Archive for the 'Multi-Family Property Investing' Category

Duplex Investors Chip In A Quarter

said on April 29th, 2013 categorized under: Multi-Family Property Investing

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minneapolis duplex investors dominate marketAccording to the 2013 National Association of Realtors (NAR) annual Investment and Home Buyers Survey, last year the share of investment property buyers actively purchasing real estate remained at its second highest level since 2005, nearly one quarter of the market at 24 percent.

High demand for rental property caused the average national sales price for investment properties to rise for the second straight year to $115,000.

A whopping 49 percent of these investors paid cash for their property. Of these investments, 24 percent were in foreclosure, with 23 percent more being short sales.

Almost half of these investors, (47 percent) said they will probably purchase another investment property in the next two years.

That’s because investors know low interest and vacancy rates coupled with affordable inventory have made it a great to time to invest in real estate.

One Stop Shop To Fill Duplex Vacancies

said on January 7th, 2013 categorized under: Multi-Family Property Investing

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orange for rentIf you’re a duplex owner or landlord, you might find Padmapper.com and its sister site, Padlister.com to be a great tool for getting your vacant units rented quickly.

Padmapper is a site geared toward tenants looking to rent in a specific area. It appears to gather rental listings for the area from places like Craigslist and Rent.com, as well as postings placed by investment property owners on Padlister, and highlight them on a map of the area.

Each rental address has a pin in it, which, when clicked on, gives the basics about the unit that’s for rent; like number of bedrooms, baths, and how much the rent is.

It also publishes a figure of how the amount of rent being charged compares to other properties in the area. For example, it may say the vacant unit is a certain percentage below market rent, or above.

This can be a useful tool if you have a vacancy and want a resource besides Craigslist to help you determine market rent.

One note of caution however; the site does make mistakes. Two neighborhoods can be separated by just six blocks, and have completely different values when it comes to rent.

Padlister provides landlords with a free advertising tool. It allows rental property owners to post their vacancies for free, provides a template to create better looking ads to post to places like Craigslist through Postlets, and even provides an online rental application form and credit check for prospective tenants.

The site is free, so it might be worth a try.

When Is It A Landlord’s Market?

said on November 30th, 2012 categorized under: Multi-Family Property Investing

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5 percent landlords marketWe’ve all heard that it’s a duplex sellers market when there’s less than a five month supply of inventory for sale, right?

So when is it a landlord’s market?

Five must be a magic number.

According to the National Association of Realtors (NAR), it’s a landlord’s market when vacancy rates dip below 5 percent. And it’s at that point that duplex owners can justify charging more in rent.

To put this in perspective, Minneapolis currently has a vacancy rate of 2.3 percent. Nationally, only Portland (2.1 percent) and New York City (2.2 percent) have lower vacancy rates.

With job creation forecast to be modest into 2013, many would-be home buyers are likely to continue to be tenants. This continued competition for places to live should help Minneapolis duplex owners increase rents in the coming year, which of course, will help cash flow.

At the risk of being redundant, I’m going to say it again. It’s a great time to invest in Minneapolis duplexes!

Comments Off on Real Estate Investors Drive Market Recovery

Investors drive real estate recoveryLast week, the real estate analysis company John Burns Real Estate Consulting released a report that indicated investors might be the reason behind the housing recovery.

When analyzing 167 metro areas, the firm noted that 29.6 percent of all transactions were a result of investors. This was up from a low of a 23.6 percent market share at the end of 2009.

Markets most decimated by the housing crisis like Las Vegas (50 percent) and Phoenix (46 percent) are now actually dominated by investor buyers.

Most of the investors are purchasing with cash at the low end of the spectrum.  According to senior research analyst Erik Franks, “They are helping the market recover by removing the supply at the low end of the market and driving real buyers to higher price points, including new homes.”

Comments Off on Apartments Vs. Duplexes: Which Is Worth More?

apartments vs duplexesWhen it comes to determining value, what’s the difference between an apartment building and a duplex?

Income.

The value and ability to finance an apartment value is determined by how much revenue the property generates, what the expenses are, and its cash flow.

While rental income and expenses certainly pay a part in a value of a duplex, values are also influenced by location and comparable properties that have sold.

For example, a six bedroom duplex on the west side of Lake Harriet recently sold for $435,000. The units were not rented, but likely have a market rent of somewhere around $1500 a month.

As annual figure, times two units, leaves the property with annual gross income of $36,000.

Meanwhile, a side by side duplex with three bedrooms in each unit recently sold in the Kenny neighborhood for $180,000. It should generate the same amount in rent and expenses.

If cash flow is what’s most valuable, clearly the second property would be the better investment.

However, when it comes to duplexes in the Twin Cities, a vast population of them are located in neighborhoods with sought-after ammenities appealing to owner occupants; things like walking trails, shops and restaurants.

Duplexes aren’t as expensive for owner occupants as buying a comparable single family home. As a result, if a buyer wants to live in a specific area, but the payments on a single family home would be uncomfortable, a duplex is an affordable option.

Making the idea of duplex ownership even more attractive are the easy down payment options; after all, you only need 3.5 percent down. An apartment building, on the other hand, usually needs a 20 or 25 percent down payment.

The relative ease of financing, coupled with higher demand for duplexes, often pushes their values up to a point where they no longer cash flow.

Meanwhile, banks that will lend money on apartment buildings that don’t cash flow are few and far between.

Comments Off on Is A Duplex Property Manager Right For You?

duplex keyIf you’re thinking about buying your first duplex, you might think the best way to make it a low maintenance investment is to hire a management company.

After all, they do this for a living, right? They can handle all of those late night phone calls and evictions, while you sit back and collect rent.

