Archive for the 'Multi-Family Property Investing' Category

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Business Couple workingIf you’re thinking about buying a duplex with a friend, spouse or family member, the single most important thing to discuss isn’t cash flow, rate of return, or how rich you’re going to get from investing in duplexes.

The single most important thing to discuss is how you’re going to get out.

But why? Nobody ever fights, changes plans, gets sick or loses a job, right?

Haha.

No matter how well intentioned we are, or how much we love the person we’re buying a duplex with, the sad fact is things happen. And the only chance we have of preserving not only our investment, but far more importantly, our relationship, is to have a pre-determined understanding of how we can exit if we need to.

It’s the conversation none of us wants to have. Nonetheless, it needs to happen.

Be sure to talk about how you’re going to take title or ownership. Will you be joint tenants, where if one party passes away, the other automatically inherits the deceased person’s half? Or will you take tile as tenants in common, where you can sell or will your share to an outsider or your heirs?

What if you get a job in another state? Will you sell? Trust your partner to manage the duplex in your absence?

What if one of you just needs her money out? Will the still interested duplex owner agree to list the property? Buy your share?

Once you’re ironed out the details of duplex ownership, it will cost you several hundred dollars to hire an attorney to put your agreement in writing. Always put it in writing. It will help each of your remember what your undertanding was when you bought the duplex, and preserve your friendship when it comes time to sell.

Comments Off on What Foreclosure Statistics Mean To Duplex Owners

Whether you’re an investment property owner or prospective duplex buyer, when you read or hear RealtyTrac Vice President Rick Sharga [youtube]http://www.youtube.com/watch?v=SLFLc-SAM24[/youtube] share their monthly foreclosure statistics, you should mentally respond with the following thought…

“And all of those people will need to rent.”

For example, while the headline on this week’s report was “Foreclosure Activity Falls to 44-Month Low in July”, the rest of the story went on to state that while lenders already have 850,000 homes on their books nationally, there are another 1.1 million property owners in earlier states of foreclosure…and all of those people will need to rent.

There may also be as many as three million more properties that will be foreclosed upon before the housing market improves…and all of those people will need to rent.

Remember the pay option mortgages? The ones where you could pay interest only, interest plus principal, and so forth? Well, $200 billion of those mortgages are due to start resetting this year. It will be difficult for those homeowners to refinance, because the mortgages are on properties that have lost a great deal of value.

And if those folks face foreclosure?

All of those people will need to rent.

The greater the demand for places to live, the higher rents go.

Has there ever been a better time to invest in duplexes?

Probably not in our lifetimes.

Comments Off on 11 Reasons Duplexes Are Better Investments Than The Stock Market

eleven reasons duplexes are a good investmentOn news of yesterday’s discouraging stock market sell-off, I found myself thinking of all the reasons duplexes are a safer place to invest money than Wall Street.

Yes, I know that flies in the face of everything you’ve heard about real estate the last 5 years.

But, if you buy a duplex that makes financial sense in the first place (and don’t speculate on appreciation), here are 10 reasons investment property is a wise move:

  1. People Need A Place To Live. If a family has lost their home to foreclosure, they still need a place to live. In fact, everybody does. And if someone has damaged credit, job uncertainty, mistrust of the real estate market or simply isn’t willing to make the long term commitment of home ownership, they’re going to rent.
  2. The Bank Will Lend You Money To Buy It. In spite of the foreclosure crisis, banks must think real estate is a pretty good investment. After all, if you put up a little of your money as a down payment, the bank will let you use theirs for the rest. They won’t agree to that arrangement at all when it comes to your Apple stock.
  3. Thanks To Leverage, You Can Buy More Than One.  Unlike stocks, because you don’t have to pay for all of the property at once, you can diversify by purchasing more than one duplex (provided you qualify for a loan, of course).
  4. Interest Rates Are At Historic Lows. Not only can you use other peoples money to buy investment property, but you don’t have to pay them much for the use of that cash either. In fact, doesn’t it make sense to pay someone 4.5-5.5 percent to use their money to make 13 percent cash back on yours?
  5. Interest Rates Are Still Tax Deductible. While there’s been talk in Washington of reducing or eliminating the mortgage interest deduction, for now, the IRS still allows you to deduct a percent of the total interest you pay on your property. Read the rest of this entry »

Duplex Owners Prepare For Winter

said on July 28th, 2011 categorized under: Multi-Family Property Investing

Comments Off on Duplex Owners Prepare For Winter

duplex owners prepare for winterOne topic duplex buyers and I have been talking about lately is the seasonality of rental property.

