Archive for February, 2016
Comments Off on Is A Shift In The Duplex Market Imminent?
Keller Williams Chairman Gary Keller
Last week 15,000 Keller Williams agents descended on New Orleans for the company’s annual Family Reunion convention. I was one of the thousands who experienced three days of intensive training from among the real estate industry’s best trainers and most accomplished Realtors.
For me, the highlight of this annual gathering is always our Chairman of the Board and co-founder Gary Keller’s annual Vision Speech. In this yearly 90 minute lecture, he analyzes the previous year in real estate, current economic trends and factors that may influence the coming year, and what impact he believes this may have on the current real estate market.
This year, Keller pointed out that 2015 was the third best year in real estate history. That seems tough to believe compared to the boom years of the mid 2000’s, but the data bears it out. And, as we know from our experience over the last decade, what goes up must come down.
While not forecasting a market crash of historic proportions like the decade we just experienced, Keller did believe we are facing a coming shift in the market. In other words, what currently may be labeled a sellers market may morph into a balanced one, or, perhaps even a buyers market.
His reasoning for this is twofold. Historically, real estate runs in 7-10 year cycles (he believes we are in year 8 or 9 of the recovery cycle), and there are several economic factors which if they change at all, could speed change in the market.
The chief contributor in this prediction is low interest rates and the Federal Reserve’s quite public position that as soon as the economy appears healthy enough, they intend to raise interest rates. After all, interest rates are basically the only tool they have in their toolbox to stimulate the economy in a crisis. If those rates are already low, there’s no place for them to go.
These low interest rates are the very thing that has helped housing remain affordable in spite of a rising median sales price. A one percent increase in interest rates reduces a buyer’s ability to qualify for a mortgage by $10,000.
More importantly to duplex buyers, it changes the annual cash flow by one percent of the annual mortgage. That’s enough to turn a very good investment to a mediocre or even bad one.
A second economic factor Keller cited was the large amount of student loan debt many potential first time home buyers are carrying. The national average is nearly $30,000, with monthly loan payments of $333 per month. This expense, along with high rent have made it difficult for first time home buyers to save enough for a down payment or make have a budget for a mortgage at all.
First time home buyers are the engine on the housing train. Without them, home owners can’t move up to bigger housing.
Normally, first time home buyers are responsible for 40 percent or more of annual housing sales. Last year, they accounted for just 32 percent. This may ultimately put a drag on the market.
Keller added that economic uncertainty in global economies, losses suffered by businesses in the oil industry and an anemic gross domestic product may hasten a coming real estate market shift.
If you’ve been thinking about selling your Minneapolis or St Paul duplex, this may mean it’s time to investigate selling. I’d be glad to sit down and talk with you about your duplex’s value and what your options are. Just give me a call.
To see the Powerpoint of Kellers speech in its entirety, click here.
said on February 18th, 2016 categorized under: Financing
Comments Off on Move In For The Minneapolis Duplex Low Down
One of the very best reasons to buy a duplex, triplex or fourplex is if you live there, you can acquire the property for a very low down payment.
The low down program most single family home and duplex buyers are familiar with is FHA. This program typically allows a buyer to secure a duplex, triplex, or even a fourplex with as little as a 3.5 percent down payment.
Since the buyer has so little “skin in the game” with this form of financing, the Federal Housing Authority insures the loan for the lender by charging the buyer a monthly mortgage insurance premium at a rate of 1.75 percent of the loan amount.
A $100,000 loan, for example, would come with an annual mortgage insurance premium of $1750. Split over the course of a 12 month period, this increases the duplex buyer’s payment by $145.00 a month
U.S. Bank offers an attractive alternative to an FHA loan. The American Dream loan helps owner occupants acquire a property with just a 3 percent down payment. Better yet, there are no mortgage insurance premiums associated with this loan.
Borrowers using the American Dream program must not earn more than a certain amount, and they must buy properties in low or moderate income areas. Because we live in the midwest, most neighborhoods qualify!
While not the low down payment option of the American Dream loan or FHA, there is a conventional loan option available that requires just 15 percent down, and comes with a small second mortgage for rehab purposes.
Leverage — using a little of your money and a whole lot of the banks — is a great way to acquire investment property. And there’s few ways to do it better than to do just that than to owner occupy.
Comments Off on Scarce Listings Put Minneapolis Duplex Prices On Par With 2006
In an effort to prove to myself I’m not hallucinating that there’s a lack of duplex inventory, I looked up the number of newly for sale duplex, triplex and fourplex properties that came on the Minneapolis and St Paul Multiple Listing Service in January.
