My client has invested and occupied income properties for many years. And he asked whether he was correct in not seeing the precipitous price drops in the four unit buildings that are occurring in the duplex market.
Yes and no.
Remember that old law of supply and demand? How if the demand for a product is greater, the price goes up? Well, this law applies when it comes to small multi-family properties (one to four units) as easily as everything else.
While FHA loans are available for duplexes, tri-plexes and four-plexes, most owner-occupants simply prefer duplexes. And while the amount of rent the other unit generates still played a role in a purchase, it didn’t carry nearly the weight of the more emotional nature of buying a home to live in. The duplexes that triggered those feelings typically sold for the higher prices that emotions always command. Consequently, they also rode the great wave of appreciation.
Well, aren’t there four-plexes with charm? Of course! But the prospect of coming home to three tenants with issues was and is, to many, far more daunting than the thought of simply one renter. This higher level of demand helped drive up prices during the boom years.
Read the rest of this entry »
Spoken by Kari Lundin |
December 15th, 2008 categories: Buying A Duplex, Financing
One phrase we seem to be hearing a great deal in the media as of late is “the emperor has no clothes.” It’s funny to me that we’re not hearing “the sky is falling” with equal frequency.
According to
Realty Times, the illogical restrictions imposed in late summer by
Fannie Mae and
Freddie Mac to limit the number of rental properties an investor can own on order to obtain new financing may be on their way out.
At the time, Fannie and Freddie believed that the more properties an investor owns, the higher the likelihood of default. So they reduced the maximum allowable number of units per investor from 10 to four.
In my opinion, it isn’t the seasoned investors who defaulted; it’s those who were new and didn’t have proper guidance when they bought their investment property. But panic by one often leads to the irrational thinking of many, so the restrictions were imposed.
Of course, this move only served to bumped many smaller investors out of Fannie and Freddie’s programs, forcing them to pursue hard money lenders or leave the market altogether.
Apparently at the
National Association of Realtors convention in Orlando in November, James Lockhart, who runs the
Federal Housing Finance Agency, spoke twice. Those in attendance pressed him on the issue. It was effective. In a letter sent to NAR President Charles McMillan, Lockhart shared one of the agencies is re-thinking the move. It seems they’ve realized investors may play an important role in the housing recovery.
Duh.
Spoken by Kari Lundin |
December 11th, 2008 categories: Buying A Duplex
While most home buyers don’t consider it, there are countless reasons buying a duplex as your primary residence can can be a
better finanical decision than buying a single family home. The obvious reasons include higher mortgage interest deductions, depreciation and the rental income that helps for the mortgage.
As we approach the end of the year, however, I am reminded of some of the less obvious benefits. When someone owner occupies a duplex, she can deduct countless expenses related to the half of the property she doesn’t live in on the Schedule E portion of her tax return. For example this may include rental unit expenses like:
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The cost of paint and repairs
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Rental license fee
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One-half of the property tax
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A portion of her cell phone bill
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Half of her mortgage interest
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Half of her homeowners insurance
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Tenant screening fees
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Half of the maintenance for the exterior of the house
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A portion of legal and professional fees
Of course, while these deductions pale in comparison to the big one,
depreciation, they do help defray some of the costs associated with being a landlord; costs which couldn’t be deducted on an owner-occupied single family home.
Spoken by Kari Lundin |
December 5th, 2008 categories: Buying A Duplex, Multi-Family Property Investing
According to a survey recently done by the Opinion Research Corporation for the
AARP, one in four baby boomers (ages 45-64) plans to move from their home in the future, with most looking for a a single level home. What the survey didn’t indicate was just how many of those boomers have been coming through duplex open houses.
I have sat in a lot of open houses over the years. And this year, I’ve started to see a change in the types of people who come through. Namely, I’m seeing a lot of baby boomers, who are thinking of buying a duplex as both a home and a supplement to their retirement.
As Minnesota is the summer home to many migrating snow birds, owner-occupying a Twin Cities duplex over the summer months makes sense on another front. When the owner is in Arizona or Florida over the winter, the tenant remains in the property; not only providing additional security and supplemental income, but also serving as a means of checking on the home in the owner’s absence.
It all sounds like a great idea except for one thing: the baby boomers all have houses to sell. Almost all of them are waiting for the market to recover before putting their home on the market.
Trouble is, none of us know when that will be. And the great deals in the duplex market are here now; properties are cash flowing in abundance. That wasn’t the case over the last five years.
Remember, when it comes to qualifying for a loan for a multi-family property, the buyer can count 75 percent of the rents toward his or her own income. The smart move might well be to buy now and move in a few years down the line; when things look better for everybody.
