Archive for October, 2009

Minneapolis Duplex Tax Credit Extension Just A Bill

said on October 29th, 2009 categorized under: Tax Credits

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[youtube]http://www.youtube.com/watch?v=mEJL2Uuv-oQ[/youtube]With news out of Washington last night that the Senate decided to extend the $8000 first time home buyer tax credit as well as expand it to include  some repeat buyers, my inbox has been swamped with enthusiastic emails announcing the extension.

Wait a minute.

Anyone remember Schoolhouse Rock?

A bill has to pass in both the House and the Senate before it becomes law.

Yes, the Senate agreed to extend the tax credit as we know it until the end of April. They also want to offer a reduced tax credit of up to $6,500 to buyers who’ve owned their current homes for at least five years.

The income levels eligible for qualification have also been increased. 

To receive the maximum tax credit,  individual duplex buyers can earn no more than $125,000/year. This figure is $50,000 higher than the previous cap. Married duplex buyers can now jointly earn up to $225,000 to earn the maximum benefit. This figure has nearly doubled.

Move up buyers would be faced with the same income caps. Their tax credit, however, would be a maximum of $6500.

As it stands, the Senate’s proposal would extend the tax credit deadline until April 30, with any purchase agreements written by that date needing to close no more than 60 days after in order to qualify.

Of course, both members of the House of Representatives and President Obama  need to agree to this for it to take effect.

If you would like to have a chance to earn the credit, it probably wouldn’t hurt to give your Representative a call.

Minneapolis Duplex Sales: Trick? Or Treat?

said on October 27th, 2009 categorized under: Twin Cities Real Est

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tick or treatLike late night trick or treaters, first time home buyers appear to be filling their pillow cases full of Halloween houses before the expiration of the $8000 tax credit.

Proof?

For the week ending October 17, there were 54.4 percent more purchase agreements signed than for the same week one year ago. Almost two-thirds of these properties were priced below $190,000; clearly in first time home buyer territory.

This is wonderful news. However, neighborhoods are running out of candy. There are 21.2 percent fewer homes on the market than there were at this time in 2008, and fewer at this point of the year than there have been at any time since 2004.

Of course, the duplex market has been running out of candy for quite some time.  While year-over-year pended duplex sales were up 27 percent, the amount of new inventory that came onto the market was down 19 percent.

Traditional sellers continued to hand out an increasing amount of goodies; accounting for 38 percent of this year’s new inventory. This is an increase of 17 percent from their 2008 mark.

While lender mediated sales continued to dominated the pended category, they accounted for just one percent more of the market activity this year than last.

Here’s the best news of all. Last year’s average sold price for the week was $106,740. And this year’s average pended price? $127,030.

Let’s hope the anticipated news out of Washington this week about a possible extension of the tax credit, brings word of another treat.

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House with Foreclosure tapeWith the bargain basement prices on single family home foreclosures in the marketplace, I’ve been getting calls from homeowners who, seeing the cheap house down the street, are thinking about becoming first time real estate investors.

I like that they’re thinking like that. Real estate offers investors growth in equity, an annual passive income stream that grows with the cost of living, appreciation, leverage, and the opportunity to use depreciation as a tax shield from other income.

However, most of these novice investors are thinking of single family home ownership as a path to wealth. What they don’t realize is more often than not, single family homes as rental properties do not cash flow.

In other words, the investor will have to reach into her pocket every month for money to pay the bills the rent doesn’t cover.

A duplex, on the other hand, will pull its own weight.

Surprised?

For the first time in decades, small multi-unit properties like duplexes are actually breaking even or producing positive, spendable cash flows.

To illustrate this point, this morning I pulled two properties from the Nokomis neighborhood from the MLS. The first is the least expensive home listed in the area of 42nd and Cedar.  It’s a short sale, built in 1949 with two bedrooms and two bathrooms, listed at $149,900.

Just a couple of blocks away is a 1947 built duplex, priced at $145,000. It has two bedrooms on each side, appears to be in reasonable condition,  and is a bank owned property.

Both require similar down payments, and will have mortgages at the same amortization and interest rates.

Assuming rent of $950 per month on the single family home, with the tenants paying all utilites, and the investor responsible for insurance and property taxes, this home actually has a negative cash flow of $1149.54 per year. In other words, every month, the owner has to reach into her pocket for cash in order to make up a shortfall of $95.80.

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Comments Off on There’s No Free Lunch With Minneapolis Duplex Ownership

nudelkäseauflaufAmong the many advantages of being a Realtor with a national and internationally known company like Coldwell Banker are the networking and educational opportunities available as a result of having a presence in so many diverse locations.

For example, today Coldwell Banker Burnet brought in Jon Swire, a multi-residential investment agent from Coldwell Banker, Beverly Hills, Calif., and author of the book, There’s No Free Lunch In Real Estate.

