Archive for March, 2010
Comments Off on Why The Minneapolis Duplex Market Is A Lot Like Aunt Clara
These days, the Twin Cities real estate market is a lot like Aunt Clara on an episode of “Bewitched”.
It wants to perform the magic of a recovery, but somehow, it just keeps getting it wrong.
For example, the week ending March 20, 2010, the Minneapolis Area Association of Realtors reports there were 10.2 percent more signed purchase agreements than there were for the same week in 2009.
However, new listings were up 28.8 percent from a year ago. A bigger supply will put more downward pressure on prices.
The duplex and small multi-family market was equally bumbling. The average off market price for a property was $137,600; up nearly 49 percent from one year ago. Traditional sellers continued to make gains, generating 35 percent of the pended properties, compared to just 9 percent week over week.
Meanwhile, the number of new multi family listings for the week was down 26 percent from 2009, with traditional sellers contributing 55 percent of the new inventory. They were responsible for just 20 percent of that market a year ago.
But here’s Darrin turned into a monkey; the total number of pended multi-family sales was down 27.91 percent year over year.
Let’s hope Samantha shows up soon.
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On real estate blogs across the nation new investors ask for guidance as to what is a “good” gross rent multiplier (GRM) on multi family property.
Remember, to determine a duplex’s gross rent multiplier, divide the purchase price of the property and by the gross amount of rent the property generates annually. So, if a building is listed at $200,000 and grosses $20,000 a year in rent, then $200,000/20,000 = 10. The GRM on the property is 10.
So is 10 a “good” number?
I wish there was a broad, all encompassing answer. But there isn’t.
There are a couple of reasons.
First, all real estate is local. A “good” gross rent multiplier in Beverly Hills, Calif., is likely one at which a duplex doesn’t come anywhere near breaking even in terms of the revenue it generates. However, a gross rent multipler of say, 18, may in fact be “good” because most duplexes in the market are selling at a GRM of 24.
The second reason there isn’t a sweeping general answer for the nation as to the definition of a “good” gross rent multiplier is GRM’s fail to take into account expenses.
They are, nonetheless, effected by things like who pays the heat, how much the property taxes are, where the building is located, and so on.
When I first obtained my real estate license, I did hundreds if not thousands of income property analysis spreadsheets for MLS properties. By doing so, I quickly realized there were consistent numbers at which properties cash flowed. And that number differed between properties where the landlord paid the heat and those where the tenants did.
Those figures worked pretty consistantly for years. And then the seven metro area counties caught up in what they perceived the taxable market values of Twin Cities area duplexes to be.
As a result, property taxes increased and with them, so too did gross annual expenses.
The result? The Minneapolis and St Paul definitions of the gross rent multiplier at which a duplex will cash flow changed.
In fact, the gross rent multiplier numbers I use to eyeball whether or not a property will break even or cash flow dropped in each of the heat-paying categories by two.
What are those numbers?
Call me. We’ll talk.
Comments Off on How Does Your Minneapolis Duplex Agent Sleep?
If you ask me to come over and give you a price opinion on your Twin Cities duplex, do you want me to lie?
I could. But I won’t.
Some agents will.
And I wonder how they sleep at night.
They’ll tell you your property is worth much more than the comparable sales and market data suggest. How do you pick them out?
They’re usually the agents who give you the highest value.
Of course, you want as much money as possible for your property.
So you hire that agent.
Trouble is, he won’t get that price for you. He just wants the listing.
So he’ll tell you what you want to hear and beg your forgiveness later.
Realtors call this “buying a listing”. Basically, the agent agrees with you about the property’s value; knowing full well it’s over-priced.
The trouble is, the agent isn’t buying the duplex. Someone out in the marketplace is.
Most agents and their buyers have seen your competition. Sooner or later, either through a lack of showings or a lowball offer, the market will inform you that your listing is overpriced.
Look, we all think our pieces of real estate are worth more than they really are. But ultimately, they’re only worth what someone is willing to pay for them.
Right now, that isn’t as much as it used to be.
I recently lost two listings. The agents who put their signs in the yard had prices did so at prices $20,000-30,000 higher than those I gave the sellers.
Neither property has sold. Which is the point of the whole excercise.
I specialize in duplexes, and I do my very best to price properties according to what market statistics suggest. In spite of this, listings sometimes still linger on the market for reasons I don’t always readily understand.
But I didn’t lie to the seller so I could put a Duplex Chick sign in the yard.
And that helps me sleep at night.
Comments Off on Minneapolis Duplex Market Defies Urban Myth
Just like everywhere else, the state of Minnesota has its own folklore and urban legends.
There’s the tale of Paul Bunyan and his big blue ox, Babe.
We can’t forget the Kensington Runestone which may or may not definitively prove the Norwegians were here at least 100 years before Columbus.
