Archive for the 'Multi-Family Property Investing' Category

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duplex vs single family investmentIf you’re thinking of investing in real estate for the first time, you might be wondering what kind of property is “the best”.

Is a duplex better than a single family home? An apartment building better than a condo?

The answer is, all of them are good  provided that they cash flow. As a buyer, however, you must also be aware of what your tolerances are.

There are many advantages to single family home investment.

First, in most instances, as part of your lease you are generally able to have the tenants pay for all of the utility bills (including water), as well as perform lawn care and snow removal duties.

Of course, if the tenants neglect those projects, the property may incur city fines, and you’ll end up performing the duties anyway. And, should the tenants neglect to pay the water bill, you will be stuck with it as the property owner.

Another advantage to investing in single family homes is should you choose to sell, you will have the broadest pool of potential buyers. This should allow for a relatively quick and easy exit strategy, should you need one.

One of the downsides of single family property investment, however, is when you have a vacancy, you are 100 percent vacant. As in no money coming in and you have to pay all the bills out of your own pocket.

You may also be faced with having to come up with a greater down payment to buy the home in the first place, as you are required to owner occupy for at least the first year if you choose to use FHA financing.

You may, however, use FHA financing to buy a duplex, triplex or four unit apartment building; becoming an investor and an owner occupant at the same time.

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Comments Off on What’s Your Cash Earning If You Buy A Duplex?

duplex cash on cash returnA lot of duplex investors come to me looking to find a duplex with a big CAP rate. After all, the bigger the CAP, the better the return on your investment, right?

While this is certainly true, a CAP rate is not the best measure of a duplex. The reason for this is simple: the purchase price per unit is often higher than it is, say, with a 20 unit apartment complex, and yet, the duplex and the apartment rent for similar rates.

Generally speaking, the apartment building generates the greater return according to the cap rate.

When a duplex owner goes to sell, however, they have a big advantage over an apartment building owner. Thanks to financing options that require lower down payments, there are more buyers for duplexes than there are apartment buildings. This drives values up.

At the height of the real estate market, this meant very few duplexes had a cap rate greater than 2.

In my opinion, this makes the cash on cash return an investor receives from a duplex a better measure of value.

What’s cash on cash return?

Like a CAP rate, cash on cash return is simply a way to compare one potential duplex investment to another. Simply put, it’s the amount of cash left over after you’ve paid all of a duplex’s expenses (cash flow), divided by your down payment.

If you put $20,000 down on a purchase of a $100,000 duplex, for example, and that duplex had a positive cash flow of $2000 a year, your down payment would be earning a 10 percent cash on cash return.

Compare this return to the amount of interest your money would earn in a savings account.

On the other hand, if the duplex you were considering buying a duplex with a negative cash flow of $2000 a year, you would would be earning a -10 percent on your down payment.

Measures like CAP rate and cash on cash return are ways of not only comparing one potential duplex investment with another, but also of making sure your money is working as hard for you as it possibly can.

Comments Off on Duplex Investments Surge In 2011

duplex investorAccording to the National Association of Realtors (NAR), sales of investment properties jumped in 2011 to the highest levels since 2005.

Last week, NAR released their annual report, 2012 Investment and Vacation Home Buyers Survey, which covers existing and new-home transactions for 2011.

The study shows investment property homes and duplex sales jumped 64.5 percent to 1.23 million. This is nearly doubly the 749,000 that sold in 2010.

In fact, investment property sales were responsible for 27 percent of all real estate transactions last year.

Perhaps this is because 41 percent of all investment buyers purchased more than one property.

Of these investors, 49 percent paid cash in 2011. Half of all investment properties they bought in 2011 were distressed; meaning they were either bank owned or a bank was involved in the negotiations.

For those duplex investors who financed their acquisitions, the median down payment was 27 percent.

How much were investors spending? The median investment property purchase price was $100,000 in 2011. This is up 6.4 percent from the $94,000 seen in 2010.

On average, the typical investment property buyer last year had a median age of 50, earned $86,100 and bought a duplex or other investment property that was, on average, 25 miles from where they lived.

Thirty percent of all single family, duplex, triplex and apartment building investors lived more than 100 miles from the property.

The share of property investors who were in the market to rehab and sell for a profit stood at 5 percent. While this is an increase from the 2 percent market share in 2010, most investment buyers intend to own the property for a median of 5 years. This is down from the 10 year expected ownership period seen among 2010 investors.

Of all the real estate investors, 34 percent did so with the intention of diversifying their investment portfolio or saw it as a good opportunity. Half did so with the intention of generating rental income.

