Archive for April, 2009

Comments Off on MHA Offers Simple Explanation of Minneapolis Duplex Tenant Laws

mha20french20roastI scanned the Minnesota Multi-Housing Association’s web site earlier this week and happened upon a brochure I hadn’t seen before.

Offered free of charge as a download, MHA’s “Apartment Living & The Law” is a flyer designed as a mean of informing tenants of their legal rights.

The brochure clearly explains which repairs landlords are and are not responsible for, proper ways of contacting landlords about repairs, how to make sure a security deposit is returned, and the eviction process.

A simple True/False quiz also effectively dispels many landlord/tenant myths, including the infamous “24 hour rule”.

As more people purchase their first duplexes, either to live in or investments, this information may be especially useful for not only tenants, but new landlords as well.

Suddenly Sold On Minneapolis Duplex Market

said on April 28th, 2009 categorized under: Twin Cities Real Est

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real estate soldIf you seem to be seeing a lot of sold signs hanging on properties in your neighborhood, it isn’t your imagination.

The real estate market is picking up.

And while I like to stick to the data from MAAR, sometimes I think it’s also important to share a personal perspective.

I’ve written five offers for clients in the last two weeks. In all but one case, we were competing against other offers. In fact, in one instance, my clients’ offer was one of 45.

My clients wrote their offer $50,000 over the list price, and still didn’t get the property. Clearly, they are not the only folks out there shopping.

There were 1,083 pending single family home sales for the week ending April 18. This was the third consecutive week of 1000 plus sales; a phenomenon that hasn’t happened since the peak of the market in 2006.

In fact, pending sales activity for the week were more than 20 percent higher than they were for the same period in 2008.  This was the fourth consecutive week that happened.

Single family inventory continues to shirnk as well; down 18.4 percent from last year.

In the multi-family sector, inventory is also down. The number of new listings for the week was roughly half that of last year.

Minneapolis duplex pending sales edged just slightly ahead of their pace for the week last year, up just three percent. Of those properties receiving purchase agreements, 89 percent were bank owned or mediated. This too was a small increase over last year’s 86 percent lender-involved properties.

While the average off-market price of multi-family investment properties jumped to $117,566 for the week, it still lagged behind last year’s figure of $124,956.

How Cheap Are Minneapolis Duplexes?

said on April 24th, 2009 categorized under: Buying A Duplex

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Twenty percent of red colorI read a fascinating article earlier in the week.

CNBC reporter Diana Olick shared a report compiled by John Burns Real Estate Consulting that measured the affordability of housing in major metropolitan markets in layman’s terms.

Since the peak of the market, the cost of home ownership nationally has fallen 43 percent. This is due to both falling prices and interest rates.

So what?

Well, we all hear abstract numbers called the “affordability index”.  This study, however, took the median home price in each market and compared it to the average income to determine what percentage of a home owner’s pay would be allocated for housing each month.

In Los Angeles, it was 45 percent of a buyer’s monthly income. Hey, in August of 2007 it took 102 percent of an average person’s income to pay the mortgage.

How about the Twin Cities? Get this. Just 20 percent of the average salary is required to pay for a median-priced $160,000 home.

If that home happened to be a duplex, I can imagine many scenarios where it could require a still lower percentage of your montly pay.

Need I say once again it’s a great time to buy real estate?

Minnesota Legislature Offers to Prolong Housing Crisis

said on April 23rd, 2009 categorized under: Legislation

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minnesota state capitalIn the midst of the greatest housing crisis in U.S. history,  Representative Ann Lenczewski has introduced a bill to the Minnesota House of Representatives that’s sure to prolong the pain.

HF2323 is a measure intended to address the state’s looming budget shortfall.  It seeks to reduce spending and raise taxes in order to balance the budget.

But guess where that tax revenue is going to come from?

Your property and more directly, your wallet.

The House Tax Plan raises revenue by eliminating three major real estate tax deductions: the Mortgage Interest Deduction (MID), Real Estate Property Taxes and the Relative Homestead Tax.

For decades, home and duplex owners have been able to deduct a sizable amount from their income taxes due to the interest paid on their mortgages. The House Bill replaces this deduction with a maximum “housing credit” of $420, or 7 percent of up to $6000 in mortgage interest paid. However, no credit is applied to the first $4000 of interest paid.

As a result, a property owner must pay $10,000 in mortgage interest to qualify for the full $420 credit.

Dumb enough? Wait. It gets better.

