Is Minnesota Land a Good Investment?

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Is Minnesota Land a Good Investment?
By

Bart Waldon

Minnesota, the northernmost state in the Midwestern United States, is known as the “Land of 10,000 Lakes” for its abundance of freshwater. With its varied landscape of prairies, forests, and urban centers, Minnesota offers both natural beauty and economic opportunity. For these reasons, investing in Minnesota land can potentially be a wise financial decision depending on one’s goals, budget, and the type of property acquired.

When considering any real estate purchase, conducting thorough research is imperative. This article will explore several factors to weigh when deciding if buying land in Minnesota makes sense as an investment, including market conditions, property values, development potential, and more. With insight into the risks and rewards, investors can make informed decisions around adding Minnesota land to their portfolios.

Overview of the Minnesota Real Estate Market

Over the past decade, Minnesota’s real estate market has experienced steady growth overall. However, trends and growth rates can vary significantly by county and city due to differences in local economies. Metropolitan areas like Minneapolis-St. Paul have seen the highest property value and sale price appreciation recently while more rural counties have slower moving markets.

As of 2022, the median home value in Minnesota is $259,900, increasing by about 10% from the previous year. Sale prices continue rising across most price segments, reflecting high buyer demand against low inventory levels. With interest rates also on the ascent, market conditions may shift towards more balance between buyers and sellers moving forward.

Vacant land values tell a slightly different story, as undeveloped land often takes longer to sell and commands weaker prices. Overall though, land owners in Minnesota have seen property values tick upwards in recent years. Strong economic fundamentals, in-migration trends, and site-specific development potential contribute to driving land prices higher over time.

Factors to Consider When Buying Land in Minnesota

When researching buying land in Minnesota, key factors to evaluate include:

Location – The old adage “location, location, location” very much applies to land. Properties near urban cities or recreational amenities typically sell for higher premiums compared to remote, undeveloped sites. Easy access to transportation networks also boosts land value.

Zoning and Land Use Regulations – Understanding what one can or cannot do with a land parcel is critical before purchasing. Factors like allowable housing density, protected wetlands, agricultural exemptions, and commercial development requirements command prices.

Parcel Size – Within similar geographies, smaller lands plots often sell for more on a per-acre basis compared to larger acreages. Larger parcels typically appeal more to institutional investors or developers.

Access and Utilities – Land with road frontage, existing utility hookups, water access rights or mineral rights sells quicker and for more money than land without those attributes.

Recreational Potential – Minnesota lands near lakes, trails, ski hills, golf courses and other lifestyle amenities can fetch major premiums, particularly for future cabin or housing sites.

Ultimately, the ideal land investment has upside potential from one or more of these attributes driving anticipated future valuation growth.

Advantages of Owning Land in Minnesota

For the right investor and land asset, owning Minnesota property offers several financial advantages:

Value Appreciation – Despite some market fluctuations, Minnesota real estate values have trended upwards over decades. Land in particular has room to gain value as surrounding areas get developed.

Cash Flow – Some lands can generate income through farming, cell tower leasing, billboard advertising, mineral rights, etc. Passive cash flow helps offset ownership costs.

Inflation Hedge – With inflation high now, land acts as a hard asset that rises in value with consumer price growth over the long-term.

Speculation Potential – Land near expanding housing or commercial areas can speculate on emerging development. Rezoning events lead to massive one-time valuation gains.

Generational Wealth – Passing land down to future generations allows it to continue growing in value for heirs to one day sell or develop.

Additionally, strategic land investors can utilize tax advantages around land ownership to maximize returns. For those meeting requirements, special considerations like 1031 exchanges, installment sales, conservation easements and estate planning can provide major tax savings. Consultation with financial and legal experts is advised to leverage tax rules appropriately.

Risks of Owning Land in Minnesota

While land investing can build wealth, it carries risks like any investment vehicle:

Illiquidity – Vacant land takes longer to sell with fewer potential buyers, so gaining access to your capital quickly can prove difficult compared to stocks or bonds.

Upfront Capital – Acquiring raw land requires significant capital reserves to fund the purchase and carrying costs until the property sells or gets developed.

No Cash Flow – Most raw lands do not produce any usable income for the owners until it gets sold, leased or built on. Value gains mostly come from appreciation.

Property Taxes – Even undeveloped land accrues annual county tax bills that must get paid until the parcel can generate offsetting income.

Market Corrections – Land values are heavily influenced by broader economic trends. In major recessions, real estate including land often declines significantly before recovering.

As with any major investment, working with a qualified land professional like Land Boss provides expertise on navigating the inherent risks of vacant land ownership. Their experience facilitates investing in Minnesota land meeting your financial goals and risk parameters.

Top Counties and Cities for Minnesota Land Investments

While attractive land investment opportunities exist statewide, buyers should focus attention on Minnesota’s highest growth and most economically vibrant regions first. The following counties and cities see the strongest inbound migration, development momentum, infrastructure expansion and job/wage growth – all catalysts for appreciating land values over time:

Minneapolis/St. Paul Metro – The Twin Cities metro area accounts for over half the state’s population and jobs. A hub for major employers and diverse housing options, the metro contains some of the most valuable development land.

Rochester Area – With the prominent Mayo Clinic campus, Rochester sees constant medical industry growth. Surging housing demand makes adjacent vacant land attractive for residential builders and investors.

