Archive for April, 2012

Comments Off on The Most Important Question In Duplex Investing: What’s Your Z?

real estate investment goalsOne of the first questions I ask new Minneapolis duplex investors is, “What’s your Z?”

Their response is always little more than a blank stare. So I clarify.

“At the end of your life, what do you want real estate investment to have done for you?”

Truth is, most new investors have thought about the first step, the letter A.

But they haven’t thought about the rest of their investment alphabet, let alone their final destination.

Most of us want real estate investment to provide some sort of supplemental income in retirement, but we haven’t completely thought about how much money we’ll need, what we want our daily lives to look like, or just exactly how we’re going to get there.

When we think about our end goal; defining and answering what the end of our individual alphabets to be, we can work backwards and  begin to design a road map to get there.

For example, most of us don’t fantasize about spending our 70s and 80s repainting vacant duplex units or answering late-night plumbing calls from tenants.

Rather, we imagine money showing up in our mailboxes while we’re out travelling or playing golf somewhere where it’s warm in January.

In order to do that, odds are we’re going to need a bigger property; one that cash flows well enough to pay for its own management.

And big properties require big down payments.

The question then becomes, what are you going to do today, to make sure you have that money later?

Do you take a duplex’s positive cash flow now, to supplement your lifestyle? Or do you invest in a duplex that has less cash flow but a more stable neighborhood? Do you flip a few properties to grow your nest egg? Or, do you cut some things out of your life in

The answer is different for everybody. But you can’t come up with it until you know your Z.

When you’re ready, I’d be happy to help you map a road to get there.

Minneapolis Duplex Sales Continue Climb

said on April 25th, 2012 categorized under: Twin Cities Real Est

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minneapolisWhen it comes to Minneapolis duplexes for sale, there’s good news to report. For the week ending April 14, 2012, Twin Cities duplex sales jumped 25 percent over the same week in 2011.

Of those duplex owners who signed a purchase agreement, 36 percent of this year’s group were traditional sellers. This is down from last year’s group, where 45 percent did not have to consult with a bank in order to agree to sell.

On average, duplex listings went off the market at an average final list price of $139,662 during the week, compared to their final sold price one year ago of $119,735.

Meanwhile, the duplex inventory shortage continued, with just 26 new listings hitting the market, compared with the 47 we saw arrive on the MLS last year. Of this year’s new crop, 61.5 percent are being offered for sale by traditional sellers. Last year, just 36.2 percent of the duplexes, triplexes and four unit buildings were not in a distressed situation.

The single family home market also saw fewer new listings, down 9.5 percent over one year ago. Pending sales continued to climb; up 25.5 percent. Combined, this left the market with 27.8 percent less inventory than was available for sale last year.

I’ve said it before and will again. It’s a good time to sell. You just won’t have that much competition on the market.

Comments Off on Why Many Minneapolis Duplexes For Sale Are Like Married Men On Match.com

duplexes sold subject to bank approvalWhen my clients are in the market to buy a Minneapolis duplex, they spend hours on the Internet, pouring over photos, and often, falling in love with a duplex they can’t buy.

It isn’t because they can’t afford it.

It’s because the duplex is like a married man.

When a Minneapolis duplex seller receives an offer on his property, he generally doesn’t want to advertise it as being sold until the buyer has removed all of their contingencies. Contingencies are essentially, “I’ll buy it if…” conditions.

For example, “I’ll buy it if I don’t find anything too horrifying in a home inspection that you won’t fix or pay for,” is a contingency.

In today’s market, the most common contingency is, “I’ll buy it if your bank agrees to sell it to me for the price we agreed on.” Of course, this “if” can take months to answer.

And while the seller is waiting for that answer, he usually doesn’t want to lose out on getting any potential back-up offers from other buyers. After all,  sometimes short sale buyers often grow tired of waiting and walk away from the purchase.

Knowing that, many of my clients want to go see these duplexes, in spite of their “already have an offer in at the bank” status.

I will oblige them, provided they understand that seeing a duplex that’s essentially sold, is kind of like dating a married man and actually expecting him to leave his wife.

In other words, my buyer falls in love, and spends all of her time wishing, waiting and hoping the deal will fall apart rather than moving on and finding a duplex that’s not only right for her, but actually available to be purchased.

The truth is, almost all of my clients move on to find another great duplex.

(I must admit, I’m a little concerned about of what that says about their dating histories!)

Duplex Short Sales Gaining On Foreclosures

said on April 20th, 2012 categorized under: Short Sales/Foreclosure

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Nationwide Foreclosure StartsRealtyTrac, the nation’s leading authority on short sales and foreclosures, announced yesterday they have spotted a shift toward short sales in the distressed property market.

In January 2012, there were more than 35,000 short sales nationally; a number which puts us on pace for 105,000 short sales in the first quarter. That total would be the highest since the first quarter of 2009.

January’s short sale total reflects a 33 percent increase over January of 2011.