Since 1933, the tax code has allowed taxpayers to deduct property taxes from their income. HF2323 eliminates the deductibility of property taxes.

Finally,Lenczewski says in an effort to thwart parents from buying homes for their college students, the bill contains a provision eliminating an owner’s ability to qualify for homestead property taxes when a relative resides there.

Personally, I didn’t know buying houses for your kids to live in while in school was such a nuisance. (Yes, I’m being sarcastic. )

Of course, none of this will help stimulate a housing recovery in the state. In fact, it’s likely it will only prolong the crisis.

Contact your representative and let them know how you feel.

Minneapolis Duplex Market Does It Again

said on April 21st, 2009 categorized under: Twin Cities Real Est

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run in circlesWell, for the week ending April 11, we did it again.

Not that it’s anything to be proud of. But just maybe there will come a day when we look back and say, “Remember when 100 percent of the duplexes that pended in a week were lender owned or mediated?”

I hope we say it next week.

The good news is sales were more than twice what they were for the same stretch in 2008, with 48 leaving the market with accepted purchase agreements to last year’s 23.

Average sale prices didn’t fare as well, however. The bank-owned properties continued to artificially depress prices, with the average property leaving the market at just $84,800. This ranks significantly behind the same stretch for 2008, when 96 percent of the properties were lender-mediated and averaged a closed price of $108,250.

There are signs of hope, however. The amount of new inventory continued to drop, down 29.5 percent week over week.  As buyers continue to snap up bargains, and less of them appearing on the market, at some point we will start to see a bump in prices.

The single family home market also continues to show signs of renewed life. New listings for the week were down 20.7 percent from the same week in 2008, with pending sales up 21.9 percent.

Still more impressive, however, there were 1,046 sales for the week. That’s only the second time there’s been more than 1000 sales in a week since May…of 2007.

And back then, we all still thought things were pretty good.

Comments Off on Appraisal Rules Change for Minneapolis Duplex Investors

Blonde Frau hält ein Klemmbrett mit SparschweinAs if things weren’t already challenging for Minneapolis duplex investors, along comes the news that on May 1 the national rules for real estate appraisals will change.

Lenders will have to guarantee that every loan they sell to Fannie Mae or Freddie Mac complies completely with something called the HVCC or home valuation code of conduct.

As the bulk of loans for non owner-occupant investors are sold to Fannie or Freddie, they are the ones likely to be most adversely effected.

The new code will prohibit mortage brokers from ordering appraisals. Instead, third party appraisal management firms will pick appraisers from their own networks.

The code also requires a buyer to pay for an appraisal up front rather than rolling the cost into closing costs.

So what if a property appraises too low and another appraisal is necessary in order to close? Does the buyer have to pay again? Yes.

What if the buyer is intending to live in the duplex? Do these new rules apply?

No. FHA has its own rules for appraisals, which to date, don’t include the HVCC.

Disclosure Rules Differ for Minneapolis Duplexes

said on April 17th, 2009 categorized under: Legal Stuff

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linternaAmong the many duties a Minnesota Realtor owes her client is that of disclosure.

As defined by the state, this consists of sharing “all material facts of which broker/salesperson has knowledge which might reasonably affect the client(s) use of the property.”

Both the listing and selling agents are bound by this. For example, if you’re walking through the basement of a great old Craftsman duplex and I point out the presence of asbestos on the pipes, I am disclosing what I know (or see).

Conversely, if I am the listing agent, both the owner-occupant seller and I are bound to share adverse information. This may be as innocuous as an incident where there was water in the basement when a downspout was kicked off, or as serious as a murder.

Are there exceptions?

Yes.  According to Minnesota Statute 82.22, Subd.8, neither the seller nor listing agent are required to disclose the property was ever inhabitied by a person with HIV or AIDS, or was the site of a suicide, accidental or natural death.  While other states (such as California) do require the disclosure of suspected paranormal activity, it is not the case here.

That doesn’t mean if a buyer’s agent knows, for example, that the property was the site of a heinous crime, however, they can’t mention it. With over 20,000 properties on the Minneapolis MLS at any given time, tracking it all would be humanly impossible.

There are also no disclosure requirements for the presence of a group home in the neighborhood, nor the presence of a registered sex offender.

In the case of a registered sex offender or criminal activity, Realtor’s are actually prohibited from disclosing the information, if they are in fact, even aware. (Hence all of the warnings on both the state’s listing forms and purchase agreements.) 