An income property owner himself, Swire stressed time and again in the day-long seminar why now is one of the best markets in years to get started in real estate investing.

First, interest rates on mortgages are at historic lows, meaning the cost of the debt on an investment property is cheap.

Second, due to the foreclosure crises and overall meltdown in the real estate market, prices are low.

Finally, Swire reminded us that all the money the federal government borrowed to fund the stimulus package will ultimately result in inflation. Inflation will cause the prices of everything to increase; including rent and the purchase price of the properties themselves.

Granted, after the binge and purge of the market the past few years, it’s easy to experience a loss of appetite for real estate investing. What if property values continue to decline?

However, many of today’s foreclosed duplex properties are the result of speculative buyers who failed to do adequate cash flow analysis at the peak of the market.

Remember, a property with a negative cash flow is a liability, not an asset. As long as a duplex, triplex or fourplex generates enough income to cover its debt and expenses, you can hang on to it indefinitely; regardless of what the market is doing.

If you’d like to learn how to do the numbers, drop me a line.

Seismic Activity In Minneapolis Duplex Market

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

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earthquakeWhile we’re not in California, there are, nonetheless, earthquakes of change in the Twin Cities real estate market.

For the week ending October 10, there was a 37.6 percent increase in the number of single family homes that received purchase agreements from the same stretch last year.

The number of new listings also continued to drop, down 4.4 percent from the same week one year ago. In all, there are currently 21 percent fewer homes on the market than there were one year ago.

The most substantial seismic activity, however, was over in the small multi-family sector. While the number of new listings year over year was up 84 percent, the type of listings that comprised the new inventory was dramatically different.

Last year, 94 percent of the new properties on the market for the week were bank owned. This year, just 56 percent were. In other words, the traditional seller has begun to reappear in the marketplace.

This trend is further evidenced by the type of properties that received purchase agreements.  While 100 percent of last year’s transactions involved a lender in the mediation, just 72.7 percent did for the week this year.

The increased market share held by traditional sellers was earth-shattering in the average off market price as well. While last year properties averaged $87,950 when they pended or sold, for the second week in October this year, that figure leaped to $146,290.

Whether or not this movement is due to the impending expiration of the first time home buyer’s tax credit won’t be apparent until the dust settles.

Another Lap Likely For Minneapolis Duplex Tax Credit

said on October 19th, 2009 categorized under: Tax Credits

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3d person and stopwatchFor those hoping for more time to get around the track in order to take advantage of the $8000 first time home buyer tax credit , it looked like Congress was poised to keep their hands off the stop watch last week.

Both CNBC reporter Diana Olick and Realty Times columnist Kenneth Harney reported last week that sources indicate to them that the credit will be extended for several months past its November 30 deadline.

Chairman of the House Ways and Means committee, Congressman Charles Rangel (N.Y. -Dem.) also stated to Dow Jones Newswires, “There’s no question I think it should be extended. How long, I haven’t discussed.” When it comes to expansion to all home buyers, however, Rangel expressed his opposition.

Both the National Association of Realtors and the National Association of Home Builders have been advocating for a one year extension of the credit, expanding it to all home buyers and capping it at a maximum of $15,000.

Of course, Congress is rightly concerned about how to pay for it. The original tax credit was included as part of the governments stimulus package. To date, this component alone has cost the government an estimated $15 billion.

Having said that, it has repeatedly been credited as being responsible for the uptick in activity in the housing market, and, as a result, one of the most successful pieces of the stimulus package.

Some estimates for the cost of an extension range as high as an additional $15 billion. One solution for covering the additional cost has been offered by the Republican Senator from Georgia, Johnny Isakson, who suggests the extension be funded with some of the unspent money from the original $800 billion economic stimulus bill.

Of course, until legislation is passed, the deadline to qualify for the credit remains November 30. We’ll watch for news out of Washington in coming weeks for further evidence of change.

Let Your Minneapolis Duplex Go To The Dogs

said on October 16th, 2009 categorized under: Tenants

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KivaYou would think with all the foreclosures on the market and in the works, it would be tough to find a vacant duplex anywhere.

And yet, recent media reports cite the highest national vacancy rates in over 20 years. Where did all those people tenants go? Some foreclosure victims are renting. Others have moved in with friends or family to weather the storm. And many prospective tenants, like recent college graduates, simply haven’t left home.

So in the midst of this economic downturn, how can you make sure you don’t go months without rent?

Well, in addition to cosmetic improvements, one of the most effective ways is to allow pets. 

Finding a place to live if you’re a dog owner can be nearly impossible. And duplexes with yards are especially appealing to someone with pets.

