Hi Zach, NE Minneapolis is one of, if not the strongest locations, especially for small multifamily in Minnesota right now. A couple of comments on this:
With strong markets there is usually a good amount expected future appreciation/rental increases baked implicitly into the properties, as a result it is very typical to see these areas have lower on paper Cash on Cash returns. Even outside of Minnesota think New York, California or Washington D.C. for example. In Minnesota areas like Uptown, around the lakes, and NE Minneapolis the returns for Cash on Cash can look lower. However the reason the expected future appreciation/rental increases are already baked into the properties is because there is such a strong likelihood that these areas stay strong and prices and rents continue to increase that some investors think that it is a given. 5 years from now your rents might be 25% or more higher than they currently are and you might be extremely happy with the property, people who bought in NE 5 years ago are certainly extremely happy. Even if there wasn't room for them to force appreciation or increase income through airbnb, etc.
This can highlight the limitations of using Cash on Cash as a metric for calculating an investment. It tends to be highest in areas that are hardest to manage or have other challenges and tends to be lowest in the more desirable areas (Uptown, around the lakes, and NE). Part of the return equation that some investors choose to exclude is the principle pay down, (with a more expensive property or location you have a larger mortgage, which means you are paying down a larger amount of principle each month, all else equal) and potential or expected appreciation, which is much harder to quantify until after the fact, but more expensive properties tend to appreciate at a larger dollar amount YoY even if its not the largest % increase.
Like Avery said there is a ton of value in simply getting started. My wife and I have purchased a couple of different properties over the last couple years and I think the property you have found is great. Additionally, I would love to live in NE, which at the end of the day is a factor too. Especially if it gets you and your significant other excited about RE and into more opportunities in the future. Also, you may find that after a couple of years of living in the property that you might have been "off" on some of the variables for calculating your returns. (I have been "off" on all of mine). I underestimated rental income and underestimated tax increases and utility expenses... But I have been very happy for purchasing the properties. The analysis paralysis is hard. But I have found that remembering the qualitative factors for investing in real estate should be a large part of the equation as well. (personal growth, learning, lifestyle, location, potential appreciation, etc.)
