RESOURCE CENTER REAL ESTATE GLOSSARY RENTALS

Kari Lundin
Coldwell Banker Burnet
7550 France Avenue S
Edina, MN 55435
(612) 290-5998

It seems new investors and first-time home buyers have two big concerns about their first duplex: vacancies and the toilet.

 

Vacancies are a concern of any landlord. The longer a unit sits empty, the more significant the loss in revenue, and the more it costs you, the landlord.

 

So, how do you reduce vacancies?

 

While it may seem obvious, your first strategy is to buy a property in an area where people want to live. Think of the amenities you might want for yourself in a home. Do you like woodwork? Do you need a dishwasher? Access to laundry? Do you need easy access to public transportation?

 

Also consider the types of tenants a property might attract. For example, more bedrooms may be attractive to families; or, if near a university, a group of students. One bedroom units, on the other hand, will appeal to single people or young couples.

 

A fresh coat of paint and a clean, well-maintained property will always rent more quickly than those that are not. Try to make your vacant unit shine when compared to those of the competition. This doesn’t mean you need granite counter tops- just well-kept, clean, and reasonably updated.

 

While all of these are useful and important strategies, there is one more; the most effective of all. Lower the rent.

 

Gasp!

 

This is a common new landlord mistake; one I’ve made myself. It’s easy to look at competitor’s ads on Craigslist and decide your unit is superior, or to base the amount you charge for the unit on the cash you “need”.

 

But, but… yeah, I know. You really have to have $1000 a month for that two bedroom unit with hardwood floors. So, instead of renting it at $900, you hold out for your price. It doesn’t rent. Two months later, you lower the rent to $900 and it fills. So, while you held out, you lost two months of revenue at $900, for a total of $1800; all in the name of getting $2000. In the name of getting a whopping $200 more, you lost $1800.

 

Yeah, I know. It seemed logical to me at the time too.

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.

 

I’m a good Realtor. I make sure that I never sell a property that has monsters hiding in the closets or under the beds.

 

I’m very brave. I lead the way into dark musty basements and sometimes, guided by only the light of my cell phone, fumble around attics for lights.

 

Too often my clients aren’t very brave. Many of them are afraid of monsters. And even when I tell them that I checked and the property doesn’t have any, they stare at me with wide eyes and fail to jump on a deal.

 

A friend once told me that the word FEAR is an acronym for False Evidence Appearing Real. I think he was right. I see plenty of evidence of it in today’s real estate investment property market.

 

What monsters are people most afraid of?

 

While on rare occasion I do meet investors who, for tax purposes, actually want to purchase a property with a negative cash flow, they are the exception rather than the rule. Most investors want a property to at least pay its own bills, or even create a small profit every month. No problem. I’m a monster buster. Read the rest of this entry »

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Scream Queens Use Minneapolis Duplexes to Outsmart Wall Street’s Psychotic Killers

October 24th, 2008 categories: Multi-Family Property Investing

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Housing Bill Changes Taxable Capital Gains on Twin Cities Duplexes

August 11th, 2008 categories: Multi-Family Property Investing

In the past, one of the most lucrative tax loopholes for real estate investors was the provision that allowed an owner to move into a rental or investment property, and after living there for two years, realize and capital gains tax free, up to the individual $250,000 or married couple $500,000 limits.

In Minnesota, this benefit was especially attractive to those eyeing retirement in warmer climates. Why? Well, let’s say you wanted to retire five years from now. Both the Florida and Arizona real estate markets are, perhaps, in even more dire circumstances than the market here. Theoretically anyway, it might be a great time to pick up that vacation condo on the beach in Santa Barbara.

If you found a bargain, you could rent it out until you were ready to retire. It’s reasonable to assume that over enough time, that property will increase in value. Well, that appreciation is taxable. However, if you moved into the home for at least two years, Congress said they would not tax you on that increase when you sold.

As of January 1, 2009, that is no longer the case. When the president signed the Housing Bill into law two weeks ago, the rules changed.

Now, any properties purchased after that date will be subject to an amended version of this law. Investors will now be asked to pay capital gains taxes for the years of appreciation when they did not live in the property.  So, if you owned a condo in Phoenix for five years, and lived in it for two, you would be taxed for the three it was tenant occupied.

If you’ve been thinking of purchasing a vacation property, or an investment property to ultimately move in to, a wise strategy may well be to act before year’s end. In all the doom and gloom of the coverage of today’s market, not one prognosticator has ever said the market housing prices will never increase again. When they do, it would be awfully nice to be able to shield those gains.

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Start Out Ahead When You Buy Your Twin Cities Duplex

June 16th, 2008 categories: Buying A Duplex, Multi-Family Property Investing

There are many differences between the purchase or sale of an owner-occupied single family home and a multi-family property. One of the most important is the time of the month that you close the deal.

When you purchase your own home, it’s a good idea to try to schedule a closing date toward the end of the month. That way, you save on the amount of interest you pay.

However, when you buy an income property, you want to do just the opposite. Why?

Well, rent is collected at the first of the month. If the purchase agreement for the property is written properly, the seller is responsible for collecting the rent that month, then assigning the pro-rated balance to you at closing.