And of course, there’s also the “tournament blizzard”, which always seems to happen in late March, just as the state high school hockey or basketball tournaments are in full swing.
But there was no blizzard this year. In fact, March’s balmy temperatures felt a whole lot like spring. That in turn inspired Twin Cities house and duplex buyers to hit the market in droves.
For the week ending March 13, more than 1000 purchase agreements were signed. This hadn’t happened yet this spring.
This figure represented an 18 percent jump from the same week last year.
Unfortunately, inventory rose with the temperature, with 17.9 percent more new single family property listings hitting the market than they did at this point last year.
For the first time in months, this was also the case in the duplex and small multi-family market, where new inventory was up 11 percent over the comparable week in 2009. Traditional sellers offered 45 percent of the new listings compared with just 33 percent last year.
Pending duplex transactions were off 33 percent from last year. The good news is, however, that the average off market price of $149,980 shattered the 2009 sold figure for the week of $83,660.
Of the pended properties, traditional sellers accepted 30 percent of the purchase agreements. Last year, 90 percent of those offers were accepted or negotiated by bankers.
With this year’s high school tournaments done for the year, spring may yet bring a surge of warmth to the housing market.
Then again, according to the University of Minnesota’s Climatology Working Group, only 9.4 percent of the state high school tournaments have every featured a blizzard anyway.
said on March 22nd, 2010 categorized under: Tax Credits
Comments Off on No Time For Decaf With The Tax Credit Deadline
If you’re not already out shopping for a duplex or single family home to purchase before the April 30 tax credit deadline, you’d better grab a caffeinated venti, a Realtor, and start doing some serious shopping.
There are less than six weeks left in both the $8000 first time home and $6500 repeat home buyer tax credits. To qualify for the former, you may not have owned a home in the last three years. For the latter, you must have lived in your present home for at least five years.
There are income limits, and, of course, both credits are capped at 10 percent of the purchase price, not to exceed $8000 or $6500 respectively.
It’s also important to remember that if you’re buying a duplex, triplex or fourplex, only the portion of the property you live in may be used to qualify. In other words, if you buy a duplex for $150,000 and move in to one half, you would divide $150,000 by half to get a value of $75,000. Your credit would be worth 10 percent of that figure, or $7500.
So you’ve got six weeks, right? What’s the big deal? Well, most first time home buyers I work with take longer than that to select their first home. And this year, they’re going to be competing against gallons of other first time home buyers for the “good” properties.
But won’t the tax credit be extended again? After all, not a single national media source is reporting a m
resurgence of the housing market, right?
Don’t count on it. With six weeks to go in last fall’s tax credit deadline, media and lobbyists alike were clamoring Congress to consider an extension.
To date, I’ve only seen one media story suggesting the National Association of Realtors may have begun lobbying Congress for an extension.
But largely, there appears to be no broad push for an extension.
Time to get shopping.
said on March 18th, 2010 categorized under: Financing
Comments Off on If Your Duplex Buyer Can’t Find A Bank, Be One
Let’s face it. Due to foreclosures, short sales, job losses and tightened lending standards, fewer prospective duplex buyers can qualify for loans.
Ultimately, this translates to fewer potential buyers for properties, which contributes to declines in value.
Months and months ago I predicted we’d see the re-emergence of the contract for deed as a financing option. In recent days and weeks, I’ve begun to see just exactly that.
A contract for deed, which is sometimes called a land contract, is a means of financing a property in which the seller becomes the bank.
Of course, acting as the bank for a buyer carries inherent risks and rewards for a seller.
- A much faster sale, as there’s no waiting for mortgage underwriting or loans to be funded.
- A way for a seller to simply get out of a property
- A way to ultimately be paid more for the duplex than a traditional sale would offer, in that the seller would be earning interest as part of the payments.
- Less stringent foreclosure laws which allow the seller to regain all rights to the property within 60 days of default, while keeping any of the monies from the payments or sale.
- A way for an investor to spread capital gains tax over a period of years, thereby allowing for more comprehensive tax planning and savings.
- The monthly payments may ultimately result in greater cash flow than was available to the seller as a landlord, without the headaches of maintenance and vacancies.
- A balloon payment two, three or five years in the future, which allows the seller to retain the balance of their equity in a lump sum.
The risks of carrying a contract for deed can be:
- Having to foreclose on the property, thereby being forced to manage and/or sell it all over again.
- Having to make repairs after the foreclosure
- Buyers may not have enough of a down payment to cover seller’s closing costs, resulting in the seller having to go into their pockets to pay the difference
- Triggering a due-on-sale clause with your mortgage company.
Having weighed both the benefits and liabilities, many traditional sellers are finding a contract for deed to be a way to solve the problem of being stuck in a property they no longer care to own.
