Duplex Chick

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Like comic book super heroes, Minneapolis and St Paul duplex sales took off the week ending May 12, 2012.

Thirty-three cape-wearing duplex, triplex and four unit building owners accepted offers during the week; 54.5 percent of which did not need to call the bank for permission.

Compare this to last year’s Clark Kent-ish numbers, when just 25 Minneapolis investment property owners accepted offers; of which a mousey 32 percent were equity owners.

The number of new listings coming onto the market continued to be less heroic, however. There were just 25 new duplex opportunities for buyers, with 68 percent of them brought to market by traditional sellers.

Last year, there were 36 new duplex listings, with 41.6 percent of them being listed with property owners who were not in distressed situations.

This dynamic duo of increased duplex buyer activity and little new inventory ka-p0wed last year’s average sold price for the week of $133,604, finishing at an average off-market list price of $179,588. Granted, odds are when those transactions are finally closed and booked as sold, the average price will likely be about 8 percent less ($165,229.95), but it’s still a dramatic improvement over last year.

The single family home market also experienced a Wonder Woman-like transformation, spinning around to finish the month with a median sales price up 12.1 percent to $162,500.

Meanwhile, for the second week in May, pending sales leaped up 18.9 percent, while new listings dropped 11.8 percent.

This one-two punch further cemented this as a seller’s market, with just 4.7 months of inventory currently available. (A balanced market is when there is a 5-6 month supply.)

While this is all wonderful news for our market-decline crusaders, it’s important to remember no matter the comic, villians have a way of springing back to life.

We’re not at our happy ending yet.

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2012 Kentucky Derby Winner, I'll Have Another

It seems if you want to buy a Minneapolis duplex these days, you might need to have a large daily limit on your ATM.

That’s because to a duplex seller, cash is like betting on a sure thing.

Many of the best duplex properties coming on the market generate a lot of buyer interest, and are getting multiple offers.

And when it comes to choosing a low all cash offer, or a higher offer that requires the buyer to get a loan, many duplex sellers are  choosing to take less money now.

That’s because to a Minneapolis duplex seller, cash offers are sure to come through, while a financed offer is a maybe.

In a seller’s mind, there are all sorts of things that could go wrong in the process of a buyer obtaining a bank loan.

For example, a furnace might fail an inspection, which would mean the buyer’s lender would refuse to finance the property, cancelling the sale.

Or, an appraisal might come back lower than the purchase price, resulting in the seller possibly receiving less than even the cash offer they have in hand; all due to a single appraiser’s opinion of value.

An offer from a cash buyer can typically close in a matter of days or a week.

Financed buyers, on the other hand, usually take more than a month. This is due to the bank’s requirements for documentation of a buyer’s income, as well as obtaining an independent opinion of value from an appraiser.

To many duplex sellers, especially banks, this is not a sure thing. And they simply want to bet on a buyer who is.

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When 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!)

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If 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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When 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).

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Until now, it’s been difficult for upside down duplex investors to get the government-backed loan modifications available to owned-occupied duplexes and single family homes.

In late January, however, the Obama administration announced an expansion of the HAMP program to allow investors to qualify.

According to a report in Bloomberg News, Timothy Massad, the Treasury’s assistant secretary for financial security said starting in May, landlords can use the Home Affordable Modification Program (HAMP)  for up to four loan workouts, as long as they rent out each property or have plans to fill them.

The federally-subsidized program pays banks to cut interest rates, lengthen the terms or forgive some of the mortgage principal.

The theory behind the change in policy is keeping current owners in place prevents tenants from being evicted. Massad said, “Vacant properties are a problem no matter how they became vacant.”

Almost one in every four home purchases in January were investment or vacation properties.

It is estimated that about 700,000 landlords will be eligible to modify their mortgages.

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For the first time in ages, there were more new Minneapolis and St Paul duplex, triplex and four-plex listings that came on the market for the week ending February 25, 2012, than there were the same week one year ago.

Granted, there were only two more duplexes for sale year-over-year, but after months of shrinking inventory, those two were like two inches of rain in a desert.

Minneapolis and St Paul duplex sellers with equity made a significant contribution to the number of new duplex investment opportunities, bringing 45 percent of the new listings to the market.

One year ago, equity duplex sellers pitched in just 31 percent of the market inventory.

For the most part, however, the number two seemed to be a theme, as there were also two more Minneapolis duplex sellers who received offers on their property than there were for the week in 2011.

Of the twenty three Twin Cities duplex owners who signed purchase agreements on their properties during the week, 26 percent were traditional selelrs with equity in their properties. This represents a slight increase of– you guessed it, 2 percent in distressed duplex market share.

Like the Minneapolis duplex market, the single family home sector saw a slight increase in inventory as well, rising 1.2 percent from the same week in 2011.

