Archive for November, 2009
Comments Off on Minneapolis Duplex Investors Seize Opportunities
Investors have returned to the real estate market.
According to a quarterly survey by the real estate information firm Move.dot.com, one out of every eight home buyers in October was an investor. In this case, an investor is defined as someone looking to purchase a property at a discount to either rent out or fix up and sell for a profit.
In March, investors accounted for just one out of every 20 buyers.
The report, which was featured in columnist Kenneth Harney’s piece for this week’s Realty Times also found one out of every four buyers in the market right now is focusing on acquiring foreclosure properties. Of these, 42 percent are investors.
Thirteen percent of these buyers say they’re acquiring the properties to convert into rentals. Seventeen percent say they intend to let a family member live in them until the market rebounds.
Of course, this conversion of previously owner-occupied properties into income properties may well help explain why vacancy rates in more traditional rental units have spiked.
It is a terrific time to buy real estate. The study also found that 42 percent of today’s buyers think so too and are investing now because they believe the market has bottomed out.
Of course, there’s only one method of discovering whether or not they’re right; and that’s time.
Comments Off on Traditional Minneapolis Duplex Sellers Give Thanks
Traditional Minneapolis and St Paul duplex sellers have much to be grateful for this Thanksgiving, as market numbers for the week ending November 14, 2009, continue to suggest a shift in the market in their favor.
While it may seem ludicrous to herald a 27 percent share of properties that pended for the week as a triumph, bear in mind that one year ago during the same week, traditional sellers managed to corner just 16 percent of the market.
This is the fourth consecutive week where bank-negotiated transactions were down year over year.
This apparent trend seemed to benefit prices as well. The average off market price held relatively steady for the week, being $4400 higher than the sold prices of last year’s properties.
Better yet, new inventory dropped a whopping 38 percent from one year a ago. Traditional sellers comprised 42 percent of the market, compared with last year’s 81 percent lender mediated offerings.
Eventually, this trend will improve prices for sellers, as fewer of the bargain basement bank owned duplexes flood the market.
Meanwhile, single family home sales appeared to suffer the effects of the expiration of the first time home buyer tax credit. There were 7.1 percent fewer purchase agreements signed for the week than there were during the same stretch last year. Leading up to the credit’s expiration, these figures were often up more than 40 percent.
Like the small multi-family market, however, new listings continued to drop. Overall, there is 20 percent less inventory on the market than at this time last year.
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I don’t state it publicly very often, but I’m frustrated.
It isn’t from the state of the market. The market’s fine thank you. People are buying and selling properties every day.
It does seem, however, that there’s a different kind of buyer in the market. Having been exposed to too many media headlines about what constitutes a good deal or what they should be able to buy for their money, many are simply delusional.
Hate to break it to you, but you’re just not going to get that duplex with an 18 percent cash on cash return, loads of woodwork, next to Lake Calhoun, with a ballroom on the third floor and central air for $60,000.
Simply because it doesn’t exist. Period.
What does exist, however, are properties that are good values, providing a nice return in a decent neighborhood and that require, largely, a little bit of lipstick.
Here’s how you can find it:
- Have A Clear Vision – When you first sit down with your Realtor, think about the characteristics you’d like a property to have. If you’re going to live in it, what amenities do you absolutely have to have and which can you do without? If you’re an investor, how much risk are you willing to tolerate? Is there a range of return that’s acceptable to you?
- Be Realistic – Try to adjust your expectations to the inventory on the market. There just aren’t any duplexes in Minnesota with indoor pools, so don’t think you’ll find one.
- Be Flexible – There simply aren’t as many duplexes in the Twin Cities as there are single family homes, so there will always be less of them to choose from. You may be able to find a property that fits your goals one MLS district over, or perhaps even on the other side of the River. Many neighborhoods share similar amenities (walking paths, waterways, neighborhood cafes and coffee houses). Open yourself to the possibilities.
