Archive for August, 2013
Comments Off on Minneapolis Duplex Sales Provide No Answers
When I compile the weekly duplex market statistics for the Twin Cities, I try to spot trends. Is the market picking up? Is it slowing down? Where are prices going? Where have they been?
And sometimes, there isn’t anything terribly revealing in the numbers. Take, for example the week ending August 17, 2013.
There were 14 Minneapolis and St Paul duplex, triplex and fourplex owners who accepted offers during the week. Of these, 64.3 percent were didn’t need to have a conversation with a bank in order to decide to sell. On average, the final listing price for these properties was $142,706.
During the same week last year, there were 19 duplex owners who accepted offers. Just 36.8 percent of these sellers had equity in their properties. On average, their properties sold for $144,936.78.
The number of new listings for the second week of August this year topped out at 32. The vast majority, 87.5 percent, belonged to equity sellers. During the same week in 2012, there were 30 new small multi-family listings; just 56.7 percent of these were being sold by traditional sellers.
The single family home market saw the number of new listings jump by 27.8 percent. Pending sales also rose 8.7 percent during the week. Total inventory is down 10.1 percent.
Perhaps fall will bring more definitive answers.
Comments Off on How To Avoid Long Duplex Vacancies
What’s the one thing you can do to make sure you don’t spend more time with a vacant unit on your hands than you can afford?
Lower the rent.
Yes, I’ve blogged about this before. And, to some of you, it may seem obvious that lowering the price (rent) would result in immediate occupancy. However, that is actually the biggest fear my clients who intend to occupy their duplex have.
They worry they’ll go months and months without tenants, emptying their life savings to cover the mortgage payment.
And I wonder if they are envisioning themselves as the world’s worst landlords.
If you have an empty duplex, and endless advertising on Craigslist hasn’t netted you a qualified tenant, one of two things is wrong:
- It’s dirty or dated and needs a face lift.
- The rent is too high.
After all, if you have a clean, well-maintained unit available for rent that’s $100 or $200 less per month than every other property in the area, do you think you’ll have trouble finding a tenant?
I doubt it.
said on August 22nd, 2013 categorized under: Financing
Comments Off on How To Buy A Duplex — After Your Foreclosure
Ready for some big news?
On Friday, the Federal Housing Administration (better known as FHA) announced they will allow borrowers who’ve gone through foreclosure, short-sales, deeds-in-lieu or bankruptcy to reenter the duplex and housing markets as quickly as 12 months after the event.
Normally, duplex buyers would have to wait at least three years to get another FHA insured loan. However, this new guideline allows for certain borrowers who lost their properties as the result of an economic hardship to qualify even earlier.
In other words, if the borrower’s financial hardship was the result of a recession-related event, FHA will consider them.
This should allow for thousands of people who wanted to participate in the housing recovery, but couldn’t because of a job loss, to enter the market.
To qualify, borrowers must show documents that demonstrate that credit issues were from a job loss or loss of income that was beyond their control. The buyer must be able to prove an income loss of more than 20 percent, which lasted for more than six months.
Of course, borrowers must be able to demonstrate they’re currently employed, and have had “satisfactory credit” for at least 12 months. This is defined as 12 months of good payment history on a mortgage, rent, or credit cards.
The new guideline is effective until September 30, 2016. It is subject to “bank overlays”. In other words, it will available only if a lender agrees to follow FHA’s guidelines.
Comments Off on Duplex Sellers Appear Out Of Nowhere
I did a cartoon double-take this morning when I saw the number of new Minneapolis and St Paul duplex, triplex and fourplex listings for the week ending August 10, 2013.
There were a whopping 63 new listings during the week. And 77.7 percent of those came from sellers with equity in their properties.
Compare that to 24 new listings during the same week one year before; 62.5 percent of which belonged to equity sellers.
There was a similar numbers explosion with the Minneapolis and St Paul duplex owners who accepted offers during the week. Of the thirty-nine who did so, 71.7 percent have equity in their properties. On average, the last price these duplexes were listed at was $190,169.