See, as much as we all hate thinking about it, winter isn’t too far over the horizon.

And guess what?

Nobody wants to move in the winter.

I don’t know if the same can be said about cities with extreme heat, but in the areas where extreme cold and icy sidewalks are, at minimum, psychological barriers to heavy furniture lifting.

In other words, if it can be helped, nobody wants to move during the winter. In fact, for the most part, they don’t want to move during the holidays either.

What’s the first “holiday” of the season?

Halloween.

Working backwards, with an eye toward having a duplex fully occupied before the holiday season, means at latest, duplex owners want do all they can to get leases signed before then.

If you’re thinking about buying, consider this: it’s going to take anywhere from 3 weeks to a month to get a loan funded, get through escrow and officially close on and own a duplex.

And if the investment property you’re buying needs some repairs, you need to allocate some time for that too.

This is true if you already own a duplex and presently have a vacancy as well.

As a result, it’s probably a good idea to start moving a little faster as we head toward fall.

Comments Off on Apartment Sector Has Good News For Minneapolis Duplex Owners

minneapolis apartment for saleThe research firm Marquette Advisors reporting the vacancy rate for Minneapolis and St Paul duplexes and apartments dropped from 6.1 percent in the first quarter of 2010, to 3.1 percent in the first quarter of 2011, there suddenly seems to be something of a rapid recovery happening in the rental market.

According to a report in this morning’s Finance and Commerce,  the apartment sector is the only area of commercial development showing signs of life this year.

To that end, there are an estimated 870 new apartments being built this year, with somewhere between 1100 and 1300 units on the books for next year.

This expansion is due, in part, to low vacancy rates allowing landlords to hike rents for the first time in five years.

Now, these aren’t huge rent increases. On average across the metro, rents are up just 1.7 percent from the first quarter last year. However, according to Marquette, increases have been much greater in hot urban neighborhoods like Uptown, downtown and near the universities; where rents were often up as much as 8 percent.

The suburbs and outer ring communities are likely to see rent improvements as well, but not at the same pace.

Clearly, tighter lending standards, a sluggish economy and swelling numbers of prospective tenants as a result of foreclosure have increased the demand for rental units.

And with an estimated 4 million plus more homeowners delinquent on mortgage payments nationwide, the trend is sure to continue.

Looks like it’s going to be a pretty good time to buy and own Minneapolis duplexes; for a long time to come.

Beware Of The Bad Duplex Landlord List

said on June 20th, 2011 categorized under: Multi-Family Property Investing

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Rundown DuplexIf you don’t take care of your Minneapolis duplex, not only are you losing maximum rental income and equity in the property, but you also run the risk of ending up on city’s bad landlord list.

What’s the bad landlord list? It’s a public record of landlords who failed to repair their properties and, as a result, had their rental licenses revoked.

In some cases, these landlords may even be prohibited from having a rental license for years.

What qualifies your property to put you on the bad landlord list?

Overgrown grass that’s more than 8 inches tall and overgrown vegetation that hangs over the edge of public sidewalks or alleys.

Trash and debris; either in the yard or due to an inadequate number of trash cans. Abandoned vehicles in the yard, or if your tenants are using the yard for overflow parking, it is a code violation.

Broken windows, graffiti, rotting wood, flaking and missing paint, broken stairs and missing bricks. If you’re missing an address on the property or it’s illegible, it’s also considered a violation.

Anything that is a health and safety risk could put you on the list; including no running water, improper electrical wiring, rat or cockroach infestations, or repairs performed without a permit.

For most of us, it’s difficult to imagine ever letting our duplexes get that far gone.

And yet, how many of us have especially long grass right now?

Comments Off on What Is Your Ideal Duplex Cash On Cash Return?

duplex cash on cash returnOne of the questions I ask Minneapolis duplex investors most often is “What kind of cash on cash return would you like when you buy a duplex?”

The question is different than my asking how much positive cash flow someone wants. What I want to know is, what kind of cash do you want out of your investment property compared to the amount you put down?