- Be Motivated – When your agent calls and says she may have found the right property or a good deal, drop what you’re doing and go see it. It may be a “buyer’s market”, but I promise, the buyer’s who are out there are looking for good deals on special properties too. If you hesitate, you’ll miss the opportunity. Guaranteed.
- Focus On Your Goals – As you look at property, keep your eyes on your original objectives. If you were originally willing to pay a specified portion of the rent, you will frustrate yourself and your agent if you suddenly decide it’s a requirement that you be able to live for free. The same holds true on the amount of return on an investor’s dollar; if the math doesn’t work, don’t buy it. If it does, move on it.
- Communicate With Your Agent – Nothing is more frustrating to a Realtor than a lack of response. If your plans have changed, or you’re not interested in a certain property, say so. Nothing that we can say or do in person or over the phone will make you buy something you don’t want. Being direct saves everyone a lot of time, energy and effort.
- Trust Your Agent – If you feel your agent knows the market, trust her when she tells you something is a good deal. Yes, she would like to earn a commission. However, most of the agents I know would rather have a client for life.
There are still great opportunities out there; if you stay focused and realistic.
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Typical Queen Anne
Woodwork. Investors, owner occupants and single family home buyers all go crazy for woodwork.
And for whatever reason, we all think woodwork is found in those grand two story Victorian homes and duplexes.
Ironically, when most people think of built-ins and woodwork, they say the word Victorian, but in their heads? They’re actually thinking Craftsman.
For today, let’s talk about what constitutes a Victorian property.
The Victorian age happened in the 1880s and 1890s, during the reign of England’s Queen Victoria. There wasn’t a set, specific kind of house or duplex.
The age was more about an attitude, about out-doing your neighbor, and going over the top. In fact, these homes are often called “Painted Ladies” for the highly expressive and brilliantly-colored paint schemes they once boasted.
The construction of the era consisted of many styles that shared certain common characteristics.
Most Victorian building occured between 1880-1910. These properties were among the first to feature full basements and tend to have more complex roof shapes. They often featured gas lighting, a wood or coal furnace and (I’ve seen this in both the northeast and Seward neighborhoods), cisterns for their water supply.
There weren’t a lot of duplexes built in the era. However, those that were share with their single family counterparts high ceilings (10-12 feet on the first floor, nine feet on the second) and in the higher end properties, ornate details like leaded glass, occasional built-in buffets with scrolls and floral patterns, and pillars with scrolls at the top. Hardwood floors are a given, as are the headers at the top of every door; straight, capped with a little ledge, almost like a lid on the frame.
Common categories of Victorians include Neoclassical, Queen Annes And Shingle. The Neoclassical Victorians tend to grand two-story columns on the front.
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Comments Off on Don’t Pay Off That Minneapolis Duplex!
One of the most common things I hear new investors say is their goal is to buy a duplex, pay it off, and live off the cash flow.
This is a mistake.
What? Isn’t cash flow everything?
But there’s also something called Return On Investment or ROI. ROI is the ratio of money gained or lost on a duplex relative to the money you have invested.
For example, if you buy a $100,000 duplex, and put 25 percent down, you would calculate your return based on the amount of your down payment; $25,000.
If you held that duplex for thirty years, however, and paid off the mortgage, the amount of your investment would be $100,000, and you would calculate your return based on that number. Of course, that’s assuming it doesn’t go up in value at all over the next 30 years; an unlikely scenario.
I met with a married couple the other day who owned their duplex free and clear. The investment property is not only a considerable distance from their home, but as retirees, they have a genuine desire to simplify their lives.
Of course, like all sellers, they want top dollar for their property.
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Comments Off on Minneapolis Duplex Buyers Face Empty Shelves
Shopping for a duplex or entry-level single family home in the Twin Cities right now is a bit like shopping at the mall ten days after Christmas.
There’s not much left on the shelves and what is there, is, well, like an ugly sweater.
