Archive for November, 2012

When Is It A Landlord’s Market?

said on November 30th, 2012 categorized under: Multi-Family Property Investing

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5 percent landlords marketWe’ve all heard that it’s a duplex sellers market when there’s less than a five month supply of inventory for sale, right?

So when is it a landlord’s market?

Five must be a magic number.

According to the National Association of Realtors (NAR), it’s a landlord’s market when vacancy rates dip below 5 percent. And it’s at that point that duplex owners can justify charging more in rent.

To put this in perspective, Minneapolis currently has a vacancy rate of 2.3 percent. Nationally, only Portland (2.1 percent) and New York City (2.2 percent) have lower vacancy rates.

With job creation forecast to be modest into 2013, many would-be home buyers are likely to continue to be tenants. This continued competition for places to live should help Minneapolis duplex owners increase rents in the coming year, which of course, will help cash flow.

At the risk of being redundant, I’m going to say it again. It’s a great time to invest in Minneapolis duplexes!

Minneapolis Duplex Sellers Take Over

said on November 27th, 2012 categorized under: Twin Cities Real Est

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duplex sellers in chargeIt’s official. Minneapolis and St Paul duplex owners know it’s a great time to sell a duplex.

So much so that duplex sellers with equity contributed a whopping 74 percent of the new inventory on the market the week ending November 17, 2012.

Now, the total number of listings for the week was down by two from the same week one year ago. However, just 44.8 percent of those duplexes listed for sale were being sold by people who had equity in their properties.

The increased presence of traditional sellers usually means higher average sales prices. And yet, in something of a market anomolly, the average final list price for the week this year was $134,772; down from last year’s sold price of $134,772.

Pending sales for the week were down by one from last year. However, 60 percent of the twenty sellers who received and accepted offers on their properties have equity. This is up 7.6 percent from last year.

In the single family market, there was a minor increase in inventory, with the number of new listings up 11.4 percent from a year ago. Meanwhile, pending sales were also up 9.8 percent.

In all, inventory is down 29.4 percent, totalling less than 15,000 properties to choose from in all on the Multiple Listing Service.

In all, there are less than four months of inventory on the market, meaning it truly is a seller’s market.

How To Rehab Your Duplex Without Going To Home Depot

said on November 26th, 2012 categorized under: Home Repair

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duplex rennovationMany duplex owners and buyers believe the only way to make their property worth more is by swinging a hammer and grabbing a paintbrush.

They spend hundreds, sometimes thousands of dollars installing new windows, granite countertops and central air conditioning, while overlooking the most obvious and inexpensive improvement of all: raising the rent.

Increasing rent to at or just below market value can add tens of thousands of dollars in equity to a duplex, triplex, fourplex or even large apartment building.

And yet, owners often refuse to do it.

Why?

Simple. They are afraid of losing tenants.

This is ironic, because most tenants are aware they are not paying market rent. They will not be surprised by a rent increase and in fact, won’t move if that increase is such that it still keeps their rent at bargain rates, but puts more money in the landlord’s pocket.

For example, let’s say a tenant is paying $800 for a two bedroom unit in a neighborhood that usually commands $1100 for comparable properties. (Of course, each must be in good condition.)

Raising the rent $150 a month will result in the tenant still “getting a good deal”, while the landlord increases her revenue stream by $1800 a year.

If each unit in a duplex is similarly under-rented, and the duplex owner gives both tenants rent increases, that would result in $3600 more a year in her pocket.

While market gross rent multipliers and cap rates are highly market and neighborhood specific, even if we use a conservative GRM of 6, means an increase in property value of $21,600.

The same calculations can be applied when buying a duplex as well. If rents are below market rate, a simple letter notifying tenants of an increase when their lease is up immediately adds value and increases cash flow.

All without a single trip to Home Depot!

Minneapolis Duplex Sellers Giving Thanks

said on November 21st, 2012 categorized under: Twin Cities Real Est

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Minneapolis Duplex Sellers Give ThanksMinneapolis and St Paul duplex sellers have a lot to be grateful for this Thanksgiving.

For the week ending November 12, 2012, there were 11 Twin Cities duplex, triplex and fourplex sellers who received and accepted offers on their properties. Of these, 45 percent were traditional sellers with equity in their properties.

While the number of pending transactions was down slightly from the same week in 2011,  just 21.4 percent of last year’s sales belonged to equity sellers. This year-over-year increase in equity seller market share resulted in an average off market list price of $132,118 for the week this year; up slightly from last year’s average sold price of $129,089.