Comments Off on Traditional Minneapolis Sellers Take It To The Banks
If the Minneapolis duplex market were a prize fight the week ending March 6, 2010, traditional sellers would have adminiistered a ninth round pummeling to lender owned and mediated sales.
Of the duplex owners that received and accepted purchase agreements, 44.83 percent were traditional sellers. By traditional sellers, I mean people with names; as opposed to corporations.
These traditional sellers helped boost the average off-market price for the week to $156,293. This shatters last year’s average for the same week of $78,022; a week in which 100 percent of the pended properties were offered or negotiated by lenders.
As if to send the banks back to their corner for smelling salts, traditional sellers were also responsible for 59.46 percent of the new inventory on the market. Last year, the banks had mom and pop sellers in a corner, where they could only produce 24.5 percent of the new listings.
Unfortunately, the single family market didn’t fare as well. New listings were up 24.6 percent from a year ago, while pended home sales were down 6.9 percent. In fact, in the first quarter of the year, pending sales are up just 2 percent from their mark during the same stretch in 2009.
Nonetheless, bravo to the traditional duplex sellers for having the courage to take on the market. Maybe we’re not down for the count yet after all.
said on March 15th, 2010 categorized under: Tenants
Comments Off on Minneapolis Duplex Owners Get The Lead Out
Most duplex lovers swoon over the old buildings.
You know the ones. They may have stained or leaded glass windows, hardwood floors, and even a built-in buffet.
Some have a Jetsons-like feel to them, with two sided fireplaces in the living rooms and stone shelves jutting out from the just above the mantle.
Whether it’s a Craftsman era duplex or a mid-century modern, most of us love old architecture.
But when we go to repaint or sand anything, it’s important to remember one thing about the past; if the building was constructed prior to 1978, odds are good that one of the existing layers of paint in the house contains lead.
If ingested or inhaled, dust or paint chips from lead paint can lead to some pretty serious health issues, including nervous system and kidney damage, high blood pressure, nerve disorders, and poor muscle coordination.
Federal law requires that anyone about to buy, rent or renovate a property that is old enough to potentially contain lead paint receive the pamphlet “Protect Your Family From Lead In Your Home”. If you’re buying a property, your Realtor should provide you with this information.
If you’re a landlord, the law also requires that you provide prospective tenants with this information, as well as disclose the potential risk in your leases.
If you need the pamphlet, or a lease with the proper language for lead disclosure, you can purchase them at MHA.
It is only lead based paint in cracked or peeling condition that poses a risk. Paint that is in good condition is perfectly safe.
said on March 12th, 2010 categorized under: Financing
Comments Off on Congress Threatens To Require Higher FHA Down Payments
Once upon a time, way back in 2005 and 2006, you could buy a duplex with no money down.
Then the housing crisis happened. And in an effort to make sure buyers had more at stake, banks decided they would only give loans to investors with 20 to 25 percent down, or owner occupants who qualified for FHA insured financing and had three percent for a down payment.
Then the Federal Housing Administration decided they would only insure loans of owner occupants who had 3.5 percent for a down payment.
Fair enough. That increase didn’t deter too many borrowers.
However, according to a report in the Wall Street Journal, a bill now in Congress advocates for FHA insured loans to require a 5 percent down payment. The thinking goes that if borrowers have a bigger equity position, they are less likely to default.
While that still doesn’t seem like nearly as big of a jump as a 20 percent down payment would, FHA Commissioner David Stevens testified that slight adjustment would eliminate 40 percent of new FHA loans; the equivalent of 300,000 transactions a year.
Fewer sales would, of course, result in fewer mortgage insurance premiums being paid to FHA, which doesn’t make loans, but simply insures them. This loss of revenue, Stevens contends, would in turn put the already financially stressed institution on still shakier ground.
No word on which way Congress is leaning. The imminent expiration of the first time and repeat home buyer tax credits, looming interest rate increases and the threat of higher down payments, however, mean now is the perfect time to buy.
Comments Off on What’s The Most Common Type of Rental Housing Anyway?
When I say “rental housing”, what image springs to mind?
Is it a large apartment complex with hundreds of units sprawling over acres of earth?
Or is the image one of single family homes, duplexes or fourplexes?
Most of us dream of parlaying a collection of duplexes into a massive apartment complex or two capable of cash flowing our retirements. And yet, according to a 2008 Joint Center for Housing Studies of Harvard University, less than 10 percent of all rental units are in buildings with 50 units or more.
Ironically, more than one third of rental units in the country are single-family homes. However, more than half of all rental units are in buildings with less than five units.
In all, the study counted 6.3 million two to four unit rental properties; 1.3 million of which are owner occupied. Eighty-five percent of these smaller properties are owned by either individual owners or couples.
The study also reports the number of households that reported at least some rental income from one to four-unit properties increased by almost a million between 2001 and 2007.
Guess it’s time to replace that mental image of a rental unit.