Investment Properties in the Suburbs

Investment properties in the suburbs must be analyzed just like any other property in the metro Twin Cities, MN.

Recently, I asked the readers to send me questions or topics that they are confronted with often. John Gall asked two questions which I can answer together:

1. Are any suburbs in particular gold mines for rentals?
2. Are outer suburbs with inexpensive newer housing stock like Otsego and St Michael, Albertville still viable for rentals for single family homes?

There are several key points to consider before buying any property (especially ones in the suburbs):

1. Is the property financially a good purchase for price, cash flow, and potential capital appreciation?
2. Are there other rentals in the area? Competition can be helpful in attracting new tenants. If you are a rental island in the sea of single family houses, it may be difficult to get anyone to be interested in your apartments. Also, setting your rent may be more difficult without other rentals in the area.
3. When it is time to sell, it may be difficult to find comparable investment properties for the mortgage company to use when getting an appraisal. This in turn could deflate the price you can sell your property at.
4. Newer housing can appear on the surface to be a nice alternative to the worn-hard properties in Minneapolis or St. Paul. Often, though, these properties are priced higher than older buildings in the city, thereby reducing or eliminating any cash flow.
5. As I have written before, you should also consider where those suburban properties are relative to your own home. They may look appealing, but if they are 45 minutes from your house, you will not anxious to drive there often.
6. Lastly, the price of gas has doubled over the last couple of years and housing starts are at record lows. Most experts agree that the suburbs are the worst hit, as people contract back into the city, wanting to be closer to their jobs and not able to afford that bigger, new house in the suburbs. Consequently, the retail businesses in those suburban areas close, do not expand, or reduce their workforce. Because renters generally live close to where they work and renters most often fill retail positions, those prospective tenants will not move into the area where the job market is tight or shrinking. Logically, this reduces the need for apartments in those areas, thereby making suburban investment property more vulnerable in a down market.

I encourage you to evaluate each one of these points before buying MN investment property. I believe that suburban investment properties need extra scrutiny to ensure you make the right purchase decision.