Archive for the 'Buying A Duplex' Category

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Can you afford it?By now, everybody knows it’s a great time to buy or sell a duplex.

That’s because interest rates are low and rents are high.

But what happens if interest rates rise even 1 percent, as they have over the last year?

Rates would still be very good. However, it’s important to remember one percent is the equivalent of several thousand dollars a year.

For example, on a $300,000 mortgage, payments would be $3000 higher for every year of the loan.

And for many duplex buyers, that amount is the difference between either an acceptable return on their investment,  or affordability.

For duplex sellers, that means there may be less demand for their properties; for no other reason than people can no longer afford it.

Duplex Chick Improves Property Search

said on April 9th, 2014 categorized under: Buying A Duplex

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3D white people. Looking for houseYou may not have notice, because it’s a behind the scenes technology change. But, Duplex Chick recently got a new engine behind its Property Search link.

In addition to being able to customize and save a search for exactly the kind of property you’re looking for, you can sign up to automatically be notified when new properties that meet your criteria come on the market.

If you’re not sure where you’d like to live, you can also customize your search to find neighborhoods by school ratings, commute times, and crime rates.

Of course, just like always, if you find a property you’d like to see, give me a call or send an email to kari@duplexchick.com. I’d be happy to arrange a showing for you.

Comments Off on Twin Cities Duplex Sellers Prefer High Rent To High Prices

Raking In The MoneyIn Minneapolis, it’s a duplex sellers market. The irony is, nobody seems to want to sell. They’re too busy raking in the cash from rent.

For example, consider the week ending March 29, 2014. There were just 17 new listings that week; 88.2 percent of which are being sold by people with equity in their properties.

During the same week in 2013,  there were a whopping 32 new listings. Traditional sellers contributed 59.3 percent of those new listings to last spring’s market.

Pending sales for the week took a slight dip from last year, with 17 sellers accepting offers; down two from last year. Of this year’s pending sales, 82.3 percent belong to traditional sellers. On average, these properties were listed at a price of $202,623. This is up from last year’s sold price of $178,615.

The single family home market saw New Listings jump 18.4 percent over the last week in March of 2013. Meanwhile, Pending Sales declined 5.6 percent. However, thanks to a year of listing scarcity, overall inventory remained 5.5 percent below last year.

Twin Cities duplex sellers tell me they’re happy with low vacancy rates and high rent. However, high rent also inevitably leads tenants to discover sometimes buying a house is more affordable than renting.


Duplex Investing: Why Breaking Even Isn’t Bad

said on January 20th, 2014 categorized under: Buying A Duplex

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Front RightDepressed duplex values of the last few years have spoiled us. In fact, we’ve become so accustomed to double digit cash on cash returns that when a property produces anything less, we almost view it as a “bad investment”.

And yet, as long as a property carries its own weight, is it really?

Duplexes only have two units contributing to the income stream. Therefore, it’s more difficult to have the $400-500 a month returns many dream of.

Most of the duplex buyers I talk to view their investment as a long term strategy for retirement.  As such, a property that simply breaks even — one that doesn’t cost you anything after the mortgage and all expenses are paid, might not be such a bad thing.

After all, in that case, the only money you’ve essentially invested in your “duplex retirement account” is the down payment. Over time, your tenants will pay it off.

I recently pointed this out to a buyer who was looking to owner occupy a $250,000 duplex, using FHA financing, which requires just a 3.5 percent ($8750) down payment.

While she intends to live there, she couldn’t see herself doing so forever. She did, however, hope to keep the property long term as a means to help fund her retirement.

Even if the property  never goes up in value (which is unlikely), at the end of 30 years, she will have $250,000. And, except for her down payment and the months during which she lives there, that money will have come entirely from other people: her tenants.

I asked if there was any other retirement account she could do this with. Was there, for example, any way she could persuade her co-workers to fund her IRA?

She didn’t think so and neither did I. It made the break-even duplex seem like an awfully good investment.

Comments Off on Can You Get A Better Deal Through The Realtor Whose Sign Is In Front Of The Duplex?

duplex for saleIs it true you get a better deal if you contact the Realtor whose sign is in front of a property (the listing agent) than you would using an agent not affiliated with the property whatsoever?

No.