Fourteen percent of real estate property investors bought so they could provide housing for a family member, friend or relative.

Nearly half of all real estate investors said they will buy another property in the next two years.

As there are nearly 42.1 million people in the country ages 50-59, another 43.5 million between 40 and 49, and another 40.2 million in the 30-39 age range, it looks like the investment property market is positioned to stay strong for years to come.

Let A Duplex Save Your Energy

said on March 19th, 2012 categorized under: Multi-Family Property Investing

Comments Off on Let A Duplex Save Your Energy

duplex cash flow in handOne of the most important pieces of information any Minnepolis duplex buyer or seller should have is a good, basic idea of how much utilities either do or should run.

Sellers, of course, may be asked to produce this information when a prospective buyer has requested it. More importantly,  having a basic knowledge of the average cost helps duplex owners notice when a monthly charge is unusually high, allowing them to immediately investigate.

Buyers, or the Realtors representing them, on the other hand, should at least have a basic understanding of howmuch it costs to provide tenants with water and trash service, heat, and electricity (if the landlord is responsible for these services).

Not only will this help duplex buyer determine whether or not a property is a good investment, but also, possibly recognize when there’s a hidden opportunity with a property that’s for sale.

For example, last week I found a duplex on the MLS that’s been listed for a long time. It’s appears to be a nice property, in a sought-after location, at a very good price.

So why hasn’t it sold?

As I looked closely at the expenses for the building, it suddenly became apparent that either it has a massive plumbing leak, or, the MLS information was horribly wrong.

A quick call to the city of Minneapolis established the water bill reported on the listing was, in fact, high by $1700. When I plugged the accurate amount into my investment property analysis worksheet, the building immediately went from generating an OK cash flow to a great one.

If you’re new to investing or your Realtor isn’t familiar with duplex expenses, the utility companies like Xcel and CenterPoint Energy are happy to provide that information.

While they can’t disclose the exact amount of a heat bill, for example, they can provide you with a high amount, a low, and a monthly average. In the end, a simple phone call may make or even save you a fortune.

Comments Off on Why Your Minneapolis Duplex Tenants Should Sleep In The Basement

duplex basement bedroomI was reminded the other day of the importance of a bedroom. As in adding one to the basement of your Minneapolis duplex.

About a year ago, some clients of mine bought a cute side by side duplex with plenty of room in the basement to add an egress window and bedroom, which I suggested they do as soon as they could.

This new bedroom would generate anywhere from $350-450 a month in additional revenue. That may not seem like much…until you realize that represents $4200-5400 a year.

More importantly, it immediately turns their duplex into a rare three bedroom side by side, instead of the more common two bedroom units.

As a result, when trying to determine the market value of the property, it is now compared to different duplexes that sold within the last year than it would have been.

Thanks to the increased rent resulting from more bedrooms, those comparable duplexes sold for much more, meaning my clients’ property has also gone up in value.

How much more?

Granted, it’s a case by case, neighborhood by neighborhood and market by market determination, but for my clients, it’s enough to allow them to refinance out of their FHA insured mortage (and ensuing mortgage insurance premium), into a conventional loan.

And, since they will no longer be using FHA financing on their duplex, it also allows them to find another property to live in; one that will be paid for, in part, by the increased rental revenue they’re getting from that additional bedroom!

Comments Off on Two Basic Facts Known By Successful Duplex Investors

buy duplexes using leverageLast night, a group got together at my office and played Robert Kiyosaki’s game, Cash Flow.

Even though I work every day in the business of duplex and real estate investment, the game was an important reminder of some basic principles that are easy to forget.

For example, the players who fared the best were those who were the most tolerant of risk. They were the ones least afraid to plunge into an investment opportunity. There took risks the other players weren’t willing to.

Those players also understood the importance of leverage.

While the game allows bank loans to acquire stocks and businesses, in real life real estate is the only investment a bank will lend you money to buy.

Think about it. If you are looking to invest in a duplex, in exchange for coming up with 20-30 percent to buy it, the bank will pay for the remaining 70-80 percent.

And, finally, those players also clearly understood they would never get out of the “Rat Race” based on their salaries alone. They knew they needed other avenues to secure their financial futures.

Isn’t it time we all get started?

Comments Off on Become A Savvy Duplex Investor – Without Spending A Dime!

use cashflow to get out of rat raceIf you are considering buying a Minneapolis duplex, or just exploring the possibility of real estate investment,  I have an absolutely free way for you to sharpen your skills.

On Thursday, January 19, we will be playing the game Cashflow from 7-9 PM at my office in Edina.