Spoken by Kari Lundin |
December 1st, 2008 categories: Buying A Duplex, Tenants
Sellers often worry tenants will leave if they become aware a property is on the market. However, not only does the existing lease protect the tenant, it is also a means of ensuring he stays.
A lease follows a property when it is sold. What does that mean?
Well, when a buyer purchases a duplex occupied by tenants with current leases, she assumes the terms and conditions of the existing leases. As a result, the tenant also retains all the rights and privileges afforded him under the previous owner’s lease.
Of course, once that lease expires, the new owner can replace it with a lease of her own, or ask the tenants to vacate (in accordance with state law, of course).
What if the new owner wants to move in? This can be accomplished if the buyer specified some portion or the entire property be delivered vacant, and the seller agreed to the terms.
How is this achieved? Most often, sellers offer a tenant a financial incentive to vacate. How much? To date, there are no guidelines for this in the state of Minnesota.
It is interesting to note, however, in other parts of the country, this is a rather common occurrence.
In fact, in some rent-controlled cities like
West Hollywood, Calif., tenants may not be relocated unless either the new owner or a relative of the owner’s is planning to move in. What’s more, there are set guidelines as to how much that will cost. In a one bedroom unit, a tenant must be paid $7200; an amount that increases to $12,800 for a three bedroom.
While that may be in our future, to date, relocation fees here are still negotiable.
Spoken by Kari Lundin |
November 24th, 2008 categories: Buying A Duplex
Last week I explained what you can and can’t do with all the things tenants leave behind, and how Minnesota State Law requires you to store it for 60 days. What about the stuff that’s left in the basement when you buy a duplex? Do you have to store that too?
The news is more encouraging on this front. Unless you’ve negotiated for otherwise with the seller, anything left behind in the property after closing is considered “debris”. You can do with this what you wish; whether it be selling it on
Craigslist or tossing it in the dumpster.
Of course, you have to make sure the items do in fact belong to the seller and not the tenants.
Dumpsters are expensive. And if there’s an excessive amount of debris on the property, it might be wise to either negotiate the cost of a dumpster into the purchase agreement, or require the seller to dispose of it prior to closing. This is especially important if there is an excessive amount of non-working appliances, as most refuse companies charge extra fees for disposal.
Spoken by Kari Lundin |
November 19th, 2008 categories: Buying A Duplex
Most Minnesotans understand when they sell their property using a Realtor, the seller is charged a commission by the agent’s broker (usually the parent company, such as Coldwell Banker Burnet) and the agent gets a percentage of that commission when the property sells.
However, many people aren’t sure how an agent gets paid when he or she helps someone purchase a duplex. In fact, some buyers are convinced they’ll have to dig into their pocket to pay an agent for his or her help, and as a result, try to avoid using an agent altogether.
What’s ironic is the agent helping the buyer charges their client absolutely nothing. The uninformed buyer is losing out on the opportunity to gain from the agent’s skills and expertise.
So how do agents working with buyers make a living?
When the seller signs a listing agreement with a Realtor, he agrees to pay that agent a pre-negotiated commission upon the sale of the property. Until the duplex sells, the agent fronts all marketing costs. This can include everything from the cost of having a sign installed in the yard, taking pictures or hiring a photographer to do so, featuring the property on
Realtor.com, advertising in local papers like the
Star Tribune or
Pioneer Press, conducting open houses and in some cases, hiring a professional home
stager to create a sense of warmth and ambiance.
The listing agent may or may not have a buyer for the property. As it is in her clients best interest for as many potential buyers to see the property as possible, she lists it on the MLS, promising to pay the broker of any agent whose client buys the property a pre-determined percentage of her commission.
The buyer’s agent, meanwhile, fronts all of her time searching for and showing properties, as well as her money for fuel, desk fees, insurance and so forth. Like the listing agent, she doesn’t get paid until her client successfully purchases a property. If her client never signs a purchase agreement, she has essentially worked for nothing.
Sometimes clients see a handful of properties before they buy. Others see houses almost as a hobby. The latter can be especially frustrating for Realtors. Like everyone else, they too have families and obligations; which most are happy to juggle if a client is earnest in their desire to acquire property.
Spoken by Kari Lundin |
October 16th, 2008 categories: Buying A Duplex
Lost in the commotion last week was a comment by former Federal Reserve Chairman Alan Greenspan. Remember him? Once upon a time we waited on and measured his every word.
According to an article he wrote for “Emerging Markets” magazine, Greenspan believes the U.S. housing market will start to recover in the first half of 2009.
I agree with him. Not because I understood anything he said beyond the basic statement. After all, NPR’s show Marketplace no longer does its weekly interpretation of what the fed chair said.
