Archive for the 'Multi-Family Property Investing' Category

Comments Off on Why Jake Locker Should Buy A Minneapolis Duplex

Heisman Trophy winner Cam Newton

Heisman Trophy winner Cam Newton

With tomorrow night’s NFL Draft, 32 young men are set to become millionaires.

According to Sports Illustrated, within two years of the eventual end of their professional football careers, 78 percent of them will have gone bankrupt.

Why?

For some it will be an excessive lifestyle. Others will ignore meetings with professional money managers and opt instead to invest in wild inventions and business ideas brought to them by friends.

Imagine, for a moment, if they listened to one small piece of advice, and simply took one million dollars and invested  in real estate.

One million dollars is enough for a 25 percent down payment on $4 million in real estate. Most duplex  investors I’m working with are getting double digit cash on cash returns on the money they invest. For this exercise, let’s conservatively call it 12 percent.

A cash on cash return of 12 percent per year on a $1 million investment is $120,000– annually.

This is before we calculate the amount of taxes a draft choice would save due to investment property benefits like depreciation and the mortgage interest deduction.

Read the rest of this entry »

Comments Off on How To Compare Duplex Apples And Oranges

comparing apples to orangesIf you’re considering buying an investment duplex in Minneapolis or anyplace else, which is the best measure to determine whether or not it cash flows? The cap rate? The gross rent multiplier? Or the one percent rule?

Remember, these measures are nothing more than first glance ways of turning apples and oranges into bananas and comparing the ripeness of each.

Never purchase a property without first doing a complete income property analysis, using actual rental income and expenses.

So which is the best quick measure?

The cap rate is simply the rate of return a property would produce if it were entirely paid for. It’s calculated by dividing the purchase price by the net operating income (NOI). Of course, NOI is determined by taking your total income for the year, less vacancy and expenses.

The gross rent multiplier (GRM) is arrived at by dividing the purchase price or present value by the total revenue the duplex could generate every year.

Read the rest of this entry »

Comments Off on What’s A Good Return On A Minneapolis Duplex?

moneyIn the past week, I’ve had two things happen more than twice in my corner of the Minneapolis duplex market.

I’ve had three prospective sellers who either owned their duplexe free and clear or were very close to doing so say they would rather stay put with their properties than move into another with a higher return on investment.

My prospective duplex sellers were content with a 5 percent cash-on-cash return on the buildings they owned.

This week I have also seen two new listings on the MLS; one a duplex and the other a four-unit apartment building, with anywhere from a 23 to 28 percent cash on cash return.

One needed some cosmetic work. The other didn’t need a thing. Both were in sought-after neighborhoods.

Why did the new properties fare so much better than those they owned?

There are several reasons.

First, leverage.

We all learned about leverage in elementary school. Except back then, it applied to using a long stick or rod to move a heavy object with far less effort than it would have required had you simply tried to pick the boulder or whatever it was up.

The same idea applies here. Basically, you use a a down payment to leverage your way into more money.

You put down $25,000 and the bank helps you buy a $100,000 property. You use relatively little to buy a lot.

Second, depreciation. If you’ve owned an investment property for a long time, in all likelihood you’ve exhausted the two categories with the fastest rates of depreciation; personal property and land improvements.

When you can no longer use the savings these categories provide in your tax returns, you typically pay more in income tax.

A percentage of the interest you pay on a loan is also tax deductible. While Dave Ramsey will say you ultimately pay more in interest than you’ll ever save in taxes (and he’s right), waiting to have enough money to pay cash for a property will also cost you years in appreciation and principal reduction (paid by someone else).

Finally, the properties that were for sale actually had cash flows, even with mortgage payments, equal to or greater than the amount those owners were receiving on their paid for properties.

Many seasoned Minneapolis duplex investors have a difficult time believing a duplex can cash flow the first year you own it. In fact, most will say you have to pay into the property for a minimum of two- three years before it breaks even.

Times have changed.

And we probably won’t ever see opportunities like this again in our lifetimes.

Which is better? A five percent return on investment or a 28 percent return?

You tell me.

Comments Off on Why Carleton Sheets Is Wrong About Buying A Duplex At A Sheriff’s Sale

carleton_sheets_reflectI’m a big fan of Carleton Sheets. In fact, it’s because of his late night real estate investment infomercial that I first became interested in aquiring duplexes.