In October, first time home buyers rushed to find and buy homes in time to close by the November 30 first time home buyer tax credit deadline. Essentially, they had to have a purchase agreement no later than Halloween.
As a result, for the week ending November 7, the Twin Cities market posted “only” a 17.2 percent sales increase from last year. For the week ending October 31, that figure had been a 42.9 percent spike.
New listings in the single family sector were also down 14.3 percent for the period. In all, the Twin Cities region has 12,000 fewer listings than there were at the supply peak in September, 2007.
In the duplex and small multi-family sector, pending sales were exactly twice what they were for the same stretch last year. Of these, 31.25 percent were offered by traditional sellers, compared with a 20.83 percent traditional seller market share last year.
While a greater percentage of traditional sellers has, over the past few weeks, translated to a higher average off market price year-over-year, that wasn’t the case this time. Average off market prices were down just over $15,000.
Here’s the good news if you’re a seller. There’s a whole lot less inventory on the shelves for buyers to choose from. The first week in November last year saw 73 new duplex listings come on the market. This year, there were just 45 new properties for buyers to choose from.
If this trend continues, demand will exceed supply, forcing prices to rise.
In all likelihood, however, there will probably still be a couple of ugly duplexes left on the shelves.
Comments Off on How To Frustrate A Minneapolis Duplex Buyer’s Agent
While it may seem like an easy job, buyers agents actually do a great deal of work in coordinating showings for their clients.
First, they coordinate windows of mutual opportunity with the buyer, which isn’t as easy as it may seem. Sometimes those opportunities are days away. Others they are merely moments away.
Once she and her client have agreed upon a time, she scours the MLS, trying to match their clients’ list of “must have’s” and “would love to have’s” with the inventory that’s available.
Next, the fact is, most duplex buyers are concerned with numbers. For owner occupants that may mean making sure their portion of the mortgage payment and expenses doesn’t exceed a specific figure. Investors, on the other hand, are often looking for a specific percentage of return on their investment dollars.
In other words, the agent does a lot of math.
Once she has a group of prospective properties, the agent puts them in some semblance of geographic order so neither she nor her client waste time doubling their tracks.
It’s at that point she either calls or goes online to set up showings. These days it’s not unusual for her to be informed almost immediately that a property has an offer at the bank awaiting their approval.
And, sadly, it’s far too common for her to be told the tenants didn’t receive ample notice.
As we’ve discussed here before, Minnesota state law does not require that a tenant be given 24 hour notice prior to any showing. The owner may enter the premises for business purposes provided he or she has made a reasonable attempt to notify the tenant. While it’s important to be respectuful of tenants, nowhere in Minnesota state law is “reasonable attempt to notify” defined.
So, because the tenant, duplex owner and listing agent are mis-informed about the law, the buyer’s agent doesn’t show the property. In all likelihood, it will take a lot to get her to try again.
Why? It’s just too hard to do all of that again. And chances are, the seller may have lost a sale.
Comments Off on 8 Reasons A Minneapolis Duplex Is Still A Good Investment
In today’s turbulent real estate market, it’s easy to dismiss the idea of real estate as a long term investment strategy.
On one level, this makes sense. Prices are down; there’s a threat of more foreclosures on the horizon which may cause prices to tumble further. Vacancy rates are up, causing more landlords to scramble to find quality tenants and, in the competition to do so, rents to go down.
Maybe it’s better to just leave your money in the stock market, right?
Real estate as an investment isn’t just about how much a duplex goes up in value. In fact, appreciation is just one of the eight ways you benefit by owning investment property.
Real estate provides you with:
- Equity Growth – due to your ability to use leverage, your equity grows much more quickly in real estate than it does in other investments.
- Principal Paydown – every month a portion of your mortgage payment on the property is paid off by rent collected from tenants. Even if the duplex never goes up in value, and you continue to pay off the mortgage over thirty years, at the end of that time you would have the equivalent of the initial purchase price in equity. Managed properly, the only money you would have into it would be the original downpayment required to obtain the loan.