There was additional good news in the amount of newly listed duplexes on the market as well. The week saw a 13 percent increase over last year. Traditional sellers dominated this year’s market, contributing 65 percent of the week’s new lisitngs.

The single family home market saw a decline in new listings; down 9 percent over the same week one year ago. Meanwhile, pending sales jumped 11.3 percent, dropping total inventory 29.1 percent.

There are just 3.7 months of inventory availble for buyers in the market. A balanced market is when there’s a five month supply. Anything less, and it’s a sellers market.

That’s news many underwater Minneapolis duplex and home owners should be thankful for.

Have a safe holiday weekend!

What the “Fiscal Cliff” Means To Duplex Sellers

said on November 19th, 2012 categorized under: Selling A Duplex

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duplex sellers Fiscal CliffWe’ve all heard or read about the looming “fiscal cliff” if Congress and President Obama fail to strike a deal before the year’s end. But what does it mean, and far more importantly, what does it mean to Minneapolis duplex owners?

Basically, the fiscal cliff is the ultimatum Congress gave itself a few years ago.

They decided if they failed to produce a balanced budget in 2012, automatic triggers including spending cuts and tax increases would being the first day of 2013.

One of these was an increase in the capital gains tax; which is basically, the amount of taxes you pay on a duplex sale after expenses.

For the past 10 years or so, the capital gains tax rate has been relatively low. In fact, through December 31, 2012, it is 15 percent.

Unless Congress acts to change the increases they planned for 2013, it will go up to 20 percent.

In other words, on a gain of $100,000, you would pay $15,000 in taxes if you sold before December 31 and $20,000 if you sold your duplex after January 1.

While five thousand dollars is a lot of money, consider this. In the 1970’s, the capital gains tax rate was 39.9 percent, and in much of the 1980’s and 1990’s, it hovered closer to 28 percent.

In this context, if something doesn’t change, 20 percent still looks like a pretty good deal.

Freddie Mac Breaks Up Duplex Party

said on November 15th, 2012 categorized under: Short Sales/Foreclosure

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it is duplex party timeJust when we were starting the party for the return of the Minneapolis duplex market, Freddie Mac called and asked us to turn down the music.

In fact, according to their November Housing Market Outlook, if trends continue along their current trajectory, we can celebrate a full recovery in 2017.

Yes, Freddie says, there were seven consecutive months of positive gains through August. Yes, home sales through the first nine months of the year were up 9 percent from last year and on pace for five million units but…

There’s those nagging issues of 7 percent unemployment and modest family income growth, which have put something of a damper on the formation of new households.

It seems the rate of household growth during the housing collapse of 2007-2011 ran at a paltry .5 percent per year. Between 1990 and 2006, that figure ran closer to an average of 1.2 percent. Over the last four quarters, we’ve seen that figure around 1 percent. Encouraging, but there’s still a lot of making up to do.

In its caution, Freddie is also taking into account demographic shifts among Generation Y and the Baby Boomers. It appears the former are living with mom and dad longer. Meanwhile, the Boomers are delaying buying retirement homes — because their kids are still living with them.

Freddie’s report did offer one reason to celebrate. They actually believe we will see house and duplex prices appreciate at a rate of about 3 percent a year.

Since that’s a whole lot better than declining values, I say, party on!

Comments Off on Duplex Shortages Mean It’s A Great Time To Sell Your Minneapolis Duplex

duplex prices riseThis year we’ve become accustomed to news that Minneapolis duplex sales were up.

After all, with historically low interest rates, low vacancy rates, and undervalued inventory, why wouldn’t it be a great time to buy investment property?

Of course, increased demand for something tends to drive prices up. And when that happens, duplex owners once again become interested in selling.

For the week ending November 3, the number of new duplex listings to the market was greater than the number last year. Granted, it was an increase of only 11 percent, but it’s a start. Half of these new listings are being offered for sale by traditional sellers.

It goes without saying that the number of pending sales was up as well. There were 20 duplex owners who accepted offers on their properties the first week of November, compared to just 11 for the same week in 2011. Of these 20 sellers, 45 percent were offered by traditional sellers. Last year, just 18 percent of the new listings did not involve a bank in the negotiations.

The single family home market say pending sales increase 25.3 percent over last year. However, new inventory continues to be scarce, with new listings down 1 percent.

For the month of October, the median sales price for Twin Cities homes increased 14.8 percent to $174,995. With just 3.7 months of inventory on the market, sellers continue to set price and terms.

It continues to be a great time to sell.

