5 Types of Minnesota Homes That Can Be Risky Investments

Not every home that looks like a deal is worth buying. The price can look great and the house can look great, but some homes turn into bad investments. You may struggle to sell, financing or insurance can knock out your future buyers, or you could sell for less than you paid. Here are five types of Minnesota homes to be careful with, and what to check on each.

A home is a long-term financial investment. My team and I have done thousands of transactions across the Twin Cities, and we’ve watched owners get stuck with these exact problems.

1. Older homes: budget for what you can’t see

The Twin Cities have lots of prewar and mid-century homes in Minneapolis, Saint Paul, Richfield, St. Louis Park and other first-ring suburbs, some 70 to 100 years old. You get hardwood floors, built-in buffets, old-world woodwork, mature trees and walkable streets.

But the expensive parts may still be original even when the kitchen and baths are updated: wiring, plumbing, the foundation and drain tile. Many of these basements were built as root cellars, cold and a little damp, not living space. If you want to finish one, do it right.

Check the sewer line. Many homes built from about the 1940s to the 1970s have Orangeburg sewer pipe, made from compressed wood fiber and tar. By now it can flatten, blister, come apart or collapse, and you’ll never see it at a showing. (A suspiciously green stripe of lawn is sometimes a clue.)

A normal home inspection usually doesn’t check the line, so get a sewer camera scope. It typically costs around $200, while replacing the line from the house to the street averages roughly $15,000 to $20,000. I’ve even seen crushed lines on new homes, from equipment driving over them during landscaping, so it’s smart on any home. If the camera finds something, get a written repair estimate before you close.

Minnesota sellers must disclose problems they know about, but they may not know what’s behind the walls or underground. The disclosure isn’t enough; get your own inspections.

2. New construction: look past the billboard payment

New homes have a lot going for them, and builders are offering real incentives. But:

• Compare the builder’s loan. An advertised rate like 4.99% can be real, but it may require the builder’s lender, and the cost may be built into the deal. Get pre-approved with another lender too (multiple mortgage credit checks in a short window count as one) and compare the loan estimates side by side: price, closing costs, rate, lender fees and homeowners insurance. I often see insurance estimated far too low on these worksheets.
• Know if the buydown is permanent or temporary. A permanent buydown lowers the rate for the whole loan. A temporary one, like a 2-1 buydown, lowers it for the first two years only. Ask what your payment becomes in year three.
• Ask about future phases. If the builder is still selling new homes with warranties and incentives when you go to sell, you’re competing with them. Ask how many lots and phases remain, and what roads or commercial development are planned.
• Know what’s included. The model home may have landscaping, appliances and window treatments yours won’t. Get every upgrade and incentive in writing, and ask about HOA dues; single-family neighborhoods can have HOAs too.
• Still hire an inspector, and schedule an 11-month walkthrough before your first-year warranty ends.

Minnesota’s new home warranty covers one year for workmanship and materials, two years for plumbing, electrical, heating and cooling systems, and ten years for major structural defects.

Incentives can be a great deal, too. One of our investor clients compared a 20-year-old Lakeville townhome at $300,000 with a mortgage rate near 7% against a bigger, brand-new townhome at $365,000 with a 5% fixed rate. The new one had the lower monthly payment, so they bought a couple.

3. Condos: do your homework on the building

Some Twin Cities condos are worth less today than what owners paid 10 or 15 years ago. With a condo, you’re buying into the whole building’s costs (roof, garage, common areas) and past decisions. If the association hasn’t saved enough, a major repair means a special assessment, an extra bill for every owner.

Financing matters for resale, too. Lenders approve the building as well as the buyer, looking at the association’s finances; around 10% of the yearly budget going to reserves is a common benchmark. If the building has problems, financing can be hard or impossible, and that shrinks your buyer pool.

Work with an agent who knows the condo market. We often get the call after a listing didn’t sell the first time.

4. Homes without a basement: where will your stuff go?

Minnesota is a basement state. We have snow tires, sleds, hockey gear, holiday bins, bikes and yard tools. More builders now build slab-on-grade homes with no basement. They can look great, with fewer stairs and open rooms, but even two-story homes don’t offer basement-level storage. The garage fills up, and a storage unit can run $100 to $200 a month.

Slab homes can work fine with proper frost protection. Just check the garage, closets, pantry and mudroom carefully. The next buyer may need more storage than you do.

5. Very modern or unusual homes: a smaller pool of buyers

Minnesota isn’t California. Ramblers, colonials and two-stories appeal to the most buyers. Even a beautiful modern home, even a Frank Lloyd Wright, has a limited buyer pool. That can mean a longer sale, a lower price, and harder appraisals, because appraisers need similar homes nearby to compare.

Flat roofs, huge glass walls and small overhangs also have to be designed for snow, ice and cold. And the same caution applies to any home far outside the neighborhood norm in size, age, layout or condition.

Before you make an offer

Every one of these problems existed before you bought, and closing won’t fix it. If you’re looking at one of these homes, reach out to us first. We’ll go over the numbers and what to watch for before you write the offer.