For example, if you buy a duplex for $100,000, you may have been required to put 25%, or $25,000 down. (Remember, if you’re an owner occupant, FHA loans allow you to put just 3.5% down.)

If you left that down payment money in a savings account at the bank, you might have gotten a cash on cash return, in the form of interest payments, of 1-2% on your money, or $250-$500 a year.

On the other hand, if the duplex had a positive cash flow after expenses and debt service, of $2500/year,  you would divide that figure by the amount of your down payment to determine your cash on cash return. $2500/$25,000 = 10%..

It’s a good idea to have a rough idea of your ideal rate of cash on cash return may be as you begin your hunt for a Minneapolis or St Paul duplexes to invest in.

This will help you compare a property in one neighborhood to another. In the process, you may discover you’re willing to trade a higher rate of return for a property in a more sought-after neighborhood.

I’m a little biased, but I have to add, it will also help your Realtor find you the ideal investment duplex!

Comments Off on Where Did I Leave My Minneapolis Duplex Vacancy Rates?

minneapolis duplex vacancy ratesMinneapolis and St Paul duplex vacancy rates are often harder to find than my car keys.

However, the commercial real estate brokerage Marchus & Millichap recently reported that according to their research, overall duplex and multi-family vacancy rates will fall below 3 percent this year in the Minneapolis/St Paul market.

This represents the lowest Twin Cities vacancy rates in a decade.

Why?

Marcus & Millichap thinks it’s a result of their belief that nearly all major employment sectors will add jobs this year.

Of course, as basic economics dictate, when demand exceeds supply, prices go up. This is true of rents also.

Asking rents are projected to increase 2.7 percent this year, and duplex and apartment owners will have to use fewer incentives to encourage tenants to lease.

This is great news if you already own a Minneapolis duplex or are thinking of jumping into the market. Not only will it cash flow when you buy it, but by year’s end, you could have an even greater positive cash flow!

Comments Off on Do Too Many Realtors Spoil Your Minneapolis Duplex Investing?

Too Many Duplex RealtorsThe other day a prospective duplex investor told me he only wanted to work with the listing agent for any property he purchased.

His reason? Too many cooks in the kitchen.

There’s a flaw in his theory, however.

At the rate the great duplex deals are flying off the market in Minneapolis and St Paul right now, by the time he figures out who the listing agent even is through either a sign in the front yard or a listing on Realtor.com, it will probably already be gone.

In fact, I went through brand new listings just yesterday where there was a parade of Realtors and clients coming in and out of the duplexes?

Why?

Because the minute the property came on the Multiple Listing Service (MLS), their agents immediately recognized them as good deals and good fits for specific clients. In one case, the agents coming in and out had been waiting for the property to come on the market. Most had seen it when it was on a year ago as a short sale, and the bank refused to accept a short sale.

Realtors who actively prospect for listings are your best bet for finding a good duplex investment. Off the top of my head, I can name any number of distressed properties that will show up on the market in the next 12 to 18 months either as short sales or foreclosures if their owners are unable to obtain loan modifications.

Read the rest of this entry »

Comments Off on The Minneapolis Duplex Behind Curtain Number 3

lets-make-a-dealThe other day I got a call from someone on the west coast who wanted to buy one of my duplex listings.

He thought it was a good investment.

He’d never seen it.

Why would he want to invest in Minneapolis duplex?

He thought it was a good deal.

But really, his call was more like the old tv game show, “Let’s Make A Deal”.

You just never know what’s behind curtain number 3.

In fact, last spring I found just that when a southwest Minneapolis duplex came on the market last spring at an unbelievably low price.

I looked at it quickly as I could so my clients wouldn’t miss out on a great deal. It turned out most of the back half of the duplex was missing. It seems there had been some kind of fire…

Needless to say, you should never buy real estate you haven’t even seen.

The second thing the call reminded me of is how very important it is to own investment property you, a trusted friend or family member can drive by now and then, night or day, just to check on it.

Most of the time, there won’t be anything wrong; except maybe a wayward piece of trash in the yard.

Other times, you’ll discover leaking plumbing tenants didn’t want to bother you with, perhaps a broken window or, even, that one of your units has six people living in it (and using water) instead of just the two people you leased it to.

Those problems are more quickly and easily remedied if they’re discovered shortly after they occur…not months or even years later, when you finally carve out a weekend to visit your property.