The 5 Best Places to Buy Rental Property in Minnesota

By Steven Porrello

Posted on September 6th, 2022

Minnesota

💰 What is the best place to buy rental property in Minnesota? 💰
Minneapolis is the best place to buy rental property in Minnesota, followed by Saint Paul and Rochester.

Minneapolis | Saint Paul | Rochester | Duluth | Bloomington

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Home to 19 Fortune 500 companies and the third largest metropolitan area in the Midwest (Minneapolis-Saint Paul), Minnesota certainly makes its case as one of the best places to buy rental property.

For one, the state offers plenty of opportunities for Airbnb investments, from the luxurious waterfront city of Duluth to the home of America’s largest mall, Bloomington. Not only that but Minnesota has a strong, resilient economy with a low unemployment rate, helping it attract renters to major cities like Minneapolis and Rochester. There could be an opportunity to invest in commercial rentals, too, as business applications grew by a whopping 15% in 2020, which could be one reason the U.S. News and World Report ranked it “second-best state in the U.S.'' for affordability, economic opportunity, and equality.

Though it might be called the Land of 10,000 Lakes, for real estate investors, Minnesota is more like “the Land of 10,000 Opportunities.” For those interested in investing in rental property in the North Star State, here are five of the best markets you should consider.

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1. The Best Place to Buy Rental Property in Minnesota: Minneapolis

💰 Affordability
The average home value in Minneapolis is $338,040, slightly higher than the national average of $337,560.
📈 Investment Potential
Home values have increased 56% since March 2015.
🏡 Rental Rates
$1,574 for a 2-bedroom apartment, 10% lower than the national median.
✨ Amenities
University of Michigan, Minnehaha Park, Minneapolis Institute of Art, Target Field
Data from Zillow [1][2]

With a population of 411,000 people (and counting), Minneapolis is not only the most populous city in Minnesota but also one of the most populated metropolitan areas in the United States. Spurred by the city’s strong economy, viable job market, and low unemployment rate, Minneapolis is expected to grow 12% over the next twenty years, which means now might be the best time to “get in” before the city expands.

The rental market is exceedingly strong here, with renters occupying over half of all housing units. A recent Living Cozy report ranked Minneapolis the third best city for renters in the country due to its affordability, job market, and green space. Rental vacancies have fallen from 6.2% to 4.9% since 2021, a rate that’s now below the national average of 5.6%, and the median rent for a 2-bedroom apartment is $1,574. Minneapolis also became the first major U.S. city to end single-family zoning, making it easier to build apartments and other multi-family homes throughout the city.

Likewise, the housing market is solid. Home values have increased by 56% since 2015, with much of that growth happening over the last year. Less inventory and stronger demand have made Minneapolis a definite seller’s market, with homes staying on the market for a median of 56 days. Even so, many properties are more affordable here than in other hot markets, such as San Diego or Denver, helping investors buy more space for less money.

However, investors should note that the city has recently implemented rent control policies, which state that landlords cannot raise a tenant’s rent by more than 3% annually. Landlords also have to pay 1% interest annually on security deposits, which isn’t abnormal, but something to keep in mind. These policies apply to Saint Paul, too.

2. Saint Paul

💰 Affordability
The average home value in Saint Paul is $290,074, which is lower than the national average of $337,560.
📈 Investment Potential
Home values have increased 59% since March 2015.
🏡 Rental Rates
$1,388 for a 2-bedroom apartment, 34% lower than the national median.
✨ Amenities
Minnehaha Park, Minnesota History Center, Science Museum of Minnesota, Minnesota State Capitol
Data from Zillow [1][2]

As the capital of Minnesota, Saint Paul enjoys all the economic strengths of its “twin,” Minneapolis—strong economy, low unemployment rate, and growing labor market—but with property available at a much lower price. The median home value in Saint Paul is around $290,074, or 14% less than Minneapolis, yet property values have appreciated at a slightly higher rate, 59% since 2015. For investors looking for lucrative opportunities with a lower barrier to entry, Saint Paul could be one of the best markets for you.

Though the median rent in Saint Paul is lower than the national average, the rental market has been growing stronger, with rental vacancies down from 5.5% in 2021 to 4.8% in 2022. Like other parts of the U.S., demand for apartments in Saint Paul has outgrown supply—even the mayor is calling on developers to finish 10,000 to 11,000 units this year—so there’s plenty of opportunity for sustained growth. And though rent for a 2-bedroom is higher in Minneapolis ($1,574 versus $1,388 in Saint Paul), you might net more for a 3-bedroom in Saint Paul, as rent is nearly the same in both cities ($1,950 in Minneapolis versus $1,875 in Saint Paul) but property will likely be less expensive in the capital.

Saint Paul is also a great city for Airbnb investments. For one, the city has numerous attractions, such as its science museum history center and State Capitol building. In fact, according to data from AirDNA, which analyzes Airbnb rentals, real estate investors could earn as much as $153 per day with an Airbnb rental in Saint Paul, which is slightly higher than in Minneapolis.

3. Rochester

💰 Affordability
The median home value in Rochester is $316,436 – lower than the national average of $337,560.
📈 Investment Potential
Home values have increased 72% since March 2015.
🏡 Rental Rates
$1,057 for a 2-bedroom apartment, which is 50% lower than the national median.
✨ Amenities
Mayo Clinic, Mayo Clinic Medical School, University of Minnesota Rochester, Quarry Hill Nature Center, Welch Village Ski and Snowboard Resort
Data from Zillow [1][2]

Moving south of Saint Paul and Minneapolis, we come to Rochester, a mid-sized city with a housing and rental market that’s growing at an impressive rate. Since March 2015 home values have appreciated by 72%, while the median rent for all long-term rentals has grown by 20%, from $1,250 in 2021 to $1,495 in 2022.