He’s creative. He thinks outside the box. He inspires people to dream. He’s well-spoken…

But he’s flat wrong about some things; especially buying duplexes at the sheriff’s sale in Minnesota.

When a duplex owner falls behind on mortgage payments, the bank issues a notice of default (NOD) and schedules a sheriff’s sale. The NOD usually occurs when the property owner is 3-4 four months behind, and the sheriff’s sale when he is six months behind.

At the sheriff’s sale, the bank “buys” the property back. Now, they don’t show up with a suitcase full of cash to pay themselves. Rather, it’s a paper transaction. Most of the time, their opening bid is equal to the amount owed on the duplex.

So, if a duplex sold for $450,000 in 2005, and the investor put just 10 percent down, there would likely still be something just under $400,000 outstanding on the mortgage.

You are welcome to bid and buy the property at the sheriff’s sale. You just have to show up with enough in cashier’s checks to pay for the property in its entirety. In other words, you’d need to walk into the sheriff’s office with $400,000 on you; to buy a duplex you’ve likely never been inside.

Even if you had that kind of money, in all likelihood that duplex is no longer worth anywhere near that amount. In fact, it may be worth as much as 30 or even 40 percent less. Read the rest of this entry »

Comments Off on Why The Tax Assessor Doesn’t Determine Duplex Value

property tax with currencyI’ve said it before and I’ll say it again. The market value of your Minneapolis duplex on your property tax statement is not actually what your duplex is worth.

It’s what it was worth two years ago.

This is a conversation I have with duplex sellers all the time. So it’s worth having again.

All states differ in the way they calculate property taxes, so it’s important to call the local tax assessor and ask as to their methodology.

In Minnesota, however, tax assessors run a computer program that calculates the value of each property in their county. They do this based on closed real estate transactions that year.

Their program kicks out all of the foreclosures and short sales that sold to come up with a value. The reason for this is so many of the foreclosed properties have so much deferred maintenance they are not truly comparable to a duplex that’s occupied.

For example, is a duplex where all the pipes froze and burst the equivalent of a duplex with great water pressure because all the pipes are in tact?

Probably not.

Once the assessor has come up with a value, the county mails you a statement of what they think your taxable market value should be, and how much property tax they intend to levy because of it.

If you disagree, you can state your case. However, you only have until April 30 to debate it with them. If you don’t, the county will assess that tax, based on that value, the following year.

In other words, taxable market value in 2010 was based on sales that closed in 2008 and had proposed tax statements sent out in 2009. Likewise, our taxable market value in 2011 is calculated on numbers of properties that sold in 2009.

Are property values on the open market today what they were in 2009?

While we were already well into declining values, the trend hasn’t stopped.

The good news is when the Minneapolis real estate market starts recovery and values go up, property taxes will trail in value by two years.

The bad news is, right now, you’re probably paying on a duplex value that’s no longer true.

What Kind of Duplex Investor Are You?

said on March 10th, 2011 categorized under: Multi-Family Property Investing

1 Comment »

business groupWhile it’s not a company requirement, I’ve been reading the book The Millionaire Real Estate Investor by Keller Williams Realty’s co-founder, Gary Keller.

The other day, something really jumped out at me. The book states that there are four different kinds of real estate investors.

They first are the Observers.

I’ve met a lot of these.

Observers love the idea of investing in real estate. They spend countless hours educating themselves by reading books, attending lectures and surfing the Internet, learning all they can about the practice.

They do understand all the benefits of buying and owning investment real estate. But they never buy anything.

Speculators are the next investor profile. They are almost fearless; loving the thrill of taking extreme risks with the hopes and dreams of high rewards. Keller believes Speculators buy on something’s potential selling price rather than its actual worth.

We’ve seen Speculators in a number of arenas. Think the Dot.com boom and bust. And, more recently, the real estate boom of five years ago when investors purchased a property solely on its potential resale value rather than the data on an investment property analysis worksheet.

Every now and then, Speculators win big. But more often, they crash spectacularly.

The third investor profile should be familiar. It’s the Collector. This person is a real estate investor who buys property based on its emotional value rather than its value as an investment.

