Often referred to as one of the top Cultural Capitals of the United States, Minneapolis has continued to surprise visitors around the country by its immense potential and vast array of opportunities and activities. As a major business center nestled between Chicago and Seattle, Minneapolis is an ever-growing city that is often overlooked. At Fund That Flip we see the incredible potential of every city we work with, and while it has faced adversity in recent years, the Minneapolis real estate market continues to impress and show what it truly means to be a resilient city.
Minneapolis Economic Development
While still in the process of rebounding from the effects of COVID-19, Minneapolis’s economy is showing promising statistics; unemployment rates are down to 2.5% as of November 2021, median household income is up over 20% in the last five years, and the Minneapolis MSA is home to more than 2 million talented workers. Pre-pandemic, the Minneapolis-St. Paul region consistently held high labor force participation, low unemployment, and low poverty rates compared to the rest of the nation. Some of the top employment sectors in the city include health sciences, business services and headquarters, financial services, and manufacturing and technology, with IT jobs seeing 63% growth over the last 8 years. The city recently received multiple accolades that signal the metro’s growing job market, including being named the 5th best metro for STEM professionals, the 2nd best metro for healthcare, and the #1 happiest city to work in.
Top Businesses in Minneapolis
The city's thriving business scene is widely recognized by companies around the country, with six Fortune 500 companies calling Minneapolis home; just a few of these companies include Target, General Mills, and U.S. Bancorp. Within the wider metro region of Minneapolis-St. Paul, 18 Fortune 500 companies are currently headquartered in the Twin Cities. If this number sounds impressive, you’d be right; the Twin Cities currently hold the highest per-capita number of Fortune 500 companies of any metro in the nation. Nearby universities such as the University of Minnesota provide an expansive pool of graduates, and with more than 50,000 students enrolled at a time, Minneapolis likely won't be running out of young talent anytime soon.
If traditional corporate life isn’t your cup of tea, Minneapolis is also widely known as a hotbed for entrepreneurs and innovative startups. The North Loop neighborhood, full of beautifully renovated warehouses, is home to many of the city's co-working spaces and startup offices. In 2021 alone, Minneapolis startups raised $1.34 billion in venture capital funds, a 170% increase from 2018. Recent legislation known as the Minnesota Angel Tax Credit program aims to encourage angel investors in the city to support local startups, and since its creation in 2019, Launch Minnesota has awarded 143 innovation grants to more than115 companies. The city’s immense potential is becoming increasingly recognized and was recently ranked #2 on M25’s 2021 list of top startups in the midwest, just behind the startup powerhouse of Chicago.
Minneapolis Culture & Entertainment
Outside of the business world, Minneapolis offers a booming metropolitan area saturated with museums, entertainment, and restaurants. While it’s often called the “mini apple” for its impressive city life, Minneapolis is also revered for its incredible natural landscape full of lakes, beaches, bike trails, and parks. Just outside of the city sits the world-famous Mall of America with more than 520 stores and 50 restaurants. While Minneapolis offers something for people of all ages, it is evident that the 429,954-strong population is steadily skewing younger and younger with an average age of 32.2. The city has consistently sat in the top 10 cities for millennial migration, and the number of Generation Z workers in the city is expected to triple by 2030. Many attribute the increase in millennial migration to the city’s inexpensive cost of living compared to similarly sized metro areas, with a cost of living that sits at 50% less than Washington, D.C. and 73% less than Oakland, CA.
Minneapolis Real Estate Market
Like other cities around the nation, Minneapolis continues to be a strong sellers’ market. Minneapolis realtor Jerry Moscowitx claims the current market is “about as strong as I’ve (ever) seen,” and the market will likely continue to remain highly competitive as home prices steadily appreciate year-over-year. Demand continues to increase as home buyers scramble to get in on the market in fear of the rise of both interest rates and home prices. According to fellow realtor Todd Walker, lack of inventory paired with increased demand has created real estate hotspots in almost every community in the Minneapolis-St. Paul metro as buyers are forced to become increasingly flexible with location. This creates a unique opportunity for real estate investors to take advantage of unprecedented demand and acquire investments in a wide variety of communities that may have struggled with low demand in the past. As of December 2021, the Zillow Home Value Index claims the average home to be worth $353,505, a 12.5% increase from the previous year. As long as supply struggles to keep up with the whirlwind of buyer demand we’re currently seeing, home prices will likely continue appreciating.
Today’s intense sellers’ market has driven many prospective buyers to explore the possibility of renting, and this increased demand for rentals presents a fantastic opportunity for investors. In 2021, 55% of Minneapolis households were renter-occupied, and this number isn’t expected to decrease any time soon. Similar to home values, Minneapolis real estate rental prices are slowly rising (although not quite as fast). In the northern portion of the Minneapolis-St. Paul MSA, the city of Anoka is recognized as one of the best cities in the state for real estate investment with a price-to-rent ratio of 18.32, indicating that it is much more affordable for local residents to rent rather than buy. For investors, focusing on cities with high price-to-rent ratios ensures that demand will likely remain high for rental properties. This trend of high demand and appreciating cost is expected to continue for the foreseeable future, creating an optimal period to acquire long-term rental properties with positive cash flow.
Minneapolis is also a city leading the way for massive changes to the real estate world; in 2019, Minneapolis became the first U.S. city to officially end single-family zoning in an attempt to create more affordable housing and encourage higher density to offset the market's limited supply. With this change, multi-family housing units are able to be built in areas that were previously restricted to single-family homes. Over 75% of residential areas in the U.S. outlaw buildings other than detached single-family homes, meaning this could greatly alter the real estate market as more cities across the country begin to follow suit. This change will no doubt lead to increased potential for the rental market as it provides more affordable options in previously inaccessible residential areas. Increased inventory is one of the major keys to bringing down the cost of homes, and the city hopes this will be a step in the right direction in order to provide affordable housing for all.
While often overlooked compared to larger neighboring cities, Minneapolis is not a city you should pass by when considering your next real estate investment. The economy is quickly rebounding, and the city is filled to the brim with innovative startups and world-renowned Fortune 500 companies. A thriving rental market and commitment to increasing multi-family homes provides an exciting opportunity for investors to build their real estate rental portfolios in Minneapolis and St. Paul. Here at Fund That Flip, we can’t wait to see how this city continues to develop and the amazing impact our borrowers are able to make.
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