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The Ultimate Guide to Flipping Houses in Minnesota

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.
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.

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 $235,700, about $10,000 higher than the national median. Home values in Minnesota have increased 5.4% in the last year and are expected to increase another 2.6% in the next year.

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.

Market trends vary in different cities and neighborhoods and the real estate market can always shift quickly. If you’re thinking about flipping houses in Minnesota, work with a local real estate agent to find the best deals at the right time.

How to Tell if a Minnesota Property is a Good Investment

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.

Try to find homes that are structurally sound and need only minor repairs or upgrades to be marketable. Avoid homes that are likely to become money traps. Dealing with things like mold, new pipes, or a new roof are expensive and time-consuming endeavors.

When searching for investment properties, there’s a lot more to consider than just the sale price. You should evaluate the current condition of the house and the cost of necessary repairs. Have a comparative market analysis done on properties you’re considering, so you can ensure you’re getting as good of a deal as you think. Evaluate the potential return on investment for several properties before you make a decision.

When making decisions on what houses and neighborhoods to consider, talk to your real estate agent for guidance on assessing prospective investment properties.

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 2019

1. Minneapolis

Unlike many other major cities, Minneapolis still offers a lot of opportunities for house flippers. The median home value in Minneapolis is $266,800. Home values went up 4.1% last year and are expected to increase another 1.9% in the next 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 $220,300 — 5.7% 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 $283,800 — up 5.6% 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 $175,500. 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 $309,300. That’s up 6.4% since this time last year, and prices are expected to continue to increase another 3.5% in the next year.

Next Steps for Minnesota House Flippers

If you’re getting into the house flipping game, make sure to work with an experienced real estate agent. Clever can help. Clever Partner Agents are all full-service real estate agents who are top-rated in their locations.

When it comes time to sell, Partner Agents work for a fraction of the typical commission rate, helping you maintain the highest possible margin on your flip by bringing in a great price and ensuring the sale goes through without a hitch.

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Luke Babich

Luke Babich is the co-founder and Chief Strategy Officer of Clever Real Estate, the free online service that connects you with top agents to save money on commission. He's an active real estate investor and licensed agent in St. Louis, with 22 units currently. Luke graduated from Stanford University and subsequently ran a historic data-driven campaign for University City City Council. Luke's writing has been featured in Homeland Security Today, Mashvisor, Payments Journal, and Bigger Pockets.

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