In my experience, it’s as important to “interview” the dog as it is the prospective tenant. Well trained and behaved dogs, for example, tend to make better tenants than those who jump all over you, as it speaks to the owner’s commitment to the dog.

By en large, pet owners are appreciative of finding a place that welcomes them and go to great lengths to insure they don’t endanger their living situation.

However, there are exceptions to every rule, and to protect yourself from the additional damage pets can inflict on a property, you should ask for a pet deposit in addition to the regular security deposit you take when you have them sign the lease.

A word of caution, however. It’s important to check with your insurance company before you decide you’re willing to rent to pet owners. Many have clauses in their policies limiting their responsibility if specific breeds of dogs are on the premises.

Why That Duplex On The MLS May Already Be Sold

said on October 15th, 2009 categorized under: Buying A Duplex

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House 12I appreciate it when clients search the Internet for properties they’d like to see that I may have missed.

When they do, however, I find myself explaining one thing: if the property is listed as active, that does not mean it isn’t sold.

How is that possible?

There are a couple of reasons, actually.

First, after the seller has accepted a purchase agreement, there are still contingencies the buyer wants. One of these may be a home inspection.

While the length of time in which a buyer can conduct an inspection is negotiable, most occur within three to five business days. As this is the period of time with the greatest likelihood of the buyer walking away, most agents feel it is in the seller’s best interest to leave the property active on the MLS during this time.

When a buyer’s agent attempts to set up a showing of the property, she is told it is “sold subject to inspection”. Most Realtors don’t want to show their clients a duplex they could fall in love with and not buy, so they don’t show the property.

In today’s market, there is another reason a property may appear active but be “sold”. And that’s in a short sale.

Short sale properties often receive offers, which the seller accepts. However, before it can change hands, the bank who holds the mortgage has to agree to take an amount less than what they’re owed.

This process can take anywhere from two to six months.

Needless to say, many people get tired of waiting to hear whether or not they got the house. Three months go by, maybe four, and they back out of buying the house.

Had the seller’s Realtor removed the property from the MLS, he would have lost valuable market time. So, in the agent’s comments of the MLS listing,  there is some reference made to an offer being in to the bank for negotiations, and that while others may be presented, they will be in a back-up position unless the first grows tired of waiting.

Minneapolis Duplex Market Meteoric

said on October 13th, 2009 categorized under: Twin Cities Real Est

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asteroid in spaceAs the deadline for the $8000 first time home buyer tax credit approaches, its impact on the Twin Cities real estate market continues to be meteoric.

According to MAAR, in September the number of signed purchase agreements for the month were up 23.5 percent from one year ago. Of course, most of these transactions involved first time home buyers and were below $200,000.

The median sales price was down 5.3 percent from a year ago to $200,712. Almost forty percent of those sales involved either short sales or foreclosures.

Of course, since it may take as long as six months to get a response from a lender on the negotiations of a short sale, foreclosures, , which can be negotiated in just days, are selling three times faster.

In the small multi family sector, there were a couple of asteroids burning brightly in the atmosphere. Of the duplexes that received purchase agreements for the week ending October 32.26 percent were owned by traditional sellers.

However, this did not necessarily translate to a higher off-market price. On average, the 31 properties that pended left the active roster at $95,333, with 28 of them below the $200,000 mark.

Traditional sellers gained ground in the new listing category as well, at 39.6 percent. Overall, the number of new listings for the week were down 27.4 percent from the same stretch last year.

Unfortunately, so too were sales, dropping 18.4 percent week over week. However, traditional sellers comprised just 13.16 percent of last year’s pended transactions.

With Congress debating an extension of the first time home buyer tax credit, market performance in coming weeks may help cast the deciding vote.

The less thrilling news is

Comments Off on Will There Be An Encore For The $8000 First Time Home Buyer Tax Credit?

concert cheeringWith just six weeks left in which to take advantage of the federal $8000 first time home buyer tax credit, overatures are coming from Washington that an encore may be in the works.

Last week the House quickly passed an extension of the credit for military, diplomatic and intelligence personnel serving overseas.

This action may well increase the odds that Congress will extend the program into next year.

Following a meeting with the president at the White House that was attended by Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi, congressional aides said that by en large, Democrats support an extension of the credit. In fact, Reid is the co-sponsor of a Senate bill that would do just that for another six months.

According to Washington Post columnist Kenneth Harney, word of a possible expansion of the credit begin to travel through Washington following the White House session.

Harney’s sources said one of the options under consideration is an expansion of the $8,000 credit to people purchasing replacement homes, provided their incomes do not exceed a pre-determined income limit.

The present tax credit is limited to single taxpayers who earn less than $75,0000 and couples earning $150,000 and less.

While this would be welcome news, we’ll leave our cell phones and lighters in our pockets until the necessary players are gathered on stage, ready to make an announcement.

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