota, but the investor should always have a proper inspection done and be aware of potential issues down the road.

1. 5.  Appreciation

Appreciation is the secret sauce of real estate investing. The landlord rarely calls to lower the rent and real estate values have grown over 40% in the last 20 years according to Dave Ramsey’s website. To find a property that will appreciate the investor must look to the future. Where will people want to live? What neighborhood will they want to live in? There is a term in real estate called “gentrification”. This is when previously undesirable locations experience rapid appreciation. New restaurants, home flippers, and coffee shops can all be signs of an area ready to undergo gentrification.

There are several other aspects that should be considered before you rush into purchasing your first rental property. We encourage you conduct your property search with the help of a professional and seek professional property management. 10K Realty is a full service brokerage with years of experience in managing rental properties in Minnesota. Please give us a call at 763-377-2616 or visit our website 10krealtypm.com if we can help.