Archive for January, 2010

Comments Off on Minneapolis Duplex Owners Have A Theme

Warranty - One yearI don’t know whether to call it a trend or a theme, but this week my real estate business has had one.

First, the pilot light on the furnace in a buyer’s new property went out the day before closing. Next, the forced air furnace in one side of a duplex a buyer is considering came back with a yellow flame; which may or may not be the sign of a cracked heat exchanger (which can result in the unit producing unsafe levels of carbon monoxide).

Then I got a call from a rural tenant stating they had no water in the house or any of the outbuildings on the property.

The theme for the week could be “things break”. However, there’s another one here; whenever possible, get a home warranty.

It seems like everyone from Best Buy to car dealers offer an extended warranty these days. And we’ve all had experiences where the coverage they provided were not worth the additional cost.

I haven’t found this to be the case with most home warranties, however; especially when a client is purchasing a foreclosed property.

Many foreclosures not only have deferred cosmetic maintenance, but the mechanicals like the furnace or boiler and water heater have been ignored as well.   Most banks aren’t in the business or maintenance or repair, so whatever’s wrong with the property will most likely be the buyer’s responsibility.

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Every Minneapolis Duplex Cloud Has A Silver Lining

said on January 25th, 2010 categorized under: Twin Cities Real Est

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dramatic landscapeThere’s a lot of doom and gloom in the air today, and not all of it has to do with last night’s Viking loss.

Some of it has to do with today’s announcement by the National Association of Realtors that nationally, existing home sales fell in December. It wasn’t entirely unanticipated. Most economists thought the rush to beat the original November tax credit deadline might have an effect on December’s housing market. And it did.

So that’s the bad news. But there was some good news in the rest of the story.

See, while existing home sales fell 16.7 percent, they were still 15 percent higher than they were in December 2008.

More importantly perhaps,  4.9 percent more existing homes sold in 2009 than they did in 2008.  

The national median home price was $178,300, which is again up over December 2008; albeit a slight 1.5 percent.

Of course, foreclosures and short sales, which represented 36 percent of all home sales last year continue to skew those median price numbers.

The Vikings had a sliver of good news too. Yesterday’s loss means they’ll get a better draft choice.

What’s Different About Buying A Minneapolis Duplex?

said on January 22nd, 2010 categorized under: Legal Stuff

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????What one thing do you have to do after closing on your new duplex or rental property that you don’t have to do when you buy your own house?

Get a license.

Whether you’re owner occuping your duplex or intend to operate it as an investment, many cities require you to have a rental license.

What does that take?

Rules vary according to municipalities. In Minneapolis, however, a new rental property owner must fill out an application, as well as provide the city with a copy of either the Minneapolis Truth & Housing Certificate of Approval or Buyer Certificate of Completion.

If the property is owned by an LLC, partnership or corporation, articles of incorporation are also required. New owners must also attach proof of ownership, which is generally covered by a HUD Statement, copy of a Certificate of Real Estate Value or Bill of Sale.

The fee, at least in Minneapolis, is $65 for the first unit, and $19 for each additional unit. This covers licensing from September 1 to August 31 of the following year.

And if you don’t get a license? Fines can run north of $500, and tenants can file a rent escrow case, where rental income is escrowed until the situation is resolved. Tenants may not, however, withhold rent simply because you don’t have a license.

HUD Flips Minneapolis Duplex Rules

said on January 21st, 2010 categorized under: Financing

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getting airEither someone at HUD is really smart, or they’re reading my blog.

I’m inclined to think it’s the former.

Last week I explained many rehabbers I work with were scrambling to find houses and duplexes to buy before the end of the month so once repairs were completed, they would have owned it the required 90 days in order to be able to resell it to an FHA buyer before the tax credit deadline.

This same waiting period often prohibited FHA insured buyers from acquiring some bank and HUD owned properties.

On Friday, HUD Secretary Shaun Donovan announced a temporary policy lifting the 90 day waiting period.

The waiver goes into effect on February 1, 2010, and is effective for one year; unless, of course, HUD changes its mind.

Sales must be “arms-length”, with no shared interest between the buyer and seller or anyone else participating in the sale. When the resale price of the duplex is more than 20 percent above what it cost the seller to acquire it, certain conditions have to be met for the waiver to apply.

This should help keep the market supplied with affordable first time home buyer properties in good condition.

