Archive for June, 2009

Comments Off on Can A Tenant Keep You From Getting the Tax Credit On Your Minneapolis Tax Credit?

flying 100 dollarA reader recently asked a terrific question regarding the $8000 first time home buyer tax credit:

I have been recently considering a duplex as an option for my first home purchase. From I understand, the $8000 tax credit can be used for the part of the primary residence. For instance, a two-unit duplex at cost of $160k would yield the $8000 credit if I used one unit as the primary residence. What I have yet find an answer to is this: Let’s say the duplex is fully leased. You cannot force one tenant to move so in order to occupy one unit you would have to not renew one lease. If this is true and both tenants are leased through 2009 (and say until March of 2010) would you still qualify for the credit even though at the end of the tax year you would not be occupying the residence?

To be sure I had the correct I answer, I contacted Melanie Schlomann, a CPA with the firm of Abdo, Eich and Meyers.  “The home must be the taxpayers primary residence before December 1, 2009 to be eligible for the first time home buyer tax credit,” she said.

“In this case, the individual would not qualify unless they can manage to make the duplex their primary residence by that time.”

Whether you intend to owner occupy a duplex or simply purchase it as in investment, existing leases are an important consideration when you buy.

In order to address the afore-mentioned possibility, many duplex owners considering a potential sale of their property make sure to put a buy-out clause in their leases. This clause states that for a pre-determined fee, the tenant will agree to move if asked to do so as part of the sale of the property. Of course, it’s important to consult with an attorney for the appropriate language to use in the lease.

While negotiating a purchase, it may be worth asking whether or not the tenant is interested or willing to leave before the lease comes to an end.  If he knows he has to relocate in the not too distant future anyway, perhaps a win can be negotiated for all involved.

A buyer and her Realtor should also explore whether or not the city or state involved has any laws or ordinances pertaining to exactly this scenario.

While I don’t know of any Minnesota municipalities where this is the case (and would love to know if there are), the city of West Hollywood, California, for example, has a tenant relocation “through no fault of their own for owner or relative occupancy” ordinance, with a pre-determined set of move-out compensation for the dislocated tenant.

Great question!

Comments Off on Minneapolis Duplex Market: Sometimes It’s Good to Be Down

points of viewThe last few years we’ve heard countless reports about the down numbers in real estate: sales are down, prices are down and, perhaps most importantly, all of us have been reported to be a little bit down.

This week’s activity report from MAAR also had some down numbers to report. Believe it or not, however, these statistics are actually GOOD.

One of the pieces of data the association likes to follow is the “Months Supply of Inventory”. This number basically tracks the theory that if no new properties came on the market from this day forward, how many days, weeks, months or years would it take to sell all of those on the market now?

A year ago, the answer would have been 10.4 months.

Today, we have a 7.6 month supply; a figure which represents a drop of 26.9 percent from last year.

New listings of single family homes are also off significantly from 2008, with the 1,566 appearing on the market the week ending May 30 representing a week over week drop of 10.6 percent. However, pending sales for the week were up a full 14.9 percent over 2008.

In the duplex and small multi-family market there were some down figures that are good news as well.

New listings for the last week of May were down 31 percent from the same stretch last year.

Sales continued to out perform 2008 marks, with 14 percent more duplexes receiving purchase agreements than they had last year. While 2009’s average off market price continues to trail that of 2008, the weeks figure of $85,741 wasn’t down as significantly from the 2008’s May mark of $95,161 as it has been in previous reports.

And while 93.5 percent of those pended properties are lender mediated, this is only a modest uptick from last May’s 92.59 percent.

How Investors Can Benefit From The $8000 Tax Credit

said on June 8th, 2009 categorized under: Buying A Duplex

Comments Off on How Investors Can Benefit From The $8000 Tax Credit

Smiling With BankWhat’s in the $8000 first time home buyer tax credit for seasoned investors?


Syndicated real estate columnist Kenneth Harney reports that the IRS has interpreted the tax credit rules to allow unmarried co-purchasers, including investors, to buy one to four unit buildings.

The tax credit is simply allocated to the buyer who qualifies for the credit and will live in one of the units while the others are rented out.

Of course, as we’ve discussed here, those same first time home buyers can now “monetize” the tax credit, using it as a cash advance to buy down interest rates, pay closing fees or add to their down payment.

It goes without saying that the buyer who qualifies for the credit is required to live in one of the units for at least three years.

As always, the amount of the tax credit is equal to 10 percent of the value of  the portion of the building she owns up to $8000.