Here’s where things get interesting. In the past, sales of bank-owned (REO) properties always outnumbered the number of short sales.

And, yes. That’s still true.

However, the gap is narrowing, with just 2600 more bank-owned properties selling than short-sales nationwide in January.

The average price of a short sale in January was $174,120; a figure which is 10 percent lower than the average in January 2011.

The average sold price of a bank-owned property during the month was $145,597– almost $30,000 less than a short sale.

This should be important to banks, because the troubling news is that while March foreclosure starts were down 11 percent from a year ago, it was, nonetheless, the third consecutive month where foreclosure starts increased from the previous month.

This trend is not limited to a handful of states. In all, 31 states reported monthly increases in foreclosure starts in January.

Nationwide, there are more than 1.4 million duplex and home owners 90 days or more late on their mortgage payments, 587,629 60 days late, and 1.471 million 30 to 60 days late.

In other words, all the duplex, triplex and apartment building owners who’ve been behind on their payments but had a foreclosure delayed due to the bank’s 11 month long robo-signing foreclosure freeze, are beginning to move through the pipeline now that there’s been a settlement.

If you’re a duplex owner facing foreclosure, remember, while a short sale may be a hassle, the damage it inflicts on your credit, and your life is far less than those of foreclosure.

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duplex vs single family investmentIf you’re thinking of investing in real estate for the first time, you might be wondering what kind of property is “the best”.

Is a duplex better than a single family home? An apartment building better than a condo?

The answer is, all of them are good  provided that they cash flow. As a buyer, however, you must also be aware of what your tolerances are.

There are many advantages to single family home investment.

First, in most instances, as part of your lease you are generally able to have the tenants pay for all of the utility bills (including water), as well as perform lawn care and snow removal duties.

Of course, if the tenants neglect those projects, the property may incur city fines, and you’ll end up performing the duties anyway. And, should the tenants neglect to pay the water bill, you will be stuck with it as the property owner.

Another advantage to investing in single family homes is should you choose to sell, you will have the broadest pool of potential buyers. This should allow for a relatively quick and easy exit strategy, should you need one.

One of the downsides of single family property investment, however, is when you have a vacancy, you are 100 percent vacant. As in no money coming in and you have to pay all the bills out of your own pocket.

You may also be faced with having to come up with a greater down payment to buy the home in the first place, as you are required to owner occupy for at least the first year if you choose to use FHA financing.

You may, however, use FHA financing to buy a duplex, triplex or four unit apartment building; becoming an investor and an owner occupant at the same time.

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Minneapolis Duplex Sales Hop Along

said on April 17th, 2012 categorized under: Twin Cities Real Est

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minneapolis duplex sales hop alongThis year, the Easter bunny may have laid a bit of a pre-holiday egg to the Minneapolis duplex market.

The number of duplex, triplex and fourplex owners who received and accepted purchase agreements the week ending April 7, 2012,  was down 25 percent from the same week one year ago. (The Easter holiday was much later in the month in 2011.)

Forty percent of these happy sellers were people who either did not involve a bank in their decision to sell. This represents a 5 percent market share drop from last year’s duplex sellers who had equity in their property.

New inventory continued to be scarce, with 26 percent fewer Minneapolis and St Paul duplexes newly offered for sale. Of the 28 new listings, 39.3 percent are being sold by traditional sellers. This is nearly identical to the 39.5 percent equity seller in last year’s figures.

In the single family home market, the number of new listings was down 19 percent. Meanwhile, pending sales were up 15.5 percent. Increased demand, coupled with diminishing supply left the market with a total year-over-year inventory decline of 27.3 percent.

Next week, when holidays don’t play as much of a statistical factor, we should have a more accurate read on Minneapolis and St Paul duplex sales.

Are You Licensed To Own A Minneapolis Duplex?

said on April 16th, 2012 categorized under: Buying A Duplex

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Application for duplex rental licenseWhen you buy a Minneapolis duplex, one of the expenses you need to plan for is a rental license.

The cost of the rental license itself is reasonable; $69 for the first unit and $19 for each additional unit. And, if you close on your Minneapolis duplex after April 1, that fee is reduced by half.

However, when a licensed rental property changes hands, you must also budget for a change of ownership inspection and the fee that goes with it, which is $450.00.

The city inspection is done to ensure the property is in compliance with minimum housing standards.

All single family properties previously used as rentals, duplex, triplex and rental properties containing up to four units are required to have rental licenses.

This is true even if the duplex’s owner lives in one of the units.

Exceptions to a change of ownership inspection include condominium and townhouse properties with more than 6 units, properties that have had a rental license inspection within the last six months, or single family dwellings that are homesteaded by a relative.

Remember, operating a rental without a license can result in a fine of $500, as well as any other inspection, license fees, and fines for not posting a 311 poster ($200.00 if not displayed in a common area for tenants to see).

Comments Off on What’s Your Cash Earning If You Buy A Duplex?

duplex cash on cash returnA lot of duplex investors come to me looking to find a duplex with a big CAP rate. After all, the bigger the CAP, the better the return on your investment, right?