Example? If rent is $300 a month per unit, and there are four occupied units, he or she would collect $1200. If there are 30 days in the month, and you close on the fifth day, you would be entitled to 25 days of rent or $1000.

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More Good News in the Twin Cities Duplex Market

June 10th, 2008 categories: Buying A Duplex, Multi-Family Property Investing, Selling A Duplex, Twin Cities Real Est

The weekly MAAR activity report came out and there appears to be a bit of good news in the single family and multi-family home markets.

New listings of single family homes continued to drop, being 23 percent behind the same week in 2007. Meanwhile, pending sales increased 4.9 percent over last year; a number that represents the biggest year-over-year increase in 117 weeks (29.25 months!) This is only the third increase in that time. The second happened just two weeks ago.

Meanwhile, the multi-family market continued along at a healthy clip. Sales of 2-4 unit properties were up 182.4 percent over the same week last year. Of these sales, 84 percent were for properties in a short sale or foreclosure situation.

New listings in the multi-family category decreased by 22.2 percent, meaning, for now anyway, supply has begun to decrease.

It will be interesting to see whether Freddie Mac’s August lending restrictions impact this market.

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Stock Up Now on Twin Cities Duplexes

June 9th, 2008 categories: Financing, Multi-Family Property Investing, Twin Cities Real Est

If you’re planning on loading up on 1-4 unit investment properties during the down market, you’d better do it now.

In May, Freddie Mac made changes in its lending guidelines. As of August 1, 2008, a borrower may no longer have more than four financed 1-4 unit properties, including the one being purchased. What’s more, in order to refinance, the borrower must have owned the property for at least six months prior to getting a new loan.

Present Freddie Mac guidelines allow an investor to have up to 10 financed properties.

Until now, neither Freddie Mac nor Fannie Mae required a loan to be seasoned. This change will likely have the greatest impact on rehabbers and others intent on purchasing the property with the intention of refinancing to pull cash out.

The announcement of this change may help explain the recent run on properties priced under $100,000.

This will also effect owners who hold title as an LLC. If you own your property as an LLC, but need to qualify for a loan as an individual, you’re going to need to hold title as an individual for at least six months prior to a refinance. I know, I know. That appears to contradict what I said yesterday. You’re going to have increased liability exposure during this time frame; which you may want to address via an umbrella insurance policy.

So just get a loan from a lender who doesn’t resell conforming loans to Freddie Mac or Fannie Mae, right? Ha ha. That requirement eliminates almost all of them. Freddie Mac and Fannie Mae are privately capitalized, government sponsored entities that purchase the majority of conforming loans. They then repackage these loans and sell them as mortgage-backed securities to investors. This helps replenish the money supply of available money for mortgages.

Commercial loans will not be effected by this.

As the money supply grows ever tighter, I see the rebirth of the contract for deed on the horizon…

 

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Protect Your Twin Cities Duplex Through An LLC

June 8th, 2008 categories: Buying A Duplex, Legal Stuff, Multi-Family Property Investing

One of the concerns multi-family property investors often have is how to protect themselves in the event a tenant suffers an injury on one of their properties. Namely, how can he or she protect their real estate portfolio?

A relatively easy way to do this is to form a Limited Liability Company or LLC, and either take title or, via a quit claim deed, change the ownership of the property to the LLC.

An LLC is often suitable for single owner or smaller companies. It is a hybrid between a partnership and a corporation, except that it is often more flexible. One of the advantages of an LLC, is the owners have limited liability for the actions and debts of the company.

The process of establishing an LLC is relatively easy and inexpensive. It is created by filing the Articles of Organization with the Secretary of State, for which the state charges a filing fee. This is something you can do yourself, or if you’d rather, you can enlist the help of a real estate attorney.

If you create a unique LLC for each property in your portfolio, then each is owned by a separate company. Each should have its own checking account and bookkeeping. This helps establish a record of it truly being a separate entity.

That way, in the event someone is injured on one property, and they are successful in litigation, the only property in play is the one owned by that LLC.

 

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Twin Cities Duplex Sales Up Again

June 3rd, 2008 categories: Buying A Duplex, Multi-Family Property Investing, Selling A Duplex, Twin Cities Real Est

The Minneapolis Area Association of Realtors (MAAR) just released it’s weekly activity report for the week ending May 24. For the second straight week, pending sales are relatively flat; down just 1.4 percent from the same week last year. Over the same time period, new listings declined 6.4%. The total listing supply declined too, which is an oddity for the spring housing market. In other words, it kind of looks like things might be stabilizing.

Of course, MAAR doesn’t keep track of the same kind of data for duplexes. So, we’re left with me and my abacus.

In the week ending May 24,68 new duplex listings came on the market in the Twin Cities metro area. This represents an increase of 179% over the same period last year. That would be disastrous were it not for the fact that duplex sales for that same week are up 46% over last years mark. Of those, a full 87% were short sale or foreclosed properties.

I know, Realtors saxy the market is picking up all the time. I don’t compile the statistics, but I do know that in the last week I’ve had clients who wanted to write offers on two different properties. Both were either selling in multiple offers or already had accepted purchase agreements on them. These were foreclosed buildings in great locations that required a little bit of cosmetic repair. However, both also had positive cash flows of several thousand dollars a year. That’s something investors haven’t seen in this market for years.

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