A seller may also choose to have the property professional inspected before placing it on the market in lieu of disclosing information he may or may not have. He must then make this report readily available to any potential buyer.

Are landlords required to disclose a suicide? Murder? Asbestos?

No. In fact, Minnesota’s Landlord/Tenant Handbook makes no mention of a landlord even having to disclose anything.

So while it’s important to perform your due dilligence before you buy, and it is largely your responsibility to do so, remember you have the same responsibilities as a tenant.

1 Comment »

Bank owned sign posted on a boarded up house in ForeclosureThe other day, a reader asked an outstanding question.  He’s in the process of buying a duplex using an FHA 203(k) construction loan and wondered what number his first time home buyer tax credit would be based on.

The 203(k) loan is one in which a buyer can purchase a distressed property at a discounted price, but borrow an amount up to 110 percent of the value of the home were it in good condition in order to finance the repairs.

In this case, the purchase price of the property is $108,000, he is planning on borrowing an additional $20,000 to use for rehabbing the duplex.

The combination of the two will leave the buyer with a mortgage of $128,000.

So is his first time home buyer tax credit based on the owner occupied portion of the purchase price ($108,000 x .5 = $54,000 as the basis for his home. Ten percent of this, or $5400 may be applied toward the tax credit.)

OK, but a 203(k) loan is based on the purchase price and the repairs. Shouldn’t he receive a credit for the final loan amount of $128,000?

Sadly, no. According to a loan officer friend who does a great deal of these with a major national bank (who won’t allow him to speak on the record), the tax credit isn’t based on the loan amount, but the price reflected in the purchase agreement. The 203(k) loan amount isn’t recorded on that document.

The 203(k) is viewed more as a first mortgage plus a construction loan.

In other words, the tax credit here is based on one half of the purchase price or $54,000.

Great question!

Minneapolis Duplex Market Rebounds

said on April 14th, 2009 categorized under: Twin Cities Real Est

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dennis20rodmanThe good news is the Minneapolis duplex market seems to be behaving like Dennis Rodman: catching up with most missed shots.

For the week ending April 4, 2009, pended multi-family sales were up 96 percent over last year’s mark.  Grossing a cumulative of $5,678,370, the 54 properties that left the market did so at an average list price of $105,160 each. While better, this number still significantly trails the 2008 mark of $155,880.

In an almost unbelievable move, new listings dropped from 123 for the comparable week in 2008 to 55 for the same stretch in 2009.  That’s a drop in new inventory of 55 percent.

Of those that came on the market this year, 76 percent were bank owned or mediated. While it’s still not a great shooting average from the floor, it is down significantly from the 100 percent a few weeks ago. In this case, of course, lower percentages are better.

The week’s market performance was a team effort. Single family home sales for the week were up 28.7 percent over last year. And get this; it was the best single week performance since May 2007.

While the amount of new inventory jumped with the advent of spring, there are nonetheless, 17.5 percent fewer homes on the market than there were at this time one year ago.

Remember, if the market shoots often enough, sooner or later those shots will start dropping.

Is It Cheaper To Own Than Rent A Minneapolis Duplex?

said on April 13th, 2009 categorized under: Buying A Duplex

1 Comment »

Scale 4A reader recently asked me to name cities where it’s cheaper to own a property than rent. That’s a big question, but easy to answer.

It’s cheaper to own than rent in most.

How’s that possible?

The secret is in the buy.

Perhaps a better way to phrase the question is to tell me either how much you’re paying in rent, the amount of the house payment you’re willing to cover, what neighborhood you’d like to be in, the amenities you’re seeking and the amount of repair or maintenance you’re willing to do.

Of course, it’s paramount you have a conversation with a qualified loan officer to determine whether you can get a loan, as well as the price range we can shop in.

From there, we work the numbers backwards.

Remember, there’s another unit or units paying a substantial portion of the mortgage. How much you pay in “rent” (in this case your share of the mortgage) is largely contingent on how much everyone else is paying.

Who pays the heat? This too could effect how much you pay.

How much are the property taxes? In a down market, is it possible for them to be reduced?

It’s important to note that while in the state of Minnesota you do get something of a tax credit through a Certificate of Rent Paid, it pales in comparison to the tax deduction you receive for the amount of mortgage interest you pay.

Oh? And if you haven’t owned a home in the last three years, the government will pay you $8000 to buy one before December 1.

And finally, don’t forget. You get to depreciate the part of the property you don’t live in.

Got a specific number or financial goal in mind? Let me know. I’d be happy to help you achieve it.

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