Think Beanie Babies. Baseball cards. Special issue Barbies.

Think low risk. Low return.

Collector investors buy a property that moves them simply because it may go up in value. Someday. And if it does, then it could be a good investment.

Investors differentiate themselves significantly from other groups.

They take action.

They buy a duplex based on its actual investment value. They tend to be linnear and have narrowly defined their criteria a property must meet in order to maximize return and minimize risk.

When they find one that meets their standards, they buy it.

And then they repeat.

Which kind of duplex investor are you?

Comments Off on How Baseball Can Teach You All You Need To Know About Duplex Investing

tom lundstedtI learned how to buy a duplex or investment property from a Minnesota Twin.

Now, this has nothing to do with stealing second or grand slam. Not even metaphorically.

But the best and most entertaining teacher I know when it comes to “doing the numbers” on investment property just happens to be a former catcher for the Twins.

And it was in one of his classes that I learned how to protect myself financially.

Now you can learn from him too.

Tom Lundstedt will be teaching a class for Realtors and their clients  Thursday, March 17, at the Westin Hotel in Edina.

The seminar starts at 6:30 and generally runs about two hours.

Whether you’re an experienced investor, first time duplex buyer, or have even just considered investing in real estate one day, this seminar will not only keep you laughing, but arm you with the tools to protect your financial future now and in the future.

Here’s the best part. If you come as my guest, it is absolutely free to you.

Still not convinced?

Then let me say this: in life, we get but a handful of great teachers.

Tom is one of mine.

Please email or call if you’re interested in attending.

Seating is limited, and I need to submit a head count prior to March 15.

Got Duplex Questions? Just Ask

said on February 21st, 2011 categorized under: Multi-Family Property Investing

Comments Off on Got Duplex Questions? Just Ask

question boxAs everybody’s snow bound today, I thought it would be a good time to ask what questions you’d like answered.

What is it you would like to know about buying, selling or owning a duplex or investment property that you haven’t been able to resolve.

Is it how to determine the value of your property? How to evict a tenant? Or how to be sure you’re making a wise investment or getting a good value when you buy your first duplex?

Whatever it may be, just ask.

That’s what I’m here for.

Comments Off on Nothing Scientific, But The Real Estate Market Is Changing

Time for Action - ClockI can’t say this enough. The real estate market is changing.

Last week I received multiple offers on two duplexes I had listed within five days of them going on the market.

Every Realt0r I’ve spoken with is suddenly busier than they’ve been in years.

And this seems to be true in everywhere.

I am en route to a national Keller Williams conference in Anaheim and decided to stop in and see my snowbird parents who winter in Scottsdale along the way.

Yesterday they wanted to look at open houses in a high-end, gated community. As that market is completely foreign to me, I was willing to go along.

Every single agent I spoke with told me they hadn’t been this busy in years. In fact, since January 1, this particular neighborhood had seen 25 properties go under contract.

They sensed, as do I, that there’s somehow a renewed sense of optimism in the air. It isn’t anything we can measure, but things feel different.

Granted, we’re not out of the woods yet. RealtyTrac is still forecasting that 1.25 million homes will go back to lenders nationally this year. This figure represents a 25 percent increase over last year.

In other words, don’t count on any real appreciation in property values until that bank owned inventory works its way through the system; which could take years.

However, if you’ve been waiting for the “bottom of the market” to start your investment career or buy your first duplex, don’t wait too long.

Things are changing.

Why Your Realtor Likes To Feel Used

said on February 17th, 2011 categorized under: Multi-Family Property Investing

Comments Off on Why Your Realtor Likes To Feel Used

businesswomanMost people think they only time they should speak with a Realtor is when it’s time to buy or sell a duplex.

They’re wrong.

They should call us often.

And not because we might be lonely. But rather, because we like to feel and actually are, useful.

Realtors are not only familiar with market trends, but because of our daily hands-on involvement with property, we’re also an invaluable resource for information about community happenings, names of good contractors, specialized attorneys and accountants, updated vacancy rates, property management tips, and almost anything else you could need relating to your property.

Best of all, if we don’t have the answer, it’s more than likely we’ll track it down for you.

For free.

Use me. It makes me feel as if I’m contributing something.

I like it. Really

Unless, of course, we’re dating.