Created by Rich Dad Poor Dad author Robert Kiyosaki, the game is designed to help you quickly raise your financial I.Q., as well as teach you how you can become financially free even on a small salary.

There can be up to six players on each board, and we will have up to three boards going.

Whether you’re a first time investor, real estate professional, or just bored and looking for something to do, please call or email to let me know so we can be sure to save a seat for you!

Comments Off on 3 Reasons Not to Hire A Duplex Property Manager

Handling Multiple DuplexesMany new duplex investors think the first thing they should do when buying a duplex is hire a property manager.

While I believe in property management for experienced and out-of-state duplex owners, there are a number of reasons I think this is a bad idea for your first duplex investment. Here are the top three:

  1. Managing the Duplex You Know Your Property – Granted, investment property management can be time-consuming. All of the maintenance and repairs necessary in home ownership are part of owning a duplex as well. Learning that furnace filters need to be changed periodically, or that a downspout has a bad habit of getting knocked off during lawn mowing (resulting in water in the basement), will ultimately help you better keep the duplex in better shape, as well as supervise and gauge the competency of the property manager you do hire.
  2. Tenant Selection And Management – If you plan to become a lifelong investor, learning how to advertise a property, screen tenants, and keep tenants happy will help keep your duplex occupied and profitable.
  3. Save The Money – On smaller investment properties, like duplexes, it’s often difficult to generate enough income to cover the costs of a property manager and have cash flow left over. In some communities, property managers typically retain somewhere between 5 and 10 percent of the rental income. In other markets, like Minneapolis and St Paul, duplex property managers charge as much as $100 per rental unit.

Once you’ve become confident in your knowledge of the duplex, and it’s generating enough income to cover the expense, it’s perfectly fine to hire a competent property manager.

That will leave you more time for things like buying other duplexes!

 

Why?

Buy A Duplex, Own The Lakers

said on November 7th, 2011 categorized under: Multi-Family Property Investing

Comments Off on Buy A Duplex, Own The Lakers

real estate investment buys sports teamsI must admit, never would have thought about using duplex investing as a way to buy a professional sports team.

I might have had I known the history of Los Angeles Lakers owner, Dr. Jerry Buss.

Now I’m a long time Laker fan. But I just assumed he made his money as a doctor. You know, the kind that tells you to open your mouth and say “Aaahh.”

Turns out he made the money he used to buy the team as a real estate investor.

It seems when he was a chemistry professor at USC, he thought he needed something to supplement his income. So, in the 1960s he took $1000 and invested in a West Los Angeles apartment building.

Over time, he was doing so well as an investor that he gave up being a professor.

When it comes to professional sports team ownership, he’s not alone.

Minnesota Vikings owner Zygi Wilf is known as a real estate developer. However, after a brief stint as a used car salesman, he and his brother Harry started buying apartment buildings.

Today, they own over 100 commercial properties and over 30,000 apartment units.

Owners of the Miami Dolphins, St Louis Rams and Denver Nuggets, among others, also made their fortunes investing in real estate.

In a down real estate market, with single family homes, duplexes, triplexes and apartment building selling at clearance sale prices, can you think of a better time to start investing?

Can you imagine owning the Lakers?

Who Buys Duplexes Anyway?

said on September 16th, 2011 categorized under: Multi-Family Property Investing

Comments Off on Who Buys Duplexes Anyway?

who buys duplexesAccording to the National Association of Realtors (NAR), sales of investment properties, including duplexes, constituted 17 percent of all home sales in the United States in 2010.

As there were 5.28 million homes sold last year, that means 897,600 were  duplexes and investment properties. Divide that by 50 states, and it’s an average of 17,952 per state.

That’s a lot of real estate investing!

According to recent data, there’s uptick in that figure this year.

In fact, in July alone, NAR found 29 percent of all purchases were all-cash deals; likely involving real estate investors.

In a down economy featuring high unemployment, just who are these real estate investors anyway?

Half of them are people under the age of 45, while those under 54 comprise another 26 percent.

Are they millionaires?

Hardly; 58 percent of them earn less than $100,000 a year.

While 39 percent of last year’s investment property buyers used a mortgage, 59 percent of them did not.  And of those who used a loan, 50 percent contributed more than 30 percent toward the down payment.

Of these buyers, 45 percent saw real estate as a good opportunity to diversify their investment portfolio.

A whopping 77 percent of all real estate investors in 2010 think now is a good time to purchase real estate. So good, in fact, that 52 percent of them plan to buy another duplex in the next two years.

What’s holding you back?