I’m sure my reasoning isn’t anywhere near as complicated as Greenspan’s anyway. Why do I think we’ll see prices level off in the first half of next year? Easy. The $7500 first time home buyer tax credit goes away on July 1, 2009.
Oh, things will look as if they’re still slow over the winter. After all, “We want to wait until spring” just might be the single phrase Minnesota Realtors hear most often. Well, either that or “we’re just looking”.
Here’s what I think is going to happen if you wait for warmer weather to buy or invest. There are going to be all kinds of people out looking, trying to beat that deadline. They’ll be looking for that perfect house, or great cash on cash return; and just like they did in 2005, they’ll compete for the “good deals”, forcing prices up.
Smart shoppers will look over the winter. Why? Historically, the best buys of the year have always been found between October through January. There are less people looking. And this year, as the banks aren’t going to wait for the spring market to move inventory, there will be more to chose from than ever before.
I can’t believe the deals I’ve seen in just the last two weeks; a cash flowing duplex near Lake Nokomis, one in Crocus Hill, and a charming 1920’s five unit building in southwest. The “worst” of them has an 8 percent cash on cash return.
Contrary to what the media has lead us all to believe, loans are available. Yes, lending standards have changed, but they’re not ridiculous. Good credit, a job and a little bit of savings still go a long way.
Spoken by Kari Lundin |
September 10th, 2008 categories: Buying A Duplex
It’s not news that there are a rash of foreclosures and short sales in the real estate market. Some of this is due to fraud. Some due to spikes in interest rates in adjustable mortgages forcing monthly payments into the stratosphere.
But what might be news is that many foreclosures and short sales are the result of normally responsible people either going to refinance or sell their homes and discovering due to the plethora of foreclosures on the market, their home can no longer appraise for what they bought it for.
If you’re a homeowner and have to move, what do you do? Odds are you opt for a short sale. Or, if things are really dire, a foreclosure.
But here’s what the national media isn’t saying. Once you have a short sale on your credit report, you can’t buy another home for anywhere from three to five years. Foreclosure? Try seven years minimum. Not pretty either way.
What does this have to do with the Minneapolis and St Paul duplex markets?
Well, where are those short sale and foreclosure folks going to live? They’re going to need to rent. As many of them as there are, demand for rentals should soar, which due to that old supply and demand law, will force metro rents to increase. Of course, that means more money in landlords’ pockets.
Makes it seem like a pretty good time to buy rental property; whether a duplex, house or apartment building, doesn’t it?
Spoken by Kari Lundin |
September 2nd, 2008 categories: Buying A Duplex
Realtors do a big portion of their work behind the scenes. We don’t always think to stop and explain each piece of it, and sometimes assume our clients psychically know what we’re talking about.
Take showings for example. I had a client call me over the weekend wanting to see a house on Labor Day. I was a little abrupt with her; which she didn’t understand. So I had to stop and explain.
Realtors have to call the listing agent’s appointment line in order to show you a property. Many real estate companies have office staff who field these calls. Others use appointment services. In either case, the staff keeps more regular business hours than Realtors do.
How does that effect you? Well, because those hard-working people keep relatively regular hours, your Realtor can’t just set up an appointment at any hour. What’s more, even if those people are available, if the property is occupied, tenants or home owners usually need to be contacted and asked whether the requested time is workable for them.
This process can be further complicated by the myth that tenants require 24 hour notice before a landlord or his/her representatives may enter a property for business purposes.
When my client called late in the afternoon on Sunday, I knew most call centers would only be open for another ten minutes, and would be closed for Labor Day. Therefore, I had to hurriedly collect the list of properties she wanted to see and set up appointments.
Most of the time, appointments aren’t a problem to get. But when it comes to evenings, weekends and holidays, be sure to plan in advance.
Spoken by Kari Lundin |
« Previous Entries
The other day I sent a listing for a four-plex to a client. While he’s not actively looking, and this one wasn’t an especially good deal, it reminded me in both appearance and location of one of the ones he already owns.
One phrase we seem to be hearing a great deal in the media as of late is “the emperor has no clothes.” It’s funny to me that we’re not hearing “the sky is falling” with equal frequency.
While most home buyers don’t consider it, there are countless reasons buying a duplex as your primary residence can can be a better finanical decision than buying a single family home. The obvious reasons include higher mortgage interest deductions, depreciation and the rental income that helps for the mortgage.
Most Minnesotans understand when they sell their property using a Realtor, the seller is charged a commission by the agent’s broker (usually the parent company, such as Coldwell Banker Burnet) and the agent gets a percentage of that commission when the property sells. 