However, it’s important to remember that property managers impact your cash flow. And not always in a good way.

In Minneapolis, most duplex managers charge anywhere from $80-100 per unit per month. That’s $1920-2400 a year, on a property that may generate $20-24,000 a year.

After vacancies, taxes, insurance, utilities, repairs and mortgage payments, management fees can often soak up as much as one third of your profit.

What’s more, if you’ve never managed investment property on your own before, it can be difficult to know whether your manager’s accounting of expenses is accurate.

And frankly, most of the time, managing one or two properties isn’t really that time intensive.

Having said that, there are certainly great reasons to hire a property manager as well.

For example, if you live a considerable distance from your duplex, property management makes sense. The same can be said if you have multiple properties, or simply don’t have the time for more hands-on management.

If you’re considering hiring a property manager, you may decide the benefits don’t outweigh the costs.

Comments Off on Why A 5 Unit Apartment Building Is Worth Less Than One With 4

numbersOne of the most common misunderstandings about multi-family property investing is that more units is always better.

After all, the more tenants there are paying rent, the more a property should be worth, right?

Theoretically.

The trouble with that thinking when it comes to smaller apartment buildings, however, is that any property that has more than four units requires the buyer to obtain a commercial loan.

And commercial loans usually require a larger down payment (25 percent or more), come at a slightly higher interest rate, and have shorter amortization schedules.

Meanwhile, duplexes, triplexes, and four unit properties may be purchased with as little as 3.5 percent down (for owner occupants using FHA financing), and their loans are paid off over thirty years.

Spreading payments over a longer amount of time usually results in them being less. This helps the investment properties with fewer units cash flow.

More importantly, however, since the smaller the down payment, the greater the pool of possible buyers. The greater the number of buyers, the higher the demand. And the higher the demand, the greater the value.

So, that 5 unit building you see on the MLS that’s priced $50,000 less than a comparable four unit down the street may not be such a good deal after all!

Comments Off on Investing In Minneapolis Duplexes Is Like Fishing

bobberBuying a Minneapolis or St Paul duplex right now is a lot like fishing.

When the fish aren’t biting.

I had a client contact me over the weekend. He is growing impatient, and is certain there are duplexes either currently on the market, or have gone off without selling that are great deals, and I’m just not finding them for him.

There are only 257 active duplex listings in the entire metro area right now that don’t already have offers on them.

Normal is somewhere around 1200.

So getting a great deal, simply because you want one, is kind of like yelling at the fish in the lake to get on your line.

It is easy to rush into a duplex that is a bad investment, simply because you want one now and nothing else is available. However, it will take you infinitely longer to divest yourself of that mistake than it would have to just wait for the fish to start biting again.

I reminded my client there are, in fact, plenty of duplex seller fish known to be in the lake. And they will start biting again.

I reminded him too that his agent knows where there’s a school of them. It’s just a matter of time before they decide to list their properties.

My client has one job…

To set his hook as soon as I notice the bobber moving.

How Much Would That Duplex Rent For?

said on May 17th, 2012 categorized under: Multi-Family Property Investing

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for rentOne of the things that’s difficult about buying duplex foreclosures is there’s no one there paying rent.

With no established rental income, and usually, no previous owner to ask, how do you determine how much rent the duplex will generate?

I wish I had a complicated, scientific answer. But I’m afraid when it comes to rent, it’s as easy as Craigslist.

Scan the ads. Try to find a unit that’s comparable to the one you either own or are considering in a similar location. Make sure too it’s got comparable utility obligations. In other words, if the landlord pays the heat in one, make sure she does so in the other as well.

If possible, find a unit that has a similar number of bedrooms, also in a duplex.

When you can’t, simply take the number of bedrooms and divide them into the amount of rent being asked. For example, if a two bedroom unit is renting for $900, that’s $450 per bedroom.

Try to see if there’s an average amount in the area; is that what all of the units are renting for per bedroom?

If so, multiply that number by the number of bedrooms in your duplex. For example, in this instance, a three bedroom would probably rent for $1350. Two identical units, then, would generate $2700 a month.

This same practice works to determine whether you’re at market rent for any units you already own.

Sure wish it was more complicated than that. But sometimes, the best ideas are the easy ones.

Comments Off on The Most Important Question In Duplex Investing: What’s Your Z?

real estate investment goalsOne of the first questions I ask new Minneapolis duplex investors is, “What’s your Z?”

Their response is always little more than a blank stare. So I clarify.

“At the end of your life, what do you want real estate investment to have done for you?”

Truth is, most new investors have thought about the first step, the letter A.

But they haven’t thought about the rest of their investment alphabet, let alone their final destination.

Most of us want real estate investment to provide some sort of supplemental income in retirement, but we haven’t completely thought about how much money we’ll need, what we want our daily lives to look like, or just exactly how we’re going to get there.

When we think about our end goal; defining and answering what the end of our individual alphabets to be, we can work backwards and  begin to design a road map to get there.

For example, most of us don’t fantasize about spending our 70s and 80s repainting vacant duplex units or answering late-night plumbing calls from tenants.

Rather, we imagine money showing up in our mailboxes while we’re out travelling or playing golf somewhere where it’s warm in January.

In order to do that, odds are we’re going to need a bigger property; one that cash flows well enough to pay for its own management.

And big properties require big down payments.

The question then becomes, what are you going to do today, to make sure you have that money later?

Do you take a duplex’s positive cash flow now, to supplement your lifestyle? Or do you invest in a duplex that has less cash flow but a more stable neighborhood? Do you flip a few properties to grow your nest egg? Or, do you cut some things out of your life in

The answer is different for everybody. But you can’t come up with it until you know your Z.

When you’re ready, I’d be happy to help you map a road to get there.