Duplex Chick

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As a duplex and small multi-family property agent, I get a lot of questions I can’t answer.

“What’s a good gross rent multiplier (GRM)?”

“Doesn’t a fourplex cash flow better than a duplex?”

“Don’t all duplexes cash flow?”

While I welcome these questions, the problem is there isn’t a universal answer for any of them.

The value of a duplex, triplex or fourplex is determined by a number of factors, including but not limited to its expenses, the number of bedrooms in each unit (which affects the amount of rent collected), the location and the condition of the property.

For example, if a property has a  low GRM, one might automatically think it’s a good investment. However, the problem with this measure of value is that it doesn’t factor in expenses.

If property taxes are high, the boiler’s shot and you can see sky through the ceiling of the third story apartment, odds are it’s not only going to not cash flow in the way you want, but it’s going to require a lot of your cashout of pocket, as well.

The best answer as to whether or not a duplex is a good investment can be found with a Realtor who specializes in that kind of property. He or she should be able to work up an income property analysis spreadsheet for you to help you objectively determine whether or not the property meets your financial goals.

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Sometimes I wonder if duplex foreclosures have been good for Sears.

See, foreclosures often come with many things; abandoned socks, broken toys, dust bunnies…

But they don’t always come with appliances.

Believe it or not, big items like refrigerators, stoves, washers and dryers are considered personal property. As such, the party who lost the duplex to foreclosure has the right to either sell them on Craigslist before they leave, or put them on the moving truck. 

Even if there are appliances on the premises after the bank has taken possession, they can’t guarantee they’ll be there after closing. Most of the time they are, but theoretically anyway, they belong to the previous owner.

As a result, it’s always a good idea to budget for new appliances as you begin the duplex buying process.

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I fell in love today.

With Trulia.

While I’m generally not a fan of web sites like Zillow and Trulia, largely because much of inaccuracies in property valuations, I may be coming around on the latter.

All because of the addition of a cool little Rent vs. Buy widget in the sidebar of their recently added Rental section.

To make the decision whether it’s smarter to buy a specific property or rent, the calculator asks for the property price, the size of the down payment, the amount of monthly rent you’re paying, and the number of years you’re planning on comparing.

Let’s say we found a $280,000 duplex near one of the lakes with two bedrooms in each unit.  Renting one of the units costs $1100/month.

Over 30 years, Trulia estimates simply being a tenant in the place would cost you $396,000.

On the other hand, buying it would cost $586,217 in mortgage payments. However, Trulia also takes into account things like tax savings, opportunity cost and home appreciation.

When their widget calculates all these factors, it estimates buying that duplex would actually save you approximately $18,625 over 30 years.

Of course, their widget was structured for a single family home.

It doesn’t factor all the rent you would collect. Even if it was just $1100/month over 30 years, with a 5 percent vacancy rate, that would equal an additional $376,200 in income/savings. (Inflation would make that figure greater still.)

It also doesn’t consider that if you rent, that money is your landlord’s. Meanwhile, if you buy, you can eventually sell the property and walk away with the equity.

I wonder if anyone’s ever written a love song for a Widget…

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Last week the web site Trulia.com ranked Minneapolis/St Paul number one on its list of America’s Top Ten Cities To Buy Vs. Rent.

To come up with their rankings, Trulia took the average list price of properties on the MLS and divided it by the average rent on a 2 bedroom apartment, duplex, condo or townhouse in the largest 50 markets in the country.

In other words, according to Trulia’s co-founder and CEO Pete Flint, “Home sellers in hard hit areas are forced to lower their prices to compete with all the foreclosures on the market. As a result, these unattainable markets are so affordable it makes better financial sense to buy than rent.”

With the expiration of the first time and repeat buyer tax credits at the end of April, there is much less competition for the good properties in the market.

Call me. It’s a great time to buy.

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One of my seller’s received an offer the other day.

We both got a laugh out of it.

The buyer’s agent had carefully spelled out  the reasons why the buyer didn’t think the property was worth list price.  It included things like: a one car garage, which didn’t suit the buyers needs,  one boiler (meaning the owner pays the heat) and a mention that the heating system was old and sure to die any moment now.

After reading this list of why’s to my seller, I asked if he’d seen the light. Wisely, he just chuckled.

He knew the property only had a single car garage. In fact, he’s been aware of it the entire 20 plus years he’s owned it.

 And, while the boiler is older, the seller is an engineer who specializes in heating systems that service everyone from the Marine Corps to NASA.

Need I state the obvious and say the boiler in his property has been impeccably maintained?

Telling sellers your thoughts about what’s wrong with their property won’t result in a price reduction. They are human, after all, and like most of us, they believe in their property and the efforts they’ve put in to it.

Insulting them won’t convince them otherwise.

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With just hours left to take advantage of either the $8000 first time home st  buyer or $6500 repeat buyer tax credits, you may find the inventory of decent dupelxes offered by traditional sellers and banks gone.

In fact, with time running out, you may feel a bit like Cinderella. Your carriage is about to revert to a pumpkin.

But fairy tales aren’t the only place where magic happens.

In this case, have your fairy godmother Realtor wave her wand at a short sale.

