Minneapolis, MN: -10.0% Return on Investment (2011)
Market values in Minneapolis grew significantly from 2000 through 2005, and declined slightly until a larger correction was created by the 2008 financial crisis. In 2009, values appeared to stabilize but went through up and down swings as foreclosures came onto the market following and pulled the prices back down. The market is beginning to show signs of stabilization, but the regression back to fundamentals is likely to take a bit longer than many had anticipated. Currently, approximately 54% of real estate listings in Minneapolis are from foreclosures.
One of the effects emerging in 2010 that we have seen in Minneapolis is pricing pressure as banks continue to bleed off their inventory of foreclosed properties and values regress toward a more linear long-term trajectory. Our models estimate that this effect will continue to place pressure on prices in Minneapolis,
resulting in a value bottom that takes a bit longer to establish than in some of the other market areas. Population in the city has remained relatively flat throughout the last 10 years. The city represents an important area of commerce in the northern Midwest, but is not a focal point of in-migration and population growth that are typical of vibrant investment markets.
Investors in Minneapolis will be challenged to generate attractive rates of return, since the market rents are not expected to be sufficiently large to cover operating expenses and mortgage payments for properties in the area. This means that investor returns will be dependent on realizing value appreciation and selling to compensate for the accumulated negative cash flow.
Since the expected negative cash flows must be financed out of pocket until an investment property can be sold, and since the proceeds of that sale must be sufficient large to offset the cumulative negative cash flows, we do not recommend Minneapolis as a focus point for income property investment.