This increase of inventory, however, won’t be enough to compensate for the 49.5 percent jump in pending sales for the week, which helped the total number of homes for sale on the market drop 23.5 percent.

As we continue to get improving economic and  jobs reports, let’s hope we also continue to get encouraging real estate news.

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Many duplex buyers want to see every duplex for sale in Minneapolis.

Even if the first one they see on the first day they go out looking for duplexes with me is the best one they’ve seen all day, they don’t feel like they’ve seen enough.

This is ironic, especially in the age of the Internet. After all, don’t we all sit at home in our pajamas looking online at duplexes for sale, scrolling through the pictures, and deciding which ones we don’t want to see?

Part of my job as a Realtor who specializes in duplexes is to know the market. That includes both existing and coming inventory well. And it also includes offering counsel as to what is a good buy.

When I sit down and visit with a duplex buyer for the first time and ask questions, I mentally eliminating properties that won’t work for them, based on the information they give me.

For example, if a duplex buyer tells me she’s willing to do cosmetic work to a property, such as painting or stripping wallpaper, I mentally discard the duplexes for sale that I know need more extensive rehabilitation.

If my client says they like built-in buffets and woodwork, I focus my attention on the Craftsman era duplexes where those characteristics are found, rather than the 1960’s side by side duplexes which don’t include them.

And if my client needs three bedrooms in each unit, there really isn’t a point in showing them duplexes with two.

In other words, I don’t show buyers properties that don’t suit they’re needs.

When you work with a duplex specialist, especially one with years of experience, not only will that Realtor help you find a great duplex that’s also a good buy, but more importantly, they will save you time.

And that’s the one thing none of us can never get back.

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Reading news about the duplex and single family home sales makes my head spin.

Today alone I read the following headlines:

“Overdue Mortgages Number 6,082,000″.

“Report Reveals Delinquency and Foreclosure rates Down for 4th Quarter”.

“January Homes Sales Up Again”, which was immediately followed by “Experts Respond to January Homes Sales Report”.

It makes it difficult to know what, exactly, is going on in the market.

Having read all four articles, I can tell you this:

Last month, total foreclosure inventory was 4.15 percent. This was up 1.1 percent over December 2011, but just 0.1 percent lower than it was in January of 2011. (In other words, we haven’t gained much ground over 2011).

There were 2,084,000 properties counted as part of last month’s national foreclosure inventory.

This figure does not include the 3,9998,000 properties with mortgages more than 30 days late. Of these, 1,772,000 nationally are more than 90 days late with their mortgage payments (but have yet to be foreclosed on.)

Data from RealtyTrac shows a slight increase in foreclosure filings in January, which may mean banks are starting to process foreclosures.

Yes, single family, duplex, triplex and four unit building sales were up in January.

However, 35 percent of these sales were distressed properties — either short sales or foreclosures. This market share is up from 32 percent in December, but down from 37 percent in January 2011.

Of the 4.57 million one to four unit properties that sold in January, 31 percent of them sold for cash.

In other words, it’s likely investors were responsible for nearly one-third of all real estate sales in January.

Perhaps the best summary of all came from the Mortgage Bankers Association. Their chief economist, Jay Brinkman, said we are about halfway to the pre-recession days.

Yes, things are getting better…and, we still have a ways to go.

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When I work with a duplex buyer, one of the things I require is that they agree to give me the exclusive right to represent them.

After all, I work hard to find my clients great duplexes to buy; both on and off the Multiple Listing Service (MLS).

And if I’m willing to put all of that work in, I want to be sure that buyer isn’t going to bring some other Realtor in at the last moment who will get paid for my efforts.

When I discuss the terms of the exclusive representation contract is that the buyer understand I have other potential buyers I may be working with, and it’s possible that some or all of  those clients might be interested in the same properties.

In the decade I’ve been a licensed Realtor, I’ve shown many duplexes to multiple clients. Believe it or not, it is extremely rare that more than one buyer has been interested in the same property at the same time.

Every now and then, however, it happens. Especially if a duplex is a very good deal.

When it does, I am honest with both parties. I give both my opinion of market value on a property, and what terms I believe the seller might be willing to accept.

I never disclose the amount of one buyer’s offer to the other.

In fact, if one or both buyers are uncomfortable with the situation, I even offer the services of another Realtor in my office who has experience in investment property.

This agent helps the duplex buyer fill out the price and terms of their offer, and, if the client wishes, either sends the offer to the listing agent or presents it in person. This agent represents the buyer only for this period of time, and if the offer is either accepted or rejected, I step back in as their Realtor.

I do my very best to treat everyone fairly and equally.  I want everybody to get a great deal on a duplex, and change their financial future forever!