Last month, there were 80 listings that were new to the market in the Twin Cities and their surrounding suburbs. (I excluded listings in places like Eveleth and Waseca.)
Looking back, in January of 2015, there were also 80 new listings that came on the market. So perhaps I am imagining monsters in the closet after all.
Then, just for fun, I thought I’d take a look back at 2006; a year which most experts believe was the peak of the duplex market.
There were 338 new listings; at a time when real estate was thought to be a sellers market.
Here’s where things get really interesting. In January of 2006, there were 206 duplexes, triplexes and fourplexes that sold for an average price of $275,737.
In January of 2016, there were 59 multifamily properties that sold. Their average sales price? $271,641.
And since we currently have so little inventory compared to 2006, what do you imagine will happen if you sell now?
Comments Off on How Your Duplex Investment Specialist Can Help You Have Bigger Pockets
Ever heard of the web site Bigger Pockets?
It’s a great site full of useful information for both new and experienced real estate investors. From simple, basic investment strategies and education to more sophisticated methods for the experienced investor, odds are you can find an article there that will be useful to your real estate investment career.
What you may not find there, however, is local market data that is specific to what your real estate goals and tolerances are.
For example, you may find someone who swears you can get a certain rate of return in your city. And while that may well be true, it might be in a neighborhood you either know nothing about, or one that may not be geographically convenient for you or even a place you’d like to invest.
You may also find that what’s true in Dalhart, Texas, isn’t what’s true in Minneapolis, Minn.
First, laws may differ between states, counties, and even cities. Second, one may have lower levels of unemployment than the other, which drives demand for housing, increases rents and the cost of acquiring rental property, and makes higher rates of return more challenging to realize.
Finally, it is the Internet. Sometimes people will tell you only part of the story. For example, someone may tell you they are able to purchase real estate in a hot part of a city at deep discounts. What they won’t tell you, however, is that they spend every single spare minute of their time tracking down people who are behind on their mortgage payments, or that the properties they purchase need tens of thousand of dollars of improvements and repairs before they can be rented.
So how can you make sure you have a local read on what the investment property market is like in your area?
Contact a local Realtor who specializes in investment property. Go in to his or her office and have a conversation about the market, what their clients are finding, and where they see the market going.
If you’re in the Twin Cities, please feel free to contact me for that conversation. I’m always happy to share what I know.
Comments Off on Urban Duplex Myths: Tenants and Alligators
Ever heard the urban myth about alligators in the sewer system?
It’s not true.
How about the one about being required to give tenants 24 hour notice before entering or showing a rental property?
It’s not true either. And yet, many duplex owners continue to believe it.
Unless your lease specifies that you must give your tenants 24 hour notice, the state of Minnesota requires only that you make a reasonable attempt to notify your tenants that you will be entering their residence for business or maintenance purposes.
State law does not define “reasonable notice”.
This becomes especially important when you are considering selling your duplex.
Duplex buyers are busy people, just like the rest of us. Often times, they get a window of opportunity to look at property at the last minute. And if your duplex requires them to give 24 hours notice, they may have to postpone their visit for several days.
Tenants do not have to leave the property. And the fact is, most of the time buyers are not in the units any more than 5 or 10 minutes.
Sometimes, one of the fastest ways to sell your duplex quickly is simply to explain this to tenants.
After all, as soon as you accept an offer the showings will come to a stop.
Comments Off on Why I Can’t Help You Help Your Realtor Find A Duplex For Sale
Finding a duplex to buy in today’s seller’s market is the equivalent of buying a needle in a haystack.
Duplex buyers often reach out and ask me to help join the hunt. And sometimes they are just looking for hints as to where they can find all of duplex sellers who aren’t on the market in a given neighborhood or suburb.
At this point in our exchange, the state of Minnesota requires me to ask if they have signed a buyer’s representation agreement with another Realtor.
If they have, and that agreement is an “Exclusive Right To Represent Buyer”, the state says I cannot help unless or until it has either expired or they have agreed to cancel the contract. If I don’t honor that contract, I could be fined or even lose my real estate license.
As a buyer, the best thing you can do is sign either this kind of contract, or, a Non-Exclusive Right to Represent Buyer contract with a Realtor.
This document demonstrates to the agent that you are as serious and committed to finding yourself a property as they are. More importantly, it gives them the right to represent, advocate for and advise you throughout your search and the transaction.
If you are working with a Realtor in this capacity, you must have him or her reach out to me directly. The agent should also be working on their own, at a time with such tight inventory, to find you a property.
Of course, if you aren’t working with an agent, please feel free to contact me. While they aren’t quite ready to actively market their properties, I am in touch with a number of duplex owners who, under the right circumstances, would sell.