Legal counsel for Coldwell Banker Burnet’s parent company, NRT, has found that in order to qualify for either credit, a fully executed contract must be in place no later than 11:59 pm on April 30, 2010. Counsel further advises that a short sale is considered a legally binding contract when both the buyer and seller have signed the purchase agreement.

The fact that the lender still has to approve the terms doesn’t prevent the contract from being created. Therefore, that contract qualifies the buyer to earn the credit.

Of course, Cinderella still had to wait for her glass slipper to be returned. Duplex tax credit sales are no different. They must still close no later than June 30, 2010, in order for the buyer to earn the credit, which may or may not be problematic.

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Did you know there aren’t any special requirements necessary for a residential agent to sell someone an income property?

For example, a Realtor who spends most of his time selling houses in the suburbs, can help you buy a duplex and not be required to know how to do an income property analysis spreadsheet.

As a result, he may tell you the property with the upgraded kitchen is a better buy, when in reality, it may have a negative cash flow which will cause you to either spend more for your portion of the rent than you wanted or, dig in to your pocket in order to cover the difference between income and expenses.

That’s why it’s so important to find an agent to work with who specializes in these unique properties.  Not everyone does. And when it comes to duplexes, granite counter tops may or may not make a property a better value, but higher rent always will.

While the bulk of my business is in Minnesota and western Wisconsin,  I am always happy to help duplex buyers and sellers nationwide find competent agents in their area to help them in their multifamily transactions. 

Because I specialize, I know which questions to ask prospective agents on a buyer or seller’s behalf, and how to tell whether or not a prospective agent truly knows what he or she is talking about.

Whether you’re looking for a duplex specialist in Los Angeles, Maine, or some point in between, drop me a line or give me a call. I’d love to help you find the right agent for the job.

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With just 8 days left to qualify for both the $8000 first time home buyer’s and $6500 repeat buyer’s tax credit, it’s important to remember that a duplex qualifies for both.

Remember, the credits are for up to 10 percent of the purchase price of the property, with the total benefit not to exceed $8000 for  a first time home buyer, or $6500 for a move-up or repeat buyer.

For a duplex, qualification is based on the percentage of the property the buyer intends to owner occupy. For example, if the purchase price for a duplex was $200,000, and the buyer lived in half, her tax credit would be based on a purchase price of $100,000, with the total not to exceed the caps set by the federal government.

To be eligible for the first time credit, a person may not have owned a home in the last three years. Repeat buyers must have lived in their home for five consecutive years of the last eight years.

Both tax credits require that buyers have a binding purchase agreement in place no later than April 20,2010. However, these purchases have until June 30, 2010 to close.

Remember, FHA financing may be used for most duplexes, triplexes and fouplexes; meaning an owner occupant need only have 3.5 percent saved for a down payment.

Investors, on the other hand, are still restricted to conventional loans requiring 20 to 25 percent down as minimums.

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I’ve had a number of phone calls of the same flavor the last few weeks.

The voices on the phone are interested in seeing one of my duplex listings; could they meet me there after another agent shows them his?

This always leaves a bad taste in my mouth.

MLS listed duplexes aren’t like cottage cheese and onions on a salad bar. You don’t need a separate spoon for each.

Now I’m happy to show any of my listings to any qualified buyer.  But I’ll be the first to say my sellers property may or may not be the flavor you’re looking for.

Let’s face it. Some people like Ranch dressing. Others like vinaigrette.  Some like Craftsmen duplexes, and others like 1960’s built side by sides.

The listing agent you contact may or may not be able to recommend other properties for you to sample if his isn’t right for you. But beware; he may not even specialize in duplexes.

Every Twin Cities Realtor who’s a member can show you any property that’s active on the MLS.  Properties aren’t limited by type, nor by who the listing agent is. A residential home specialist can show you a duplex, single family, fourplex or even a strip mall.

In other words, you don’t need to use a separate spoon for each offering.

In fact, one spoon will get you a better salad.

Agents who specialize in duplexes not only know the inventory that’s on the market, which properties are over priced, which need work,  and most importantly, often know of duplexes that are available for sale, but not yet on the market.

Like shrimp on a salad bar, good properties go fast. The minute a property comes on the MLS that’s right for one of my clients, we see it. And if it’s what we hoped, we write an offer on it; so by the time it hits Realtor.com, it’s already gone.

And buyers working by themselves, or with inexperienced duplex agents, never had a chance.

Smart buyers pick a spoon.

Especially with just 21 days left to earn the home buyer tax credits.

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It’s often said that blood is thicker than water.

With that in mind, I often have two family members express an interest in buying a duplex together. Each intends to live in one of the units.

Sometimes the buyers are a grown child and a parent who winters in warmer climates.

Sometimes the buyers are siblings.

In one case I even encountered a former husband and wife who saw a duplex as a way to co-parent their children, but continue on with their respective lives.

Sharing a multifamily property can be a workable solution for some people. And while family may well look out for each other’s interests more reliably than friends or acquaintances, it’s important to remember life circumstances can change.

And that’s why deciding how your going to take ownership at closing is so very important.

There are two ways a pair of buyers can take title; either as joint tenants or tenants in common.

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