Archive for August, 2010

Minneapolis Duplex Homestead Tax All Relative

said on August 12th, 2010 categorized under: Tenants

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Moving in or outIn today’s slower real estate market, many duplex home owners who have to relocate due to employment,  expanding families, or other life changes, are exploring moving family members in to their old units.

The thinking goes that if a relative is on the premises to manage the property, perhaps maintenance and upkeep will stay on par with the owner’s standards.

The other thought, of course, is perhaps the property will continue to qualify for homestead property tax status.

In the city of Minneapolis, qualifying relatives may become substitute occupants for the duplex owner.  Relatives  of the owner are defined as a child, stepchild, daughter-in-law, son-in-law, parent, stepparent, parent-in-law, grandchild or grandparent, brother or brother-in-law, sister or sister-in-law, aunt, uncle, niece, nephew, or step nieces or nephews.

Of course, the city isn’t going to let the duplex home owner off that easily. Relative homestead property residents have to apply for a Rental License through the city, which may cost the duplex owner an initial inspection fee as well as a $65 license fee.

Minneapolis Duplex Market On A Diet

said on August 10th, 2010 categorized under: Twin Cities Real Est

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CupcakeI’m trying to find positives in what’s happening in the Minneapolis and St Paul duplex market, and so I’ve decided to look at the sliding figures like a diet.

Pending duplex sales for the week ending July 31 were down 25 percent from the same week one year ago. Meanwhile, pending single family home sales were down 34.3 percent.

If the market were attending Weight Watchers, it would get a lot of gold stars this week.

Unfortunately, however, that’s not the case. But you’ve got to give me points for optimism.

Of course, with declining sales, the amount of inventory on the market keeps expanding. In fact, there are now 8.64 homes on the market for every buyer- a substantial gain from last year’s 5.28 homes per buyer.

There was also weight loss in the duplex market. The average pended list price for the week was $119,230; down just over $10,000 from last years average sold price for the week.

While the number of pended duplex home sales was down, the percentage of the market belonging to traditional sellers remained largely unchanged at 16 percent each year.

New listings were actually also down 53 percent, which is actually a bit of good news. Fewer new listings mean less competition for those properties already on the market.

So much for optimism. I don’t know about you, but I sure wish the market would binge a little.

Comments Off on Why Great Duplex Questions Don’t Always Have Great Answers

questionAs a duplex and small multi-family property agent, I get a lot of questions I can’t answer.

“What’s a good gross rent multiplier (GRM)?”

“Doesn’t a fourplex cash flow better than a duplex?”

“Don’t all duplexes cash flow?”

While I welcome these questions, the problem is there isn’t a universal answer for any of them.

The value of a duplex, triplex or fourplex is determined by a number of factors, including but not limited to its expenses, the number of bedrooms in each unit (which affects the amount of rent collected), the location and the condition of the property.

For example, if a property has a  low GRM, one might automatically think it’s a good investment. However, the problem with this measure of value is that it doesn’t factor in expenses.

If property taxes are high, the boiler’s shot and you can see sky through the ceiling of the third story apartment, odds are it’s not only going to not cash flow in the way you want, but it’s going to require a lot of your cashout of pocket, as well.

The best answer as to whether or not a duplex is a good investment can be found with a Realtor who specializes in that kind of property. He or she should be able to work up an income property analysis spreadsheet for you to help you objectively determine whether or not the property meets your financial goals.

From A House To A Duplex And Back Again

said on August 5th, 2010 categorized under: Home Repair

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masonry constructionThere are two kinds of duplexes in the Twin Cities; those originally built as duplexes, and those that used to be houses.

Generally speaking, those that fall into the latter category often never seem to flow right. There’s always a kitchen in a former bedroom, and a couch and TV stuffed into a corner somewhere.

There’s another problem with metro housing. Many times, there aren’t single family homes big enough to accomodate growing families.

As a result, several times a year I’ll have someone ask me about the process of converting a duplex back to a single family home.

Fair warning. While the process isn’t necessarily complicated, it isn’t something you can just undertake on a whim either.

The city of Minneapolis requires a duplex home owner get Zoning and Plan Review approvals before they will issue a building permit to change the use of the property.

To achieve this, someone from the Zoning department will verify that the conversion is in keeping with the city’s zoning ordinance. After receiving a stamped approval, the duplex owner must then meet with a Plan Reviewer who will make sure your plans comply with housing and construction codes.

The reviewer will need to see floor plans drawn to scale that detail the new layout of the property, as well as the significant changes you’d like to make.

The plans need to be for each level of the home, including even the basement and attic. They must also be thorough enough to include locations of windows, doors, and stairways. They should indicate where new walls are to be built, doors and windows moved to, kitchens removed and so forth.

Ultimately, it may be most useful to have both before and after plans along.

Minneapolis Duplex Sales Need Another Tax Credit

said on August 3rd, 2010 categorized under: Twin Cities Real Est

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Minneapolis_St_PaulThis morning the National Association of Realtors reported its June index of purchase agreements for existing homes was down 19 percent from the same month one year ago.

The two regions leading the plunge in pending sales was lead by a 12 percent drop in the Northeast and a 9.5 percent dip in the Midwest.

As if to prove the data, the Minneapolis Area Association of Realtors reported pending sales for the week ending July 24 were down 37.8 percent compared to last year.

The number of acting listings, meanwhile, is up 5.4 percent.

Duplex sales seemed to follow suit. The number of pended sales for the week was down 21 percent compared to last year, while the number of new listings rose 28 percent.

Of those duplex homes that received and accepted purchase agreements, just 13.04 percent involved a traditional seller in the negotiations. Last year, 31 percent of the pended sales involved people with names, not banks.

With fewer humans involved in the selling, this year’s average off-market price for the week dropped to $117,674; trailing last year’s average sold mark by a whopping $46,671.

Maybe it’s time to call Sen. Johnny Isaakson and ask for another $8000 tax credit.

Comments Off on For Some Duplex Owners Being Broke Is A Good Thing

Empty pocketsDo you always have to pay depreciation recapture and capital gains tax when you sell your duplex via a short sale or lose it to foreclosure?

I spoke with three accountants last week and the answer, as always, is circumstance dependent.

If a duplex home owner can prove insolvency, the tax obligations may be avoided.

What’s insolvency?

Basically, it’s when all of your assets don’t outweigh all of your liabilities. With a home mortgage, a duplex mortgage and credit card debt, for many that may be easy to prove.

However, as explained to me, you have to be able to prove you were not only insolvent before you sold or lost the duplex investment, but after as well.

For example, if you have a $100,000 in equity in your home, with a $50,000 mortgage, and no equity in your duplex that has a $200,000 mortgage on it, you owe $250,000 and only have $100,000 in assets. Therefore, you’re insolvent.

But, after you sell the duplex via short sale or lose it in foreclosure, you now have $100,000 in equity in your home and owe $50,000 on the note. In other words, you’re worth $50,000 more than you owe.

As always, be sure to speak with your tax chick for specific advice.

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