Duluth – Situated along the western tip of Lake Superior and home to several universities, Duluth’s scenic lands draw interest for high-end single family housing communities as well as commercial usage.

Mankato – Mankato forms a retail and cultural hub for southern Minnesota. Minnesota State University and the growing Mayo Clinic network supply jobs, along with industrial and blue-collar sectors.

St. Cloud – Fast population gains north of Minneapolis make St. Cloud and central Minnesota key targets for future suburban expansion, boosting farmland-turned-development values.

For land situated near these high-growth cities and counties in Minnesota, current owners can realize major windfall gains by selling to builders or converting to more intensive uses when adjacent lands get built out. Patience and proper timing is critical however, as upfront infrastructure and construction activity may lag actual development demand by several years.

Top Land Uses to Target in Minnesota

In addition to geographic desirability, Minnesota land investors should focus on specific property uses poised to see strong value appreciation and development potential:

Residential – Ongoing housing undersupply makes lands for single family housing, townhomes and apartments highly desirable around metro areas. Suitable lands often get bid up quickly.

Commercial Retail – Retail chains continue prioritizing top locations to serve expanding suburban populations. Landing retail tenants funds development of adjacent sites.

Industrial – With its centralized U.S. location and strong logistics infrastructure, Minnesota appeals greatly to distribution/warehouse firms via rail, air and trucking access.

Recreational – Lands near Minnesota’s thousands of prized lakes or trail networks attract interest from individual buyers for future cabins/housing.

Farmland – Though yields lag other ag states, farmland values in southern Minnesota remain high for crop and livestock usage. Institutional capital continues targeting the asset class.

Regardless of intent, having the ability to be patient and wait for ideal property demand and pricing is paramount for prospective Minnesota land investors.

Typical Land Investment Horizon in Minnesota

Because most raw vacant lands do not produce usable cash flow for owners, the typical investment time horizon spans several years in Minnesota. The period between acquisition and sale allows time for surrounding property values to increase and development opportunities to emerge.

For private individual land investors, average hold periods range from 3-7 years before selling to home builders, developers or other end-users. However, holdings can extend longer if pursuing a 1031 tax-deferred exchange into another property. Institutional investors like Land Boss may hold properties slightly shorter or longer depending on market conditions.

Ultimately the investment duration centers on balancing cost of capital obligations against allowing enough value appreciation to achieve target return thresholds. As with stocks or private equity, investing in land requires patience for the investment thesis to get realized.

Working with a Land Professional in Minnesota

Given vacant land’s relative illiquidity and extensive local knowledge needed to target the best areas for value appreciation, partnering with an experienced land professional offers significant advantages to buying land in Minnesota successfully.

Companies like Land Boss possess an extensive on-the-ground property network across Minnesota acquired from deep ties with local brokers, owners and developers cultivated over years. This market awareness helps assess zoning statuses, recent comparables, and emerging demand trends to identify promising land investment candidates for clients.

Their real-time perspective provides leverage not readily available to outsiders trying to break into Minnesota’s nuanced land market themselves. For both first-time and experienced land investors in Minnesota, aligning with an expert provides information advantages and resources to navigate the long holding periods until exit.

Additionally, the ability to purchase land outright at a discount to market prices allows more room for price inflation and circumvents burdensome bank underwriting. For qualifying high-net-worth individuals and institutions, partnering with cash-paying land firms like Land Boss delivers flexible access to attractive investments and leverages efficiencies around asset management.

Final Thoughts

Minnesota possesses many thriving metro areas and scenic rural communities making both a great place to live and invest in real estate – if purchased at reasonable valuations. With housing demand surging and buildable lands limited across much of the state, vacant properties in many regions can make for appealing investment plays for upside optionality. Just ensure ample research and patience gets applied during evaluation and holding periods.

Frequently Asked Questions (FAQs)

What types of land are best for investment in Minnesota?

Some of the most appealing investment land in Minnesota includes parcels zoned or suitable for residential housing, multi-family, commercial retail, industrial warehouses, and recreational properties near key lakes or trails. Lands slated for neighborhood development or infrastructure expansion also provide upside.

What is the typical process for investing in raw land?

Investing well in raw land involves researching growth trends and sales data to identify promising parcels, conducting due diligence around zoning codes and usage potential, purchasing at reasonable valuations, and holding through necessary timelines for surrounding area appreciation and development activity before selling to end-users.

How much can raw land increase in value over time?

While past performance doesn’t guarantee future results, case studies show developable lands in high-growth areas of Minnesota appreciating anywhere from 25% to 100% or more over typical 5-10 year hold periods as nearby parcels get improved. Upside varies widely however based on location attributes and market cycles.

What risks should land investors be aware of?

Major risks associated with raw land investing include lack of cash flow during ownership periods, capital required to cover taxes/maintenance expenses, market volatility and corrections erasing gains, and ecological restrictions limiting development potential. Working with experts helps mitigate downside risks.

Should I purchase Minnesota land myself or use a professional?

While entering Minnesota's land market directly is possible, investors benefit greatly by partnering with local players like Land Boss who source and evaluate deals daily across the state based on zoning insights, municipal growth patterns, and construction demand not readily visible to casual investors. Their market expertise facilitates the complicated process of investing profitably.

About The Author

Bart Waldon

Bart, co-founder of Land Boss with wife Dallas Waldon, boasts over half a decade in real estate. With 100+ successful land transactions nationwide, his expertise and hands-on approach solidify Land Boss as a leading player in land investment.

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