The real estate investment game is one of the most rewarding paths to financial growth. Did you know a notable number of individuals on the Forbes 400 list built their wealth through real estate? While we may not all aim to be among the wealthiest Americans, there’s something incredibly empowering about using real estate to achieve financial freedom.
I’ve learned this firsthand—not just as a real estate investor but also as the President of a Minnesota-based bank. Over the years, I’ve developed a strategy that works for my busy schedule, focusing on properties leased to long-term tenants like the United States Postal Service. The key to success? A solid investment plan. Let me walk you through the steps to build your own.
Step 1: Define Your Real Estate Investment Goals
Before diving into real estate, you need to ask yourself: What do I want to achieve? Goals provide clarity and direction, helping you make smarter decisions along the way.
For example, when I first started, I had to be realistic about my time. I didn’t have the capacity to renovate properties or manage flips, so I focused on long-term commercial leases that fit my lifestyle. For you, the answer might be different, and that’s okay! What matters is that your goals are clear and realistic.
Here’s a tip: Use the SMART goal framework. SMART goals are:
- Specific: Identify the exact type of investment (e.g., rental properties or fix-and-flip projects).
- Measurable: How much income or return on investment are you aiming for?
- Achievable: Make sure your goals match your resources and availability.
- Relevant: Align your goals with your broader financial plans.
- Time-Bound: Set a deadline to track your progress.
For instance, if you want to generate $2,500/month in passive rental income within two years, your plan will focus on identifying cash-flow-positive properties and securing the right financing.
Step 2: Choose the Right Type of Investment Property
Real estate isn’t a one-size-fits-all game. The type of property you choose should depend on your goals, skills, and comfort level. Let me break it down:
- Single-Family Homes: A great starting point, especially for those looking to build rental income.
- Multi-Family Units: Higher cash flow potential but requires more management.
- Commercial Properties: Longer leases and bigger returns but often more capital-intensive.
- Agricultural Land: Ideal for passive, long-term investments.
Personally, I’ve had success with commercial properties, particularly those leased to government entities like the USPS. These properties offer predictable cash flow and fit my hands-off investment style. Think about what aligns with your strengths—whether that’s flipping houses, managing tenants, or focusing on long-term growth.
Step 3: Decide Where You Want to Invest
Here’s the golden rule: Invest in areas where you’re comfortable. For me, it made sense to focus on Minnesota properties within a reasonable distance from my home and office. This proximity allows me to respond quickly to any issues and provides peace of mind.
Ask yourself:
- How far are you willing to travel to check on a property?
- Do you have a reliable team in place if the property is farther away?
Learn more about different property types and structures in our Guide to Investment Real Estate
In Minnesota, some of the best investment opportunities can be found in growing suburbs or bustling downtown areas. Whether you’re eyeing commercial office buildings in Minneapolis or rental homes in smaller communities, stick to locations that match your goals and comfort level.
Step 4: Budget and Secure Financing
One of the most important steps in any real estate investment plan is determining how much you can afford to spend. Your budget will dictate the type of property you can pursue and how you’ll finance it.
Here’s a breakdown of what you’ll need:
- Down Payment: Typically 20-25% of the purchase price.
- Closing Costs: Around 2% of the property value to cover title work, mortgage registration taxes, etc.
- Cash Reserves: Set aside funds for unexpected repairs or vacancies.
For example, if you have $100,000 in savings and want to maintain $25,000 as a cushion, you could consider a property in the $450,000 range. This covers your 20% down payment, closing costs, and leaves you with enough for any surprises.
If you’re ready to explore real estate financing options, Security Bank & Trust Co. has flexible real estate loans tailored to your needs. We’re one of the best Minnesota banks for real estate lending, and we’re here to help you make your next move.
Step 5: Analyze Cash Flow and Returns
Before making an offer, always calculate the projected cash flow and returns. Here’s a simple formula:
- Estimate Monthly Income: Rent payments or lease income.
- Subtract Operating Expenses: Taxes, maintenance, utilities, and property management fees.
- Account for Financing Costs: Monthly mortgage payments, interest, and loan fees.
The result? Your monthly cash flow. Positive cash flow means your investment is likely to succeed, while negative cash flow might signal the need for adjustments.
At our bank, we’ve created a real estate investment worksheet to help you easily analyze cash flow and returns. It’s a great tool to simplify your planning process.
Step 6: Decide on Property Management
When I started, I thought I’d save money by managing properties myself. Let’s just say that quickly changed! Between tenant calls and unexpected repairs, I realized hiring a property manager was worth every penny.
Property managers handle everything from finding tenants to managing repairs, which frees up your time. If you’re considering this route, here are a few questions to ask potential managers:
- How do they screen tenants?
- What’s their fee structure?
- How do they handle maintenance requests and repairs?
Whether you go DIY or hire a pro, the key is to ensure your property is well-managed without overwhelming your schedule.
Step 7: Plan Your Exit Strategy
An often-overlooked part of real estate investing is the exit strategy. Before buying a property, think about how and when you plan to sell or transition.
For instance, are you holding long-term for rental income, or are you planning a quick flip? Personally, I like to keep my options open, considering both long-term leases and potential resale opportunities.
By having multiple exit strategies, you’ll be better prepared for market shifts or unexpected changes.
Local Resources for Minnesota Investors
Investing in Minnesota real estate? Leverage these organizations to stay ahead of the curve:
- Minnesota Multi Housing Association (MHA)
- NAIOP (Commercial Real Estate Development Association)
- Minnesota Commercial Association of Real Estate/Realtors (MNCAR)
These groups offer insights, networking opportunities, and helpful resources to make your journey smoother.
Final Thoughts: Let’s Build Your Real Estate Future
A solid real estate investment plan is the foundation of any successful portfolio. By setting clear goals, choosing the right properties, and securing proper financing, you can turn your real estate ambitions into reality.
At Security Bank & Trust Co., we’re here to guide you every step of the way and to be your Minnesota real estate lender. Whether you’re a first-time investor or expanding your portfolio, our team is ready to help you secure the financing you need.
Contact us today to get started and take the first step toward real estate success!
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