Buying investment property in Minnesota is a great way to make additional income for you and your family. Different investors use different calculation methods to determine if an investment is right for them. Before you make any large investments, take into consideration our rules for buying investment property!
Location, Location, Location
I know you have heard this one before but man it is a important one. You must take a look at a number of things when choosing the location for your investment property. Here is a few things to look for
- School district- look for a 7/10 rating or better. Check rating at Niche.com
- Quite road- Is the house 30 feet from a busy high way or tucked in a nice cozy neighborhood
- City Maintenance- Does the city do a good job keeping its town clean or is there garbage laying around in the streets
- Crime- whats going on in the town? Is it a war zone or a nice community. To look up city crime ratings check out City-Data.com
Know Your Numbers
Different investors use different equations to determine if a property is a good investment. One method is to use your “Cap Rate.” The short version: The Cap Rate is your net income divided by the asset cost. So let’s say you buy a house for $150,000. You rent it out for $1000 and incur about $200 a month in expenses. You will net about $800 a month, or $9600 per year. You would then divide $9600 (your net income) by $150,000 (what you paid for the house.) In this example, you would end up with 0.064 or 6.4 percent return on your investment. You should have goals in mind, and if the property isn’t meeting them, then you should consider a different house!
Determine Your Return
For every dollar that you invest, what is your return on that dollar? Stocks may offer a 7.5% cash-on-cash return, while bonds may pay 4.5%. A 6% return in your first year as a landlord is considered healthy, especially given that number should rise over time.
Don’t Get In Over Your Head
Maybe people get involved in flipping homes because it looks fun, or because they have seen it on TV. There is much more to owning a successful investment property. If you are not familiar with rehabbing a home, don’t purchase one that needs a lot of repairs. You will want to have an inspection done to ensure there isn’t damage lurking behind the walls. There is nothing worse than going to repair one thing and being met with 10 more things you found under the surface. Working and partnering with a like-minded team will help your investments thrive. If you are a novice investor, working with other people in the industry will help you to grow!