Archive for February, 2011

How Much Is Your Duplex Worth?

said on February 7th, 2011 categorized under: Selling A Duplex

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home on a stack of cashDetermining the value of a duplex before offering it for sale shares very few of the rules used to price a single family home for the market.

What do they have in common?

Well, first neither is worth more than the market is willing to pay.  And location and condition influence value further.

But that’s where the similarities end.

House values are primarily determined by things like the number of bedrooms, bathrooms, finished square feet and garage stalls. Of course, location and condition are part of the equation as well.

Duplexes are different.

Duplex values are determined by how much rent your property generates, who pays the heat and how much your other operating expenses run.

Buyers recognize a good value quickly using measures like a gross rent multiplier or cap rate. What constitutes good cap rates and gross rent multipliers is highly market specific. Be sure to consult a local duplex expert to learn what is considered a good buy in your area.

However, if your duplex lends itself more to an owner occupant, determining the value becomes a little less scientific. An owner-occuppied unit is usually different in its appeal than a straight investment. It tends to reflect the care of the owner, and often has more of the amenities a typical home owner would demand.

As a result of the rental income from the second unit, those duplexes tend to be a way for a buyer to afford living in a desirable neighborhood where the cost of a single family home is prohibitive. While most owner occupant duplex buyers are also looking for an investment, their primary goal is to find a place to call home.

So, if a typical single two bedroom family home in the neighborhood is selling for $150,000, a duplex listed at $350,000 would actually be more expensive for the buyer. After all, one-half of $350,000 is like buying a house for $175,000.

After all, why bother with managing a tenant if you can afford a house?

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Absorbed surgeon closeupIt might seem like a stretch, but Realtors are like doctors.

Every doctor has a broad, basic knowledge of the human body. And yet, they aren’t all qualified to perform open heart surgery.

While a Realtor’s job isn’t necessarily a matter of life and death, when it comes to your investments and financial future, many duplex buyers and sellers ask a general practitioner to perform analysis best left to a specialist.

They should think again.

Here are 10 great reasons to hire a duplex or investment property specialist:

  1. Market Knowledge – Unlike Realtors whose primary focus is single family homes, agents who specialize in duplexes and investment property has a unique working knowledge that, for most, is acquired through extensive education and field experience. Duplex specialists understand  exactly how things like rental income impacts value, the going cap rates and gross rent multipliers of any given neighborhood, and what’s a reasonable market rent to expect in a vacant unit.
  2. Investment Analysis– Whether you’re buying or selling, an educated investment property Realtor can quickly determine whether or not a duplex cash flows and provides a good return, or it it will ultimately cost an investor money. Most residential agents do not have this working knowledge, and use single family home criteria to price a property; ultimately costing a buyer more and a seller valuable market time.
  3. Non-MLS Properties – Agents who specialize not only have a working knowledge of properties already on the market, but of those that may become available soon. These Realtors have a vast network of past clients, prospective sellers, and in today’s market, a comprehensive knowledge of duplexes facing short sales or foreclosures in the near term.
  4. Hands On Experience, Ongoing Education – Most investment property Realtors either own or have owned income proeprty themselves. They not only have first-hand knowledge of the benefits and pitfalls of duplex ownership, but also exposure to a network of client experiences and resolutions. These gents continuously enroll in and avail themselves of educational opportunities in order to have the most current and up-to-date information when it comes to market changes. Read the rest of this entry »

The Lowdown On Duplex Down Payments

said on February 3rd, 2011 categorized under: Buying A Duplex, Financing

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sale house and calculatorMany of you who visit this site do so with the hopes of finding out how much of a  down payment you need to have to buy a duplex or investment property.

And while I’ve talked about it before, it’s probably worth revisiting.

If you plan to live in the property, and this is true whether you’re buying a duplex, triplex, or fourplex, the least amount of money you’d need for a downpayment is 3.5 percent. Of course, everybody’s credit and debt ratios tell different stories, so there may be some exceptions to that, but that figure is generally the norm.

That’s because FHA insures loans on owner-occupied properties up to four units. And right now, the mortgages they insure have the lowerst down payments in the marketplace.

If you’re an investor, you’re not as lucky.

While it’s again largely dependent on things like your credit score, debt ratios and number of properties you own, most investors are required to have a down payment of 25-30 percent to purchase an investment property.

The amount sounds staggering. And yet, when most of my investors in today’s real estate market are realizing double-digit cash on cash returns on their down payments, it’s definitiely worth the investment.

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The young businessman looks at a watch isolated on a white backgI don’t know what Realtors will do with all our free time when a bank doesn’t have to be involved in the negotiations in the sale of a duplex.

But it looks like more and more Minneapolis agents are getting a chance to find out.

For the week ending January 22, 2011, traditional sellers were responsible for 17.4 percent of the duplexes, triplexes and four unit buildings that left the market because of a signed purchase agreement.

That sounds paltry, I know. But it’s up 7.4 percent over the same week in 2010.

Traditional sellers were also responsible for 45.16 percent of the newly listed small multi family properties that hit the market. While that’s still not a majority, it also is an increase of just over 7 percent from the same week last year.

Perhaps this return of sellers with human names was also responsible for the average pended price leaping to $129,912; a significant increase over last year’s average sold price of $78,195. While it’s important to remember pended prices tend to be higher than those on sold prices, it’s difficult to imagine a greater than 10 percent drop, which is the current market average.

Over in the single family market, there were 4.5 percent fewer purchase agreements signed for the week than there were that week of January in 2010. Not great, but not the typical slide of 9.3 percent we’ve seen over the last three months.

There was also a drop in the number of new listings; down 21.5 percent week over week. This is generally good news, but not enough of an improvement  to truly impact the 22,810 properties buyers can presently choose from.

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