While this is certainly true, a CAP rate is not the best measure of a duplex. The reason for this is simple: the purchase price per unit is often higher than it is, say, with a 20 unit apartment complex, and yet, the duplex and the apartment rent for similar rates.

Generally speaking, the apartment building generates the greater return according to the cap rate.

When a duplex owner goes to sell, however, they have a big advantage over an apartment building owner. Thanks to financing options that require lower down payments, there are more buyers for duplexes than there are apartment buildings. This drives values up.

At the height of the real estate market, this meant very few duplexes had a cap rate greater than 2.

In my opinion, this makes the cash on cash return an investor receives from a duplex a better measure of value.

What’s cash on cash return?

Like a CAP rate, cash on cash return is simply a way to compare one potential duplex investment to another. Simply put, it’s the amount of cash left over after you’ve paid all of a duplex’s expenses (cash flow), divided by your down payment.

If you put $20,000 down on a purchase of a $100,000 duplex, for example, and that duplex had a positive cash flow of $2000 a year, your down payment would be earning a 10 percent cash on cash return.

Compare this return to the amount of interest your money would earn in a savings account.

On the other hand, if the duplex you were considering buying a duplex with a negative cash flow of $2000 a year, you would would be earning a -10 percent on your down payment.

Measures like CAP rate and cash on cash return are ways of not only comparing one potential duplex investment with another, but also of making sure your money is working as hard for you as it possibly can.

Comments Off on Prediction: Your Minneapolis Duplex May Be Worth More Now Than Next Spring

predicting minneapolis duplex valuesIf you’re thinking of selling your Minneapolis duplex, but can’t imagine hanging on to it for another 10 years, you should give it serious consideration this year.

As I’ve stated countless times, we have a serious shortage of duplex, triplex and small multi-family inventory for sale.

And yes, if the trend continues, I do see this leading to a small uptick in value through the end of the year. Small uptick. As in a couple of percentage points; not the thirty-plus percent in value we’ve lost since the height of the market in 2005-2006.

Remember, today’s duplex buyer is incredibly savvy. They are looking for value and are willing to walk away from the property if the price isn’t right.

So why is it a great time to sell nonetheless?

Because the robo-signing settlement was approved by U.S. District Court Judge Rosemary Collyer once week ago today.

Guess what’s started happening in the week since?

Duplex owners who initially were notified their lender had scheduled a sheriff’s sale as much as 18-24 months ago and received reprieves as a result of the foreclosure freeze, started receiving notices.

Six weeks from now, provided their lenders do not give them another extension, these duplexes will go to the sheriff’s sale; after which the owners will have six months to redeem the amount bid, or lose the property to the bank.

If you add the six month redemption period to the six week notice of a sheriff’s sale, it’s easy to calculate bank ownership of these distressed duplexes at some time around the holidays.

Banks will also inherit any tenants. If they aren’t interested in managing rental property (most aren’t), the law requires them to give tenants 60 days notice to vacate.

In other words, those duplexes will be ready to sell next spring.

Fair warning; many are in the most prestigious neighborhoods in the Twin Cities.

Meanwhile, it’s 2012 and duplex buyers are out in force. They’ve rightly heard that with low interest rates and a backlog of bank owned inventory (which is currently in somewhat limited supply), it’s a great time to buy.

There just aren’t many Minneapolis duplexes for sale for them to look at!

Minneapolis Duplex Shortage Continues

said on April 10th, 2012 categorized under: Twin Cities Real Est

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Supply And Demand Analysis ConceptFollowing last week’s celebration of an increased number of Minneapolis duplexes for sale, things returned to their “shortage” status this week.

The number of new duplex listings on the Twin Cities real estate market for the week ending March 31, 2012, dropped 25 percent from one year ago.

Of these new opportunities, 67 percent are owned by traditional sellers. This is up from last year’s 43.8 percent equity seller market share.

The week saw pending sales slip by one transaction, with 25 duplex, triplex and fourplex owners accepting offers on their properties. Of these, 48 percent are sellers with equity. This too represents increased market share over the 23 percent of equity sellers last year.

This across the board increase of traditional seller activity translated to an average off-market list price of $149,004. While this is up from last year’s average sold price for the week of $134,018, it’s important to note that on average, properties on the MLS are selling for 92.1 percent of list price.

In other words, an average price once these transactions have closed might be closer to $137,200.

The single family home market is suffering many of the inventory shortage pains that the Minneapolis and St Paul duplex market is. There, the number of new listings dropped 12.1 percent, while pending sales increased 25.2 percent over the same week in 2011.

In all, inventory is down 27.2 percent. This helped the Median Sales Price for March rise 6.4 percent to $149,000, and the average length of time a property is on the market before selling to decrease by 10 percent to 144 days.

In all, we have a 4.6 month’s supply of inventory. Anything below 5 months is usually considered a seller’s market.

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