There were 66 percent fewer sellers during the same week last year. In other words, just 13 owners accepted offers on their properties. The vast majority, at 76.9 percent, were equity sellers, whose average sales price was $204,441.
The single family home market saw a 19.1 percent jump in the number of new listings for the week. Pending sales also continued to be up, rising 10.1 percent over the year before. In all, inventory decreased 11.3 percent for the year.
Rising inventory should help ease the frustration many Minneapolis buyers have been facing in their duplex search.
Comments Off on How To Use A “Checkbook IRA” To Buy A Duplex
As I’ve discussed in the past, a self-directed IRA gives its owner the ability to invest in real estate, among other things.
To be brief, the IRS allows you to put some or all of the funds in your IRA into real estate, so long as you don’t benefit directly.
To ensure this, the IRS requires you to put that IRA in the trust of a custodian. (There are companies who specialize in this such as Entrust and Nexus Direct IRA.)
This could be expensive when it comes to real estate; especially if the custodian charges fees to write the checks for monthly expenses like water and trash, snow removal, etc.
However, there is a simpler, more cost-effective way to structure your IRA, which also gives you more control over your duplex.
A checkbook IRA, also called a self-directed IRA LLC, is created when you set up or roll-over your existing IRA into a self-directed account. Then you create an LLC to be owned by the IRA. You tell your IRA custodian to invest in the LLC, which you then manage yourself.
There are restrictions. Anything you earn must go directly back into the IRA. You can’t compensate yourself or use the duplex as your own primary residence or vacation home. You also can’t do business with any family members.
However, you can sell a duplex and buy another one, buy multiple properties, raw land, and even pool your money with other investors. Any money you use to buy, repair or maintain the duplex must come from your IRA, not you personally.
Of course, there are fees to initially set up the LLC, but ultimately, these should total a lot less than paying a custodian to write out checks every month on your behalf.
Comments Off on Investors Flee Duplex Market
According to the National Association of Realtors, just 15 percent of June’s housing sales were driven by investors.
This is the lowest market share they’ve had since October, 2008.
On average, in the months and years since, they’ve been responsible for 30 percent or more of monthly sales. June marked the fourth straight month of decreasing investor activity.
Why are they exiting the housing market?
Rising prices and rising interest rates.
This makes sense. After all, investors are interested in making money. Paying more for a property reduces either cash flow or profit, as does paying more to use the bank’s money to buy it.
Believe it or not, investors’ presence in the market has actually impacted first time home buyers, who are usually responsible for 40-45 percent of monthly real estate sales.
The market presence of investors has caused an increase of prices, but not enough to allow many under-water homeowners to have enough equity to move-up into bigger houses. This, in turn, has led to a shortage of inventory for first time home buyers to choose from, forcing them to continue renting rather than buying.
While monthly housing numbers continue to be good, remember, monthly sales reports are the result of closings on properties that were put under contract one to two months prior. We should start to see the impact of interest rates on sales in the next month or two.
And those numbers may suggest we have a slower recovery in the housing market than we think.
Comments Off on Traditional Duplex Sellers Are Back
If there’s a trend in Minneapolis and St Paul duplex sales the week ending August 3, 2013, it’s that the traditional seller is definitively BACK.
Of the 26 duplexes, triplexes and four unit building owners who received and accepted purchase agreements during the week, a whopping 76.9 percent were people with equity in their properties. This was reflected in a higher average final list price of $179,919.
Last year, there were just 14 small multifamily property owners who received and accepted purchase agreements. Just 35.7 percent of those sellers left closing with money to put in the bank. And it wasn’t a lot, with an average sold price of $112,746.
During the last week of July, 2013, 28 new listings hit the market. Duplexes offered by equity sellers far outnumbered those listed by banks, with an 85.7 percent market share.
Of last year’s 19 new sellers, 68.4 percent didn’t have to consult with a lender in order to sell.