Comments Off on Translation: How To Get The $8000 Tax Credit For Closing Costs

legal mumbo-jumboEvery time HUD makes a change in the first time home buyer tax credit, they announce it by issuing something called a mortgagee letter. These edicts announce the framework of whatever change may be in order.

On May 29, HUD’s mortgagee letter announced the $8000 first time home buyer tax credit may be used for closing costs or to add to the minimum down payment required for an FHA loan of 3.5 percent. And it explained how to get it.

That is if you can translate the mumbo jumbo.


Let me try.

There are two ways to get the $8000 tax credit applied toward closing costs, prepaids, discount points or, yes, even the down payment.

First, you can get a tax credit advance from an approved non-profit agency. These agencies, which may be government or non-profit organizations, must be approved for the program by the federal government and may, in fact, allow you to use the tax credit as part of the 3.5 percent down payment. 

There are currently 10 states where such programs exist: Colorado, Delaware, Idaho, Kentucky, Missouri, New Jersey, New Mexico, Ohio, Pennsylvania and Tennessee.

While we don’t have such a program in Minnesota, I imagine “getting” the credit as a down payment will involve applying at one of the agencies providing this service prior to even shopping for a duplex.

The buyer will then receive the credit at closing. Repayment will be secured by the agency placing a lien on the buyer’s new duplex. This lien, or loan, may be “soft” or require monthly payments, which can’t start for at least 36 months. The amount of these future payments will be factored along with the first mortgage, in the buyer’s qualifying ratios.

More likely for most first time Minneapolis duplex buyers is a second scenario.

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Comments Off on Ray of Light Shines On Minneapolis Duplex Market

dramatic landscapeWhile there continues to be foreclosure clouds on the horizon, the National Association of Realtors delivered a ray of light this morning. Pending home sales in April rose for the third consecutive month.

Here in the Midwest, the pending home sale index rose 9.8 percent; making it 11.1 percent higher than in April 2008.

There was encouraging news locally as well. MAAR‘s Weekly Activity Report for the week ending May 23, reflected a Supply-Demand Ration for June 2009 of 5.04. This means there will be 5.04 houses on the market for every buyer out shopping this month.

This figure represents a drop of 33.4 percent compared with June of 2008.

While market statistics were tempered a bit by the early Memorial Day holiday,  there were nonetheless 1,103 pending single family home sales for the week; a figure 27.2 percent higher than for the same week last year.

Of the week’s single family home sales, 43.2 percent were lender-mediated short sales or foreclosures.

In the duplex and small multi-family sector, 97.6 percent of the properties that received purchase agreements involved a lender in the negotiations.  This is up significantly from the 85.4 percent bank negotiated transactions for the same week in 2008.

While both years logged 41 pending sales for the week, the average sale prices stood in stark contrast to one another.  The average sale price in 2008 stood at $129,114.  This year’s average off market price was down 26 percent from that mark at just $95,137.73.

The good news is, however, that new listings were down as well. While 75 new properties came on the market the third week of May 2008, just 56 debuted over the same stretch in 2009.


Hitting the PinataSome days I wonder if everybody in the Department of Housing and Urban Development is wearing a blindfold.

After all, they keep stumbling around, swinging sticks at the housing pinata, hoping to connect with a way to make the $8000 first time home buyer tax credit more effective.


On Friday, HUD announced their plans to monetize the $8000 first time home buyer tax credit; giving FHA-approved lenders the go ahead to develop bridge-loan products that enable buyers to use the credit toward closing costs or to increase the amount of their down payment  from the mandated 3.5 percent.

In other words, first time home buyers still have to come up with the 3.5 percent down.

Most first time home buyers ask the seller; whether a bank or a private party, to pay their closing costs. Essentially, the buyer pays these fees as part of their loan. The seller simply nets less at closing because those expenses are deducted from the duplex’s gross sales price.

HUD maintains there are many sources of help with the 3.5 percent down payment; referencing state and local governments as well as nonprofit lenders.

Some state housing finance agencies have developed their own bridge loan programs, enabling first time home buyers to use the tax credit for the down payment. Unfortunately, Minnesota’s HFA isn’t among them.

Nice try, but they didn’t quite break open the pinata.

While I understand the theory that those who can’t afford a down payment can’t afford a duplex, traditional sources for help, like mom and dad, may not be as flush in this downturn as they might normally be.

What’s more, many of the bank-owned properties are missing important things; like appliances; which is an expense common in this market.

Therefore, cash for a down payment remains the big problem.

If they would break open the pinata, they’d see everybody scramble for the housing candy.

Let’s hope HUD gets it right. Eventually.

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