What’s driving rental and housing demand? Simple: the Mayo Clinic. Not only does this world-renowned hospital employ around 35,000 people in Rochester today, but it’s currently developing a $5.6 billion plan to turn Rochester into a global medical epicenter, or Destination Medical Center (DMC). When this plan is complete, Rochester will likely attract masses of doctors, surgeons, medical practitioners, researchers, and students from across the world, which could make a rental property bought today far more valuable in the future.

A Rochester vacation rental could also net you some serious cash. Not only is Rochester near popular lakes and rivers, but it’s also home to a major ski and snowboarding resort, Welch Village, as well as Quarry Hill Nature Center. According to AirDNA, Rochester vacation units have an annual occupancy rate of 71%, with summer months seeing rates in the mid-80s, which could produce an average monthly revenue of $1,500.

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4. Duluth

💰 Affordability
The average home value in Rochester is $247,308, making the market more affordable than the national average.
📈 Investment Potential
Home values have increased 59% since March 2015.
🏡 Rental Rates
$1,150 for a 2-bedroom apartment, 45% less than the national median.
✨ Amenities
Lake Superior, Sculpture Walk, Aerial Lift Bridge, Canal Park
Data from Zillow [1][2]

Situated near beautiful Lake Superior, Duluth is a tourist hotspot for Midwesterners, and its beautiful parks and ski resorts are enough to make even Colorado jealous.

If you get the chance to buy rental property in Duluth’s luxurious waterfront neighborhoods, including North Shore, Hillside, and Duluth Downtown, it could be a very profitable opportunity. The median home value—around $247,308—is lower than the national average, yet vacation rentals do exceedingly well here. During the summer, you could earn around $6,500 per month, with an average revenue of $4,100 across all months. In fact, some vacation rentals charge guests around $700 to $1,000 per night, which could produce some eye-watering revenues over the long run.

Before you get too excited, note that Duluth has strict short-term rental legislation that could make it difficult for you to own vacation property. Unless the property is your permanent residence, you’ll have to acquire a “vacation dwelling unit permit.” The problem? With only 60 of these permits available, the waiting list is long. The Duluth City Council recently passed legislation that will increase the number of these permits, but the pace will be slow and there’s still a ceiling of 120 permits.

If you want to lock into one of these lucrative vacation rentals, try reaching out to an agent in Duluth. They can help decipher rental laws and perhaps even guide you through the process.

5. Bloomington

💰 Affordability
The average home value in Rochester is $356,831, at a higher point than the national average.
📈 Investment Potential
Home values have increased 52% since March 2015.
🏡 Rental Rates
$1,605 for a 2-bedroom apartment, 23% less than the national median.
✨ Amenities
Mall of America, Nickelodeon Universe, Hyland Ski and Snowboard Area
Data from Zillow [1][2]

Technically a “suburb” of Minneapolis, though big enough to be a city in its own right, Bloomington is renowned around the world for one thing: the Mall of America. This massive 5.6 million square foot mall is reason alone to invest in an Airbnb here, as every year the mall welcomes 40 million people from all over the world, hosts around 400 events, and brings in $2 billion in economic activity annually for the state.

Because of its proximity to Minneapolis, Bloomington has a strong renters market. In fact, the median rent for a 2-bedroom in the suburb of Bloomington ($1,605) is higher than both central Minneapolis and Saint Paul. Like other parts of Minnesota, demand for rentals has exceeded supply, which has pushed rent up 18% from 2021. Now could be a good time to set up a long-term rental, especially as Minneapolis and its suburbs are likely to grow.

Next Steps for Your Rental Property Investment

From Minneapolis's rapid growth to Duluth's snowy slopes, Minnesota is an excellent place to invest in rental property.

Local real estate agents are powerful allies who can help you spot promising rental property opportunities, navigate Minnesota's fast-changing markets, and even connect you with properties before they hit the MLS. Our friends at Clever Real Estate have built a network of trusted partner agents in Minnesota and beyond. It's free to meet agents through Clever, with zero obligation!

Best of all, real estate investors who find an agent through Clever can easily take advantage of Minnesota's buyer rebate opportunities. You can receive up to 0.5% cash back at closing, which you can use to offset closing costs, get your new property ready for renters, or simply enjoy as extra money in your pocket.

🙌 The Easiest Way to Get Cash Back After Closing!
Did you know 42 states and Washington D.C. allow cash rebates for home buyers? Our friends at Clever can match you with trusted local real estate agents and help you get 0.5% cash back. You can spend your money any way you'd like — no questions asked.

FAQs

Is Minnesota a good state to invest in real estate?

Minnesota is a great place to invest in real estate, offering a strong job market and lots of business growth. You can buy investment apartments in several markets where home values are rising steadily each year. Learn which Minnesota cities are best for investors!

How do I find real estate investment properties in Minnesota?

A licensed real estate agent is your best resource for finding the right Minnesota housing market to invest in. With a realtor, you get insight into the market and essential advice about where to buy your next rental investment, whether it's an investment apartment, an Airbnb, or more. Learn how to find a great realtor and save thousands.

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Posted in Investment Property, Real Estate Investing