Comments Off on Why The Highest Minneapolis Duplex Offer Isn’t Always The Best

terms and conditionsOne of the most difficult things for a duplex buyer to understand in how, when in multiple offers, the winning buyer may have offered less for the property than they did.

What’s important to remember is there are two components to any purchase agreement:  price and terms.

Sometimes, the terms of an offer are more important to a seller than a few thousand dollars in price. Those might include one or more of the following:

Cash – Most sellers, including banks, would rather get their money sooner, rather than later. Financed offers usually take around 30 days to close. Cash offers, on the other hand, can close as soon as the title work is finished. More importantly in today’s market however,  is the sale is not contingent on an appraiser determining the property’s value and therefore, the amount a bank will lend on it.

No Inspection – Inspections are a great idea for a buyer. After all, major health and safety defects can cost a duplex owner thousands of dollars. That’s the problem, however. Sellers often recognize the results might also cost them thousands of dollars in either the sales price or repairs.

Conventional Loan – FHA insured loans are approved only if a property meets a certain set of  minimum criteria when it comes to condition. Sellers can either make these repairs, or risk losing the sale. Many duplex owners aren’t willing to take that risk.

Quick Closing – Most sellers, including banks, prefer to get their money as quickly as possible. Financed offers usually take at least 30 days to fund, while a cash offer can close as soon as the required title work is done.

Non-Refundable Earnest Money – To demonstrate their commitment to buy a property, a buyer’s Realtor may write an offer in which, in the event the buyer doesn’t move forward with the offer, the seller may keep their earnest money.

More Earnest Money – A buyer may not only make their earnest money non-refundable, but may also make that amount so substantial that all other offers pale in comparison. A seller may be enticed to accept an offer, for example, because if the buyer doesn’t move forward with the purchase, the seller gets to keep $10,000.

Today’s Minneapolis duplex investors market is extremely competitive, and buyers are doing everything they can to make the winning offer on hot properties. If you find you’re losing more often than winning, you might want to change your terms!



Minneapolis Duplex Sellers Take Control

said on November 7th, 2012 categorized under: Twin Cities Real Est

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Duplex sellers take chargeIf there was a moment in time when the Minneapolis duplex market began to shift from a buyer’s to a seller’s market, it might have been during the last week of October in 2011.

That week, 32 Twin Cities duplex, triplex or four unit apartment building owners received and accepted purchase agreements. Seventeen of these owners actually had equity in their properties. On average, these properties sold for $152,145. However, what’s truly amazing about this is that there were  32 properties for investors to buy!

Compare that to the 19 listings that sold for the week this year, where 47.4 percent of the listings were brought to market by traditional sellers.  These pended sales left active status on the MLS at an average final list price of $184,426.

The number of new listings for the week in 2012 decreased from 2011 by one, with 28 new duplex investment opportunities coming on the market, compared to 29. Of these new listings, 53.6 percent are being sold by traditional sellers; a significant increase from last year’s 37.9 percent.

The single family home market saw new listings decrease 3 percent, pending sales increase 11.1 percent, and overall inventory decline 28.8 percent.

I’ve said it before, and will again. Sellers are back in the driver’s seat, meaning it’s a great time to sell a Minneapolis duplex.

Vacancy Rates Make Duplexes A Great Investment

said on November 5th, 2012 categorized under: Buying A Duplex

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minneapolis duplex investment secretThe secret is out. Minneapolis and St Paul duplexes, triplexes and apartment buildings are great investments.

There are three reasons for this:

  1. Historically low interest rates
  2. Low property values
  3. Extremely low vacancy rates

It’s number three I want to talk about today.

According to a report this morning, Marquette Advisors, who are the folks who compile this data, Twin Cities vacancy rates were up slightly to 2.7 percent for the third quarter. This is .4 percent higher than the third quarter last year.

Of course, this figure is still ridiculously low; especially when you start breaking down those rates by city, and city sections, and their average rents:

Minneapolis- 1.6%, $995

Downtown Minneapolis – 1.7%, $1257

Southwest Mineapolis – 1.6%, $899

North Minneapolis – 1.1%, $872

South Minneapolis – 1.8%, $883

East Minneapolis – 1.5%, $884

St Paul – 2.8%, $910

Twin Cities – 2.7%, $951

On average, rents are up 2.8 percent this year over last; to $951 compared to $925 one year ago.

While things are good, it’s important to remember at some point the market will swing the other way. Vacancy rates will go up, and rents will likely go down.

Right now, however, life is awfully good for Minneapolis duplex investors.

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