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Thinking about flipping houses in Minnesota? Flipping houses is hard work, but it can be a great way to make money. Keep reading for what you need to know about flipping houses in Minnesota.
If you’ve ever spent an afternoon glued to HGTV, you’ve probably day dreamed about flipping houses. Who doesn’t love the idea of finding a great deal property in need of a little TLC, quickly making a few repairs and improvements, and selling it for a big profit?
For most people, flipping houses is a lot harder than it looks on TV. But that doesn’t mean it’s impossible.
House flipping is more popular than ever, but house flippers in recent years have seen lower returns. That said, house flipping can be a great real estate investment — if you know what you’re doing and plan wisely.
If you’re thinking about becoming a house flipper, there are a lot of factors you should consider. Here’s our complete guide to flipping houses in Minnesota, including how to find cheap investment properties.
Minnesota Housing Market Analysis
The Minnesota real estate market is very hot, which can be both a good thing and a bad thing for people searching for investment properties.
The median home value in Minnesota is over $326,000, which is below the national average by nearly $50,000.
However, every state has regional fluctuations in home values and Minnesota is no different. For example, a median home in Plymouth is worth $335,400, a median home in Minneapolis is worth $239,200, and a median home in Duluth is worth $152,900.
How to Find Cheap Minnesota Investment Properties
To become a house flipper, you’ll need to figure out what kinds of houses are ideal for flipping. Finding houses to flip is harder than it sounds. There are a lot of different factors to consider. But if you’re patient and focus on these key considerations, you can find properties that are ripe for flipping.
One common — and successful — strategy for finding investment properties is to look for cheap houses in great locations. You can always improve a home; you can’t improve a neighborhood.
Be sure to do your homework and spend time researching the cities and neighborhoods where you’re thinking about buying property. Look for things like employment growth, rising real estate prices, good schools, and low crime rates. Try to avoid areas that already have a lot of homes for sale, as that can indicate the neighborhood is not doing well.
How to find Minnesota homes to flip
1. Use real estate investment software
One of the biggest challenges of flipping homes in Minnesota is finding great deals. But the DealMachine app is one tool that can really help you.
DealMachine's real estate software helps Minnesota investors find and research distressed homes (think: pre-foreclosures, foreclosures, abandoned homes, etc), and get in touch with owners fast via batch skip tracing and direct mail campaigns.
DealMachine's driving for dollars app is fast and easy to use. When you're driving around town and spot a home that could be a great deal, you can send the owner direct mail through the app for huge time savings (no post office visits required).
Download the DealMachine app to find undervalued Minnesota properties as you drive. DealMachine offers a 7-day free trial and $15 in free credits that can be used towards marketing (like sending out direct mail to homeowners).
2. Partner with an investor-friendly realtor
Partnering with an investor-friendly realtor is the best way to ensure a favorable, easy home purchase.
Agents have expertise in Minnesota's variety of markets, understand real estate laws and practices specific to the state, and can provide access to lesser-known neighborhoods and properties that just may be your dream investment.
Clever's real estate agents can guide you through your local real estate market and make your house hunting journey a breeze. And one huge bonus: eligible buyers can get back 0.5% of their home's purchase price after closing, potentially saving you thousands.
How to Turn a Profit When Flipping a Minnesota House
There are a lot of numbers to crunch when you’re flipping homes. One successful, commonly used formula house flippers use is the 70% Rule. In a nutshell, the 70% Rule says you should never pay more than 70% of the after repair value (ARV) of a property, minus the cost of necessary repairs.
(70% of ARV) - repairs = maximum amount you should pay
Figure out how much money you can afford to spend on the property — purchase price plus repairs. Then look for properties in your target price range and evaluate how much money in repairs you’ll need to spend on each property.
The exact amount of money you’ll need to put down depends on where in Minnesota you’re investing. A median home in Minnesota is worth $235,700. If a home’s ARV is $250,000 and it needs $20,000 worth of repairs, the 70% Rule says you should pay no more than $155,000 for that property.
($250,000 x .7) - $20,000 = $155,000
Following the 70% Rule will help you ensure that you don’t overpay for a property and lose money down the road.
Another consideration for house flippers is all of the miscellaneous associated costs. The purchase price of the property and renovations should be your two largest costs, but selling real estate comes with costs, too. Between marketing costs, transfer taxes, carrying costs, and closing costs, investors have a lot of things to consider.
Paying Cash vs. Taking Out a Loan
Paying cash for houses to flip is the best option, if you can afford it. There’s risk involved in flipping houses. Sometimes repairs can take longer than intended. If you pay cash, you won’t have to pay interest for the time you’re getting the property ready to sell.
Using your own money without going into debt also allows you to take the best course of action if the flipping takes longer than expected. If you take out a loan to finance a house flip, you may be tempted to act out of desperation and sell at a lower cost.
Of course, not every house flipper has the cash on hand to purchase and rehab homes without a loan. When considering lenders, your options include "hard money" or "rehab" loans, where you get a short-term loan to buy and renovate a property.
You may also be able to finance your investments with a home equity line of credit, or HELOC. HELOCs are one of the easiest ways for people with good credit scores to secure money for potential flips.
Standard home equity loans are also good fits for some prospective house flippers. A home equity loan gives you a lump sum to complete your repairs. The idea then is to sell the property as quick as possible and repay the loan. This can be done a number of times, provided you repay the loan on time.
If you’re trying to figure out the best option for you when flipping homes, talk to your realtor. A professional real estate agent will work with you to determine the potential rate of return you can expect with a house flip, taking into account the costs of your loan, the money needed for repairs, and the cost of the real estate.
5 Best Cities in Minnesota for House Flippers in 2022
1. Minneapolis
Unlike many other major cities, Minneapolis still offers a lot of opportunities for house flippers. The median home value in Minneapolis is $338,040. Home values went up 5.9% last year. There are a number of exciting neighborhoods in the city that still have homes that would benefit greatly from some updates and repairs.
2. St. Paul
If you’re going to look at Minneapolis for potential investments, you also have to consider its twin, St. Paul. The median home value in St. Paul is even lower than the median in Minneapolis, at just $290,074 — 9.3% higher than a year ago. St. Paul is growing, and like Minneapolis, has a number of up-and-coming neighborhoods to choose from.
3. Hugo
Hugo is part of the Minneapolis-St. Paul metro area. A median home in Hugo is worth $405,108 — up 14.9% from last year, but still slightly lower than the metro area’s average. This is below the metro area’s average home value, but with price increases expected to continue, it’s looking like a good place to invest.
4. Duluth
Located 150 miles north of the Twin Cities, on Lake Superior, Duluth is a charming port city. Real estate prices in Duluth are much cheaper than in many parts of the state, with a median home value of $247,308. Duluth real estate values have been rising steadily since 2013 and are expected to continue to rise, with demand exceeding supply.
5. Andover
Andover is located in Anoka County and has a population of around 30,000. Over 93% of Andover residents own their homes. Prices in Andover have increased each year since the end of the recession and Andover now has a median home value of $427,616. That’s up 12.8% since this time last year.
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