The single family home market continued to outpace last year’s market, with new sales up 15 percent, listings increasing 18 percent and overall inventory dropping 11.9 percent.
Tight inventory continues to force prices upward, with July’s Median Sales Price finishing at $208,000.
Let’s hope for more good news as we march toward fall.
Comments Off on US Bank Gives Duplex Buyers The Low Down
One of the biggest challenges many buyers who hope to owner occupy a duplex have had is financing. After all, until recently those people really only had two mortgage options; FHA and conventional.
While FHA offered the distinct advantage of a low, 3.5 percent down payment, this was offset by increased mortgage insurance premiums of the life of the loan. For many, this made monthly mortgage payments unexpectedly expensive.
Of course, for those with the financial resources, there was always the option of putting 20 percent down on a conventional loan. However, for many would be owner occupants, looking at a down payment of $40,000 or more isn’t even conceivable, let alone possible.
However, as the real estate market recovers, banks have begun to look for better ways of doing business with prospective duplex buyers. The best example to date of that is US Bank’s American Dream loan.
The loan is really pretty remarkable. While a borrower cannot currently own any other property, he or she doesn’t have to be a first time buyer, have a minimum credit score, and may even use up to 75 percent of a duplex’s rental income to help qualify for the loan.
Better yet, US Bank will even give the borrower up to $3000 to be applied toward the down payment or closing costs, and may even allow up to $5000 to be escrowed for repairs.
According to US Bank loan officer Conor Hesch, borrowers are not required to have a minimum credit score, and may use alternative forms of credit (like cell phone bills) to qualify.
The loan has no mortgage insurance. Interest rates are typically .5 point higher than FHA loans.
Combined, all members of the buyer’s household must not earn more than $65,000. However, that requirement is waived if the duplex is in a neighborhood where census data indicates most of the neighborhood is of low to median income. This actually encompasses many of the Twin Cities’ most sought-after neighborhoods, as the census counts data from both tenants and homeowners to calculate household income.
The loan may be used to purchase 1-2 unit properties, townhouses and condominiums.
Comments Off on Minneapolis Duplex Sales Trend Changes Again
Just when I think I’m on to the latest trend, things change. Just like the Minneapolis and St Paul duplex market just did.
For the previous four weeks, we saw a steady year-over-year decline in duplex prices. I was convinced this was a result of increased inventory and higher interest rates. And just as I was about to declare the market was changing, it did just that in a way that was completely unexpected.
In fact, for the week ending July 27, the average final list price for the 29 Twin Cities duplexes, triplexes and fourplex sellers who accepted offers on their properties was $213,489.
This certainly is better news since the average sold price for the 24 sellers during the same week in 2012 was $155,397.
This might be explained with the fact that 45.8 percent of the 2012 sellers had equity in their properties, compared with the 72.4 percent of this year’s sellers who do.
During the same week, traditional sellers also came out in force, contributing 87.1 percent of the 31 new listings. Last year, equity sellers brought just 60 percent of the 20 new listings to the market.
The single family home market also saw new listings increase by 19.7 percent, pending sales rise by 18.4 percent and overall inventory drop by 12 percent.
Comments Off on Duplex Mortgage Delinquencies At 5-Year Low
There’s good news for prospective duplex and single family home owners this week as Equifax reported the total balance for seriously delinquent mortgages is at a five year low.
In June, the number of loans either more than 90 days past due or in foreclosure was down 27 percent from last year, to $325 billion. Most of these loans are of an older vintage, as just 7 percent of the current delinquencies were originated in 2010 or after.
Of course, if there are fewer delinquent mortgages, there are subsequently fewer foreclosures. Therefore, it isn’t surprising that the number of loans that moved through the foreclosure process to become bank-owned was down 19 percent as well, to $13.5 billion. This is the lowest level since June, 2007.
What this means for most property owners is a decreasing likelihood of having equity in their duplexes should they decide to refinance or sell.