- Increasing Annual Income Stream – on average, the amount of rent you collect every year will increase. This revenue will continue to grow in accordance with the cost of living; providing you with spendable income that has adjusted to economic conditions.
- Leverage – using some of your money as a down payment, banks are, for all intents and purposes, willing to partner with you on a property. If you want to buy a $100,000 duplex, simply put up $25,000, they’ll put up the other $75,000, and pay them back with some interest. Left to your own devices, you’d only be able to buy a $25,000 duplex. But thanks to banks, you can leverage your way into real estate wealth.
- Early Withdrawal Penalties/Annual Contribution Limits – the positive cash flow your property earns is spendable income. It is not subject to early withdrawal penalties or limits to the amount of money you can save.
- Depreciation/Tax Shield – every year that you own a duplex, the government allows you to shield some of your income in the form of depreciation. Essentially, depreciation is the rate at which the government says something gets used up. And because something is, at least theortetically, wearing out, you get a tax break.
- Appreciation – there will come a time in the not too distant future that property goes up in value again. The duplex my grandparents lived in before World War II is today worth approximately 22 times what it was when they were tenants. Historically, there’s no reason to think a duplex won’t cost even more twenty years from now.
- 1031 Exchanges/Cash Out Refinances – both of these are methods for you to harvest the money you’ve earned in both appreciation and principal paydown and reinvest it in bigger properties with greater returns; tax free.
Not all of these reasons to invest in real estate are obvious to a new investor. However, they are the very reasons real estate will always be a terrific financial strategy.
said on November 12th, 2009 categorized under: Tenants
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With national vacancy rates at their highest levels in 23 years, Minneapolis duplex owners are having to resort to innovative strategies to attract and keep tenants.
While a fresh coat of paint, new carpet and a move-in incentive like one month free can help attract new tenants, what about keeping the ones you already have?
According to a recent article in the Wall Street Journal, more landlords are finding themselves in a position of having to negotiate. The Journal reports that in a recent survey conducted by the National Association of Independent Landlords, more than two thirds of independent landlords will reduce rent in order to keep a tenant, while almost one-third of them already have in the last 18 months.
At first glance, this study is frightening. If all tenants want to renegotiate the terms of their lease, won’t we be unable to pay our bills?
Consider this. A vacancy caused by an unwillingness to either establish a payment plan for a delinquent tenant or offer, say, a five percent discount to one who is struggling economically can cost you far more than the initial concession.
Turning a unit for a new tenant not only often costs you paint, cleaning, and repairs caused by normal wear and tear on a unit, but the lost revenue during the vacancy as well. In other words, potentially thousands of dollars vs. say, a discount of 5 percent as an incentive for a tenant to say.
Of course, you can’t be a doormat either. Some people in life will mistake your kindness for weakness, and exploit it accordingly.
But offering understanding to the tenants who’ve proven themselves, can be a a great way for you both to survive.
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The Minneapolis duplex market is like a 12-year-old boy. On the surface, it looks the same as it has for the past few months or years. And yet, every now and then, there’s a hint of a new, deeper voice.
MAAR’s weekly activity report came out today. And while single family home sales are still up 42.9 percent over the same stretch last year, with most properties receiving offers that are, on average, 94.6 percent of the list price, the truly interesting news is in the duplex market.
One year ago, just 10.53 percent of the Minneapolis and St Paul duplexes that received purchase agreements were owned by traditional sellers.
This year, banks were not present in 33 percent of the pending transactions.
Last year, the average off market price for the week of a Twin Cities duplex was $120,860. This year, that number was $137,883.
While there were eight percent fewer listings year over year, the better news is that 44.44 percent of that new inventory this year is offered by traditional sellers. This represents a growth spurt of 20 percent year over year, which will ultimately be good news for the market.