Archive for January, 2009
Comment
While the Minneapolis/St Paul real estate market may have spent much of 2008 in the doldrums, the duplex market finished the year with a small bounce in its step.
In the week ending January 3, 2009, 31 multi-family properties received purchase agreements. Ninety-seven percent of these transactions were lender mediated, with an average off market price of just $88,500.
With the exception of price, these figures represent significant gains over the same stretch bridging the transition between 2007 and 2008. Just 12 properties sold then, with 92 percent of those involving lender mediation. However, the average sales price was $153,590.
New duplex inventory continues to lag well behind the marks set 12 months ago, with 42 properties entering the marketplace to start the New Year, as opposed to 54 in the first week of 2008.
This trend holds in the single family market as well. Listings were down, while pending sales rose nearly 40 percent over the same week just one year before.
It is also worth noting that in December, the average number of Days on Market Until Sale dropped 6.3 percent from last December’s mark. Prices have yet to reflect any tightening of the market, however, with the Percent of Original List Price Received at Sale dropping to 90 percent; 1.3 percent lower than last year.
While these trends are encouraging, it’s probably too soon to herald a full-on recovery.
Comment
I spent much of the weekend showing duplexes. Nothing unusual in that really. But what was noteworthy about these excursions is I was once again reminded of the importance of bedrooms.
Bedrooms?
Yes. I had two separate buyers. Both were looking to owner occupy a duplex, both planning on using FHA financing, interested in southwest Minneapolis, and concerned as much or more about their portion of the payment as the amount of the entire mortgage payment itself.
One buyer was looking in the $300,000 range. The other in the low to mid $200s. As luck would have it, I found properties for each just six blocks apart from one another; same vintage, and many of the same amenities.
The two duplexes were priced $75,000 apart; one at $325,000 and the other near the $250,000 point. As always, I did an investment analysis worksheet for each, then carried my calculations one step further to arrive at the share each owner would be responsible for after rental income from the other unit.
I was surprised when I realized the more expensive property would cost my client just $100 more per month than my other client would pay for the less expensive property. And that amount was due exclusively to the difference in property taxes. Meanwhile, the $300,000 plus property was almost 400 square feet bigger per unit, with bigger kitchens and fireplaces.
Why was it so inexpensive to buy so much more?
said on January 9th, 2009 categorized under: Financing
Comment
There was a time not long ago that a property had to be nearly perfect upon purchase in order to pass the strict inspection involved in an FHA
First, let me explain: the inspection during the appraisal process should not be confused with a home inspection. The FHA simply has its appraisers make certain a property meets certain minimum criteria before it will agree to back the loan.
Like most things in today’s real estate market, the FHA has had to change with the times. According to Vikki Boedekker at Burnet Home Loans, “FHA appraisal guidelines have relaxed while conventional guidelines have tightened up so the net result is that there are few differences on a practical level.” The key issues are: safety, habitability, structural integrity and marketability. The definitions of those things, she adds, “have gotten broader or more open to ‘common sense’ interpretation.”
While the FHA standards are extensive, five common maintenance items to be on the lookout for are:
- Flaking paint on properties built prior to 1978, or evidence of rotting surfaces.
- Electrical Service – while 60 amp service may be acceptable in smaller properties, larger homes may require an electrical certification or upgrade. Of course, any electrical wiring done by anyone other than a licensed professional may also be a red flag.
- Roofing- at least 10 percent of the roof should be exposed for inspection. If the roof is flat, it may warrant special attention.
- Plumbing – minor leaks are no longer required to be repaired unless there is evidence of significant damage as a result of the leak.
- Crawl Space – unvented crawl spaces are often a red flag.
The good news is FHA lender-mandated repairs totaling less than $5000 are no longer required to be completed prior to closing. And, of course, it’s virtually impossible to paint the exterior of any duplex in a Minnesota winter.
Of course, these relaxed standards are especially beneficial with the plentiful supply of foreclosed properties on the market. Many would actually sail through FHA appraisals. For a complete list of the FHA’s valuation conditions, click here.
said on January 8th, 2009 categorized under: Legal Stuff
Comment
The other day I was reminded of one of my favorite Minnesota eviction myths. This one in particular always makes me laugh.
Many tenants believe if they fail to pay rent over the winter months, the landlord can’t begin or execute an eviction. Why? Because it’s cold outside.
In other words, the property owner is simply supposed to continue to pay all the bills associated with the property, and let the tenant stay simply because it’s cold.
Perhaps tenants have heard about the cold weather rule, which if properly applied for, prevents the heat in a home or rental unit from being terminated for non-payment during winter’s brutal months.
Landlords needn’t be quite as merciful. Rent must be paid, regardless of the season. Period.
Comment
Shoppers may have avoided the malls during the 2008 Christmas season; perhaps because low interest rates and bargain basement prices lured them away to shop for Twin Cities duplexes.
For the week ending December 27, 14 properties received acceptable purchase agreements. Not a whopping total, to be certain, but it represents a 27% increase over last year’s figure. Of those sales, 93 percent involved lender-mediated properties. Last year, 91 percent of the sales for the comparable week involved lenders in the negotiations.
The average sales price for small multi-family properties, however, did not fare as well. While last year’s holiday average was $128,630, in 2008 that figure was just $94,453. We may start to see a change as we ease into the new year, however, as inventory continued to decline; down a robust 14 percent for the week.
In the single family market, inventory has also declined. New listings for the week were down 3.2 percent, while pending sales were up 8.9 percent.
MAAR also announced an updated figure for its Supply-Demand Ration, which measures the number of homes for sale for each buyer active in the marketplace. While there were 10.41 homes for every buyer in January 2008, in 2009 there are 8.36. This represents nearly a 20% decline in inventory.
said on January 5th, 2009 categorized under: Tenants
Comment
When
Oprah Winfrey retires, pundits will cite the countless ways in which she influenced American culture and expanded our lexicon. One of the words sure to be mentioned in reviews is sure to be “boundaries”.
So how does this apply to owning a Twin Cities duplex? Well, one of the questions new landlords most often ask is my opinion on renting to friends. And frankly, Oprah is as close as I can come to offering a scientific answer.
I’ve had positive experiences renting to friends, as well as disastrous ones. I’ve even had to take a friend to court when she skipped town without paying four months of rent or for the considerable damage her dog had done to the apartment’s woodwork.
Four months rent? How did I let her get that far behind? Hey, she was my friend. She would get caught up with me like she promised, right? And in the years we’d known one another, she had bailed me out of a jam or two. I kind of figured I owed her.
Of course, she didn’t make a single payment until I took legal action. To her credit, once in court, she did come up with a payment plan and honor it. Needless to say, however, I lost the friend.
I’ve rented to friends since. But I do it differently now. I’ve learned to separate business from friendship and, by watching and hearing about enough Oprah shows, set boundaries. I treat all tenants the same, regardless of their personal relationship to me. Many tenants have become my friends, and the same principles apply.
Even if a friend turns out to be a terrific tenant, it’s important to know your duties and obligations as a landlord. For example, you’re responsible for health and safety repairs to the unit. However, if your friend asks you to install a $300 light fixture because you’re “buds” and it “would look great”, you are under no obligation to do so. They’ll try. Believe me.
How do you protect yourself and maintain the friendship? By sticking to the mantra, “No is a complete sentence”.
Example? “You want a new light fixture? Uh, no. How’s work, by the way?”
You’d be amazed at how well it works.