Minneapolis Duplex Sales: Nothing To Buy

said on January 19th, 2010 categorized under: Twin Cities Real Est

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empty-store-shelvesSomething’s happening in the Twin Cities house and duplex markets.

New duplex listings for the week e000 firstnding January 9, 2010, were down 36 percent from their market one year ago. Of these, a whopping 45 percent were listed by traditional sellers.

Over the last three months, the number of new single family home listings in Minneapolis and St Paul has dropped 11.7 percent from one year ago.

Less inventory is a good thing, right? Won’t that cause prices to go up?

Theoretically. However, for the week, the average off market price for a small multi-family property was $87,635.  The average sales price for the same stretch in 2009 was $124,989. That’s the first time in months the average off market price has dropped.

Here’s the other bit of befuddling news. In spite of the looming April 30 expiration of both the $8000 first time home buyers and $6500 repeat buyer tax credits, duplex sales were down 43.9 percent year over year.

The same trend is happening in the single family market. For the seventh time in nine weeks sales were down; this time 1.7 percent from 2009. 

I have a theory. It isn’t scientific, but having been out in the field with buyers, I can say this: there’s nothing decent for them to buy.

Tough to have booming sales when the store shelves are empty.

Comments Off on Minneapolis Duplex Owners’ Paperwork Due

In Over His HeadWhile the procrastinators among us still have time, those who are more organized might like to get working on their Certificates of Rent Paid (CRP).

Minnesota landlords are required to provide their tenants with completed CRPs no later than January 31. The certificates reflect the amount of rent the tenant paid in the previous year, and the amount of property taxes your unit helped pay for (expressed as a percentage of total rent collected for that unit).

The CRP helps tenants qualify for a portion of the property tax refund received on the duplex.

There are income limits for qualification. Households with no dependants can earn no more than $50,030 per year. Income limits increase with the number of dependants, going up to $74,930 with five or more dependants.

The forms are easy to understand and simple to fill out. On occasions when I’ve had multiple units at one location, I’ve made a master copy with the property address, owner name and PID number filled out. I then made multiple copies of it and filled each in with a tenants name and rental history.

Failure to provide tenants with CRPs can result in a $100 penalty for each occurance. If you have more than one rental unit, this can add up in a hurry.

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masonry constructionOne of the challenges many first time home owners face when buying a foreclosed Minneapolis duplex is the cost of repairing and deferred maintenance or damage. 

After all, when you spend your savings on the down payment and have to wait several months to get your $8000 first time home buyer tax credit check, how can you afford to make the place livable?

It’s important to remember for the last several years FHA has offered a loan called a 203k construction loan. Basically, you can get a loan for up to 110 percent of the rehabbed value of the property, with the money left after purchase being allocated for construction and repairs.

The 203k is one loan, as opposed to a first and second mortgage.

There are stipulations to these mortgages, including that the improvements must be made by licensed contractors and the bank pays those vendors directly.

Historically, these loans have typically been more expensive than a straight FHA loan: as much as 1 – 1.5 percent higher.

However, a loan officer who specializes in 203ks told me yesterday in the last several months, interest rates on them have been just .25-.85 percent higher.

That seems like a pretty affordable way to finance the repairs and updates so many of these distressed properties require.

Once Upon A Time In Minneapolis Duplex Land

said on January 14th, 2010 categorized under: Buying A Duplex, Selling A Duplex

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wizardOnce upon a time, in a land called the Twin Cities housing market, a duplex buyer could purchase a foreclosed or run-down property, renovate it, and turn around in short order and sell it for a profit.

It was a good thing.

Until, of course,  Evil Fraud Doers saw it as an opportunity to artificially inflate the value of a property, conspire with an appraiser and sell it for an unreasonable profit.

In 2006, seeing a blight upon the land, along came the Department of Housing and Urban Development (HUD) . They decided to right this wrong by refusing to grant mortgage insurance on any FHA loan on a property where the seller had owned it for less than 90 days. This, they hoped, would keep the Evil Fraud Doers from pillaging and plundering.

It was then that a dark cloud formed and a cold wind began to blow, bringing with it the flying monkeys of foreclosure.

Suddenly there were properties everywhere that needed help. In an effort to encourage investors and rehabbers to fight the wounded inventory, in 2009 HUD briefly lifted it’s “anti-flipping” rules. This allowed properties to be fixed up and resold to first time home buyers who generally had neither the cash nor experience to undertake the battle.