The agent whose sign is in front of the duplex for sale has a fiduciary duty to the seller. That duty includes getting that property owner as much money as she can for the property.

As the Realtor’s commission comes out of the seller’s equity, it is really the seller’s money a buyer is asking the agent to give away.

Doing so would be like stealing from the seller; whom the agent on the sign represents.

But what if both the buyer and seller are represented by the same Realtor or real estate brokerage? Meaning both have a signed cont

That creates something called dual agency. In that case, the Realtor, or the two Realtors with the same broker, need to act in both the buyer and sellers best interests.

However, as the listing agent already has a signed contract with the seller, in which the seller most likely agreed to pay a fixed commission, regardless of who represents any prospective buyer. Agreeing to sell it at a discount would likely be a deterrent to bringing a buyer, rather than an incentive.  After all, the agent would earn less than she would if she sold some other property.

Believe it or not, Realtors work long hours, often without pay. And we bring our best deals to the clients who find what we do valuable, not to those who don’t.

Duplex Buyers Pose A Math Question

said on September 16th, 2013 categorized under: Buying A Duplex

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duplex buyer expensesWhen a buyer writes an offer on a duplex at its list price but asks the seller to pay their closing costs, is that the equivalent of a full price offer?

Many of my buyers think it is.

But, the reality is, when a seller pays for a buyer’s closing costs, it’s the same as taking money out of the sale to purchase something for the buyer.

True, closing costs and prepaids aren’t the equivalent of a new car or smart TV, but they are expensive. And when a buyer asks a seller to contribute a portion of the purchase price toward things like insurance, recording fees, and so forth, it reduces the amount of money the seller takes home.

For example, an offer of $200,000 with 3 percent in seller paid closing costs, reduces the offer to the seller by 3 percent. In other words, this is the equivalent of an offer of $194,000, which is not a full price offer.

A full price offer, which gets the seller the net they hoped for when they listed the duplex for sale, would be list price plus 3 percent. In the example above, that would be $206,000, from which the seller would designate funds at closing be applied toward the buyers closing costs.

Investors Flee Duplex Market

said on August 14th, 2013 categorized under: Buying A Duplex

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real estate investorsAccording 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.

US Bank Gives Duplex Buyers The Low Down

said on August 12th, 2013 categorized under: Buying A Duplex, Financing

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small down payment for duplexOne 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.

Do Duplex Owners Need Granite?

said on May 13th, 2013 categorized under: Buying A Duplex

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Granite Countertops don't increase rentOne of the most common impulses of any first time duplex investors is the desire to over improve their property.

What do I mean? After all, don’t most tenants want to live in a great place, and aren’t they willing to pay more for it?

To an extent, yes.

But would you pay $100 a month more to live someplace simply because it has granite counter tops?

Depends, doesn’t it?

Perhaps if your duplex is in a highly affluent neighborhood where people expect amenities like granite, you might.

For most duplex owners, however, this isn’t the case.

The most important question for any duplex owner eyeing improvements to ask herself is, “How much more rent will this generate?”

For example, if you believe adding a dishwasher will generate $25 more a month in income, it might be worth putting one in.

However, if you can’t objectively predict the return, it might be an improvement for your own home, rather than a rental unit.

Fresh paint, clean carpet and/or floors are givens.

But granite’s a luxury few landlords can afford.

Buy A Duplex – You Won’t Regret It

said on April 22nd, 2013 categorized under: Buying A Duplex

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RegretOne of the greatest fears many first time duplex buyers have is they’ll regret selecting the property they ultimately purchase.

According to a recent survey by Trulia, they’re right. They’re just not right for the reasons they think.

While many owner occupant duplex buyers think they’ll end up hating the kitchen, or the sound of footsteps overhead, the fact is that won’t be the case at all.

The top regret of most buyers is not choosing a larger home or duplex. Thirty-four percent of those surveyed listed this their top “do-over”.

And the second most common regret? Not remodeling more when they bought the duplex they’re in.

Homeowners aren’t alone in their regrets. Tenants have them too.

Trulia’s survey found 42 percent of tenants wished they had bought their current home rather than renting.

In fact, 56 percent of the tenants surveyed had regrets, compared to just 50 percent of homeowners.

The moral of the story?

Buy a duplex. It will make you happy.