The petulance continued. And yet, HUD ended it’s ban.

So what? If you’re a rehabber just wait three months to sell, right?

Well, the moratorium actually starts the day you close. And it isn’t waiting 90 days to close on a resale. Rather, it’s waiting 90 days before you can even look at a buyer using either an FHA, or often, conventional loan.

And since it’s likely to take 30-45 days to close on a resale, you’re actually looking at having to hold the property a minimum of four months. In other words, if you don’t have you’re rehab property in had by the end of this month, it’s likely you won’t get a chance to resell it.

On the other hand, if you’re a buyer who missed out in one of those multiple offer scenarios on a duplex ripe for renovation and we’re hoping to buy it once the repairs were done, you may have to wait until spring; when everyone else is wishing on stars too.

Wish I had a magic wand to use to lift that anti-flipping rule just one more time. There simply aren’t enough duplexes in good condition and a fair price out their for my clients to buy.

Minneapolis Duplex Sale May End Soon

said on January 12th, 2010 categorized under: Twin Cities Real Est

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sale, final reductions signThe buyer’s market is over.

Buried in the Weekly Market Activity Report from the Minneapolis Area Association of Realtors was news that The Months Supply of Inventory in the marketplace is 5.

In other words, if no new houses came on the market today, in 5 months we’d be out of houses to sell.

A year ago, we had a 6.7 month supply.

Generally speaking, the housing market is considered to be balanced, with neither buyer nor seller having the advantage, at a 5 month supply.

Does this mean we’re once again on course for double digit rates of appreciation for single family homes?

Unlikely. Especially with the distinct possibility of higher interest rates on the spring horizon.

The duplex market for the week ending January 2, 2010, however, tells an entirely different story. The average off market price for a pended duplex or small multi family property for the week was $161,237. For the same week in 2008, that number was $92,656.

The number of sales week over week was a bit less promising, dropping 16 percent. Traditional sellers for the week represented 19 percent of the transactions. This is more than double their market share for the year before.

New listings continued to be few and far between, dropping 38 percent week over week.  Just over one quarter of the new inventory for the New Year was offered by traditional sellers, an increase of three percent year over year.

While the months supply of inventory and increased traditional seller market share are good news, it’s important to remember the vast majority of the market is still controlled by lender mediated transactions.

While foreclosed duplexes seem to be increasingly rare, the same cannot be said in the single family home market.  There are persistent rumours of a shadow inventory of foreclosure properties being kept off the market by banks, though the validity of those rumors is difficult to substantiate.

If they exist, we’re all likely to lose our balance.

What About The Rodney Dangerfield Tax Credit?

said on January 11th, 2010 categorized under: Tax Credits

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rodneydangerfield1Did you know there are two home buyer tax credits available right now?

I’m sure you’ve heard of the recently extended $8000 first time home buyer tax credit. But the second?

To quote Rodney Dangerfield, it “gets no respect”.

Maybe it’s because it doesn’t have a catchy, self-explanatory name for the media to latch on to. Instead, it’s often labeled by the rather cumbersome monikers of the “move-up” or “second time home buyer” tax credit.

But neither is exactly accurate. You don’t have to be either moving up or looking for your second home to qualify.

So what is it?

The tax credit, which is can be as much as $6500, is available to anybody who has owned and lived in the same home for at least five of the previous eight years prior to the purchase of their new home. In other words, repeat buyers.

And, like the first time home buyer tax credit, it can be used for any type of property you’re willing to label as your principal residence, including a single family home, duplex, triplex, fourplex, manufactured home or houseboat.

To qualify, single buyers can’t earn more than $125,000. Married buyers are capped at an annual combined income of $225,000. It is phased out past those income limits and dissolves completely for singles who earn more than $145,000 and couples who top $245,000.

While it’s likely that most repeat buyers have homes and duplexes they need to sell to be able to buy another, it isn’t necessary in order to qualify for the credit. The buyer simply needs to declare the new property his or her principal residence.

In recent weeks I’ve actually spoken with several potential sellers who are nearing retirement. They see this credit, when combined with the added incentives of bargain prices and low interest rates as an opportunity to get a better deal on their retirement property. For many, they are simply doing so a little bit early.

Like the first time home buyer tax credit, repeat buyers must have a purchase agreement in place no later than April 30, 2010, and close on the property before the end of June.

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